The Quiet Light Podcast

Sometimes a business can go through the acquisition cycle once, twice, or even more.

A deal that was pivotal to our development back 2011 came back through Quiet Light this year and our very own Brad Wayland is here talking to the buyer, Richard Bell, about his recent purchase of a business we originally sold 8 years ago.

Throughout his career, Richard Bell has mostly been in the high tech world. He's worked in sales, product development, marketing, business development, and mergers and acquisitions. He stayed mainly on the strategic side of running a business before deciding to make a purchase of his own last year. He started off small, looking to take his breadth of behind-the-scenes knowledge to bat with YUGSTER, the e-commerce business he bought. While Richard's thorough due diligence process may have initially overwhelmed the seller, the two worked well together in the end. Richard did a lot of the work up front, showed the seller he was serious, and greatly reduced the risk for problems once the deal was done.

Episode Highlights:

• How Richard went about the search process and decided to buy this business.
• Factors that made the purchase good a fit.
• Who YUGSTER sells to.
• How the office and staff structure has changed since Richard took over.
• Richard's SBA purchase choice and how he navigated the process.
• Advice for anyone considering an SBA purchase.
• The rebrand and other changes that Richard made with Yugster, now called Until Gone.
• Successes and growth he's seen since the changes to the site.
• The software and the technology he's using and how he's are taking advantage of modern applications and platforms.
• Ways shopify has become the go to e-commerce cart choice for vendors.
• The biggest challenge Richard has encountered since the acquisition.
• Words of advice for others looking to delve into the purchase process.

Mark: One of the darkest periods in the history of Quiet Light Brokerage happened around 2011. I wasn't sure what I was going to do with Quiet Light at that time. And due to some personal situations going on with health issues with a family member of mine I took my eye off the ball of Quiet Light for a little bit of time and found ourselves in a position where frankly we didn't have a lot of money coming in. We had a lot more money going out and not a lot of deal flow at the same time. It was at that point in time when a great listing, a great business literally just fell on my lap and I was able to get that listing on the market, get it sold within a few days or at least found a buyer within a few days and it really represented kind of a life vest for me which really helped in bringing Quiet Light Brokerage profits back off the brink of extinction. One of the great things about this business that I love is seeing some of the companies that we touch early on grow and sometimes come back to us. When I originally started Quiet Light Brokerage my previous company that I'd sold came back through Quiet Light. I sold it again. I actually ended up selling that company a total of three times which was pretty fascinating to do. Today we don't have Joe on the introduction. We have Brad because Brad talked to one of his previous clients; a buyer that just closed an acquisition and they bought the business that served as a life vest for me back in 2011. Brad, how was the conversation with Richard?

Brad: You know it's really great. I didn't actually know that background. I think he sent me an email and said hey I've got a lot on my plate. This is a good listing. Do you want to take a peek at it and see if you can put a value on it and help them get it sold? So I didn't know that backstory I just knew that you had sold it once previously. So it's one of those situations where we had a guy that was in Richard the buyer; we had a guy that was looking for an investment. He had inquired on a little tiny listing that I had out at the time it's like a hundred thousand dollars and came to the conclusion that it wasn't a good fit. But I had picked up on that this guy was like a serious M&A guy. I could already tell from the get-go like why is this guy looking at a hundred thousand dollar listing? This guy supposed must be looking at much larger listings than this. So I was a little surprised and ended up floating in the details of this listing that we had for a daily deal site that kind of needed someone with the ability to kind of handle a lot of moving parts. I felt like he seemed like the perfect personality for it. And so I floated it his way and the next day he sent me an LOI and it was just really smooth sailing from there on out from his side of things. He just was a really great buyer to work with and so I wanted to bring him on the podcast. I think he's done several things that have been really interesting with that company.

Mark: How is this due diligence process different than say your average buyer out there?

Brad: Yes. So when we do these deals they always look a little bit different. After we get an LOI why we are involved sometimes a lot in the due diligence process. Sometimes we're not involved very much at all. We have kind of standard folders and things that people want to look at; bank statements or proofs out of PayPal or your credit card provider. Things like that where people can kind of verify the numbers. In the case with Richard I found out after he got under LOI he had done like 200 million dollars in acquisitions in the corporate world. He was a very seasoned and experienced M&A guy. I can't remember how many transactions he had done but he had been responsible for some very large deals for I think a publicly-traded company. And so he put his diligence request together and he said hey I'm working on my diligence request and I sent them over to the seller. I think the seller about passed out. It was just; there was nothing wrong with it. It was very thorough but when you get these really experienced guys sometimes you think that means it's going to be a piece of cake for the seller but it doesn't always mean that. Sometimes if you've got a seller that's really done it's kind of like hey I'm just ready to move on and I don't want to look at it anymore. It can be a little bit of a challenge. And so we definitely dealt with that a little bit on this one where we've got a really seasoned buyer who had a very nice thorough package of diligence information that he wanted gathered. And then we had a seller that was really ready to be finished. And when he got the packet I think he felt like oh my goodness I just put all this work into getting the listing ready now we're going to go through this diligence process that is way more exhausting than what I did whenever I bought it on the front end. But honestly it was two great guys; the seller was a great seller, the buyer was a great buyer and they worked very well together and I think they've continued to be friends post-transaction.

Mark: That the seller that you worked with was the buyer when I sold this business, and he still remains one of my favorite people that I've worked with out at Quiet Light. He is a fantastic guy. I think people sometimes get intimidated especially in the sell-side when they see these really long due diligence lists. But I've learned over the years, and I don't know how you feel about this Brad, but I've learned over the years that a thorough due diligence list is a good sign. It's usually a sign that the buyer is extraordinarily serious because look you have to generate all the information the buyer has to digest that information and that's really tough. And it also reduces the risk after the sale. Because if they're doing a thorough due diligence the chances of something coming back on you after are pretty small because they've done their homework.

Brad: Yeah I totally agree with that. I actually tell my sellers all the time if they are complaining about the due diligence process I always tell them the work you're putting in now is saving you headache later. If you're going to go ahead and give them all the things that they need today they're not going to be the type of buyer that's coming back to you and saying hey man I really need you to help me with this or that I need to take advantage of these hours that we carved into the APA and train me on these different things. And I definitely have seen the transactions where they don't ask for much and then I find out later that the buyers had to come back to the seller several times asking for things and it seems like it is a better situation to just kind of lay all the cards on the table and do the work upfront and kind of have the ability to be done with the business and kind of transition to your next thing.

Mark: That's a lot of chitchat on our part let's go ahead and listen to the interview.

Brad: Welcome to the Quiet Light Podcast. I'm your host today Brad Wayland and we are joined today by Richard Bell. Hey Richard how are you today?

Richard: I'm doing great, thanks. Nice to see you.

Brad: Good. Yeah. So we've been doing this series of podcasts on folks that have bought something from Quiet Light and now we're kind of following up with them; seeing how things went, learning about why they bought, what they learned early on, what the challenges are and so today's kind of one of those profiles. And this one has a really unique kind of proposition that I want to kind of get into later but we usually start off by just getting some background. We don't do like these fancy intros. We let our guests kind of describe themselves. So Richard give the profile of what your career has looked like and tell me kind of where you've been.

Richard: Sure, I'm happy to. I've done a variety of different roles which I think is one of the reasons that set me up well to do or set me up to do well with this job of running this business. I mostly worked in the high tech world with one particular company called Akamai Technologies. And within that company, I had spent time in sales roles, technical roles, product development, marketing, a lot of time in business development, and mergers and acquisitions with business development side and really partnership focused. And the roles I had after I left Akamai were very similar positions where I had a chance to really look at strategic issues, touch on a lot of different things across the whole breadth of running a business so it set me up well for the position I'm in now.

Brad: Yeah that's great. I remember; I think you had inquired on another listing that I had. I think it was a pretty small listing and we got talking about it and you gave me some background I think in the time you told me like hey I ran M&A for a big corporation for a long time and gave me some pretty staggering numbers in terms of the dollars of deals you had helped close for your business. And when I heard it I was thinking about this potential listing it was coming up for this business called Yugster which I thought was the strangest name. I was not familiar with it even though we had sold it in the past but Yugster was Yours Until Gone and it was Yugster.com. And Mark Daoust the founder of Quiet Light called me and said hey we sold this business like years and years ago and now the guy that we sold it to is interested in selling it again and asked me if I would like to take a look at it. So when you started talking and I could hear your operational background I thought this might be a good fit for you and I think I just said hey I've got an idea I want to kind of float to you and I feel like that's kind of how we started it. Is that what you remember?

Richard: Absolutely. I mean I started looking for a business probably six or nine months before you and I ever even touched base. Part of that was me doing homework on sort of what was out there and how to look at these businesses that were a lot smaller than the kinds of things that I'd looked at before where we're talking sale prices in the nine figures; so very large businesses, large multiples is in stack. And so I wasn't quite sure how to go about buying frankly a smaller business. And there's a lot of chat out there. I mean you know that and you know there's a lot of brokers out there who would just put a listing out for anything. So you end up learning quite a bit about what's really there and what's meaningful just by going through that process. And we did look at a business for another e-com site that you had posted up there and I think we had decided it was a little bit too seasonal for what we were doing. And then you threw the Yugster thing out there. I think it hadn't even gone public and I'm like Yugster? As a marketing guy that was like just you know what that is. But yeah that's exactly the story and so I think when I got my teeth around that one it actually made a lot of sense for me. I was kind of excited about it.

Brad: Yeah. And correct me if I'm wrong but so the business model was it had been a drop shipping business I think since day one and it still had a very impressive; you're looking at it and I'm looking at the sign and I'm thinking this looks kind of antiquated. It looks a little bit like it's seen its better days. But when I looked at the results and we're talking about a low eight-figure business that was on some slightly declining trends and I could just tell that the light bulb kind of went off for you about like I think I might better inject some life into this and I clearly could see that you'd be able to handle the size of a business that was from what you had done before. But what specifically about Yugster was interesting to you? Like when you first looked at it what were you thinking like this is a good fit for me because of what?

Richard: Like I said I went through this process where I started talking to some different brokers about a variety of different businesses to help me get educated about what's out there. There are a lot of businesses out there especially in the e-commerce space that are really it is an Amazon store. Somebody who is importing some private label from China and then they're essentially listing it on Amazon and having Amazon do fulfillment and so forth. It doesn't, and the issue I got to is that it doesn't really leverage my skills. There is not a lot of value that you can add to some of those kinds of businesses. Maybe you get a few more distribution channels or what have you. What I saw with Yugster was really interesting to me that it was a fully operating business. Yes, it was drop ship but they had relationships with a sizable number of vendors. They had a functioning platform. They were not dependent on other marketplaces like Amazon which could be all over the place or eBay or whatever. They had their own storefront. It had been established I think in 2005 or early 2006 when it went live. So it had a long life which is really important in terms of longevity and the brand and so forth. And the other thing that I; the two other things that I really looked at and I liked about it, one was it had a core staff. There were talented people that had a good resume and seem to know what they were doing. And it also had a really solid customer base. They had a loyalty program they've run for many years. These were customers that had been buying from Yugster repeatedly and they had it tiered up and they were kind of passionate about the business. And these sort of strong customer base, loyal customer base that's established, the staff is there and a technology platform that I thought I could really make a difference with because I do have a strong tech background; all of those things kind of came together for me and made me want to dive in with Yugster.

Brad: Yeah that's interesting. So of course as just kind of a layperson when I go to the site I think of it as like a daily discount kind of idea. I see like maybe a generation ago iPad or MacBook or something like that. Is it retail-focused folks like me or is it more like small businesses that are like hey we need iPads for our production floor? We don't need the latest and greatest we need to get 10 of this. Is it a mix of those types of customers or who really is the customer that comes to this place?

Richard: A really good question and it's changed a bit. So the business model just to kind of flesh that out a little bit more for the audience it is a daily deal site. And what that mostly involves is sort of inventory end so people might have a couple hundred or something left and they just want to get rid of it. It could be there's a lot of refurbished product out there that like you're saying is a year or two behind and for most people you need the latest and greatest Apple MacBook Pro or is one that's two or three years old is going to work just fine for you even the things like vacuums and what have you. And so there's a range of products but we get them; we typically really focus on running them for a period of a few days. We sell out the inventory and then we move on to the next product and cycle through it. Our customers have; we're historically very male. So 70, 80% male buyers; the profile would be sort of bargain hunters, people that are somewhat shopaholic shows up in the mix as well. Since we've moved the business over to; I took it over last year and we kind of modified the site and the product mix and we're actually closer to 50-50 male-female at this point because we have a lot more home goods than we used to. And one of the things so your point about selling to businesses I've actually noticed a significant increase in the number of orders from businesses. We really used to have only a small handful but now I've seen things like schools. I've seen a school order like 20 Chrome books from us. They're going to use them with smaller kids and they just don't need the latest and greatest. They just need a laptop. Ipads, as you suggested, is another great example, I've seen a bunch of those go out for businesses that are needing it but the latest and greatest current generation isn't required for what they're doing. They're doing order entry or checking people out kind of thing. Yeah but it's definitely shifted and I think some of that is the changes that we've made in the site and the business as well which I think we'll get into this.

Brad: Yeah. You mentioned the staff I kind of want to jump to that. So from what I recall you're in Washington are you in the Seattle area?

Richard: I am yeah.

Brad: And then this business was in Salt Lake I believe and there was a physical office there. And how many employees were in that office?

Richard: There was about nine.

Brad: Okay, and so what have you done with that? Have you kept that office there, did you retain that staff, what have you done in terms of changing that since you bought the business?

Richard: Great question; so because of my background being in tech most of my career the majority of the people that I manage were actually remote, some as far away as China or India in different roles that I have. And so I'm very personally very comfortable running a remote staff. And so one of the things that we did is actually close that office because it wasn't adding much in the way of value and home office everybody. So the whole organization now is based out of their own homes and we use a lot of EG Suite technologies or a lot of video meetings, audio calls, whatever, Slack to communicate and stay very, very highly interactive between us. But everybody just works from home in their jammies or sweats or whatever [inaudible 00:18:56.1] worked. So I think you asked about did we keep the staff and we kept 100% of the employees. We gave everybody a job offer as they came over because we wanted to really evaluate what they could do with different leadership and sort of reenergizing the business. And we made some with that some staffing turnover since people that pursued other opportunities or maybe weren't the right fit for us where we were going. But I'd say about 80% of the staff is the same as what it was when I acquired the business.

Brad: Yeah that's really interesting you know at Quiet Light we run a distributed team as well and so we've got eight brokers in the States, we've got two overseas, but it is an interesting timeframe that we live in where I actually go to an office. If you see behind me my house is not behind me but I have five children at home so that can be challenging at the house. I choose to rent an office but I do think it is interesting in this day and age that remote works so well and I feel like as a general rule people are happier when they can choose where they go to work.

Richard: And I will actually tell you that the last round of hiring we did was for some new buyers that we brought into the business and the ability for both of them to work from home was actually a big competitive advantage in getting them to come on board.

Brad: Yeah, that's really interesting. So we don't really use this as like a sales pitch but as you're sitting there talking about what you guys do; I mean our listeners, we have a lot of listeners to this podcast and a lot of them are small entrepreneurial shops, some are like PE firms and you've got your like solo entrepreneurs so I'm just kind of curious where do our listeners kind of fit in to the kind of product mix that you guys offer at your business? Like what are the types of things that they might be most interested in that you sell on a daily basis now?

Richard: Sure. I mean I would say for that kind of audience you're probably looking at mostly the technology and maybe some of the home goods for example. So on the tech side, we sell all kinds of computers; Windows and Macs, desktops, laptops, Chrome books, iPads, even phones. Obviously, that technology suite is something that just about every entrepreneur or business will need to some degree. If you're somebody who's looking for like I said the absolute latest and greatest it's not going to be on our side and I'll be upfront like we don't sell the latest Mac books at all. Almost all of our tech in that sense is refurbished and you pay for what you get. I mean if you're buying a refurbished laptop and you're buying 300 bucks for a Mac Book it's going to be older. But for an awful lot of people that are simply doing email that kind of thing that works just fine. And we also have a range where we go from let's say a Mac Book at 300 all the way up for a Mac Book at 1,200. So you get to choose sort of what level you want and what you really need. But there are generally some pretty good bargain prices in terms of the type of technology and look that people are after. On good side, I mean coffee bar if you've got a home office everybody needs coffee. You can't function without it. So one of our vendors; an awesome vendor is the exclusive factory refurbished provider for Ninja products. Ninja makes some incredible home appliances. There was this great little ninja coffee bar that's sort of a single serving fresh ground coffee maker and they sell like crazy. People love them. And so yeah I think there are some tech products and some home products that would be a good fit for any business person.

Brad: Yeah that's great. I want to get into some of the changes that you've made but one thing I want to kind of back up to that kind of struck me and not something I've seen that often was your deal structure. I remember talking to you and kind of floating you the price and you said yeah I'm a cash buyer so we can leverage that; no problem. And then when we got to LOI and you called me and said hey I think I'm going to utilize some SBA on this and I'm going to put down way more than what they'll require but I've got an SBA lender that I want to tap into. I just kind of like for you to explain to our listeners kind of as much as you're willing to share about that process what you're thinking was and like basically how you kind of navigated that SBA process?

Richard: Yeah actually that's a really good question because I guess it is a little bit unique. I did have the cash going in to pay 100% of it down, the issue for me really was just in one-word flexibility; being able to conserve my capital, put down enough to be meaningful so the SBA approval process was a no brainer. But not be running really tight on sort of the amount of down payment I did but keeping and a good chunk of reserve capital because there's always been sort of a possibility that I might acquire other businesses that I would add on to this as well and you want to have that flexibility in place. And I also wanted to make sure that once I had acquired the business I didn't want to have to use all the capital for the acquisition. Obviously, you need operating capital and you would build that into any plan. But I also wanted to be in a situation where I had enough investment capital inside the business that I could invest in the company and make the changes that I wanted. And so when I looked at the overall sort of combination of things it made a lot of sense to sort of mix us up a little bit and take; I would have to look at the paperwork again but I think we did something like 40% down cash and 60% finance. And what that essentially did for me is mean that within the business I had a good chunk of capital available to pay for all the technology changes and enhancements that I wanted to make to move the business forward because we knew we would need to do that going.

Brad: Yeah I found it very interesting; so SBA we have just a massive number of people reaching out to us looking for SBA eligible businesses and wanting to talk to us about it. And I will say that one of the common pitfalls that I think that our buyers kind of find themselves in is trying to maximize the SBA situation for themselves. So a person thinks okay on the high-level point an SBA loan can be a 10% down kind of situation. That's in the absolute most ideal scenario would be a 10% down. So someone has $250,000 in capital that they can put down on a business and so their mind immediately goes to okay then I'll buy a 2 ½ million dollar business. And what I've kind of found over time doing these SBA deals is that those end up being a tough deal. If anything goes even remotely wrong then now all of a sudden the deal is falling apart; maybe the valuation doesn't come back high enough, maybe there's more inventory than was expected and SBA can't cover the inventory. So actually you were the first person that I've had to do that and I've had a couple of people do it since but you're the first person that came and said hey I can pay cash but I'm going to go ahead and use SBA. And honestly, I think SBA has a lot of advantages and a lot of disadvantages. The advantages are from a broker standpoint it really opens up our buying pool. We can offer something as an SBA. We really open up the number of buyers that can come in. But for the seller, SBA can be a grind to get through especially in these situations where people are putting down the minimum amount. I think with what you did was interesting because I never got a single phone call from the SBA lender in your deal. I never heard anything about it. You kept me updated on kind of where things are going and that is not typical for what we do with at Quiet Light. A lot of times we're introducing them to an SBA lender and then we're getting the play by play and we're delivering information back to the sellers about what's going on. In your case you said I'm going to use SBA. I thought you put down 50%; maybe you put down 40% I can't remember, but you put down a big chunk and just said I want the flexibility and I think that really proved to show just a really wise move on your part from a business decision and it didn't hold us up at all. We literally got that thing closed right on time where we were expecting in terms of timing at least the way that I'd kind of set the expectations for our seller.

Richard: I would just add to that Brad. I think the advice I'd give anyone considering buying a business is get your house in order. One of the reasons the SBA process on our side went smoothly was because our finances and sort of our credit rating; everything was cleaned up so that there was nothing weird on our credit reports. It was all sort of looking pretty and accounts that needed to be closed or resolved were done. So when the bank looked at things; they look at your credit report, they look at your house, they look at your mortgage, your payment histories you want to be able to give them a very clean robust picture and be able to give it to them boom here it is. And then we also had a very clear picture of the financials and what we were going to do with the business. We gave them a 30-page business plan that essentially laid out here's the financials, here's what we're going to invest in, here's the changes we're going to make, here's the timeline, here's the results and they were conservative. They weren't sort of wild willy-nilly captain. And so between getting our own personal numbers kind of cleaned up; and this is everything just from credit numbers to even just having a nice clean resume. I mean you're applying to SBA and they want to see your business history and what you've done. So you can't take the resume that you use for your job five years ago and just slap it down. It's got to show the bank that you know how to run a business. And so there's a lot of little things that you can do to get ready and so we had those in place before you and I even got into this acquisition process. The other comment I would add about doing the sort of 10% down, I mean we could have gotten approved on a bigger deal at 10% down. I would never have done it in a million years. And part of this maybe comes from my M&A experience which is obviously a lot larger kind of mix. But one thing I learned is that no matter how good you are at diligence, no matter what you know about this particular industry, any business you have is going to have some surprises and it's going to have some ups and downs. And so one of the problems I see with people that would be doing sort of this 10% in sort of right on the bleeding edge you're not going to have enough capital to be really flexible. You're going to struggle with investments and here's, and this is maybe not something that people don't really think about that much but buying a business is stressful. You're running a new business. You're investing. This is potentially your whole income, your life, what you're doing, a good chunk of your personal assets are going to get tied up and it's stressful even if you have tons of money to play with. Putting yourself right on the edge where your finances are squeezed that tight where you're doing 10% down and that's everything that you've got it just adds to the stress level in a way that's not good for running the business. It's not good for you personally on a health basis. So I think if I can look back at it and say what's my advice to people to get through an acquisition process using SBA prepare; good credit cleaned up, get all your documentation in order, get your resume pretty and all that stuff but don't squeeze yourself so tight that you don't have flexibility, you don't have capital to invest, you're going to panic if you have any ups and downs. It's not worth it. That's too much stress when you really want to be thinking clearly, being able to make smart decisions with some perspective on it. You for sure know this Brad it's really hard to make perspective when you're tight on the finances and you're panicking. So all those things factored in sort of where I went to. But I would definitely encourage people to make sure they've got enough of a cushion and flexibility to run their business confidently.

Brad: Now I totally share your thoughts on that. And in my operating days that is really exactly how we tried to run the business. If you don't have a good amount of cash on hand it just makes something that's already difficult to do running a business that much more difficult and puts additional strain on you whenever you get some of those unknown kinds of problems that come up. One of the things I remember about you; I actually don't refer to you by name I tell people one time I sold a business to this M&A guy that had done a lot of corporate deals and let me tell you something if you think that diligence folder that you saw today is involved I should show you his because I remember it was a thorough deck of information. You had that thing all laid out perfectly. It was like okay one of the things I think I learned there is the pros have seen everything. So when you laid out that diligence folder and I saw it I was like it was organized, it was great, there was nothing wrong with but it was lot. It was a lot of information. You're very thorough, very detailed, and it kind of makes sense to me that it's gone well for you doing this business. Okay, I want to get into; so I was thinking about doing some podcast episodes and I think I emailed you maybe a month ago and said hey I went to a Yugster and there's no more Yugster. So talk about the rebrand and then let's talk about some other changes that you made.

Richard: Yugster had a cult following behind it. And cult followings are great. There's a lot of loyalty that goes into that. But it was not a brand that was going to work well to sort of reach out to a larger audience. And so we, the team; I got the leadership team that was in place one of the first things we did was restructure internally to kind of give them really clean roles and responsibilities in purchasing and marketing because it had all been sort of blurred before. And what we then took off and did is really sit down and think about the kinds of changes we wanted to make in the business. The brand was a big piece of it. And we did really dig in on the idea of keeping the extra brand but we also knew that we needed to give it a refresh, improve the look and feel of the website, and sort of get it to a healthier sort of message and make it more attractive to people. In the end, when we kind of dug through it Yugster as a brand itself wasn't going to scale for us. It wasn't going to bring in a larger audience that we were sort of now starting to pursue and chase. So we spent some time doing; figure out what brands you want to work with, see what domain names are out there. We knew we wanted a dot com. We also knew that we wanted to keep a little synergy with the Yugster. We didn't want to go too far away from it and so as you mentioned, in the beginning, Yugster had become Yours Until Gone and YUG would show up throughout the branding of the site. The loyalty program was called YUG points. There was a lot of YUG that showed up. And so we figured if we kept the Until Gone piece of it that would be a nice connection. And so it turned out that that brand or that domain was actually available for purchase. This is where we made some of our capital investment; it was actually buying that domain name. And it's worked out great. I would say that the marketing team did; it could be a case study frankly in the rebranding going from Yugster to Until Gone. I won't say everything was perfect but it was as good as I've ever seen it done. And what the team put together and it was fantastic. We had a few customers that didn't make it over but the vast majority did. And we went live with the new Until Gone site which we can talk about some of the software stuff we did here in a second on September 1st. And I can tell you, Brad, if I showed you the detailed financials you'll see them start to grow through December and then there's this inflection point September 1st where they just kicked up and you start seeing this nice steady growth curve. And I think a lot of it had to do with we made changes over the summer to the Yugster's site to clean it up, make it a little bit more polished, but there's only so much that we were able to do. Once we went to the new site which was a completely revamped look and feel and brand I think it; for all the customers that we were bringing in, it just gave them confidence. That look and feel was a lot more professional; a lot more polished than the old site had been. And while we lost some of the cult kinkiness that was tied in with Yugster I think the more professional side appealed to a much larger group who were more willing to buy and make purchases through the site. And that's why we see the growth and that's continued to accelerate as we came into 2019.

Brad: Yeah when I saw it actually; so I was kind of going through my list of deals and I've closed 20 deals at Quiet Light since I've been here and so I was kind of just looking at it and trying to think about what would be good podcast episodes. So I'd gone through 14 of them or so when I hit Yugster and as soon as I hit it and I went to the site I was like I know there's a story here because I mean it looks fantastic. I remembered what the old site looked like. I see what the new one looks like. It's like I could totally get that you were very thoughtful about how you approached it and how you kind of kept that Until Gone. I think that was really smart. So I totally could see the thought process from a marketer's standpoint of what you were doing and it seems to me like it did go really well just from an optics standpoint on my part. So it doesn't surprise me that your trends are good. We're getting somewhat short on time let's get into the software a little bit. I want to know what kinds of changes you've made to the stack and just kind of go wherever you want with that but I kind of want to know what you've been doing there?

Richard: You know we can make a podcast about that in and of itself. There were some really interesting lessons learned I guess but I'll try to keep it focused for the group because not everyone's a techie. But basically, we have replaced 100% of the stack at this point. The original plan had been to upgrade the existing stack and put a new front end on it the new Until Gone front end basically and then do a bunch of workarounds creating APIs. And what APIs are for anyone who's not familiar with it they are programmatic interfaces that allow third parties to engage with your site. And so, for example, we wanted our vendors, our partners who were doing shipping to be able to work with us via API rather than exchanging text file CSVs for example. And the reason for that is just sort of accuracy, the time to market, and so forth. And there were lots of opportunities to do that to help our vendor and ourselves frankly work better together. Once we got into the details and we started looking at the Until Gone site design and what we wanted to do it would have required too many changes to the existing platform that would have left behind, in all honesty, a lot of stuff that we still needed to change. And so I think we closed the deal the first week of May last year; May 7th, 2018, by the end of June we had made the decision to do a full stack replacement top to bottom. And so we sourced a company actually here in Seattle to do a new website front end design and to then actually do the implementation on Shopify. We're on Shopify plus because we're large enough that we need to be on the bigger platform with the capabilities that they give us. And then that meant that we had to build a new back end because with the number of vendors we work with, with the way we work, with the flexibility we wanted to do it would not have been possible for us to just rely on Shopify. Now that won't be the case for a lot of e-commerce vendors but we operate more like a marketplace and we need to process a lot of purchase orders out to our vendors and take products in and not every product goes on-site and so forth. So we had to have control over that back end and so essentially we built out a completely new platform stack that operates; there's an admin portal, there was a huge amount of infrastructure for integrating with Shopify and providing all the APIs that we essentially built out. And what we've done since then is build some custom APIs. We've integrated with ShipStation which is a shipping management tool that a lot of our vendors utilize. We've integrated with ChannelAdvisor. We've integrated with a great company called Quitch just similar to ChannelAdvisor but a little bit more technology-focused. We're finalizing an integration with Celera Cloud which is another one of these integrator platforms that a lot of vendors and suppliers utilize. And so that's given us just a huge amount of flexibility because it was sort of getting rid of a lot of the deadwood that had existed previously. We've been able to do things that we weren't able to do previously and really take advantage of technology to reach our customers better. And so some examples of that we actually built a little ad engine so that we could serve our own products as ads to our customers and notification emails. We've done things with targeting where we've essentially built kind of a; think of it as a mini CRM, customer relationship management platform where the marketing emails that we send to them are fully targeted to their interests, their likes, what they prefer. Each of these changes as we've gone into the stack had given us sort of an incremental growth and helped us improve that curve, show better metrics, and have better control. It's also allowed us to really tightly integrate with our vendors and we continue to invest in it. We have some new capabilities coming out this week frankly that we want to get in place before Q4 that will allow us to do some things that will really improve our shipping and our customer service related to that because that's always a big issue with customers. So I'm happy to get into more it detailed Brad but I don't want to take up the time just talking about coding and Google Cloud and what we did. That's not our focus here.

Brad: No, I think you hit some great highlights there and actually it's been interesting to watch Shopify and it's kind of dominance really in the kind of hosted stores platform. I think WordPress as a CMS is now like 35% of the world's websites and I can tell you from my perspective of operating for many years and kind of coming from that custom website world where we built everything from scratch because it gave us more flexibility and then seeing the kind of out of the box solutions come on the scene and then seeing Shopify and Volusion and WiX and these other players come on the scene. But it really seems like Shopify has asserted some dominance in the space at this point or just I mean there's entire; I'll be speaking at an event in San Diego next month and at that event, it's Shopify sellers. I'm going on a podcast in two weeks. It's just Shopify folks that work with Shopify every day. And we find a lot of our sellers now when they have high margin products are really utilizing the Facebook Pixel for marketing and for some reason Shopify plus the Facebook Pixel is just the combo that everyone wants to use. It's just Shopify is just kind of become this I think of it became kind of like WordPress for the CMS. I feel like Shopify is kind of becoming the e-commerce shopping cart or store hosted platform for the e-com side. Did you have any struggle with choosing to go with Shopify? Was that a tough decision for you?

Richard: No, not really I mean I think we really looked at Shopify and BigCommerce. They're really the sort of two that we were down to at that point. We did look at Magento which is both a platform that you can just open source and build your own but they also have a hosted option. That was much more complicated and had a tech stack that we weren't sure we really wanted to work with. So it really came down to Shopify versus BigCommerce. And honestly, it was a combination of the partner we ended up wanting to work with was more comfortable with Shopify. And we also looked at Shopify and felt like you were saying given their market share and their size it was a good fit and I think it made sense to do that. I will say I came from a platform world so I'm very comfortable with using these kinds of platforms and I will say there are tradeoffs. There are huge positives; as an example of a positive, when I wanted to implement Apple Pay on the site and our payment processor already supported it. So I did all the things I needed to do with Apple, I hooked it up with my payment processor, went into Shopify, one checkmark and it's live and ready to go. The Facebook Pixel is another one. You configure the Facebook stuff in Shopify, it's done like that. Google Analytics is the same thing and so there's a lot of functionality that's built into the platform that you don't have to customize; that you don't have to tweak but you can still change things like your notification emails to make them personalized for your look and feel. So I think there are some really great things there in working with a platform. The flip side there is some loss of control. You don't have necessarily quite the same flexibility. There was a feature we were talking about the other day in my management team's meeting. The reality was if it was on our platform we could do it in a minute. It's just on Shopify it's going to be difficult to get it live and implemented not because of anything I say it would be a real flaw with Shopify but just because when someone else is running a platform there's sort of some constraints that you get into it. But I'm comfortable with the Shopify decision. I think I'd make the same one again. I think given their size, given the number of big brands that are using them now it's a good solid fit. So yeah I would go there again.

Brad: Okay. And one of the things I kind of wanted to at least ask was the biggest challenge; what's been the biggest unforeseen kind of thing that you have had to tackle at least that you're comfortable sharing?

Richard: Sure. I mean there are always surprises in acquiring any business and challenges are going to come up. You end up having to do more of something than you expected and so forth and it kind of throws you. I would say in this case I was actually; probably the biggest challenge was the technology side. Not because it was inherently a bad decision or difficult to rebuild the platform and do what we did; it was absolutely the right decision. I guess the point I would make is we weren't expecting to make that decision for 12 months. It was kind of something we were looking at as a 2019 project and it ended up being a 2018 project. And so what I had actually hoped to do was use the existing platform and like I said give it a facelift; redo the front end, make it into Until Gone but rely on the same core operational platform and just maybe do a few extensions. And it didn't end up being possible to get where I knew that we needed to be. From a marketing; branding capability perspective we had to make the changes. And so basically from July through the end of September, it was heads down coding. I wrote more code in those two months than I think I had in the previous 10, 20 years.

Brad: Wow.

Richard: My career has not been as a coder I've been in sort of management but we had to build a completely new platform from scratch and so it was a lot of stuff that we were putting together to make it work. And that continued through Q4 and even into this year as we add new features. And like I said earlier now we're at a point where we're really adding some really unique distinctive capabilities. We've even thought about spinning out some businesses to take the stuff that we've built and Shopify has this huge app ecosystem; apps that you can plug into Shopify and extend its core capabilities. A lot of what we've now built are things that are unique and not available within that ecosystem and so we think there are some opportunities just to extend that and make that sort of additional part of the business. But I would say that was my number one sort of challenge or I guess surprise and sort of what we did. And at times it's taken me away from running the business in a way that I wanted to. But I think it's ended up like I said being in a good place at this point.

Brad: And it's really interesting and I do think the Shopify kind of app marketplace is pretty vibrant. We had a lead come through a couple of weeks ago that we were discussing among the team, it was a collection of some apps and I think it was bringing in about $80,000 a month and recurring revenue from a group that had built several apps in the space. So I do think that there's a pretty large market there to tap into. Well, I really want to thank you for coming on the show today. It's really helpful to our audience. I hope it ends up being helpful to you. People reach out to me all the time when I'm on these podcasts so I hope that you get to make some good connections from coming on and giving us some of your time. Do you have any parting pieces of advice for those looking to buy or sell an online-based business?

Richard: I guess since I haven't sold a business of this size I'll maybe not give advice on that just yet but as a buyer, I would say don't sit on the fence. It's one of the best things you can possibly do. Get out of your corporate life. Find a broker that you trust, that you like, that you can build a relationship with and tell them what you're looking for. Don't make stuff up or blow smoke or try to sound bigger than you are. Be honest with them. Tell the broker what you're looking for, what your strengths are, what kind of things would keep you engaged and challenged so that they have a good idea because their job is to connect you. So if you don't give them the honest picture they can't help you. But don't hesitate. Owning your own business, running your own destiny I think is something that's just fantastic. It's challenging. It can be scary at times but if you're thinking about it go for it. And I've definitely liked working with Brad. He was always a straight shooter and honest and I'm not saying this just because you're on. I'd say this to anybody but finding a broker that is a straight shooter that's honest and upfront that makes it easy; that's huge. And I loved working with Quiet Light and Brad and I would definitely do it again if I had another business to go after.

Brad: I appreciate that and honestly, you were one of the easiest buyers that I've ever worked with. I mean you brought all this experience to the table and honestly that is what we do, we're matching people up a lot of times. That's the game that we're playing and we may or may not be helpful in the other aspects of it but really to do well as a business adviser in Quiet Light we really need to be able to listen to what people are telling us they want and then pair that up with things that we have that are for sale. And I don't know that I'd take a whole lot of credit for it but I do think that you were the perfect person to take over this business and I'm really glad to hear that it's going really well for you and I hope that you continue to have success in the future.

Richard: Thank you, Brad. I think it was a good fit and I hope the improvement we're seeing continues. It's a great course we're on and I appreciate your help making this connection happen.

Brad: Thanks a lot for coming on today Richard. We really appreciate it. For the listeners, we will see you the next time. Thank you.

Links and Resources:

• Richard's Business

One of the most difficult aspects of selling a business is getting the timing right. Beyond the valuation aspect there are also personal considerations. In another incredible exit story, today we meet an entrepreneur who has had an amazing road to success. The story of her business and the timeline of her success in the Amazon space is truly remarkable considering where she started less than 20 years ago.

Leigh Huynh's family came from Vietnam with $200 to their name nineteen years ago. Learning from her family's determination, Leigh started to build a life and an understanding of what was needed to build a business. She started in the Amazon space and found success in beauty and skincare products. Leigh's initial sale listing did not make sense for her timewise but she came back 15 months later, listed for more, and sold for more than the initial listing. This episode is a reminder to sellers that they need to plan to sell their business rather than decide to sell their business. Leigh's story also brings the human aspect to the deal and serves as a reminder that there are many considerations behind each transaction.

Episode Highlights:

• The entrepreneurial journey of Leigh's business and how she learned to build and sell on Amazon.
• The categories she chose to go into on Amazon and why.
• Leigh's initial launch investment.
• How many skus she had to go through to get it right.
• The investment loss on the first skus and how one product became the home run.
• The process that led up to selling the business.
• Reasons why the timing on the original listing was not right.
• Any moments when the transaction process was difficult.
• Transition times for the hand off.
• Leigh's plans for the future.
• Wisdom Leigh shares with young female immigrant entrepreneurs.

Mark: One of the most difficult things Joe, as you know when you're trying to sell a business, is getting the timing right. I mean first there is the valuation consideration; you have to get the right timing if you want to maximize the value of your business. And then on top of that, there's also the personal considerations as well, right? Sometimes just personally where you are in life isn't the best time to be trying to sell a business because it's a lot of work. And I know that you had Leigh on who's got an amazing back story. It absolutely makes one of these entrepreneurial success stories that we look at and just kind of think wow like that person is amazing. And woven into this story is a story of also just timing the sale of her business and you have the opportunity and really the honor to be able to work with this really amazing woman.

Joe: Yeah, I think you use the right word there; it was an honor, to be honest with you. I mean this is the American dream story, right? Leigh came over at the age of 15 from Vietnam. Her mother came with three kids and $200 to her name. They came from a small village in Vietnam. Leigh didn't speak any English at all. And 19 years later; that's aging Leigh, right? She's 34; she looks like she's 20. She sells a business for a high six figures; pretty impressive. An amazing story. She's just a hard worker entrepreneur. We had the business listed in early 2018 and as you said timing, stress, family, baby, it just didn't make sense after she got it listed and she said Joe I just can't do this right now can we pull the listing? And of course, I said absolutely it's your business, it's what we do at Quiet Light. We're always working in our client's best interest. And you and I ran into her down at Brand Builder Summit down in Austin. We got to see her when she was pregnant with her second baby and she came back and 15 months after we initially listed it we listed it for I think a quarter of a million dollars more. Got it out there, things were more streamlined; things were more efficient in the manufacturing process. We had a multiple offer situation and sold it very quickly to a great buyer as well.

Mark: Now I love this story because there are so many different layers to it. I mean one there's just the transactional to it. And I know I was speaking with somebody who is going to be coming on board as a Quiet Light client recently and we were talking about his goals and immediately where do people go when we talk about their goals? They immediately go to the money side and I tried to explain to him let's talk about some of the other goals that I know that you have, right? Let's start to unearth some of these because when you get into the process these become really, really real and really start to surface as you're going through the step of selling process so it's important. And an important reminder both on the buy-side and on the sell-side that yes what we do ultimately comes down to a transaction with value and money being exchanged for a valuable asset but there are a lot of other considerations to always be looking at but the other; I mean look let's not mince any words about this, the hero of the story, the real amazing thing about the story is the human aspect of her background and her story. So I'm really excited to listen to this because I love digging past the transaction and seeing some of the amazing people that we get to work with both on the buy-side and the sell-side.

Joe: That's exactly what this is. It's an amazing story. She's an amazing person. A great buyer came. It's just kind of a perfect fit and I'm excited to hear her journey in the next several years. I'm sure we'll stay in touch and I think everyone should listen to this one right through to the very end.

Joe: Hey folks, it's Joe Valley here at Quiet Light Brokerage and this is another episode of The Quiet Light Podcast. Today we've got another of the Incredible Exit stories to share with you. We have Leigh Huynh on the podcast with me today. Leigh, welcome.

Leigh: Hi, Joe. Thanks for having me.

Joe: I'm so glad you're here. You and I have known each other now for; it's going on two years almost I would say, we should go back to the original time that we started chatting.

Leigh: Yeah, I mean a couple of years ago.

Joe: Yeah. So let's talk about that full story. I want people to get to know you a little bit in your story as an immigrant to the United States when you came in and then your entrepreneurial venture as well. Why don't you tell people a little bit about yourself just the background of who you are and then we'll dig into the questions?

Leigh: Alright. So I was born and raised in Vietnam; a very small town. I came here when I was about 15 with my mom and my family. So we came here. I was just talking to my mom the other day like hey mom do you remember how much money we had when we came? She's like maybe 200 US dollars. And so we got sponsored by Jewish people and I was getting on [inaudible 00:06:11.2] and some supplement or something like that at that time to help with rent in the house and all of that. And my mom is working with them 6 months my camera away naturally. And then we got off that program and I was in school so I kind of understand money at a very early age. Yeah, my mom has a store; a brick and mortar store, so every day after school or before school we are always at the store helping with the customer, buying product, we sell them, dealing with supply, and all of that. So I guess my entrepreneurship kinds of starts at a very early age; 10 or 12.

Joe: Amazing. And when you came to this country Leigh if I recall our conversations you didn't speak any English at all at the time is that right?

Leigh: No, no English. We came from a very small town so we never really travel anywhere out like one hour.

Joe: So listen I came from a small town in Maine and small in that in that regard was 10,000 people. What are we talking about in terms of a small village in Vietnam? How many people were there?

Leigh: I don't know the amount because it's [inaudible 00:07:26.6] so much now. But I would not; like everybody would know anybody and when I was growing up there's no electricity, no TV, our room was leaking and I remember we're having dinner and we have to move our dinner table because the roof was leaking.

Joe: Wow.

Leigh: Yeah. So like the whole neighborhood, there's only one person that have a TV.

Joe: In the whole neighborhood only one person had television, no electricity. You came here with less than 200 US dollars when you were 15 years old. You didn't speak any English. And just to cap it off we just closed a transaction in the high seven-figure range; high six-figure range. I always get that wrong people sorry about that but the high six-figure range. More money than your mother probably could ever have dreamed of. And she must be so incredibly proud of not only the risks that she took and proud of herself for coming here and starting a new life but wanting to give a better life to you and your siblings and she must be very, very pleased that she's accomplished that.

Leigh: Yeah, definitely. I just told her and she was really, really happy and shocked.

Joe: You're married to someone that's also got quite a journey. Can you talk briefly about Tai and what it took for him to get to this country?

Leigh: I think Tai's family had more of a tougher life than us. He tried to escape Vietnam and there are many try. And then the last time that they tried they walked all the way from Vietnam to Cambodia to Thailand and they stayed in a refugee camp for 7 years. So they didn't have any education from he was 5 until he was 12. And then they got sent back to Vietnam and he had to go to school. So when in school he didn't know how to read a part [inaudible 00:09:27.7] you're so dumb like you don't know how to tell time. But because he was lacking up that whole period of time; lack of education then he came here with his family and worked so hard and became like an engineer.

Joe: It's incredible. I've met Tai folks. I've talked to him. He's impressive, obviously leads accomplished a tremendous amount in a short period of time where the most people dream of in a lifetime; incredible, incredible stories of overcoming adversity and living the American dream. Well, let's talk about your entrepreneurial journey a little bit in terms of the Amazon world because that's the business that you just sold. It was the vast majority of the revenue produced from the true brands that were inside of the business you created were Amazon. What programs, what mentors, what podcasts did you focus in on to learn if any how to build your Amazon brands?

Leigh: So back in 2014 Tai and I was following Robert Kiyosaki; rich dad and poor dad stand in an interview with Matt and Jason on how to sell on Amazon. I don't think I saw the interview but I did in one of the emails and then I was just looking up and do wow that is pretty cool and pretty interesting well I can really do that. And so I found Ryan Daniel Moran on YouTube about how to sell on Amazon and then I was like okay I'm going to sign up for it. And I just kind of did that without thinking very deeply about it. And then Tai came home from work and I said hey I signed up for a course to sell off on Amazon. And he's like you did? And I said yeah I mean it. Wow. Okay but don't quit. And that's how I got started.

Joe: And you didn't quit. For those that don't know who Matt and Jason are that you're referring to it's the Amazing Seller Machine; some folks out of Austin that have done some tremendous things there as well. Ryan Daniel Moran is also out of Austin, the same area. Austin is a mecca for e-commerce and Amazon for sure. I've been involved with a lot of people that have done very well by going through the Amazing Seller Machine courses early on. But no matter what there are a lot of people that failed and succeed so full credit without a doubt goes to you Leigh and Tai saying great; congratulations that's great don't quit because you've had some trials and tribulations along the way. What year was that you said it was 2014? So 5 years later is when you finally sold the business.

Leigh: Yeah.

Joe: Yeah. So let's talk about the categories. I don't want to name the brands in this but the first category that you chose to go into in terms of the brand that you launched on Amazon first what was it?

Leigh: Oh, it's skincare.

Joe: Skincare. And did you have any background or experience in working for skincare companies and developing skincare products?

Leigh: Yeah a little bit because when I was in school in college I had a job. I'm a manicurist and then aesthetician. So I was always working doing that during part-time for school and after college, I kind of did that full time for about a year or two. But I was putting so many hours; about 70 to 80 hours a week into work and it's got really tiring so I learned a little bit. I know some customers and I know what they need.

Joe: Mm-hmm. And how did you go about doing the research and finding products and formulating things of that nature?

Leigh: They kind of teach you in the course like you search for private label products and then go do it in the research and then I was able to kind of test on my customer at that time.

Joe: Okay good. Then what type of; if you think back and I know we're digging deep into your memory here, do you remember what kind of dollar investment you initially made in terms of launching that first brand and product on Amazon?

Leigh: I put everything that I had from my job into the business; all of the money that I was making; everything. We did a lot of launchings and re-launching and labels; everything.

Joe: Were you successful out of a gate on the first SKU that you developed?

Leigh: Not quite. Yeah, I think it's only until the third SKU that we're actually making some money.

Joe: On the third one, so the first two failed. How much money do you think you lost? I guess we'll say it was lost even though there was a great gain in knowledge. How much did you invest on those first two SKUs before you had some success on the third one?

Leigh: Maybe about 10 to 15,000.

Joe: Oh goodness. Wow.

Leigh: Yeah.

Joe: And did you lose that 10 to 15 or you invested 10 to 15 and you just broke even and loss a little bit?

Leigh: We invested in and then we keep it; well we still keep the product because it's still selling. It's just not like a home run.

Joe: Okay. So the third one was a bit more of a home run if you will?

Leigh: I actually put more time in it and I actually formulated a formula; as in I put my heart and soul into it so I guess it turned out great. [inaudible 00:14:45.0], it's unique and it's a very good product.

Joe: And then you expanded to additional SKUs from there and at one point, and this was less than a year prior to us talking two years ago you decided to add another brand in a different category. And you did it under the same seller account which so to the folks listening now that's okay as long as you're selling off both brands. It's not necessarily okay if you hope to sell off one brand. It just makes it more challenging because people want the transfer of that seller account to go with the sale. With that second brand that you started, you had done some things that didn't make it as transferable and that was using a lot of local suppliers in the San Francisco area at the time. Let's jump to what we learned in terms of that process, building up to listing the business because folks we're in September of 2019 and that's for the folks that are listening to this five years from now we just closed the transaction in late August of 2019. But Leigh and I originally listed the business for sale back in January of 2018, right? We listed it and then pulled it and then listed it again and we'll get into why in just a minute. But some of the challenges on that second brand that made it tougher to sell were that it wasn't automated, right? You didn't have things in place to automate it so that somebody in Boise Idaho couldn't buy it because the result a lot of local suppliers and vendors. And you ran around the city and around the market's areas to pick up these products and package it and do things of that nature. And that made it partly difficult to sell when we initially talked about this listing it and did list it in early 2018. Most people at the time if you remember they were interested in the skincare line that even though the second brand was growing faster they were interested in the skincare line because of the automation and the recurring nature of it. I think that we had it listed for about three weeks and you called me up and you said Joe I just can't do it. I don't want to sell the business right now. Do you remember that conversation?

Leigh: Yeah.

Joe: Can you talk to me about why? What led to you moving forward with listing the business and then and then saying oh wait no I don't think I'm ready; what was going on in your life and in your mind at that time to make you ultimately make the right decision? I think it was a good decision for you. You ended up selling the business for almost twice as much. So it kind of worked out pretty well but what was in your mind at that time?

Leigh: I think the reason I wanted the sell the business was because I had a brand new baby at time. And we're just doing too much at that time and I wasn't able to streamline the business. And we have the business listing and going through the financials and the process of the business and I just streamlined that you know what this is it not ready even if I turn over a new business owner will be just; it's just too much for them to even handle. I need to get my thing in order first and continue to grow it a little bit further.

Joe: And we did just that. We had people that were interested. We had plenty of calls and offers that were just about to come in and you made a decision that again I supported and I think it was the right one for you. You were emotionally tired. You had a baby. You were ready to move on so we moved on but I think we both knew that it was challenging. There were certain components of it that made it harder to transfer. It wasn't automated. And the buyers were telling us that they liked one brand but not necessarily the other and can I buy just that one brand which was the skincare line. Fast forward; that's six months maybe, right? We ran into each other in Austin at Ryan's event down there. You were pregnant with another baby so you had another one on the way. Were you pregnant when you made the decision to pull the listing? Did you know what was coming or that hadn't happened yet?

Leigh: No, that hadn't happened yet.

Joe: It hadn't happened yet. For people that are over on our YouTube channel and actually watching this when you see Leigh speak and can tell she appears to be very young. She's in her; I want to…can I age you? Can I say you're…? I think you're in your early 30's, right?

Leigh: I'm 34.

Joe: 34, alright. So she could. So I'm down in Austin at Brand; what was Ryan's program? Something summit?

Leigh: Brand Builder.

Joe: Brand Builder Summit. Yeah. And I see Leigh in the lobby and I swear people she looks like a teenage bride; I'm sorry a teenage mom because you were four or five to six months pregnant, you were showing and you're very young. Now that's your heritage as we've talked about as well but you also use your own products which is what you sell.

Leigh: Yeah.

Joe: But it was great to connect and learn more about your story and how you learned from Ryan's program and course in some of the folks there. And we continued to talk and you continued to do the right thing which was respond to that second brand and streamline it with an eventual plan to exit. You learned a lot. You went into it going okay I'm done, I'm emotionally ready, I got to move on and then learned that maybe as an entrepreneur you want to plan to sell your business instead of decide to sell your business. And so you decided then I'm going to do some more planning. You streamlined it and we came out in late spring; very late spring of 2019 with a listing. Multiple parties were interested. We ended up with multiple offers and full price offers from SBA buyers. You had your tax returns in order. We ended up going with a cash buyer that was a very, very strong cash buyer that we accepted a tiny discount because it was cash. These particular buyers loved you first and foremost, and people when you are looking at the four pillars of a sellable business those being risk growth transferability and documentation there's an invisible that's one and that's the person behind the business. Leigh was very, very likable and connected very well with both parties involved. There is one gentleman that is the money behind it and then he's got a woman that runs everything for him. And you just connected with them very well. So I commend you for that. And then we went through due diligence. Were there any times in due diligence where they're going through the financial verification process where it was difficult or stressful or it took turns that you didn't think it would take or do you feel like everything went okay?

Leigh: Everything went out great. I think because we picked the right buyer and they have done the process before. So it was just very smooth. It was a very easy transaction. We put everything in a folder like you created. I think you [inaudible 00:21:59.6] everything so we just put everything in one shared folder and they are able to find everything and they actually didn't ask for anything else. Everything was there.

Joe: We talked about it at length. It's kind of funny. We picked the right buyer. There are multiple buyers. The others have been great as well but this one had a tremendous amount of experience in the Amazon space building a portfolio. There were times where they were so laid back. You and I were thinking, right?

Leigh: I know.

Joe: Okay, are we signing this as an asset purchase? Are we closing on Monday? But it worked out great. How has it been now two to three weeks out in terms of transition? Have you needed to spend much time with them in terms of them taking over the day to day operations of the business?

Leigh: Not really. So it's been only three weeks and I think we only used three hours.

Joe: Three hours. Okay, that's pretty impressive. Typically, folks, I think the language is pretty standard it's up to 40 hours over the first 90 days after closing and that's part of the purchase price and it changes depending upon the complexity of the business and the experience of the buyer. These folks are obviously very experienced. So good, we're done, it moved on. Are you talking with your mom about how you came to this country with less than $200 as a family and now Tai is an engineer doing incredibly well and you've with him invested in real estate, started an e-commerce business, sold it in high six-figure range. What's next for you? Are you going to take some time off? Are you going to plan out your next adventure? What are your plans for the future?

Leigh: I'm going to take some time off and we're moving to South Korea just to explore the area and the country nearby, a lot of good food, and spend a lot of time with the kids, and I think this [inaudible 00:23:53.2] this time, not a business.

Joe: You'll be back in the e-commerce space do you think in the Amazon space?

Leigh: Yeah, definitely. It's a great business.

Joe: Good for you. So you guys are going to sell what you've got here? You're in a home now in California, are you going to sell that home or are you going to rent it up and travel?

Leigh: We're going to rent it, yeah.

Joe: You're going to rent it. You guys are true entrepreneurs. It's really incredible; very impressive and a great story. I have no doubt, Leigh, that we will talk again someday and be on the podcast about your high seven-figure exit, maybe even get to eight figures and get over that 10 million dollar range someday. That would be a great success story don't you think?

Leigh: Yeah, definitely. Yeah, always something that I wish just for,

Joe: You've learned a lot. You've succeeded through sheer grit and taking risks and not quitting and not giving up. Do you have any thoughts or any advice that you can give to young entrepreneurs, immigrant entrepreneurs, female entrepreneurs in terms of what it takes and any pearls of wisdom that you could share with them in regards to being an entrepreneur and succeeding?

Leigh: You know at one time I didn't; I knew it was possible but we just don't know how. But if you continue working towards what you want and just focus on it like knowing that it's possible and you do something and you can do it. Just keep looking towards it and don't quit. I mean if one part of it doesn't work it doesn't mean that the whole business doesn't work. Give it another try and get a side hustle or do something if you want your life to be free from a job or from a place.

Joe: Leigh I could tell you it's been an honor and a privilege working with you for the last 24 months. I'm so proud to see you achieve your goals and glad to be in at least a little bit a part of it. So thank you very much, congratulations, and I look forward to hearing about your adventures in South Korea and your travels around the world and the next eventual exit someday as well.

Leigh: Yeah. Thank you, Joe. Thank you so much for all your help.

It's not about how much you sell your business for, it's about how much you get to keep. A lot of sellers get to the point of selling and see an opportunity to cash out on all their hard work. Unfortunately, there are these entities called the state and federal government whose pockets get lined before the sellers get their bottom line.

Shanyn Stewart is a tax specialist who works with sellers in the acquisition process. She goes as far as to claim she can actually structure a sale where the seller pays 0% taxes. The process and benefits of the different structures she offers can allow for more money in the seller's pocket. Tune in for a very useful episode for both buyers and sellers on how to prepare for a sale and legally keep the IRS from getting too big of a slice of the pie.

Episode Highlights:

• The power of knowledge and ways that Shanyn claims she can reduce and potentially eliminate taxes for the seller.
• How capital gains tax really works.
• Understanding the basis of your business. What qualifies as basis in various types of businesses.
• The difference between basis and expenses and where to pay attention when it comes to capital gains tax.
• The importance of planning well before the LOI.
• Shanyn explains deferred payment structured sales using a third party.
• How to mitigate the capital gains in a transaction and reduce the net effect of the taxes over time.
• A case study of a transaction Shanyn has worked on and ways she increased the seller's profit.
• How the structures Shanyn proposes can serve as a safety net.
• Where charitable strategies and trusts fall into the spectrum of planning for sale and profit.

Joe: So Mark one of the conversations we have all the time; I think I probably had at least 3,000 of them is that it's not about how much you sell your business for, it's about how much you get to keep. And I understand you had Shanyn Steward on the line on the podcast and went through a lot of the different scenarios about the different types of transactions and which one might get more beneficial than sort of an all-cash deal to help sellers out in the process of keeping as much money as they can after the sale.

Mark: Yeah. You know it's an interesting discussion because I think a lot of sellers get to the point where they've been putting their money into the business. They've been growing their business over many years and they look at that sale as their opportunity to finally cash out and take that money off the table and be rewarded for all their hard work and they should be. But there's this pesky little thing called the federal government and state government and they want to take their share.

Joe: It's getting bigger all the time; it's not little at all. It's bigger [inaudible 00:02:11.5]. I'll stop.

Mark: Well no, you're right. Look you go into this process; actually it's funny Joe, you and I were talking to Ryan about this yesterday and he was saying how he puts people through this exercise of here's what your net proceeds are from the sale and let's go run through some scenarios and it's eye-opening for a lot of sellers. Shanyn is a tax specialist and she specializes in acquisitions and saving sellers money on taxes. And she makes the claim that she can actually structure a sale where the seller is going to pay 0% taxes. Well, she and I went through a lot of different scenarios. I want you to listen to this and tell me how many times you heard my mind explode from just some of the things that she suggested in here. I think from a perspective of restructuring a sale she offers a lot of great tips and things that think about rather than saying I just want to get my cash and move on to ways that you can protect your investment, get more money off the table. Here's the tease, here's the hook and I then I'll get right into it. We used a case study in here on an 11.6 million dollars sale where she was able to increase the net proceeds by over 3 million dollars on the 11.6 million dollar sale net proceeds by over 3 million dollars, a 46% increase in the net proceeds on that. Remarkable stuff.

Joe: Yeah. Look full disclosure to everybody listening here. I talked to Shanyn a year ago and gosh it just sounded amazing; so amazing it felt too good to be true. And then things fell off and we didn't get a chance to follow up. Mark had the opportunity to follow up and chat with her and get some of the real cold hard facts on the process and the benefit of different types of structures than just all cash. As a seller, everybody says I want all cash mostly because you don't know who your buyer is and you're not going to trust them until you get to know them. It's great to keep an open mind because ultimately what you want is to keep as much of your proceeds as possible. You'll have a great attorney working with you on that asset purchase agreement to make sure it's secure and safe in the event you take a non-all-cash deal. We'll refer a few out if needed but it's a great idea to listen to the entire podcast for both buyers and sellers. Buyers you're out there listening, you're learning, and you might be buying a business that's not going to be 8 million dollars like the example that Mark is talking about. You might buy something for a half a million or a quarter or just a million; just a million, I should stop that, or a million and…

Mark: Just around a million dollars.

Joe: Right.

Mark: It's chump change for you.

Joe: Brad sold one of his $40,000; everybody that is listening to this you saw the launch, it was a one to one multiple $40,000 which is exceedingly small for us these days. But he had 20; I talked to him this morning, he had 25 offers on it and over 500 inquiries. Not just the automated inquiries but directly to his inbox so it's a frenzy and I think it launched on Tuesday and today's Thursday that's already closed' that type of situation. But buyers you're buying these businesses no matter what size and you're growing them. You're taking it to another level that the person that's selling it could not because they reached their threshold for staff and management or their own level of incompetence as we often say you got to figure out what your own level of incompetence is and they decided to exit. You're stepping in because you've got a different either level of working capital to help grow that business and expand SKUs or buy more inventory or you're better at scaling from 20 million to 100 million or 1 million to 10 million whereas the seller is not. So this is great for both buyers and sellers is my point. And I'm excited to listen to it myself because my level of incompetence is all about what you're left with after the sale. So I'm going to learn a ton as well. So thank you for following up with her Mark and getting her in the podcast.

Mark: Yeah I was just about to ask you what is your level of incompetence?

Joe: We don't have time for that.

Mark: But what's my level of incompetence?

Joe: No don't mention that. I always talk to Megan about that.

Mark: Alright let's get to this episode. She talks a lot about preparation. If there's one takeaway for people both on the buy-side and sell-side and we had Joseph Harwood on a few episodes ago talking about how he saved a ton of money on the sale of his business is be open to different structures even from a broker standpoint. I know you and I Joe like hey we actually like these cash deals because that are really simple but when we're looking at saving hundreds of thousands of dollars it's worth looking at some alternative structures. And it doesn't get too complex with the right preparation and that's a lot of what Shanyn suggests here is prepare before you sell.

Joe: Gosh that sounds familiar. Please, everybody, plan your exit. Prepare before you sell. If I had a drum I'd be beating it right now. One last thing before we go to this amazing podcast with amazing information that you can learn. I don't like ruining people's weekends, months, years when I tell them, man, you're doing 10 million in revenue that's great and based upon the P&L you gave me it looks like you're probably worth about 6 million but everything is wrong so you have to go back to the drawing board and start over in terms of your financials. I don't like doing that and I did it recently so please prepare; plan. Don't wake up and decide to sell your business when you're emotionally toast and you want to move on. If you plan it in advance and you do that; the four pillars, but the fourth one we're talking about now which is documentation and planning, get that done. You will make so much more money and you'll have so much more peace of mind in the process. And after listening to the podcast you'll have so much more money left over in the bank because you get to keep more of it with the structure and deal size that Shanyn is talking about. So let's go to it.

Mark: Shanyn thank you so much for joining me on the podcast. I know you and I have just recently met but I'm really, really excited about this conversation because you and I talked only briefly. I think we talked just for a little bit on the phone and in just about 10 minutes you opened my eyes to some awesome strategies that sellers can use to reduce their tax burdens. And look I've dealt with so many sellers who go to their accountants and say what is my tax burden? Oh here's what it's going to be, 22% or whatever of cap gains tax and I said well what can I do to reduce that? I really can't suck it up and pay for it. And you're like no that's not the case.

Shanyn: Exactly.

Mark: So let's start out with just kind of a quick introduction of yourself. I want to tell everyone who you are the firm you work for and kind of what your mission is.

Shanyn: Yeah. So I am the chief strategist here at Advanced Accounting. And we are a little bit different than your average tax professional. We actually do proactive tax planning for our clients. So what we do is we want to help mitigate those taxes before we actually have an occurrence of sale. And then even on the backend, we can help you after you've actually sold the company as well. It's not as advantageous for you but we really like to be proactive. And that's what we're going to talk about today is how do we after we hopefully the profit on the sale of our business how do we keep the IRS from getting a slice of our hard work legally.

Mark: Legally right that's the big thing. You know my eyes were open on a recent transaction that we did hear at Quiet Light, in fact, we had Joseph on who is the seller in that case and it was a little bit of a different deal because he was a UK based seller. But we brought in a tax specialist on that deal who ended up saving lots of money. I mean significant amounts of money from a tax perspective. And so to be able to talk to someone like you who does this as a specialty is going to be really exciting. So let's start off real quick with this and just a point that I know you made to me before our call here which is whenever there's money changing hands the IRS wants a slice of it; like they're going to get something out of it. What would you say to the tax professionals that are saying just suck it up and pay it?

Shanyn: Yeah. You know I actually was talking to a tax professional the other day and he was like well nothing is certain in life but death and taxes and just be thankful you're not dealing with death. And he said there is a cap on capital gains and I was like right there is a cap on capital gains after the seller sells has company but there is actually a way that we can mitigate taxes, reduce them dramatically, and sometimes even eliminate them which is like everyone's excuse me how can that be?

Mark: Yeah, excuse me, we can eliminate taxes on the sale. Okay, I'm intrigued.

Shanyn: Yeah, you caught my attention now. And of course one of the things that when we're looking at the IRS code there was a senator that once I heard quote that the first nine pages of the IRS code is all about the definition of what is income and then the rest of the code is just a web of preferences and deductions and how to actually work the code and work income. And so when we're talking about tax planning that's what we're talking about really being proactive so that we're not giving the tax professional who says suck it up and deal with it you're going to pay capital gains and don't worry about it it's cost of doing business and that's not the truth. It's not. Taxes can be legally mitigated. And if you have enough knowledge that knowledge is power and can really put more money into your pockets.

Mark: All right so the first nine pages just define what income is, do you know how large the tax code is; how many pages?

Shanyn: You know what after the new revision I really don't know. I think that it's thousands and thousands of pages.

Mark: So there's a lot in there. And I met with some tax professionals personally recently for just my own benefit and we went on a conversation with them which was hey we'll look at all the things that you're basically handing over the government where legally you don't have to if you're doing these different things. And it's more than anyone of us can really decipher on our own because I don't have time to sit there and read and stay up to date on all of this. Alright, so where do we start?

Shanyn: And I don't mean to bash any type of tax professional because keeping a taxpayer in compliance is in and of itself is a full-time job. So what we're doing is really by being proactive this is a specialty from that standpoint. So I think the first thing that we start about is we talk about how does capital gains really work because that's what happens when you sell your business, you actually have a capital gain. So the methodology is buy low and sell high and pay the tax on the difference. And that's the whole concept really in nine words but really Taxes are never just as easy as just buy low and sell high. The first thing that you have to understand is what your basis is. And basis basically is what did I actually purchase my business for or what did I invest into my business? Sometimes we call it original basis or adjusted basis. So basically it's just anything I paid for the asset and anything I added to it. So we have to understand what our basis is when we ever go into a sale. In fact, the IRS has a 13-page document just on basis. So if you're really excited about basis you can read the 13-page document on it.

Mark: I can say I haven't been really excited about it but I am now. And maybe I'm jumping ahead, how would you deal with bases in a startup situation?

Shanyn: So basically a lot of service-based businesses are going to have a zero basis. That's one of the things that we deal with on a regular basis is that there is no basis. You started an Amazon business and you really have no assets to speak of. And so, unfortunately, your basis is zero.

Mark: Okay, what can you count as part of the basis; what qualifies as that?

Shanyn: So equipment would qualify; if you purchased a building sometimes depending on the business it could be that you added furniture and fixtures and things of that nature.

Mark: What about things like molds for those that are making their own products?

Shanyn: Exactly. So anything like that. So anything like if you have a mall or sometimes depending on the patent copyrights things of that nature can be the basis if you're actually transitioning into another business.

Mark: For those that are not in e-commerce; let's talk about like a content site, a lot of content sites are start out by hiring a bunch of writers to build kind of a foundational amount of content on their site and that can be tens of thousands of dollars of content being written. Could that qualify for a basis?

Shanyn: It could. It depends on how it was expensed. Sometimes accountants can be creative in the way that they're expensing things. So really basically when we're getting ready to do a sale we get a look at the balance sheet and determine what's been depreciated. So basically if you're depreciating it then that's part of your basis. If it's just been completely; so if you hired a copywriter and you've expensed that then it's not going to be considered basis.

Mark: Oh, I get it. And this is one of those things; we talk about this all the time in this podcast, we talk about making sure you understand your own financials. And so many entrepreneurs are really weak in this area when you look at the balance sheet as its kind of cryptic report where we don't really understand it. And then there's also this idea well I want to expense as much as I can to reduce my income tax burden. But this is looking at a little bit different. So if I were to start up a content site and I realized look I'm going to invest $50,000 into seeds content. You're saying look you might initially not be making any money anyway so maybe it's better to put that in and record that as an asset investment that I can depreciate.

Shanyn: Right. And see that's one of the things you always want to think about the end in mind. You're always going to want to like look at what is my exit strategy? Even when you're starting a business you want to look at what your exit strategy is to determine. And I know in those early years; I mean most businesses in the first three to five years are not really making a huge profit. And so I look at different expenses and really a lot of those can be capitalized over time instead of just expense in that year. And that's something to take a look at. That's where proactive planning and understanding your financials become so important.

Mark: Yeah. Now from a buying standpoint if you're acquiring a business obviously you're going to capitalize expense investing in the business right away. That's going to be an investment so that's going to form basis but then also things that you're doing right after as well.

Shanyn: Correct. So anything that's going to be adding capital value to that business is something that you're going to want to kind of look at and see if it is something that we should; is it really truly an expense or is it actually adding a capital value to the underlying business and should be depreciated over time.

Mark: Okay. So how does this shake out on a sale basis so I would know we the buy low sell high; I imagine there is a simple subtraction coming up here, right?

Shanyn: Right. So I mean basically the difference between the sale price and your basis is where you're going to get capital gains and you're not going to get capital gains depending on your filing status you're also maybe getting hit with something called net investment income tax. And that's a new tax underneath the Obama administration where they're going to kick in a 3.8% tax for those that are $200,000 of adjusted gross income for individuals and 250,000 for joint filers. And so that basically, you're going to hit with capital gains and that net investment income tax. And so that can be pretty hefty so one of the things when we're talking about mitigating taxes on the sale of a business preplanning, becomes very important. And one of the things is that if we have enough time before the sale of a business there's a lot of planning we can do. I mean there's a few after the sale offsets that we can kind of facility to mitigate tax but it's nothing like the time before the sale. And one of the things is we're going to talk about several different strategies. It's really important to understand that we actually need to start our planning; there cannot be a binding contract you're going to say repeat this again, there cannot be a binding contract in place when we start this preplanning.

Mark: So a binding contract again from a sales standpoint we're looking at LOI which is it's usually non-binding but then those purchase agreements which are going to be binding.

Shanyn: Correct, exactly. So we even like there to be no LOI and we want no question by any type of government organization or court system. So we even tell our clients even before there is an LOI we want to have our planning done. So oftentimes when people come to us to sell their business they know they're going to sell their business. That's the goal. And so that's when the planning should start right then and there.

Mark: Alright. And we preach all the time that if you want to sell your business it's best if you're actually planning 12 to 24 months in advance because from our standpoint we want those other metrics that we look at; the influence, the valuation to be as optimized as possible. So I would imagine this pre-tax planning would also benefit if you're at 12, 24 months out.

Shanyn: Well definitely because there's a lot that we can actually do in the current year to help them mitigate taxes but then on the sale of the business definitely. Now the quickest we've done; we can do this in 60 to 90 days. But one of the things I found is that what we have to do is we actually educate our seller on these strategies because a confused mind always says no. And one of the things we want to make sure is that our clients understand what they're doing and why they're doing it; what the advantages and disadvantages are. So we really start an education process with them so that they understand exactly that they could sit down and explain exactly the transaction that's about to happen in their own words and have that confidence.

Mark: Right. Okay, that makes a lot of sense. Alright let's get into the example of a transaction here because let's say that knowing that we're going to sell the business we're getting into this here and we've said okay we've got maybe a little bit of basis we still have a pretty large delta on what we're selling for versus what our basis is. Maybe we'd be able to form 50 maybe a hundred thousand dollars basis but we're selling a business for two million dollars. The savings is nominal on that side. Where else should we be looking at here? I know we talked a little bit about short term capital gains taxes and our pre-cal stuff. How does this play into this?

Shanyn: Well I think one of the things is when we start to look at the fact that we have a capital gain and that's what we really want. We have to really immediately step in and say okay what are the strategies that I can do to mitigate these taxes? So one of the strategies and we usually use a combination of strategies. So I know you and I are going to kind of break down just the simple line strategies but oftentimes they're actually strategies that are interwoven together from that standpoint. So one of the strategies we often see is something called an installment sale. And an installment sale is just simply a sale where you receive payments installments in more than one year. And so basically what that means is you sell your business in year one and you agreed to take three equal installments over a three year period. Now that works with some people. The advantages are that you're going to defer the gain until you actually receive those payments so taxes is divided throughout the years. So for example, we just did a transaction where let's say you have a business that you bought for 600,000 and you sold it for a million. So 40% of your sale is a gain. So when you receive those installment payments over the years 40% of each of those installment is going to be taxed as capital gain. So why is that important? A couple of different reasons; it's going to actually if you split out the capital gains over three years or five years you actually reduce the overall taxation that you're absorbing from that standpoint. And so you're not getting stumped all in one year with a big tax bill. But the devil's in the details with that one because not all assets are going to qualify for an installment sale. So that's one thing to remember. So anything that's publicly traded is not going to qualify for an asset sale. You also have tool items we find that buyers and sellers want to get a really, really low rate interest rate and so you have to charge adequate interest to the person who's buying. And if you sell depreciated assets; so let's say you're selling equipment; you have to recapture all of that depreciation and pay ordinary income tax rates immediately. So there's some things where an installment sale works really, really well with and sometimes it's not going to work really well but that's one of the simple strategies that we see. Now, one of the problems with that is that you're going to get your income over a few years. Sometimes it's a big deal. And I actually sent you an example earlier and we can talk about that in a few minutes where our buyer actually got his money over five years. And that worked out perfectly. We are actually able to eliminate the taxation on that. We're going to talk about that because that's huge. And he was given over two million dollars a year so he was pretty happy.

Mark: Right. So real quick are you able to reduce the effective rate by doing an installment sale? Obviously, the amount that you're paying in one payment is going to be reduced but you are able to reduce that rate?

Shanyn: It does. It depends on the taxpayer's adjusted gross income but we are able to reduce the net effect of taxes over the period. And oftentimes we're talking about that sometimes depending on the amount of the sale or the amount of the proceeds we're able to even get payments five to 10 years out so that we're able to keep that; kind of make an individual pension for that person. And that way they can also do things like delay Social Security and keep their taxes down and so it really becomes very much not just a planning for the sale event but planning for the next few years of what happens with those proceeds.

Mark: Alright so I already know most of my clients are going to say with this which is I don't want to defer my payments because what happens if they don't pay; what are my collection options? There's always this worry especially with the Internet and acquisitions where so much of the business is wrapped up in blue sky, goodwill, non-tangible assets. And so what happens if the buyer runs a business into the ground two years from now and they still have about $400,000 payment well what are my options? Could you ask for those funds upfront and pay them out?

Shanyn: One of the things you could do is actually do a structured sale and actually bring in a third party.

Mark: Okay.

Shanyn: So a structured sale is sometimes very advantageous because it actually takes the installment sale tax treatment. It does require a buyer to pay a little bit of cash upfront or all of the cash upfront. So basically what you're doing with a structured sale is you're bringing in a third party and you're exchanging your business for a stream of income. So basically what happens is; and let me say this is appropriate for businesses between the 100,000 and the five million dollar. So if you're over five million it would not work this way. But basically, in a structured sale you're going to negotiate a traditional sale. Your buyer is going to sign their obligation to make payments to an independent third party. So there's a lender involved here or an insurance company involved here. And then that third party is going to take that cash. And so you never actually get receipts. So we avoid constructive receipt rules which would actually make if we actually took that money in our hands immediately that would make it taxable immediately. So then the third party now has your cash and they're going to buy you something like [inaudible 00:26:30.4] to start income to you immediately. So you pay taxes on as you receive those payments over the years you're going to pay taxes on the capital gains again defer it. But this is a way to bring a third party in; it's called a structured sale in order to help mitigate some of that risk.

Mark: Okay. So who is this third party company; what would be some examples of these third-party companies?

Shanyn: So it could be a lender. It could be an insurance company. There are third parties that actually facilitate deals like this.

Mark: Okay. And then from the seller standpoint, the benefit here is that they're not having to act as a collector of funds. You have a certain party that's doing that work.

Shanyn: Correct. And so here's something that what we're seeing gain popularity; so one of the downsides of most installment sales, either structured sale or an installment sale is that you sold your business, you've deferred the tax, but you don't have all your money.

Mark: Right.

Shanyn: You have a stream of income but you don't have all your money. And so one of the things that we have found is that if you're comfortable exchanging your equity in your business for just a stream of income that's perfect; if you don't need it all at one time. But oftentimes I think that entrepreneurs want to go to another venture. It's in their blood. They want to close one chapter and start a new chapter. And so that becomes an issue because there's no capital to actually work with them unless the sale is very large. So here what we're finding is that we can take an installment sale and we can couple it with something called a monetizing loan. Now, this is a complicated concept. It takes months to actually really kind of; we do webinars and PowerPoints to really educate our clients on this and we bring in the legal team to really explain this but I'm going to try to kind of be very simple in my explanation. What we do basically is we take an installment sale and we couple it with a monetizing loan. And so basically the way that business works is we're going to defer the taxes for 30 years.

Mark: Okay.

Shanyn: So basically you negotiate a sales price with your buyer just like you would. And when it comes time to close there's going to be simultaneous things that happen at closing. You're going to sell your assets to an unrelated third party in exchange for a lump-sum payment in 30 years. Step one that third party simultaneously sells your asset to the buyer in exchange for your agreed-upon price. Now you've sold your asset. You're going to use installment sale treatment to defer the tax but you're still going to have your money. Here's where the monetizing loan comes in at the same time that you and the third-party and the buyer close the original sale the third party lender is going to step in and he's going to extend to you a loan equal to 93.5% of the sale. So remember loan proceeds are not taxable because they come with an obligation to repay. Now you have your cash in your hand and that's almost equivalent to what you had for your sales price. And you're free to do whatever you want with those funds. Now it's a loan. While that loan is outstanding the third party pays the interest. In fact the terms of the loan specify that the interest is non-recourse to the seller which is really important because non-recourse means that the lender can't come after you for the payment of that interest. So 30 years goes by and you have all of your money. You do whatever you want with it. And at the end of the 30 years, the whole transaction unwinds. The third-party pays you or your heirs the purchase price in cash. You use the proceeds to repay the loan and then you pay the tax. So there's some magic that happens here. I always call it the eighth and ninth wonder of the world; that deferral and the time value of money. So the question really happens to be what's going to be the tax in 30 years. So if you think about this if inflation continues at 2½ %; that's kind of what it's been for the last 20 or 30 years, and it continues and long term capital gains remains at 20%, the tax bill on a million dollars of pain in 2019 would be equivalent to about $94,000 in 2049.

Mark: Wow.

Shanyn: That's less than half of today's tax bill and you've got to use your money for 30 years.

Mark: Right. So with the installment sale and the monetizing loan you get that money upfront it's just coming in a different vehicle; it's coming through essentially a loan.

Shanyn: Right.

Mark: My mind is spinning right now. And you said it earlier a confused mind says no. My head is a little bit confused right now but I'm seeing where you're going with this. This is really, really brilliant. What are some reasons why people both on the buy-side and sell-side wouldn't want to do this other than confusion of the concept.

Shanyn: And you know what really when we actually walk; so oftentimes we get clients who are like right in the middle like I've got an LOI I want to sign I need to do something now. This structure takes a lot of time to explain and to be comfortable with and to show how all of the numbers move. So really what are the downsides of this? Confusion, that's probably the number one thing or lack of understanding of how it can really; can this really work? I mean people are like really defer taxes for 30 years? They're skeptical of lenders sometimes that would actually be extending the loan. So there's a lot of skepticism I think and lack of understanding. But really this is a win-win for everyone involved. I mean really the buyer doesn't care. The buyer is going to give his asset and he's going to walk away and he's going to have this new business. So he probably doesn't care.

Mark: And they're paying just as they normally would if they're buying the business upfront, right?

Shanyn: Exactly. And the seller sometimes they don't understand. But I mean there's legal agreements in place around the loan. You're making sure that you're working with a reputable third party from that standpoint so you're making sure that the loan is non-recourse and how it's going to unwind. And of course, you're going to have your own attorney look at all of the documents and paperwork as well. So basically you're doing your own due diligence. But any tax professional that's utilizing these kinds of strategies has done their own due diligence as well and they're picking at third parties to actually work with that and a lawyer or legal team to work with that's what they specialize in.

Mark: Right. How do you handle this with more complex sales where you have a portion of like an equity rollover over, a cash upfront, and maybe some debt as well coming in there. Can you structure this as a component of a larger structure?

Shanyn: Correct. So that's what I said we often use multiple strategies. So right now I'm working on a deal where someone is selling a restaurant franchise along with the real estate that some of the franchise franchises sit on and there's debt. And so we're actually restructuring debt to flow through like a different entity on the real estate side so that we can use and monetize installments. So we've got like three or four actual strategies that are in play and that's where the preplanning comes in. So if we got 12 to 24 months to sit down with you and figure out a game plan we can really kind of put several different strategies together. Sometimes we're just deferring the tax sometimes we're able to eliminate it altogether. But it's just different components of the sale will be treated differently.

Mark: Alright. So I want to get to our example because again I can hear the question in people's minds which is is the juice worth the squeeze here; the fees to you, the amount of time, the headache, trying to convince a buyer to do this which doesn't look as traditional as maybe everyone is expecting going in. So let's run through an example here and you sent me a PDF with an example; is it okay if I post this on our site?

Shanyn: Yes definitely.

Mark: Okay so we'll make this available for download in the show notes so that people can follow on with us if you want an actual example of this but let's talk through the example here that you gave me.

Shanyn: And this is just one; so this is just one strategy, so I just illustrated one. This was actually a business that's being sold in Michigan. Equipment was included. So they had molds and dyes and they sold on the Internet. So they are a combination business. So the sale price was 12 million dollars. And the cost of the sale was about 360,000. They had actually found a buyer outright. But this is what the legal team was kind of charging. So the gain overall was 11.6 million dollars. So at the end of the day you'll see here underneath projected taxes we have federal taxes, we have that net investment income tax, we also are recapturing depreciation, and then we have the state tax. So all in their total gain is 11.6 million and they're losing 4.3 million dollars to taxes.

Mark: Yeah. I can tell you when I sold my business that wasn't for a million dollars but when I sold my very first business one of the most sobering moments was getting this first tax bill. And again just to reiterate this; the tax will gain so the cost of the sale on this we have 12 million dollars on the sales price 360,000 towards advisors and fees here so 11.64 is what they're gaining after those advisory fees and then the government at different levels comes in and says thank you for that 11.6 we're taking 4.3 of that and reducing you down 7.2, 7.3 million dollars.

Shanyn: Yeah so about 7.3 million dollars is what you're going to walk away with. That's a lot of money but it can be a lot more.

Mark: You're still buying dinner the next time you go out but if you look at 12 million and it gets reduced to 7.3, that's pretty hefty.

Shanyn: So one of the things that if you look here is that we're able to increase this seller's profit by over 3.3 million dollars and so basically what we do is that you'll see here that the sale price didn't change, the net sales price didn't change, we're actually using a combination of different strategies and the seller is actually taking payments over five years. So over a course of five years, he's going to get 2.1 million dollars and then there's some additional tax savings that we found in there over time. So he's getting a little bit more cash flow from that standpoint. So after just a coupling a couple of strategies together instead of walking away with 7.3 million he walks away with 10.6.

Mark: That's a huge gain. That's 3 point…my math here is 3.3 million dollars.

Shanyn: 3.3 million, a little bit more than 3.3 million.

Mark: Because some of that money is deferred now with those deferred payments you mentioned briefly the time value of money. How do we capture some of that time value of money?

Shanyn: So with those deferred payments I mean basically you are actually getting a little bit of an interest rate in that as well. So that all has to be inside the different strategies. Remember when I said we're doing installment sales so we've got to charge interest and have an interest in things of that nature.

Mark: It has to be reasonable.

Shanyn: It has to be reasonable. Exactly. So over five years, you're going to receive that 2.1 million dollars. So this person is giving up; they're comfortable giving up a little bit of return on investment in order to actually eliminate the taxes.

Mark: Yeah and that right there I can totally see being worth the effort of going through this and I know you know we talk to sellers all the time. They get so nervous about doing installment plans. They want their money and they want their money now. And for a lot of people especially growing a business they're profit rich but cash flow poor where they're showing good profits and the selling moment is the first time where they're really getting the cash out of the…

Shanyn: They're reaping their harvest. Yeah.

Mark: Yeah exactly. So it's kind of a hard sell initially to say okay I know you're now selling a business for 12 million dollars.

Shanyn: Right. Well, I think one of the things that; like the conversation I had with them when we proposed these strategies because they're one of the things that we're looking at is okay you're used to living on 250,000 a year in income and now you're going to get two million. What are you going to do with it?

Mark: Yeah [inaudible 00:39:19.4].

Shanyn: What's the difference if you are given a check for 7 or you're given a check for 2? How is think going to change your day to day life? That's a conversation you actually have to have. You have to understand what the seller's ultimate goal is. I mean if it's just to go live on the beach in Delray Beach Florida that's kind of my dream then you can probably do that for two million dollars a year.

Mark: Yeah, absolutely.

Shanyn: It's kind of you know; and also one of the things and this was the eye-opening experience for me I actually had a brother set and one of the brothers wanted all the money up front and the other brother said to me if we don't structure this on installment sale my brother will blow through this money and he won't have anything because money burned a hole in the brother's pocket. And so the other brother was willing to both of them saw the validity there but the other guy just saw the big numbers and was like ah if I could open up my bank statements see that money sitting there. And the other brother was like no if we do that I know I won't spend it because I'm I will hold onto my money but you'll go through it and you won't have anything.

Mark: Right. And I think something that entrepreneurs need to keep in mind and I personally went through this myself when I sold my first business is that a lot of entrepreneurs especially in the Internet space are bootstrappers, we get things going and we do it with a lot of grit. And then when you come into a lot of money you're trying to replace some of that grit with spending and so the second startup is way more money thirsty than that first one. And if you don't get the right payout and I've seen it happen with our clients and I had it happen with myself with that second startup I threw away more cash than I anticipated. So this is kind of a nice little lever on that to make sure you're not following through.

Shanyn: I call it a safety net because sometimes we see entrepreneurs who actually sell their business and they say I'm going to retire and that retirement lasts like a year and then they're itching. They're like what do I got to do?

Mark: I'm bored. I want to do this again.

Shanyn: Right. I want to go do this again. And so basically when we're going into our planning process, not every strategy is going to work for every client but what we're doing is we're doing a full discovery and we're figuring out what's really important to that seller. And then we are working to mitigate taxes through the legal channels that are available so that they get the best deal at the end of the day.

Mark: I want to hit on one last thing on the notes that you provided me here because we didn't get a chance to talk about it and that's the charitable strategies section here and we only have about five minutes left here so hopefully I'm not uncovering like an enormous topic that we could have spent…

Shanyn: We can talk all day about charitable strategy.

Mark: Or maybe we'll do a secondary podcast just on that because that's something that's near and dear to my heart; making sure that entrepreneurs are contributing or we should. But where does this fall into the spectrum of planning?

Shanyn: So basically charitable strategies is one of the strategies that we use and it's a foundation of tax planning. It's also a foundation of capital gains planning and that's because charitable organizations can sell appreciated assets without paying tax on the gain.

Mark: Wow.

Shanyn: So again it's a very convoluted type of strategy but basically what happens is you actually establish a charitable remainder trust and you transfer those assets into the trust. It's important that there's no; this is preprinted, there's no binding contract before you transfer something into the trust. The trust then sells the assets to the buyer. And that's where the magic happens because the trust is tax-free and see there's no capital gains and then that trust then reinvest those assets from the sale price and then it pays you the after-tax amount over a period of time. So basically it's a way that we can eliminate a lot of taxation.

Mark: Wow that is absolutely mind-blowing right there. And the worry that I think some people would get into is okay I know you said this is legal how much red tape and how fine are the rules that you have to follow for something like that?

Shanyn: So basically; I mean there are rules and so by charitable remainder trust you have a legal team that actually specializes in this. You're not going to your mom and pop local lawyer who handles everything from drunk driving to criminal.

Mark: My uncle who's a lawyer and not going to charge me a retainer; that type of a deal?

Shanyn: Right. I mean so here's the thing; this is a place where when you're doing these strategies you want expert advice. You want somebody who has done this again and again and again and who understands these concepts. And so you're picking individuals that understand how to put together and to write a charitable remainder trust; how to facilitate these third party transactions.

Mark: I got it. Okay, we are up against a clock. Shanyn, how can people reach you because I guarantee you're going to get a lot of calls and a lot of e-mails from this so careful what you're giving out right now; how can people reach you?

Shanyn: So definitely they can reach me at AdvancedAccounting.com in the right-hand corner there's going to be a button that says a free consultation. And I would love to have a 30 minute Xoom call with them and just kind of talk them through what their particular situation is and if we can help them.

Mark: That's fantastic. We will put that in the show notes; a link over to your website, we'll also upload this really simple example that you put together of tax savings which amounted to three million dollars in tax savings on a 12 million dollar sale, really interesting stuff. And I think the big lesson that I would like people to come away with is to think about the selling process in a little bit more strategic way because so many people are just looking at let's get it simple, let's get it done, let's move on with our lives, I'm going to eat this fee. There's a lot that can be done by hiring the right people to reduce those fees. You are one of those people for sure that can certainly help. So thank you for coming on. I can see having you on and maybe digging deep into one of these strategies maybe in a future episode if you'd be up for it.

Shanyn: Yeah, perfect. I'd love it.

Mark: Awesome. Thanks so much.

Shanyn: Thank you.

Links and Resources:

Shanyn's Firm Website

Free Consultation Link

About Shanyn Stewart:

She's a serial entrepreneur and fearless single mom who has a background in military tactical training and is not afraid to stand up to anyone, including the IRS. A gun-toting, libertarian proactive tax strategist, Shanyn has built a team of tax and financial experts to assist clients in legal tax avoidance. Shanyn began her career with General Electric as one of two advisors that worked directly with GE employees and executives to mitigate taxation throughout the country. Armed with years of tax navigation experience, in 1996 she started Advanced Accounting to help clients apply those principles she learned at GE to assist in reducing their tax liability.

A former American Baptist Pastor, Shanyn owns Gunpowder & Lace, a concealment garment and holster company for woman. She also coaches women on how to give themselves permission to channel their inner goddess and inner badass and make no apologies for it.

Scott Voelker, the amazing seller himself, is back on the podcast today with a new book that will guide entrepreneurs on a path to financial freedom. Scott has transformed from someone who dabbled in e-commerce into a seven figure business owner, author, and host of one of the most popular e-commerce podcasts out there. Now he is sharing his tips with other entrepreneurs, offering sets of specific steps to follow to create a business that will allow freedom and flexibility.

From the construction career he left at an early age to starting and building a successful photography business, Scott has built on his entrepreneurial nature for over two decades. In 2008 he started selling photography products online and soon realized it could become a full time income. Fast forward a few more years and he started to hear more about Amazon FBA model and how some people were making good money using the platform. He started researching and listening to any valuable information he could garner then used all the know-how he'd gathered and applied it to his product listings.

Episode Highlights:

• How Scott and his wife got their start building a business from the ground up.
• Scott discusses the path he took and how the book delves into his future plans.
• Whether he finds the pathway to the end goal more difficult than five to ten years ago.
• How Scott is evolving from being "The Amazon Guy."
• Helping others with the book and the action steps he outlines.
• Scott addresses the question of finding time to start a side hustle.
• Learning how to schedule downtime once success allows for less work time.
• Tips for finding that future-proof opportunity.
• Taking the affiliate marketing path as an opportunity to learn your market.
• Using channel diversification as a building block.

Mark: Joe recently I sent you a book through Amazon that I was hoping you would read and I'm assuming that's the next book on your reading list, right?

Joe: No. Sorry.

Mark: I'm not going to buy you any more gifts.

Joe: No. Now you sent it to me via Amazon and I think I have to download it onto my Kindle app.

Mark: You haven't even downloaded it?

Joe: I haven't even downloaded it.

Mark: Oh my goodness.

Joe: You're just trying me. See the reason I haven't is because it's a productivity book and you're trying to get me to be more productive but I haven't read it yet so I'm not as productive as I could be. Do you see an excuse thing going on here?

Mark: Productivity is one of those things that I'm sure everybody's like Joe is terrible at getting stuff done.

Joe: This book I'm holding out for those that are on the YouTube channel. Thank you for being on the YouTube channel, by the way, you're awesome. This is the book I'm currently reading it's called the Take Action effect By Scott Voelker; a friend of ours and we just had him on the podcast. And that's what the book is all about. It's a combination of, and this is why I'm not reading the book you sent me. And I have one more in front of that by the way but this one is amazing it's really telling Scott's story. Scott as lot of people know has a podcast called The Amazing Seller podcast. With the audience he has every month he could fill up the Bank of America Stadium here in Charlotte and I think that's like 25, 30,000 people. He started out just telling his story building an Amazon business and everything he was going through. He just laid it all out on the line. He's really transferred himself or transformed himself into someone that is first and foremost helping people take action in their lives and he talks about this in the book and how he did certain things in his life and what an impact it had and what it led to next and next and next and now where he's at running a 7 figure business with the lifestyle that he wants. It's still one of the most important things about Scott and the book and the action steps that he shows people how to take is to run a business, set your own goals, how to set goals properly with vision boards and different things but with a lifestyle that you want. This is not a get rich quick scheme it's a book to build the life that you want; how to take certain steps and actions and if you want to run a 10, 20, 30, 40, 50 million dollar business great. These will help and there are some examples of that; of people that are doing that. But if you want to just earn an extra couple of thousand dollars on the side and build the business slowly there are absolutely some steps in there for those folks as well; people that are listening now that still have full time jobs that don't dare buy a business this allows them to take certain steps and actions to do that and build a safe business that's going to be relatively passive that they could do part-time as they build that up and eventually quit your day job work and sell it through Quiet Light.

Mark: One of the things I like about this is the idea of having a purpose to what you're doing. And I think there is this tendency to chase success, chase success, chase success, and we put in our minds that success is a certain business goal while we ignore the other aspects of our life. And I know over the past 13 years running Quiet Light Brokerage I've run across so many successful entrepreneurs who have built amazing businesses but frankly are somewhat miserable because they've built prisons for themselves. And we talk about why are people selling. Sometimes it's just because they've built that prison of a business and they need to get out. And they realize that they need to readjust their life priorities. I love when we meet people like Scott, like Ezra Firestone, and some of these other guys that have reached certain levels of success and now what they're doing is they're really trying to just be helpful and really contribute to that entrepreneurial community with some of the lessons they've learned. And I love the focus of this book. I love that it's a system out there to help you identify what's really important and have everything else flow into that, set the real goals out there and build that system including the business that fits those goals.

Joe: And it's just that Scott is a real guy giving real-life examples of things that he's done and the path that he's taken and he's giving real advice here that is action-oriented. And it's a mindset. It's inspiration. And they're steps to take as well. It's one of the best books I've read in 2019. I highly recommend everybody take a listen to the podcast and at the end and in the show notes here you can go to take action effect and download or buy the book. It's available. He went further than our very own Walker Deibel, he made it available in the audio version as well.

Mark: Walker needs to step his game up and start a recording. No. Fantastic. Let's get to this episode here. I love introducing our audience to people that we find to be good friends of Quiet Light because they share some of our mission and purpose. So I'm excited to share this episode with everybody.

Joe: Let's get to it.

Joe: Hey folks Joe Valley here from the Quiet Light Podcast and today I have a guest that is back on. But this time he is a published author on his way I'm sure to being a best-selling author. Scott Volker, welcome to the Quiet Light Podcast.

Scott: What's going on Joe? Thanks so much for having me.

Joe: Welcome back I should say. I just saw you a couple of weeks ago at Brand Accelerator Live; a fantastic event where you launched the book, a big hit and my goodness I'm looking at some of the reviews and they're fantastic. And I'm reading it myself of course. And let's get into that but first for those folks that don't actually know who you are why don't you tell us all about Scott Voelker?

Scott: Yeah. Well to kind of sum it up I've been at this basically creating businesses that allow me to have the flexibility, the freedom, that's always my first and foremost. Back when I was like 21 years old I was working for my father's construction company and from there I thought I was going to own that company one day and then that partnership and son in law that was stealing and some craziness I soon saw that that wasn't the path that I was going to take. But I wanted to still be able to work for myself and my wife and I started a photography business, learned the ropes through good old trial and error, and built that into a business that allowed us to take our kids to school and home from school and all of that stuff. And it's really important me to watch my kids grow up and I've got 3 kids ages now 11, 21, and 24. But I've been at this for over 18 years and really building businesses hasn't really changed just the platforms have changed. And so when I wrote this book I wanted to go through and tell the story of myself. Someone that didn't have a college degree and felt a long time ago that I kind of felt to myself like I wasn't smart because I didn't go to college. But then after kind of building some businesses and watching other people go to their 60 plus hour a week job and then seeing myself not have to do that I was like well wait a minute I'm going to give myself a little bit more credit. I've done okay. And so it in a nutshell that's what I do. I just love building businesses. But I like more about just building a business it's more about the freedom and the flexibility, stability and all that stuff.

Joe: And that is what you talk about in the book. Let me just; I don't think I said what the name of the book is. It's called The Take Action Effect.

Scott: Yeah.

Joe: Proven Steps To Build a Future Proof Business And Create Your Ultimate Freedom. I'll hold it up here for those folks that are on the podcast; I'm sorry on the YouTube channel.

Scott: Yeah.

Joe: One of the things that you talk about in the book really hit home with me and that is that your wife had that first idea for you to go off and on your own.

Scott: Yeah.

Joe: And it's and it's continued in your relationship. You guys work through all of your business opportunities and ideas together, right?

Scott: Yeah, 100%. I mean she was my take action moment as I talk about in the book a lot. I think we all have these moments in our life that something happens; like a decision happens that we make either because we're forced to and then we see the result from it or we choose to, we take that leap. And I was frustrated with my job and I thought I was going to own this company and then found out that it wasn't going to probably happen and we needed to figure out another way. And then that's when my wife had said maybe we should start a photography business which at the time we didn't have digital it was all film based not YouTube videos to go out there and educate yourself. So Scott that wasn't a good student in school had to figure out how to go through and teach myself Photoshop and just how to run a studio and we did that. But yes she was the one with the idea and still to this day she's always the one kind of nudging me a little bit and saying like you should probably listen to this. Even the podcast The Amazing Seller Podcast that was because she said that you should; I had the idea but she was likey should probably lean into that a little bit and here we are.

Joe: That's funny you know my wife usually has the idea and then I have to go out and do it. It's a running joke in 20 plus years of marriage. I was going to I think our wives are very similar. Our marriages are very similar but it sounds like there's one distinct difference is that my wife comes up with the idea and I have to execute. So you're taking a lot of past so it's interesting from a construction worker to entrepreneur in the photography space before really the online world existed and then discovering it through eBay and then Amazon and then The Amazing Seller podcast.

Scott: Yeah.

Joe: Can you just talk about that path a little bit and talk about what the Part 2 of this business about this book talks about?

Scott: Yeah. So like I said the photography business being brick and mortar I learned a lot about how to get clients in the door. And a lot of people say like Scott when you start a business should it be your passion. And if it could be then yes that would be amazing because then you would love to work on it every day. But I wasn't passionate about photography. I was passionate about getting out of my job. So my wife was passionate about photography but then I started to develop these passions and that was marketing and that was Photoshop and video editing. And the way that it kind of led me to really the online space and e-commerce really was my wife was looking for props on eBay. So in our business, we always were unique in the way that we had props. We had certain sets and we had like a lot of backgrounds that cost us 2 or $3,000 and people would pay just to come in because we had this hand-painted backdrop. So my wife was looking for this cedar bridge that she had seen somewhere else and she found one on eBay. It was like 130 bucks it was a little 4-foot little wooden cedar bridge. And so then as she was looking at one of the other stores that she shops at she's seen the same bridge for 30 bucks and she's like it's selling for 130. I bought one for 130 maybe we should try to sell this thing. I said okay. So then that's where we got the idea and we started selling those. Actually, we took the minivan over to the store and we loaded it up and we packed that thing and that money actually paid for our kids tuition for a private school. And so that opened my eyes to eBay and like what else could I sell, right? And even though I had a business I'm still thinking to myself as an entrepreneur like well that wasn't that hard. Maybe I should try to find more things to sell. So then we actually started a video business on the side of our photography business; they kind of work too, you know one of the same. And then I started building these projectors to transfer old 8-millimeter film. So the old 8-millimeter film that we use to have grown up as kids it was a lot of times silent film but there was some sound when it got; I think it was Super 8 and then I found a machine that was modified to transfer the film. And so when I got that I kind of looked at it and being in the construction world I'm like this is just a modified projector. Let me go ahead and reverse engineer what they did here and I did that and I started selling them on eBay for about 800 bucks. I was selling one or two of them a week.

Joe: Wow.

Scott: Yeah, so I made about 100,000 on just old projectors that I modified for film transfer and that's kind of what got my wheels spinning about this online stuff.

Joe: And it never would have happened if you didn't; I'm going say this so many times, taken some action, right? Entrepreneurs are special people. They come up with an idea and they don't think about it and think about it and think about it and think about it. They've got to do some planning, of course, the more complex world we live in you've got to do some planning especially when you're going to spend some dollars. But I think maybe Scott back then when you and I didn't have any gray hair we were able to take action a little simpler and a little quicker, right? I would just with that whole ready aim fire or ready fire aim what is it?

Scott: Yeah.

Joe: Those things, right? And I just take my path and hustle and work hard and get it done and figure out the road to that end goal which I knew what the end goal was. I just didn't know the road or the path.

Scott: Yeah.

Joe: Are you finding now given that you've; I mean you've done all this for 20 years an entrepreneur in many, many different past and you've coached thousands of people through The Amazing Seller podcast and many of them 6, 7, 8, 10 figure exit eventually.

Scott: Yeah.

Joe: Are you finding that the pathway to that end goal whether it's an eventual exit of a business or just a one of a lifestyle where you can drive your kids to work every day and spend more time with your spouse and you take family vacations, is it more difficult than it used to be in your opinion?

Scott: I think it depends on what your final outcome is. I think for a lot of people it's not about building an 8 figure business just to say you built an 8 figure business; to some people it is. It's like bragging rights but for a lot of people; and I know you told me a story about a guy he was a stay at home dad I think and he built his company in 2 years without pulling a dime out of it so they could cash it out and then live off of that and live the life that they wanted. So I think for a lot of people it is that. So for me personally I think it is I don't want to say easy; it's simple. Nothing is easy. Like everything that I've ever done, there's always been struggles and issues that you have to overcome; whatever like that's business. You just have to learn how to adapt, how to move, and adjust. But I think it is actually easier nowadays to build a business that you can potentially exit. And actually getting to know you more, getting to know the team over at Quiet Light has actually got my wheels spinning once again at looking at this as an opportunity for me to build something maybe from scratch, get it to a certain level, and then sell it, and then you just repeat that process. Like I could build a team to just help me do that. So again my wheels are always spinning. And the more I talk to you and I start hearing these stories I'm like that seems like a pretty straightway to go. But the principles and the concepts are pretty much the same. They haven't really changed. And that's what is in the book is really these pillars; these core things that make up a market, make up products, make up traffic; like all of that stuff hasn't really changed. The platforms change but the principles never change.

Joe: You addressed some of the approaches in Part 2 of the book about building your future proof business.

Scott: Yeah.

Joe: You started out as an Amazon guy, right? You were selling on Amazon telling your story in the podcast but you've evolved quite a bit. Can you address that and then we'll talk about how the book addresses it as well?

Scott: Well yeah but the book itself actually is my pivot. So we talk about pivoting all the time. So when I started the podcast you're right I was getting into the Amazon game just like everyone else was. It's just I was kind of doing it and other people were just kind of consuming information and saying like I'll wait until we have all the pieces that are working or all of the answers, right?

Joe: You were telling your story whether it was a success or a failure and everybody was listening.

Scott: Exactly. And so as I started to do that I also started to see how the market was shifting. So when the podcast was started it was Scott the Amazon guy. And then after I started to kind of see that the market was changing, more competition was coming, and it was getting a little bit riskier I'm like I don't want to go down that road. Now that doesn't mean it can't work. I just don't want the headaches of constantly just worrying that my accounts are going to get shut down or whatever. So I'm like I'm going to go back to basics build a business from skill sets that I've built and I talk a lot about that in the book like everything we've done we've built skill sets that we can then leverage in the future. So for me to really go down that road of like okay where was I van and where am I now, it's all about evolving; all about growing. I mean I think we're all doing that as we learn more things like even like when I first started I didn't think about having a brand that I could exit. And now I'm thinking; a lot of times I'm thinking to myself could this brand be sold, what would it take to sell this business? So a lot of times I'm thinking more along those lines now. But like I said people are always kind of like thinking of me as the Amazon guy and I don't want to be known; I don't want to 20 years from now be Scott the Amazon guy. I want to be the guy that helped people build a business that allowed them the life that they want and that they deserve.

Joe: That's what I'm seeing with the people that I've met that have listened to your podcast and then to your events and are connected with you in any way. Whether it's Brand Accelerator Live, your inner circle Mastermind group, or The Amazing Seller podcast; they're not just building Amazon businesses, they're building businesses that will allow them to live the life that they choose to first and foremost.

Scott: Right.

Joe: Some of them that's all about building value and exiting and others it's all about taking care of others. Rachel; I had a conversation with one of your followers, listeners, attendees, whatever you want to call them, Rachel we don't use the last name but an amazing story. She's building a business so that she can help others.

Scott: Yes.

Joe: She's going to make money off the business but that's not the focus. The goal is to be able to use that money to help others foster children charities and things of that nature; really good people. You're building good humans which I think is terrific. You're surrounding yourself with them as well.

Scott: It's pretty awesome. It's funny Joe I was just listening to the Ask Scott session that we recorded there live at Brand Accelerator and it just happened that the one lady came up and was telling us about her problem and her problem was is that she was wondering how she was going to keep up with the amount of scale. And I said that's a real bad problem to have. And I knew you were in there; I thought you were in there and I called you out and I go I think this is a question for Joe later kind of let him help you on that. But it's really; it's pretty rewarding to sit there and think to yourself I had something to do just because I showed up, pressed record, and started helping people. That right there that will; to me that surpasses any amount of money that I can make from a podcast is hearing other people's stories and how they're set up now to really live the life or maybe donate to their charity. That's like again the effect of the take action is the effects of that we're able to do the ripple effect on other people but also on your life and your business. So it's really about the ripple effect all the way through.

Joe: Yeah, not necessarily about just building that business and exiting it. It's everybody involved along the way.

Scott: 100%.

Joe: That lady was Karen by the way and she did have some good problems, right? People wish to have her problems.

Scott: Growth every year, year after year, and I don't know…

Joe: Yeah. How do I keep up with buying more inventory? One of the things that you talked about which I think is really, really important both in the book and on stage and I'm going to just summarize for anybody listening. This book really encapsulates everything Scott's done in his life and what you've done in your life, Scott. But then it also gives a pathway to taking action and seeing what the impact and effect of that action is. But someone said look I'm busy I've got a full-time job. I'm trying to do this. How did you find the time for that? How do you find the time for this if you; you're an advocate of don't quit your day job if you have one do a little side hustle and build this over time until it's safe to exit. How would you address that question but Scott I just don't have time?

Scott: Yeah and I actually I address this on stage when I came to that point because I shared my story that I was working 60 plus hours a week for my father's company running I think was like 13, 14 guys at one time that were underneath me making sure that those jobs got done. So I was always the first one there and the last one to leave like always. On the side, I was building a house from scratch. I was like 25 years old.

Joe: That took a little time.

Scott: It took me 11 months. And I remember Joe my mother in law lived up on the Hill. She lived probably I don't know maybe 500 or 1,000 feet. She was up on a hill though and she could look down and see the property. We had two acres. And I remember one night I wanted to get this one spot on the house done outside. It was up in the peak. I had a 30-foot ladder up against the house and I had floodlights out there at 2 o'clock in the morning because I wanted to finish. She couldn't sleep because she was worried about me going to fall and I'm up there nailing up my siding because I wanted to get that peak done because I didn't want to come back to it the next day and do it. And then I got up at 6x o'clock and I went to work. So when people say I don't have time I don't have sympathy for that because you probably have time you just are not really wanting it bad enough in my eyes. You know what you're watching your TV show or maybe you're taking an extended lunch break or maybe you're just oh I need my 8 hours of sleep you know like get 6 for a month, right? I mean it's not going to kill you but if you really want it bad enough you will find the time. And I've done it. My photography business when I was learning that when I was getting ready to leave my job I was up till 2 o'clock in the morning figuring out Photoshop. I was figuring out how we were going to do billing for our customers. Like I was figuring out all that stuff late at night and then I'd get up and I'd go to my job because I wanted it so bad. And I was so interested in it because I wanted it so bad.

Joe: Yeah you are preaching to the choir if I'm the choir right now because yeah look the thing that I see consistently I mean I've done this in my life you and I have been self-employed for about the same amount of time and it's always started with a side hustle and then work like crazy. As you are building that business you're not really making a whole lot of money. You're not taking anything out and oddly enough when you're making the most money is actually when you're not working as hard in my experience.

Scott: Right.

Joe: You get it up to that level and it starts to just; it's a scalable business. And with that scale, it's starting to generate enough revenue to kick off and then you can quit your day job and then you can live that lifestyle that you want. It's hard though when you're a hard worker and a hustler like yourself and like so many people that are listening. How do you shift from that I'm used to working, I love working, I'm going to work, I'm going to work, I'm going to work to I'm going to sit down and I'm going to have coffee and breakfast with my wife every day by the pool at 8 o'clock? Do you have the discipline to really reschedule your downtime?

Scott: You definitely have to schedule it for sure. You have to schedule it and I'm getting better with that like I'm still not perfect Joe. I have to make sure that at 6 o'clock at night that's my cutoff. I'm not going to do anymore posting and I'm not going to do any more answering. It's hard because we can work as long as we want. And when you start to see momentum you want to work more because you want [inaudible 00:24:18.18]. But I've made it very, very clear in my life that I want to have that time. I literally wrote out a vision board and really I created a video years ago that I wanted to see come true. It wasn't like you know the woo-woo stuff but it was like what am I working towards. And one of them was having a coffee and breakfast with my wife. And so here we are many years later and literally, I just got in now. I mean I started my day today at 10 o'clock in the morning. I had a first interview at 10:00. I dropped my daughter off the school at about 7:45. My wife and I got back here. We went out to the pool. I had coffee. I was out there with the dogs. I had my laptop. I was answering a few emails; doing stuff. I'm out there chillin' with my wife hanging out. And that's what I want my life to be. Now could I be doing other things to try to make the Amazing Seller bigger or my e-commerce businesses bigger? Yes, I could but I choose to; like that's kind of like my time. You know what I mean?

Joe: Right?

Scott: And I do think it's hard. You have to be disciplined. A lot of people say Scott I could never do it. I would never get any work done. Then maybe you do need a job.

Joe: I've heard that often. I couldn't work from home I could never get any work and that's just discipline. It's focus and discipline.

Scott: 100%.

Joe: We've gone from how do you find the time to do this extra side business and side hustle and grow it to how do you schedule your downtime so that you could work. You don't need to as much but scheduling your personal life to make sure that you're there for your family and things of that nature. My kids are older than you. Well, not actually mine are 16 and 18 right. You've got 21?

Scott: 21, 14, and 11, yeah,

Joe: So I've driven my kids to school from kindergarten right up until last year when my oldest got his license and it's an honor, right? It's a privilege and an honor to be able to do that. And when they look back someday that's what they're going to remember. They're not going to remember that Dad was making more money or something like that. So from finding time to scheduling time; your book specifically talks about all of that in your life and creating the mindset of action and everything you've done in your life. But can you address like a little bit of the how to's in terms of building that future proof business and the steps that you go through with the folks that are listening.

Scott: Yeah. To me, it's very, very simple and even if you're looking at this because I know people listening here are probably looking to possibly buy a business or sell a business. Here's the deal. Like whenever you're looking at an opportunity you want to first see if there's a market already there. Like a lot of people say I want to invent a market. That's risky because we don't know; I mean if you ever listen to Shark Tank they always say has the market validated the product? No I don't have any sales it's in pre, or we're kind of building this thing out, it's in pre-production, or we're in like the pre-stage and they're like come back to us when you have sales that the market actually voted and said we actually want and need this. So the market is critical. You have to have a market. Now I'd like it to also be a submarket. So we could talk about like and I always talk about the bass fishing. So if we went like fishing we would niche it down into bass fishing. If we wanted to go one level deeper we could go kayak bass fishing. And then we can really own that category and then we can also build out of that category to serve a wider part of the market. But I always like to look at the market first. Then from there, I want to see what's the potential in the market? And that could be going to Amazon and seeing how the products are selling using a tool like Jungle Scout or whatever tool you want. We have these tools that let us know the market's buying these products. Now we can either sell those products ourselves as our own brand or we can affiliate market those products. We can do all kinds of things. So I want to validate that there are actually sales being made there.

Joe: Let me just stop you for a second because some of the language you're using I don't know if everybody knows it. Talk about the affiliate marketing aspect of it because it's a brilliant path that you educate people on taking.

Scott: And I'm going to be doing more of it Joe; I got to be honest with you. I was just thinking about this this morning I'm like man there's so many things that I could cover just for getting back from Brand Accelerator Live. People get stuck at the I've got to launch products or I've got to grow mine. If you bought a business; right now if you bought a business and you're thinking I don't want to launch a whole bunch of products because it's something a whole bunch of capital. Why not take the content side of things. Build out traffic and start putting out products that are related to your product as an affiliate bringing some revenue but also get them to vote that the products that you're putting out there from them they want to buy then you can private label them. So I think it's an easier way to get started. If you're just listening to this and you're getting started, the easiest ways to start looking at the market and how much traffic the market has. And then from there can you get in front of the market by getting attention by posting content, building an email list, like getting attention with influencer, whatever. Then you can start to say okay all these products I'm not going to private label all these it's going to cost me a small fortune. I'm going to start putting products out there like a kayak bass fishing boat. Like I might do that but I'm not going to sell it as my own but I might do an affiliate offer for it. So basically on Amazon, we can use their whole catalog. We can become an associate for them. And it's not going to be a ton of money it's 4%, 8%, depending on where your bracket is; the category but it's a nice easy way anyone can get started. It's not going to cost you hardly anything to set up a website and to start posting content. You can write it yourself or have someone else write it and then just start building that over time.

Joe: It's a great way to go back to discovering your market as well because as you niche it down people are going to buy certain things and you can say okay well that one's much more popular than the other.

Scott: 100%.

Joe: The tools like Jungle Scout do that very, very well. But this is an action you've got proof in your own bank account which ones they like more. What about the multiple channels. You and I have talked about this before. We talked about channel diversification. That's something you talk about quite a bit here as well.

Scott: Yeah. Well, I think again there's a lot of businesses that are very successful and you sell these businesses just Amazon FBA. We got someone in my inner circle that bought I think 3 businesses from you guys already.

Joe: 3.

Scott: Big businesses too; crazy amounts. I mean one of them is doing like 6,000 units a day like insane.

Joe: Yeah.

Scott: And you know what I mean? So it's massive. So the potential there is huge but also I look at like there's a little bit of risk there because if that channel decides to go away or they shut your account down there is a potential. So I want to build a back end support there in some kind. So I want to start building content. I want to start getting my own traffic so that way there I could lead people over to my Shopify store or I could leave people over to my channel if something shall happen. Now if it doesn't; great, keep using that. And I don't; I never tell anyone not to use the channel. Use the channel. Leverage the heck out of it. Drive traffic to Amazon. Build up your rankings. Do all of that stuff. But I do think that having your own email list is a must. I think having your own content, your own home base I call it; your own blog, your web site so this way you control that asset. And to be honest with you Joe like I'm really interested lately and I think I talked to you about it, content sites to me are never going anywhere. We're always going to have content sites. We're always going to have information that people are going to be searching for. So for me what I'm looking at doing is starting something and building it over the course of 12 to 18 months. Now listen to what I just said there over 12 to 18 months not 3 days or 30 days. It's going to take time for the search engines to kind of pick it up and get it indexed and all that stuff. And if I can build that piece of property like I used to do in the construction days; I find a piece of property, I build a house on it, I get some revenue coming in by renting it out, and then I might want to sell it. That's kind of what I'm thinking about. And there's ways you can do that without even having to launch a physical product until you get to the 12, 18th month. Then you can decide what you want to do. But you can start getting revenue coming in from affiliate offers, from AdThrive, Mediavine, any of these other networks just from the content coming in. So for people that say I can't get started because I don't have the capital, I don't have the know-how, I don't have the time, do something like even if it's just building out a content site over the next 12 months do that. Just do that.

Joe: Yeah I think again taking action, right?

Scott: Yeah.

Joe: We just got to say that whole lot here; the take action effect. This book as I've read it and as I've talked to you, you are an interesting mix of inspiration and how-to; and you are the book. That's what emanates. You call it a pivot I call it it is what you are, you're inspiring people to go beyond their current capabilities or to get started and take some action but you're also teaching them how to do it. So it's a nice blend of both and was that the main objective of the book itself?

Scott: It was actually a little bit difficult and to be honest with you Joe because I didn't want to just be let me show you how to start a business. I wanted it to be for someone also that has a 7 figure business right now that are 100% dependent on Amazon they read the book and they go oh I can do all of these other things and then probably bring in more revenue, bring in more traffic, get a better multiple when I go to Joe Valley and Quiet Light. So I was looking at two different paths. So as you're reading the book you're going to hear me talk about if you're feeling stuck at your corporate job right now and you feel like you can't get out of it here's what you could do but if you already have a business you should do this too. So it's kind of like you're serving two camps. And it was kind of hard when I was going down that path because I wanted to really talk to both people not just the person starting.

Joe: Yeah and I think it's an important message for both. For those that have bought a business that want to diversify beyond Amazon and those that are listening to their spouse and that spouse is saying honey we've got a great gig here you've got health insurance and a retirement plan are you crazy you're going to buy an Amazon business and [inaudible 00:34:05.8]. No, you teach them how to do something on the side as a side hustle and let it grow and take less risk but still have that that additional income down the road or a decent exit as well which boosts the retirement plan. Right, Scott? The book itself again folks it's called The Take Action Effect; Mr. Scott Voelker from The Amazing Seller and beyond. The beyond card is you just do so many other things. How do people find the book; where can they go, what do they need to do to get this in their hands and learn everything you've talked about?

Scott: Yeah, just go to TakeActionEffect.com and there's just a simple page there. It'll tell you a little bit more about the book and it'll lead you over to most likely Amazon you get paperback hardcover or the Kindle; pretty affordable to be able to take this information. I don't think people are taking the value in a book is much as they should. It is a way for you to really understand me and my story but also who I've helped and who I want to help. And it allows us to start that relationship because I'm all about relationships. And I want to be able to build a relationship with you way before you would ever hire me or come to one of my workshops or inner circle or whatever. And this book is a way to do it. It's a really, really small investment to be able to really get you thinking differently because the way I look at it Joe is we're installing the Take Action mindset. We're taking this to where you think you know what I don't think I can do this and by the time you get done with even the first; probably quarter of the book you're going to feel like you're going to conquer the world. And that's what it's really all about. Now, Joe, before I do end this I'm going to ask you a question.

Joe: Yes?

Scott: I want to know one of your take action moments.

Joe: Okay.

Scott: What's something that you can recall that you're like if that never happened my life would be totally different.

Joe: Let's see. Well going back to your vision board I did something very similar once upon a time and it was a Tony Robbins program writing down my goals and envisioning what they are. And I literally; and this is I described my life; I put it all down from the lifestyle that I wanted to live and the type of woman I wanted to marry. Lo, and behold within 6 months I met her.

Scott: Wow.

Joe: I showed her the list maybe 18 months later and it described her to a T. So that is a Take Action moment for me in terms of writing that list down. Now it changed over the years in terms of my goals. At one point I wanted to have the boat in the harbor in Portland Maine. Well, I live in North Carolina right now that's not really going to happen. And I didn't want it once I had kids. I couldn't really spend much time with them on a boat in that situation. The other one Scott when I'm at Brand Accelerator Live is; I mentioned it before we started recording, is that I have taken action on moving forward with my book as well. We're not going to talk too much about it. I'm going to drop a little hint in here and then I'll be quiet for 12 months. But it's something that I've talked about for many years and I've tried and I've tried and I just haven't gotten it done. And you've inspired me to get it done. And some of your tips in the book itself have allowed me to sort of bullet point what I need to do to take more action and get it done; so two impacts right there and I think is going to make a huge difference for me. But again it's not always; like Rachel says it's not always about me or her. It's about how you can help others as well. And I think you're doing that. You're helping others first and it's benefiting you. And I think it's the best way to go about it. So thank you, Scott, for being my friend, for being my colleague, for being on the Quiet Light podcast. I hope to see you on it again.

Scott: Thank you so much, Joe. I appreciate it, man.

Links and Resources:

The Take Action Effect

Scott's Website

Scott's Podcast

Scott's YouTube Channel

One of the misconceptions people often have about Quiet Light Brokerage is that most of our transactions are e-commerce based. In reality, we have got quite a sizeable number of SaaS deals in our portfolio as well. Today, the Saas CFO Blog founder Ben Murray is here talking about his career, the blog, and his passion for sharing the metrics founders need for better planning and forecasting. Through his blog, Ben shares his passion for organizing the numbers, implementing SaaS metrics, and forecasting.

Ben's advice is all about getting the lumps out of the profit and loss. Anyone looking to learn more about the topic both from the acquisition and the ownership side, this is the guy to know and this is the episode to listen to.

Episode Highlights:

• The value in forecasting. Why do it in the first place.
• Things that proper forecasting might protect your business from.
• Software recommendations for businesses looking to get started with inputting the financial data.
• Types of metrics that are important for the owner and potential buyer to dial in on.
• The Rose Metric.
• Numbers a potential buyer should be looking for in a healthy acquisition prospect.
• How deep should the buyer look into the metrics?
• Warning signs to look for in a business evaluation.
• The why behind the data.
• Healthy levels of sustainability in the balance between recurring revenue and sales/marketing expenses.
• How Ben became so interested in the SaaS arena and why he feels compelled to share his knowledge with his readers.
• The cash runway forecast model.
• How to get started in forecasting.

Joe: Mark one of the misconceptions about Quiet Light Brokerage is that some people think we do; the vast majority of our transactions are e-commerce related when in fact we've got quite a sizeable SaaS component as well. And I understand you had Ben Murray from SaaS CFO on the podcast recently.

Mark: Yeah I just recently became familiar with Ben. I was going out and taking a look at some of the people that are writing in this space and just kind of doing some research trying to expand our network in this area and I happened upon Ben's blog and I was absolutely blown away. So Ben is a CFO obviously and specializes in the SaaS arena and talks a lot about the metrics that we want to be able to track in the SaaS world for better forecasting and better planning on the part of SaaS founders. So naturally, I thought I had to have this guy on the podcast. We also sponsored a little ad in his newsletter as well to promote David's webinar. David Newell for those of you that don't know recently did a webinar on how to solve a SaaS business for 6, 7, or 8 figures. We're going to include those in the show notes we'll also make sure that we advertise that in our weekly newsletter if you don't get that; a really, really well received. We've had hundreds of people attend and have had great response from that webinar. We partnered with Ben to help promote that webinar as well. And as I told you Joe just before this call he knows more about SaaS than you and I will ever really know because he lives and breathes this on a day in day out basis. And so we talked a lot about some of the metrics to look at, how to think about some of the metrics, how to calculate some of the metrics in a way that makes sense because we know that we're supposed to be tracking some things like lifetime value, churn, and everything else but how do you actually construct these calculations in a way that makes sense for your business and then forecasting as well. So the topic; I'll be honest, I got a little wide-ranging with my questions because I wanted to ask him every question at once. And it was difficult to stay focused because I wanted to ask every question at once but there's just some really cool nuggets in this podcast including one that you and I talk about all the time and that's cash versus accrual accounting.

Joe: Yeah, most people think about it only in terms of e-commerce but SaaS and content they've got to do it as well just to get the lumps out of the P&L.

Mark: Yeah I mean look it just comes down to this basic concept accounting; double-entry accounting system has been around for a long time and it's been around for a long time because it works. And so we should be making sure that we're actually paying attention to our books in the proper way and understanding what sort of insights we can pull out of this. Ben talks a lot about the need for forecasting which is something that I'm increasingly growing aware of as being an important tool for business owners. And we talked a little bit about how to do that in the SaaS world in this podcast as well so it's super interesting. And I think for anyone that's interested in SaaS both from an acquisition or an ownership standpoint, Ben is a guy to know, this is a podcast definitely to listen to.

Joe: I'm looking forward to listening to it myself. Let's get to it.

Mark: All right I have Ben Murray from the SaaSCFO.com, Ben thank you so much for taking the time for a conversation here on SaaS businesses, CFO and everything metric heavy. I'm really excited for this conversation.

Ben: Thanks Mark, it's great to be here.

Mark: So let's start out pretty simple and give just a quick background on yourself; what you do, and also a little bit about the blog. I found you through your blog the SaaSCFO.com but a little background on yourself so that our listeners know who I'm speaking with.

Ben: Sure yeah. My name is Ben Murray and I've been in finance and accounting for the past 20 plus years and my background has been airlines and software specifically SaaS. And so I've been a SaaS CFO for about the last 8 plus years or so. And about 3½ years ago I started blogging at the SaaSCFO.com where I just wanted to share my metrics, models, templates that I've been using and creating over the years and hoping that others will have; they could use those and implement the models and metrics in their businesses right away.

Mark: Yeah and look there's a lot of people that write on this material, right? I've come across a lot of different blogs that kind of become this intersection of marketing and metrics and company structure and everything else. Yours is really focused on metrics and metrics from a kind of financial outlook perspective and probably a deeper dive than I found in most other places. So I can definitely really, really appreciate what you're doing here on the blog and some of the information that you share. I want to start off with just kind of a big question, your website title is Ben's post on SaaS metrics and forecast; pretty simple. I want to talk about that second half there and the forecasting side of it. I know a lot of business owners and even buyers who are looking at acquiring a business look at forecasts with a bit of a skeptical eye and wonder well what's the real value on them? Now I think people that are growing businesses at a higher level tend to see the forecasts and see the value in them. But I'd love to pick your brain a little bit about the value in forecasting and creating a good forecasting model and maybe what the foundations are for that. So why don't we start with that first question as why forecast in the first place? I mean isn't it really more wishful thinking or is there a real science behind this.

Ben: Yeah there's definitely a science behind it because it really leverages your operational understanding of your business and I really feel you can't forecast until you know where you've been. So really understanding your historical financials, all the metrics around that, and then once you have that then you can put a very good forecast together. But if you don't understand your current financial state it's going to be really hard to create a forecast and obviously, the number one thing is cash, right? Cash is king. So if cash is tight or you think it might be tight you definitely need that forecast to balance resource requests versus cash balances. So that's number one. After that say if you have decent margins then again it's really understanding where your revenue is trending; your margins are trending. And as you scale so you don't get in trouble down the road; if you hire too fast, invest too fast. So forecasts it's definitely I'd say part of science part of intuition but it's really critical I think in any business as you scale and of course just understanding your cash and then the metrics that are coming out of your forecast.

Mark: Yeah, what are some common areas that you see people running into with a lack of forecasting; just kind of sticking their finger up in the air and feeling where the wind blowing today as they're growing maybe a rapidly growing business. You already mentioned one, hiring too fast and bringing on too much support staff maybe anticipating more growth in the future. What are some other things that proper forecasting might be able to protect you from?

Ben: I think when you create that first financial forecast and you have been forecasting it really exposes areas in your business that are kind of weak data-wise. The number one thing is like booking; tracking your monthly bookings whether that's MRR or ARR basis you need to know when new lows are coming in or new customers are coming in any expansion business churn downgrades. So that sometimes exposes that tracking. You're going to be kind of revenue forecast together. It all starts with your booking patterns. So that's one thing. And then it's just basic stuff. What's your current MRR? What are your current customer accounts? How many paying customers do you have so you can put again that revenue forecast together and then it's just understanding where you spend. You know one big thing that I see with SaaS firms is that they're coding all their expenses to one big bucket. And I think once you reach say a million or two ARR you really have to have more sophistication in your financial forecast than you're coding expenses to buy an apartment because without that you really can't create any SAAS metrics from that. So you really need clarity around your expenses as well to see that quite a bit.

Mark: Yeah and so much of this when I give presentations at a conference and I get to the part where I'm talking about keeping good clean accurate verifiable books I get the sense sometimes that it gets glossed over. And I talked to a lot of entrepreneurs who say yeah I know my books are important but then when you find out are they actually managing them well we found out that they aren't and because it becomes sort of an afterthought to it. But what you said there at the end I think is so clear. Once you start having good numbers brought in to the business and you're starting to analyze these numbers it brings clarity to the business as well and being able to identify maybe the risks that are actually present in your company that you aren't seeing because you're not looking at the data. A lot of what you're saying here about forecasting, of course, requires keeping track of the numbers in the right way and you need to start somewhere. For somebody that's maybe at the smaller end of the spectrum in a SaaS operation, say sub one million dollars in revenue what sort of recommendations do you have to make sure that the data that they're getting is A. getting input correctly and categorized correctly and B. do you have any recommended software any recommended systems that you would start out with?

Ben: Yeah I wrote a post because that was a question I was getting a lot on what SaaS accounting software can you recommend. And of course, when I speak with founders 9 out of 10 times their financials are in QuickBooks . So that's kind of a ubiquitous accounting system out there. And I've seen all sorts P&Ls but really it's good organization to your expense categories. Not having too many. Sometimes you see a QuickBooks P&L and it's 50 expense categories and you've got $5 posted in February and 10 the next month; just too much detail on that where a SaaS company is really 70 to 80% employee wages, benefits, taxes, etcetera. So that's the big thing is getting to know your wages classify them correctly; encoded by department. Then it comes down to travel, rent, commissions, so they're big expense categories that are common within SaaS, advertising, that you want to see those coded and classified correctly and kept track of each month so you're not getting behind and have very lumpy financials. So that would be the big thing is just to clearly categorize P&L by expense category and then obviously the other one is just not applying proper reverec which you can't blame SaaS founders that saved some 1 million but they're not playing proper reverec to their revenue. But eventually, you will need that in order to calculate again good metrics, good gross margin and so forth.

Mark: Can you explain that last part a little bit more?

Ben: Yeah, about the reverec?

Mark: Yes.

Ben: So often rates with an MRR business it's not as pronounced where you invoice monthly and recognize monthly but with annual contracts say quarterly, semiannual, annual, multi-year contracts you see a lot of SaaS companies posting that revenue right to their P&L. So, for example, a $12,000 annual contract that should be advertised and recognized over twelve months. They're posting twelve thousand in just one month. You'll see very lumpy revenue that it could be 50 or 100,000 in one month and it's $1,000 a month the next month and I've even seen negative in some months. And with that, you really cannot manage your SaaS business without a proper reverec and that could be finding a SaaS accounter bookkeeper who is familiar with the SaaS business model. But without that, you don't know your gross margins at all. You really don't know what's going on with your business kind of on a good steady run-rate basis. So again under a million, I get it. A million and two and scaling you definitely have to get to that point.

Mark: Yeah. And so in our world again we've talked about this a lot on this podcast and pretty much every chance I get. And it's that simple difference between accrual and cash basis counting, right? Instead of saying oh I just got $12,000 in on an annual contract saying well I have an annual contract which means I need to service this client for the full 12 months and that equates out to $1,000 a month which I'm earning as I go along with this contract. It's kind of a foreign concept to a lot of people. But again the importance here is not treating the P&L like a statement of cash flows only and treat it again as a profit and loss statement. I would imagine Ben, this is something I didn't see on your site but I'm sure you've covered because your site is extremely comprehensive, it would make sense at that point to look at your financial statements and understand the balance sheet is going to be important in here as well. What role do you see and let me see if I can back up; I'm kind of all over the place right now but I'll ask this in a very basic way. I know a lot of people are kind of scared or mystified by the balance sheet. How much emphasis do you think people should put on actually getting familiar with the statement like that or do you think it's more important to look at some of the other metrics instead and focus on those?

Ben: Yeah I think say as a founder-owner you do need to understand the balance sheet to some extent because the SaaS balance sheet is a little different than others. One obviously is deferred revenue, so in the example, we talked about when you invoice that 12k it's actually posted at the balance sheet as deferred revenue; as a liability, because you have an obligation now to say perform or to service that customer. The second thing with the new reverec standards you now have to capitalize the contract costs that arise when signing contracts with customers, for example, enabling commissions now that becomes an asset on your balance sheet. So that's the second area that's different with SaaS and that's actually new and then, of course, capitalizing software development. You can also capitalize software development once it reaches technological feasibility. And again that's another asset on your balance sheet. Other than that SaaS balance sheets are pretty straightforward but if you're applying the proper accounting you probably will see; you definitely should see deferred revenue and probably capitalized commissions.

Mark: Yeah I can kind of hear the collective groan from people listening thinking well I thought we're going to be talking about SaaS metrics here and here we are back in the old accounting stuff but this stuff plays together, right? I mean when we go into some of the other more advanced metrics that you're talking about it depends on having those books done correctly so that you can pull out the right metrics and the right ratios that you're looking for. But let's get into some of those other metrics and just kind of a very basic question here, what do you consider especially forward for companies that 1 million maybe 5 million 10 million and then above as we kind of work up the strata here, what sort of metrics would you generally say are really important for an owner or potentially an acquirer to really dial in on a SaaS business?

Ben: Yeah I think once you're past that early stage where you really have to manage your cash flow I mean it's going to be your go-to-market, sales, and marketing efficiency metrics and that's something I'm constantly looking at. So it's really all; it becomes a lot about the go-to-market efficiency. One are your inbound or outbound sales engine and marketing engines and then one metric that's a favorite of mine is cost of ARR, cost of MRR where you're looking at your ARR and MRR bookings and comparing that against your sales and marketing expense to see how much it costs you to acquire one that new dollar or ARR or MRR; that's a big one. And there's a great survey out there, a SaaS survey put out by KeyBank each year that provides those private company metrics so you can compare how you're doing against other SaaS companies who put data into that survey. So it's a great benchmarking tool. But again there are a lot of sales and marketing efficiency metrics that yeah as you're scaling, how efficient are you, how much cash is going to be required to hit your booking plan, and then really just that balance; it comes down to that balance between bookings and sales marketing.

Mark: Yeah that's great. Let's talk employees it seems to be one of the costs that seems to kind of spiral out of control with SaaS companies on occasion right? The cost of supporting the clients can be higher and higher. You have something on the blog which I'd just kind of chanced upon which you came up with called the Rose Metric. Can you explain that a little bit?

Ben: Yes sure. Again it kind of gets back to the concept that really a SaaS company or any software company is all about the staff; the employees because that's the major expense or as I call merits that investment in the business around your staff. And you see that revenue graph that you metric out there is kind of a general gauge around efficiency which I think is just too high level; too generic. So I want to look at really it's so important that your investing employees, that employees are happy because they are creating that software company; they're creating the product. And really comparing how efficient are we in headcount wages versus the bookings coming in. So it gets you kind of a balance of as we scale what resources do we need to support our bookings plan or rounding plan and just see how efficient we are in acquiring new MRR or ARR against our kind of employee headcount or employee wages.

Mark: Yeah it's an interesting piece and again I'd recommend people take a look at the blog and kind of dig into some of these employee metrics. It's one that we don't see as much in our world and I think it's an interesting one to take a look at. From a merger and acquisition standpoint if you're a buyer coming into a business and trying to evaluate it where are you going to begin looking at a company's books? What sort of numbers are you going to be looking at in trying to calculate within that first day as you're trying to see is this a good opportunity and a healthy company?

Ben: Yeah obviously the first thing you're going to look at is just are they good books are you inaudible[00:19:12.5] accounting so they're good financial statements. And then after that, it's really understanding the health of the recurring revenue because a lot of valuations are based on almost full of ARR or MRR and then also EBIDTA. So really when I look at it you know it's really looking into that recurring revenue; so the bookings data, what's your gross dollar retention, net revenue retention, how many logos are you losing per month, how many dollars are you losing per month, and churn and dock rates. And then of course if you've got multiple products it's understanding all of those metrics by the product lines. Because that's what you're really buying is the recurring revenue stream and of course any profitability or lack of profitability that goes along with that recurring revenue stream in the form of EBIDTA. So those are the same first things that I dive into is really understanding the revenue streams and then really the business model; what does it take to support that recurring revenue stream? Do you have tech support? Do you have CSMs? What's needed support that revenue? And then, of course, another big thing is to go to market engine; understanding sales and marketing, how they're acquiring customers, how efficient they are, and then of course looking into GNA, RND, the product roadmap etcetera.

Mark: Sure absolutely. As far as dealing with a company with weak books like of we're evaluating a company that maybe has this lumpy revenue because they're recording everything on a cash basis. Are there ways that you can suggest that would not involve a whole deconstruction of books but maybe to be able to evaluate a business that has weaker books or weaker data tracking practices?

Ben: Yeah if you really can rely on the financials for the revenue stream then you have to really build a backup through their bookings data or their invoicing data. So getting say a couple years of invoicing history of their subscriptions; so dollar amounts, start and end dates, it helps if you knew is this a new logo expansion etcetera so that you can reconstruct what the revenue stream should look like and then get back into you know what kind of expansion are you seeing, churn are they seeing so you can build out that revenue stream if it's not; if they're not [inaudible 00:21:30.3] to the financial statements.

Mark: Sure. What would be some warning signs that you would look for an acquisition? Obviously, you said you would really look at the health of the recurring revenue. How trustworthy is it? Also the go-to-market cost as well. What are some things that would be just kind of a deal-breaker for you if you were evaluating a business?

Ben: I mean a couple of things would be looking at again I think it's going to be around churn and payback periods. So payback periods are extremely important. So how fast are you paying back those upfront customer acquisition costs. So one looking at their cash balance, of course, are they trying to [inaudible 00:22:10.5] fund working capital through lines of credit or debt that their business model isn't quite working for some reason or the payback period is too long or they have just too much cash tied up in check. And then, of course, new logo acquisition, do they have the go-to-market model proofed out or product-market fit and then again just is churn under control, can they acquire customers but then can they retain them over time. So again those are some of the things that if you see warning flags; you might see some warning flags there that the metrics just as a whole don't add up together.

Mark: Right. You mentioned payback periods. This is something that I've ran into a number of times where I see somebody pretty plainly put out there hey my LTV is this my CSC is this so look I'm going to acquire the customer for 80 bucks the lifetime value is $400 and you're going to make a great return on your investment on that. But when you dig into it a little bit deeper you find out that if you take like an 80% cohort, if you're taking a look at the majority of customers the lifetime value is much lower. There are a couple of unicorns in there that are pulling in this really high value. What are some ways that you can recommend dissecting this when you get this kind of flat up numbers of my lifetime value is X and my cost of acquisition is Y so, therefore, you're going to make that killing on this business. How can you sort of dissect that and actually get some better insights there?

Ben: Yeah especially with LTV because that can be so sensitive to the denominator or what churn number you're using as the dominator. So you really have to understand what inputs they're putting themselves because that lifetime value can be all over the place. So again you mentioned cohort analysis, are they taking the cohorts, are they using aggregate churn or are you looking at really with check and payback periods you should be looking at it's really a point in time like the cohort analysis that what's the most recent cohorts coming in and the paybacks on those and also lifetime churn from the cohorts say from the past 12 months. So you really have to I think look at the details on the numbers that are building up into those formulas to really prove out what they're saying that they can really claim great numbers.

Mark: Yeah, it's one of the reasons that LTV to me I'm not a big fan of that metric on its own I mean it's interesting but I think it's just kind of a live number way. It doesn't color a whole lot when you're looking at it by itself, right? It can really take you to a lot of different factors.

Ben: Yeah and I definitely calculate LTV it's interesting because I think SaaS metrics in isolation don't mean much. You kind of have to look at the big picture obviously it's LTV to check but also looking at cost of ARR payback periods. So maybe it's one data point but it's not telling the whole story. So I do look at LTV but again I think say cost of ARR or the payback on that is a much easier way to understand. And LTV I still think is kind of a ballpark because it's always changing and it's such a sensitive calculation that it's not the number to just look at alone.

Mark: Yeah. A question I get all the time from people and it's really basic in your world so I apologize for even asking this but people ask me all the time well how am I supposed to calculate my lifetime value, how am I supposed to calculate my churn when I have people that are still; that have been with me from day one? And these numbers sometimes can be difficult to calculate because of that or even people that are dropping off but then coming back on and then dropping off again and then coming back on.

Ben: Yeah. I hear that a lot too. Yeah especially if you're a couple of years in you really don't know your lifetime value yet. Again it's just a formula; it's a calculation so it's a ballpark but you don't really know true LTV yet if you've just been around a couple of months or a couple of years. And then the whole dropping off dropping on back on that's where it just becomes almost company-specific that you really just have to define internally what does a new customer mean, when does it really mean that they churn so that everyone within the company understands that. And if you're in any sort of M&A then that's clearly; that you're transparent with how you're actually tracking those stats.

Mark: Yeah. And I think that part right there that point is probably the key that I think is so important especially from an acquisition standpoint. If you're looking to acquire a SaaS company and you're just looking at the metrics on the surface how does that seller define those metrics within their own company and why did they set up those rules because with multi churn you can look at that in a number of different ways. You can calculate that number using different approaches the same way with LTV numbers you can use different approaches and get different results. So why did you choose a certain method; why did you choose a certain approach to this? And that's the color I think from an acquisition standpoint that starts to get really important when you're looking at any of these metrics is understanding the why behind what data is being presented and then the rules and applying a sanity test to it. Are these people just giving numbers because that's what they're supposed to pick or are they actually looking at these and using these metrics within their company, yeah just a really good point on your side as far as understanding the metrics and where they're coming from? Moving beyond that cost of acquisition, moving beyond the lifetime value numbers and you've mentioned a few times the going to market costs as well, what are some health levels for the sustainability of ARR or MRR on a SaaS business.

Ben: You mean as kind of as far as the balance between recurring revenue and sales marketing expense?

Mark: Yes.

Ben: Yeah, so healthy levels, the things that I look at and this is probably more mid-market enterprise but usually if you can acquire bookings for $1 of a new ARR for a dollar of sales market expense that's pretty good. So again there are some surveys out there that kind of give you some benchmarks and that's kind of you can say in whole new logo and expansions of course expansion in ourselves should be a lot cheaper than acquisition, maybe that's 30 to 50 cents of sales and marketing expense acquire one net new dollar of ARR. So certainly it's just that you look in and if it's higher you just need to understand from that business why it's taking longer and what's the story behind go to market. Is that a longer sales cycle that's impacting the [inaudible 00:28:48.6] so just different things to really understand their business model.

Mark: That's great. I'm going to just take a quick break from some of that heavy metric discussion here because we're throwing around a lot of acronyms right now. How did you get your start in this rollout? You said that you had experience in the airplane industry and then also in the software industry. How did you get to be so passionate about this and kind of digging in as deep as you do?

Ben: Yeah well I guess one that you really loved forecasting and financial forecasting though in Excel models and you kind of build-up that tool kit over time and just really enjoy it really understanding the economics of businesses and especially software is so interesting and yeah I did start in the airlines which is also kind of metric intensive and very financially disciplined and I kind of applied that to the SaaS areas. So I just noticed out there a lot of resources on SaaS but it didn't quite I felt go far enough or really just give you the whole story and the template that they were using it kind explained it but then you might have to go do an hour or two of work to recreate what that person did. And so I said; I thought you could be a little different by just providing the exact models, the templates that I'm using and hopefully the bits and pieces of those would be applicable to some people in SaaS that they could incorporate into their business and I received great feedback from readers, subscribers downloading templates that it's helped them out a lot, founders that are trying to do their first forecast. So I just wanted that kind of transparent value exchange out there and it's just really from my kind of on the job experience as a SaaS CFO and just things I encounter every day that are pain points for me that could be pain points for others and just help them out with maybe something with a template that I've used to solve some of those problems.

Mark: Yeah you have all these comments on the site from people who have written into about the resources and I love the one here that says great resources that save a lot of time and brain damage to replicate. It's very true. Again there's a really good stuff on here. You brought up forecasting again so I'm going to start to bring this full circle here back to forecasting because we talked about that and it's a topic that I'm personally very interested in as well right now. You have a whole page here on the cash runway model. Can you explain that at a high level and maybe we can get into it a little bit?

Ben: Yeah definitely because I have my financial plan out there that I live in Excel every day that I kind of take it for granted that other people can also open up Excel or just dive right in and for a lot of people it's still a little too advanced so with kind of that you could say advanced side of financial planning model. So I tried to create something very basic and it is really inspired by a founder I talked to who said that he got some funding just with a super basic cash forecast. So I thought well how could I take that and just make it super simple say for founders and non-excel people to just start inputting even it really gets to their cash invoicing. So they really could forecast their cash balance and how long that balance is going to last. If they funded it and then they're looking for investments that they could say hey here's my cash invoicing coming up, here's my headcount, here are some other metrics; that major expenses and then just forecast their cash balance in one tab. So that was the genesis of it just trying to really boil down to really something basic that founders and again non-excel people could hopefully use right away.

Mark: Yeah. And you have this template available on the site. And you didn't actually answer it's kind of the question I was going to lead into and that is how does somebody get started with forecasting if they don't have the resources for a CFO like yourself what are some basic models that they can put together to start forecasting their cash flow?

Ben: Yeah, definitely. I think really it's understanding their invoicing patterns; so what is your cash coming in whether that's funding or just the invoices you're sending out to your customers or their credit card payments they're making online line through your site. So that's really the first step. It's just that cash in. And then it's going to be headcount. Again headcounts the majority of expense for SaaS company so really and I'm quite informal as to how do we easily calculate and forecast that expense. So whether you've got one person 850 cut that into model, forecast that expense out. So the second thing again is headcount. And then any other major expenses, maybe it's rent, maybe it's tradeshow, advertisements, so it's kind of that 80-20 rule start with those big expenses; start with the big invoices as a place to start to put together kind of a basic forecast.

Mark: Right then as with all things you can refine that as you go along and improve it and make it more accurate and you can look back to see how accurate was our forecasting and get the insights that you need from there and be able to really plan out what's going on or if you're looking for funding obviously very useful for that as well. This has been really interesting and maybe a little bit of a scattered conversation because I want to talk about everything at once. That's my downfall. I've never really claimed to be the greatest podcast host in the world but there is just so much here to be able to discuss. We are up against the clock at this point though and so I want to give you the chance to kind of round it out and with what you do you obviously have a passion for a lot of this in you being able to help out a lot of people. What are some of the common problems or common questions that you get at the blog and what would you say to SaaS founders currently operating a business right now or those that might be looking to get into this through acquisition?

Ben: Yeah I mean the kind of questions or problems that I see really one is just how do you calculate this stuff, how do you calculate these metrics, what are the inputs? And that really comes back to just a nice clean P&L that you take the time; make that investment through your bookkeeper or accountant to really set up a well-organized P&L because that's where all the metrics emanate from. And if you don't have that it's going to be really hard to calculate the metrics and really have that financial transparency to manage your business. So really again it starts with what's your SaaS P&L and I try post on there on my site kind of walking through from bookings down to income; what the major components of the SaaS P&L are and again it's getting good organization and good fundamentals there and then you can build upon it then you can start forecasting then you can calculate metrics. So again it starts with I think a nicely organized SaaS P&L.

Mark: You know I had Babak Azad who was with Beach Body; he grew that company into a billion-dollar company and he was talking a lot about the metrics that they use there and I asked him a similar question about how do you get started; how can you start tracking this and his response was just what yours is and that is just start; you just have to start with it right. And your advice to start with a P&L and having that set up correctly. It's what we've been preaching here at Quiet Light Brokerage for a very, very long time. Get those books in order. You want to have those books in order. It doesn't matter if you want to sell or not. As a business owner having good financial records it's irreplaceable. Once you get it you will be so happy that you've had it. But it starts with how you're inputting it. I've run into bookkeepers; maybe you have as well but I run into bookkeepers especially when somebody hires them remotely who kind of don't want to do an accrual basis books because they consider it to be more difficult but it's the proper way to do it and as you said all the metrics derive from there. Alright, one last time Ben where can people find you? What's the best way to contact you?

Ben: Sure you can contact me through my site. It's the SaaSCFO.com and then actually later this month I'm launching the SaaS Academy.com. It's an online digital course for SaaS metrics and more so that's coming out soon as well. But definitely my blog you can contact me through to the site.

Mark: That's fantastic. Thanks so much for coming on. I hope to have you on in the future. In the future, I'll choose one topic and I'll stick on that for the entire topic but thank you so much for this really good overview episode. I really appreciate it.

Ben: Alright thanks, Mark. Thanks for having me.

Links and Resources:

Ben's Blog The SaaS CFO

Ben's Blog post: The ROSE Metric

Ben's Software Recommendations

David Newell SaaS Webinar

In the world of e-commerce acquisitions, it is always beneficial to explore a transaction from both the seller and the buyer side. In today's Beard King follow-up episode we bring you part two, the buyer. Raj Patel is a law school dropout who has been an entrepreneur for several years. He started to build Amazon businesses while studying full time. Being and entrepreneur and making more money as a student than he would have if he had followed his original career path led Raj to abandon law for e-commerce. Raj looked at over 35 businesses before pulling the trigger on Beard King, his first sizable acquisition. He is here to give insight into his search criteria, the buying process, and some of the ideas he has to grow his newly acquired business. If you missed Part 1, you can listen to it here.

Episode Highlights:

• Raj's background and how he found success in e-commerce.
• Why he began moving towards acquiring rather than bootstrapping.
• The new Amazon third party platform and any impact Raj fears for his businesses.
• The number of businesses he looked and how the search process played out.
• Whether any of the other deals explored in-depth came to offers.
• Why direct calls and face to face time between buyers and sellers is important.
• Aspects of the Beard King business that attracted Raj despite trends and competition.
• Raj's retrospective view on what was done right and what lessons he can share from the acquisition.
• How he boosted his bottom line quickly.
• What he's now doing to boost the topline.
• The foreign markets Beard King is focusing on and how Raj chose them.
• The sources of Raj's experience, how he learns, and how he weeds out useless information.
• How he interacts with other entrepreneurs on a regular basis to avoid loneliness.
• How many hours Rajputs into the new business each week.

Mark: Hey, recently Joe I know that you had Nick from the Beard King on the podcast to talk about selling the Beard King. And today we have part two. You have Raj on who bought the Beard King.

Joe: Yeah it's a great follow up. The first one we get to see it from the seller's perspective and then we get to see it from the buyer's perspective. And Raj is pretty impressive. He is a young guy. He's in his mid-20s, a law school dropout that became an entrepreneur. He was going to law school and building Amazon businesses along the way and realized that there was just no way he was going to make as much money in law school with the demands of law school and life in general afterwards as he is as an entrepreneur. And this is the first sizable one that he's purchased and he goes through the process of the hunt for finding the right business, some of the criteria he was looking for, and some of the changes he's going to make to the Beard King to help grow it over the next 12 to 24 months.

Mark: Yeah you told me before that he had been looking for quite a while for a business and he looked at was it like 30 or 40 different businesses before he pulled the trigger on this one?

Joe: Yeah, exactly. He'd made a couple of offers on other ones that we had listed, it just wasn't in the right place at the right time in order to make it happen. So this one I think is going to work out great. AAs the audience knows that listened to the first one there's a lot of IP around this one with utility patents, design patents, and it's a big reason why Raj jumped on this very quickly.

Mark: Very good. Let's get right to it.

Joe: Let's go.

Joe: Hey folks Joe Valley here from Quiet Light Brokerage and the Quiet Light Podcast. Today I have Raj Patel on the line with me. He bought the Beard King. We had Nick on the podcast last week talking about his exit as a seller and today we've got the buyer. Raj, welcome to the Quiet Light Podcast.

Raj: Thanks for having me, Joe. How are you?

Joe: I'm good man. But where's the beard? I mean we chatted last week there was a little bit of stubble I was expecting a big bushy beard today; what's going on?

Raj: Unfortunately I am not the Beard King. I can't grow a great beard but I do know business though. That's my thing.

Joe: You do know business that's for sure and at a young age; we're going to get into that a little bit as well. Why don't you tell everybody listening who you are, what you're all about, what your background is?

Raj: Yeah pretty much my name is Raj Patel and I've been doing about e-commerce; it's my 5th year in I would say. And I primarily do Amazon FBA but we do some; I do own a couple of sites as well that we do direct to website sales as well like Shopify and those platforms. But yeah primarily we're doing; about 80% percent of my revenue is coming through Amazon FBA right now and riding this wave of how well e-commerce is really doing and this market is just exploding right now.

Joe: And if I recall from our conversations you're 25 years old and were on the path to becoming attorney and said I can't do that, I'm not going to make enough money. I want to be independent, I want to be an entrepreneur and live this life. Is that right?

Raj: Right. That's pretty much true. Yeah. Well, I just turned 26. But it was one of those things where I was making more money while I was in school than I would probably make with a job after I graduate. So I was kind of one of those things that didn't quite make any sense for me to continue that path and I was enjoying what I was doing I got to travel. I'm still traveling all the time and I'm kind of reaping the perks and just growing businesses.

Joe: How many have you purchased; was Beard King the first actual purchase or were the other 2 or 3 that you might own are purchases as well or did you develop those from scratch?

Raj: So I developed 2 from scratch and those are the ones I started with about 4 or 5 years ago when I was experimenting and I still have those 2 today. And I purchased another and then Beard King would be my second purchase.

Joe: I got you.

Raj: I moved away really now from starting my own businesses because I've accumulated the capital so I'm moving more towards acquisitions and finding the right fit and brand and adding my spin to it and sort of the knowledge that gained in the last 5 years in defying that 3 businesses.

Joe: That's interesting you know we've had Walker on a podcast, he wrote Buy Than Build and then Amanda Rob another advisor here at Quiet Light took another approach which is bootstrap, build, and then sell. You've bootstrapped and built too but you're now because you have the capital buying. Do you find it's easier to get ahead when you're buying something because there's revenue that's already being produced or is there; what's the sort of logic between buying now versus taking the time to build?

Raj: Right and to me, it's kind of a timeline thing. I've always been sort of aggressive in terms of expanding and it's to a point where if I start my own Amazon business, I'm looking at a year or 2 out before I can really see the return on my money in terms of the marketing, getting trademarks, getting brand registry, doing a whole bunch of things; graphics, creative, getting all that stuff together as well as building the supply chain in China or wherever you're supplying from and it's really a time thing. I know the work that I put into my first 2 businesses and the timeline it took me to get to where it's at now which was it took quite a bit of time and a lot of work while I was obviously doing other things. And now that I have the capital I'm able to skip those 1 to 2 years of just hard work; not hard work but that sort of figuring things out period and get right into the top where I'm already getting a cash flow positive business that I can just keep adding to it really.

Joe: Yeah. And if you hadn't started those other businesses you wouldn't have been able to buy the Beard Kind. You wouldn't have gotten capital. So there's no perfect process or method for everyone. You've got to take your own path. It sounds like you took one that definitely worked for you and now you're evolving into a buyer instead of a builder.

Raj: And I would say for anybody who's looking to get into it you know it always helps to know kind of what you're doing too. If you have a little experience that's going to help but that learning curve won't be as drastic. So kind of what I know and now that I'm able to pick these businesses I kind of have these 5 years under my belt I can figure out what I generally want and how I can improve the businesses that are out there. So I feel confident purchasing.

Joe: So let me grill you with a bunch of questions as a buyer given that you've just gone through the process and on this one in particular. It's mostly an Amazon business at this point it started off non-Amazon, right? Shark Tank, Shopify, things of that nature and now it's mostly an Amazon. As a buyer, as an entrepreneur, how much do you fear the Amazon third party platform and things changing there and having an impact to your business?

Raj: Yeah I think that's a pretty big concern for everybody because they're thinking oh well I only have one source of revenue but the truth is if you expand to a whole bunch of different markets on Amazon you're having kind of multiple streams of income. It's not just you had to stick to the US and that's it. People always forget that there is a lot of people in the world and expanding; it's not like you're putting all your eggs in one basket. And the way e-commerce is kind of going is Amazon is kind of just out there killing everybody right now. So it seems like though you have to follow this path and if you continue trending upwards Amazon looks like it's the way to go right now.

Joe: So you're comfortable with the risk on Amazon and you don't think it's going away.

Raj: I don't think so, no. I still think it's relatively new and the idea that a couple of years ago you can never build a business like this out of nowhere. First, it was always you take it to retail, you build the supply chain and you're talking 2 to 3 years of just negotiation and relationships and now you can build an entire platform, a business in like a matter of 2 to 3 months which is crazy to think.

Joe: Yeah.

Raj: Things change over time and you kind of have to go with the flow and that's what; this is where it's at. Most of these businesses; Amazon's made it so it's automated for you and you can run these businesses and pretty much just continue to grow it. And whether it be on Amazon's platform or somebody else's or it changes over time you just have to be willing to change with that too.

Joe: And when you were on the hunt for a business to buy were you specifically looking for something that was Amazon based or were you looking for anything that was e-commerce physical products and you didn't care what they were selling.

Raj: No I did like the Amazon platform just because they allowed me to; I do a lot of other things during the day as well and the one thing about the FBA platform is you can really optimize everything that I don't have to put in 30, 40 hours a week. I can kind of put it on autopilot and set it. But the other main thing was ad spend is getting kind of crazy in terms of running Facebook ads and Google ads and all that stuff. It's kind of getting really expensive and I've been noticing the last 1 or 2 years with the drop-shipping model that really pushed up the cost for acquisitions for these and getting clicks. So I was kind of trying to stay away from that because that was something I couldn't really control. I couldn't really control how much I'm going to spend on ads with Facebook and all that but I could kind of control my supply chain and have a relatively good idea of what my margins would be on Amazon.

Joe: I got you. Okay, just out of curiosity how many businesses in total did you look at in the process of finding this one? Talk to us about that process because some people say they've been looking for a long time but they never actually looked at a full package or they've made 9 offers they must be doing something wrong. What was your process? How long you have you been looking and what was your process?

Raj: I would say I was looking for a solid 4 to 5 months I would say and I was looking pretty aggressively. Every day I would look at at least any; I was subscribed to every single email list out there whether it be Quiet Light or whatever other brokerage; everything and I contact; I don't just subscribe to a contact list. I've talked to all the brokers and I would look through all the memorandums and all the offering material. I look through from top to bottom because to me I was always learning something in those. It didn't seem like it was a waste of time for me to read an offering material. You kind of learn how people worked their businesses and you can really gain a lot of knowledge just from reading those as well. So it was never like I didn't; I just skimmed them, I read all them and you could see on my; I don't know within half an hour I'd probably have signed up or whatever new businesses out there and getting their offering memorandum. So I would say 4 to 5 months of just aggressively looking for the right fit.

Joe: And in that 4 to 5 month period how many; rough estimate how many listings did you look at in detail where you've looked at the full package?

Raj: I would say probably more than 40.

Joe: Wow.

Raj: I'd say 35 to 40. And some of those weren't exactly Amazon FBA because not that many FBA businesses are available as you would think in the market that fast. I mean when I was looking I wouldn't see more than I don't know and in a month maybe 3 or 4 new businesses would pop up that was something different or something that fit my criteria really.

Joe: Okay, and of the 35 to 40 that you've looked at how many offers did you make?

Raj: 3 to 4 offers I would say I have made on businesses.

Joe: Did you two go under LOI on any other businesses and have it fall apart in due diligence or did your offers not get accepted until the Beard King?

Raj: Yeah I did actually do one LOI; no actually what happened was I missed it by a day. Another buyer came in and signed the LOI before I signed it and I literally missed it by one day. I flew in in the morning but my offer was late willingly.

Joe: Well how do you; in that regard you said that when you look at these packages you have conversations, with all the brokers that you'd have conversations, it sounds like you're building a relationship with them, do you find that building that relationship with a broker advisor that is representing that client helps if you're making a lower offer or justify some sort of offer or did you that no matter what if you made a lowball offer whatever that lowball is that it was received with displeasure and animosity from the broker and the seller?

Raj: Right. I would always try to talk to the broker because when you send a lowball offer by email it doesn't seem genuine. I mean lowball offers aren't too genuine anyway. But when I talked to a broker I can sort of tell them this is what I'm thinking this is what the business needs this is what's missing kind of justify why I'm shooting them that offer and it's the starting point for me. It's to get the conversation going. If I see that there's some room to work here it kind of gets me more excited to say okay maybe we can get to the number I have in mind. That's not the number I want but I can meet you somewhere in between just to know that you're able to work. Some sellers will be stuck on a price or as we've seen many times too I know we talked about business before that just shot through the roof and they're asking this they went over asking so I kind of can gauge where the audience is slash what the seller is really thinking.

Joe: Yeah, so I think you've gone through the process with me twice because I think you made an offer from one of my listings that had 10 offers if I recall. And I don't recall specifically on that one or not did we do; with the interview with the seller did we do the video call?

Raj: We did a video.

Joe: We did a video call. Did we do that with Nick or was it just audio?

Raj: Just audio with Nick as well.

Joe: Okay. So we're doing video now. One of the things that we've done and moved to as often as possible when it's feasible is on that first buyer call; buyer-seller call we will pop on the video as long as everybody's comfortable with it. I felt that it makes a tremendous difference in terms of connecting. You're in one part of the world, the seller's in the other part of the world and you can bridge that gap. And I've been in situations that I'm sure you've heard this or seen it before where being likable kind of makes a bit of a difference in business especially when you're in other parts of the world.

Raj: I think one thing I've really noticed is a lot of people with their business that they're selling this is kind of their baby, right? This is something that they've been working on for years and to see somebody that maybe is just looking straight at the bottom line and just wants to buy it and just do whatever they want, seller's don't like that. And they might take a lower offer from somebody who seems genuine in their intentions to grow the business and they have a passion for that business. And definitely, that face to face helps with that. That's for sure.

Joe: Yeah. So this particular business it had plenty of interested parties. You kind of stepped up and got the ball rolling with Nick and went under a letter of intent. It's got what? Two utility patents, two design patents, multiple copyrights. I haven't seen a whole lot of businesses like that in my 7 years of advising with Quiet Light. The drawback or the downfall of this particular business I think was the trends. I think you've got a heck of a value given all of the IP protection that it has, the way that the revenue took off right before closing you almost ran out of inventory because things took off because of the Amazon patent protection program. In your searches were you specifically looking for something with this kind of IP or were you just looking for something with great trends that you thought you could handle and take over?

Raj: Yeah. So I was looking for something that had some kind of; something that was proprietary about it and IP is always great because another way to collect and another source of revenue is to enforce the IP and it kind of takes away these competitors. And the one thing I was seeing with business was there were a lot of competitors at the time if you recall and the IP had just gone through. So it's one of these things where I kind of was excited to get in there and start taking off these competitors. And as you saw right before a whole bunch of the competitors got knocked off the platform and the sales they shot through the roof. So that got me even more excited to say well this is just the beginning, right?

Joe: Yeah. If I recall we had a conversation and it was there's a possibility he might run out of revenue; out of inventory.

Raj: Actually he did run out of inventory.

Joe: Prior to closing?

Raj: Prior to closing we went about 2 to 3 days; nothing is in it there but 2 to 3 days.

Joe: But we waited to close. The goal was to no matter what we were going to close after inventory is in stock.

Raj: Exactly, yeah.

Joe: Talk to me about your review now that you've had the business for 3 or 4 months. Looking back you've looked at 40 different businesses, a lot of different brands, what was done right with this business and what lesson can you share that maybe was done wrong in terms of this particular business? And I don't want you to throw Nick under the bus. I think he did an amazing job with the brand.

Raj: Yeah, 100%. I think that Nick has done an amazing job to start off with the marketing side.

Joe: Yeah.

Raj: What Nick has built-in terms of marketing and he has a real keen eye for how to put that vision out there and represent the product in a way that it's appealing to everyone. Also, he invented the idea too which is something that we don't really think of too much, right?

Joe: We all come up with great ideas. He actually followed through and got it done.

Raj: Right. Yeah, he came up with the idea and then he made such a great marketing plan and if you look at how well the website is made, how well the quality of the product is, everything is impeccable that he's done. I think that was really his strength just how well he executed on the marketing side of things.

Joe: And what do you think the weaknesses of the business were in the months ahead of you taking it over or the 12 months ahead of you taking over?

Raj: Yeah so what I kind of look the weakness is we're really just cleaning up the logistics of the business. I saw that there was a lot of money kind of left on the table in terms of the cost of goods was way too much when I was looking at the business and that's when I was already in talks with my own suppliers and everything figuring out like hey we can drastically reduce the price and t explode the bottom line really and get this business; make it extremely profitable from what it is. That was kind of the icing on the cake because I was able to; as you know with this business when we look at the numbers it was kind of like you had to kind of dig deep to figure out where everything exactly was. And by doing that and like you said reading the offering material I was able to figure out like if I clean up the logistics I will easily make this business extremely more profitable than it was.

Joe: So you worked with a manufacturer to modify; did you modify the product or just found a manufacturer cheaper, less expensive, same quality?

Raj: Manufacturer cheaper, same quality, I haven't even; I'm considering modifying it a little bit but the price point I have without changing anything I just knocked up 80% of the value which is crazy. I mean everything that happened off the product…

Joe: Percent of the cost of goods sold?

Raj: Cost of goods sold off of the product.

Joe: Can you put that into dollars?

Raj: Sure. Right now I'm paying; how much the cost of goods is right now?

Joe: Don't talk about how much you're paying, how much did; well I guess people will figure out the math here and we have to…if you tell me edit after this I'll edit and if you're all hearing me say the word edit then we chose not to. What I'm trying to figure out is a lot of people think about how to drive more revenue and you've got a unique approach which is how do we actually maximize the bottom line? I know now that I'm an entrepreneur buyer that the value of this business is a multiple of the trailing 12 months; the discretionary earnings. So did you save $2 a unit times 100 units a month that you're selling or what kind of immediate boost do you see to the bottom line inaudible[00:20:25.5] negotiations?

Raj: I've saved say $6 a unit.

Joe: Holy cow.

Raj: Yeah.

Joe: Holy cow. That's tremendous.

Raj: And it wasn't just the cost of goods it was also the method of shipping; that was a big deal.

Joe: That's right. You've got the capital to do freight versus doing just in time airship inaudible[00:20:44.2] right?

Raj: I had the cash flow to lock up for a month or 2; that's okay with me but when I can take that much off the bottom line that's definitely winning.

Joe: That's amazing. What are you doing to boost the top line? You just said most people focus on the top line instead of the bottom you're doing the smart thing but now tell me what you're doing for the top line?

Raj: Sales fix everything at the end of the day; sales fix everything. You know the logistics thing the reason I started with that first was that was a quick fix. That's something that you could do instantly. Improving the top line, now that might require a little bit of money, a little bit of tweaking, some marketing, and what we've done with that is really expanding and being aggressive with opening up in all different marketplaces; Canada, Australia, UK, Germany. I just kind of hit the ground running with those in the works of launching in all those different countries.

Joe: Really?

Raj: That's what we're working on now and sending inventory over there figuring out the VAT stuff and all that stuff I've done before is just kind of even as we talk some country is only going to see maybe 5 to 10% increase in sales but it's still 5 to 10%. It still adds to the bottom line and still, you're leaving money still on the table and you don't want to do that and so that's what we've been focusing on right now.

Joe: And how did you choose those countries just out of curiosity? What kind of research did you do or is it just countries that you're comfortable with and you've done it before?

Raj: I've done it before and as well as I did a little research on the European ones because as you know it's a little expensive to open up the VAT and all that stuff if you're not choosing but working with other sellers and the experience I know kind of what countries do really well. If you have a North America Amazon plan you can easily open up in Mexico and Canada within like an hour. It's not anything. The listings get sent over and it's not a lengthy process. I just had to send the inventory.

Joe: Did you have to translate the Mexico ads and everything?

Raj: Oh yeah, you have to translate it. They have the translator on there and then you had to run through each of the listings as well because even when they get sent over the listings get converted they don't end up being right anyway so you kind of have to inaudible[00:22:52.8] anyway.

Joe: I got you. Okay, maybe we can do an update in a year to talk about how those international markets went and what kind of additional revenue it was driving. Let's talk about how you've learned to do what you've accomplished here. Are you tuning into podcasts, did you go through any training programs, what is the source of your experience; who do you listen to, what do you read that kind of thing?

Raj: I'm kind of a simple guy in the sense that I really listen to what Amazon puts out there too. They haven't tons of seller university information which is great but when I started watching YouTube videos here and there kind of helps. I never paid for a course or anything like that because I kind of learn by trial and error. I don't think you need a course per se but you're going to make a lot more mistakes if you don't have a clear path to follow. There's a lot of information. I would say it's not really too useful for people or kind of misleading out there too. So it's kind of hard to find. But using Amazon's material and just going to trial and error. I'd say your first product is not going to always work. And I think people are under the impression that if they buy a course and they do this that this is a home run; it's not like that. It's trial and error really.

Joe: Okay, so you're doing your own research; watching, reading Amazon stuff and what they put out versus paying for courses and programs and going to events and things of that nature. I just had a call this morning with somebody that is like Nick he's 12 months after selling his own business and one of the big reasons he sold was he felt isolated. It was growing and there was risk but he felt isolated and alone. And he did the same thing. He didn't have a Mastermind group or anything like that. How do you overcome that? Do you have friends and colleagues that are also Amazon sellers that you talk with? How does that work in your life?

Raj: I'm in contact with a ton of people that we talk almost every day about what we're doing and say oh you know international sellers and see how they're getting what they're doing on Amazon. So they are mass; I'm not part of a thousand, 2,000 group mastermind group but I am part of groups where big power sellers kind of talk to each other and figure out what's going, what's working, these new changes Amazon's made. So we do talk about that every other day.

Joe: Okay, and how many hours a week are you putting in on Amazon altogether or Beard King all together?

Raj: Beard King?

Joe: Sure.

Raj: Beard King by itself I would say I'm putting in about 15 hours right now.

Joe: A week?

Raj: Yeah.

Joe: And you're making more money than most people make when they do graduate from law school. I think you've chosen the right path here.

Raj: Yeah I think I'm onto something for a while now so I'm happy with the outcome and grateful for everything.

Joe: Well look, you did the work, you took the risk, you were in school and focused on building your own businesses as well. You studied up. You took the risk. You worked hard. The harder you worked the luckier you got. And here you are today buying a business with something very rare; a great IP and whole lot of protection with a lot of growth potential ahead of it. It's growing in the bottom line which is fantastic the way that you're renegotiated cost of goods sold and shipping. I'm excited to hear what it does over the next 6 to 12 months for the expansion to the other countries and some other focus.

Raj: Q4 is coming up and we're super excited it's about; we're already up all across the board in revenues and it's just about to take off now so it's in the interesting lap in the next couple of months.

Joe: That's great. Let's get every man in America growing a beard and using the Beard King products.

Raj: That's the dream.

Joe: You've got to do it too though you've got to grow that beard.

Raj: Yeah I'm going to try. It's a patchy beard but I'll work on it.

Joe: For anybody that does get over to the Quiet Light YouTube channel. I think it's Quiet Light Academy now. You've got to take a look at Nick's beard versus Raj's beard and my beard. You and I Raj are pretty pathetic. We don't have much to go on at all.

Raj: Nick got a crazy beard though.

Joe: Absolutely. Well, listen it's been great. I appreciate you sharing your story. What you've accomplished is pretty damn impressive and I'm excited to hear what happens over the next 12 months. How can people learn about what you're doing or reach out to you?

Raj: Well you can find me on YouTube at Raj Patel and I'm going to be pretty much talking about everything from selling on Amazon to how to launch your product as well as just telling stories of what I've done over the last year that's worked for me and putting some information out there that people can use in whatever they're trying to accomplish by selling online and to learn sort of what I've done and help them out pretty much. So you can check me out at Raj Patel on YouTube.

Joe: Alright and everybody watching we'll be expecting you to grow a beard as well or at least have a fake one on now and then Raj Patel at YouTube.com.

Raj: Yeah, inaudible[00:27:43.3] progress made.

Joe: Alright, perfect. All right man thanks for your time today. I appreciate it.

Raj: No problem, thank you, Joe.

Links and Resources:

TheBeardking

Youtube

Today's guest set out to create a product to solve a problem in his bathroom sink, wound up with two utility patents, numerous copyrights and trademarks and went through lots of ups and downs along the way. This week we are having him on the podcast to recount the seller side of a two-part seller/buyer series on the build and sell process.

It's always inspiring to hear stories of entrepreneurs who built something based on a need they uncovered. Nicholas Galekovic, the co-founder of Beard King had always been creative, going way back to the dawn of design in technology. He was active in the early days of the digital space, doing one-offs for brands and starting a small digital marketing agency. He had gotten used to seeing brands succeed and fail when he realized that it might be time to start building his own brand equity.

Episode Highlights:

• Nicholas walks us through the process of jumping off the couch and creating the product.
• How the timing was a factor in the success of Beard King.
• The patent processes and how they played into the growth and eventual sale of Beard King.
• What Nicholas did that was outside of the box to make his product and brand different.
• How long it took him to pivot from US-based to overseas production.
• Why learning every day is part of the success equation.
• Nicholas's Shark Tank experience.
• Amazon's patent neutralization program and how it helps protect product builders.
• Nicholas shares his two must-dos for preparing the business for the exit.
• What his next adventure is and what he can now do with all that invaluable learning.

Mark: For those of you that are listening in your cars and not taking a look at the video that we have up on YouTube of this podcast. You can't see that Joe is actually supporting just the faintest hint of a beard. So Joe is this intentional or is it just the stress of Quiet Light getting to you.

Joe: Oh my dear this is embarrassing compared to the guest on the podcast this week. His name is Nicholas Galekovic, there you go. I wasn't going to try saying that name. I know you aren't. But let's just call him the Beard King because that's his company's name or former company name. He developed a product to solve a problem, wound up with two utility patents, a couple of design patents, lots of copyrights, trademarks, and went through lots and lots of ups and downs as we talked about the podcast. He's essentially run up with his doctorate in product development, branding, marketing, things of that nature before he exited a couple of months ago. So this week we're going to have Nicholas on the podcast. He is the person who sold his business. So people get to hear about the process and what it takes. And then the following week we're going to have Raj the person who bought his business. So we're going to do a two-part series on who sold their business and who bought that business so people are going to see it on back to back.

Mark: That's fantastic I love this series when we can do the buyer and the seller. Even if we can get just one of the parties on it's always super useful. I know I talked to somebody recently about the podcast and they told me that these are some of their favorite episodes. So we are going to try and get some more sellers on. I know I have a seller coming on here soon in the coming weeks of somebody who is going to tell their story as well. I'm excited about this because I love these products that come out of this practicality of I've experienced this, I had a problem, I solved it, I turned it into a business and not only just a little business but something pretty significant.

Joe: Yeah, he's been on the Shark Tank, got an offer, got a deal, ended up turning it down rightfully so; intelligently so. He talks about utility patents, the Amazon program, and grants to patents, and talks about some of the great things he did right in terms of social media and video. He actually had Snoop Dogg who was tweeting about his product and brand which is pretty cool. And then he talks about some of the mistakes he made. You know things that if he looks back he does want to live, gone, I wish, I should have, I could have, I would have. But he points out directly what he thinks he did wrong and what he could do differently and just dropping some advice for folks that are following in his footsteps.

Mark: That's fantastic. Let's go and listen to him.

Joe: Hey, folks Joe Valley here from Quiet Light Brokerage and today I've got somebody that just sold their business. Well, I shouldn't say just because it was in late spring of this year which is 2019. It's August 29th, 2019, my wife and I's 21st wedding anniversary. Thank you very much.

Nicholas: Congrats.

Joe: Thank you, Nick or Nicholas. Folks we have Nicholas Galekovic on the line and I had to ask him how to pronounce his name. I've known him for almost a year now and I've always screwed it up so I wanted to get it right. Nicholas, how are you?

Nicholas: Good, Joe. How are you doing man? Thank you so much and don't worry my whole life I've heard the mispronunciation of my last name. So I'm quite used to that. I bring that into the branding side but I'm definitely excited to be here. Thanks for having me today so I can share my experience with you guys.

Joe: We were going tell it you folks he's down in Florida and there's a hurricane coming in and pardon the lightning and whatnot but instead, he had a light just fall but we're not going to cut that out because you still are great. You sound great and it's life in the podcast where we're not professional; well I guess we, I don't know.

Nicholas: Yeah we are.

Joe: I don't know if we're professional podcasters. Anyway, I was going to say that is one fine looking beard. You should be in the beard business.

Nicholas: Absolutely and I think by accident, by default I became in that business.

Joe: You did, didn't you? So why don't we tell the folks because you and I have that little inside joke there; why don't we tell them who you are and your background? I'm going to let you do it. Tell them a little bit of background about yourself.

Nicholas: Sure, absolutely. So you know I've always been in kind of the creative field and I really started to hone in on my expertise about eight years ago and I was doing more graphic design for other clients and really started to hone in what technology I like to use. So obviously Photoshop being the main one, Adobe Illustrator, I really got used to the Adobe Creative Suite. So I would just charge clients to do a flyer or one-off. I mean back then the digital space wasn't as big. I mean it has always been big but this is back in like the MySpace thing. So I even started off designing MySpace pages before I created havoc.

Joe: You're aging yourself right now.

Nicholas: I mean you know but I'm going way back. So then I'll just fast forward a little bit here and I started to hone in on my skill set of design. So then from there at a company called Kovick and Kovick was what I call a brand tailor. We really focus on helping companies with their brand identity, their strategy, website design, logo design, you name it. So I had a small marketing agency where I really started to I would say have success in business in that regard. But I always had a designer mentality we'll call it which later on down the story you'll see how that soon fulfilled me. And then I started to see a lot of these companies fail as far as whether they're small big or whatever and I would put my heart and soul into these companies I was designing. But then I realized I'm building all this brand equity but for other people in a sense. I'm still an entrepreneur but I'm doing it for the sake of their brands; which is fine. So then Beard King came about when I was just simply solving a problem that I had on the day to day basis which was trimming my facial hair. You mentioned the glorious beard hair. So it wasn't always this long and glorious but usually when it's a beard like let's say you're a size or small-sized beard you make some mess all over this thing. Basically, I just came out with this product called a beard bib and we'll dive may be more into the story in detail here but that's kind of how Beard King came about for four and a half years ago. And then I met you Joe last here. And then here we are right now.

Joe: You and I and I think Brad. Right?

Nicholas: Yes.

Joe: We had lunch or breakfast may be down in Miami before the Blue Ribbon Mastermind; shout out to the Blue Ribbon Mastermind members.

Nicholas: Shout out to Ezra; yes.

Joe: A heck of a group of entrepreneurs there for sure.

Nicholas: Absolutely.

Joe: So we've been through the process of doing the valuation of getting your business ready for sale of getting it under contract and going through and selling it. We're actually later in the month going to have Raj on the podcast as well. Raj is the gentleman that bought the Beard King. So we're going to go full circle with the buyer and seller and hear Raj's story about how it's been going since he purchased it. And you and Raj have got along great. You're good friends now. You might be doing some business together in the future outside of the Beard King which is always great to hear. Well let's talk about the process because you have something or had something; Raj has it now that was relatively unique.

Nicholas: Yeah.

Joe: 100 plus businesses in the last seven years and less than a handful have had a utility patent on them. Let's hear a bit of that story you were making a mess in the bathroom sink and created something called the beard bib. How did you develop the product? Did you create one? A prototype from an apron at home or what did you do? What was the first epiphany [inaudible 00:08:25.0] and where do you go from there?

Nicholas: Of course, so I mean I used to use a T-shirt. So you could picture you're at home, you're about to trim, it's either A. use the sink. Let that be the catcher. Get the hair all over. Try to clean it up. We all know that's super tedious. And being in 20 19 and then when I invented it that's four or five years ago so still though we're in this age where there's always a solution, right? There's always a product that's been invented. Everything's been invented and now you're just creating a better mousetrap. But in this case, I usually just use my T-shirt but then I wouldn't get like the little hairs all inside the T-shirt. And I'm like there has to be something like; I don't even know if Amazon was huge back then as far as how big it is now. But I think I just did some basic Google searching, Amazon searching, and I didn't really find anything. So I'm like you know what I'm just going to draw something together for myself. And I remember being home one night, I had a few glasses of wine, just chilling and I'm like you know what let me get up and start grabbing whatever household materials I could find. So I grabbed; it wasn't necessarily like an apron but it was almost like one of those hair cutting capes. I didn't know how to sew so I just; what's a man going to do? We're going to use staples. So I was literally finding whatever I can. And it was hideous but it actually kind of worked. So if you can imagine a product like a bib attaches around your neck and suction cups to the mirror as simple as that. Some of the simplest solutions are ingenious. And in fact, as the story goes along a lot of our customers are like I wish I would have thought of that like one of those things. And actually part of the story is funny because I remember thinking to myself well there's nothing out there I'm just going to use this for myself. I know how to brand a business but I don't know how to operate and scale a business. So I kind of let it sit for almost six months. And I remember coming across the Norelco or Panasonic clippers that tried to solve the same issue but with like a vacuum seal. What I found was; what my goal was the death of this idea. Let me just go and buy this product. And I actually tested it out but it didn't really work. It may be caught 20% of the hairs. But not only that sometimes people try to solve simple problems with these extravagant solutions which is unnecessary. So after that, I'm like you know what let me try this again. So I actually ended up manufacturing. I live in Miami so there are tons of manufacturers around here but of course with that comes greater costs. So I just tried a few. And long and behold I'm realizing in my mind, okay I have a company or I have a product called a beard bib but that's very limiting and so the branding mind starts to kick in. So I started thinking bigger scale. And I tripped up on during my naming process. Since I have all these processes and I saw ease of how to create brands it was easy for me to kind of just bootstrap that portion of it which sometimes a lot of people pay a lot of money for that. And I came up with Beard King thinking bigger picture; beard oils, brushes, washes, all these things. So I kind of accidentally got into the beard market. I did just wake up one day and said I'm going to get into the beard niche. And it just so happens that it also started to trend big time many years ago. But the trend was going up and I think that was from some other companies kind of breaking through. And yeah that's kind of the initial process of how I came up with the invention, prototyped it, tested it before even scaling it.

Joe: You got off the couch and you actually did it. People have great ideas all the time but don't act on it don't know what to do with it. I'm going to just put this out there and then maybe we'll edit it out but seriously this is like an alcohol-infused invention. You sit and grab whatever you could in the house and started stapling things together and as you said it was hideous but it worked. And after several prototypes and a lot of money you wound up with was it; remind me, was it two utility patents and two design patents?

Nicholas: Yes. So we can talk about the intellectual property side of things and again mind you as an entrepreneur you have to be willing to learn. So I didn't know anything about intellectual property maybe besides a little bit of trademarking but the pat world is completely different. So, of course, I did the initial patent process. The name of not a utility, not design but what's the one right before that?

Joe: I don't know if there is one before that I thought it was designing utility. Somebody is going to have to call us and help us out.

Nicholas: Right. Well, basically it just gets your spot in line for a year. So it allows you…

Joe: Provisional patent.

Nicholas: There you go. Thank you, Joe. You see your lawyer; I know, but essentially the provisional patent is your spot in line so you can kind of tweak and work on it but you can't go so far outside the scope. I mean it was five years ago that I did it so I forgot the name of it. And they're also not strong; they're really just your place in line. But if you have something that you really know you'd go straight for the utility patent. And what I found was I mean it took almost three years to finally get the patents that were issued. So you have to remember during this process; yes it's great for exit, it was amazing and we'll talk about that of how it all kind of played into the whole Amazon patent neutralization program. But going back in time the product went viral. And of course there's going to be knock offs and whether you have a provisional patent, a patent pending in this cut-throat industry, in this fast-paced e-commerce business, people don't care. They're going to still sell it. So this is kind of gets into the pat IP side of where when you do have a viral product that never existed before we basically created a new market; this beard bib market that never existed before. So it was flattering on one hand but obviously very aggravating on the other. We're losing money left and right with the knockoffs.

Joe: Yeah. And that was for a period of time that was just too darn long. Looking back do you think that you could have done anything differently with the provisional patent and patent pending? There's just simply no real protection there.

Nicholas: Yeah I mean the only thing I could say that you could do different which I never really like to say I'd like to do all that over again it's more like what did I learn from this.

Joe: Yeah exactly.

Nicholas: Would be perhaps accelerating the patent process. I think we chose the route because of cost. Usually, that's always when you have a company you don't have the cash to infuse into intellectual property. So I think we did the slower one, not the accelerated patent. Also as you're waiting for the provisional patent it gives you kind of time to pick and choose what elements that you want to claim or drop. Also, it's extremely hard to get a patent because some of these patent examiners they're tough. I mean it's not like they know you personally but it's like every little thing and then prior arts. So that's where you get into the field of you might think you invented something new but when they start stacking you against prior art; for example bibs in general, that was one of the prior art cited against our patent. It's just so difficult. So we have to kind of adjust to what parts of the application we want to claim.

Joe: I was curious about that because anybody that I know that's filed a patent has said that they're going to say no and then you've got to pivot and go back at them with this other unique feature to your patent. How many times did you have to go back to that examiner until they eventually said granted; you're right, here's your patent?

Nicholas: I mean looking through the docket history; by the way I mean first of all get a great lawyer. I'm not a lawyer so if you try to do things yourself you don't really know the ins and outs but I believe we went through at least three rounds per se and we still by the time we were getting ready to sell the business we'll have to talk about that with Raj when you interview him but there was a design patent still pending. So it took about like I said three or four iterations for the first utility and then just the next utility fell right after that a month later. So I think we got the first one in September and the next one in November and then you know.

Joe: It was falling quickly. You were getting them quickly as you were preparing the business to sell.

Nicholas: Correct.

Joe: But from beginning to end from the time you decided to file for the patent until you got that last one in November of 2018 how many months or years was that process for you?

Nicholas: It was almost about like I said three and a half years because again provisional patent was in the first year but that kind of only hold your spot in place. And then when you file for utility that time clock starts all over again. So that was one of the takeaways I was saying that I might have changed is just either going straight to utility and or accelerating. That's how you can probably get it faster. But in hindsight also being able to enforce your patent you're going to need cash to also enforce. It's one thing to have a patent. That's great. That's amazing. You know I actually literally; you could see on the back my wall right here that's a little patent but it doesn't mean anything if it was sitting on a wall. You've got to have cash to enforce. So that was the second part of this strategy was being able to have cash to take down these people. And we can probably segway into the topic of Amazon's pattern neutralization program.

Joe: Yeah, I do want to talk about that. You know what I'd like to hear first because though? [inaudible 00:17:44.5] your story and the success that you found at the very end and actually helped Raj your buyer and propelled the business. I mean it was taking off by the time he bought it which is just great timing for him. But you had some great successes along the way with the Beard King and the bib. Can you just highlight a couple of those points? What did you do that was a bit outside the box that your standard e-commerce entrepreneur or Amazon FBA entrepreneur may not have done?

Nicholas: Yeah. I think the first thing would be the branding and the marketing. You know with the named Beard King I started to brainstorm on okay how can we treat our customers different? I think even when we first met I would say King Joe or Lord Joe or Queen Sarah or whatever.

Joe: [inaudible 00:18:31.7] is what your email add.

Nicholas: At a royal day was the signature. So I really thought to every touchpoint, every detail; whether it's a phone call, email, flyer, or whatever it might be; packaging, everything was based around royal theme. And that's important to stand out nowadays especially with Amazon businesses just kind of being one out products and you kind of forget about the brand you just want function but to have that little extra piece; the second piece of that would be the video content. So I did a lot of the storyboarding, scripting, and writing of these pieces. I think the first one we hired one of my buddies to shoot it. And that first video ended up being picked up by a huge Facebook account like 9Gag or Unilab. And then once those big Facebook accounts picked it up it just goes viral. So I think within the first six to eight months of business that first video we did went viral. If anything I was a little self-conscious about it because people were making fun of it. But good or bad PR doesn't matter; it's great.

Joe: I think if I recall in the package we put together we shared some of those links and am I remembering it right that Snoop Dogg tweeted out; as it Snoop Dogg or somebody else?

Nicholas: Oh yeah. I think the meme was; so that was the meme portion of it but I think it went along the lines like you know a pissed off woman invented this.

Joe: Yes, that's what it is.

Nicholas: And so basically Snoop Dogg, Usher, even besides those accounts the big accounts; Facebook was huge on video and you can go viral a lot easier than you can today. I mean I think we're in the 40, 50 million views collectively across social media platforms which of course infused fire into the sales and this was right before picture going Shark Tank. So I imagine we had okay sales and then one month I think we had $80,000 in sales. I'm like how am I going to fulfill these orders?

Joe: Yeah.

Nicholas: That's a good problem to have but…

Joe: So moving along with a story there and you just mentioned Shark Tank but we'll get to that in a minute as well. You were manufacturing in the United States which was more expensive. How long did it take you to pivot and move your manufacturing overseas?

Nicholas: I think…

Joe: I think you did right?

Nicholas: Yeah, we did. I mean I think another pain point of any business or entrepreneur is when you're kind of forced to grow. Some people just want to grow but then you grow too fast and you can't handle it. But for me these types of pivots; when you're almost forced to do something it's kind of like working out and you've got to go to that next level of weight to kind of grow. So for me, yes we were manufacturing in Miami for an insane amount of cost per unit. And I did that also on purpose which I suggest people do because you don't want to invest too much with too many units and then they don't sell. So I was willing to see proof of concept. That was my first thing.

Joe: Especially for you, because you invented the niche, a lot of folks are finding a niche that's already selling well and they're just doing that branding of their own product. They know there's; they need to get eyeballs. They know the units are going to sell if I can get eyeballs. You know it only had to get eyeballs but you had to educate the people what the product was.

Nicholas: Right.

Joe: So the video was fantastic. That's a very visual product.

Nicholas: Absolutely.

Joe: So at one point you did pivot and you moved manufacturing overseas. Did you figure that out yourself? Did you hire a company?

Nicholas: Yeah. You know actually that guy originally; so I'm kind of like Bob the Builder, right? I'll piece everything together and when we were manufacturing Miami I was sourcing the materials from China. You just buy; my natural gut feeling like let me source material there, ship it here, and then make it here. So the problem with that obviously is the fact that it's super expensive to be shipping a bunch of material. So the same guy that I ended up ordering a lot of the material from we established a nice rapport and relationship he ended up kind of telling me on the side hey look I'm going to go up my own manufacture let me know if you need anything. So essentially not only did I create a niche but for this individual, he ended up starting his own manufacturing facility almost really based off of our product. And we were like his number one customer. So we had a long relationship. He was basically the only guy I used for the entire time and I think to this day the new owner is actually still using him.

Joe: [inaudible 00:22:53.9] loyal; that's the story. Good relationships like that are great. I'm going to throw out there to some of the folks listening there are companies out there that can help with the manufacturing overseas. I just did a podcast with Zach Leonard from Gembah and he's explaining what they do and it's the exact type of company that you probably needed at the time. It would've made your life a lot easier. They do all the importing and shipping, the [inaudible 00:23:22.1] industrial designers on the team. I know their company; I think in Gembah is Austin, Enventys is down in Charlotte. They've been around since 2002. They actually did some of the industrial design work for the Miracle Mop and other products like that; a really, really impressive company there as well. They actually; really interesting for proof of concept like your new invention, new category that you created, they will actually do all the industrial design work, do 3D printing, do a video of the product, and then put it up on Kickstarter there's interest. And then if it's a success they'll take the orders but then they'll go manufacturing. So brilliant idea. It's; I don't know, I wish everybody listening that's an entrepreneur now knew about these different companies.

Nicholas: Of course, it would make it; I mean that's why I said in the beginning of the podcast you got to be willing to learn something new every day because I didn't have experience in sourcing or manufacturing but I learned.

Joe: Yeah.

Nicholas: So it's great to have those companies but with that also will come costs. So you do have to have a little money. I'm sure it's not free.

Joe: Yeah, they probably don't work for free that's for sure.

Nicholas: No, they probably don't.

Joe: Let's talk about Shark Tank. You brought it up; you were on Shark Tank. How did you go through the process? What was it like? Was it the biggest joy in your life or very very difficult?

Nicholas: I mean it's obviously very stressful in the sense that they leave it open-ended. Like literally; and I think when I heard one of the other guests on the show talk about how they never really guaranteed anything and that's super true. Actually, the whole process took a year. So from the year that you audition until; and it could be different in any case, but the year you audition or the beginning of it then you go through several funnels of interviews, face to face Skype calls or Xoom calls like this and then eventually you fly out to LA and you pitch in front of the producers and it's still not guaranteed. And then they'll call next. And if not you fly back. And then if they choose you, you stay another day or two and then you just wait for your spot to be filmed and then you're still not guaranteed to be airing. Now the airing of the show is kind of like the pivot for the company. And not only that if you do film and you get a deal that's huge because it adds a lot of value to that shark to then want to close the deal with you. So by the time that we auditioned, filmed, and then I think there was like a six-month gap in between due diligence and finally getting that air date which they only give it to you like a week or two in advance. So imagine that, it's like you're always on your toes like are we going to get it, are we're going to air, are we not; but they just say do your business as if Shark Tank doesn't exist.

Joe: That's hard to manage your inventory level if you're going to get that extra 10,000 orders next week.

Nicholas: Of course and you can imagine I like to call the Shark Tank effect this kind of trickle effect because let's say you do air. The amazing thing about it is as we all know nobody really watches TV live anymore, or at least I don't. So you get that initial spike from viewers that are viewing it live. Of course, you can advertise that; promote it, but then you're on Hulu, Netflix, Amazon Prime, you're on all these things that you're kind of in the Shark Tank alumni books forever. So you still get spikes. I mean in fact we still re-air all the time; airports, I think it goes from ABC to CNBC. So that content is syndicated across all the platforms and it's great. So just to be on air alone the exposure is worth millions of dollars advertising. So it was a great experience. I definitely will go for it again if I can. And it was great. It was an amazing experience.

Joe: I bet they would love to have you back with a second invention someday. That would be really; a good story for them too I could just see it really, really working. So we're going to fast forward a little bit. I just want to say one thing about Shark Tank I had another guest on that said that after you pitch a lot of entrepreneurs come pitch the same day they take them and they put them all in separate hotel. You have to go for an hour of council and then you go to separate hotels. Do you have to do the same thing?

Nicholas: Yeah, that was absolutely true and I think I know the conversation that you were having with [inaudible 00:27:51.9].

Joe: So you had to go through an hour of counseling as well just to make…

Nicholas: I was like alright can we go now? I'm good. But yeah it just depends. I mean it's very stressful you need to almost debrief because I mean I remember the call time was like let's say 6:00 a.m. but we didn't film until almost 12:00. And I was starving I'm like I literally pulled the producer and I'm like I got to eat I'm about to pass out. I imagine it's like the biggest pitch in your life. And that's another crazy thing to think about to kind of show anybody that's scared to pitch, public speak, to do anything like that. That was the first time I've ever even pitched a business. So it's like I never pitched a business in front of Joe or Bob or anybody. And then here I am in front of Mark Cuban, Lori Grenier, Chris Sacca, like all these major names that I'm like just doing my thing. And that's another cool tidbit of the show that I could probably add that you feel like you might be nervous and all that but not really because it's like having a conversation. They're intimidating, you're in there for like an hour, and then they condense it down to eight minutes. So it seems intense but it's TV guys. So just keep that in mind.

Joe: Lots of editing. So the success on Shark Tank led to lots of knock offs. But you were working on the patent the entire time. And eventually, you were offered two utility patents, design patents, things of that nature. What did you do? We talked about this just as they started coming out and you mentioned the patent, the Amazon patent neutralization program, for those that are not familiar with it could you talk about that a little bit?

Nicholas: Yes sure. You know this is Amazon's way of showing you know what guys we got to do something about this we know it's an issue and Amazon is such a huge platform. And I think that's why everyday people are kind of like well I want to do this too. And so sometimes dealing with some of these knock offs directly and strategically you realize they're just everyday people that didn't even know they were knocking you off. And then, of course, you have people that know that they're knocking you off and then they try to be slick and go around you whatever it might be. But the Amazon patent neutralization program is great for patent holders, inventors and it says look if you're selling this product you have a utility patent we're not going to be a lawyer but they hire a third-party law firm that instead of going through litigation which we could even touch on that quickly as I went through a litigation with a knock off that tried to sue me and here I am blowing cash which of course affects the bottom line; cash that I'll never see again. But circling back the program actually is instead of going through a long drawn out expensive process of patent litigation it brings in a third party and it says seller if you have a patent give us a list; I think it's 50 Asense at a time, we're going to reach out to all them. They have two weeks to respond. If they don't respond well then guess what? Automatically you get removed; the sellers that are knocking off. So it's kind of like they just said alright we bow out without saying anything. And then what we found was a small percentage of people opt-in. The opt-in process costs I think $4,000. I don't know if it's changed as of today. I mean it's only been a couple of months. So you opt-in with 4k, the other seller has now another two weeks to put in 4k and then you go through the process. I don't know what happens after that because I at this point in the business ended up selling it. And of course, this gave great hope for the new buyer because he's like wow we just got rid of 50 plus Asense, only two people opted in. I think this is great. So it just allows the inventor; because there's really nothing you could do for patents right now before that. You could do trademark claims and copyright claims but that portion of it what we found building our SOP's is that it's really outsourced. So it's crazy you could do the same trademark claim eight times and it doesn't get caught by the first seven agents so the eighth agent might pick it up and remove it but it's a game of Whack a Mole and man is it frustrating.

Joe: Yeah. We'll talk to Raj about it.

Nicholas: Absolutely.

Joe: About the neutralization program and what it looks like competition-wise on Amazon now that they've got that program in there. Let's talk a little bit about preparing your business for sale and you've gone through this, you've got the benefit of hindsight. You did a lot of things right. Clearly, these folks have heard about Snoop Dogg tweeting about your product line, being on Shark Tank, and you got an offer but you ended up turning it down eventually. Just for clarification purposes that is the deal, right? You got the offer but you ended up not going with it.

Nicholas: Yeah on Shark Tank we ended up doing a deal with Laurie. That's a funny piece; definitely watch as far as the way I close that deal. She was about to be [inaudible 00:32:38.0] I'm like why don't you make me an offer and she's like wait, what? Okay. So we got the offer but it was a rich 40% for 100k. Thank God I didn't take that deal. Looking back now I'm going to exit, imagine if I only owned 60% percent of the company.

Joe: Yeah. So you did get an offer but you eventually turned it down because your business was exploding and growing.

Nicholas: Financially it made zero sense but I wouldn't change it for anything.

Joe: So then you're preparing the business for sale. We had a chance to meet again down in Miami at the Blue Ribbon Mastermind. So you've got that benefit of hindsight. To the audience that's listening now, that is running a business and may eventually exit or they never thought they could exit. What advice do you have for them in terms of the one or two things that they must do to prepare the business for sale and get them out?

Nicholas: Well, first things first. I think having the benefit of hindsight is start a business to exit, right? Have an intent to exit because I don't think most people think about that. Even when I started Beard King I didn't think oh I wonder how this is going to end. I just thought it's going to always go up. And that's fine if you want to leave on a legacy or pass it to your kids or whatever it might be. But regardless I think you should always have an exit plan in the back of your mind and start there and then reverse engineer the business to always have a target to move towards. The second part of what I would suggest and probably would have changed for myself the beginning setting yourself up is the books. When you and I met back in January of 2019 you're like Nick look you got to get your books together. I mean obviously, if you're trying to sell an asset people need to see the numbers and the SDE based off of your last twelve trailing months isn't so strong. But you know what Joe I like how you said wait a little bit. Wait six months or and go get the valuation in the multiple that you want. So I think having your books in place, having the SOPs ready to be literally turn key is really the benefit to getting ready to exit your business. But if you do that from the get-go and you reconcile that every month it's much easier to do so literally in our case sell a business in two weeks.

Joe: Yeah. The most difficult thing as a business adviser like myself, broker advisor is when someone comes to us and wants a certain value for their business and they ask is it worth this. And I can't tell because they don't have good clean financials. And by good clean financials, I don't mean that you don't run your personal stuff through the business. Most entrepreneurs do that. In fact a couple of things; I want to give a shout out first to Tyler Jefcoat at Seller Accuntant. So Tyler was great in this relationship; introduced us, good guy, you never hired him but he just gave you some advice and or did you hire him? I don't think you actually hired him to do the books, right?

Nicholas: We ended up hiring him to do an audit sweep.

Joe: There you go. Okay, so Tyler shout out to Tyler Jefcoat at Seller Accountant. The other thing is that there are generally four pillars; it's that risk, growth, transferability, and documentation. So if you do number one what Nick said was go into this with a plan to exit. Figure out what that exit process is like; figure out what the valuation process is like. Do you know audience what the definition of seller's discretionary earnings is? If you don't go to one of last three or four podcasts; Mark and I did an entire episode on what's a legitimate add back and it goes through that entire process. One of the benefits that you have now is that you've been there and you've done that. You've got that patent back there on your wall. You've sold a business. You've got the branding experience. You've got the manufacturing experience, the importing experience, the marketing experience; you've got it all. Now you just have to find that next great product and do it all again. And I see this every time; the first one you take some money off the table and the next one it's five to ten times bigger. And I'm hoping that's going to be the case for you. What is your next adventure? Do you have it sort of turning around back in your head or you're doing it or are you just taking some well-deserved time off from it?

Nicholas: I'm sure like most entrepreneurs you could retire on a beach and then figure out what am I going to do with all this sand, right? You get bored.

Joe: Yeah.

Nicholas: You know taking a couple of weeks off to just reflect; your personal development I think is key to just kind of figure out your next move. And I think for me it's reflecting and learning from the mistakes and then creating an even stronger foundation even if it's from a corporate level, operational level, legal level; all these things that I learned on the fly. If you can set them up in the beginning with the intent to exit you're going to have a better shot at what you said; a higher multiple. I mean look selling Beard King was amazing but I think for me besides the liquid side of the asset I basically just purchased an MBA. I got a legal degree.

Joe: At best you got your doctorate man; you learned so, so much.

Nicholas: So much and I think it's that key takeaway of learning all those things hands-on versus just your standard education or self-taught on YouTube; it's invaluable. It's absolutely invaluable.

Joe: I'm calling you Doc Galekovic from now on.

Nicholas: I like it.

Joe: [inaudible 00:37:54.2] because that's what you did for your own business. That's great.

Nicholas: Absolutely.

Joe: So listen we're running out of time, how do people find you if they want to reach out and talk to you about your story; maybe you can help them with their business or whatever the case is. It's always good to connect. How does somebody find you and reach out?

Nicholas: Yeah, for sure. Definitely. You can reach out on Instagram. My handle is just my name so it's Nicholas Galekovic. I know that spelling is going to be tough but G-A-L-E-K-O-V-I-C, or you could shoot me an email directly. It's actually [email protected].

Joe: And we will put that in the show notes as well. Perfect. This has been fantastic. You're a good man. I appreciate you choosing Quiet Light Brokerage. It's been a pleasure working with you. I look forward to hearing about and helping you with your next adventure. Be sure to stay in touch [inaudible 00:38:43.1].

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Selling a British company to a US entity is complicated to say the least. From this experience, we have learned that it is doable and an eye-opening experience from both the seller and the buyer side. There are opportunities out there, and with some perseverance, great returns on both ends of the deal.

Today's guest, Joseph Harwood, a London based entrepreneur, was behind one of the most complex transactions we've dealt with in twelve years of brokering. Despite the challenges of selling an overseas company, we managed to help create an advantageous deal structure for both the buyer and the seller.

Episode Highlights:

• What the tax situation looks like for a UK seller looking to sell to a buyer in another country.
• Types of transaction structures available to these sellers.
• The number one objection coming from the buyer side.
• How Joseph was able to see through the obstacles.
• What the process was like from the outset.
• The advantages of listing with an earnout.
• If and when doubt crept in for Joseph.
• The seller tax break on built-up cash flow on a transaction like this.
• Why this approach means that buyers have choices and a comfortable pace.
• Things that a UK based seller should consider for selling abroad.

Joe: Mark one of the great things about Quiet Light and the team that we have is we're always communicating in the background; helping each other out, asking questions, sharing information. And more recently we're seeing a lot of communication about the sale of UK based or European based Amazon seller accounts and the transfer of i. And I understand that you just took one on. I did a few years ago. Actually, there's usually a small component of most transactions that I do if it's FBA that there's a European run that 100% German seller account last year. We're always doing them and they're always different. Our buyers get a little bit concerned about buying one. And our sellers get a little bit concerned about the transferability of one. But you just took on a very complicated one. You've managed to do the transfer. It ended up being a stock sale and there was some definitive advantages to both the buyer and the seller in making this happen. Can you tell us a little bit about what this podcast is about and how you talked about the owner of the business there?

Mark: Yeah. So the owner of the business is Joseph Harwood. He agreed to come on very graciously. I'm super happy he came on because in 12 years of selling online businesses this was easily the most complex transaction I've done. There was a moment where we had a sell-side conference call only; so only the advisors on the sell-side and I was the last person to join and the prompt at the beginning of the call said you are the 12th caller on this call. And I'm thinking 12 people on this call on the sell-side only to advise this transaction. Now you may be hearing the something and that's why I don't do a UK deal because it's complex. But here's the thing, throughout this process not only did we take what was a fairly complex business in terms of its operations we took a UK company which has some tax disadvantages being sold in the US and we managed to make a structure that worked out well for the buyer and worked out well for the seller. In fact, there are structures available which can be tax advantageous for both the significant degree. And our buyer in this case; God bless him, a great person, a great buyer, had the perfect mindset for this which was to not try and adjust this large transaction all at once. And everybody in the team did the same thing by the way just to address each problem step by step and the result of this is that he got a great deal and a great company that is growing like absolute bonkers that not a lot of people were looking at. And for him to look here and not rule this out based off the UK domicile only is a testament to him and I think will pay off pretty handsomely for him. On the UK side I know we talked to a lot of UK sellers that think that they can't sell a business and listen it's more difficult. We're not going to cast aspersions here and say that it's somehow easy to do. A lot of people do avoid UK based businesses but it is possible. It needs be structured right. We need to attack it correctly. And for those of you out there looking to buy if you can figure out this UK angle and it is something that can be figured out. We do have a template for it. It's a really good opportunity because there's some great businesses out there that aren't going to market right now for the very reason that those sellers don't think they can.

Joe: I would say it's almost the unavoidable future, right? A long time ago we talked about can you even sell an Amazon-based business. Well, here we are millions and millions and millions of them sold. Now it's those businesses all have; a lot of them have a UK component to them and some are standalone UK businesses or really European businesses. It could be any country over there. So I think it's the future. I think it's important for both buyers and sellers to understand it. And I'm really excited to listen to this one myself and hear your most complicated transaction in 12 years come to a final close and successful transaction for both the buyer and seller.

Mark: Alright Joseph thank you so much for agreeing to come on the podcast. For those of you who didn't pick us up in the intro and I'm sure Joe and I talked about this but Joseph you and I recently worked together along with Scott Dietz from Northbound to help sell your business. And I'm really happy to have you on because we love bringing on previous clients.

Joseph: Yeah, glad to be here Mark and hopefully, I can still shine some light on a possible sale of UK Limited Companies to US buyers.

Mark: Yeah and that's one of the things that I definitely want to talk about on this and just have a conversation with you. I know within Quiet Light Brokerage we have this conversation quite a bit and then I would imagine among UK sellers, it's probably met with some skepticism; the idea that you could even sell a UK business, e-commerce business primarily because of the tax situation. Could you just go over that for somebody who might not be familiar with what does a tax situation look like for UK seller who's considering selling their business?

Joseph: Yeah so basically the big fear is doing an asset deal and then having to take your funds as income which is then transferred into a person's assets which is taxed heavily. If you get over; run about 100k threshold that's about 45% so doing an asset deal is technically really, really bad for you. So generally most sellers want to do a seller shares deal and then you get a 10% tax co entrepreneurs relief which is taxed personally up to; you have an allowance of 10 million in that and that's a 10% tax. So it's a pretty significant difference tax-wise depending on what kind of deal you can get.

Mark: Yeah and I think buyers or sellers tend to be skeptical that they can do this. And this isn't just with the UK. I know Canada has something very similar. Australia has a similar structure as well where a share sale you get a pretty awesome tax rate. And then if you're doing an asset sale you're going to get absolutely killed with the tax rate. The buyers don't generally want to do a stock sale and brokers like myself I know when you and Scott first approached me I think that was one of the first things I told you. Like wow, I don't know about a stock deal. I can't offer something as a stock deal that's rule number one. And rule number two a buyer is looking at it; I don't know what would you guess would be the number one objection for buyers? I would say probably the liability carrying forward.

Joseph: I think structuring wise it's complex because you're buying an entity and you're in a different country. So I think that in itself can scare a few people. It's a bit more of a learning curve.

Mark: How many; let's count how many advisors we had on your team. So just on the sell-side, we had Scott Dietz, myself.

Joseph: Yeah we'd retained Redpath US tax advisors who had retained a UK council.

Mark: Oh so we have a UK council as well.

Joseph: Well yeah they had a UK council retained within them. So that was kind of tax advice UK, US. And then we had a UK contract advisor and then our US contract advisor. So technically 4 different retentions of legal advice which ended up in quite a hefty bill I think it's a good learning process for the book.

Mark: The thing is you can absorb that hefty bill. We're not going to discuss how much you sold your business for. I mean it was in the seven figures range. It was a good size. When you're talking about the difference between a 45% tax paying for advisors I mean it's worth it. But it did get complex in that there was just a lot of voices that were being heard with every single document that got shared. And I was just on the sell-side. We had Rochelle Locke who's been on our podcast advising the buy-side and they had their own people as well that were advising on the tax structure and everything else. There was a lot of advisors there so it was a bit more complex but I think part of that was because we hadn't done this before.

Joseph: Yeah I mean I'm going to say it was a big learning curve for everyone involved. We were lucky to have a patient buyer who was determined to see the deal through to the end. And I think we from my experience have learned a lot about selling a UK company to a US entity. Yeah, it's a complicated process but looking back at it now the tax piece of the puzzle is; I mean okay every situation business is unique but there will be no way we would need to have as many detailed conversations because we're kind of aware of what issues can crop up tax-wise the permanent establishment thing and where the business is run from and those kind of things are more solvable. Now we're sort of prepared and then contract wise like I don't actually think we needed to retain a UK council until the buy-side presented documentation for it. And then we would have had the UK council review; the UK law side documents but I think Sean from E-commerce Small group would have been fine for just reviewing the actual SBA agreement. Yeah like it could have been simplified down but it was still in itself like a valuable process to learn. And there was so many great things about the tax side that sort of gleaned from that process. I think it was worth it.

Mark: Yeah. I want to get into that in a little bit because one of the eye-opening things with your transaction was the number of tax advantages that you personally had as a seller and also the tax advantages that we were able to potentially introduce into the buy-side of the equation. And for those that are listening that are looking for acquisitions, there's actually an opportunity here which we basically uncovered to look at UK based businesses and save significant money in a number of ways. Before we get into I want to back up a little bit and just talk about what it was like when you first came on with Quiet Light Brokerage. Because I remember when Scott who you hired a while ago to help advise and again Scott's a great guy. He's super good at advising. He caught me at a conference in Austin and said hey Mark I got this great business for you. And then he went into a little bit of what it was and like I don't know Scott I don't know about the future. And then he said well we really believe this is going to be good and there's all sorts of reasons that we think; I mean not think but we know this business is going to grow by this much. And by the way, it's a UK company and I'm just thinking Scott come on.

Joseph: Every step of the conversation it gets a little bit harder doesn't it?

Mark: Right. And so the first time that I talked to you Scott and I were also at a conference and so I got up early; I think I was in Las Vegas, my whole mindset was okay I've got to get this guy's expectations set early on. I will take this on but this is going to be really, really difficult to do. And I'm glad though that you saw through all that because it did turn out to be a really eye-opening sort of exercise. But what was that initial upfront process like? I know you listed a business before for sale. What was it like going through that process with Quiet Light?

Joseph: It was great. The first brokerage that I've worked with has gone to so much detail to answer so many potential objections from a buyer. I mean I'm surprised we got any no's after that the depth on our information pack and the seller interview. I mean the length you guys went to take to understand potential objections and understand the business as well; the risks involved and kind of highlighting it, picking up on the upsides, and really like understanding what I was doing with my company and the niche I'm in. I think that was a huge part of getting a buyer to the table who was ready to take on the risk that was over there. It's a Q4 niche. It's a very risky prospect. And I think the buyer saw the risk and the upside and was able to make an educated decision because of the information that had been put together. I'm not going to lie, it got to the point where it was slightly frustrating and we were having our firstborn son at the time. We intended to be listed and sold before that happened. We ended up a bit further behind than we actually wanted it to be. But in the end, it was right so we got a deal done. So that's all that really matters.

Mark: Yeah and the good news is we beat your son crawling, right? He's not crawling yet.

Joseph: Yeah exactly.

Mark: Okay, so we got the business sold before he was crawling.

Joseph: We got that.

Mark: That upfront process was difficult but the lesson that I took away from that portion; your business was unique in a lot of ways like you said it was a fourth-quarter sort of product. And look a lot of Amazon products a lot of Amazon businesses are fourth quarter heavy but yours really relied on that fourth-quarter more so. And just to put this in context for people listening, the growth trajectory that we were seeing on your business was really, really significant. And some of the things we are anticipating we're pretty aggressive. And so that all came in this sort of short period and so there is this element of perceived risk. So the lesson I took away from this that was so good and again Scott did a great job with this was figuring out a structure that got you, Joseph, a good amount of money at close where it wasn't going to be a complete miss if things fell apart but also allowed you to ride some risk with the buyer and let them really cash in on the upside of that without risking all of the money on it. And so deal structuring to answer objections I think is really if I could summarize it.

Joseph: Yeah. I really totally agree. And I think of brokerage firms just have this kind of cookie-cutter response to how they want a less to do it; it's 3x, it's 4x because of blah, blah, and blah. We listed with an earn-out and I think that one pulled a high multiple but two I think you already reassured buyer that we believed our projections and they weren't just pulled out of thin air and to kind of like; you know like we were really willing to go on that journey with you. And I think yeah that really helped.

Mark: Yeah, I think so too. And a lot of people in your shoes don't want to do an earn-out because especially when it's first proposed you think I don't know who's going to buy the company. Like how can I trust them? First of all, A. complete credit to you to understanding the upside for you as well with an earn-out where you can tap into some of the future growth of the business. But then B. you're involved in this process all the way through and you saw the importance of knowing who your buyer was and being able to trust that buyer to be able to grow the business and be confident. We've got a fantastic buyer. Like you said he was great through the whole process and I think he's going to kill it with the business.

Joseph: I don't think it would've been as easy to move forward if I wasn't as confident with the buyer. If it was a private equity group then I would have put the company in hands of someone who might not know how to manage an Amazon business effectively or specifically this kind of Amazon business. I think that because of this seasonality and SKU density I think it takes a kind of special approach to run a business and I think our buyer has that. So yeah I mean it's definitely important.

Mark: Yeah. On the flip side and I don't want to speak for the buyer. I'm hoping to get him on the podcast. He's agreed but he's obviously busy with a new business.

Joseph: He's pretty busy.

Mark: So I totally get that but from his perspective where he's really, really smart is not only did he buy a business with some really strong forecasted growth, he bought a business where a lot of other buyers weren't even looking because they just discounted it saying UK, I'm not interested. And so it gave him some advantage as far as that. And look let's be honest it took a little bit more effort for us to find a buyer. We had a number of conference calls and nothing materialized. At the end of the day, we had a couple of good qualified buyers that were kind of competing but it took a bit for us to get there. Was her point; I'll answer this after you do, but was there a point along the way where you thought that this isn't happening?

Joseph: You know, to be honest. I think at the start I felt like it wasn't happening the right way because a lot of the buyers that we're getting on calls were trying to keep me pretty significantly involved in the company and structuring their offer so they're otherwise around me to having salary or retained in a large amount of equity unless upfront cash. So it's a bit like maybe there's too much value in me and not what the company is actually doing and I'm so this unique entity. But eventually, with some of the other offers we received, we started to see some buyers really saying the value in the business too. Yeah I mean overall I don't know; I don't think at any point during the process I was particularly worried that it wasn't going to happen. I think there's always a buyer out there for what you're selling if you know what I mean. Like it's just what I was selling was a very specific thing that required someone who was willing to take a pretty significant amount of risk. And yeah we found that person.

Mark: Yeah, and then again the offset to that risk for him is the upside on this, right?

Joseph: Yeah.

Mark: The upside is getting significant. And look there is value in you but I think from a buyer's standpoint when I look at how that dynamic worked out; I mean you were pretty vocal upfront saying I don't want to be working in this business moving forward long term just because you have other interests. You have a newborn son. You want to spend time with that son and that's totally reasonable. All the same, you are going to be doing some work with the business here moving forward mainly because you and this buyer get along wonderfully. And so he's accomplishing what other people we're trying to wrap up early on by really just having a good relationship with you which again is just as; we preach about this all the time, right? If you want to be a good buyer and be successful be likable.

Joseph: Yeah I mean honestly I was a bit concerned because the buyer and I was sharing a lot of information about the business before close and in the end I just discounted that nagging thought in the back of my head to should I trust this person, are we actually going to close, are they just trying to gather information and then pull out or whatever and try and compete and yeah, I just put my trust in and the buyer and I think that really paid off.

Mark: It's easier to trust a buyer when you see that they're spending a lot of money as well on their side with advisors, right?

Joseph: Yeah exactly.

Mark: That would have been an expensive fact-finding mission for him. Let's talk a little bit about some of the tax advantages. I mean we've already talked about just the advantage of the 45% to 10% on your side. But something you brought up; you came up, by the way, for people we didn't say this before but you came out and actually visited me here in the Twin Cities as well as Scott who lives in the Twin Cities. We had dinner. It was great. It was along with Eric as well from Redpath. The first time a client has come up and visited. It's fantastic; a lot of fun. But one thing you brought up in that conversation was the tax savings that you were able to generate as well on the money with; the cash within the business which is one of his kind of hidden benefits that maybe we weren't anticipating early on.

Joseph: Yeah. I mean I kind of knew it existed as an option but because moving into the process I wasn't 100% sure if we would actually get a seller's stocks deal; I knew that was a big driver so something we were pushing forward but I'm… yeah, so basically to summarize the working capital and inventory within the company can also be released tax efficient during the earn-out because it's counted as working capital. So basically you sell the cash of the company and the inventory to the buyer and they then cycle that back to you. I mean you can do it as quickly as 10 days. We're allowed longer so we've got time to kind of work out the accounting side but they effectively buy the cash and you're giving it back at the entrepreneur's rate so the 10%. So instead of having to [inaudible 00:21:53.3] to take that money as salary or income and dividend, you can pull out the business into a personal through entrepreneur's relief at 10% which is a nice benefit and something that for anyone at sell-side you should really be considering the year before you sell your business you want to be building your cash reserves because you can pull that money out extremely tax-efficient right.

Mark: In your case, it was; I won't put a number to it but there was a significant savings probably taking a large chunk if not the entire chunk of some of your advisors that you were paying to help us.

Joseph: Yeah Mark, for sure [inaudible 00:22:30.6].

Mark: And so yeah we take a look at that; again the path that you sort of blazed here for a lot of other UK sellers with all these advisors, we have a pretty nice path down. I want to just touch briefly on some of the tax savings that we saw on the buy-side. Are you familiar with much of that or shall we pass over that?

Joseph: I mean I think it's important. I don't totally understand the details; very, very top-level view. I know there's structuring that you can do with different entities in a holding company that achieves an effective tax rate of 21% then they sort of; a tweak of that is if you then pull all the company activities into the USA you don't have a person in the UK, the UK office, or whatever country you end up running the business in you don't have what's called permanent establishment in that country. So then the effective tax rate ends up being at 26%. So again it's still not bad like the flow-through tax rate of an LLC is 37, right? So, whatever happens, it's an effective way to use the dual tax treaty between the UK and the US and same with some other countries like Canada and Australia like some that you said before but yeah when it comes to the actual structuring that's more for a tax advisor to kind of discuss but yeah like it's one of these things. So once you get past the liability which can be solved contractually it presents a huge opportunity for both buyer and seller which is I think an important thing to have those conversations about because it's not just the seller that benefits from effective tax rates.

Mark: That's right. So just to kind of recap here what we're talking about here is going from an effect of 37% here in the US. When we think about buying an Amazon business we typically look at just straight-up asset sale, you set up a new LLC and then you're going to have your earnings on that business tax at that 37%. Under this structure, it would require a different sort of setup with these companies and one could do with the details in that meeting because I don't want to get something wrong here on this episode. I hope to have Eric from Redpath on who can discuss this in more detail. But effectively going from that 37% like you said down to an effective rate of what was it 25%?

Joseph: 21 or 26 depending on which country the operations are run out of.

Mark: Right. And so that can be significant savings if you are seeing earnings well into the six figures. And in addition to that having that structure set up so if you were to say as a buying group I want to buy in the UK because let's face it there's a lot of U.K. companies that are really, really powerful and doing some amazing things. You now have a vehicle within UK to be able to acquire some of these properties and save on the tax rate as well. It's a double bonus there. My opinion from the buy-side it requires a little bit of setup but the benefits are definitely there long term.

Joseph: I think it's one of the cool things that we sourced towards the dinner we had was not many other buyers are looking at these companies. And I think that gives the buy-side another competitive advantage. It's like some of the other larger brokerage firms they're not looking at UK companies. I remember having some initial contact conversations with my broker and the second we mentioned it was a UK company they basically took a 0.5 multiple off the company because they were like yeah we don't do that, we don't do stock, we don't do you know. And I think that approach to UK companies means that there's more of them available.

Mark: Yeah. With a US-based company, we have this tendency where if you don't move quickly as a buyer and by quickly I mean days you're going to lose it and with a UK company often. And it didn't happen in your case actually when we actually got down to that LOI stage things did move rather rapidly. But there was luxury for some of the earlier buyers to basically take their time because they didn't have; normally we have a dozen or more people looking to have the property. In this case, we had less than that looking at this closely enough or for some competitive pressure. But I think that was crazy. And I think the pace was a bit more comfortable. What do you say; let's flip around a little bit here and kind of round out with this, there's a lot of UK sellers out there that may be looking at this and saying I've never really considered selling my company. Some of the things that you would recommend you've already mentioned building up some savings in your account before going to market. So that you can pull that out as a favorable tax rate but what else would you mention to UK based sellers that maybe haven't considered this before.

Joseph: Yeah, sure. I mean I'm not sure what advice I have specifically for UK sellers. I have some good general seller advice like have your numbers in order, know your inventory values, have inventory management software if possible so you can pull inventory numbers at any given time, know your way around your balance sheets like having numbers over to a buyer as quickly as possible helps them be informed and helps you get the deal closed. I think that's fundamental you don't want to be waiting for your accountant to get this information. I mean for UK buyers I don't think I have any really specific advice or any more detail but like the buyers are out there. There are interested parties willing to look at structuring options and get deals done. I think it's an exciting time for UK companies which is not; there are options out there to get closes that are tax favorable for a UK company.

Mark: Yeah, I would agree 100%. Again it's a bit of an eye-opening experience for me as far as just what we can do and where we take a look at the deal, structure it smartly from the beginning. I think the other lesson that I did pull away from this was just the benefit in bringing on good advisors. I know both on the buy-side and sell-side I see people hesitate sometimes. Maybe their books are a mess and so we recommend that they hire a bookkeeper. We have a number that we recommend that just do good work and sometimes people they balk at that. I don't want to spend 3 or $4,000 but the benefit you get out of hiring a good adviser I mean it pays for; it should pay for itself. It should pay for itself. Well, this is great Joseph. I know that there are going to be people out there who have questions about this. Are you open to having some of them contact you by email?

Joseph: Yes for sure I'm happy. Anyone who wants to talk to me either buy or sell-side I'm probably not going to give you any detailed information in structures that I don't truly understand but yeah happy to sort of field any questions that this might bring up.

Mark: Okay well, we will place some contact information for you in the show notes to this episode so I'll get that from you. I really appreciate you coming on here and taking the time to talk about the deal. I know it's not always comfortable talking about the deal that you've just closed because most of us let's face it we're introverts.

Joseph: Yeah. I should be on holiday now really anyway.

Mark: You should be instead you're still doing all this stuff. Hey, thank you for coming on. I appreciate you sharing your story with us. Thanks for trusting us to do the deal and most importantly as much stress as it was also just a ton of fun.

Joseph: Yeah I mean I was generally enthused by the process. I really enjoyed the negotiating and closing and selling a company. It's the first time I've ever done so yeah pretty exciting.

Mark: I can't wait for the next one.

Joseph: Yeah me too.

Mark: Sounds good. Thanks, Joseph.

Joseph: Alright, thanks, Mark.

Links and Resources:

Product innovation, product creation, and product variance are the key lifelines to any Amazon e-commerce business. Unless you are very lucky, simply putting one product out there and hoping that pays off is not going to be sustainable to your business. Today's guest helps people working with overseas importers to navigate the realm of product development, sourcing, and all that any e-commerce business owner needs to achieve success and save some money in the process.

Zack Leonard became interested in product design and importation after starting out as a consultant and working in operations and strategy. His interest was piqued when he started delving into what goes on in product manufacturing. Zack started to research and test what was missing in the market. What started as quality control team on the ground overseas has grown into a full-service product innovation platform that brings in experts all along the product creation, development, and delivery chain.

Episode Highlights:

• How Zack got started in manufacturing and the story of Gembah.
• Zack walks us through a case study of a client Gembah has helped streamline product design and delivery.
• How Gembah is able to shave off thousands and create value for your business with his services.
• The design process their teams go through with clients.
• How relationship building is essential to the services Zack offers.
• How Gembah's consolidated shipping tactics help clients.
• The process is for new product manufacturing launch – goals for an awesome product.
• Mutual nondisclosure steps taken by Gembah and their clients.
• The importance of visiting the factories and making that culture stop overseas.

Mark: Joe as you and I both know product innovation product creation and variance on your product is one of the key lifelines to any Amazon business. You can't just launch a product or if you can you're very, very lucky. Most businesses don't just launch a product and live with that forever. You need to be able to come up with new products to feed your audience, to feed your; complete your customers in some way. Then I understand you have Zack Leonard on who his company helps with just that; product creation, sourcing, reducing COGS. Tell me a little bit about the conversation.

Joe: Yeah. Zack is from a company called Gembah and he came to us through some people that have bought some sizable businesses with us. People that I would say are smarter than us and are in the e-commerce world working with Chinese manufacturers developing new products, sourcing new products, and just focused on all aspects of importing from I should say overseas. It's not always China. But it was a fascinating conversation because a lot of people that we talked to whether they're buyers or sellers want to expand their product line. A lot of conversation that you and I have with entrepreneurs we repeat over and over it's not just about the top line it's the bottom line and you shouldn't just drive revenue and not focus on reducing your cost of goods sold or repackaging or stop shipping things by air and do it by freight things of that nature. Zack's company focuses on all of that and it's right there in Austin, Texas and he just goes through all of it here in the podcast and it's fascinating. I think a lot of people are going to say where the hell was this guy when I started my business because you're going to want to use him and similar services like his.

Mark: You know I was just talking to somebody right before you and I jumped on this call here where he had an idea. He's a consultant on a lot of different things and he was asking me about product packaging and Amazon businesses whether or not there would be a market out there from amazon sellers who want to save some money on their packaging and maybe getting better rates from Amazon in that regard. And I tried to explain to them that yes people are interested but in the Amazon eco-space, there is this element of there's so many opportunities to either cut costs or grow revenue. Most people are focusing on this; the 20% that's going to have the 80% effect, right? And so if you can hire somebody like Zack; if you can find a company like Zack's that can come in and take care of maybe the other 80% that you're ignoring because you're simply too dang busy with all the other stuff that's on your plate that can be a really key win for your company.

Joe: Yeah I think it's an opportunity to at least listen to it have a conversation I think that; you know I asked him throughout this is not, by the way, a pitch for his services. I asked for golden nuggets all the way through. What are people doing right? What are they doing wrong? What would you advise them to do? How can they cut their own costs and things of that nature? So I think it's going to help people if they're in the e-commerce world now and it's an opportunity. You could talk to him at the end. We gave out his information. It's Gembah.com G-E-M-B-A-H but listen to it, it's fascinating. Some of the tidbits he gives throughout the entire podcast are really valuable.

Joe: Hey folks it's Joe Valley from Quiet Light Brokerage and today I've got Zack Leonard on the line with me from Gembah. Zack welcome to the Quiet Light Podcast.

Zack: Thanks, Joe. I'm really excited to be here; excited for the next 30, 30-ish minutes to talk more about what we do and a bit more of our background.

Joe: Let's jump right into that. Tell us about what you do, what Gembah is, and who you serve.

Zack: Yeah. So I am the founder and president of Gembah. We are a product innovation platform. So we help businesses both e-commerce Amazon and promotional products companies and retail brands create and manufacture products. So we have a team of engineers, designers that help more with the product innovation side of things. So helping bring ideas to life through sketches, design, whole renderings, CAD drawings. And then we have a team in China that focuses on the manufacturing once those collaterals for your projects are done; for those cool products that are you trying to make. We turn it over to our team to help put it out to our factory network which is over 500 now. And then once you're into production we do a bunch of quality control measures and really look at it as if you are physically there in the factory yourself to take photos and videos along the way to make sure that we're scrutinizing the way that you would not a third party necessarily. Really we see ourselves as a partner in crime in that sense and then once everything's ready to go we help with the logistics as well. So really a turnkey operation to make sure that you can get these cool products to the market in a very fast manner. So typically we can get them out in like three or six months.

Joe: Where the hell were you when I was in the e-commerce world dang because I needed you?

Zack: Actually during that, I keep hearing that but we're here now.

Joe: Yeah, I actually; two different e-commerce worlds, first for me it was supplements; digestive health supplements that was US-based. But we had another; my wife had a different product that we manufactured in China or she manufactured in China but we had no idea what we're doing. So I love this subject and I think there's probably a lot of people that are listening going oh my God where has this guy been? So tell us that, where have you been? How did you get started doing what you do? What's your background prior to Gembah?

Zack: Yeah, so it's actually unrelated completely. I started as a consultant many moons ago; my prior life. And really that helped me organized chaos and kept me that operational and financial way of thinking. And I moved into a role where I was running the Texas markets for a company called Instacart which is same-day delivery. And you get to see explosive growth and I was employee I think number 40 or something like that so moving a market from zero to doing seven-plus figures in a week in GMV which is hiring nonstop. Basically we have to hire 75 to 100 people a day. It is nuts.

Joe: Wow.

Zack: Yeah and then from there I moved into a strategy role at a company called Dropoff which was focused on more than just grocery delivery but more to same-day courier delivery. And while I was there I started to pick an interest into manufacturing side of things; it always, Show How It's Made always resonates with me. I like to watch that show. And then I met a couple of people that were into the manufacturing. One of them owns a pet products company. And he really opened my eyes to what really goes on into that. And the whole time I was thinking man there's really a problem that was on for a product company to try and find a good resource to really make products overseas especially. So I started doing a ton of research and then I started to really just test this theory out of what is missing in the market out there. And it started off as really just trying to be like a quality control company seeing like how we can help and we've just been like a team on the ground overseas. And as we continue to grow over the last couple of years we've started to say okay so just being a; there's tons of companies out there that do this already. What is the it-factor for Gembah? It is really offering that full-scale design plus manufacturing offering where we can take something from idea all the way through the entire process. And the reason for that is I've seen a couple of my friends go through that process and they work with a designer maybe and then it's kind of disjointed. You have that experience where you go in the designer and they don't know if they can actually get that product manufactured. They go to the manufacturer and they say okay well what do I have to change? You can make a mass scale production here. Then you have to go back to designer and designers are charging them and then the manufacturer says well that's wrong. This whole process is just kind of just not straightforward. And so what we're trying to do is bringing experts along the way at each different part of the cycle so start off with the product design part of it and have experts that have made products and manufacturing at full scale manufacturing before and then sync them up with the factory so that you don't have that lack of communication; that gap in communication. That's resonating really well especially in the Amazon space. We've started to even expand our offering beyond just the product design into more of a research-based company to help with; you know there's tools out there like Helium 10 and so but we have a team over there that can help really expedite that process and enhance the Helium 10 experience.

Joe: So expand, you mean expand beyond their current set of SKUs to a wider product line; is that what you mean by expand?

Zack: Yeah, so let's say that you have a search term that you find that is really hot right now. There's a lot of investment that could go on into making a product completely new from scratch or incrementally innovating and paying some high design fees if you don't know what you're doing. What we can do is actually say okay you find this hot search term let's go talk to our factory networks and find out what the latest and greatest technology is for that search term and find out a product that isn't on the market yet and then you just go sell it, right? And we've done that successfully now for a couple of our customers and they actually have a seven-figure product now because of our research.

Joe: That's amazing. Let's talk real-life examples if we can without naming names or products or anything like that but can you walk us through a relationship that you have where they've come to you, met with you, sat down with you and your team and what you did for them in terms of helping them design and develop the product and expand and find those manufacturers and so on and so forth.

Zack: Absolutely so there's a customer that we have that's an eight-figure seller now and they came to us with a couple of issues. One is they're one of those companies that acquires a bunch of other smaller sellers and tries to roll them up. And so a lot of those sellers when they sell they made it from their factories on Alibaba or they may have gone over and met the guy in a subway or something like that and they're taking those guys at face value. Well first thing that we do with them is help optimize their supply chain. So if they have a bunch of different companies we're helping them really understand are they getting the best pricing, are they scaling the correct way, or maybe if they have similar products are we able to condense them into one single factory or maybe two factories instead of three different factories that they have. And so when you talk about that you're talking about giving them buying power. You're talking about giving them scale at the factory. I mean able to shave off like 20 to 30% of their product cost so at their bottom line we're talking; you're adding a ton of revenue or saving a ton of cost to their bottom line so that's kind of the first thing we did for this company. The next thing we did is…

Joe: Pause right there just so that people understand and I maybe I don't need to do this because the audience is incredibly smart and adept but if you're selling; simple math 1,000 units a month and you're saving a $10 product cost. And correct me if I'm not getting this right Zack but $10 product cost and you're shaving off 20% that's from manufacturer to FBA in this case $2 per unit or $2,000 per month what that does everyone is that adds 24,000 to the bottom line and if your business is worth 3, 4 times that's going to add $7,500,000 to the overall value of your business when you eventually do exit it as well. So we're always talking about it's not the top line that only matters but working with some of it Zack and improving that bottom line and the efficiencies and the profitability; that's what really drives value. It's not just the top line. I'm sorry to interrupt but keep going. Okay, so you're working with this particular client to reduce their cost of goods sold and streamline and go on.

Zack: That's right. So that's kind of the first set of operations that we helped them do. The next set is they identified a bunch of SKUs that they want to add to their brand or add to their existing brands. The first step is if they want to just white label a product because they see how we've been able to give them better pricing they'll come to us and say hey I just want to go white label this, I found a hot product, let's go find it. They set a price target and the quantity and 9 times out of 10 hit that price starting in quantity and get them adding SKUs; adding value to their overall brand, diversifying their brand, giving that perpetual continuous flywheel of bringing out new products that are really reasonable clip in terms of time. Like I said it's like three to six months.

Joe: And they're using a software like Helium 10 to see what kind of sales are already occurring. They know that that particular product is a hot seller. They're just going to jump on the bandwagon so to speak?

Zack: Sometimes yes I think they also have their own proprietary software that they use.

Joe: There's the Jungle Scout, there's the Helium 10, there's a lot of things out there that can help with it but that's what they're doing is to research goods; okay this is something that sells well? I'm going to go ahead. Okay, I got it.

Zack: And if they want to differentiate from that then they'll come to us and say okay I want to make a new or incremental innovation on this product. I looked at maybe some of the reviews or I have some sort of test market that I go out and look at and say hey what do you think about this product and they give some feedback and then they say I need to make X Y Z enhancements on a certain product. Our team will design it really fast. Usually we get those designs back in about a week we. And then we go put it out to our factory network and then they're able to again get on that flywheel of creating new products in three to six months. So obviously it's just a straight sourcing white label gig that can take a lot less time. That can take like a month maybe to get a product out to market. And then if it's more of a design-focused project then it can take like three to six months.

Joe: Okay, and the designers are industrial designers doing real 3D renderings, things of that nature?

Zack: Exactly right. So our process really starts off with sketching. So we'll do two to three sketches of each concept based on a conversation or a full project kickoff we have for each one of the SKUs and from there we then focus in on getting to that final rendering and then we'll then prepare you and enable you to have the real blueprints of the product; so the CAD drawings, all the build materials, all that stuff you need to really look like a professional when you go and start sourcing overseas. One of the biggest problems I see with a lot of sellers is that they try and go talk to these factories on Alibaba and they go and say oh I want to make X Y Z changes to your product not really giving them that collateral and saying these are the exact changes I want to make. And so the factories know that you're a fish in that circumstance. They know that they can take advantage of you. You go to them with a design sheet; full build materials, a full CAD drawing to show them exactly what you want, they're going to take you a lot more serious. And so what we're really trying to do is prepare you for that conversation whether it's through us or whether it's on your own factory network but we want to make sure you look like a professional. You can start getting better pricing because of that.

Joe: Okay. So if I was the person that had the e-commerce store or Amazon business or both I can choose. I can take your renderings and go direct to my own manufacturer or I could have you bid it out to your manufacturers as well.

Zack: Yeah, if you want to. We prefer that you build it out with our factories obviously. We tend to have better pricing than the average Joe. But if you want to go off on your own we're more than happy to do that.

Joe: Yeah, so let's say that I hired you, do the relationships with your manufacturers transfer to me? Do I get to work with them directly or are you always in the middle?

Zack: Typically if you're going through us to manage it you're using us as your face in China or Vietnam or India or wherever we're doing business with you. And the reason for that is because the relationship building is so important as well as we provide the quality control. So it's something you just take off your plate. You don't have to worry about it. You don't have to fly over to China. We just handle that relation for you. We're going to show up at the factory, we're going to build the relationship, we're going to constantly go to bat for you, try to get better pricing, make sure that if your factory is getting behind or they're starting to lose scale you can start having a conversation about either bringing you to the next level factory; the higher level or starting to scrutinize the build materials that they give back if it's an assembly factory and say hey maybe this component that you're sourcing you're marking up too much let me go find a different factory for that individual component and get it cheaper for you. So we do that a lot of times with packaging for example; if you go to an assembly factory they're going to upcharge the packaging. But we have the packaging factory work it that. We can compare pricing to make sure that your assembly factory isn't up charging you.

Joe: Yeah, every dollar counts again to that bottom line. I had someone on the podcast a few weeks ago; folks if you haven't heard it somebody bought a business from Quiet Light and within a few weeks they did what Zack is talking about which is exchange out one part and get another part. I think he saved something like $4 per unit and per SKU and they sell thousands on a monthly basis. It was just a tremendous instant equity to his business and overall a bump in bottom-line revenue as well or profit I should say. Do you also do consolidated shipping so that if you've got three or four different clients that are manufacturing from different facilities can; do you do partial container load with different folks and reduce their overall shipping costs as well?

Zack: Absolutely if they have factories that are located in essentially the central part of China that goes to the same port we absolutely can handle that. We're doing that right now with one of our customers actually. They have three different factories after three different products and they're trying to fill up a 40-foot high container and they want to make sure that we can make it happen for them and that's something we do pretty easily. So yeah we definitely do that.

Joe: Educate me. Make me sound smarter than I am. Is it LTL less than container load is that what the acronym is?

Zack: LCL, less than container load.

Joe: LCL. Okay, thank you. Thank you very much. Alright, I'll try to remember that. I'll get it wrong the next time we do this and people are going to go, God, Joe you just can't get that right. But I don't do what you do so it's okay. I don't need to know what you know that's why people. Alright, so the design aspect going back to that again, how does somebody approach you? What's the ideal situation; is it do you have a form on your website site, do they just come to you and they have a conversation with you, how does it start, how does it work?

Zack: Yep. So we have a form on our website which kind of gives you just the basic Name, Email, Phone, What you're trying to make, and then we'll have a conversation with you about what you're trying to make and we'll start the conversation with understanding if there's patent issues or some like that so that we can have an understanding if there's any legal obstacles we have to overcome. After that, it's really just talking with our industrial designer to pull out every information from you that they need to do their job which is who's your inspiration, what's your end-user goal, all the stuff you want to have in terms of making an awesome product and then we go to work. I mean we try to make this process as simple and easy for anyone who wants to come interact with us.

Joe: So when we do valuations at Quiet Light which I hope we're doing well in advance of somebody exiting their business so that they get more value. Oftentimes people say well I don't really want to share my information with you until we have a nondisclosure agreement on file. Will you send that to me? Do you start with a nondisclosure agreement on file because you've got an awful lot of information about somebody and you can decide to go into the e-commerce business yourself?

Zack: Yeah. We won't have a conversation with you until you sign a nondisclosure because of that. It's mutual. We make sure that all the IP is protected; all the conversations are protected because our business is really secretive, right? So that we make sure that everything is completely sound in terms of legal and protection for the IP.

Joe: So theoretically if I decided to work with you, do I really never have to go to China?

Zack: Never. I mean we encourage you to because it's always great to meet the factory and our team. But in terms of like reality, no you don't have to. Because we have someone who's going on your behalf showing up at the factory doing pretty much everything that you would do and they understand the culture because they're locals.

Joe: You know we had Dave Ryan on the podcast and he's from EcomCrew and a big part of his contribution to that is manufacturing in China and he's an expert at it and his wife is actually from China originally and he lived there for a long time. And he talked about the benefit of that relationship. I've heard people talk about it when they go over and they meet the manufacturers and they go out to dinner drinks and drinks and drinks and drinks as understand. It changes things. They're willing to give you perhaps better pricing, better terms, things of that nature. Do you fully replace that or should a business owner also; it's still your relationship with the manufacturer but should they get over there as well? I mean what do you; I mean you said you think that or you think that they should go over but truly they don't ever have to. What's the benefit of them going if it's your relationship with your manufacturer?

Zack: Yeah there is a business culture called Guanxi in China which is exactly what that is. It's basically how they operate in terms of the business language and how they operate from the business culture. And what they enjoy is the face to face interaction. There's a lot more conversations that can be had. You can learn about their family. You can talk about what kind of food they like to have, all that kind of stuff. There's a lot of value that comes out of building the relationship and like you said they'll start to give more concessions. There's a ton of people going to them every single day on Alibaba or in person that wants to do business with them but they value the people who are there for the long term and the people who really make an effort. And that's because that's just how their culture is. So while you don't have to do that because we're taking care of that we definitely enjoy, recommend, whatever you want to call it, you personally as the business owner of your business going over there. Maybe it's not every year; maybe it's every other year, maybe if you want to go there every six months, whatever it is we help facilitate that. So if you show up we're going to take you with our team over there. So you get to meet both our team which is also a part of it as well going to the factory. So yeah we'll take you straight from the plane to the hotel you choose. If you want to stay in our place you can stay at our place. And then from there, it's going to the factories.

Joe: I love that. That's great.

Zack: So you get to meet our team, see our office, if you want stay in our apartment we're more than happy to but really we give that white coat service in terms of making sure that you again look like a professional and look great in terms of the culture aspect over there. So we're just bridging that gap.

Joe: That's awesome. It's standard business stuff and that's why we do video in addition to the audio on these because it's; look we can't meet everybody face to face but it's great to be able to see the whites and odds and talk to them when we talk to people all over the world. Talk to us about what are the biggest mistakes; let's say somebody doesn't want to use Gembah but educate them, help them, what are the biggest mistakes that e-commerce product owners, and marketers, FBA owners, what are they doing wrong at a dramatic level?

Zack: That's simple. I think the number one thing I would take away is going to Alibaba unprepared. And the reason I say that is because Alibaba did a great job at bringing the factories to mass market. But they don't do a great job of explaining how the process works. And so there's a lot of things that you can go straight to Alibaba and get wrong. So I'm sure you've experienced this or maybe people; your audience has experienced this. We go to Alibaba, you ask for a price quote or something, you get a sample and then they change the price. Or you ask for an iteration of something they give you a price and then they make the sample and it's completely wrong. Or you order a product and then it's completely defective before you come back. I mean again this is just a software platform into a process that has been going on for thousands of years, right? Software is not going to necessarily overcome the hurdles that exist continuously in manufacturing which is defective products, building that culture, and building a relationship. So those are the three things that Alibaba really doesn't fix. And so what I would recommend again is to hire someone locally to fix those problems because there is a culture gap. You do need to build a relationship and you need to make sure that your products are not coming back defective. So those are the three things I think that are the most important in terms of doing business overseas that most people overlook.

Joe: And what is the simplest thing somebody can do to reduce their costs?

Zack: It depends on which part of the process they are in. So if they're; if you're talking about building something from scratch it's going to the factories and getting multiple bids with an actual blueprint. Like I always use the analogy of building a house; you wouldn't build a house without an architect. You shouldn't build a product without a designer and an engineer. You're just going to cut corners. They're going to take their interpretation of what you're trying to make and their interpretation is let's make this the cheapest way possible and charge the most they possibly can.

Joe: It seems logical when you put it that way.

Zack: Right. I mean who wouldn't do that? It's the same thing when you're building a home. If you go straight to the builder and you say I want to build a 2,500 square foot house. Okay, I'm going to build my interpretation of that and I'm going to put it up as fast as I can and as cheap as possible. Why wouldn't they do that? That's the way that we approach it.

Joe: Okay. Any tricks or tips or advice in terms of shipping which is a big cost to freight when people are shipping products from China to Amazon or to their own 3PL or whatever the case might be; any tips there?

Zack: Yeah. I think again always get multiple bids for that and then always make sure that your compliance is in order especially if you're building a new product. These products have never been out in the market before. There's a ton of compliance measures that need to be taken to make sure that they're labeled correctly. Like for example if you're selling a children's product. They need to be tested. They need to have a CA Prop 65, ASDM testing, a bunch of other testing that needs to happen and be labeled a certain way. If it's intended for infants it need to be choke; make sure there's no small parts that can choke them. They need to be labeled on the packaging as well a certain way. So those are all things that if you don't do those correctly they can get flagged at customs and ultimately turned back. And the factory is not going to reimburse you for the mistake that you made in not going to your compliance in order. And so that is a business killer. So that is the number one tip I can give to someone in terms of logistics and compliance is make sure you have all that in order before you bring a new product into the market. Those are all things that we help do obviously.

Joe: Good advice and you do that again but what the heck is Gembah? How did you come up with that name? What does it mean?

Zack: In Japanese Kaizen manufacturing theory there's the word Gembah which means the place where value is created on the manufacturing floor. So that is where it's based off of. In Chinese gembah means let's do this. So it's kind of a dual meaning both from the Japanese manufacturing and then the fun side which is gembah.

Joe: Very cool. I got it. You just mentioned manufacturing; I want to go back to something you said earlier which was your manufacturers in China or Thailand or wherever they may be you named a few countries. How difficult is it now in this economy and this environment with all the trade wars to find something that's being manufactured currently in China and get a quote on their factories in Thailand and the Philippines and so on that can do the same thing?

Zack: Yeah that's a great question and we get that a lot now from our customers and I think there are some products that are more easily transferred to a different country. If you're talking cut and sew apparel for places like Vietnam, glassware you can get in India pretty well, if you're talking injection molded items it's starting to pop up in Vietnam. You just have to make sure that you understand they move a lot slower. Especially in places like Vietnam, Cambodia, Philippines, and the reason for that is because they don't have the raw materials that places like India and China do. So they're importing almost everything from places like China, South Korea, India to get into their factories. So that adds time to the lead time of you making a product. So most Amazon sellers for example don't have the luxury of waiting 60 to 90 days to get a product into their hands of their consumers whereas these big e-commerce brands who spend a lot more time and money on R and D and come up with new products maybe 12 months in advance they can take that luxury and move their production over to different countries. So that's what you're seeing like the Nike the Adidas of the world moving into Vietnam or moved a lot of the production into Vietnam because they can do that. They have the operational capacity to do that.

Joe: So for the six, seven, eight-figure brands that we know and we talked to is it worth it time-wise and financially; are they saving costs in terms of cost of goods sold or are they just comfortable knowing that they're not going to have to deal with any trade war issues in the future?

Zack: I think that's a true business decision. While I would say the prices that we've seen between India and China specifically are not competitive. China's way more cost-friendly in terms of like apples to apples comparison on the exact same products I've seen 5x in India. Vietnam is pretty competitive because everyone is starting to knock at their door. So I've seen garment and apparel prices go up by 4 to 7% just cost of good before you get to the shipping and logistics side of things. So they're smart. They know that everyone's trying to come to them and their production lines are moving at a high clip now. So I think it's really you have to understand the entire landscape of your true landed cost and lead time before you actually make that decision of moving production over to Vietnam because it's not as easy as it sounds operationally.

Joe: Right. Makes sense. Are you renegotiating with any of your Chinese manufacturers to offset the tariffs?

Zack: Of course.

Joe: They're okay with that; what are they like?

Zack: Yeah, I mean it's a geopolitical issue that's going on and they don't like it either. Whoever side they end up taking is on them and whoever side we as Americans take is on us but there's certain things you can do to help them share the tax burden. There's certain things you can do especially with molds that you can start recouping your mold costs if you want to create some injection molded item. That's the kind of stuff that we do and we're talking about making you look like a professional. These are the things that we are bringing to the table when we start the negotiation process. And so because of the geopolitical landscape that we have this is part of the conversation now.

Joe: It sounds like a really, really important conversation to have. How do people find you, how do they get started, that kind of thing?

Zack: Yeah. So the best approach would be to go on our website www.gembah.com G-E-M-B-A-H.com and fill out a form and we'll be in touch with you as soon as you fill that out.

Joe: Geographically where are you located?

Zack: So we are headquartered in Austin, Texas; the barbecue capital of the world.

Joe: And all you have to do today is put it on your dashboard because it's; I've talked to people in August here right so it'll grow right there. Yeah, I love Austin; lots of folks down there that we work with.

Zack: Yup, and then our office in China is in the southern part in a place called Dongguan which is close to the Guangzhou area; it's the manufacturing capital for the south.

Joe: So you get the grilling capital and barbecue capital and the manufacturing capital. I think the folks here in North Carolina may argue with you about the barbecue capital but I'm for me.

Zack: Yeah we all love your sauce; I've come to learn that it's a saucy type of barbecue. I prefer the sauceless more of a dry rub which fits me well in Texas but I still like the Carolina barbecue. It's great.

Joe: I won't say I disagree. Alright man, it's been great having you on the podcast. I'm looking forward to hearing some great successes from some of your clients who I know. I know a few that are working with you; people that have bought businesses from Quiet Light and sold to Quiet Light working with you now too. So it's been great having you on the podcast. I look forward to having the audience reach out to you and work with you and learn and get better pricing and better products out in the future. Thanks for your time today.

Zack: Thank you, Joe. I'm really, really glad I could be here. I appreciate it.

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Bringing outside perspectives and experiences to our business and podcast episodes adds another perspective to our expertise. This episode brings in someone with a lot of experience in a particular niche, in this case, the exit strategy/buyout arena. Quiet Light's own Walker Diebel is here today talking to our guest all about exit planning.

BEI Institute founder John Brown started working as a lawyer in estate planning in the late 70s. John walks us through his journey managing business owner's assets and becoming aware that no one was helping them plan successful exits from their companies when the time came. Without being educated, he asked himself how these business owners would plan a strategic exit from their businesses and move successfully into their post-business lives. John's company, BEI is now is the leader in the exit planning industry.

Episode Highlights:

• John explains exit planning.
• The first thing that someone who potentially wants to sell their business should do.
• The value drivers that are important to pay attention when building your business.
• The role of the business owner in the process.
• Business risks that are not avoidable or hard to foresee.
• The biggest deal killers.
• John walks us through the four exit paths.
• The Karl case study – an exit strategy lesson.

Mark: Joe I don't know if you know this or not but one of the advisers here at Quiet Light Brokerage; Walker, he's kind of a big deal.

Joe: He is kind of a big deal. Let's do this; let's make a pact. This is the last intro and the last time that we will say did you know Walker Deibel wrote a book and a best-selling book, Forbes and Amazon, all this other stuff because you know Chuck and I did talk about it the last episode as well. We need to stop making fun of Walker. The truth is he's brilliant and we're jealous. That's the bottom line.

Mark: That is why we make fun of him, right? I mean we kind of wish that we had that book to our name and he is brilliant. And he's well for a reason.

Joe: And he's being asked to be a featured speaker all over the country to entrepreneurial groups. And he just had somebody named John H. Brown, founder of BEI on the podcast. I'm looking down because I'm looking at the book here; a brilliant guy. The wisdom that John brought in terms of exit planning and what entrepreneurs should do in terms of goal setting and looking out to the future and how to adjust their business as necessary to achieve their financial goals and their personal goals; it was brilliant. A great deal of wisdom that John brought to this podcast that Walker hosted instead of you, right?

Mark: That's right. You guys get a break from us this week which is fantastic for you. I love bringing in outside opinions. We've brought in some people in the past who are also in our industry that do things that are similar to what we do at Quiet Light Brokerage but they come with a different perspective than we do. I love doing this because I think sometimes with what we do we can kind of get set in our ways and our perspectives and bringing somebody else in who has a lot of experience in this space and seeing how they look at it, it tends to stretch you a little bit and structure your viewpoints a bit to maybe look at things that you haven't looked at before. So this is going to be a fascinating interview that Walker did with John to see what he has to say about exit planning.

Joe: I agree. I've listened to it twice. Let's go to it for our studio audience.

Walker: Hi everybody it's Walker Deibel with Quiet Light Brokerage. Today I have John Brown who is the CEO of Business Enterprise Institute; the oldest and largest provider of exit planning education in North America and the author of the best-selling exit planning book of all time. And most recently John wrote Exit Planning The Definitive Guide To Sell Your Business When You Want For The Money You Need To The Person You Choose. John, welcome to the podcast.

John: Thank you, Walker. It's nice to be here.

Walker: Now here at Quiet Light we have a tradition of having our guests introduce themselves because we believe that you're going to be able to do a better job than we ever could. And what I might do is throw a curveball at you and say…

John: There was never a good curveball if you will know.

Walker: Maybe if you can tell us about your journey of being an attorney and then how you evolved to ultimately start BEI and writing all these books on exit planning.

John: Sure. So I was the son of two business owners in Michigan. So I've always had some I guess passion for business owners because they ended up selling their business and it didn't turn out well. It was an absolute bust. And this was when I was probably in law school at the University of Wisconsin. I wasn't in a position to do anything because I didn't know what to do.

Walker: Well let me interject a question little fast, when you say an absolute bust selling a business what does that mean?

John: Well they sold the business to the management team for a promissory note. They retired because they're from Michigan. They retired at Florida like all the people from Michigan and within a year the business had gone under. And they received very little of the proceeds from the sale of their business. So that was just a bust. It really affected their retirement dramatically.

Walker: I got it.

John: And at the time I was just a young and stupid law student. I really didn't know how I could have helped them. And it was long enough ago that the word; the term exit planning hadn't even been coined. I think we probably coined the term back in the 1980s. So that always stuck with me. So when I started to practice law in Denver I really had a desire to work with business owners. So the law firm developed along the lines of representing closely-held business owners. And we had about 20 attorneys and all we did was represent closely-held business owners. It was a different type of law firm back then at least.

Walker: Were you a transaction attorney or no?

John: Half the firm was transactional, an M&A firm buying and selling businesses. But the other half was a planning firm and I headed that side. It was then evolved into explaining; how to design and implement a plan to allow the owner to leave on his or her terms. And then often would end up being a third party sale and so the M&A firm was active in that. But even more frequently it ended up being transferred to family members or to management. And so we just developed an exit planning process about that in the law firm with hundreds of clients and then I'm never having a passion for being a lawyer. I transitioned out of that. I exited my law firm and started BEI.

Walker: Are you still a recovering attorney or have you had a chance to move on from that?

John: I think my former partners would say I had recovered from being an attorney while I was still at the law firm.

Walker: John what is exit planning? I mean what is the goal of exit planning? What is it; I mean what is this thing?

John: So every owner is going to leave the business at some point. I think we can agree on that.

Walker: If they don't?

John: They may die. They may go bankrupt. Or hopefully something in between where they develop value that's transferable to another owner and they create a plan as part of that to exit the business when they want; is it three years, five years to whenever for the money they want or need and to the person they choose; the person of their choice. That's, in essence, is exit planning and a raptor into that then is an exit planning process that owners can use and BEI does not represent business owners. We train lawyers and CPAs and financial planners and so on to actually do the exit planning for business owners.

Walker: And brokers?

John: And brokers; and the good brokers I should say, Walker. Only the good brokers.

Walker: Only the good ones.

John: Only the good ones. And so that's what BEI does today. We train and support other advisors throughout North America.

Walker: So I have to ask you as coming from the buy-side of the deal hearing about something called exit planning it almost seems to me like the goal from a buyer perspective might be perceived as the goal being to maximize the value, potentially some end gaming going on, or for lack of better description is exit planning just kind of putting lipstick on a pig in preparation of taking it to market or it' more…?

John: Putting lipstick on a pig is the broker's job.

Walker: Packaging it up; I got it.

John: We're trying to convert the pig into a beautiful stallion.

Walker: Right. So in other words what you're trying to do is address the sort of levers that drive value and build a lot more muscle into a company for an exit.

John: Exactly. A better term for us instead of exit planning would probably have been pre-exit planning because almost all the planning and implementation work must take place and be completed before you transfer the business to a third party, before you go to market, or before you substantially transfer ownership to the kids or to an insider. So that planning needs to be done now for most owners because 80% of all owners according to our last summer survey want to leave their business within 10 years. I was about to say 10 days and it's true for some but it's 10 years to be a little more accurate.

Walker: Every month I have calls with both ends of that spectrum.

John: Yeah.

Walker: Okay, so how should a seller plan strategically about their exit? Like what are the things that they need? Or let's start at the beginning, what is the first thing that someone who potentially wants to sell their business should be doing or thinking about?

John: The first thing that would be really the first phase of explaining which consists of understanding what they want growth both in money, when they want to leave the business, who they want to transfer to, do they want to maintain the culture or legacy of their company, do they want to benefit the employees, do they want to keep the business in the community. Those are all goals that owners need to think about and then they need to create with some specificity. A quick example is most owners would say if I ask them when do you want to leave, they would say oh I'd like to leave in five years. If I were to come back in a year and I'd say hey when do I leave, they'd say oh I want to leave in five years. Well, that lacks clarity and specificity. So we would say okay, you want to leave in five years; you want to leave on August 8, 2024. Now we can start to plan towards that. So that's the goal side and the other side is knowing what the resources are. So in third party sale in your world the potential clients you talk to have an idea of the value of their company and that value is always quite a bit higher. It's almost always quite a bit higher than reality. So they should be coming to the transaction advisors. And this is what BEI members do, they have transaction advisors they work with all the time and if a client says I'd like to leave my business in five years and I think it's worth 10 million dollars so I think we can get started. The first thing one of our trained advisors is going to do is to say okay let's go talk to an experienced M&A advisor; you, an investment banker, a cayenne business broker and let's have them tell or give us a range of likely sales value. Hey that comes back at four million dollars or maybe something in between. We don't know as exit planners what it's going to be worth but we can't do any planning that suggests owners can't do any planning if they don't know what the heck they have and what in the heck they want to do. And that's the first phase of exit planning. And then it determines; the final part of that is is there a gap between the resources they have today and the resources they're going to need? We've determined all that using financial planners, maybe business valuation people if it's going to be a transfer to management, or an M&A business broker, or an investment banker if it's a third-party sale. What we know is where the owner stands and so does the owner before they make decisions on what they're going to do. Usually that decision is going to be I've got to grow value in the company and it may take me years to do so but not always.

Walker: So it sounds like number one is to set the goals; apply what is the number we're trying to hit and what is the timeline in which we're trying to hit it.

John: Right.

Walker: Number two seems to be working with someone like a broker to get a valuation on the business today so that you know where you are and where you're trying to build to. Is that accurate?

John: Well yeah we would say the first step is goal setting, the second step is resource determination. But to do it accurately like you just said. And then the third step in our exit planning process is to grow value, grow cash flow, minimize; do some tax planning. There's not so much tax planning most owners can do that they don't; they're totally unaware of because their attorneys and their CPAs have never suggested tax planning to them. I mean there are ways where you can sell the stock of your corporation; a C Corporation and not pick up a gains tax if it's been structured properly from the inception.

Walker: Amazing.

John: And few owners know about that.

Walker: When we talk to our potential sellers at Quiet Light I mean if we really were to boil it all down there's probably seven different things that I kind of look at. And this isn't about Quiet Light, it's about you and the process that you've built. My question to you is what are the levers that drive value in a business?

John: So we have a whole part of explaining in this third step called value drivers. And so we look at what are the value drivers in most businesses. And how do we get this idea; the value driver concepts? It's not from being a lawyer. It's from talking to the M&A community. What do they look for especially private equity in acquiring businesses? And then those value drivers or levers work equally well in selling the business to insiders. So two things, one is we focus on creating what we call transferable value. For smaller businesses where the owner is in charge of almost everything, it may have a million dollars of EBIDTA a year but that's probably not transferable because the owner sells the business, the owner goes away, and maybe the customers go away, maybe the employees go away. So a buyer is not going to be interested in a company where the owner is too important in the operation of the business. So to us, transferable value means the owner could leave the business today with minimal interruption to the company's cash flow. So part one; does the company have that? If not we need to work on that. And the value drivers then are what we work on which is the second part. The three biggest value drivers we see today, and you can probably comment on this better than I can Walker, is one having a top-notch best in class management team. That's what most buyers like to look for because most buyers don't have that management team to put in place in the company they acquire. And it also means there can be transferable value because the management team can continue the business without the owner. The second thing is diversity of the customer base or maybe the vendor base to make sure that the company is not dependent on any small group of customers or clients because again those customers and clients might leave when the owner does because they're loyal to the owner. So that's a risk that buyers don't want to have. And the third thing I hear today that I didn't hear a few years ago is the quality of the operating systems within the company. I'm hearing from a lot of the PE firms hey we don't want to spend hundreds of thousands of dollars if not more to go; to rip out the old operating system that's eight years old and put in a new operating [inaudible 00:16:50.8] operating system. They want to see that in the companies they're requiring; at least those worth millions of dollars. I mean a smaller company maybe they wouldn't expect that; I really don't know but maybe you want to comment on that.

Walker: Hey, it's a really great point. I think that a lot of the sellers at Quiet Light Brokerage are online businesses, right? And as you know I've bought over half a dozen companies in my life and I sold a couple. And I've done everything from manufacturing and distribution to online. As a broker, I really only work in online businesses. But part of the reason for that is a lot of the reasons you're talking about because a management team is almost eliminated. I mean we can sell a company for five million dollars say and that's just one person and they've got a bunch of virtual assistants. So the most important person in the company might just be the hired gun that's running paid ads or something like that. So making sure that that management team can transfer is key. I want to come back to something you said around transferable value and I want to kind of dive into that just a little bit; a little surgical here and the question is it seems to me like what you're saying is that the owner can't be the craftsman in the business whether that be I'm out hustling doing one on one sales or I've got some key relationships or an industry of like in math analogy I'm the one making the pots. Is that accurate? I mean does that sort of core business need to be transferred to a different person that is going to transfer with the business even if it means a reduction in earnings because you're paying for a new person on staff?

John: Yeah I think that for most buyers that would be critical. Now in the world you're in, the owner may not be that important. It might be the technology itself that's important then the owner is not; the owner maybe developed it and created it. Well he may no longer be important in the whole process.

Walker: It does depend. But yes, go ahead.

John: Yeah. So that would be in your world more than my world. In my world which isn't; I mean all worlds now have developed technology involved that seems like. Even farmers have a lot of technology. But that would be more towards an operating system. They're not developing the technology they're just using it. So I'm not sure I can answer your question I just don't have enough experience in that. But I would say if I were buying a company for its technology and it was created by the owner I would sure as heck want the owner to stay with the company because he or she probably has other ideas in their brain and I may want to capture some more of that. That might just be a situational issue more than anything else.

Walker: You know I think it's one of these things where I was recently talking to; it was about…well, I shouldn't date it for confidentiality reasons. Months ago I was talking with a potential seller who wanted to exit and he owned a SaaS business; a Software As A Service business. And it turned out through the sort of valuation call I was having with him that he was the actual developer on the whole system which to me was like this is an unsellable business which is kind of what I'm getting at. So sometimes you get the; where the owner is the craftsman and that doesn't transfer and what we talk to our sellers about is the person who's likely to buy your business is an entrepreneur. It's a business person it's not a software developer it's not even necessarily a paid ads expert. So I'm glad to see that you agree with that transferability is all. I mean trying to outsource that craftsmanship and skill set to other team members makes the business sellable, to begin with. It sounds like that's really one of your first steps.

John: That would be one of the things but then tied into that that's clearly the case is the owner before the sale. Let's say there are two craftsmen in the business that are really key to the growth and the continuation or stability of the business. We would want to tie those two key people, incent them to stay with the business through cash; maybe stock bonuses or stock options, have them really have a reason to continue on with new ownership because they're going to benefit from it themselves if they stay. If you don't do that in advance of making efforts to sell the business then the owner can be held hostage in effect by the craftsman because they can say you know owner if I leave your business sale is going to go out of the window and I know you've been talking about 10 million dollars and I think I'm probably responsible for at least 20% of that value so I need two million dollars. I've seen that happen not in high tech but I've seen it happen in traditional businesses all the time.

Walker: Right.

John: And so you've got to protect the trade secrets which is the value of the business. You've got to prevent somebody from going out and taking something. You've got to prevent your key people from going out and just joining a competitive firm. All that can be done in almost all states; California is an exception to this unless they have ownership which is something to look at. But you still can do some things and certainly motivate; incent them with deferred compensation, stock, stock bonus points. Those are all things your listeners should be aware of. They should be talking to attorneys and M&A advisers about how to protect themselves against that risk that is right there next door to them.

Walker: John, I want to ask you this question is every business risk addressable? I mean in other words it sounds like a lot of what you talk about and help people navigate through is essentially eliminating the sort of risks that are going to; that a buyer is going to see when they come to the table to buy it, right? But is there anything that is just not addressable?

John: Well I would say the thing that's not addressable is general business risk. Now let's say you guys one of your would-be buyers has just this great software for the quick print industry 10 years ago. Well that industry goes away. Now where does that work? So there's that element of business risk. Again you can take measures to try to be aware of that but some of this is hard to foresee. But most other things within the business you can do something about; maybe not everything you'd like to do at maybe a pure loss to the company.

Walker: Yeah. And I just; where my brain is kind of going is more like in an offline business probably the number one problem that I see is maybe customer concentration issues, right? In the online world that usually is not a problem. Sometimes in SaaS businesses, you get one customer that's a bit of a behemoth but it tends to look more like supplier power if you will. Like maybe you've got one supplier that supplies all of your product and you're kind of a reseller for that. I mean I think that it's probably easier to address if it's supplier power because you can diversify your suppliers. I guess I'm just…

John: That doesn't mean your owners are going to do that, right? Inaudible[00:24:25.6] has a good point. And you just have to figure out how can you mitigate your risk by diversifying it could be vendors, it could be suppliers, it could be customers; direct customers, it can be all kinds of different things. And advisers are not necessarily the best person or the best route to figure that out. Usually, the owner alone can figure that out through some good questioning by advisors. They may know what those business risks better than let's say a lawyer in your case you probably know all that because you're in this space yourself. So I think you would be a very valuable asset.

Walker: John what are the biggest deal killers?

John: The biggest deal killers; the first one is the owners doesn't understand if they sell the business what they're going to get and how they're going to get it. They go into the marketplace, they hire a transaction intermediary like yourself, they don't really know how much money they're going to need as a result of that sale. One if they want to retire after that, how much do they need for the rest of lives? Or secondly, if they're just going to flip companies, how much money do they really need to go to the next level and make sure that they have a reasonable chance of doing that before they even start the sales process. So we have investment bankers who are members of BEI and one of the main reasons they're members is that they've gone through that. They go to market, they get some good offers; lots of money, but the owner then looks at what he or she is living on now and the proceeds from that will not support that lifestyle even though it's a lot of money and they drop out of the market. They tainted the marketplace. It's difficult to reenter down the road and the broker and investment banker spend a lot of time and effort with nothing.

Walker: Can you unpack that for me if you wouldn't mind? Can you kind of give me an example of what that might actually look like?

John: An example would be a dealing with one of our members who is an investment banker in Texas and he had a client who went to market and a cash offer for 16 million dollars for his company. So the broker and the investment bank was pretty hands-on with that. It was at the top percentile of what he thought he could get when he sold the business. And at that time for the first time with a firm offer on the table the owner looks at how much money he needed; money after taxes, transaction fees, paying off debt, etcetera in order to support his lifestyle and it wasn't enough money.

Walker: It was a surprise.

John: It was a surprise and so he dropped out. So that's a real risk of doing it. And then along with that is another closely related risk; probably new world as well, is the owners have an overinflated concept or idea of what their business will sell for. And so again they either don't take steps to grow value, they don't take steps to protect the value and they just decide they're going to go to market. They talk to you and they learn that business is worth a third of what it really is and they've wasted years that they could have been working to put in the value drivers and other factors that would lead to greater value.

Walker: There's a couple of times where I try to buy companies by going directly to the seller before the company was on the market so to speak and every single time they wanted 20 times EBIDTA. I mean just some [inaudible[00:28:05.1] with what the value of a company was. So I learned pretty quickly to find the sellers that are already working with advisers because they've already gone through the hard learning process of what the market actually is, right? You can want what you want but the market tells the truth.

John: That's right. Working with an adviser there's going to be better information available as well. They're going to have a deal book. They're going to have vetted some of the owner's beliefs.

Walker: Tell us about the four different exit paths and kind of like a brief synopsis on sort of the pluses and minuses of each.

John: Gosh Walker you have read part of my books if you'd known about that.

Walker: I take it pretty well.

John: Did you just look at the chapters and figured out from there in the introduction? I get that; I mean I'm going to rip those Table of Contents off from now on. The four types of; the four exit paths starting with the least used to the most used. The least used is an ESOP, an Employee Stock Ownership Plan. It's a great concept. It's a great tool. About 1% of the exit plans or members do use that path.

Walker: And this is where the buyer of the company is the employees of the business.

John: Well the buyer of the company is a retirement plan; a trust in which all of the employees are beneficiaries. And there are some great tax advantages in doing that but they're relatively complicated. You need a business that has probably 5 million dollars of value or more in good cash flow and a strong management team to do that. That can be great especially for owners who might say well I really want to keep my business and my community or I want to benefit my employees; I want the legacy of my company continue. In ESOP it's good because it's going to be indirectly owned by the employees and so the legacy etcetera will continue. The next used is sort of a tie; it's between transferring the business to kids. About a quarter of all business; all exit plans are members prepared with an exit plan are transfers to family. About 29% are transfers to third parties. So those are the second and third least used. And then the exit path most commonly used is transfer to management; surprisingly transfer to management. And the reason for both the transfer to management and transfer with the kids is that with the planning they can do really through our BEI members they can start to transfer the business sooner rather than later. They keep control over the business however until they get all of the money and achieve all of the other objectives they want to achieve. So that might be a 3, 5, 8, 10-year process of transferring ownership, getting the excess cash flow, getting some money for the transfer of new ownership, and then having a liquidity event at the end in which the buyout occurs. So that's kind of the general design of both transfers to family members and transfers to management. A transfer to a third party is used about 30% of the time and that's your world. And for a lot of owners they would like to maximize the dollars they'd like to exit; if their business is prepared they'd like to exit sooner rather than later. They don't have family members involved. Their management doesn't want to buy the business. So a lot of reasons for an outside third party sale. And so from an exit planning standpoint; in our world, that's the owners choice. The owner tells us the path they want to go down and then we just talk about the pluses and minuses of everything. But then our goal is to make sure that that owner is able to use that exit path and achieve this financial time-driven goals.

Walker: Well, just knowing that you have options and the fact that you can outline it so clearly is a great roadmap just to start with. So your parents selling their business and kind of getting it all screwed up is a perfect example of what happens when you don't do exit planning.

John: Right.

Walker: Do have a story from your past that you can share that kind of shows the benefit of exit planning for an entrepreneur wanting to exit their company?

John: Yeah there's a story that we often use in our training; we call it the Carl story. So actually Karl was a real client of mine. I started working with Carl while I was still practicing law. He came to me. He wanted to sell his business sooner rather than later. He wanted roughly five million dollars for his business. He wanted the business to become a world-class company; that was a soft goal. So I looked to his business. His business was worth maybe a million dollars. Carl was the business. He didn't really have a management team. It was actually a manufacturing type of company; plastic injection molding type of company. So I said Carl that your biggest; if you want to grow the value you want to maybe leave five or six years and you realized you couldn't leave right away, you're going to have to develop a management team. That's the number one weakness in small businesses; they don't have a management team. And Carl said I get it. He's actually really a bright guy. I get it. I know just the person to hire. And I thought oh no this is going in the wrong direction now. It's probably his son who is a bicycle mechanic. He said there's this guy in the Netherlands who is the young executive of the world in my industry niche and I'm going to go and this; my client was like in the eastern plains of Colorado which was hundreds of miles away from civilization. He said that I'm going to go over to the Netherlands. He's in Amsterdam; a world-class company and I'm going to hire him. He's going to come over and grow my business. I said go for it but you're not going to be able to do that because you can't afford to give him enough money. So we talked about how the new guy coming in to buy part of the company from Carl. And so that's what happened. We designed an exit strategy to enable that to happen where the new guy coming in; call him Wilhelm, was able to buy a portion of the company every year if the company get performance standards which were tied into the cash flow. And we knew if we hit those standards in general over a six or seven-year period Carl could sell the balance of the business to a third party or to Wilhelm and he will have financial security. That's exactly what happened. Wilhelm came in; knocked the lights out. It's a fascinating story how we did that. We can talk about it another time but at the end of seven years the business sold for 38 million dollars cash.

Walker: Oh my God.

John: Yeah. So for a long time I thought well Carl was just lucky because he happened to hit upon this boom; this technology at a certain point but then I realized he was lucky, yes, but he never would have accomplished that if he hadn't gone out and sold 49% of the company over time to this person who did all of the growth and who by the way got half of the 38 million dollars.

Walker: Amazing. That's amazing.

John: So that can happen but it was in accordance with the plan that we developed. It just happened to work out extremely well. And I think it shows the value of world-class management even in a small company.

Walker: John, I'm thrilled that you decided to spend time with us. Thank you so much. How can our listeners learn more about why they should be exit planning or how to do it?

John: Well there's a number of ways; they can always go to our website ExitPlanning.com but we just released a new video podcast series called Why We Plan. It's on iTunes. It's on Spotify. Really we've just released it this week. It's that new. So I encourage people do that. The CEO of my company and myself have recorded 20 podcasts so far; mostly case studies like the Carl Case Study. What went right, what went wrong, what might you do as an advisor in that situation or as an owner in that situation. So I encourage them to listen to that.

Walker: John, thanks so much.

John: Thank you, Walker.

Links and Resources:

John's Business Website

John's Bestselling Book

John's Latest Book

Why We Plan Podcast