The Quiet Light Podcast

Today the newest member of the Quiet Light team, David Newell, joins us to discuss the four pillars for buyers and sellers, particularly when they apply to SaaS businesses. David knows SaaS super well and covers all the metrics that buyers and sellers need to pay attention to on both sides of the acquisition process. We discuss everything he looks for when listing a SaaS business, the challenges in measuring some of those metrics, and some common SaaS buyer pitfalls.

David started his career in investment banking and worked in that environment for four years. Looking for a taste of life on the outside, he started brokering online, eventually working his way through the ropes to a head broker role. David is now a successful entrepreneur in his own right, with a brand in self-discovery and personal development which has grown from a podcast to a full online brand. Inner Truth offers a wealth of courses, community, and content for anyone embarking on a journey of self-truth. We're very pleased to welcome David to the Quiet Light team.

Episode Highlights:

• David takes us through his background and the SaaS business floodgate that opened for him as he learned about this niche and began brokering SaaS deals.
• The top three things David feels are important to hone in on to add value to a business.
• What churn is, how it's calculated, and why it's a cornerstone to a SaaS business.
• The difference between MRR and ARR and how each can affect the revenue profile of your business.
• David's software recommendations for measuring the metrics he looks at in a SaaS business.
• We get into what micro SaaS is and how it differs from the traditional SaaS model.
• Potential pitfalls of owning a SaaS business and the challenges to consider when getting into the SaaS acquisition arena.
• Tips and advice for folks preparing to sell their SaaS business.
• Compelling acquisition tips on how to do the good work before getting ready to sell.

Mark: Joe we are quickly being outnumbered here at Quiet Light Brokerage. We just hired on somebody else who hails from the UK.

Joe: Yes; David Newall, a fantastic guy, and another Brit. I guess Brian's not a Brit he's a—

Mark: What is he?

Joe: He's Estonian, that's what he is.

Mark: Yeah but he's kind of an international mutt when we would think about it. He's Estonian but he lives in the UK sometimes but now he's looking at living who knows where.

Joe: Well, he's a true entrepreneur. He's been living all over the world with his wife for the last 12 months. And we just got together at the Prosper Show last week with both David and Brian and Brian's wife; a first time we've met a Quiet Light spouse right? First time you've met … you've owned this company for almost 11 years and you've never met a spouse until last week.

Mark: Over 12 years. I mean talk about the age of the modern company right? We are a distributed company. Everybody lives in different states and when we see each other it's at conferences. So it's pretty rare for me … very rare being that this is the first time ever that I met a Quiet Light spouse. And I think the only reason that I did is because Brian and his wife don't actually have a home that they go to.

Joe: That's right.

Mark: I mean obviously they have places where they live but they're constantly on the move which is fun but I'd like to meet more of the spouses.

Joe: I'm with you. Yeah, they were in Vegas and then they were heading down to … I think it was Panama for two months and eventually they're going to make their way back to the UK and settle down I believe but we'll see. Time will tell. But yes we have a new member of the Quiet Light Brokerage team. His name is David Newall; a former investment banker, a former head of brokerage services for a competing firm, a fantastic guy. I gotten to him a lot on the podcast but even more last week and I knew we were going to hit it off well when I started calling him Harry Styles because of his British accent and his affinity towards Taylor Swift. Everybody call him Harry if you want and I think he called me grandpa at one point. So I think we're going to get along well.

Mark: Didn't sort of from Australia though, is he? I mean—

Joe: Not at all, that's what I kept saying just to bust his chops a little bit.

Mark: Well, let's get to the meat of it though because David really knows SaaS super well. The guy is a genius when it comes to SaaS businesses and you guys talked about some of the metrics that both buyers and sellers need to pay attention to in a SaaS acquisition.

Joe: Yeah, we did. We went through everything that he looks for when he's listing a SaaS business for sale and he's done dozens and dozens of them personally. So all of the different metrics and what some of the challenges are in measuring those metrics from a selling standpoint and then we focused and flipped it over to what buyers should look for and what some of the pitfalls are. Very, very knowledgeable; a very smart guy and it's going to be a great podcast for those SaaS business owners out there.

Mark: Well, I love having these British guys on staff because they make us sound so much more intelligent.

Joe: He does. Come on now there's nothing like a good southern drawl though. I don't have it but there's plenty of folks that have.

Mark: Well, it helps that David is actually a really really smart guy so it's not just the way he says words, it's what he's saying. He's always extremely insightful. And he puts things in a very simple way as well that makes it pretty easy to understand and adjust.

Joe: Yeah so let's get to the accent. Let's focus on SaaS and what David has done in his history and how he's going to help the Quiet Light team build a much, much bigger brand and a great, great addition to the team for all the buyers and sellers out there as well.

Joe: Hey folks it's Joe Valley with Quiet Light Brokerage and today I've got one of our newest brokers with us. He has a ton of experience. It's David Newall. David welcome to the team and Quiet Light's podcast.

David: Thank you, Joe, it's a pleasure to be here.

Joe: That's a funny accent. Is that Australian?

David: It's British and I saw you write it as Australian in an email the other day. I was absolutely savaged by that. I was going to reprimand you.

Joe: I was only kidding. I was on the phone with Ben. We won't say his last name but he's like yeah tell him he's a great guy but I really don't like that Australian accent. He was kidding at the same time as well. Anyway, I'm going to kick this off just the way we do with every guest David and that is can you give us some background on yourself? Tell us about who you are, where you've been, that kind of stuff.

David: Yeah well, I started life out in in investment banking actually. I've been a business degree undergraduate and then I launched myself into the windy world of investment banking. And I worked in merger and acquisitions for Citi Group in London for four years which as you can imagine is a very intense environment but also an incredible learning environment. And there I got to work on some of the biggest tech media and telecoms, M&A, Capital Races, for the first four years of my life. And you learn a lot, you earn a lot, you don't sleep very much and so at a certain level you start to think I wonder what life looks like on the outside of this office. And so I left that and took some time to travel and then shortly thereafter I decided it would be really good to get involved in something smaller where I could have more a managerial position and bring a lot of the experience that we had into a more exciting and a hotter area. And so that's when my online business brokerage life actually began. And I started life out at one of your competitors.

Joe: Our competitors; you're on the team now.

David: And yeah so I started like everyone does with this so that's the bottom realm with always the view to building up and becoming the [inaudible 00:07:48.7] which is just the head of brokerage and operations there. And so with the three attendant that I have, we obviously expanded very well out of London and moved overseas to Boston. Built a team up and so in that time yeah I must have done about 75 deals and sort of oversaw the rest of the team doing about 200. So a lot of deals across a lot of business models and a lot of niches. And yeah it was a very exciting endeavor.

Joe: You know I was out for a walk this morning and yes folks I'm in North Carolina and it's sunny here and I was thinking about having this conversation with you this morning and the fact that you mentioned the last time we chatted that you've done 75 deals. And I'm thinking wow David might have more experience than I do. And I'm adding mine often. I think I've done more but I'm doing it longer, that's the key.

David: Yeah for sure.

Joe: But you have me by doing a larger deal than I've done as well which is it's great to have that experience that you bring to the team just because that's everybody here at Quiet Light, a very successful entrepreneur business person and a great deal of skill and talent in the internet space as well. You are also an entrepreneur as well can you touch on that just for a moment?

David: Yeah, that's right I mean I think one of the things that was just becoming kind of a burning seed for me in 2016 which is the year that I sort of decided to leave was to strike out and become sort of my master and flex my entrepreneurial feathers a little bit. And so I spend the best part of sort of nine months, ten months as really resting and thinking in to what I wanted to get involved in. And my personal interest is massively in self-discovery and personal development. So I got really deep into yoga and meditation and shamanism and breathe work and all of these wonderful tributaries that are now becoming really big parts actually of modern culture. And so around this time last year, I actually launched my own online brand of self-discovery called Inner Truth and it started as a podcast and then we since added on audio courses with various famous speakers from around the world. And yeah the podcast is growing exponentially now and I'd had some really amazing people and I've got to interview some of my favorite authors, singers, writers, speakers, yeah it's mostly really famous people so it's kind of an interesting life now hopping on the podcast every week we have a celebrity and—

Joe: It's pretty neat.

David: Yeah yeah [inaudible 00:10:18.8]

Joe: Yeah, it's … Mark and I did a podcast on the benefit of podcasting for your business and for us at Quiet Light it's just opened up doors to very successful authors, professors at Harvard, whatever it might be and then there are these celebrities inside the world we live in which is e-commerce and SaaS and so on and so forth. But it really is a great tool for anybody that's running their own business. Start with a podcast, it doesn't cost that much. You can always edit out stuff that you're not good. I think actually when we did that podcast I must have stuttered and stumbled in the first three minutes and we decided not to edit any of it because we said look if we can do it anybody can.

David: Yeah, 100%. I mean on the first episode I recorded it was an hour long and I spent four hours editing it.

Joe: Yeah.

David: Well, I've got the last move and now and there's a lot less going on. You sort of have to force necessity when you're doing some of the bigger guns now.

Joe: You certainly do. Speaking of big guns let's talk about some of your experience in the e-commerce brokering world or internet business brokering world. A lot of folks think that Quiet Light is really specialized in physical products or e-commerce as they label that whereas the largest deal I've ever done was a content business. The next largest after that was a SaaS business. Sure I do lots of Shopify stores with an Amazon component or more these days an Amazon business with a Shopify component but you have a tremendous amount of experience in the SaaS base right?

David: Yeah exactly I think you know around 2014, 2015 we really started to spot this emerging trend of micro SaaS businesses coming up and sort of not really being thought about perhaps and valued in a very sophisticated way given the strength of these businesses, the IP mode that they've got and the recurring revenue. And so we really started to pour a lot of attention into what makes SaaS special. And yeah we're very happy to start working with some great names like Patrick McKenzie and Rob Walling and as they bought their businesses to us and we did successful exits for them; the floodgates opened really. And so for me yeah I think … you know I sold several dozen SaaS businesses over my time and culminating over course the successful sale of Rob's business direct in Leadpages in 2016 which was an incredible transaction an awful massively personally gratifying because Rob is such a good friend and great to get a life changing exit for him but also to sell into a company as big as that with Claire as a CEO; a super dynamic deal environment and yeah definitely a lot of learning.

Joe: Yeah, Mark had Rob on the podcast talking about his story of building Drip and exiting from it and it was a great, great podcast. If anybody hasn't listened to that please do. But it's kind of funny I remember when you were doing that deal and we were getting wind of it and it's funny we just thought oh yeah no we don't want to do 10 million dollar deals or whatever the number was. You have to fly all over the country, you got to put a tie on then you … and I don't think you probably did any of that. And now we're doing deals that are that size and a little bit bigger so we all grow up in this business and have to evolve so to speak. So let's talk specifically about SaaS David. For the audience that's out there, if they're running a SaaS business, if you're working with them through Quiet Light, you get a referral and boom you've got a SaaS business that you're going to value what are the top three or four things that you're going to sort of hone in on that is going to bring more value? Maybe even speak to the buyers here what should they be looking at and what would you look at as the seller's broker?

David: Well, I think that one of the most important probably least looked at and least understood metrics of any SaaS business is churn. Churn really is the cornerstone of successful SaaS business because it is completely cancerous to revenue growth if you don't get that right.

Joe: Can you define that for folks that are just beginning to look at SaaS; what churn rate is and maybe how it's calculated?

David: Yeah, churn rate I mean you can look at it from a revenue perspective or you can look at it from a customer account perspective. Revenue is probably more helpful and that's simply telling you how much revenue, how many customers you're losing per month through cancellations, expiries or sort of billings that aren't going through.

Joe: That's measured against total revenue and what's a good churn rate in the SaaS world?

David: Well, that's a great and a pretty seminal question that comes up a lot when you're evaluating SaaS businesses that specifically are targeting different end users. So if you're thinking like the B2B space the monthly customer churn rate actually varies quite a lot depending on which business segment you're looking at. So if you have a SaaS business facing an enterprise segment it's going to have a materially different monthly customer churn rate than one interacting or facing against an SMB segment because those end customers have different purchasing behaviors. So in enterprise, for example, you know very, very, very low monthly churns expected and we're talking like 1.5 to 1% a month which annualized is 6 to 10%. When you're looking at SMB something doing 3 to 7% is—

Joe: What does SMB stand for David?

David: Small to medium sized businesses.

Joe: Thank you.

David: And so annualize that's more like 30 to 60%. And so now you can start to see that the difference between a 6% percent monthly churn rate and a 4% monthly churn rate is going to have a mega, mega, mega difference to the revenue profile of the business 12 months out from now.

Joe: Yeah, let's just … I want to talk about the other two aspects in terms of things that you look at in terms of the metrics but the churn rate measured against the revenue; obviously, the revenue has to continue to climb and new customers need to come in at a higher phase than the churn rate in order for the business to be growing. Or even actually just staying steady right? They can be losing 5% a month and be gaining 5% a month in revenue just that. And the beautiful thing that buyers love about this is that … or SaaS business is that it's the recurring revenue. And they generally trade at a higher multiple. If you've got a straight up e-commerce business selling physical products with its own brand even with a patent I think that a SaaS business that's growing and has lots of growth opportunities and a reasonable low churn and workload is going to trade at a higher multiple. Is that your experience as well?

David: Yeah well, I think that the recurring revenue piece is one explanatory factor for that premium in multiples. I think the other is simply the moat that exists around the average SaaS business; having that intellectual property. We work in a space where if you can find product market fit for a very quick rate with an Amazon business and very quickly start to scale it but with the SaaS business you might have to pile in anywhere between 10,000 and 100,000 into development and may not even make a penny. And so one of the things that actually make these micro SaaS businesses very valuable when they come to market is that actually, they've simply found product market fit after having put down a lot of Cap Ex. And so it's interesting that that's actually a large amount of the value proposition for people that are looking to acquire these and scale them because that in itself is finding a diamond in the rough.

Joe: Right, so that risk is one of the four pillars for those that listen often. It's one of the four pillars and it's the lower the risk as David's talking about the defensibility of the business, that moat around it, it lowers the risk so therefore the value of the business goes up. All right throw in another couple of metrics that you generally look at and it's important for buyers to think about as well when they're looking at SaaS businesses.

David: Yeah well, I think acquisition channel for the customers is really important and I think the really premium SaaS business at the higher end of the multiple range are just like every other type of business managing to acquire customers across a multitude of channels so the concentration risk is low. And that within those channels the competition is relatively low. You can look at say a SaaS business in the project management space which is absolutely saturated with VC vat competitors and that's a pretty frightening spot to be in. You'd much prefer to be somewhere in a quieter segment just like we'd look at in e-commerce. The same rules apply. I think it's quite nuanced in SaaS though because you have put down a lot of Cap Ex upfront to develop product and so you have to be pretty savvy when it comes to acquiring customers at a reasonable rate.

Joe: Okay. So we've got the cost to acquire a new customer, the channel that you're getting them from, the churn rate, anything else that really jumps out that you're looking at?

David: Yeah, I think the profile in terms of the revenue of the business is really important. So obviously we've been talking about MRR but there's ARR as well right?

Joe: So that's Monthly Recurring Revenue and Annual Recurring Revenue.

David: Yeah, exactly and it's very tempting when you're a business owner and this is kind of an important thing that I think a lot of business owners can trip up on to want to sell lifetime and annual plans at a gracefully discounted rate in order to book that revenue. But when it comes to sell it presents a pretty lumpy revenue profile at a major risk for the acquirer. And so actually the multiple that can be applied to MRR should be higher than ARR because it's more predictable. And this is, even more, the case when you know you're using debt financing to buy a business. And so something that I would always do when I'm evaluating a SaaS business is actually use something of a blended multiple where I value MRR higher than ARR.

Joe: Right so to further detail that and explain a little bit that annual recurring revenue if you have one or two months a year where let's say the subscriptions are opened up and there's a flood of customers with a special promotion and a steeply discounted price for an annual subscription but you're selling the business a few years later and you are nine months away from or actually just say two months after that annual subscription, the person that's buying the business they're going to go 10 months without having that big bump in revenue. They're not doing any daily or weekly or monthly work for that revenue. It's going to occur so there's no discount necessarily but it can become a challenge like you say when they're getting debt financing. They've got a monthly payment to make every single month and if that big bump is not going to come for 10 months it can be a bit of a challenge. That's great.

David: Yeah, and it's not entirely guaranteed that those annual subscribers will renew a great wish that came in there and I think people expect a certain level of annual around Black Friday but if the business is struggling to show MRR growth in off months then that's a bit of a red flag potential.

Joe: Right, so from the buyer standpoint you think really the focusing on the monthly recurring revenue … you got to look at the annual recurring revenue but the more attractive business would be one that's got more monthly recurring revenue because it's spinning out that risk a little bit more.

David: 100%.

Joe: 100%. Okay, software that's out there to help SaaS owners measure these metrics. It's a challenge like I've looked at trying to calculate at lifetime value. It's very, very difficult. Everybody does it a different way. Is there a particular software that you've seen more SaaS owners use than not?

David: Yeah I mean I really like the Profitwell analysis actually. I think whatever you use standardize. I think it's not helpful to swap between Chartmogul, Baremetrics, Profitwell, and just keep skipping around because then you're looking at very inconsistent numbers and methodology as in if trying to evaluate a number of SaaS business that's just not an additional complexity that you want to commit into your analysis. So I think stick with one and the one … the dashboard I've seen as the friendliest and the most well explained and the easiest to use is Profitwell. And in particular, looking at their cohort analysis the churn is this incredible way of seeing whether the business underlying is improving or getting worst as new customers are coming on board.

Joe: Okay, Profitwell or wells?

David: Well.

Joe: Well, Profitwell. Yeah, I've seen Baremetrics used quite a bit on the SaaS businesses that I've sold. It's a great tool for buyers and sellers just to go look at it and study what these metrics are that people are analyzing these businesses on.

David: Yeah, 100% and there's a bunch of open source businesses upon the Baremetrics platform where you can just go and look right now. I mean you can look at Baremetrics and their own metrics I believe on their own platform and I [inaudible 00:23:14.4] I think convert kit was on there for a while. They may still be. So it's fascinating to have a poke around and once you've looked at a handful of SaaS deals you can really start to get a feel for what makes sense for and what doesn't around from all of these metrics.

Joe: I got you. David, you've mentioned the term micro SaaS more than once can you define that for us? Is there a certain size? Is that what you're referring to?

David: Yeah I mean I think of micro SaaS as sub a million dollars in value but really when I think about it more deeply it's characterizing the business that has not gone down the sort of venture capital deep investment. You know fast growth, pushing for a revenue multiple exits and instead gone for the bootstrapped—

Joe: I got you.

David: Slower grave way of doing it. And that is absolutely not to say that you can't take a micro SaaS and push it into that revenue growth multiple VC back territory. It's just that I think a lot of the businesses that we look at in our world tend to fall into the micro SaaS class version.

Joe: Yeah, I sold one last year that literally was started by someone that had a problem and he solved it himself. It was sort of a self-calendar tool and he had it for 14 years but he was an engineer by trade and you could tell by the interview that I did with him that he was not comfortable selling or talking; very, very much an engineer. The person that bought it very much the opposite of that and is already talking to private equity folks to invest or get it to a certain point and take it beyond this sort of micro SaaS market that you're talking about.

David: Yeah this is a really important point actually that I want to extend because what I've observed in my experience is that a lot of the businesses that come off exit were designed by the engineer, by developer types that find a problem that solved that and pushed it out to friends and family and other developers, acquire a customer base. It starts to grow organically but they simply either don't have the appetite, the interest, or the skill set to market it. Nor do they want to. And so these businesses become right for marketers to take them over and actually work on building them out from a marketing standpoint because a lot of them are in very good shape on a technical side. They just need more sales effort poured into them.

Joe: Yeah, the one I sold it was doing … I forgot exactly, let's call it a quarter million dollars in discretionary earnings. His advertising budget on a monthly basis was $325.

David: Yeah.

Joe: Yeah, I get emails every week now from them. I'm on their list; the guy that bought it and they're doing a much more aggressive email campaign, retention campaign, and adding new tools and features for the existing customers. Let's talk about the pitfalls of owning a SaaS business for those that are potentially buying one for instance. What do you see as major pitfalls and I had a gentleman named Ezra Firestone, you probably know Ezra.

David: Yeah.

Joe: I had Ezra on the podcast and we talked about a number of things. He's very much into yoga and meditation too by the way but we talked and he's got e-commerce businesses and he got SaaS businesses and he talked about the differences and what he likes about each and what he prefers. But I'd love to hear you talk about pitfalls and I'll tell you Ezra's feel.

David: Yeah, I think that the IP roadmap for any SaaS business is always something that you have to be very clear on. I think you can easily fall into a trap where you start the design … excessively design the product either on specific customers and then it becomes this very odd sort of pool of mud. They like to use that phrase in SaaS world where you're designing around specific customers or you're just adding features to it that perhaps aren't really needed. And actually, I think a lot of SaaS business actually benefit more from dialoguing with customers about how to use their products more effectively. Because oftentimes they're only using about 20 to 30% of the functionality and then often churning away because they're not aware of the other 70% than just by adding feature sets for the point. And of course, this really does stack up because as you add more features that's going to add more complexity. You create more of a UX headache for your customer base. You create more of an operating manual to train your sales team with and everything starts to become … to slip out of control of. And I think that having a very clear crystal clear vision about the road map is actually like something that yeah probably keeps a number of SaaS owners up at night contemplating that. I think churn is a real challenge for micro SaaS businesses specifically because a lot of the time there ain't SNBs so they're naturally facing against a client base that's got higher churn. And the best way really to reduce churn is to really improve your onboarding experience and your customer success. And something we're all absolutely crushed during one of the best in class onboarding processes I've ever seen but it is expensive to do that unless you go down a very intelligent sort of IT lead onboarding route. And that's a challenge that I think a number of business owners struggle with because once you get up into massive scale on your VC back so you can have a whole sales team that come on and really help train every single house member when you're in this micro space you don't have the capital to do that. So you got to think very creatively about really educating customers, really onboarding them very well so that you can solve the churn issue and scale the business well. And the churn is also important because it really starts to impact your ability to run paid for example [inaudible 00:29:03.4] acquire customers that way and so there's a lot … you have to be just very, very thoughtful such I'd say churn is quite a headache as a SaaS business owner.

Joe: Yeah, it sounds like any business with customers. Take care of the customers first. Make sure they're using the tools to the greatest extent possible and that will reduce the churn. Which will, in turn, give you more money to do paid advertising than more than $325 a month. Yeah, I was going to go to the same place not that there's a right business or a wrong business to buy, they're just physical products businesses are just different than content versus affiliate versus a SaaS business. So anyway I was talking with Ezra about it. He owns both. He owns Zipify and he owns BOOM by Cindy Joseph or a portion of that one. In the physical products world, you create an ad and it hits and you scale. You spend more money on the ad. With a SaaS business it may be the same but then you've also got more support, more customer onboarding, and focusing on that churn rate and the metrics and you've got the cost of those developers which are also a lot more expensive than the cost of really good customer service people or graphic designers in the physical products world. A big, big difference though and again it all balances out. With the physical products business you have to have working capital for inventory. Your business is growing like crazy … sometimes I've sold businesses that have been 24 or 36 months old and had in-depth conversations with the owners of those businesses David. They bootstrapped it. They don't ever take any money out of the business. It's just growing and all they do is take every ounce of profit just trying to keep up with the inventory demand; that working capital demand. And sometimes they still run out of inventory. So there are two different ways to look at it; two different worlds. Those people that exit on the e-commerce world they don't take a whole lot out the first couple of years if they hung on that accelerated growth always slows down a little bit and they can then start taking salary and pull some more money out of the business. But you don't have that physical product or working capital requirements inventory in SaaS but you've got more expensive staff and developers that gosh if you've got a key developer and they go away it's a key employee and you've got to replace them. It can be very challenging and very expensive. So I'm not sure which is right. I always … I think people that are new in the in the internet space that are coming from the corporate world and want to live … work at home and see their family more and travel less and I've talked to a lot of people like that they say what … where should I go? What space should I look at? And I kind of think that they understand more easily physical products and can easily say I sell a widget versus I sell software to that people subscribe to to help them manage their calendar better. It's very different; very challenging I think. What are your thoughts on that?

David: Yeah, I agree entirely. I think there's a lot of things to think about with SaaS. It comes down to … as in life right? You always have to choose what problems you want to solve for and some people like solving for very intellectual problems. It's very interesting looking at the buyer base for SaaS companies that often people that enjoy the intellectual challenge of having a lot of the moving parts to think about. And there are people that enjoy the challenge of just scaling e-commerce. So it's … yeah, a totally personal preference. I don't think that one is better than the other. I think it's entirely a form or like disposition of character.

Joe: Yeah. Well, listen, David, we've had you on talking about SaaS. You had more than SaaS experience right? You sold lots of content, lots of physical product sites in the past as well.

David: Yeah, more than I can remember. I mean when I really started my brokerage career I spent almost exclusively doing content sites so we have all of the … it comes in affiliate stuff, Ad Sense sites and I love them because again you know we talk about these beautiful nuances between different business models. For me, it was just so interesting looking up the SBA strategies of these businesses, looking at the approaches that these owners are taking to rank specific pages. And I got super into ad optimization group and it just fascinates me with this psychology of ad revenues and clicks and so forth. So yeah I actually have a lot of reference for Ad Sense likes and I think I often look at them from my own personal acquisition perspective because I just love the pessimity of those business models.

Joe: Yeah, yes, absolutely for those that don't understand it's good quality content developed over time that's driving organic traffic and you're getting paid for clicks either through Ad Sense or a lot of folks doing affiliate stuff as well when they're doing product reviews and things of that nature. But that was the larger one that I sold last year which is under 9 million and it was a content site; just crazy, crazy growth. A great story too and we've had Ramon on the podcast. And this goes to the relationships with the people that we work with. The first one that we sold for Ramon a few years ago, let's call it five years ago it was maybe $125,000 business and a few years later he comes back as a client again. He says okay I've got another one like this out. It's 425,000. And then he comes back in December of I guess it was '17 and you know he's got one where we think it's valued around 5 and then we get it under a Letter of Intent and it's just exploding growth. And so he says Joe I just don't think I can do this. It was a hard, hard call for him to make on a Saturday afternoon in April of 2018. And he had to walk away from a 5 million dollar deal because revenue was growing at 300% every month which really just drove the multiple down and the total value up. We pulled the listing and the same person it was under LOI for 5 million, he didn't go away. He wanted to stick in and he knew that the value was there so he bid it up and two others bid it up and it sold for just under 9 million; a great story for that guy.

David: The high quality strategic exit there to come back at that level.

Joe: It was a risky move to walk away from 5 million but it worked out for sure. And the buyer was fantastic too. You've got to have a good buyer and good seller on both sides of the table. Structurally business on the side I know but it was a combination of private equity money, a little bit of SBA money, some family fund money came into it, and then the owners… the buyer's personal money as well and as strange as it is that particular by David also bought the largest SaaS business that I ever sold. So relationships with buyers are critical as you know. Any quick tips or advice for people that are thinking about selling their SaaS business, what should they do? Should they just focus in on churn or maybe have a conversation with you with an eye to exit even in 12 to 24 months, what are your thoughts there?

David: Yeah well, I think definitely I'd advice there as based on how far you are out. If you're quite far out I do think it's worth split testing price increases. Over the years we've seen a surprising number of wins from people making micro price improvements. I'm obviously not grandfathering existing customers by trying that out. I think if you are closer into the potential exit talking six months like the really important stuff is actually things that seem to become incredibly easy to miss. But I've seen over the years things like just securing IP properly and then that's much more than just getting trademarks sorted out. But actually, if you've had a lot of third party developers working on the code getting proper IP assignments. Because the number of transactions I've been involved where they've got to be done retroactively is a little bit uncomfortable. I think another piece is around security. Again if you're not patching passworkds properly or if you're storing credit card data or any of this kind of things, like if there's any aspect at leaking they really need to be on top of that. I think absolutely avoid any kind of large discounting, annual plan discounting. Don't sell any life time plan type things. I mean that attempt to sort of artificially increase revenue earnings three to six months out is really, really, really visible unless of course, it's around something obvious like Black Friday. And I think that don't be too heavy with sort of trying to cost cut because again that's really obvious when you come into a sale that if in the last six months you suddenly just gone extreme and leave in order to get an attempt at inflated SKU it becomes very obvious to any experienced buyer.

Joe: Yeah very obvious.

David: I think one of the things that really does have a pretty big impact in terms of leveraging the multiple up is as much as possible obviously document source code and annotate that well. But as you can try and bring in … if you're the owner/operator and you've done a lot of the IP yourself and built a codebase really start to consider six months out bringing on a developer in time to hand that off. Because if you can show you by the time you come to exit that the third party developer has been in the business for six months, understands the codebase intimately, and has made … pushed out various updates; that is going to be a very compelling acquisition proposition for a buyer versus … you know that all of the knowledge is inside the owner's head and then we've got to do like fulfill the email gates at transition and our third party developer is part of this. So do that work before and you will get paid multiples upwards on the backend.

Joe: David, unknowingly you've talked about the four pillars; the risk, the transferability, the growth, and the documentation. It's not just financial documentation but it's SOP's and all the other stuff as well. All of the things that you're speaking to sellers about buyers can focus in on the same thing when they're analyzing a purchase of the SaaS business. Everybody, David is reachable [email protected]. Reach out to him there. He's up on the website now. A phone number extension is there as well. We'll put it on the show notes too. David welcome to the team. I'm thrilled that you're a member of the Quiet Light team now. Thank you for being here.

David: Thank you, Joe catch you.

Joe: Alright, talk to you soon.

Links and Resources: David's Quiet Light Profile David's LinkedIn David's Podcast

Is direct response marketing an "old school" trend? People in the e-commerce world have historically looked at direct response as outdated. Direct response has been around for so long because it has a track record for success and e-commerce marketers can actually learn a lot from the direct response marketing approach. Some marketing experts are now fusing the two into a cross-channel style of marketing.

Today's guest, John Santilli, comes from more than twenty years in the direct response television world and is here to share his experiences in identifying a product's potential to sell across multiple distribution channels. John's new marketing company, Star Logic, works with e-commerce firms to help them determine whether infomercials or other forms of direct marketing can create a lift in their online sales.

Episode Highlights:

• Insight into John's background in sales and omnichannel marketing.
• How the previous norms of the non-online marketing ecosystem can work in conjunction with online.
• Ways John's background helped him learn to fuse these systems of marketing and boost client's online sales.
• We touch on the evolution of Amazon in the way products are marketed.
• The algorithm John uses to calculate the correlation between direct response marketing and the online environment.
• How his marketing company is able to run this algorithm in order to predict ways a product's success could be boosted.
• Examples of success John has seen when applying multichannel marketing.
• The time it takes to see a sales boost with the direct tv model and the science behind pushing that "nag factor" to increase sales velocity.

• Benefits of omnichannel marketing as a selling point for businesses in the acquisition arena.

Joe: So Mark a couple of podcasts ago you used the term old school in terms of one of the … your podcast and what he does and you know when we started talking about this particular episode I am all in old school apparently because the old school direct response marketing is what I did. I came from the radio direct response marketing world and Walker is not the only producer here. I've produced two TV infomercials. They had many many spot ads and even hosted one. I just have to throw that in there because Walker is such a celebrity here at Quiet Light with a bestselling book and all that good stuff, Netflix, documentary and all that stuff. I didn't make any money but … maybe a little bit but we're starting to see a trend of a little bit that old school direct response TV production and advertising combined with the e-commerce world where somebody has got an e-commerce product and they're driving traffic both to a call center which is what I did but now online to a website or to Amazon for the products as well. And you had somebody on the site … I'm sorry on the podcast that focuses specifically on that.

Mark: Yeah I know he comes from that direct response TV market world. That's his background and we were just talking about this Joe but it's kind of like these two types of business models in direct response grew up a little separately and kind of despised each other initially or looked at each other with skepticism. A lot of the guys in the direct response internet world looked at direct mail and infomercials as this outdated dinosaur sort of way of marketing. And the direct to TV market and direct mail market advertisers look at these new kids with their internet like it will never last and these are real businesses. Now what we're seeing is these guys are looking at each other and seeing maybe if we work together in this cross channel … now there's a buzz word for you, cross channel sort of marketing both in the offline and online world there is a lift that can happen in the online world. And so I talked to John Santilli really his whole specially is direct response TV infomercials. That's what he does. And now he's working with online firms to help them determine if we were to do a commercial … an infomercial and run this for three months, six months or what have you what's the lift going to be in the online world and does it make sense to do this. I love this idea here because when we look at an online business for sale one of the things I want to see, I want to see do they have this stability? This kind of multi-channel approach for attracting customers and if they do that's a good thing. And we often think multichannel … okay, I'll get my Facebook, I'll get my PPC, I'll setup a Shopify store but there's more than just the online channel. And when we start going into the offline channel there's a certain amount of brand that comes up with it that they can't build entirely online right? Like when you see something on TV it'll hold a little bit more weight than just something that you see online. So this whole conversation with John was how does he make these assessments? What's been the history of this direct response TV market and how can it help online sellers.

Joe: Yeah, it doesn't just build value in terms of more online revenue but its offline revenue as well with people ordering directly from TV. You can also look at products and putting them on HSN or QVC and things of that nature and what it does is you've got multiple channels of revenue. It's going to boost the value of your company not just because discretionary earnings are higher but if it's large enough a private equity firm is going to pay a much higher multiple for a multiple channel product line coming from different avenues. That was one of the presentations at the Prosper Show that mimics or mimicked almost everything we've been saying for the last six or seven years. So I think it's a great idea for those that currently own internet based businesses selling a physical product or those folks that are considering buying one and thinking okay this person bootstrapped it they've gotten to a certain point and they want to move on to their next adventure how can I take this to the next level and look at this TV advertising as well. And it's a great option. Let's go to it.

Mark: John thanks so much for joining me on the podcast. I appreciate you taking the time here. I know you and I have talked over the past few months about various Amazon opportunities and I asked you to come on the podcast mainly because your background in this direct response TV advertising and really omni-channel marketing, going outside of the Amazon and internet ecosystems into these more traditional mediums to really boost brands is pretty extensive. I would love for you to just give a quick background on yourself for our audience and your experience and what … kind of catch people up in our conversations for the past few months.

John: Sure. No problem. Thank you very much, Mark, again for having me on the podcast. Hopefully, your listeners will find some value in what we're talking about today certainly as we've been having our conversations and give them a little bit about my background first and then we could get more into that but my background basically I've been in sales and marketing for the last 20 years. I spent the majority of my career with two companies. Primarily those companies have all been marketing … both of these companies are marketing dependent companies offering budgets of I'm going to say 3.5 million up to 55 million dollars at some point in time and margins ranging from 20% all the way to 100% at some times. I touched almost every marketing means that there is whether that be from direct mail … direct response TV which we'll talk a lot about today and also within the digital side of things, generation side of things. As I've said direct mail I sent out about five a week this is a direct mail on a monthly basis at one point in time. I spent about 25 million dollars a year on TV. My last company I was the executive producer … in-house executive producer for the company. I produced over 120 TV commercials that 30 of them actually went to a retail rollout generating over 250 million dollars in business. With that company, I co-created an algorithm which really gave us the ability to identify under marketed products and new inventions that had the most unique attributes, had the most mass market appeal, and were suited really to go to retail. Our job was to really find, filter, quip products and what that really means is that be again we took products that were under marketed, new inventions, filter them through a proprietary algorithm that we designed and tested those products through that algorithm and then joint ventured with a partner and pushed that into retail. And that was really a direct response TV model. Much of you will actually recognize that as "As Seen On TV" products, those late night infomercials, those daytime commercials.

Mark: So you're the ones that if I'm at the gym in the middle of the day and I see something come up and it's that sort of infomercial type of commercial, you're the one that was putting those on?

John: Yes. Exactly. We're … I mean it's actually a very small market. You'd see a lot of commercials on TV but it is a very small market. Initially, it must be a profit channel in at itself. The direct response was the first news … it was the first area to market goods and services direct to the consumer bypassing retail. The goal of direct response really is to take a … to break even or take a small loss. It really has been to entice consumers to go to retail and to purchase at retail. It effectively became the focus of all DRTV campaigns was to air a lot of media, get people to walk inside the store and buy it.

Mark: Right. Now in our current economy especially the internet based economy we've completely bypassed a lot of these channels that were built up frankly over decades and we've had this whole ecosystem system kind of buildup of internet and we're seeing that direct to a direct response TV market as well as retail market. I'll try to scramble and catch up and see if they could also tap into the Internet market area as well. One thing I find fascinating, I went to Traffic and Conversion a few months ago or about a month ago … actually not even that long ago. It doesn't matter. Richard Branson was one of the keynote speakers and one of the things that struck me from that conversation that he had with all of us was the idea that … the idea of all marketing that used to be the norm, right? He did crazy stunts just to be able to get on the front page of the newspaper. And today I think a lot of us we look at our businesses and we think about it in terms of how can I manage my Amazon PPC account or how can … for a SaaS company how can I get the right onboarding process and find the right customer acquisition channels online and what you're talking about is let's look a little bit beyond that. There's this whole developed ecosystem of marketing that exists which can really work in conjunction with the online environment. With your previous experience did either of your companies get into that where you are using this omni-channel marketing outside of the internet to boost the online sales?

John: Absolutely. So that really is the evolution of the business at this point in time. I mean it's revolutionary where of course just like you mentioned and it's really … you know I have since left the last organization that I was with. I've founded a new company its Star Logic Marketing and the reason why I've called it what I call it because first of all everything out there right now is based off of reviews and star ratings that are out there. If you see something on TV today, okay the first thing you do is you pick up your phone and you take a look on Amazon. You see if it's on Amazon, you see the star ratings and reviews that are on it, you take a look at the price and then you act to buy. So it changed … definitely, the game has changed completely. Through our proprietary algorithm that I kind of mentioned to you the way that we filter products has been based through a survey process. We do a web test which really put the customer … put our product in front of the customer and position them to act on it here. Here's an offer out there we like to buy it. And the direct response model in the past when you had 10% of your orders going through direct marketing today that's up to 50, 60, 70% of your orders are going to order through the web. And whether that'd be through Amazon, whether that'd be through traditional e-com that's the way that people acted on it. So over time, you saw this evolution happening. It started impacting the way that we marketed products, the way that we looked at our marketing in general. We had to consider the fact that 20% of the people were actually going to go buy from Amazon versus going to your e-com site or picking up the phone and calling you. And again there is a higher number of people that were actually ordering off with their phones so you had to make sure that your mobile marketing was done properly. So this omni-channel marketing as you indicated is just so important today for every company whether you are holistically selling on FBA at this point in time and that's when you and I started having these conversations and really what got me excited about this whole thing which is that whether you're selling wholly on FBA and not taking advantage of the digital ecosystem out there, the direct response pieces that are out there, the Home Shopping Networks that are out there, international Amazon, and making sure that you also take a look at traditional retail as well as international retail, is really what I think is a great opportunity for our product and product businesses that—

Mark: Alright so what you're talking about here is you have basic infomercial or commercial and somebody is at home and they're up at one o'clock in the morning and watching reruns of I Love Lucy and something comes on they'll potentially see and so they end up typing it into their phone because everyone now watches TV with their phones as well right? And the product pops up and we can see this direct correlation now between direct response on TV leading and bleeding directly into the online environment. You've mentioned a couple of times that you guys have an algorithm that you run these opportunities through, can you talk a little bit more about that?

John: Sure absolutely. So it really is you have so many things at your fingertips these days. I mean first of all, you used to take catalogs from your house. You go into stores and you see products and stuff like that. There's products everywhere; all over the place. In the past you'd search for products through Google and we would just take a look at products in Google or a catalog and find some unique things and we said well how do we find out what works, what doesn't work, what's the best opportunity for retail whether it's traditional retail or online retail. They're two different things but they still have some unique drivers behind and that get people to buy it right? So they got to be unique. Alright, they have to be they feel like they haven't seen it somewhere before. They now have to be of great quality and they have to have the right price point to get people to impulsively buy it. So what we would do is we would go through a survey process first. My background and my disciplines in the direct mail business is in creative makes people buy but also there are consumer behaviors that made people buy it. So what we did is we asked a series of questions in a survey basis state consistent with those questions and over time became … it had benchmarks that said this product is unique, this product is an everyday product, this product appeals to a large percentage of the marketplace. And those were some of the main drivers that made us … that help us go to stage two which was web testing. So now in web testing, we would do a couple of different things. We would do a very small teaser video or a vlog tech video that demonstrated the product in a way that you quickly understood okay I need this. And we put a very quick order page together where it wasn't an elaborate brand type of web store or web page; it was an order taking page. It was built to just take orders. And we would have people go into these. We'd do an e-mail blast of let's say 300,000 people, 150,000 people, and sometimes even a million people and get benchmarks based off of conversions, click rates, click views, orders, average order amount, how many products did they actually order through that, and those benchmarks were also tied to our algorithm and they remain consistent and we try to make sure that we form long term benchmarks. Those filtering process is whether it was the way that the product has originally come to us and looked at by our view meeting which had people on there from a lot of Home Shopping Networks and people that have been in my industry for years but also the survey process, the web testing process, those benchmarks once they've qualified we would actually put a TV commercial together. And just put a little science next to the art of just putting something on TV. Instead of doing just a … what we refer to is or what I refer to as a spray and pray approach where you just spray your product everywhere and see if it works it add a little more science to it.

Mark: Sure. So now with the current marketing firm that you just recently founded that's doing this what your basic appeal for somebody that might be listening here is that you'd be able to take a look at that product if somebody has a private brand that they built and maybe are doing well with on Amazon, you'd be able to take that and run through this testing process to be able to see what the possible or potential impact on revenues and growth would be if they were to go to the direct response TV market. Am I understanding that right?

John: Absolutely. I mean you nailed it. I mean really what it comes down to is this is that through this process we feel like we can go into any retail store for example and if you have a product line and you say this is my entire product line we feel like we can go from A through Z process and say A has the best opportunity to succeed; Z, put it on the shelf. It'll still sell but put it on the shelf it's not going to be your most appealing product that's out there in your marketplace. And really that's what the system does, but in addition to that, it helps identify your best opportunity to go through TV and other channels because I think that all products have a home, right? It's just a matter of how big is that home. And then I think that's what the process is designed to do.

Mark: How long does it take you guys to figure out what that impact would be from a direct response campaign?

John: Great question. So the initial process that we're talking about from a survey, web testing type of a platform I mean that really could take one to two months depending upon what kind of assets that we have. Or it could take a little bit longer depending upon if we want to … if we get any data that says we need to tweak the product a little bit. So if we find out that people like your product through this process and they have an attraction to your product but there's a couple of different variables that they may want to see more, a couple of different features that they want more on a product a light for an example or something better of quality. This doesn't look as quality … the quality that I want. We may take a step back [inaudible 00:09:04.2] but if you have the completed product that's ready to go if you wanted two months to do that initial survey web testing platform then you go into developing your TV commercial and maybe you're talking about another two to three months before you actually get on the air and test everything and really are good to go. One thing I just want to make sure that I'm clear with is I've said to you that every product has a home that [inaudible 00:19:30.1] that they should be in. Through this evolution and this process, we found that some products just belong on the digital atmosphere versus TV. So an example of that would be is that we actually have a product and tested at $10 price point on TV a few years ago and it did not meet the metrics to push that product into retail and do a large spend on TV. What we wound up doing with that product and we tested it on digital because the metrics weren't making sense. We were getting false positives on our web platform seeing that people who are ordering this product through web but they weren't ordering it through TV. So we started testing inside the digital ecosystem and the next thing you know a year and a half later that we've been marketing this product digitally at a $29 price point at a 19.99 price point and had major success just by utilizing the digital atmosphere.

Mark: Interesting. So you talked about gathering some data to be able understand do people want to buy this product, do they like the product, and maybe is there a product adjustment that needs to happen, can't we just look at how the product is succeeding on Amazon and look at the reviews to be able to gather most of that information? And could we maybe accelerate that two to three month process if we were to just look and say hey I have a product that's been on Amazon for three years saying I've got 2,000 reviews of it with all sorts of feedback on this? Is there other data outside of that that you need or is that a good starting point that would get you most of the way there to be able to identify a product that would succeed in that direct response TV market.

John: Yeah, that's a great question and it's a little bit of a complex answer. I'll try to simplify by basically saying to this I mean I think there's a lot of smart people listening so I won't insult your intelligence by basically saying that either people got their products on Amazon as an early adopter of Amazon or people put their products on Amazon and they wound up first in your category. So some of that behavior helped them get those reviews, helped them get that success early on. And that's my belief. Anyway that product is not necessarily unique and if you marketed that product on TV it would not have the same success as it would have on Amazon or digitally because for example marshmallow sticks, you hear all of the success of marshmallow sticks and the examples of marshmallow sticks and the success on Amazon I don't think you could put marshmallow sticks on a digital campaign or a TV campaign. Does that make sense?

Mark: Yeah, that makes sense. I wasn't aware that marshmallow sticks were a big thing. Are they a big thing in Amazon?

John: I actually was just reading an article about how someone made a half million dollars in a short period of time by being one of the pioneers of marshmallow sticks on Amazon so it was a very interesting [inaudible 00:22:27.9] for me.

Mark: Now all of our listeners are going to go out and buy a few crates of marshmallow sticks and throw them up on Amazon and that entire market is going to be ruined.

John: Exactly. No I mean I think that in general, I would say to you this, what fascinated me Mark in our conversations and when we were going from in you know we sold in writing on a wall two years ago in the direct response business. And what I mean by that is that like I said we saw this quick evolution of all of a sudden 10% of the people that saw your commercial on TV bought from the web. All of a sudden it's a 50%, 60%. In addition to that, we saw 20% of your orders actually going to Amazon. So we saw it being very difficult, you go into a TV advertising campaign with the goal of breaking even but if you lost 20 cents on a dollar, 30 cents on a dollar you would know in the old world that you'd get that money back because you air a lot of TV and you actually would see a lot of people go to the retail store and you get an 8:1 ratio. So for every one person that brought on your TV ad and called in through the phone or jumped on the web, you would see eight people buy at retail. So those numbers started changing rapidly. And when you and I started talking it was when it clicked to me and said [inaudible 00:23:54.9] couple of things. One is that we had a couple of trial campaigns that we spent, we developed a lot of money … we'd spend a lot of money on Facebook trying to develop a campaign. We'd sold a hundred thousand units of one product on Facebook alone, okay? A lot of these people guide brand awareness very quickly of our product just on an online basis that does not necessarily translate to retail at all. What had happened was is that we saw that Amazon boarded it's like unwanted competition, you heard all about that, unwanted competition, you … traditional direct response TV and we spend a couple of million dollars in a very short period of time advertising for our product and then we'd be shipping in half a million units overseas. So now everybody overseas is getting alerts and anybody that tracks imports is getting alerts on what had … what products are being most successful? We're airing this stuff on TV, you have an international competition coming in and putting your product, your brand up on Amazon right away with lower prices. Maybe not the same quality and we saw a major impact happening to you know we weren't able to market the same way. So that 20% or that 10 cents lost, that 20 cents lost on the dollar started becoming 50 cent losses on a dollar and we had to figure out different ways to market our product. And you had to look at it more holistically. You had to look at Amazon, digital and really start playing a different game. And I think that when you and I started talking and I started seeing these [inaudible 00:25:37.5] Amazon centric companies when they were only living inside the Amazon atmosphere they're saying some of these products are awesome, some of these product lines are great why haven't they tested some of these other channels. I can see that maybe they tested a little bit of digital because once I've clicked on their web site they started following me around [inaudible 00:25:58.9] Facebook, Instagram, everywhere. They didn't really have any type of marketing dollars or marketing spent outside of the Amazon atmosphere. So the reality is that I just see this as a huge opportunity for any of the FBA type companies that are sitting out there to say hey what other channels can I market to really explode this business and really put my business on steroids. I think you know and I know and you know better than me for sure that those multiples that are being paid on these businesses when you put them up for sale I think that if they have more of an omni-channel approach towards things, if they have a good Facebook presence, if they have a lot of Facebook followers that are around there I think it just makes their platform that much stronger and that business much more saleable.

Mark: So anyways there hasn't been a whole lot of crossover between these silos in the past, right? We've really kind of stayed true to the one areas and part of this is just because of the opportunity that exists. And in talking to sellers and business owners who are working in the Amazon space their businesses are growing rapidly without having to go outside. But I do think that looking outside of Amazon whether it'd be through digital marketing and I know a lot of our clients are starting to do that but also into these more traditional areas is the way that we need to stay ahead of that curve right? We all know we have to say ahead of the competitive curve. What are some examples of lift that you've seen from applying this omni-channel focus and I apologize, I didn't prep you for this question so if you don't have numbers off the top of your head that's fine but I just want to get a sense for what are we looking at here by exploring this option of omni-channel marketing and especially when we're looking at going outside of Amazon but even outside of the internet as well into more traditional forms of marketing.

John: It's an excellent question and although you did not prep me for it, it is something that we live in every single day. So I'm going to try to answer in a couple of different ways. First of all I would say to that if you are an Amazon centric company, we'll focus on that first, and you are not taking advantage of some of the digital or traditional DRTV, direct response TV channels I would say to you this; so the curve in the direct response TV industry is about 18 months. So in 18 months, that's kind of your life cycle. And traditionally it's been [inaudible 00:28:34.9] of a life cycle because get this grand awareness of this product, you're ahead of the competition and you try to outrun the competition by just flooding the market with a bunch of products. So some of our products in that 18 month life cycle yielded 6, 10, 15, 20 million dollars' worth of revenue during that short window of time. So if you have access to inventory, if you have access to the product if it is a DRTV type of a product I think an 18 month window and developing several million dollars' worths of revenue is very obtainable. The other piece of that is this for those products that did not work on direct response TV and really you test into the digital ecosystem, there's a lot of companies and I think everyone will agree that Facebook is your work force in that spectrum. However if you go about it in some of the more scientific ways and try to figure out where your audience is, whether you're doing some display banner type ads to learn where your audience is and where to target better, we've seen some of those companies that they may have been exploring to try and get into retail. They weren't there yet but they decided let me try to play holistically on the digital side first. We've seen some of those companies in a matter of three to six months generate quick huge revenues and be what we call a double return on your investment. I mean a double return on your investment on the marketing side of things; maybe a triple return on your investment and its either three to six months with a nice digital plan. The amount of traction that you wind up getting at retail if you're able to get into traditional retail we know how hard it is to get in traditional retail but the amount of lift that you get could be easily 50% lift at traditional retail when you're running some type of direct response maybe in combination with a little bit of digital TV figure campaign. Pretty good deal target right? We could figure out exactly where your products are being sold and deal target that as well. So does that answer your question?

Mark: Yeah, that definitely helps. I have one more question for you and I've played around with radio advertising for one of my other companies and the general rule that I keep hearing over and over with the radio ads was look you need to run it for three months. You need to have the right saturation and frequency in order for it to really take effect. Do you have that same effect with television ads? Does it take time before you start seeing that lift?

John: Absolutely. It's impressions. Everything's based off of impressions and you need a certain amount impressions across a broad audience and to a specific audience in order for you to get them to buy. So there is a science to that that our media buyers actually play with on a regular basis and they … you'll see … I mean a great example of that is kids items; children's items. We always call it the nag factor. So you really want to put those impressions inside of a child's head so they go to mom and dad and they basically say Mom I want that. Mom, I want that. A lot of our media for kid's items is 60 seconds spots, 30 seconds spots so you're just really driving everybody to impressions and driving them to retail. They're also direct response type of ads but you're really trying to get the impressions in their head. Get the nag factor to go and really get them to buy.

Mark: That's fantastic. Alright if somebody wants to learn more about this where can they reach?

John: Star Logic Marketing is the name of my company. As I said I just started the company a couple of months ago. My phone number is 215-694-3118. You can look me up on LinkedIn. I have all of my LinkedIn information. The website is still being and would be finalized the next … hopefully, a couple of weeks here but Star Logic Marketing is the name of the company. We do think that this omni-channel type of approach is a way for you to really put your products and your product lines on steroids when you jump outside of just the Amazon ecosystem and really you take up the edge of the more omni-channel marketing opportunities.

Mark: I think there's all sorts of benefits for Amazon sellers and I think those that have been in the game for a while might be thinking in their heads of some of these things and think sales velocity for one. Being able to really power up the number of sales of launching new products as well would be another benefit that I definitely see with this and a really fascinating concept. And I think probably the way that we're going to see things go. I have a couple of additional questions for you but I think we're running out of time at this point so thank you so much for coming on the podcast. I do appreciate it and I hope to have you on again in the future.

John: Thanks, Mark I really hope it was of value to your audience. I do think that there is a great opportunity for the people that you're speaking with in a regular basis to really help improve the opportunity to sell their businesses by leveraging all of these [inaudible 00:33:41.9]. So thank you for having me on and I look forward to the next time we talk.

Mark: Thanks, John.

John: Take care.

Links and Resources:

https://www.linkedin.com/in/johnvsantilli

https://starlogicmarketing.com/ coming soon

Reach John @ 215-694-3118

These days Amazon businesses are getting more complex, and one way to add margin to your business is to extend to other countries. Today we are talking about the importance of understanding foreign exchange when buying and selling overseas. Since your business can potentially save a few thousand dollars, euros, or rupees, it is a good idea to use a broker for fx, where every little bit counts. Today we have an expert on to talk about the benefits of getting the best foreign exchange rates for your growing business and how having that broker can make a big difference.

Jared Van Orden is a financial expert with GPS Capital Markets based in Utah. Since 2002, GPS has been the leading corporate foreign exchange brokerage firm dedicated to handling foreign exchange for companies, large and small. Jared's firm helps its clients exchange funds back into their working currency when selling overseas. Additionally, they exchange the currency of the country where clients are doing business and making foreign purchases. GPS Capital Markets deals in any type of transaction that has a foreign currency element to it and helps companies implement best practices.

Episode Highlights:

• Jared explains the impact of WorldFirst Brokerage's US operations closing.
• The cost difference between using an exchange broker and being directly exchanged via Amazon.
• How getting the best exchange rates can affect an exit.
• Savings opportunities when purchasing goods from overseas, particularly China.
• Opportunities in other countries such as Thailand and India, a broker can offer.
• How the cost of a product going up or down can affect the exchange rate.
• Can sellers set up an EU bank account if they're a US company and what are the tax ramifications?
• The advantages of multi-currency accounts set up in the country where you do business.
• Understanding VAT and using an experienced accounting firm for taxation.

Mark: Everybody for those of you that have been long time listeners of the Quiet Light podcast you've probably noticed that we have a brand new shiny introduction to the podcast. Let me know what you think. I like it quite a bit and there's a point in that introduction where there's a movie quote. We thought we would just throw this in there really for no reason other than it's somewhat fun. So here's what we're going to do, if you know what movie that quote was from send me an e-mail at mark@quietlightbrokerage or e-mail Joe at joe@quietlightbrokerage. For those of you that think that this podcast is actually Joe's podcast, you can do that. Let us know what movie it is from and we'll give you a shout out on one of the future podcast episodes. So what movie was that from? And Joe I got something just really funny. Just to tell you briefly I was just at Traffic and Conversion out in San Diego and we were talking about the different people at Quiet Light Brokerage and somebody actually told me that they thought that what you did at Quiet Light Brokerage was the podcast. So that's all that you did.

Joe: That's all that I did? That's all I do?

Mark: That's all you do.

Joe: Oh. Well you know I wish it was all I did and my life would be a lot easier and I'd sleep better because the podcasting is the easiest part. All I do is talk and you and the content team, Chris, everybody else they do the rest. Podcast Motor; they make my life easy. So cool I wish … maybe that will come true someday. The other alternative versus mark@quietlight or joe@quietlight … you don't have to play favorites you can just send it to inquiries@quietlight and put movie quote in the subject line. And that way both Mark and I will see it and we can call you out and tell you we love you and that you picked the name of the movie. But listen we should talk about—

Mark: Well on that be honest if you use Google like I do with every single one of these tell us that you used Google just to find it.

Joe: Well when you were showing me this sample and you gave a movie quote I did, in fact, Google it. So don't cheat like I did folks. I knew what it was. I was pretty sure I knew what it was. And it was maybe people we can … I know I won't want to confuse them with the intro that is not pride to this. Anyway, we have a new guest; a person that specializes in foreign exchange. And it's something that you and I don't have a whole lot of expertise or experience in. His name is Jared Van Orden. He's from GPS FX. I met him at the Prosper Show last year and we talked a little bit about what they do. And finally because of some things that have happened with a company called World First we decided to get him on the podcast and talk about saving some money for the folks that do sell overseas and also buy from overseas manufacturers.

Mark: Yeah. I'm sorry I thought you were going to continue talking. I didn't know you were done. I usually when you talk I just kind of tune you out so I—

Joe: I know. I know.

Mark: Well look the Amazon businesses are getting more complex and one of the best ways to expand and grow your business … any e-commerce business but Amazon specifically is to go into different countries. And when you do that there's going to be added complexity but also added areas for margin. And one of the very simple ways … and I talked to Jared before at Prosper Show is just that right? Looking at the foreign exchange this is an area where you can definitely add margin to your business. And it's an area that frankly I don't know much about so I'm glad that we have somebody who does know a lot about this to come on and talk about it.

Joe: Yeah and let me just say real quick before we go to the podcast Mark is mentioning margin and it's important if you're going to save a thousand dollars a month on foreign exchange by doing it right. Or another thousand a month by using a foreign exchange company when you're placing orders overseas. That's $2,000 a month; $24,000 a year. That could result in an additional 75 … a hundred thousand dollars onto the value of your business so every little bit counts. Please listen to the entire podcast because Jared does a really good job of explaining the entire process.

Mark: Awesome let's get to it.

Joe: Hey folks Joe here at Quiet Light Brokerage and today I've got Jared Van Orden with me on the phone. Hey Jared, how are you?

Jared: I'm doing great Joe.

Joe: Awesome. Well as I said in our little chat before, today I've got a guest on talking about a subject that I know very little about which is great because I'm going to ask a lot of dumb questions. But before we go into those dumb questions that I'm going to ask and questions that I think will help the buyers of internet based businesses selling physical products and selling overseas; sellers of those save some money in the future why don't you give a little bit of background on yourself so folks understand who you are and what your company is and what you do.

Jared: Sure. Thanks, Joe. So I'm with GPS Capital Markets. We're a foreign currency exchange brokerage that headquartered out at the United States; Utah actually to be exact. And we do all things foreign currency exchange. So we help companies specifically if they have revenues that are being collected in a currency outside of their functional currency, outside of the currency they use on a day to day basis. A US seller that's selling in to the UK; we help them to exchange those funds back into US dollars. Or a company that's paying for products in a foreign currency; we help to exchange funds from US dollars into those foreign currencies. And you know that it can be on a revenue cost basis. We help companies to acquire other entities overseas or to sell other entities; any type of transaction that has a foreign currency element to it. We really go out and try and help those companies number one to find the best practice solution to what they're doing. Sometimes that may mean not doing business with us but to help them find really what's going to fit best for their unique situation in dealing with foreign currencies. And then help them to implement that strategy if at all possible. It could be anything from just converting funds to locking the exchange rates for them.

Joe: Excellent. I've dealt with this a few times over the years when we've got people that are not US citizens. They're … I just did one in Germany last year and the exchange rate was a major factor in terms of the timing of when we're going to close a transaction for him because it was being sold … purchased in US dollars. And I've had a lot of Canadian folks as well and folks from different parts of the world. But the big savings here and the way that people ultimately and this is what we look at can boost their bottom line discretionary earnings. There's many, many different ways to do it but the key here is a one or two or three percent savings in that foreign exchange. We're on this podcast because your team had sent me an e-mail. We met at the Prosper Show last year. I think you'll be there this year. We will as well. But you had sent me an email in regards to World First which is a very well-known foreign exchange firm that they're closing their doors. Can you touch on that a little bit for those folks that are currently using World First and may not know about this and what's … how it's going to impact their bottom line?

Jared: Sure World First is actually a very good exchange brokerage. It has been around for quite a while and they had been helping a lot of Amazon sellers in the seller space to convert their funds from the foreign marketplaces back into US dollars. Basically, this is another option rather than using Amazon … to let Amazon convert those revenues for you into US dollars. And what happened is that World First is in an acquisition type situation where a foreign buyer out of China was looking to acquire the company. But because of some of the blocking that the US has done for Chinese financial companies purchasing US corporations that transaction didn't look like it was going to go through with World First US operations. And so World First sent out an email here back in January to all its clients saying that their US operations are going to be closing immediately. And that leaves a lot of our Amazon sellers in a situation where they're no longer going to be able to use that service with anywhere less than about a 30 day notice that after February 20th which is today you cannot use World First services if you are a US Canadian corporation. So those services out in US and Canada are no longer available to you. Now that doesn't mean that World First just quit doing business if you're a UK seller that's doing a business in the EU that services still can keep working for you. It's really only affecting the US companies that are based out in the United States and Canada.

Joe: Okay so if we've got a US company or a Canadian company doing a $100,000 a year in revenue in the EU and they were using World First and they just default back to using Amazon what's the cost difference in terms of the exchange rate, what they're going to be left with?

Jared: It's going to be pretty substantial. I mean if you're using Amazon, every two weeks Amazon sends your revenues back to you and if you have not entered an EU or UK based bank account those funds get exchanged by Amazon and sent to you every two weeks. And by default, the exchange rate that they're giving you is not what the market exchange rate is. It's actually the Amazon exchange rate they provide to you and it's over 3% off market. So if you're doing $100,000 in sales over there you can expect to only get $97,000 back or a little bit less than that because of the exchange rates that come that with your Amazon's platform.

Joe: And if that same seller was using say you guys or World First what kind of rate would they have been getting?

Jared: It would have been at least 3% better than what they were currently receiving at the time if they're through Amazon.

Joe: I'm confused. Do the math for me.

Jared: Amazon is around 3.75%. It's kind of where they come in at on their mark up on the exchange rate.

Joe: Okay.

Jared: Whereas if it's coming through GPS you're going to see significant or any other broker that is helping the Amazon sellers you're going to see significant reduction that oftentimes two to three or more percent back to you for those conversions.

Joe: So you go from you're at 3.75% which is the default Amazon number … and these are just numbers that float and change I would assume. Are we looking at a full percentage point, two percentage points … are you talking 2% versus 3.75%?

Jared: I would say for most of the brokers including GPS you're looking at two to three percent back in your pocket on the exchange.

Joe: Yeah that seems really high just given that … I mean two to three percent. So you go from 100,000 if it's 3.75 with Amazon that's $3,750 you're going to save 3% by using GPS or if they were with World First is that only costing them 750?

Jared: Yeah.

Joe: Really? That's a huge difference.

Jared: It's a huge difference. And that seems really high but in all reality that's actually pretty on par with a lot of other methods that are employed right now. If you're in e-teller and you have your own website. So you're selling on Amazon but you're also selling on your own website or in the UK your credit card processor is collecting those funds and oftentimes they're converting the foreign revenues into US dollars and placing them into your account. You're often losing 2.25% on that conversion and often a 1% to 1.25% cross border fee that's charged to you. And so that's 3.25 to 3.5% that you often lose on that conversion even if it's coming through a credit card processor that may be integrated to your Shopify account or some other online platform. So it seems really high but you'd be surprised that currency conversion buffer is in there for most conversions.

Joe: Okay so a simple math again though if someone's doing $100,000 in foreign currency, a foreign land they're going to save 3% by using … if they were using World First or using a firm like yours. That's $3,000 for every 100,000. So if they're doing a million it's an awful lot larger. Just to break it down further for those that are listening if you've got a business and you're planning to exit in the next 12 to 24 months and you're paying these high numbers that Jared's talking about not only is it hurting your bottom line, taking money out of your pocket but you're also devaluating your business. If your business is worth a three time multiple of discretionary earnings, if you're losing 3,000 in currency exchange you're taking $9,000 off the value of your business. If you're doing a million overseas and that's going to be $90,000 off the value of your business in terms of these additional expenses. I had Mike Jackness on the podcast and hopefully, you guys listened to it a couple of weeks ago where we talked about his exit and one of his businesses. And he and Dave on eCom Crew always talk about that revenue is sanity… revenue is ego … I'm getting this wrong I know but profits are sanity. Too many folks focus just on the top line and don't focus on that bottom line profit; renegotiating cost of goods sold, looking at foreign exchange rates and making every dollar count will help you build a more valuable business. And it actually instills confidence in your buyers as well because they see that you're running a real business and you're doing what you can to make it as profitable as possible. All right so I ranted there for a moment Jared, sorry about that. You mentioned …at one point you said you can … if people are buying products in a foreign land are we talking about currency savings, cost savings if someone is buying product from China because a lot of folks have got e-commerce businesses are importing from China and spending tens of thousands if not hundreds of thousands a year. Is there an exchange rate opportunity … savings opportunity there when they're buying from a foreign manufacturer or did I misunderstand that?

Jared: There is and you know there are two parts to that answer so maybe I'll dig in a little bit. China is unique. A lot of these products are coming out of China and a lot of these companies in China they want US dollars when they're selling to you. That has a lot to do with in the past you know China has controlled the exchange rate between the US dollar and the Chinese or in the CNY CNH [inaudible 00:15:59.3] names for the currency; Yuan. When you are sending money over there in the past they have often wanted to receive US dollars. And in a time period where the Chinese currency is weakening, that's just an added bonus to these Chinese suppliers when they receive US dollars and getting it converted to their currency. They receive more for it. So in China most of the time you'll see that it's really hard to get any pricing outside of the US dollar and if you're being priced in US dollars because the supplier knows that they're not going to get your payment for 30, 60, 90 days they don't know what the exchange rate is going to be in 90 days. And so the Chinese suppliers will actually increase the price of your product to add a little bit of a buffer in there just because if the exchange rate fluctuates they don't want to be out one or two percent or more because the rates have changed between then and when they actually receive the funds. Now China aside looking at all other countries where companies may be purchasing your product, if you're having to pay a euro invoice to buy your product you probably hop on a banking platform to purchase those euro and you'll notice that the exchange rate that you receive on that transfer is not what you can see online on Google or any of these other sites that are recording grain rate. And that's because the rates that you're seeing online through Google and these other locations like Bloomberg or Reuters those rates are averaged rates of transactions of 5 million dollars or more. Some of these are 10 million dollars or more and those are referred to as market trades. And so if you're trading blocks of 5 million or 10 million at a time into these other currencies those are the exchange rates that banks are trading with each other at. Now we little guys who are not purchasing blocks of currency that big, when we go and buy foreign currency and go to send it to that supplier the reason we don't get that rate the banks are getting is because there is risk associated with us buying those funds. And so the banks mark up the exchange rate and it really have a lot to do with volume. Somebody who's buying a million dollars at a time, a million dollars' worth of euro at a time is going to get much more favorable exchange rate than somebody who's buying a thousand dollars' worth of euro at a time.

Joe: What about some of the other countries that are more likely to be countries that folks would manufacture in like India, Thailand, maybe even Mexico? I've seen a few of those. Is there a … for folks that are buying in those countries, manufacturing in those countries, is there a currency exchange savings opportunity for them and if so how do they go about doing it?

Jared: There is on those and again if you're just using a typical bank to do those transactions that may not be the best opportunity for you. Reaching out to a broker or one of these other companies, World First, GPS, and looking into what type of exchange rate that they give you on sending those wires, that could be really substantial savings. And there's a bank here locally near me that charges $50 per outgoing wire transfer and that is not the cost of sending a wire. That's part of the cost. So it might cost you anywhere from $20 to $50 to send an international wire to pay a vendor but then there's also that foreign currency element. Maybe your bank just doesn't have a great relationship when sending money to Korea and so the exchange rate they provide to you might be 3½ % off of market plus the $50 wire fee or $20 wire fee to send the funds to that country. And so the savings can be quite significant but it's going to be on a bank by bank, provider by provider basis and also looking at what currency that you're purchasing.

Joe: So how does it work? If I'm manufacturing in India and I'm placing an order for $40,000 worth of goods, would I work with a GPS to lock in that exchange rate and you wire the funds over in whatever the Indian currency is? What is the Indian currency? I want to put you in the spot.

Jared: Indian Rupees.

Joe: Okay.

Jared: So if you're sending … and you picked a good one, India has some very interesting tax laws over there and so if you're buying from an Indian provider and they're pricing you in US dollars you'll often see an INR price … Indian Rupee price printed on the invoice. And if you take that Indian Rupee amount and you just look on Google to see what the exchange rate is and you convert it back into US dollars well now you've got a US dollar cost on the invoice and then the US dollar cost that you back in to from the rupees. If you compare those two, you'll often see a very significant difference. I've seen up to 5% built in to the pricing for you to pay them in US dollars and that has to do with the way the funds get converted in the country and whether they receive a certain type of tax credit. But there are opportunities where if you pay them an INR … Indian Rupees you might get four to 5% right off the top in savings just simply because they're not dealing with the riskiness of achieving a currency anymore.

Joe: So if I was manufacturing and buying $40,000 worth of goods from India for instance and I work through GPS I could save that 5% because you'd be able to wire over and do it in that. Is that $2,000? Am I doing the math right?

Jared: There is very much that chance. And not just GPS I mean almost any institution in the United States that is doing it for you rather than sending over dollars. I mean in this case you're just sending dollars over there and it's being exchanged in country.

Joe: Right.

Jared: By simply paying the invoice in Indian rupees you might be saving 4% right across; four to 5%.

Joe: Wow. So … and this can be done in multiple countries. China … maybe the opportunity is not as big in China because they want US dollars. Is that right?

Jared: Exactly right.

Joe: Okay.

Jared: They typically want US dollars but some that's changing. China would like to become more of a global player and their currency is becoming one of the reserve currencies in the World Bank. You're going to see that change over the next few years. And there's real opportunity there but there's also a risk that comes in to it as well. If you decide to start purchasing Indian rupees to pay that supplier there is a chance that the Indian currency would strengthen 5% over the next year.

Joe: Can you lock it in in terms of … because when people are manufacturing products they're putting 30% down and the other 70% when it's inspected and going on the boat. And that usually all happens within a 12 week period.

Jared: I know. You're exactly right. And so the timing may not be really wide on those payments and so maybe the market isn't real significant but if you start paying a foreign supplier in their local currency and that may give you back some … a little bit of a discount on purchasing your product, but you also have to then take into consideration that you're now at risk that the Indian currency could weaken 10% in your favor over the next 12 months so going in 12 week increments but a year from now if the currency has weakened 10% then it's 10% in your favor but if the currency has strengthened over the next year, a year from now it's now 10% against you. And so you may have to make decisions on how to lock exchange rate ahead of time on those purchases you're going to make. Or you may have to go back to the negotiating table in order to get your pricing down a little bit with the supplier.

Joe: And just to include it, the owners of these businesses their eyes are probably on the back of their heads right now because they've got so many things that they're supposed to be experts on but they don't have to be here. They can hire a firm like yours to do these things for them right?

Jared: Absolutely.

Joe: Okay.

Jared: I would always look at what your costs are doing. Sometimes these companies and this … I'm glad you've mentioned that because there's a big misnomer here where a lot of companies think I'm buying my product in US dollars so it doesn't matter where the exchange rate go. That's not actually true because if I'm in China and I'm receiving your US dollars and it's a hundred thousand dollars today, if the Chinese Currency strengthens 10% at the end of next year I'm only getting $90,000 worth of [inaudible 00:24:11.1] when I receive it. And so I have production costs in country and if I'm no longer able to be profitable I have to raise your price. And so some of your clients here they may see that they've been buying the same SKU for the last 10 years and then we see that the price of that SKU has gone up and down over the years even though they're only buying it in US dollars. And that has a lot to do with the exchange rate. If the costs go up and down to the supplier they have to adjust the pricing even if it's in US dollars.

Joe: Okay. You had mentioned something earlier about I think I heard you say EU bank account if you don't have one the funds are going back to your US account and charged in exchange rate. For those that are selling in the EU let's say via Amazon are you … or should they have an EU bank account and can you do that if it's a US institution or US corporation?

Jared: Okay so that's a really good question. Let's look at that in a couple of parts. So one is if I'm selling into Europe, I'm selling into the EU, let's use Germany as example. If I'm selling my products into Germany on Amazon if I don't log on to my seller central account over there and punch in a Euro bank account Amazon automatically converts the funds to dollars every two weeks. So you have an option if you could go over and get an account in the EU set up. So you go to Germany and set up an account in country. You could have those funds go to that Euro account and pool into that account and if that account has online access you could manage it from here in the United States and send the funds back to you however often you want.

Joe: Just to be clear you're saying … you mean a bank account not a Seller?

Jared: A bank account, yes.

Joe: Okay.

Jared: So you can open an in-country bank account.

Joe: Can you set up an in-country bank account in all of the EU countries if you're a US corporation or LLC?

Jared: You're likely going to have to go over and register in country.

Joe: Okay.

Jared: So there is going to be some tax Nexus situations that are created by that. So another option you have is you can go to your bank here in the United States. You can go to a GPS and you can say I would like to get an account in-country over in EU. And so in the case of GPS, we would open an EU account for you in euros and this is referred to as a multi-currency account. And this multi-currency account is an account that is assigned to you. You're likely not going to have to register any country that you use this account. And then you can now take your euros and login to your Seller Central account and plug in that euro account into Seller Central and now those euros are going to pool into your own multi-currency account. One of the big advantages of that account is if you have cost in Europe so you have to pay VAT back. You can simply take those funds and pay those taxes out of your own account … this account, this multi-currency account. Or you can take all the funds and convert it back to US dollars.

Joe: I got you. You know I … we had Avask Accounting on the podcast in 2018 talking about that. And I do know that they actually help people set up EU bank accounts as well as part of it. And folks can find them at AvaskAccounting.co.uk. And then use a company like Jared's for the foreign exchange as well. Just quick math if based upon what we've talked about is somebody doing $100,000 in revenue they're going to save a couple of percentage points; $2,000 by making sure they're using good foreign exchange. And then if they're not; if they're manufacturing overseas, if they can save another 5% on that $40,000 inventory purchase that's in India for instance that's another $4,000. Folks that $6,000in savings, money in your pocket and if you're selling your business for a three time multiple that's $18,000 added on to the value of your business. And you can adjust that number in any way that you want. But these are the things that matter when you are growing your business with an eventual exit in mind or if you're buying an interest … buying a business and you want to increase the discretionary earnings and build equity right away. These are some of the things you can look at. Jared, I appreciate your time here. It's a complicated subject. How do they find you? What is your web address and how can they reach out to you either via e-mail or finding your website?

Jared: Okay so our web address is www.gpsfx.com and to get in touch with us it's just usually a phone call at 801-984-1080 and then I can send you my e-mail but I'll state it here as well. My email is [email protected].

Joe: Awesome. That's great.

Jared: And if people just have questions I'm happy even just to answer questions that point you in the right direction. If someone has listened to this and they're like I think I have this but I just need some help on it I'm happy just to point you in the right direction as well.

Joe: I appreciate that. That's why we have you on because you're here to help first and build value so I appreciate that. Folks I would encourage you to reach out to Jared and his team over there and see if you're overspending and if you've got some savings there. Jared, I appreciate your time. I look forward to seeing you at the Prosper Show.

Jared: Thanks, Joe. You too.

Links and Resources:

GPS Capital Markets

Contact Jared

Selling a company is the entrepreneurs' dream goal, but what to do after the exit is daunting. Some sides say to stay away from building another business right away while others say it's important to keep a toe in the pool at all times. Today's episode is about what to do (or not do) after you sell your business. We discuss drive, purpose, and the type of work business owners want to do once they achieve financial freedom.

Today's guest, Nate Ginsburg, dabbled in a variety of entrepreneurial ventures before he got into Amazon and FBA about 4 years ago. About a year into his business, he took in a partner and sold off about half of the company to him. In 2018, they sold the US side of the business to a Chinese investor. When he sold the business and made a hefty profit, Nate found himself questioning what he wanted to do next. Today we get into the many ways he is fulfilling his need to always be doing something, both personally and professionally.

Episode Highlights:

• The history of Nate's entrepreneurial journey.
• The trajectory of his Amazon FBA business and how the sale came about.
• How Nate and his partner structured the relatively atypical sale.
• Nate's motivation for selling.
• The importance of free cash flow in a business.
• How Nate moved on from the sale to pursue new things.
• What brought about the new deals he's involved in and what's next for Nate.
• The importance of assembling the right team in moving your business forward.
• How the helping and connecting pieces of what Nate is doing these days can play into future deals.
• Focusing on the big picture in your business role – the recurring notion of working on your business rather than in your business.

Joe: So you and I had a chance a few weeks ago to hang with Ryan Daniel Moran and talk to him a little bit. We had him on this podcast and one of the things that he talked about was what to do after you sell your business. He talked a little bit about planning in advance but his advice was take some time off; don't do anything business wise and that was his mistake looking back. You just had Nate Ginsburg on the podcast to talk about that very same thing if I am right … correct?

Mark: Yeah that's right. So Nate has an interesting story. He sold his business last year; not through us. It wasn't through a broker. It was a deal that just kind of worked out on its own. But he found himself after that sale questioning what he wanted to do next. It was a lot of this … you're so used to all this hustle, hustle, hustle, and the next thing you know you're just kind of left there wondering what is my purpose? What do I enjoy? What I want to be doing next? And so he really went on kind of an almost spiritual journey here of really evaluating how does he want to spend his days, how does he want to spend his time. And he came to the conclusion that he really wants to be someone who shares in helping other entrepreneurs and then also doing some investing as well. So this episode has a lot of layers to it definitely talking a little bit about general entrepreneurship and that drive that we all have to do things and that hustle. But also what do you do when that drive kind of dries up or when you aren't having that in front of you or maybe you're hustling for all the wrong reasons. So that's definitely the topic in this but we also have this interesting wrinkle in here that he's bought two businesses since then. One of the businesses he didn't buy entirely. He bought just a portion of it and is more of an investor. And I know a lot of our buyers they ask us about that. Do you have deals where an owner wants to stay the yacht and he's successfully done this before on deals. We've talked a little bit about that as well. So a lot of different layers to this, if you like just general entrepreneurship discussion that's really where this kind of falls into of entrepreneurship drive, finding your true purpose in life and your work, and purposeful work, and then finally getting into some more creative deals when it comes to acquisitions.

Joe: I think it's always great to hear people's stories and how they did it. It may not always directly relate to your life and what you're doing and what your goals are but you can always take bits and pieces of it and leave the rest behind. So let's go to it.

Mark: Yeah absolutely. Let's go.

Mark: Nate thank you so much for joining me.

Nate: Thank you for having me. Hello from sunny Los Angeles.

Mark: And now you're actually just up in my neck of the woods up here in Minnesota and normally I would tell anyone hey if you're up here in Minnesota up in the Twin Cities reach out. You did and I happen to not be here this past week so we missed each other.

Nate: Yeah we missed each other but I'm glad to connect now. And yeah Minneapolis is my hometown. I was back … I was in New York for the summer and then attended Burning Man and then after Burning Man I went to Minneapolis to hang with the family and kind of decompress and now I'm on the road again in California and then making my way back towards Asia where I spend a good chunk of the winter.

Mark: All right pretty cool. I've been following you on Facebook for a little bit now and I'm just kind of looking at some of your Facebook posts especially from your … I think you call it the summer of hustle 2018 New York City. And you talked in a few of your posts about your eagerness just to share some of this stuff that you're doing as an entrepreneur. And so I thought hey if you want to share we have an audience. Let's talk, let's start sharing.

Nate: Yeah.

Mark: I saw one of the images of you doing a photo shoot, a yoga photo shoot in the middle of the street.

Nate: Yeah. I mean … so after I sold the business last year and you know after that I had a lot of these questions around like what to do next and what's important and what direction do I really want to be going in? And that's where some of this … it's got all these questions of what am I good at, what's my unique ability, all these kind of things and really trying to uncover and understand what I'm best at. How I can add value, what I enjoy, and yes some of the things that I've … I mean not that this is totally new or not like new information but just useful to kind of like specify or articulate is that I do … I really enjoy sharing, I enjoy teaching, I enjoy helping others. And so that's in part of the Facebook stuff of trying to share more and post more and connect and help and inspire. The yoga stuff I'm also really into yoga. I've been practicing pretty regularly for the last five or so years. And I was hanging out with a friend of mine in New York who … I mean she has an amazing personal brand and Instagram following of 400,000 people. And she was just kind of encouraging again like you should do this and in the trying to stay with pushing yourself to do things even if they're a little bit scary. Yeah, I ended up doing this photo shoot in New York. I got some cool pictures in front of the middle of the street doing head stands. It was a little bit scary but also fun and people seem to like it.

Mark: It's pretty fun. It's fun to kind of troll around and take a look at what you've been doing in the past there and like you said pushing yourself which is always fun to talk to people that have been doing that. Let's back up a little bit, let's talk about selling your business last year. Was that the first business that you owned or how many businesses have your owned before you sold that business?

Nate: Yeah so that's the first somewhat significant one I've … over the last six or whatever years I kind of dabbled in a variety of things. I have actually sold a few small content websites. This was years ago but nothing that significant. And then I got into that business which was e-commerce, Amazon FBA. I guess I got into it three years ago now or four years ago or something and yeah that was the biggest, I made the most money, built into the biggest operation. So then that was the I guess most notable sale but I guess actually though just kind of back up I've kind of sold that business twice. And what I mean is I started the business myself three or four years ago and then about a year in I took on an investor partner. My friend and now business partner Travis. So then I sold him 49% of that business which was I guess kind of that type of a sale and then a year later is when we had the opportunity to … again we didn't sell kind of the whole thing. We sold the USA distribution side which is actually the one that was making basically all the money. And so we sold that which was for just under a million which is kind of what I was kind of posting more or sharing about but then are actually still operating the EU side of that business which at the time that we sold wasn't at a place or wouldn't make sense to kind of include in the sale but now hopefully going into next year or maybe Q1 or Q2 next year hopefully we'll be looking to sell that remaining side.

Mark: So how did that work as far as selling just a portion of that? I mean usually, you have these non-compete agreements in place. People typically want you out of the industry that you're in. So as the owner you know that business … that product really well. Usually, a buyer wants to take over the business and have room to expand and especially with Amazon, it seems like international expansion makes the most sense. So how did you guys … without getting into details you can't get into how did you structure that? And what was sort of the appeal of that?

Nate: Sure. So it's a good question and yeah I guess I'd say our sale was somewhat not so typical and I guess there's a lot of different ways that sales wouldn't be typical but yeah ours was not … this wasn't like oh we want to … like oh, let's sell this business and let's put together a prospectus and let's contact brokers and contact the buyer. Ours was like … I mean I was catching up with my business partner Travis. I was in Vietnam. It was in the spring of last year. I'm catching up with Travis and so Travis had sold a couple of businesses himself to this big Chinese Amazon selling company and they have software and a big operation. And so Travis had sold some of his businesses to them before. And we were talking and catching up and he just kind of casually mentioned they might be interested in buying more businesses would you want to sell? And long story short I was interested. Three days later I was on a plane to China to meet with them to try to make out this … work out this deal. And yeah we ended up coming to an agreement for the USA side. And it's kind of interesting and I mean some of this is speculative. I mean I don't know some of these things for sure as to like what their motivations were but that business was rolled up or had some sort of a merger acquisition with a big publicly traded company shortly following their acquisition of my business or the USA side of my business. And so I think that they were just trying to acquire businesses to build up and show more revenue and sales for their … looking forward to their acquisition merger roll up whatever kind of thing. And so yeah that's … I mean again I don't know this for sure but that is kind of my theory or my why I think they were kind of interested which kind of explained the atypical nature and kind of structure of how it played out.

Mark: That's fascinating; right place, right time, and right connections as well. What was your motivation? I mean when Travis came to you and said would you be interested in selling. Did you always plan to sell or was it kind of like he has you know like … it actually doesn't sound that bad or—

Nate: Yeah.

Mark: How… why the yes?

Nate: So in my experience with e-commerce and especially with a lot of these Amazon FBA businesses … and this is also a motivation for why I sold half of the business to Travis previously and then selling this is like you can do some really impressive revenue numbers and profit numbers. And I say profit in quotes because your profit is generated or on the books it looks like revenue minus cost of goods minus expenses. And let's say we were selling a lot; 100,000 a month $150,000 a month and then our profit would just say 30% of that or something which is sizable but at the end of every month it's not like the bank account was going up by X thousand dollars each month. The money comes in it needs to go back out for more inventory or you're launching a new product and that comes out of pocket. And so when the business really started to take off our sales was growing but my bank account was still not growing like I wanted to. And I was … the reason I guess for those businesses was very financially motivated. Like I'm trying to run this business to fund my life and build some security into my finances. We were selling a lot of stuff and that's great and we had a lot of profit but it wasn't like the bank accounts were just kind of stacking. And so with a business like that my kind of thought is that where you really stack your bank account is from some sort of sale opportunity. And that's what happened when I sold the half of the business to Travis previously that brought in a bunch of money into my bank account and then again selling the half to the Chinese company got money into my bank account. And so yes so that was some of the motivation and yeah I think we just had a good opportunity. I mean there's a lot of opportunities certainly still there was and is selling on Amazon but there's also different risks and challenges and I thought that this was a good opportunity to take some more chips off the table and then parlay that as like another step up and step forward for my life career allow me to pursue newer and different and better opportunities.

Mark: Yeah and I want to move on to some of that and sort of what happened after but I want to stop real quick and make a point because I think you make a really good point here. You said something that I think people need to keep in mind when you're looking at a P&L for any business for sale specifically an e-commerce business that's growing. The profit does not equal capital. It is not the same thing. So if you're looking at a business that is growing and has $150,000 of profit that's not necessarily the cash flow; it's not necessarily 150,000 in positive cash flow. That's a problem that we see a lot with people growing and when they get to a certain point the same reasons as what you faced you know you've been putting in the hustle, hustle, hustle, the business is growing, in some ways it would almost be nice if it leveled off because then you're not … you just aren't actually seeing or realize some of that profit as opposed to consistently reinvesting into the company.

Nate: And just to kind of add on that I learned … so I had an opportunity to attend this really awesome entrepreneurship summer camp program put on by Simon Black and the guys at Sovereign Man and one of the … I mean I've learned a ton from them but one of the points that they hammered home which has really stuck with me is when you're looking at a business the importance of free cash flow and like free cash flow being really the only thing that is important; it's not revenue, it's not profit, it's free cash flow that's what's going to pay back to investors. That's what's going to actually go into your pocket. And yeah my Amazon businesses had horrible free cash flow and so having an opportunity to sell that and get the cash part of that motivation. And then also the focus on free cash flow has really been a big driver for the investments that I had ended up making since then.

Mark: Alright we're going to get to those but I want to talk a little bit about the post-sale situation that you find yourself in. Because I tell people this all the time when they're selling especially their first business; the first thing that's really taken off and that's have a plan for after the sale. I know when I sold my first business my plan was look I did it once. I was young. I was like 25, 26, maybe a little bit older than that but it doesn't matter how old I was, I was pretty stupid because I looked at it and I'm like oh my gosh this is so easy. I tell people how to start businesses. I tell people how to make money and everyone goes off and does it. I was able to do it with this company and then at that first year I struggled. I couldn't find anything that was actually going to really take hold. I didn't know what I wanted to do. You had sort of the same situation, not necessarily struggling in finding a new business but kind of understanding purpose. Is that fair?

Nate: Yeah I know definitely. I mean it's crazy the last year or so after selling that business. A lot of new opportunities and also challenges come up and you've had … it's like for a short while after the sale at least for me it's like ah like everything's great and you're just happy this happened. But then I guess pretty quickly after at least for me I can only … I mean I love yoga, I love being healthy and having a healthy lifestyle and that's great but you can only at least for me that's only a part of life. And after a period I just get really antsy if I'm not being productive working towards something and figuring out what that is, what's the next direction? In a lot of ways, it's like starting over. And so yeah, that was a lot of what kind of followed the sale and what I … so like I'm a people person. I love people. All the best things in my life and opportunities and friends and … it has all happened because of people that I know or had the opportunity to meet and connect with. And so what I tried to do or did is just meet and talk to as many people as possible. And that's been a big and still is like a driver of … I knew like okay well like I've got more time and I've got more money and I've got more kind of options and so I'm just going to try to meet and connect and talk with as many people as I can. So I went to a bunch of events. I was literally flying around the world meeting up with friends in different places and meeting new people and getting different perspectives. And yeah that was actually something that towards the end … so I sold the business in it was like May. Early May was when it was finalized. I got the money and then a lot of that summer I was flying around. I attended a couple of different events. And by the end of the summer, one of the things I kind of concluded was … it kind of like was a confidence in pursuing more investments. So I want to and can get involved as an investor and that's what kind of started this deep dive into just what does that even mean, what are the different structures, how can things be structured, where do you find deals, how do you make deals happen. And so that was … yeah, I guess from talking to and meeting a lot of these different people I was kind of able to realize that yes this is a direction that I want to go down. And also it's just like part of it is confidence of just okay yeah I can do this. I can add value. And yeah, I guess as a first time, investing in a business I don't know that was definitely something for me. I'm just kind of … you know the confidence of it no like you can do this.

Mark: All right let's jump into that because I think that's going to be the heart of what we really want to talk about here as well and that is investing in companies. I mean so much of what we do at Quiet Light Brokerage is all about these asset deals. Or if somebody's selling they're selling 100% of the company, the business transaction closes, you got one buyer, you have one seller; nice, clean, simple. It sounds to me like you're doing something a little bit different than that though. You're investing in companies as opposed to buying a whole or maybe I shouldn't assume and let you explain a little bit of what you're doing.

Nate: Yeah so it's … I guess it's ended up being kind of a combination of both. And I'm not … I think it has benefits of both and I kind of I guess in the two deals that I've done the last year have … one of them has been invested in and the other one has been bought outright. But in all of them I have partners. And so I invested with Travis who invested in me. We've invested in a business last winter and then also again with another partner we bought outright a business. I mean for me getting involved in a new business it's a lot of … a lot of this kind of came down to again what am I good at, what do I like, why am I doing this. And with the first business, I guess it's like a similar kind of a checklist of things of I want to get into a business where I can personally have an impact. I'm not looking to be a passive investor. I'm also definitely not looking to micromanage but I want to be able to help push the business forward and give my capital the biggest chance and boost of having a good return. And so by investing in a business which was like the first one my kind of role is I mean I have somewhat regular communication with the founder and we hop on calls whether it's every week or every other week and kind of help identify the priorities and make connections and make intros. And so that's something that I thought that I'd be able to have an impact while not … I didn't want to buy myself a job. And with any of these things that's not what I'm looking for. I'm happy to be involved and I want to be involved but I'm also not trying to buy myself a job. And then kind of with the more recent business that we bought outright really like part of the motivation and thinking behind getting involved with that business was that being really intentional about the role that I was going to play. And with that business, I knew I had people on my team from some of the other businesses in the e-com stuff that I knew that I could bring over to kind of plug in to handle some of these different parts of the business that I didn't want to or wouldn't be very suited to handle. And so even though we bought outright the business it wasn't like I was just stepping in myself to kind of operate it. And [inaudible 00:22:17.2] any of the businesses like what I … one of the ways I think that I can add the most value is by kind of assembling the team that is able to run it. And that's something even with the business that I invested in I've been pretty active or my team has been pretty active in hiring new people for the different roles as well as for the business that we actually bought that was really what my role has been is like getting the right people in place to manage their different … the things that they're better at than I am which then allows me to … I mean I'm more involved with that business than the one that we invested in because Brent is the operator of that and I'm still … I guess let's say like CEO but I'm not … my role is still more like finding the right people to do their job and helping them as opposed to me more like in the weeds in the operations.

Mark: So it's with the business that you invested in. I have this question from buyers all the time you know do you have people who want to sell just a portion of their company? They're looking for sort of that role. Do you mind if I ask how you came across this deal? Was this through a broker or a—?

Nate: Yeah so that one was through a broker. We bought it on Empire Flippers and was totally … it came out of nowhere honestly. So another rule that I've learned from investing or it's maybe the cardinal rule is like you make your money when you buy not when you sell. And one thing when I was kind of decided that I wanted to invest or buy a business and one of the first things that we started to do was look at all the brokerages. I was looking at yours as well as … just like trying to see what the deals look like. And one thing that we found is that the deals that are … generally, if you find them on a brokerage they're fairly valued and as would make sense. And not that I'm … I'm not trying to rip anybody off at all but as a buyer I'm looking for the opportunity to buy a good discount or get involved at a discount. Again you make your money when you buy not when you sell. And so that had kind of turned me to look elsewhere for investment opportunities which led to the first investment. And then my business partner Travis, this was a couple of months ago sent this listing. It's a cryptocurrency publishing website and it was selling at … I mean it was a relatively young site. It was only making money for six months or so which had the multiple low. It was selling at a 22X monthly … last six months monthly profit which I know for an average website business a 3X multiple is somewhat standard. So we were getting it at less than 2X multiple and so that got our attention. And this was listed and then I hopped on a call with the seller two days later and then there were other interested buyers so we just had to move fast and pull the trigger and bought it. So yeah that's what kind of happened with that one. It just kind of fell into our lap and we thought it was a good opportunity and had to act fast.

Mark: Yeah I like the saying that you make money when you buy when you're investing, you don't make when you sell. That's absolutely right. For the seller that was looking to … that you just invested in was he actively looking for that or was it something that you suggested?

Nate: Yeah so that one, so kind of back to what I was saying when I first got started interested in buying or investing in businesses the first place that we were looking was the easiest place to look; all these brokerages. And again there's a lot of great businesses and they're generally pretty fairly priced and then one of the things I realize is that if I wanted to get the best deals or getting things where I would have opportunities that were not to get into a bidding war with other people I had to find those deals myself. And so that's kind of what started then. I started like … and part of that all leading into sharing more and sharing my story and going on podcasts and just kind of being intentional to try to develop and build a personal brand so that … so I was doing some of these things last fall and that's what kind of got the conversation started with Brent and the Amazon advertising business that eventually led to us investing in it. So it wasn't … he wasn't looking for … looking to sell, looking for partners. It was like I was kind of starting to share this and we previously had a relationship. I don't remember exactly how it was brought up. Maybe it was just like hey, by the way, I/we might be interested in investing and partnering up and he was like yeah I would be interested in continuing that discussion with you and Travis to get involved and so that's what led to that. It wasn't … they certainly weren't actively seeking investment. It was more like we … yes, somehow the dots were able to connect with us kind of putting it out there and kind of starting that conversation.

Mark: Yeah that's pretty cool. I know there are probably a lot of buyers out there listening and being slightly jealous that you were able to pull a deal like that off. What does the future hold for you are you going to continue to buy or are you looking for more opportunities to invest?

Nate: Yeah definitely. I mean it's kind of … so it's come together a little bit in the last couple of months or so but I will say that I … well as a kind of a side tangent personally I got very sidetracked by crypto last winter as many people did and—

Mark: Back when it was trading at high levels right?

Nate: Right. I mean it was exciting and so when I sold the business last spring I dumped a pretty good chunk of that into bitcoin, ethereum. I was starting and that kind of got me into ICO's over the last summer which was early enough before the big run up in November-December that come December-January I was way up. Unfortunately, of course, I didn't cash out at the top but from that then I kind of like … I mean I was kind of going in this direction and I had made this investment in Brent's business and was generally enjoying that. I'm trying to put myself out there more and find more opportunities. And then this crypto stuff spiked and I kind of put everything on hold. I'm like alright I'm diving in here. I started going to events and flying all around trying to see what's going on. Then fast forward a couple of months and the market was not where it was in January and some of those same kind of questions came back up of like is this what I want to be doing? What do I want to be doing? What's important? And it was kind of again like revisiting a lot of these things in direction and what do I want to do. And then this new site became available so we kind of jumped on that. And then the last couple of months have been … I'm kind of happily busy working on that and it gives me stuff to do. And some of the stuff that I've learned is that I'm certainly happiest when I have a project. And it's not … I mean money is important obviously but it's not just about having as much money. And time is important but you don't want to have all the time. It's important. You want to have enough free time. I think balance is really important but also having the balance towards productive work and having a project that you can work on and make progress and connect with people and be excited about is a really … like I've realized is maybe the most important factor for just my personal happiness. Anyway so that site came around and I had the opportunity to get involved and I have been working on that and getting the people and pieces in place to keep that moving forward. And that's kind of solidified what I see as my direction of continuing to find … putting myself out there, sharing more, hopefully attracting new and better opportunities. And when the right opportunities come along and when I have the time and the interest and the right opportunity kind of all lines up get involved with a new business. So that's sort of where I mean I'm not sure if I'm quite there yet because there's still quite a bit working out with the crypto site but fast forward a couple of months the idea is to continue to share more, put myself out there, connect more, just really finding opportunities to connect with and help other entrepreneurs as priority. And then also if down the road whether that's in three months or six months or whatever when I'm looking to make the next investment to bring into the portfolio that also can put me in a position to be able to get access to good deal flow. And then I think the idea is getting involved with more and better businesses and bigger businesses going down the line while also kind of trimming or unloading different ones in the portfolio moving forward to just kind of have a better and especially now focusing on cash flow generating portfolio and moving forward.

Mark: Cool. Yeah, the point of while connecting with other people I think people asked me a lot about the team that we built at Quiet Light Brokerage, where did I find some of these people that are working as brokers because as most of the listeners know everyone that works here at Quiet Light were all entrepreneurs. We've all started, we've all bought, and we've all sold our own internet based businesses. And frankly, the resume of my team completely drove some of the things I've ever done in my life. And I try to explain I've never actually actively recruited any of our guys or Amanda for that matter I'm sorry if I said just guys but the entire team. I haven't actively recruited anybody. And so the question comes to why, why do they do it? So much of it is exactly what you're talking about there; being able to connect. Finding that business where you're passionate about the business itself but also having the ability to connect with other intelligent entrepreneurs who share that same drive, that same desire for life and working in a project working towards and a goal; really, really cool. I think that's an interesting self-reflection that you've kind of come across over the past few years since you sold your last business that that's what you want to be doing. Have you thought about with the current businesses what you're going to do if they get to that point where now it's just another job?

Nate: I mean … so I've kind of had … so something that I guess I gotten a lot of experience with and that I enjoy has always kind of been hiring in my businesses. And so I know many people kind of struggle with delegating and I think if anything I kind of error too much on the other side where if I ever catch myself doing something or I'm just like why am I doing this, it's just like as quickly as possible like who can I give this to? How can I find someone else to do this? And so because I'm very mindful and aware of … and increasingly so of what I spend my time on; is this my unique ability? Is this my superpower? Should I be doing this? Again also mindful of balance, like I'm not … there's a lot of things that I enjoy in my life and there's a lot of different pieces that I think contribute to having a good life. It's not just business and so if things are kind of starting to get too time consuming or heavily on the business side or if I find myself kind of doing some things that I don't think I like I think that even maybe a step before that kind of happening I would kind of be aware and look to delegate that to someone else on my team or find a way to change that situation. Because at this point in my life and career I want to work and I want to be productive but I want to do it in ways where I can have the biggest impact. And I know that there are certain activities where I can have a really big impact and it's just not like … and I also know that on the other side there are activities that don't have a big impact and so I'm just trying to focus on the big impact activities and the least amount on the lower ones. And so yeah I would I think maybe a step before it gets to the point where I'm doing all these things I don't want because I am quite mindful and intentionally thinking about these things I'd kind of like made a strategy or a plan to offload or get some of those things off my responsibility.

Mark: Really cool. I love the whole purpose driven entrepreneurship that sort of outlook of things. Nate thanks so much for joining me. I really appreciate it.

Nate: Yeah thanks for having. This is a lot of fun and yeah if anybody has questions, comments, ideas, wants to connect like I said I love people, I love connecting with people. Anything I can help with feel free to reach out. My website is nateginsburg.com or [email protected]. If you like inspiration and also yoga balance stuff feel free to check out my Instagram Nate Ginsburg. Yeah, I'm happy to connect and chat.

Mark: And you also know quite a bit about Amazon marketing which is actually what we originally were going to talk about but I got sidetracked here but you know this amount about that.

Nate: Yeah if anyone is looking or interested in the Amazon space I have a lot of experience there as well as a team with a lot of experience in those things. And yeah I'm broadly open to opportunities and chat. I'm always looking for win-wins and yeah I would love to connect and help if I can.

Mark: Alright very good. Hey, thanks, Nate.

Nate: Yeah thanks for having me.

Links and Resources:

Nate's Website

Nate's Instagram

SellerPlex.com

Since 2013 Quiet Light's average transaction size has grown up to ten times. Back in those days, there were no private equity firms poking around the e-commerce space for these listings. Today it is a completely different story and more often than not we're seeing private equity firms come into the buyer spectrum. In fact, once a business reaches a certain size, it is more likely than not that a seller's potential buyer is going to be in the private equity space of the buyer pool. Today we are going to dissect the PE process a bit further. We'll delve into the process, the advantages and disadvantages, and give a general education on the subject for those who are curious about it how it works.

Today's guest, Brian Rassel, is Vice President of Private Equity with Huron Capital. He's responsible for sourcing, evaluating, and analyzing investments made by his firm. Brian delves into ways he finds that e-commerce has entered into almost sector of investment that his group is involved in these days. Prior to joining Huron Capital, Brian was an Associate at Prophet, a global growth strategy consulting firm. Prior to Prophet, Brian was a consultant with New England Consulting Group where he led project management in their private equity practice for buy-side clients. Brian is sharing his wealth of private equity experience and how PE is entering more and more into the e-commerce space.

• How Brian defines private equity.
• How PE funds traditionally start up and get solidified.
• The difference between small, medium and large equity funds.
• The holding periods that private equity funds usually need to secure capital.
• Is PE all about acquiring to grow and sell or is there a category for buy and hold? Do evergreen funds exist?
• The difference between platform and bolt-on investments.
• Three things funds do to generate deal flow and types of business spaces they favor.
• The behind-the-scenes processes of putting a deal together.
• How many people are involved in the deal on the PE side.
• The backend investors committee and if that hinders the deal for the seller. Why time commitment is actually a good thing.
• How many deals Brian's PE firm evaluates per year.
• The defined process that gets them through the numbers.
• The growth potential for e-commerce – multiple appreciations and the role of private equity.
• Brian frames an ideal acquisition structure based on the general private equity model.
• Why the buyer/seller fit really matters.
• How private equity can work for sellers who want to get their business to the next stage.

Joe: Back in 2013 Mark I closed 23 transactions. It was a busy year for me. Do you have any idea what the average transaction size was?

Mark: I … what do I guess? Well, it's you so I'm going to say like seven million dollars.

Joe: I love putting you on the spot because you do it to me all the time. The average transaction size—

Mark: You got to be like 250.

Joe: It was 125.

Mark: Holy cow.

Joe: 125; very small.

Mark: Okay.

Joe: And at that time there were no Private Equity Firms poking around the e-commerce space for these smaller listings. Today it's a completely different story and my average transaction size was 10 times that last year. And a lot of buyers or a lot of sellers, the question I get asked all the time are who are your buyers? And it's a mix of everyone but more often than not now we're seeing Private Equity Firms come into this space. And I understand you had an expert in that area on the podcast.

Mark: Yeah private equity is a topic that's coming up more and more frequently with sellers especially on the higher end of that revenue spectrum that we really work with. And it makes sense because once you get to a certain size of business your buyer is more likely than not going to be at least somewhat in the private equity place … area of the buyer pool. In addition, we've talked before … I had Ryan Tansom on and we talked about selling to a strategic buyer versus a marketplace buyer. And obviously, people always look at this especially at the higher ends and say I kind of want to have a strategic buyer. Well, one thing to keep in mind here is that this is kind of a spectrum right? It's not binary; you're either strategic or marketplace. But when you get into that private equity world, private equity is almost always going to be something of a strategic play. So I thought … look this private equity world is something that people keep asking about let's actually start to dissect it a little bit. So Brian and I talked and we spent probably about half of this interview just kind of going over what is private equity. How does that work? What is the definition of this? What are the sizes of it? And really just trying to ask some of those silly questions that maybe you kind of wonder about but don't want to ask because you don't want to sound like you don't know what you're talking about. And so we went over a bunch of those questions but then we also went over what does the process looked like. What does it look like to sell to a private equity firm? What are the drawbacks to it and what are the benefits of it as well? And really it's kind of a general education podcast but I think also … and maybe more importantly for those of you out there who are thinking about selling down the road and you're looking and trying to peg the different values that you want to get from an exit and maybe you think well I want a 10 million dollar exit or a 15 million dollar exit, if you get to that point what's it going to look like to sell to a private equity and what do you need to do to really make yourself appealing for a Private Equity Firm? And how does the deal change when you're signed to private equity as well. So we really covered a lot of ground in about 30 minutes. Brian is super knowledgeable obviously. He works in this space. And I really appreciated him coming on the podcast because … again I just downloaded a ton of information.

Joe: Well let's get right to it.

Mark: All right Brian thanks for joining me on the podcast. I really appreciate you coming on.

Brian: Yeah I know. It's great to be here. Thanks for hosting.

Mark: All right so I don't expect people to listen … my guests to have listened to the podcast in advance and I know … I don't know if Joe's been doing this, he records like 9 out of 10 episodes and I don't know if he's continued on the tradition but we like to have our guests introduce themselves mainly because you know your story better than I know your story and I figure it's a little bit easier. So why don't you give just kind of a quick 30 second to one minute rundown on who you are?

Brian: Yeah I'm Brian Rassel. I'm a vice president with Huron Capital Partners which is a middle market private equity firm based at Detroit Michigan. The firm is 20 years old and has invested in … we're typically enthralled buyout investors where we'll buy a majority of a business and have done that through five successive fawns starting back in 1999. And the industries that we play in are business services, consumer, and specialty manufacturing. You know it'd kind of be interesting how I got to know you Mark for those listening is that believe it or not all of those basins are being affected by e-commerce or different kind of SaaS business models that are internet based. And I'm taking it upon myself to maybe be the person of the firm who is trying to understand those influences on all of our companies and make sure that we're in a position to incorporate those changes that are going on out and new coming at large number and being done by a lot of people who probably listen to your podcast and make sure that we're bringing more of the [inaudible 00:05:51.4] in the businesses we own so that they can be successful today and be well into the 21st century.

Mark: All right, well I got a lot of questions for you because this world of private equity is encroaching or coming into the internet business acquisition world more and more. And whether it's because at Quiet Light our deal value is moving up or private equity is starting to look at different price ranges and maybe this convergence of these worlds and also private equity looking more in the online space is just becoming an increasing topic that we're seeing more and more of. We're also seeing individuals that have started up on their own raising funds to do large acquisitions or to string acquisitions together.

Brian: Yeah.

Mark: So what I'd like to do and I already kind of told you this in our conversation before I hit record, I'd like to go over some of the basics here of the private equity world and how it looks in the Internet space as well. And then know a little bit more about your fund and some of the things that you guys are doing over there and all that. So a quick shout out to Chris from Centurica and Rhodium I know that we've talked about him so much that it's almost as if he's a sponsor. He's not. But this is again how we got introduced. You spoke at the Rhodium and then you and I had a chance to speak after that and a good conversation. So thanks Chris for the introduction again. So let's start out really really basic here. How do you define private equity?

Brian: Private equity is capital … private capital being put to work in private businesses. And so I like to name [inaudible 00:07:22.6] for folks who really don't know much about it a little quick stat just kind of on the US economy. There are half as many publicly listed companies as there were in 1996 or 1994 something like that. So even if the value of the public markets is larger the amount of places you can park that capital in the public markets is small in the total number of listed names. Private equity is a big part of either big institutionally managed money. Whether that's from insurance companies, [inaudible 00:07:52.4], pension funds, universities, those kinds of things. This is their way to go participate in the forces of economy that are still private companies that they can't get access to otherwise unless folks like me help them get access to it. It also includes folks that can kind of go into different flavors of private equity but depending on the size from the bing capitals of the world down to very very small funds that are more entrepreneurial. There's sort of every flavor under design in certain family offices and other things like that. That would be private equity, pooled private capital going into private businesses.

Mark: Well how did these funds start-up traditionally? And I imagine that there's a lot of ways that they can start up. You've listed a number of sources of money and I think sometimes we forget just how much money there is in some of these places. So yeah [crosstalk 00:08:46.6].

Brian: For sure I mean there's just [crosstalk 00:08:49.4] I'm going to get this off, I'll be wrong by a hundred billion dollars. But I think something like 600 billion dollars flowed into private equity firms last year. So these … and the source of a fund or the way a fund works is that a fund manager like the folks I work for here where I'm a part of, they go out and they make their pitch about how talented their professionals are and what their track record is and the fact that they can get access to great deal flow and great opportunities, places to put private capital where it will go earn a reasonable return. And they raise this money from these other institutional or independent investors. It could be high in net worth individuals or anybody like that but … so they get started that way. They'll hold this farm estate back to the 1960s and there are new ones being created all the time. And frankly, as hedge funds have declined I believe in a large way in popularity just because of the efficiency of public markets there's been more and more money directed towards these private pools of capital and the private equity market. And when I say private equity I mean both kind of traditional buy-out funds for more mature businesses that have healthy positive cash flows on the one hand and on the other hand I mean venture capital is the son segment of private equity. And that might be for really really high growth businesses like the next dewberry of the world or whatever it might be.

Mark: Right, absolutely. Okay, that makes a lot of sense. And as far as the breakdown as to sizes what would you consider to be a small private equity firm and what are we talking about in terms of their capitalization rates when they start up? What would be the difference between the small, medium, large type of firms? We can get an idea for how much money we're actually dealing with?

Brian: So I would say just kind of from my understanding again all this caviada being dead this is sort of Brian Rassell's take on private equity and my interpretation and may not really be the opinions of United Capital, I can only speak for myself as an individual but they have a dedicated fund. And when I say dedicated fund these are groups of people that other folks, other investors have made a promise and a pledge that is legally binding and written their name at the bottom that that dedicated fund, the small one might be 50 million dollars. That'd be very small. Folks who are trying to invest less than that, generally speaking, have something more akin to a pledge fund. They have a number of people that they can pass the hat with to raise money in a deal by deal basis versus having committed capital to go invest in five, six, 10, 12 companies in that particular fawn. So just kind of … back at the envelope type map that you can think of is every firm should have plus or minus roughly 10 investments that have enough diversification in it. So a 50 million dollar fund is looking to put five million dollars to work in the 10 different companies. And that would be the equity capital going to those companies. There's oftentimes a mix of equity and debt coming into those companies and we could talk about that later. And then a midsize fund might be three or four hundred million up and pawn up to the 2KR's of the world or Apollo or the very big managers who are doing 15 billion dollar funds and so all different world.

Mark: Very.

Brian: They're taking hotels private or something like that.

Mark: I was going to say they're buying something completely different than your Amazon business.

Brian: Yeah that's right. It's a whole different world.

Mark: All right you talked about you have successive funds. In my understanding again is that we go through these rounds of investment that coming up. We had Andy Jones from PrivateEquityInfo.com on and he talked a lot about the holding periods that private equity looks for. Can you just again quickly touch on that? We're kind of doing private equity 101 here.

Brian: Yeah. I didn't hear Andy's remarks but just as it relates to a whole period I would think of it just to be linear about it that a private equity firm once our capital is raised [inaudible 00:13:01.9] the time that it takes to raise that money they committed capital or even the past they had capital they're going to take that money and let's just use this fictional 50 million dollar fund. And they'll take something like four years to deploy the first 80% of it. And the goal would be you take 20% of that money and get it into a new platform company. Companies they had no money in before. In the first year or the next year next 20%, next year next 20%, next year next 20% thus 80%. The point at that point you can't do necessarily new investments you're reserving that last 20% for either a company that's struggling that you need to give more money to to keep it going or to do an add on investment to buy something else and add it on to something that's in the portfolio. That might take four or five years to really deploy the majority of it and then another four to five … you know an investment from year one that you only … you're exiting that investment three to seven years later and let's just use five as kind of a round middle of the road number there. So an investment from year one is maybe gone in year six so it's being harvested. It could be sooner, it could be later. And the investment that was your last platform investment from year four might be heading out the door in year eight or nine. So fund life is something like eight to ten years. It can be longer. And a traditional as you kind of draw it up on the whiteboard like I have behind me here is sort of a five year hold. Now there's … I've seen many that are much much shorter and many that are much much longer but those are the fat parts of the [inaudible 00:14:36.2] if you want.

Mark: Sure. So is private equity … is the goal of all private equity companies to grow and sell? So acquire, grow, sell, or are there other strategies? Buy it and hold for long periods of time?

Brian: There are certainly evergreen funds out there. They're much more … when I say evergreen they have the ability to hold and recycle the capital. They may be designed to have heard of a number that has committed capital from particularly family offices that never want to do the tax consequences of becoming liquid in an investment and actually realizing the gains so they're structured to reinvest the money that they make. Or if they sell something to quickly find someone else new for it to go into. Now that would be a more unique situation. And then certainly family offices there's a number out there that looks for longer hold periods and there are certain funds that are designed for a longer hold period.

Mark: All right so this is going to be again another basic question but I want to make sure our terms are all well-defined here. We hear these terms of platform versus bolt on or add on investments. Just real quick the difference between a platform investment versus a bolt on.

Brian: Yeah I'll just keep it simple. I'll say anything that is a brand new business, new industry for that firm to go into. They don't currently own something in that space. Whether that's a tiny initial acquisition or a big one that would be the platform investment. So let's just say with a … I don't know Internet broker pencils, I'm just making this up, all right? And they don't have any other investments in the internet broker pencils space and they invest in a company in that space that would be the platform [inaudible 00:16:17.1] that. And maybe there are 10 companies that make … that do internet broker pencils and they buy two other ones of their competitors and they make it bigger or somebody [inaudible 00:16:25.3] and now they're putting it all together those might be add-ons to that original entity that they purchased or recapitalized. That's what we mean. It doesn't necessarily have anything to do with size which can be confusing. Sometimes you start with something small and you get the opportunity and do an add-on that's much bigger than the original investment. So it's more just where is the starting point in you can do a space or an industry.

Mark: And if we think about the terms it makes sense right?

Brian: Yeah.

Mark: You build on top of the platform and you add-on top of the platform. So it makes … that makes complete sense.

Brian: Or bolt-on, yup that's where the nomenclature comes from.

Mark: Or bolt-on, absolutely. It's amazing when you dig in to definitions it's like the terms actually have a meaning and it makes sense.

Brian: They do. Generally, they come from somewhere.

Mark: They come from somewhere. There's logic to this stuff. I love it. All right so now I'll get into questions that I'm starting to be genuinely interested in and that is how does a fund develop a thesis or an entire direction to go after a particular platform investment? I mean if you're selling blue widgets and also if somebody comes and says no you don't need widgets what you really need are sprockets, if you don't do anything with sprockets at all how does that enter into a fund's psyche at all?

Brian: There's really three things that we're doing here to generate the sort of deal flow and the ideas and spaces we want to go into. So here I'll speak more from Huron Capital. There are other firms who follow a similar philosophy potentially. So the first is businesses we didn't know about but are being represented by a broker or an investment banker like yourself Mark who … those are opportunities that are coming to us. They are being listed. They're being actively shopped around. We may have never thought of the sprocket industry before or we didn't know too much about it or we read materials on it and we say it has a lot of characteristics and things we like; great cash flow, seems very resilient, seems countercyclical, if the economy goes down it'll still do well, it's a leader on its space, any of those kinds of things. Those are opportunities that come to us and that is more of a passive thing. And then we get active once we realize that it fits a lot of criteria and we believe we could be successful with it. And that sets into motion a whole chain of things where we kind of prove out of the pieces that we might like this business and we try to get educated. The second that we spend a lot of time on is networking with executives from a broad, broad variety of industries. Those people know where there are spaces that are changing. And generally speaking, change creates opportunities. Change creates winners on one side and losers on the other side. And less be to the losers but you need that kind of disruption to create any sort of sort interesting investment outcome. The study ID is probably the market's sufficient enough that the study ID is not going to return the greatest returns. So we've spent a lot of time with executives unless I knew them about spaces that could be interesting and trying to listen to areas they know about and start to build some [inaudible 00:19:37.4]. And then even more proactively than that there's a lot of opportunities where we meet the executive who has a view of one particular thing they want to do here at Huron it's got a registered trademark or the like of the firm. We call that an exact factor investment where we will actually flip the process and say we really believe in the sprocket industry. We met Phil who is going to be our perspective CEO in the space and he has this vision that is going to totally turn the industry [inaudible 00:20:11.5]. To do that we need to go find the platform, we call that like getting fuel behind the wheel. We need to find a car to fulfill the drive. We believe he's the best driver in that industry. And we will do all the work, we'll go write a hundred page white paper on it to prove to our investment committee why it's such a fabulous opportunity and Phil is the greatest operator in this space. And then we will commit dollars into going and finding businesses in that space and find Phil the car he can drive and we'll get off to the races that way. So it starts with a commitment from our farms for a certain amount of money behind Phil to go do an acquisition more and more in this space. So it … I guess ranges from that passive we find things and then we get educated too. We educate ourselves as much as possible and align ourselves with an executive who can execute and work the process the other way.

Mark: Cool. All right that [inaudible 00:21:04.07]. So let's talk a little bit about the process that goes on behind the scenes when you are evaluating an opportunity. And I think for a lot of potential sellers this sort of conversation is going to be really insightful. So let's say we have somebody that they have an e-com business, 30 million in revenue, eight, nine million in earnings on an annual basis and they've got a couple of private equity firms looking at their business. Where does that start and what is the process going through? And you can talk about maybe Huron's process and then if there are variations that you know as well. The number of people that are going to look and touch that deal as it goes through the steps.

Brian: Yeah.

Mark: What are some of those behind the scenes looks?

Brian: Yeah so once you've got that moment where there's a couple of firms interested there's going to be an incredible amount of information about the business across insurance, benefits, compliance with laws and regulatory statutes, information about the market; anything the business can possibly produce about itself, fairly every file that's off the shelf that they have, every non-disclosure agreement they have with somebody that they on boarded or employment agreement, every contract they have with a customer, or maybe it's an industry where you don't have a lot of contracts with customers but you have a lot of contracts with suppliers. All that information needs to be made available for these perspective buyers to digest. And the more they can be made available, the more that that's organized into different pockets of legal, employee, insurance, benefits, all of that, the better. It's going to save the company a lot of time from serving requests versus being proactive by getting that stuff out there. And you know well everything here all the buyers be under a non-disclosure agreement and that's just a very kind of well-oiled machine around making that information available to give your last few buyers down to the one you would like to choose and have them under a Letter of Intent. And that starts to be an exclusive relationship where the buyer is going to spend a lot of money in due diligence and in exchange for spending that money, they would like the exclusive right to [inaudible 00:23:19.3] business for a period of time. 60 days … 90 days where they engage and here is where it starts to get to be a lot more kind of in your trousers and really analyzing your business but they're going to engage in quality of earnings earned to go and understand did you actually produce the amount of revenue, if you put it in the right time periods, if you really counted for every cost etcetera. They're going to engage legal professionals who are going first to sort of just again a full work up of registration, compliance, [inaudible 00:23:51.9] and then those folks are going to work on the actual transaction documents as well as a host of other advisors. And that would be like again a 60 to 90 day process. It could be 30 days on the short end. There are firms who can do it in that time particularly if you're a smaller business and an add-on to a much larger or a very simple business.

Mark: So how many people are we talking about there that are going to be involved in the process? Outside of the consultants like a Q of E … a quality of earnings report that's going to be an outside accounting firm right?

Brian: Yeah.

Mark: So we're not going to—

Brian: Okay so from the acquiring firm?

Mark: Mm-hmm. And we can start at the beginning. We can start at your interns that are digesting deals. That's going to be part one.

Brian: Sure call it four and they're going to be answering to the remainder of their firm particularly their investment committee. Ideally, it's a tighter team and there's four and if it's an add-on expect more. So you'll have the management team of that kind of platform investment as well. So four to eight and then when you get to the advisor well now you're talking 20 something more.

Mark: Right, getting all those outside advisers. Now one of the things I know people get worried about during this process is you start out again with that guy who's that in deals up front and he sees some he passes it on to the team and they end up liking it so now you're dealing with a handful of people that are asking the questions digging deep in that due diligence right? Pages and pages of collecting information possibly even submitting an offer because on the surface things look okay.

Brian: Yup.

Mark: There seems to be these back end investors committee as well which can also kind of wash the deal far in the process. What would you say to people that get kind of frustrated when they hear that and they think do I really want to work with private equity because there are so many people that could potentially disrupt this deal?

Brian: So I would think about the time investment to it. So the private equity firm is in no way interested in wasting any of their time. Huron looks at something like little over a thousand deals a year. That takes a lot of time and we're very thoughtful about moving things to the funnel and connecting our firm's resources to evaluating an opportunity. So if somebody is spending the time I would tell the listeners that they are encouraged. If everything checks out the way I told to them so far or they've written so far about that business then there are absolutely no issues. The firm, an organized and real firm is going to be thoughtful and time is kind of their most valuable resource and they're set up to be able to make a number of staged gates kind of we're interested and we're not interested. We're interested subject to confirm affirmation I want two and three. And you can have a very quick conversation like you and I are having now to say is this the case is this not the case? Here's a big concern we have, should we be worried? And they will both take your answer and that gives them that kind of gumption to proceed. And they'll probably have to go validate that as well later. And that validation just has to support what's been told to them. But they are also making a big commitment with their time in the same way that the seller is and I would take it as genuine on their part that they're not looking for it to fall apart. It's just things do. Certain deals fall apart because new information becomes available. I've seen that happen a number of times where the seller learns things about their business or thinks about their business in a way they hadn't before and can agree that that's a genuine risk and may be something they want to work out within a course of another year and then they might be back to market.

Mark: Yeah, that happens often. We see that all the time even in the amount of work that we put a seller through upfront it pales in comparison to what you guys are going to be doing in your actual dig deep due diligence. And the number of times that we have people come back and tell us that was a lot of work but that was really useful.

Brian: Yeah.

Mark: I have learned a lot about my own business, right?

Brian: Yeah a great advisor like somebody like you and using a broker who's been through and understands the questions that are going to be asked is going to save a tremendous amount of time. And we call folks like you Mark a river guide we're using on our side and we love them. Sellers use them too because they're that much more prepared for the process.

Mark: Yeah. And I can tell you like the one thing that … I'm going to play both sides here, I would say the one thing that can be difficult with working with private equity is because there are so many people that can come in with a dissenting viewpoint. You're not trying to … convince is a bad word but show the opportunity to one person and have them agree to it; you're having to show a number of people. But the great thing and I love working with private equity on is that it's completely unemotional throughout the process.

Brian: Yeah.

Mark: I mean it really is does this check the boxes we needed to check and if it doesn't we're going to find out as quick as we can. You said something, I was going to ask this question, you guys evaluate you said about a thousand deals per year?

Brian: Yeah the pipeline you think about now it's working its way down at the top of the funnel and so we're a thousand and then that's working its way down to 250 that real solid time is being spent on and then 75 that we're spending real tons of resources and traveling around to visit them … maybe 80. Now I'll get these numbers wrong this is kind of directional and then down to the 30 or so that are getting a Letter Of Intention and we'll close 22 transactions a year.

Mark: Yeah so that's an amazing amount of data to be pulling in. And you guys have criteria at every stage I assume that you're looking for up front?

Brian: That's right.

Mark: Okay. All right that makes sense. Do you publish those criteria? I know we get a lot of just the very broad stuff sent to us.

Brian: We don't only because it's just so bespoke for every company. There are so many things that really are as you just said that are check the box and we're highly confident that we will go confirm later. We're highly confident that's not an issue and we are trying to get to it very, very quickly. The three or four things we want to make sure are the reasons we're most excited and confirm that that is factual and that was going to continue. Whatever that might be; on the customer relationship or the recurring purchasing or … whatever it might be. And then at the same time the three or four things that are kind of we're concerned that could be deal killers. We believe we're spending the time because we think that's going to turn out to be true or we need to get to a yes no about is this a real problem very, very quickly. And so you know it's just they're different for every business.

Mark: Yeah I know a lot of people listening right now you guys are buyers that are out there looking to acquire. So technically Brian you guys are somewhat of competitors although I think that you operate at a range that a lot of our buyers wouldn't. But I think one thing interesting that they should hear is this idea of having this defined process number one and then number two the amount of deal flow that you have to look at. I've talked to buyers that been out there looking for a year, year and a half but then you find out the number of deals that they're actually looking at doesn't really … this is a numbers game. I mean it's purely a numbers game.

Brian: It is and one thing I want to say on that numbers game for us and it may be different for some of your buyers or not is that we're looking for situations that are great for us and we're also looking for situations where the seller in some ways choosing us. Now I don't want to overstate that but I do want to say that there has to be a great fit in every piece and why we're a better owner than someone else for that business. Some angle that we have, some affinity we have for what they do, or some prior experience or something. Otherwise and it could be a little different for particularly small businesses. Maybe it's a little bit less like that and it doesn't need as much of the chemistry but that's a big part of what we're looking for, for sure.

Mark: And we talk about that a lot on these pockets. I know you guys are probably tired of hearing Joe and I talk about the need for a buyer being a good fit. And we talked a lot about this general concept of being likable because sellers do eventually choose and for most of these sellers they do have a choice. I mean right now it's a seller's market. They do have a choice of who they're going to work with. I want to talk about the exciting stuff. Let's talk about the actual deals; the money.

Brian: Sure.

Mark: Why is selling to a private equity something that people should be excited about?

Brian: I think I spoke a little bit about this at Rhodium but I just … I see then the difference in multiples that are paid for businesses that are exclusively e-commerce or SaaS based businesses. Those multiples are so much lower than what private equity firms are paying for more traditional businesses out in the economy. And I believe that those worlds will come together. And I believe that businesses that are a hybrid of both or have excellence in both and are flipping both worlds are going to be extremely, extremely valuable. Because on the one hand, they have the relevance for the future, it's coming from kind of the types of businesses that you represent. And also they have that anchor of the traditional business that makes them more under writable and it makes them more predictable because it's a less dynamic place that they're out in. And so that's where I think private equity firms in the coming two, three, four, five years are number one going to become much more comfortable with standalone e-commerce business models that are exclusive that and there are going to be people participating from the much more kind of like formal private equity world participating in your markets. And then I think there's going to be a convergence where a lot of more traditional business models are going to look for the influence and the DNA as well as the revenue and the profits but the influence and the DNA and the growth that comes from the types of businesses you work with Joe. And I think that means that the market that you're playing in, the multiples will rise there. For every dollar of earnings they'll be more valuable in the future and I believe that's for now in a very significant way in 2018.

Mark: Yeah and we talked about this this idea of multiple appreciation that we see. And a lot of it reaches over to the fact that this is where private equity starts to play right? So we often talk if your EBIDTA is less than a million dollars per year the … just again for the sake of a multiple, it's going to vary for each business but maybe 3 … maybe 3.5 would be the multiple on that EBIDTA depending on the type of business that you have. But once you start getting up into two, three, four million dollars of EBIDTA now we start seeing the multiples jump up in the different ranges. And the reason for this again is that we're no longer playing as much with an individual investor who really has a much higher risk profile because they don't necessarily have the entire team behind them or a portfolio behind them to be able to take some of that risk but also get the staff in the background and all the resources in private equity.

Brian: Yeah.

Mark: So let's talk … I am not going to pin you down because it would be a really bad idea for you to say hey we generally paid 25x on earnings which I know you don't. What does a deal structure often look like? Because I know these deals structures do change as well when we're talking about a private equity acquiring a small company. What does an ideal acquisition look like for you in terms of its structure of cash that the owner is going to be getting, maybe equity or debt that you would hope that they stay around and I'd also like to address the idea that a lot of private equity likes to have or prefers to have an owner stay on board with the new company and why that's a good thing also for that owner to think about that. So that's a lot; the general structure, the ideals for a structure.

Brian: Okay so let's keep this out of your space and let's just talk about the general PE model. When deals were cheaper a couple of years ago you might get a higher ratio of debt than equity in a deal but for this sake, I'm just going to make it 50-50. I think that more reflects the market today in terms of underwriting. But let's take a deal where a private equity firm is paying at least eight times. That's still a relatively rich multiple. I could have said six but let's use eight times. So we're paying four times the earnings in their own cash that they're talking and they are going and putting the company on the hook or raising four times and they do it. Private equity firm does it but on behalf of the company of debt for the business to take on. So let's say it's a business with 10 million dollars of EBIDTA. So it's an 80 million dollar transaction and a firm like Huron is putting 40 million of equity and raising 40 million of debt in that transaction. And that 40 million of equity can come either from Huron or some portion of it could be rolled over from the seller. If that seller has no debt on the business today, no capital leases or anything else that could be thought of as indebtedness over the normal trade payables. And in your day to day you've got cash coming in and cash going out; that thing that keeps the shop running. And they have no debt on the business theoretically on the day of closing they're getting a check for 80 million dollars. If they choose to roll over some of that … let's just say 10% of the purchase price, eight million of it I would argue that a private equity firm or somebody like me would take that as them stating a high degree of confidence in the future of the business that they want to continue participating and have a relatively [inaudible 00:37:34.7] portion of their net worth tied up in that outcome. Or that they see the opportunity to turn that eight million into 16 or whatever it might be that there is a great opportunity to continue driving growth and equity value in that business. They'll … I start there that the rollover investments are very useful because if you're saying you want to do no roll over whatsoever and you just want to walk away from the business it's not conveying a lot of confidence in the future of the business. There are certainly reasons to do that but it's not conveying a lot of confidence in the future of the business. And where somebody might have been agreeing to pay you eight if you were rolling over and giving that kind of tacit support for the business going over, they might kind of say this is we're not so sure. It makes them a little more nervous and it might be a seven times deal. So you may actually be shooting yourself in the foot in terms of the total proceeds you perceive. Again so it's an 80 million dollar deal, 40 million of debt, the seller is choosing to roll over. They got their 80 million dollar check, it doesn't work like this you're actually [inaudible 00:28:28.9] but they got their 80 million dollar check and maybe we wrote one back for eight and so Huron holds 32 million of the equity and that seller holds eight million of it. So Huron owns 80% of the business and they own 20% and we've got some obligations to pay. That would be kind of the middle of the road structure. There's certainly a lot more that happens as it relates to creating incentives for management teams and that's a very, very big part of what we do to make sure that if we do well they do well and vice versa so that we're all talking in terms of growing the underlying equity value of the business. And that can often be very different for a business that didn't have that before. And it was just solely kind of the founder driving it or minding the growth of equity value. We believe in creating a broad base of ownership so that we're all on the same page.

Mark: Yeah.

Brian: Our management team is on incentives exclusively through their salary or bonus or both.

Mark: Right so one of the things that I've talked a lot in the past especially on like the main street sort of deals is this almost dichotomy and it really shouldn't be set up as a dichotomy of a marketplace based sale where you only have an investor looking to acquire business in a strategic sale where you have a company that it would effectively be like an add-on acquisition in your world right? They already have the sort of strategic advantage to acquiring that company. Within your world, it seems like so much of what you do is going to be the strategy based type of acquisition anyways.

Brian: Right.

Mark: So it's like you're not going to do an acquisition unless you think that you have a strategic advantage. And when we … you and I talked out in Las Vegas back last October one thing that you talked about quite a bit was we want to pour gasoline on the fire that's already existing. So whatever that might be and so as a seller who's out there thinking about this and saying man I've been growing my business like crazy but I'm investing all this cash back into acquiring more inventory and expanding the product line and I'd like to take money off the table and then keep growing it. This is that perfect sort of handoff to a private equity because you can say you know what you [inaudible 00:40:54.0] your income statement rich in cash flow pour.

Brian: Yup.

Mark: We got cash. We'll help you out there. You're going to get some cash on the table and then let's grow this from a 30 million dollar business to a hundred million dollar business.

Brian: Right.

Mark: And so there's an incentive there for that owner to double dip that [inaudible 00:41:11.7].

Brian: Absolutely. Particularly in situations … we see this all the time where additional capital is going to be an accelerant to growth. So capital is what we have and we're trying to find a smart place to put it work and if that means we can buy a business and continue and support that business with more dollars and we believe in the strategy and what's going on in the way it's being operated there's nothing … that's the easiest dollar for us to put out versus the whole re-under writing process of a new investment. And then for that seller to have all their eggs in one basket … I don't care what their life situation is they could be in their 30's and just want to diversify or they could be somebody who's looking at kids who are about to go to college and it just doesn't make sense to have 100% of their net worth or close to it tied up in their business. And if they could diversify a little bit or generate a little bit of cash but their vision hasn't changed at all that's a great situation to bring on a strategic partner like a private equity firm. And that's where that [inaudible 00:42:11.9] fit it really matters and the chemistry between the seller. For the most part, you're not going to sell it to a private equity firm, they don't want to be in the business or definitely not in the business of operating these companies. So round the business and investing in them helping to bring the right resources to it and bring the right capital solutions or capital availability all that. Helping them set strategy and all the other things but the actual day to day operations. So it's not going to be for your sellers or for buyers [inaudible 00:42:45.1] sellers who are looking to exit the business and hand it off somebody else private equity is not going to be the right solution. But for those companies that they either want to go to be a division of something larger and they think they can be a great cross selling opportunity or the way they've built their mousetrap if just they had more to sell in the same way, and I'll say like let's say you're the number one muffler seller online and you also want to do transmissions and drive cams and stuff but you don't have the capital and you don't have the ability to go source and expand that way, going and selling to a larger entity and being that e-commerce division is a very powerful idea. Or just continue and do your own business and double down … accelerate the organic growth, private equity firm could be a great partner.

Mark: Yeah, we're just about out of time in fact we've gone a bit long but one thing I wanted to emphasize here, you said that capital obviously is the resource you guys have and are able to invest and I know a lot of people that I talk to say look I don't really need money from this, the business is making money and I feel good about this. But what I find when I actually start to dig in with these guys is I say well what would it take to move to that next level. Oh well, I would have to hire out this other division or create this other division and you know okay but what's the obstacle to that? I don't want to invest in it. It often comes up. Okay, that's the area where a firm like yours can also come in and say well look we have the capital to be able to invest in this. You know what you need; do you want to invest in it to get to that next stage? And even if that means bringing in someone and you can help with that let's do it. Exactly we can do that and we could—

Brian: Not to mention that I think we find that often business owners are willing to do one out of their five ideas that are like that and were willing to do all five knowing that three won't work but two should work out beautifully and we're willing to go [inaudible 00:44:39.4] the bodies of the business and the capital and have the appetite to take two steps backward to take four forward and understand that they're not going to all work. And where maybe an independent owner would do those sequentially, try idea one it wasn't really working, didn't feel pleased with making that investment and losing that cash flow, fired that new sales person who was supposed to do something else. We're willing to go do things faster and make sure that that doesn't hover around in the business and the core of what we're interested in the first place. And so we'll work through that with the business owner by giving them that support and the dollars needed to make that happen.

Mark: Brian, I really appreciate you taking the time here [inaudible 00:45:19.8] some of the small questions I had but really good to get those things—

Brian: No it's my pleasure. It's fine.

Mark: So thanks again and maybe we'll have you back again in the future at some point.

Brian: That sounds great. Yeah, I enjoyed it. Thanks, Mark.

Links and Resources:

https://www.huroncapital.com/member/brian-rassel/

https://www.linkedin.com/in/brianrassel

In the second installment of our Incredible Exits series, we welcome Mike Jackness back to the podcast. Mike, one of our favorite guests, is here discussing the recent sale of his online business, ColorIt. Mike is a lifelong entrepreneur and hosts a podcast with a 30k listener following. On his show, he talks all things about e-commerce, email marketing, and Amazon. Mike's decision to sell this particular business was based not on struggling to grow it, but simply on the the need to offload something from his plate. He was well aware of what he'd done to grow it, and the potential for its future growth, he simply knew it was time to hand over the reins.

We wanted to have Mike on to tell us firsthand how that process went, the challenges he faced, and how he eventually reached multiple offers. He shares some of the key things he did to get the business sold at 96% of the list price. We discuss how some acquisitions don't go as smoothly as others, even for someone who seems to have a great grip on how to grow and eventually sell an online business. Ths episode chronicles the sale and buying process: what Mike has done right and what he would change if he could.

• We hear about Mike's journey as an entrepreneur and what led him to start the Ecomcrew podcast.
• The factors that led him to sell one of his e-commerce businesses.
• Mike talks us through the 10 risk factors to take into account for e-commerce success.
• How Amazon can be the judge and jury when it comes to keeping your e-commerce business alive.
• The one thing he would go back and do differently in the transaction.
• The importance of planning in advance for an easier buyer transition.
• Why some entrepreneurs get caught up in the squirrel syndrome and often find that as they take on too much they run into trouble.
• Mike takes us through the launch process and how we got to the multiple with the right buyer.
• The importance of instilling confidence in the buyer.
• The inventory issue specific to this brand and how that affected the sale. Why one can't plan the perfect inventory in e-commerce business.
• How to find middle ground on the inventory excess in the sale and acquiescing when necessary.
• Why the seller makes all the difference in the sellability of the business. The way a seller should act under any circumstances.

Mark: Joe you got to have one of our favorite podcast guests on; Mike Jackness. And Mike actually retained you or hired you to help sell one of his properties. And we get to do another episode … is this part of our Amazing Acquisitions? I don't know … our Amazing Exits I'm sorry.

Joe: Incredible Exits, come on Mark get it right.

Mark: My goodness, I made it up. It's a good—

Joe: I don't even know what it's called. Somebody's going to tell me there's a certain term for things that flow off the tongue very well … incredible.

Mark: It's almost as if I'm not paying attention to what you're doing at all. You got to have him on the podcast about selling his business.

Joe: Indeed.

Mark: I'd like to know about it.

Joe: You know he's just an awesome human being and that made selling his business and the person buying it that more excited about it. Look, Mike is an influencer. He has a podcast where he's got 30,000 people listening to him every month and he talks about e-commerce and email marketing and Amazon. We had challenges because people are like well if Mike Jackness isn't killing it with this I don't know if I can do any better. But the reality was Mike was just simply chasing too many rabbits as he says. He had four brands inside of one seller account. He has the podcast and he has other projects going on. So he wasn't giving his full attention to this. So really the reason I wanted to have him on was to have people hear from him some of his … well-known and an influencer much larger audience in his podcast than we have what he was doing wrong. If he could go back and do it all over again how he would have changed things so that it would have been an easier process for him and we would have had … we had multiple offers but would have had a much easier process in reaching those multiple offers. And some of the key differences that he did to seal the deal. He didn't do it to seal the deal, he was just doing it anyway and it is what sealed the deal and got us under LOI at 96% of the list price.

Mark: Yeah you know one of the most popular articles that I wrote on our blog back when I was doing all the blogging on Quiet Light Brokerage was the story of my own process of buying a business and in my own estimation failing at it. And frankly, as the founder of Quiet Light, it's kind of humbling to go out there and say yup I made an acquisition I completely failed but here is why. And I got so much good feedback from that saying this is great thank you for sharing these details because it really helps. So hearing from someone like Mike Jackness and his episode that you did with him is probably my favorite episode that we have that I've listened to. I don't listen to my own episodes which is why they aren't like [inaudible 00:03:51.2]. That episode from Mike Jackness in all seriousness he talks about email marketing and how he does email marketing. That's fantastic so if you haven't listened to it, go back and listen to it. It would be interesting to hear what he had as far as his own self-assessment when it comes to selling his business and some of the struggles that he had as well. And I think it might be encouraging for those of us that are out there like how are these guys doing all of it because we only hear about the successes, right?

Joe: Yeah. There are challenges in here and I was … my initial plan was to do a two part series but we managed to get it all in. It's a little long folks. It's about 45 minutes or so and then the plan is to do a follow up episode about due diligence, closing, transition, and training. We may even have the buyer on and have all three of us on the podcast.

Mark: It's 45 minutes?

Joe: Yes.

Mark: Well, I should shut up. We should get to it.

Joe: Let's go to it.

Joe: Hey, folks Joe Valley here from Quiet Light Brokerage and today I've got somebody that's been on before; Michael Jackness from EcomCrew. Welcome to the Quiet Light Podcast.

Mike: Welcome back.

Joe: Welcome back is right. You actually inspired this type of episode as I said before we recorded. Folks Mike has … when he was on before he shared his expertise on email marketing and the use of Klaviyo. Today he's actually going to be our first exit entrepreneur or Incredible Exits guest. Mike decided to list his business for sale last December. We talked about it. We got it listed. And now we're under Letter Of Intent. We're recording this on February 12th and we wanted to share Mike's direct experience so that you hear it … hear about the process, and what you should do right, what you've done right and what you do wrong, and hear from somebody other than me. Mike has been through it. He's got an audience of 30,000 that listens on a monthly basis at EcomCrew. If you're not listening to EcomCrew … I know I'm promoting another podcast but it's one of the absolute best out there. Go to EcomCrew.com they're always helping entrepreneurs in the e-commerce space. So Michael Jackness, 30 seconds just tell some folks who you are again for those that didn't listen to the first episode that we did together.

Mike: I'm basically a serial entrepreneur. I started my first business when I was a kid. I did have a stint for seven years in corporate life. One of my clients did hire me but for the last 15 years, I've been doing my own thing either in affiliate marketing or e-commerce lest the 5 plus years. And when I got on e-commerce I realized that we were coming at things a little bit differently. We kind of got at it as a tech company rather than a product company. And we realized we had a lot to share. So the entire process pretty much; as you mentioned EcomCrew, even blogging, and podcasting, and telling the world about what we've been doing. But one of the things that make us unique is we also talk about all the negatives not just the positive sunshine blue smoke up your ass crap. In fact we go out of our way to talk about some of the hardships of running a business and specifically e-commerce. So yeah that's a 10,000 foot view.

Joe: And in just about 30 seconds; so thanks. Yeah, I get it, I can't emphasize enough. If you are a current e-commerce owner you should listen EcomCrew as well especially the Under the Hood series that I enjoy so much and inspired the Incredible Exit series here at Quiet Light. All right Mike at one point, you came to me. You reached out I think probably around Thanksgiving or so and said you wanted to exit. Did you plan that well in advance or did you just find yourself tired and ready to move on?

Mike: Yeah, there were a ton of factors that went into that initial conversation. We had a different plan. I can tell you what. We'll talk a little bit about that but the plan was to do this a little bit longer. But I actually just did a podcast about risk factors in e-commerce and we don't have 30 minutes to go over the entire episode but there were 10 risk factors that I called out. Which basically were like the amount of inventory that you have, tariffs, taxes … just kind of like a risk to reward type of thing, competition, Amazon getting involved in brands, Amazon shutting your account down, getting unbalanced to be more Amazon than not off Amazon things of this nature. And for me what I realized … I started waking up one day realizing that for us this stuff they've kind of gone a little bit out of balance. We're at a point right now as we're doing this podcast because I haven't quite done the exit yet where we have $1.3 million in inventory total company wide as we've been growing. As you know in e-commerce it's hard to get any money out of your business because we are growing it 100% per year and it's a situation where money just keeps on piling back in the business. You have a tax bill every year and without the money to even pay for that because you're plowing everything back in the inventory for growth. And we have been running at that speed for almost four years. And because of some of those other risk factors, the kind of leverage is changing a little bit. I felt like it was time that we needed to take some chips off the table. And combining that with just honestly being a little burned out; running at that speed is definitely exhausting. I found myself either dreaming about Amazon shutting my account down or waking up every morning first thing and checking my inbox and seeing if they had been shut down. Not because we do anything black hat at all but because I see things that happen out there because of EcomCrew and also [inaudible 00:09:05.1]. You hear stories of people that legitimately didn't do anything wrong but it doesn't matter because Amazon can be the judge and jury and executioner all in one. And factoring all these different things in it just … it felt like it was time. And we didn't know it when I had that initial conversation with you. I didn't know exactly what that was going to look like. At one time we had talked about selling everything. I was kind of like just in a bit of bad mood that day and then we kind of start walking through some more realistic and better options to kind of end up [inaudible 00:09:35.9].

Joe: Yeah, let's talk about that the realistic option of selling everything I have things or setup because I really want people to learn from this process and what your goals were and the challenges that we've had and some of the amazing things that you have done throughout the process as well. So the first thing we looked at was selling all four of the brands that you have. You have it under one LLC and two of the brands are doing very, very well. And two of the brands are start up brands where they're really working at a loss because you have a tendency to just focus on organic traffic and brand recognition for a series of months to a year and don't mind operating at a lost. First and foremost Mark had a podcast with somebody from a PE firm that painted this picture. He said the thing about private equity investors is … well, think about it when you were a kid. And he says you get a bag of marbles from and you try to negotiate a deal with your buddy for the bag of marbles. The first thing you want to do is reach into that bag of marbles and take out all the chipped ones. You don't want to buy the chipped marbles. And then you want to focus on the best marbles. And so when looking at your four brands, two of them were really operating at a loss so my advice right away was let's take those out of the picture. Because when you're selling a business let's say at a three time multiple and you have two brands in the bag and they're both operating at let's say negative $10,000 in discretionary earnings; that's $20,000 times three that's $60,000 off the list price of your business if you go with the multiple of discretionary earnings valuation model which is what we do in marketplace valuations. So we had to pull those two out. And then we looked at what at the time was one of the larger brands of the two. We've got ColorIt that we've talked about. We've talked about it openly and you've done presentations all over the world on your email marketing campaigns with Klaviyo and ColorIt. But the other one, different space, and we had a challenge. See one of the things that we talk about all the time are the 4 pillars of sellable businesses; age, documentation, growth, transferability. And the big thing that we had a problem there was the transferability of that particular brand. Two of the SKUs that you had which were not the largest used by any stretch, you were reselling those, right? And you reached out to your vendor to confirm that you could transfer those and what did they say?

Mike: They said no.

Joe: Simple as that. So that takes away one of the pillars. It makes it more complicated. But again as you said you were in a bad mood that day that we talked. A lot of emotions in selling your business and as you say in the introduction that we did for ColorIt, you've been chasing too many rabbits. When you're doing that you're getting tired, exhausted, and pulled into many different directions and often going nowhere. So we ended up setting that one aside as well and focused only on ColorIt and went with that to launch. Before we get into the initial launch multiple and things that we found that were really amazing about it we found one more challenge or maybe two. You have one LLC with all four brands under one LLC and all four brands in one seller account. What have you done since our initial conversations back in late November early December to rectify that?

Mike: Let me kind of set the stage just real quick of why we got there as well because it's interesting in business. There's two phenomena that is existing, first of all, I've been in business for 15 years so I kind of knew some of the hiccups and roadblocks we might get into down the road. But I had run multiple businesses in the past. So whenever you do something and you don't like it you tend to correct for that in another way in a future endeavor whether it's a business or in personal life. And the thought of like having … we actually have more than four things going through this LLC, there are other non e-commerce stuff and some other things as well. And the thought of having six or seven different tax returns and credit cards for each business and trying to figure out how we're going to separate employees or like the lease or back in software like Skubana or you know a UPS count; all these different things like having to have them all segmented out just was not appealing to me in any way shape or form. And I was more concerned about today than tomorrow as far as operating the business. And I also had this thought process of when I'm ready to get out of e-commerce I'm going to get rid of all of it once. I'm a pretty binary kind of guy like I'm either all in or not doing it. And I thought the day that … when it came that we would get out of e-commerce we would just sell that conglomerate. But life happens and business happens and like I said some of these risk factors changed and the reality was that we wanted to pivot and change our philosophy and our business plan pretty quickly. I equate this also to like when you want to pay taxes you want to have your business show the lowest amount of money. You're trying to figure out any expense you can have. That's really good for a tax but when you go to apply for a loan it better be showing lots of income. So it's like … it's a similar kind of phenomenon where like in one part it makes sense to do one thing but in another … on the other side, it makes sense to do another. So we were kind of at that spot where it was obvious that this was going to be a problem because the things that came up in the calls over and over again were really two things. Number one shared resources of employees or other resources which I understand the challenge there. And also the fact that everything's in this one Amazon account. And let me tell you man if there was anything I can go back and do differently it would be having multiple Amazon accounts at a much earlier stage. The challenge is Amazon doesn't make this easy. They won't allow you to just create multiple accounts first of all without getting permission. And in order to get permission, you have to have a separate company. You have to have a separate … either separate ownership structure, separate EIN, separate checking account, separate credit card. All this stuff has to be 100% separated out in order for them to grant you permission to create another Amazon account. So we are going through that now and I mean what a disaster. Like we're having to … we're trying to close within about six weeks of recording this. And to hand over the account at closing we have to have just Brand A which is going to be ColorIt and the Amazon account and Brand C or B, C, D have to be out of the Amazon account and in a new account and it has to happen as seamlessly as possible which is impossible because we're … we only have inventory in Amazon. All of our inventory is on Amazon. So we're having to recall some of it and relabel it, get it into the other account. And we keep a relatively [inaudible 00:16:34.1] amount of stuff in Amazon so it's not … looking on a SKU by SKU basis it isn't that big of a deal but because we're a high seven figure seller total we're recalling truckloads with the goods from Amazon. It's not going to be cheap and when you recall stuff it gets damaged a lot of times. The stuff shows up and looks used by the time that … you're shipping it in and it's getting … someone's handling it and putting it on the shelf and they got to go take it off the shelf put it in another box and crate and when you recall stuff it doesn't come back in the best of shape. So yeah I mean it's kind of a disaster all around but this is what we've had to do to get to where we are. And moving forward they all are all going to be in separate companies. So at any point when the time comes to put Business B up for sale, we'll have it all in one clear concise company; one account and we'll just pull the trigger and be done.

Joe: You know I think you had said at one point you knew what to do and you had one plan and it was to sell the entity and all the brands within it at one time. And then we found three stumbling blocks. Two of them were operating at a loss because you are focused on organic traffic and brand building. And one where two of the vendors said: "yeah no, we like you, Mike, we don't know anybody else we're not going to do this deal with anyone else". So you ran into challenges there. And you also said if you have to make those changes someday you'll do that. And all of a sudden you woke up and someday was here and we had an action that we wanted to take right away whereas the idea of I always say don't decide to sell which is eventually you do decide to sell but plan to sell. So my little slogan there doesn't actually work all that well. But seriously though I think the thing to do is to plan it out in advance as much as possible to make it strangely enough as easy and seamless as possible for the buyer. For that person that is going to put a million dollars of their life savings on the line or two or three or 100,000. The amount doesn't matter. It's a lot of money for the person that stroking the check or sending the wire. So that's the key thing.

Mike: Can I just … I want to mention one other thing if you don't mind? [inaudible 00:18:48.4] this thing.

Joe: Yeah.

Mike: You're asking just kind of like some of the other things that kind went wrong and we could've done better. This is stuff that's often not talked about again in entrepreneurship but the reality is is that it would have been better just to have one brand and focus on it or maybe two rather than trying to do too many things at once which is a trap that a lot of entrepreneurs get caught in. Something I tell myself all the time, I even had it in writing on a blog post like eight years ago like I won't do that again; get into too many things. Entrepreneurs are different … there are different classes of entrepreneurs but the kind of entrepreneur that I am it's the squirrel syndrome. It's always exciting to do something new rather than what you're working on. I get bored really easily. To me, the business aspects are way less about the money than the personal enjoyment and excitement part of it. And oftentimes you end up with this … you chase rabbits both will get away saying that I use all the time. But I give that advice and don't follow it as well as I should. So that's another thing that you could really take away from this if your … the existing business you have is probably the best one that you have, the same type of thing with a car like the cheapest car that you'll ever have is the one that you own right now. You are then going on and buying a new one. Or any of these types of things can be applied to other aspects of your life as well. But if you are focused on one company like you typically have all your T's crossed and I's dotted and that's how I like to run my companies because I am a bit of a perfectionist. But as you spread your resources across multiple businesses things like to fall through the cracks that make things less attractive to a buyer. And the reality is is it's not as easy as it should be to just cookie cutter your business into another one. We had a really great podcast about this a year and a half ago. It was actually something we recorded live at E-commerce Fuel Live last year back in Gohana. So I just want to throw those things out as well as just other things that to be thinking about. As you're planning your exit you should be a lot of times it's … well, I want to get in this other thing or as you're growing it's really exciting and it's infectious and you want to keep on that path because it's fun to tell everybody how fast you're growing. And everyone pats you in the back and society makes things even worse because they're always like yeah man good job and everybody is like oh good job you only grew by 5% last year because that's just how we're all wired. Which the reality is that as Dave my partner always says is that revenues are vanity and profits are sanity.

Joe: Yeah. Now I love that again this is … I want people to hear from you more than me. I say his stuff all the time and you're someone that's going through it right now and coaches thousands of people on a regular basis to improve their businesses and Dave as well. The other thing that is separating out the brands and separating out the LLC does for you the seller and the potential buyer is it casts a broader net of potential buyers. And the broader the net the more interest level there is going to be in the business. And the more interest level the more likely you're going to get an offer at or close to list price. And in this case we did not say SBA prequalified, technically you can take a business like yours and go through the process and have your accountant separate all those things out and certify it. It's not a full audit and you could try to go through the process and make it SBA prequalified. But in the time frame that you and I were trying to do this, you wanted to be under Letter Of Intent by January 31st. It didn't happen. We came close but we couldn't have gone through that process because that process would have taken six to eight weeks for your attorney to do it. And given the time of year, it might have taken longer because he's in full on tax preparation now. So that's the other thing that separating out your LLC's by brand will do for you is that when you wake up one day and you want to exit it's clean, it's simple and you can do that with a lot less work. And that work Mike we … it was a lot of work in preparing the listing for sale. In the Profit & Loss statements and then in that client interview everybody's heard about it … I told my wife when I sold my business I felt like I was working harder preparing the business for sale and going through the process of getting it sold than I was actually running it. And when I was running my own I was working about 20 hours a week running the business so that tells you what that workload is like. In terms of what we did, I want to talk a little bit about the launch process and talk about the multiples and some of the things we did but you did it just absolutely right spot on. We did go out a little early the right? We talked in late November early, early December and you had a goal and I wanted to help you achieve that goal. I'm human and I think that what I probably should have done in hindsight is said no, this is probably not the best approach. We went out in I think around the 10th of December, listed the business at a pretty strong multiple. It was at a four time multiple. And went out and said Look December is going to be great. Trust us these numbers will drop to a 3.5 once the December numbers are read. And the ultimate answer we got was cool, I think I'll just wait to see if that's true. So we've got a … I think we had a phone call, maybe we had one buyer seller conference call in the month of December and then you're a man of your word and you like to under promise and over deliver. And when December numbers came in they were up 80% year over year.

Mike: Yeah.

Joe: I've used this analogy with a lot of folks before and they've heard me say this again you can list something at a four time multiple and if it's growing 25% year over year consistently the buyer earns their money back in 2.7 years. I did not do the math on 80% and I won't but that really got people off the fence a little bit. We updated the P&L's, got the December P&L's and then we're relaunching I think on January 8th, 9th, or 10th, in and around there. And we actually dropped the price by $75,000 too. So the multiple didn't drop to just a 3.5 it dropped to a 3.2 multiple and we relaunched. And I think we had three or four phone calls out of the gate. The goal is to have three to five in the first 30 to 45 days and one acceptable offer. We did have just two offers in this case and one was just not there. We had two or three phone calls with them. One was interesting, right? I was traveling to Dallas so I'm on a conference call with Mike and the buyer and I'm actually going through TSA security on the conference call. And thankfully Mike can talk folks. So he was talking as I put my headset down and went through security. I picked it up on the other end and you were still talking. And you had a terrible cold.

Mike: Yeah, that was a pretty embarrassing call.

Joe: It was great though and the thing that you do so incredibly well is you instill confidence in the buyers. You're honest. People trust you. And it made them … anybody that had the opportunity to talk with you I think wanted to make an offer if they could pull it together. But we couldn't do an SBA buyer because of that commingling issue so we were focused primarily on cash buyers. Keep in mind though that not all SBA buyers don't have the cash. Many of them do they just prefer to make their money go further with an SBA loan. So I think we were both at ECF, that's E-commerce Fuel, at the event down in New Orleans and I drove you nuts a few times saying I think I may have an offer right? Did I—?

Mike: It was so funny, you texted me at the opening party I think I have an offer and then you went to bed. I think like you didn't actually have the offer yet I just think I read the text a little long but … so I was like walking around the entire thing looking like anybody know where Joe Valley is? Like I want to know where Joe Valley is.

Joe: Yeah, I think I heard somebody say Joe likes to go to bed early. He doesn't stay up late at these events. He's probably in bed. And that … I felt a little embarrassed there. I'm like okay I'm getting a reputation for going bed by nine. But we ended up not going under LOI—

Mike: [inaudible 00:27:07.7] morning than I did.

Joe: I think I probably did. I was really hopeful that we could go under LOI while at E-commerce Fuel because that would be a great feather in your cap and mine. We would be able to have a drink there and celebrate. But it didn't quite work. It took an extra … probably four or five days. But we had some challenges with the business. We ended up getting fairly close and I'll do the math as you answer this next question in terms of that asking price; that 3.2 multiple. But we had some challenges and the big challenge was something you talked about earlier. One of these big issues that you've got is you're taking all the profits from the business and putting it back into inventory. And when you have a business that's growing at the rate that yours was that's a lot of inventory. Can you talk about that a little bit in terms of the challenges that we had there?

Mike: With inventory specifically in terms with ColorIt?

Joe: Yes.

Mike: Yeah. And this is something that we have worked really hard on in our business and we're very [inaudible 00:28:06.7] which is that you basically want as little inventory as humanly possible at all times. I mean you don't … there's a lot of reasons for this. If you have too much inventory when something goes wrong like you're stuck with a hot potato. That always sucks but probably more importantly especially when you're in this growth phase is cash flow is the most important thing. There's this saying that's been around forever which is cash is king and there's a reason for this; for every dollar that you have an excess inventory that's a dollar that you don't have in some new product … some new product launch or some other thing that can make you more money. And every inventory business is going to go through this. There is no inventory business I think on earth that … especially when it's newer and growing at this speed that can plan inventory perfectly all the time. Either you're going to err on the side of caution of not having too much inventory and be willing to run out of SKUs because of that. Or you're going to err on the side of caution of having too much inventory and err on the side of caution of never running out of a SKU. And for me, we went with the latter because in the early days of selling on Amazon we realize that when you run out of stuff it can be really detrimental. We had one SKU that we still are trying to recover from. It's a part of this issue here with this business sale we're now we have too much inventory because we could never get it to recover back to the point where it was before. So we try to in our inventory business turn our inventory three to four times a year which means that you should have no more than three to four months of inventory at any one time. And with ColorIt that was definitely not the case. So it was not the case. I mean there's a bunch of different exceptions that put things way further out than that but there was an old legacy book manufacturer that we work with that had very high MOQ's. So if we wanted to even sell the item we had to order a year worth of it at one time. And that was a decision that we made in Q2. We had a newer product that we just started selling and it was selling really well so we've ordered more of it and again at their MOQ so we have more than 4 months of inventory there. And so the bottom line was that of the 300 … actually it was $400,000 in total inventory that we have for ColorIt both from stuff that's in stock and things that we had already placed orders for that haven't shown up yet. There was about 100 … I don't have the numbers in front of me but $100,000-ish I think of inventory that that would take longer than 12 months to sell. And so for me because I've been on both sides of the fence as both a buyer and seller of businesses and I really believe living life like don't ask others or don't do what you want to do yourself, I realize that before we even start talking to the buyer that we probably have to make some sort of concession on the inventory. It just would be unrealistic to just be like no you're going to the inventory and too bad because I wouldn't feel comfortable doing that myself. The other thing that I don't like doing is like having someone pay me with my money. So that one thing I was steadfast about was that we're not going to take financing or delay the purchase price. I want an all cash offer for the for the purchase price but the inventory component I thought the right thing to do was to pretty quickly acquiesce and come into a middle ground with a buyer. So what we had agreed to do was, first of all, there was one SKU that I admit that just doesn't sell well. It was a bad buy on us. We just rid it off 100%. It's about $8,000 dollars. They can either … they were in a trash can if they want to transfer or they can keep it and do whatever they want with. There were a couple of SKUs that I kind of conceded to that were slower movers that I felt like was going to be kind of detrimental to their business to buy at with 24 months with the inventory at face value. So what we agreed to was we'll sell you anything that we think is going take longer than 12 months within that inventory at a 50% haircut. We'll just write off half of it and you can buy it for 50% off. So now you … yes, you carrying more inventory but you're buying it at a price that makes sense to carry it. And then the third group of SKUs were things that were basically like in this 12 to 18 month window, they weren't really that low for stock, and the biggest culprit of that was this new item that we're trending higher on. So I think ultimately and I convinced the buyer ultimately especially once the Christmas season comes they aren't going to have … they aren't going to actually have more than 12 months with the inventory. So we agreed that even though our forecast shows it's going to take more than 12 months to sell it's because we were using like a January sales number for that we weren't including sales growth in that forecast and we also weren't including what I believe that was going to happen in December which is December is about 3X any other month in our business. So ultimately we wrote off $40,000 with the inventory and agree to give them 12 months financing on the inventory at 5% interest which basically I think helps normalize that situation for them. And it's also something that I can tolerate as well.

Joe: Yeah, and it happened and then we succeeded with it A. because of you; the likability and trust factor. But you have something that I preach again and that's when you've got an inventory based business you should have inventory aging reports. Sophisticated buyers are going to ask for them and they're going to want to see the inventory by SKU when you bought the inventory and how old it is, how many months you've got. As Mike said you want to turn your inventory every three to four months if you can but in his situation, it was 9, 12, 18 months in some rare instances. And so on that inventory report one of the key things that your buyer Matt said that made a difference for him in sealing the steel and getting it done was the inventory aging report and the notes that you put by each SKU and right there in one of them you said this is all inventory and it's not going to sell so we'll write this off. You just acquiesced on that 8,000. He didn't ask for it. You just put it in there because you knew it was the right thing to do. And then you went line by line on every other SKU and justified the 100% value or where you needed to discount. And let me just say for everybody listening, it is rare to need to take a note on inventory. It's rare to have to discount it. But when you've got that much you've got to do the right thing. What I don't want to happen here is for buyers to go "oh well hey Jackness took a note, I'm always going to ask for a note" because that's really, really the exception rather—

Mike: Like I wouldn't do that with IceWraps for instance because there's … if we were to sell that we have four months with inventory. It's really clean and smooth. It's a more established business with fewer SKUs. It doesn't have a lot of the other things that cause us to have extra inventory. And like you said I mean just doing the right thing and being realistic of both sides. I mean this is what happens … like a lot of people when they're sellers they want to be way up here when they're buyers they want to be way now here and they're just like … they have this gap in which I think that just makes them not the best of human beings right? I mean you've got to be like more in the middle and realize the person that's buying and what they're thinking and what their [inaudible 00:35:24.6] is. And conversely when you're in the sell side be thinking about as well. It's not always just about you. There is another side of the coin. And I wish our politicians are covering this a little bit as well but it's just good business it's being a good human being. It's what makes deals get done. It's just doing the right thing and being fair about it; being equitable about it. I could … I just … I would feel like a dirty shyster if I have that guy by that one SKU that I know … like he doesn't know the business as well as I do. I know that one SKU [inaudible 00:36:00.9] it's been around here for two years. No matter how hard we try to sell it, we threw it at a 50% off sale or we even did a 75% off sale around Christmas to try to get rid of some of them. People just don't like that title. It was the one title that we made out of 25, it's a pretty good track record but one title out of 25 that was just this complete failure. I'm like how could you have someone take that? That's just basically like I'm stealing from them or trying to pull the rug over their head. And you know when they discover that later which they probably will in due diligence they're not going to trust you.

Joe: Yeah, exactly I was just going to say that. They are going to discover in due diligence. And I'll tell you what for folks listening, we're going to run a little bit long on this episode. I'm going to lock this all up in one episode instead of doing two series here. The due diligence process would reveal anything like that so you need to get ahead of it. You have to be a good human being. This is a transaction that has to end with two satisfied individuals or entities at the closing table; that's the buyer and the seller. It's not winner takes all because the buyer is putting their life savings on the line again and they can walk away at any time. If you fake it, lie, cheat, or steal, it is going to be discovered in due diligence. More and more folks are hiring Centurica, your buyer is. That's Chris Yates' team. Chris owns the company called Centurica. C-E-N-T-U-R-I-C-A, they do due diligence for buyers. And honestly, as a broker, I love it when they join the team because they're working for the buyer. And I have yet to see a deal go sideways on any of the listings that we've put out. What they do more than anything else is they reinstill confidence that the numbers are right, that the seller presented information, and they create a roadmap to growth. They can point out certain things where there are flaws and sometimes it's a little scary but the buyer goes oh okay that's a flaw, I can fix that. I can make this better. And it's a path growth that we aren't able to do on the client interview which is great. One other thing I just want to say that we won't get into in great detail but without a question when you plan to sell instead of decide to sell, one of the things that you should always do, your partner Dave did it, is to take a look at your cost of goods sold. And if there's a possibility that you can renegotiate your cost of goods sold 12 months out in advance and reduce that cost of goods sold, for every $10,000.00 you save you're going to wind up with at least 2 ½ to 3 ½ times that depending upon your business and the trends and whatnot. Mike, you did it but you were able to renegotiate the cost of goods sold on just one of your SKU's and you placed an order for it so was locked in and loaded and the future sales would all be locked in at that lower cost of goods sold. And you sold through all of the other stuff at a higher price. So we were able to increase your seller's discretionary earnings by a total of $43,000 on that overall. And it was just because of that one SKU where you were able to renegotiate the cost of goods sold. In hindsight Mike do you wish you had done it on all of the other SKUs as well?

Mike: Yeah I mean I don't think this is necessarily a selling your business thing more than this is just good business at that time.

Joe: Yeah.

Mike: What I've realized again after four plus years of importing stuff from China is that I wasn't as good of a negotiator as I thought I was. And I've always thought of myself as a really good negotiator in all aspects of anything that I do in business. And we had negotiated down from the original price they gave us but it still wasn't like the Chinese price. And when you get like a really good sourcing agent or you have someone that's more in tune with the local business and customs there they'll probably get a better price. And that's what happened for us. We met somebody … and these contacts are hard to find in business. We were out there doing it all ourselves like going to the Canton Fair, walking the floor finding manufacturers, and we did that because we're never really able to really find a good sourcing agent and didn't really know any other way to go about it. But because … mostly because of EcomCrew which is one of these things where the more you get back in life a lot of times the more you get rewarded. A lot of things we do in EcomCrew we don't get anything direct for our time for what we do. Like most of the stuff is just giving people free information and giving back to the community but what I found that happens in these types of situations is that makes relationships with people and the people you meet they know people that makes relationships with other people and eventually that path led to us finding this amazing sourcing agent that not only is he helping with ColorIt but everything else that we're doing now. And he was in our office here one day and we were actually sourcing something else for our tactical brand. I wasn't even looking to resource price I was looking to source new stuff. We were just chit chatting and we have this display up on our wall of all of our products and he is like what if I try to go source this for you? What do you pay for it if I can do better when you buy it from me? And I was like well man I'm also like not just about money. I'm really about relationships. I really like the factory I work with. We've been working with them for a while. It had to be like one hell of a cost savings for me. Like if it was I'm going to save you know a couple $1,000 here and there it's not worth it for me to blow that up. But he came back and was able to reduce the price of that particular thing from … well, he reduced it by 16% is what it was; which is massive. It's like this ridiculous cost savings. And at the same time the other factory as much as I … it's so funny like I'm really big on relationships and I was really concerned about them they actually copied our product during this process and even used our [inaudible 00:41:30.2] that we had paid for and everything and released our product to someone else. Sold our product to someone else. Which we then have to go spend money on a lawsuit to fight them which we got them to stop but … so between those two things we switched. Now the switch engine is going out and repricing our stuff and that's going to end up benefiting the buyer way more than it is for us on ColorIt which is fine. But I guess the end result is you should always be looking at price. Even when you think you have the best price you probably don't. There was a great … a presentation at ECF about this as well when it came to shipping rates. I don't know if you saw Craig Gentry's presentation on FedEx and UPS when he was just like if you think you have great rates you don't. Like there's … you can still do better because there's still another … they make you feel like you're getting the best deal ever because they're really good at negotiating. And it was similar with our products and we realize that we could be saving quite a bit. I mean 16% percent is a huge difference on COGS … I mean it ends up in your net profit. It's way more than 16% percent increase rate because it's going to be SKUed. It makes you … you could just throw money around the bottom line. So yeah I mean it was massive and the timing was great because we did get some benefit. But yes I wish that we had time to go through and renegotiate all those SKUs for sure.

Joe: Yeah and I think you said it best. It's just good business. It makes smart business sense. Not necessarily sorry for the exit planning and the eventual exit and sale of your business. Can you say one more time what Dave always says it's not profit it's—?

Mike: Yes. Revenues are vanity and profits are sanity.

Joe: Perfect.

Mike: I'm sorry I'm going to go off on a tangent; another tangent. [Inaudible 00:43:05.7] I got you and just like people are like counting their chest. Like I'm a seven figure seller and well I'm an eight figure seller and I sold this stuff … no one ever goes around saying well I sold 10 million dollars of stuff last year but I actually lost money. I mean there are plenty of businesses out there that are like that. It's very easy to get in that trap because it's actually pretty easy to sell stuff online. You can just spend way too much money on advertising and you can sell stuff but the profit is what really actually matters.

Joe: Absolutely and that's where these marketplace valuations are. It's on the profits so discretionary earnings. All right so look I want to read one more thing and I'm going to wrap it up. I've said that you the seller, in this case, you Mike makes a huge difference in the saleability if that's a word, of your business. How you act prior to selling the business, how you manage your business, and how you represent yourself all throughout makes an enormous difference. And the way that you handled yourself on the client interview, on the recorded interview that we did as part of the package, on the conference calls with buyers, in the inventory challenges that we had, in writing those notes there, and just acquiescing on that $8,000 of inventory that you knew was no good; it all made the difference and it's why we're under Letter Of Intent. I did the math. We're actually under Letter Of Intent at 96% of the list price of the business. Again the inventory we're doing on a note which we don't love but sometimes you have to do that. I want to just read an e-mail that you sent to Matt, your buyer within a couple of hours of when we were under Letter Of Intent to just reemphasize what's important and the way that a buyer should treat their sellers … or seller should treat their buyer. So here we go. I feel like I'm in second grade standing up and reading this—

Mike: I was not planning on this being read but it's okay read it. Go on.

Joe: It says, Matt … his first name is Matt we're not going to say what his last name is. I just received the signed LOI from you and wanted to take a minute to thank you for putting your faith in me and my love child ColorIt. It's been one heck of a ride but I'm ready to pass off the baton and experience a year or two of not having too much on my plate. Of course, I realize there is still a lot to accomplish to get to the finish line but I wanted to say cheers. With the growth rate of ColorIt along with some of the other fundamentals, I'm convinced this will be your best purchase to date. My goal is to make sure that it becomes a reality for you as we progress through the transition. I look forward to working with you in that regard over the next few months. Mike. Guys, that is the way to transact business. It's just the right thing to do and it feels good. And I can tell you [inaudible 00:45:45.4] 80% year over year growth in December and didn't even mention it 74% year over year growth in January. It made a huge difference and Matt making an offer at 96% of the list price. But this kind of thing, the way Mike handled himself as a professional, as a good human being in this entire process sealed the deal ultimately. So Mike, thank you. I appreciate the way that it's gone so far. I think what we'll do is have a follow up episode to talk about due diligence and the training and transition and how the transaction wound up at the end of the process with this closing that we've got if you wanted to come back on.

Mike: Yeah. Can I say one thing about the letter that I wrote?

Joe: Of course.

Mike: Since you took the time to read it I just … I got to preach because I've been on both sides of these deals. There have been times where I've been the buyer and at that moment that you sign the LOI there's always this anxiety, right? Where you like man I'm about to jump into this thing and you don't necessarily know what you're getting … everything that you're getting yourself into. And I just wanted to let the guy know that first of all I appreciate him again like it was sincere like I appreciate him … this was like now the sales person parts over like I'm not trying to sell him anything. It's always awkward when you're saying stuff in the call part of it. It almost sounds manufactured even though I don't do that but I'm sure to them it comes off as like this guy is probably just saying this to get me to write a check. But it's done. The finish line is there from that perspective I just … and I do want it to be a success story. I want the guy to buy it and look back at these years later and feel like he made the right decision. And yeah that was really all; just kind of being sincere about it. And I think all too often again people are more way about themselves they'd be all high fiving everybody and saying that we got an LOI and celebrating their success more than thinking about what this guy's about to endeavor in. And I think that's important.

Joe: I appreciate that and the last thing I'll say is what I said to everyone which is we're under Letter Of Intent. There's no guarantee.

Mike: You're right; the money is not in the bank yet for sure.

Joe: It's not on the bank yet. So let's have another killer month in February. We'll get through all of this. Due diligence is very detailed but again they've got Centurica doing it for them. We've got to do a lot of work but we know it would be done right. And that emotion will be left out of it as much as possible and it'd be math and logic and we'll get through it. And then we'll have you back on the podcast to maybe high five. And maybe we'll get the buyer Matt on it as well.

Mike: Yeah, I think it'll be cool to have him and come join us and talk about both sides.

Joe: Alright, I'm looking forward to it Mike. You're a good man I'm glad to do business with you. I look forward to hearing you back on the podcast.

Mike: Thanks, Joe.

Links and Resources:

ColorIt.com

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Call Mike 703-216-3225

It seems that with certain Quiet Light Brokerage listings, there is just a mad rush of activity as soon as they come out. Most of the listings that we put out will receive at least 100 inquiries right away, but what does it look like when we put out a "hot listing" that garners two times that much interest?

Today we are discussing the type of business that gets 9 offers. We go over how many inquiries those types of listings get, how much discussion and conference calls happen around these potential transactions in a short time frame, and just what it takes to get these listings under contract. We hope you enjoy this little case study of how to set up for a successful sale from the seller side and tips for how to act from the buyer side. Being thoroughly prepared and running a real, viable business are keys to success.

• The main characteristics that made this business so attractive.
• How the pricing decision played into the transaction.
• The process of selecting the 15 buyers we entertained.
• The conference call screening process between the seller and potential buyers, facilitated by the broker.
• How to choose a buyer and deal with disappointing those who lost out.
• The 4 pillars of success and how this business checked them all.
• The one intangible thing that took the business to the next level and attracted the buyers.
• How the packages that Quiet Light puts together tell a story about the listing and the journey of the brand and its seller.

Mark: It seems that with some Quiet Light Brokerage listings as soon as when they hit the marketplace there is just an absolute mad rush of buying activity towards those listings. Now to be clear most of the listings that we put out at Quiet Light Brokerage, the vast majority, in fact, it could be an exception to the rule is going to receive at least 100 inquiries from buyers and calls right away. So what does it look like when it we come across a "hot listing"? Well, it looks like a lot of conference calls scheduled very, very shortly and just a mad rush of inquiries probably upwards of 200 and 250 within the first 24 hours in some cases. What's the difference between a listing that is not as hot like that that gets on a 100, 150, which is still a lot and something that doubles that? Joe, I know you launched a listing 3 or 4 weeks ago from the time that we're recording this episode that we would definitely throw in that hot category. What were the top line statistics on that?

Joe: It was a let's call it a 95 to 98% Amazon business. It was 30 months old. It was in the category of America's fastest growing recreational sports. It was run by a single owner operator that was a stay at home dad that was a CPA by training yet outsourced the bookkeeping to an e-commerce bookkeeper. $440,000 in discretionary earnings and we went out on a 3.3 which is lower than my recommendation. But in this case, the conservative CPA said no I don't want it to be listed for too long. I really like to get it sold let's … can we go out at a three. I suggested a 3.5. Rarely does somebody come back and say can you sell it for less and he did in this case and we ended up [inaudible 00:02:50.9].

Mark: The guy sounds like one of these unbelievably likable guys. How many inquiries did you get within that first 24 hours?

Joe: You know I didn't count the first 24 but I know that you and I were … we were in Dallas and on the way to Houston for a meeting and I think we pulled it up and within the first 4 hours, we had something like 185. So within the first 24, I think it probably doubled to close to 400 would be my guess.

Mark: That is insane. Now I do remember obviously these are all loaded questions so anyone listening like I know the answers to most of these questions—

Joe: No, he doesn't. He forgot them all. He can—

Mark: I actually—

Joe: Yeah.

Mark: I was introduced by the way this is completely outside; a complete diversion here. So sidebar I was introduced at a group of CEO's yesterday. And in front of the entire group of CEO's the guy that introduced me said "And Mark, by the way, took his son, they have seven kids or is it they're expecting their seventh kid. He's got so many kids he forgets their birthdays because he took his son to urgent care the other day and he got his birthday wrong." I'm like thank you for that. I'm so glad to be known as the guy who forgets his kids' birthdays.

Joe: You've got a lot of kids man.

Mark: I got the month right. I didn't get the year or day right. I know the answer to this. We were in the car together and your phone was blowing up. We were at a conference. You were trying to schedule out all of these people wanting conference calls and you did this right over the conference itself which maybe we can talk about in just a little bit here. Within that first 24 hours if you would just guess how many conference call requests did you get?

Joe: Well, let's keep in mind that that our process requires that the buyer either speak to me first before requesting a conference call or we've spoken in the past. So in this case in the first 24 hours, I had at least 10 requests for conference calls with buyers that I've already spoken to in the past that have looked at prior listings of ours and they wanted to make sure they were on a call with this one. We wound up with a total of 15 on this. As I said the owner of the business, Paul, is a stay at home dad. It's funny and I don't know if they loved this or just love making fun of Paul for this but he's a stay at home dad right? His son is a couple of years old but he takes his son to daycare at eight and picks him up at five. So I'm not sure how stay at home that is. Anyway so … but the beautiful thing is that he maybe … Paul if you're listening I'm sorry, maybe it's nine to four and you expanded it. Either way, you're a great guy and people love you and your business. I am not getting a Christmas card from Paul this year.

Mark: I'm sure you are.

Joe: Anyway, he was able to clear his calendar which was great. I was getting so inundated and I was at eCommerceFuel and I'm like I can't do these conference calls. And I had said to Paul on the way through eCommerceFuel look I want to bump this launch a week because it's going to get crazy and I'm not to be able to be on this conference calls. He says oh god really? Come on I really want to get it launched and it totally got my heartstrings so we launched it anyway. So I took the two days … it launched on a Wednesday I think and I took Thursday and Friday and all I did was talk to folks and schedule the calls for the following week. Paul cleared his calendar. We set up a link so that people could just grab a link and schedule them. We did a max of three a day separated by at least an hour a piece and we wound up I think by Monday closed the business. We had all 15 slots scheduled. We capped it at 15 which is really five too many. You just don't have to have that many conference calls. Normally we have three to five conference calls and we have at least one acceptable offer. Here we had 15 scheduled and we wound up with nine.

Mark: These are 45 minute slots or are they an hour long slots?

Joe: They were hour long slots. I go with an hour yeah.

Mark: So just to put this in perspective for people that have not been on the sell side, I know I had this with a listing last year that I represented where it was just a really favorable price on the business and so we had that 15 conference call sort of scenario that we were doing in one week. For anyone on the receiving end of that our clients, the sellers, that's exhausting to go from one conference call to the next to the next; an hour where you're being asked the same questions and you're doing the majority of the talking during that time. This might be a little bit beside the fact but how did he hold up throughout all those calls?

Joe: He did pretty well. They were spread out which was nice. He usually had … he had a minimum of an hour but usually, it was two or three hours in between. And we had one drop out so it ended up being 14. But he did pretty well. He had to keep moving around the house. That particular week his son was home because he got a fever a couple of days before and he was quite sick so he couldn't take him to daycare. And his mother flew up from Arizona to be with his son while he moved around the house to be in an appropriate place to do the conference calls. Most of the time he was actually in the nursery doing the conference calls from his laptop.

Mark: Right. So I want to get into a couple of big topics here. I want to talk about what were the characteristics that made this business and you already talked a little bit about this but what were the characteristics that made this business so attractive? Because I also know that we suggested to Paul going out at a 3.5. He's the one that wanted 3.3 for the asking price on this. That's the multiple that we're asking on the earnings. So I want to go into what was it that made this such a hot listing where people just needed to look at the teaser that we gave and that alone generated 200 plus inquiries within the first 24 hours? So what's going on there and then second I want to go through a little bit more of the process that you went through in selecting the buyers that were going to get those conference calls. Because out of 250 finding 15 you know I know a lot of buyers out there would be like well how would I become one of those 15 if I'm going to be competing against this? And then last I mean this is kind of the darker side now or the bad side I guess of what we have to do when you have a hot listing like this is we have to disappoint a number of people that actually really want this business but lose out in a bid for it. So I want to go over those three categories with you and then obviously Joe you're better at this podcasting thing than I am so if there's something I'm missing let me know.

Joe: Can you repeat that last part again, please?

Mark: You are better at this podcasting thing than I am but I still have the number one episode thank you.

Joe: And two and three, yes you've got them all, but you do the title so I think there's a little trickery going on it.

Mark: And I used to do the promotion too so … your podcasts easy for me what with number one.

Joe: I mean you talked about the four pillars; risk, growth, transfer ability, and documentation. And when you go through these things Paul's business just checks all of these off and all the subcategories within those checks them all off. He owned his own brand. He developed it himself. It's in a niche that is out there and there are other brands but he picked a … he specifically chose a niche within a larger niche to serve a certain segment of these people to start with. So there's a growth opportunity to go. He picked the sort of beginners in this sport. He didn't go with the top end of the product. He went with a middle of the road product that beginners … a price point that beginners would enjoy. So right away you could say okay well I'm learning this business and now I'm going to take this to the new level and go with the more professional people that play this sport. It's not quite professional but retired professionals can play. So he did a really nice job there in picking the category. It was just by happenstance. He happened to be on vacation visiting his folks in Arizona and saw this game that they are playing and said what the heck is that? Looked it up, studied it, researched it and it started growing like crazy and chose to go in that category. A registered trademark, beautiful brand, beautiful packaging, and again let the business age. We've been talking for probably nine months and it was getting close to the 24 month mark but we got through that Christmas holiday season. This particular business is not fourth quarter heavy seasonal. It's actually better in the spring and summer months. So we got prior to the spring and summer months so that a new one would have a great advantage with an upswing in the summer months. It was clean books, SBA eligible which helps cast a broader net to probably half the offers. I can't say half because they were nine. So four out of the nine offers, five out of the nine were SBA offers. The growth trends were fantastic; 80, 90, 100% year over year, month over month growth. It looked really good comparing month to month and from year to year. Transfer ability; super easy, he owned the brand. He wasn't reselling anything. He had a good relationship with his manufacturers. And the documentation, of course, good SOP's in place. He did it all himself so there weren't VA's that were combing [inaudible 00:11:42.3] anybody else or people that works on his house or anything like that needed to transfer. This sort of intangible thing that I think took this to the next level is the person behind the business. He's not transferring with the business but he is so, so likeable and so trustworthy; just the full story behind him. And I'm not suggesting that everybody goes and becomes a CPA, quits their job, and works from home and be a stay at home dad. But people want to invest in a business and buy something from somebody that they like and they trust. As Mike Jackness said on a call recently you have to be a good human being in order to get the deal done. It needs to work for both parties. And just describing who Paul is and then how he is in the video and how he came across, he's just a good person and people wanted to buy the business from him.

Mark: Yeah, I'm looking at the teaser right now. It's cool if I read some of the teaser, right?

Joe: Yeah of course.

Mark: All right so again I'm just looking at this. I'm … this is selfish on my part, the next listing I put out I want to get 250 inquiries because that's awesome. I mean that's great for our clients. All right so I'm looking through this and look in through the prism of those four pillars of risk, growth, transfer ability, documentation. Risk; Amazon businesses, this is primarily Amazon. The biggest thing that I find and maybe you'd disagree is that it needs to be defensible against competition. In here I see towards the bottom there's a trademark and the brand is brand registered, there we go. There are over 2,000 reviews you are … these are getting harder and harder to fake. So you're speaking towards this … the main risk that people associate with Amazon. Right away people are thinking oh awesome that's great. Growth; this is rapidly growing. You leaved this but this is rapidly growing as one of America's fastest growing sports. So A. this business is growing, B. this niche is growing; two really good things, so growth is checked off pretty easily. You have some other stuff in here. Transfer ability; the owner, single owner, dedicates approximately 15 hours per week running the business. I could do that right? Who can't do 15 hours a week on something? And then lastly documentation; the owner is a former CPA. Do you need to say anything else? I think you checked each of those boxes with a giant red check mark to say everyone looking at this; this thing is going to check all of these boxes and become really valuable. It turned out surprisingly enough to be true. These four pillars work.

Joe: Yeah, they do. They do. And one of the pillars is growth but within that is growth opportunities and growth trends. And the opportunities I'll dig into the package itself. I can't quite remember but he had launched new SKUs in 2018 and so we look at the revenue when did he launch those and the revenue by SKU during that time period. And it was clear that some of these SKUs had gained some traction in 2018 but they hadn't been available for the full 12 months. So that's a built in path to growth. So it's one other thing that buyers liked. And then when you … I mean that teaser it obviously checks all of those four pillars but then when you get into the package and we recorded a video, a video interview with him via Xoom like we're doing now. Obviously, people are listening to mostly audio but we do the video as well. And he's in his home you can see the kitchen in the background and he's got the packaging and he holds up the packaging and it's just beautiful. It's a really nice product and this is again hard for people to duplicate but this particular product it's just cool. It's just a cool niche and a cool place to be and he did a really nice job with the packaging. He did everything right as far as I'm concerned and obviously as far as buyers are concerned as well.

Mark: Yeah, one thing I want to touch on here because we talked about this a lot for buyers that you want to be likable and come across well to the potential sellers. But it works both ways too right? I mean obviously, somebody who's selling who's a complete jerk probably isn't going to get too far with us because the process is just too difficult. So most of the … most of our clients are great people anyway but there are some people who have just magnetic personalities. And for this deal, you for I think one of the first times we experimented or you experimented by doing more video conferencing between buyers and sellers on that. How did that impact the deal and what should buyers take away from boy these guys want to do a video conference should I turn on my camera or should I, oh no, no I don't really have good lighting for this and a good set up for it.

Joe: Do it. One of the best calls we had was with a guy named Noah. And he hadn't planned on doing video because he was on his dad's party boat. I know he's 35 years old but he's helping his father move this big boat from one port to another because it's being sold. And Paul and I are on video and we said the video is optional and said it's recommended but optional. And he said well both of you guys are there and he goes I'm kind of embarrassed. I'm on my dad's boat. I'm on a boat. I'm like we have to see it, turn it on.

Mark: It's great.

Joe: Yeah. His dad was in the background moving stuff around and he's shooing him out of the frame. It was fantastic. So Noah was like able and memorable and that stuck with Paul. Paul wanted to sell the business to Noah at the end of the call. So that makes a huge difference. Not everybody did it. There were two or three that were in the top three. Yeah, obviously three when the top three but two or three that stuck out. Two of them did a video one of them didn't do video. The very first person that we had a call with he chose not to do video. He made a great offer and he … we came close on having him but we ended up … Paul ended up choosing someone else. But I think you do the video. I'm doing it more and more and if you've got an opportunity as a buyer to do a video if your broker allows that then, by all means, do it.

Mark: I think on the sell side this is something just to note. To people listening, we're going to be doing this more and more because it really makes a difference on the sell side as well. Sellers most likely will be doing video. And I love that he was able to just hold up some of the product on the video to be able to show it there directly. I mean how cool is that?

Joe: People are … I mean they're buying a business potentially just based on the black and white information that we put in a package. It's worked for years but we moved to doing videos in the interviews and making it part of the full business summary. 24 months ago I remember doing the very first one. It was horrible. I just did audio actually. I recorded it on my phone and it was horrible but beneficial. And now we've moved beyond that to video. You get to look relatively in the likes of someone's eyes and gauge whether you trust them or not and if you're going to put your life savings on the line and buy their business. And I think it just makes a tremendous amount of information.

Mark: Yeah, absolutely. That's really cool. And again this is coming from somebody like myself that does not like video … doing video personally. I tend to be one of those shut the camera off types of guys but I'm more and more warming up to it and definitely getting more accustomed to it as well. So that's pretty cool. And also the odd story, by the way, I know our content director Chris Moore and Chris I know you're listening to this you're going to hate this that I'm saying this but some of the most memorable conversations I've had with people have been in the oddest places. The podcast with Chad Annis where he was in his RV and I could see the pine trees out in the background or Andrew from ECF Live, eCommerceFuel, awesome forum, he was in his van holding up a microphone. I'm like this is great. It's this weird background that only entrepreneurs understand.

Joe: Exactly it's classic entrepreneur stuff. You know people when I'm having calls with them and valuations and you hear the dog barking in the background oh I'm sorry, I'm sorry, I'm like you're an entrepreneur you're going to hear mine any minute. This is the life that we live. It's great. So back to the points, the last point I want to make in terms of what makes a difference … what made a difference for this particular business I think is the images. Paul provided me with great images for the package. And he had them because he had professional photography. And it helped. Obviously, everyone knows that runs an Amazon business what a difference good images make. But he had great images of packaging, of the product being used by human beings having fun and all that stuff. And I was able to litter them throughout the package and it just brought the whole thing to life. And I think it made a bit of a difference too.

Mark: Yeah, you know something I've said over the years I've told you Joe and the others here at Quiet Light is that some of the packages that we put together are supposed to tell the story of the business. And I look for that with every business I represent. Like what is the thread that I want to tell you? What is the common thread throughout this? The data and everything else supports a story. And hey people love stories right? That's … we're all drawn to them.

Joe: Right. And you said data, I just want to say one more thing I keep looking at the package and I'm like there's another thing. One more thing they gave me was data; data from the outside world that proved that this is one of America's fastest growing recreational sports. So I was able to link to outside magazine articles and newspaper articles and outside sources that backed up what he was saying and what I was saying in the package which is really, really helpful.

Mark: Okay, I might regret this question because I don't want to go long on the episode here but you said more than once that he was just a really likable guy. Do you know what made him likeable? It's such a hard question to ask, right? How can somebody be more likable than another person? We've identified when Walker did an acquisition through Quiet Light Brokerage thanking the seller; taking the time to thank our client and saying thank you for agreeing to sell me your business and how much of a difference that made at that point. Was there anything that kind of stood out outside of the video that really made him stand apart?

Joe: He was who we described him to be which was a CPA, a stay at home dad, and honest, and uncomfortable in front of the camera, and vulnerable, and real. He never watched the video that I did with him. I told him. He's like I might watch it because I hope that was okay. I was really conscious here and there. I'm like well let's not watch it because you were great. You were human. You were real. And I'm not editing anything out of it and I'm not redoing it because you were great. People are going to love you because you're just normal. And he never watched it. I don't know if he's … I ought to ask him if he's gone back and watched it since we've got it under contract. But he was just real. Just real and honest and he wasn't selling. He was just stating the facts and that's one of the things that we do … I get excited so maybe it feels like selling but stating the facts is what he did. He didn't try to pitch or sell. He was just being himself; likable.

Mark: That's … I think I heard that somewhere recently about authenticity among like millennials and I would broaden that out and say among those within internet realm because we've seen so much stuff that it's so easy to colossal or make yourself look bigger or better or more polished than you are. I think people within the internet world we tend to value authenticity a bit more than people might think. And so that vulnerability I think is a key. I'm not saying that you put on a show like oh look at me I'm all vulnerable. Hey, look if you are really confident in what you're doing be confident. Be true to who you are. That comes through. You can tell that in people, right? You can tell when they're being real or when they're trying to make themselves sound better than they actually think they are.

Joe: Absolutely, no doubt about it. You want to go on to process and what we do there?

Mark: Yeah. I want to know. So 15 conference calls tell me … again mistake that you probably made in this and you told me this, I'm not accusing you of this; launching a listing during two conferences. You were sick that week. You were flying to two different cities, driving to one city with me as well. So how did you manage getting that many inquiries, that many requests for conference calls with everything else going on?

Joe: Well, it actually worked out pretty well because I was not feeling well and I was at the conference and I said I am not doing this over the next two days we're going to push it all the next week. And it enabled me to communicate in writing with all the people that inquired, all the people that … look there were a couple of hundred in the first few hours of course but those that I've spoken to before that know the process they reached right out to me. They called me, they texted me, they e-mailed me and said, Joe, I want to talk to this guy. I want to get on a conference call. Because they know that's the process. And so those that have followed our process, looked at as many listings as possible so you know the right fit when it comes along and you can act quickly did just that and reached out to me. And so I just walked it all off and we scheduled the calls. For the process when we had the calls if anyone hasn't been on them, us the broker we talk as little as possible. We make introductions, hand the call over to the buyer to give a little bit of background on themselves and then go right into their calls. We put ourselves on mute and in this case, I took myself off camera as well and we listen and we jump in if we can help out but for the most part we stay quiet until the very end of the call and then we just wrap things up. At the end of each day, I had a quick wrap up call with Paul and I said okay you've had three today, its Monday, you've had three, who do you like the most? And then on Tuesday, I said all right you've had six who are your top two? And the same people kept rising to the surface. Although people near the end of the week very quickly got to the … Noah I think was probably on Wednesday or Thursday. So we ran through the process and I think one mistake I made Mark in hindsight when I look at it, I knew it was going to be a frenzy and as much as people think oh multiple offer situation you going over asking price etcetera. We did. Yes, we had them and yes we did go over asking price because we priced it right. We didn't price it too high or too low; we priced it right. And that gets more increase than anything else buyers know. We chose to go best and final. And I think in hindsight I probably would have had two rounds so that … you know what we did was we told everyone we're going to have a call with every buyer. You may submit offers prior to the following Monday at noon if you wish too but we will not be making a decision until close the business the following Tuesday. You've got to have it in my Monday at noon and we'll make a final decision close the business Tuesday. It gave us a little time to review. Everyone gave it to us in the same exact format that I provided so it was easy. We didn't have to interpret different offers. And most kept it simple which is what I knew Paul was looking for and what I suggested that they do. One made it a little complex but I know them and I know what their goals are. They're raising funds so they've got investors to satisfy. And then tell me what you did? We get a clear deadline of Monday at 12 pm Eastern Standard Time. I got one that came in maybe at 4 o'clock that day and one that came in at 9 o'clock that day, pm, with apologies and a text saying I thought it was midnight. Would you have allowed those offers to be presented or would you've been cold and said no?

Mark: I don't … it depends on the situation. That's a tough one especially because of the [inaudible 00:27:08.9] when you said 12, and 12 is I mean you can interpret that both ways.

Joe: 12 no we had a total of nine offers. We ended up with 14 conference calls because one fell out. We had nine offers.

Mark: No I mean you put your deadline at 12.

Joe: Why? I said 12 pm Eastern Daylight Time.

Mark: Yeah but I mean you have to think like 12 pm, you think night and you know. Maybe I'm the only one that can read time but—

Joe: I don't … I only speak Eastern as I tell everyone else in every other time zone. There's too many time zones and I just say Eastern. I try not to coordinate with their times anyway now we were accommodating. In hindsight I think we probably should've narrowed it down to the top two or three and gone back out to them. But the reality is that when you have a seller that has multiple offers it's hard on the seller. First is that they're on … in this case 14 conference calls that are lasting about an hour each. That's 14 hours. And then he's talking to me for 15 to 20 minutes at the end of each day as well. That's a lot of time in one week. More time than he spends running the business right? 15 hours a week of running it. More time selling it than running it. And then you've got to make a decision based upon we had one offer that was … let's see; it was $150,000 over asking price.

Mark: Wow.

Joe: A pretty big jump.

Mark: Yeah.

Joe: That one was an SBA offer. So the benefit there is that not only is it $150,000 over asking price but it's going to take upwards of 60 days longer to close than a cash buyer. So he's going to put another $50,000 in his pocket by waiting an extra two months. I mean just a cash windfall right?

Mark: I want to disagree with you on something real quick before we get too far away from this point because it said that—

Joe: Is it back to me being the better podcaster or something else?

Mark: I'm going to say that to the end after this because I think I'm doing such a stellar job at this interview.

Joe: You're doing great.

Mark: It's easy when you know the person you're interviewing and you know the story as well. But I'm going to disagree with you on is should you have gone a second round with the offers. Okay, that would be the standard process when you're not expecting multiple offers and when maybe … like if I have a listing that's been sitting around for a month and we narrowed down and we happen to have three buyers that kind of called us around the same time then it makes sense. Because the buyers don't know that they're in a competitive situation but … and I might sound a little harsh here but hey if you're a buyer and you're in a situation where you know it is competitive, and the buyers, in this case, knew it was competitive, that there was a lot of stuff going on.

Joe: Yeah.

Mark: My guidance has been the same like put in your best and final. There's two sides of that coin; the first … one side is don't try and necessarily get a discount because the market is going to speak. It is going to push that price up necessarily. And two don't over bid what you're comfortable bidding. Find out if I get it at this price I'm going to be happy or satisfied at least? If I go above I'm always going to wonder if I paid too much. Find that, make the offer, and get it done. So I actually think that you did the right thing by doing one round instead of two rounds. I would recommend the two round again if it was kind of a surprise multiple offer situation.

Joe: Well, I think … you know I had one person tell me they wish there was a second round. But it was crystal clear in writing in black and white that it was best and final. And so I took his suggestion and constructive criticism in a way that I thought maybe was worthwhile and we could do a second round next time possibly. But when you're in a multiple offer situation it's emotional for the seller.

Mark: Yeah.

Joe: Believe it or not people it's hard. It's hard for the broker as well. So I just want to reemphasize one thing that you said and that is you don't want people to get … the buyers to get emotional in their offer. We want them to make an offer that they're going to be happy with after they're under letter of intent because we want two happy individuals at closing; the buyer and the seller. It has to be a good transaction for both of them so we don't want them to overbid and so we work really hard to make sure that they're making an offer that they're comfortable with that assuming everything's good in due diligence that we'll get all the way through the closing with.

Mark: Yeah and I think if you're a seller out there you're thinking why wouldn't you want to get something above what they're comfortable with? The reason is simple; the offer is the beginning of a longer journey, right? You've got to go through that due diligence, you've got to go through transition, planning, there's a lot of time in there for those cold feet to really, really freeze up a little bit. And for the buyer to say I made a mistake I got caught up in the heat of passion and now yeah. And I want to emphasize one other thing that you said here and that is we think multiple offers is a really good situation and it is but for anyone that hasn't been in that situation before where you have multiple buyers all of whom are very qualified to buy your business and given you good offers. It's really tough to choose because you can't choose five offers. You've got to choose one.

Joe: Yeah.

Mark: And in your head, you're going to be thinking I've got to get this right because I don't want to go through this again or I don't want to go through this due diligence process and then have to go back and what are people going to think I have to go back. So it's actually really stressful and one of those good problems to have but still a problem.

Joe: And that's where I think the video … the folks that did video you know a better connection with Paul little bit although one of the top three didn't do the video but just a super nice guy. I mean I just wanted … we both, Paul wanted him to be able to buy the business. He travels all over the country all the time and has two teenagers that he just doesn't see enough and he wants to work from home.

Mark: So there was that personal connection.

Joe: Well, it's that personal connection tugging at Paul's emotional heartstrings, at mine. I think he's a great guy. I would love to help him find an amazing business so he spends more time with his family and becomes an entrepreneur which he's not now. He's in the corporate world.

Mark: All right we're getting close to the end so let's wrap. I want to get to the end here and talk about—

Joe: Sad news. I'm sorry. Sad news having to tell eight people they didn't get it.

Mark: Then also I want to know the metrics. Because I know you had recommended to him go out, we should go out at a 3.5 multiple. We covered that the beginning and he said I don't know if we need that you know as … being and Paul sounded like a great guy 3.3 is what it went out at. I'd like to know where the highest and lowest came in and then also the sad news portion having to tell so many people that wanted this business sorry we're going to keep you in mind, we'll keep looking for you.

Joe: Yeah, again I wanted it to go at a 3.5. I thought it was worth a push and I let him know it's a bit of a risk. We haven't sold one at 3.5 that's 100% Amazon business with discretionary earnings this "low". It's still 440,000. We wound up with the highest one being at 3.6, 150,000 over asking and the one that he chose was 50,000 over asking at 3.4, 3.41. And it was an all cash buyer and had the funds on hand. Had had the funds and had the experience and has bought Amazon business before so he looked at the full package. Cash buyer, close in 30 days, hiring Centurica for due diligence but understands Amazon really well and that training and transition was going to be a breeze. It's the full package and that's why he chose that particular buyer.

Mark: Yeah, again we've talked before about people winning with lower bids. Not necessarily being the top bidder but still being able to win. And we've also talked about the idea that financial motivation isn't always the sole motivation right? People sell for a variety of reasons and so being able to understand, as a buyer understand some of those secondary goals can really help you out quite a bit.

Joe: Let me just jump in, it's not always a cash buyer that wins as well. If everybody remembers the story I've had Syed Balkhi on the podcast and he chose a buyer that was an SBA buyer at full price on his business versus a cash buyer because he just really bonded with that SBA buyer. And he carried a 10% seller note on that particular listing too. So he chose an SBA buyer and a seller note over an all cash buyer. So SBA wasn't necessarily the problem it was just a combination of a number of things and Paul really wanted to get the business sold. And he is kind of a nervous guy a little bit so he didn't want to have to wait upwards of 90 days; 30 was comfortable.

Mark: All right what final thing should people know about this particular deal? Because this is a fascinating little case study of just a listing that's going crazy, how to act on the buy side, and also how to set your business up from the sell side. So what final things should we probably round this episode with?

Joe: Well I hate to finish it with … you know just because this one sold a 3.4 doesn't mean yours is worth 3.4. This one has all of these little points and metrics to it. I launched one this week Monday at 3.3 and some of those same buyers, those eight buyers a few of them have looked at it and said no. Others are comfortable with the niche and like it and see the upside to it so I think we'll get at or close to asking. But just being prepared running a real business, think about it from a buyer's point of view. They're going to be investing their life savings and if you were them what type of business and what type of person would they want to buy that business from? We want them to succeed. You want them to succeed. And that's really what you need to focus on.

Mark: That's fantastic. Hey, thanks for sharing all of this. I know that you always have the best case studies mainly been because you do the most deals at Quiet Light. So thanks for sharing this one. The next one I'm going to write a better teaser than yours and I'm going to try and get like 251 inquiries in the first 24 hours.

Joe: You taught me how to do it so I know you can do it.

Mark: Well, then I'll make sure that I'll let you know in every podcast. All right cool, hey thanks, Joe. I appreciate all of it.

Joe: You bet.

Links and Resources:

https://www.quietlightbrokerage.com/

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Going back six years, the concept of owning an e-commerce business where you could set up a site, sell a physical product, and never have to hold stock was extremely appealing. That concept has died down in recent past. Today we have someone on the podcast who is here to report that drop shipping is not dead. It is sustainable if it's done right. We're going to hear how our guest is perpetuating that sustainability with his business.

Anton Kraly is the founder and CEO of DropShip Lifestyle & eCommerce Lifestyle. His business is focused on empowering people through eCommerce and effective marketing. From a book that he absorbed in one week, Anton got his website up and his business going. He learned all about AdWords and how to make it so his site got those clicks. Anton takes us on his twenty-year journey from delivering a physical product, then moving onto product listing and inventory on a larger scale, to eventually going back to the true drop ship model. A successful drop shipper's job is to build a store with a desirable product, make it look good, have excellent customer service, and then sell, sell, sell.

• Benefits of drop shipping versus building your own brand.
• The disadvantages of drop shipping – if any!
• Anton's tips on where to find products.
• The average order value Anton recommends.
• How to convince the manufacturer to take you on as a seller.
• The best platforms to use for sales and website examples to review.
• How to advertise and where to find clients.
• Marketing channels to use other than Google.
• The importance of self-management/DIY when building.
• We discuss the Amazon factor and its implications for the drop ship model.
• How to use drop shipping as a stepping stone to building a brand.

Mark: About five or six years ago Joe we had an e-commerce business … man maybe even more than that, maybe seven years ago or right around the time you started at Quiet Light Brokerage. I remember like the hierarchy for e-commerce businesses right at the top was having a drop ship business. Because people love the idea that you could set up an e-commerce physical products business but never actually have to touch the product like oh this is beautiful. Today they've kind of fallen out of favor. We don't see drop ship business as often and I think it's because people think that they're just kind of easy to spin up and then they get wiped out. But you had somebody on who is in the drop ship world and loves it and is doing a great job.

Joe: Yeah. Anton Kraly 's been doing it for about 20 years. He actually started in New York. He had a bakery route where he had a truck literally delivering bakery products to different retail outlets and set up a website and started dropping shipping bakery products all around New York online back 20 years ago. Fast forward to today he really talks about the differentiation between owning a physical products e-commerce business and large amounts of working capital rolling like crazy and taking all the profits putting it right back into it and [inaudible 00:01:56.5] that story versus a drop ship model. A drop ship model; he really hones in on the fact that it is mostly pure profit. You're focused on advertising dollars; that's important. We talked about the average ticket size and why it's important to be larger rather than smaller and US manufacturers and how to find them. Like you said five, six years ago it was all the rage. I think it's a great model, to be honest, we think it's fantastic. It takes less working capital to get started if you do your research and really focus in on some of the things that he's talking about. I think it's a great opportunity for somebody to start their own business versus buy. I know you had Amanda on the podcast about that. I think it's a great opportunity to go that route if there's not a ton of money for startup capital and you really don't want to do imported from China which can be complicated.

Mark: Yeah. Look at one thing and think about these ideas of fading niches and fading business styles is that if you find a business today that is in one of these fated business setups like drop shipping; if it's doing well today that's most likely a highly sustainable business. We look at these things and we say oh well drop shipping didn't work because it's just not sustainable for the long term. If somebody has been doing it and is doing it now today then there's something sustainable about it. I would agree that the old model of just taking a product feed and throwing it up there, yeah there might be some problems with that. But drop shipping is still viable if it's done right. So I'm interested to see what he's doing specifically for that sustainability and protecting against that competition and hearing how this will all work. And this is fascinating. Again this is kind of a blast from the past but how it works today. So let's get into it and see what he has to say.

Joe: Let's go to it.

Joe: Hey folks it's Joe from Quiet Light Brokerage and today I've got Anton Kraly with me on the line. Welcome Anton, how are you?

Anton: I'm doing very well Joe. Thanks for having me.

Joe: It's great to have you here man. You know the process; we've talked about it just before the recording started here. Why don't you give the folks a little bit of background on yourself and what you do with ‎Drop Ship Lifestyle?

Anton: Sure. So yeah my name is Anton Kraly. I built my first e-commerce store way back in 2007. I started off then selling cookies online and basically just got into the business after reading I think a book that got most of the entrepreneurs [inaudible 00:04:07.8] started which was the 4-Hour Workweek. I mean it introduced me to back then Yahoo Stores and AdWords. So I spent a week figuring it out and it worked. I since then kind of been working my way up selling more and more expensive products and transitioning from what used to be an importing model to the drop shipping model.

Joe: One week? You took the book 4-Hour Workweek and in one week you got a listing up and running and a business off there?

Anton: Yes but before that, I thought that e-commerce and building websites was like this big thing that took a team and $100,000 plus and all these … you know just technical people. And that book what all it gave me was you can go to YahooStores.com and spend $29. And the website was ugly. It was very ugly but I had a delivery route for a bakery in Brooklyn, New York. So I had this idea that I could build a website. I had access to these bakery products. I figured out Ad Words and just said hey we'll use keywords like New York Bakery, New York Cookies, and said I think my little descriptions were moved out of New York and missed New York Bakeries? Click here. And yeah I started getting sales like almost right away on that.

Joe: That's amazing. I love it. I love the story and I love the action in terms of just doing it and getting things done. It didn't have to be perfect. If you waited for it to be perfect you would still be working on it for sure. I think I built my first site for $50 so congratulations you got me beat. So … but you were actually physically owning the products in terms of the baking goods and at one point you worked in to just drop ship. Can you touch on that a little bit?

Anton: It's funny actually I was I guess technically drop shipping then but what I had at that time … I was 21 years old right out of school and I bought a delivery route for a bakery in Brooklyn.

Joe: Ah okay.

Anton: What I had basically was the rights to pick up boxes of cookies and sell them to a section of Long Island where I was living. And once I started this business at first I was just shipping them myself like literally having USPS pickup branch boxes and then I just said to the bakery like hey can you guys just ship these things for me and they said yes. So that was drop shipping. I didn't know what it was but after I was doing that … not for long, probably a few months I just was thinking like okay I'm selling $20 boxes, $30 boxes making like $10 per sale if that net so why can't I sell something that costs $200 or 500 or a thousand. So my initial plan back then or is my plan of action and what I did was go on e-Bay, look at completed listings and just looking for things that sold consistently. I buy at now prices, basically identified some items, I still don't know what drop shipping was so I found a website Alibaba.com and started importing. So I did that probably for two or three years import only. Bringing in dozens of containers from China to Long Beach in California and all my e-commerce stores back then were on that model. As I did that again after a few years of traction and doing really well growing like doubling over year over year I actually started to have companies reach out to my stores. And they would say hey we saw your website, we see you sell these things, we make these things do you want to sell ours? And they basically introduced me to drop shipping. Because they explained you don't need to buy this, you don't need to put it in your fulfillment center. You can just list these products, you sell them, and we'll ship them for you.

Joe: Let's define that then. For people that don't have the experience set that you and I have go ahead and define drop shipping and how it's different from owning your own brand and physically owning the products and shipping them yourself.

Anton: Got it. Drop shipping really is a high level term so if you Googled it you could find probably 10 different business models that technically would be drop shipping. And the way that we do it is basically we consider ourselves Internet retailers. So the way I like to describe it is if you went to a shopping mall and let's say you went to Dick's Sporting Goods right? They're a retailer. You go there and you buy Nike shorts and maybe Callaway golf clubs and whatever brands make kayaks and they sell other people's products. So that's how we do drop shipping. So again instead of building a site and let's say … you know I have a sofa behind me, so instead of making sofas or private labeling sofas we would just go out there and find the top 50 or 100 whatever it is sofa company is for us in the US because that's where we do business. We would reach out. We would say hey you know we see your products and we own this site and would like to sell them. And the arrangement on the drop ship model is they give us their full product catalog. They give us all their descriptions, their SKUs, their images, they just give us all the content and then us as retailers it's our job to make them look good on our websites. Basically, make sure we're taking care of customers and then, of course, our job is to drive visitors and then turn those visitors into customers on our online retail stores. Again the difference is I wouldn't ask those 50 sofa companies can I buy ten of all your best selling products and ship them to my warehouse. I would just get the sales on my website after the sale is made the order gets forwarded to whatever brand it is. The brand ships it direct to the consumer. So again your job as a … and the way that we do it your job as a drop shipper or internet retailer is to build a good store that has great product descriptions that actually has existing customer service and that gets really good at finding buyers bring them to your website.

Joe: Yeah. So you touched on some things that I think are advantages of drop ship over owning your own brand but I want you to go ahead and give me two or three there and then we'll talk about them for those listening in the audience.

Anton: Yeah; definitely, so back again let's … maybe 2008, 2009 when I was only importing. Basically, I was limited in terms of growth, in terms of revenue because every time I place an order with China I had to put down at least 30%. Before the container got to California I had to pay the balance.

Joe: A container … I mean we're talking about a tractor trailer load size—

Anton: Yeah. [crosstalk 00:09:32.2]

Joe: —a lot of money there.

Anton: Yeah. That's right a lot of cash. And basically, that's what happened. Our growth back then was limited based on how much cash I had. Again I had … only I had what was coming in so it was a bankroll sitting there that I could draw from. So basically yeah that was an issue. And then also if I wanted to add new products, back then I probably had between 10 and 20 different SKUs. So I couldn't just say I want to sell … I want to double the amount of products we offer and sell those. I just didn't have that option because again it was cash prohibited.

Joe: Number one might be … I mean if someone is starting out on their own and they don't have a whole lot of working capital they may seriously consider drop shipping versus finding, building, designing, private labeling their own brand and then ordering some from an overseas country.

Anton: Definitely.

Joe: So working capital. If somebody is strapped and doesn't have tens of thousands of dollars to start off with.

Anton: Yes.

Joe: Okay. I got you. What kind of working capital do you think the … an average drop shipper that's someone that you train needs? What's the ideal situation?

Anton: So it depends if you want to outsource things. Again like when I first started I built all my own websites and I created all my own ads and I wrote all my own emails and I did it all myself. So if you want to be the type of person or if you are the type of person that does all the work it really doesn't cost that much as far as a budget. Maybe honestly like a thousand dollars, $2,000 in the high end is like that's okay, again, if you're willing to do the work. If you do want to outsource things like uploading products and having unique descriptions and having content created for your website, I wouldn't recommend outsourcing ads at first but if you wanted to do all that then maybe 10,000 bucks and you can get set up with a nice looking store that's pretty much ready to go.

Joe: So drop shipping is not dead right? You know I just … before we started recording we've just had a very attractive drop shipping site go into contract in the in the mid million and a half range actually. Most people that are out there looking for a business think physical products and own their own brand so that they can in many cases they do it on Amazon or a Shopify store. What are the disadvantages that you've experienced by being a drop shipper versus owning your own brand … well owning your own brand, you still own the customers as a drop shipper.

Anton: Yeah.

Joe: But what are the disadvantages?

Anton: So we've done it both ways and let's go to it. We can talk about this but if you are again we'll just keep using the sofa example. If I sold for 50 different sofa brands and I had a successful store I would know what the top 20% of products were. I would know what sells the best. And then again what I used to do … I don't do this anymore I'm planning actually my move to Charlotte is to get back into this but what we used to do is introduce our own brands then on our website. We basically just okay we have 50 brands now we have 51, one of them being ours where we could sell our versions of the top products and maximize profit there. So that's the biggest advantage if you have your own brands. The margins just simply are higher. You can make more money because you're not paying for someone else's brand equity basically.

Joe: Okay, I got you. That makes a heck of a lot of sense.

Anton: Yeah the other one is we usually … I mean you could speak about this but sale price. If you want to sell your store and you have your own brand that could be a bigger package. It could be more valuable to a buyer that wants that. But that would be another advantage.

Joe: Maybe. Yeah, there are a lot of advantages and attractive features about drop ship. Number one, no working capital required. A lot of the people that own their own brands and launched their own business with a brand starting out they do it bootstrapped. Maybe they don't have … maybe they have got 5,000 instead of a thousand or two like you talked about for drop shipping business but every ounce of profit that they make if the business is growing like crazy and they're just trying to keep up with volume of orders and inventory so they don't run out what I see is for 24months they're taking all the profit and putting it right back into buying more inventory and there's hardly left … any left over for them; its discretionary earnings, its taxable income, because they're buying a lot of inventory. But they don't get to pull a hold off out of the business and I sense that with a drop shipping business and I've seen it there's a lot more pre-working cash flow because you're not actually buying that physical product and so you've taken the order and have the money hit your account right?

Anton: Yeah and that's the beautiful thing. So like you mentioned with building your own brand and constantly having to reinvest if you're growing to purchase more product, typically with that the payday does come when you sell the business. That's when you get all that money out. As the business value grows but your cash flow doesn't … or your free cash flow. And with drop shipping yeah if you do this the right way and you're working with the right type of suppliers and of course you're not overspending on traffic you really do control your costs. So most of your costs are variable so having … even if you're in reinvesting like a little bit more into traffic and trying to raise your budget it is realistic to have a 20% net profit every month in cash that you can then again determine what you want to do with. If you want to invest it into a business or do you want to take it out? So our cash flow from day one is much much higher than when you're going to be trying to scale your inventory.

Joe: Okay. So let's talk about I want to start the drop ship business, I'm convinced I want more cash flow. I'm not worried about a big sale down the road although they are very, very sellable businesses. How do I find the products? How do you find manufacturers that are willing to allow me to sell their products on their behalf?

Anton: Yep. So as far as finding products there's so many things out there but basically what we look for for some general rules of thumb is expensive products. Our average sale price we want to be usually a thousand dollars or more. We do sell products for less than that but that's the average order value we're looking for. We also look for different product types where customers really don't care what brand they get it from. So an example I sometimes give is let's just say someone heard oh a thousand dollar products price. I want to sell televisions or high end gaming monitors. Well, I would say that's a bad idea because if someone wants to buy that they're going to buy a Samsung TV or an LG monitor and that's not a company you get approved to sell. But if you wanted to sell something like sofas or books shelves or any of these products types no one cares … no one says I want this brand name sofa and I have to have that. So things that … yeah, there's really not brand loyalty. That definitely helps and things where there is a lot of possible variation or colors. So another example I give is chandeliers. So someone buys a new home like we're trying to do now you want to replace the lighting fixtures. If I want a chandelier I can go to Home Depot and Lowes and see what they have. But if I see something on Pinterest or Instagram and I want this specific size and color and amount of bulbs like I'm not going to find that at a local store. So China might stack the cards in your favor by going for things where customers are usually drawn online, to begin with, to make those purchases.

Joe: Okay so –

Anton: [inaudible 00:16:14.8] to search for a new iPad but something generic.

Joe: Right. So something generic with a high ticket item. How do you find those manufacturers?

Anton: Yeah. So Google … I mean that's really what we do. And one of the tips I could tell people not to do is don't look for drop ship suppliers online. Because when you go that route what you're going to find is directories and middlemen that typically charge like a monthly fee for access to their products. They really are middlemen. What you want to do is always get approved directly with the brands that you're selling for. So you don't want to go through a distributor if at all possible. You definitely don't want to go through any one that calls themselves a drop ship supplier director or anything like that. Again going back to the sofa example, I would go on Google, I would type in whatever I want to sell; maybe three sitter fabric sofas. I would go through Google. I would open every website in a different tab that sells them. I would look for either a page called brands or manufacturers or suppliers. And I would go ahead and then open or make a document with every company name I found there. And basically, I would work off that list. So I would build my own list of not … again like I wouldn't call them a list of drop shippers, I'd call them a list of brands that manufactures sofas. And then I would reach out to them old school by picking up the phone and saying hey this is Anton from AntonSofas.com, I found your website and these products and thought they'd be a great fit and who can I speak to about getting approved for an account and take it from there so yeah.

Joe: How do you convince them to allow you to be a drop shipper when you haven't built a website first or is the—?

Anton: We built the website first. So yeah if I was getting into a new industry let's … again sofas, I build a website. I would upload maybe five or 10 stock images. Everything else would be finished though, the about us page, all of it. Then we have blog posts up there. The whole thing; the phone number would work, the live chat would work. And then when we spoke to them we would say basically we're launching this website on whatever it is you know March 1st and our plan is to work with X, Y, and Z companies. So mention some of their competitors that makes sofas that's probably well-known and respected. And we could say our plan is to launch with again these companies, we'd love to have you on board. We think that your products whatever it is X, Y, Z that we found on their website would do really well. If they ask tell them a little bit about our previous experience, how we're going to get traffic. Tell them about how customer service is everything with our business and kind of go through the things that we know that they're looking for and the things that … they're also the things that we know we have to do to make the store successful.

Joe: Okay. So build a website on the product and then start the marketing and we'll get to that in a second. So in terms of building the website do you have examples on Drop Ship Lifestyle of what one looks like that would be an ideal one to build?

Anton: We do. We have a bunch of different links. I could send you some to check them out but I think one of them that we have a lot now is in lightandchandeliers.com so if anybody wants to check that out. We also have HappyPawsDogStore.com. So those are websites that are built on Shopify using the Drop Ship Lifestyle theme that we had built and they just show again what the site would look like at that stage when you're ready to start contacting suppliers, get approved, and [inaudible 00:19:17.6].

Joe: So you answered one of my other question which is which platform do you prefer and it sounds like Shopify. Okay.

Anton: For 99% percent of stores, yeah.

Joe: All right so you've identified the niche that you want to go in to, you build the website, and then you find the manufacturers and develop the relationship and bring their catalogues into your website. How do you go ahead and find the customers and market the brands?

Anton: Yep so our favorite way is still through Google Shopping by using Google product listing ads. Those are the ads if anybody goes on Google and types in a product name or you can just use the general niche name you'll see the little images of different products. It'll show the product's price. It will show the store name. So we advertise there and then also if you're … if you search that on Google and put shopping you'll see all the ads there. And it's just always been like back in the day I think when I first started it was called frugal.com and like that's always been our highest converting source of traffic. So we focus on not just having our products there but really optimizing our product feeds to make sure that we are getting a good ROI. Because the big … since again all of our expenses are variable our biggest expense is marketing. So we spend a lot of money on ads. And so I'm just making sure that we are putting it in the right places and monitoring it. Like we we're always reviewing our ad campaigns. That's what drives the business. Like you need a high converting website, you need great brands, but if you're not really active with … inside your Google ads account then it doesn't matter. So yeah that's what drives our sales.

Joe: So that initial one to $2,000 that you thought was a big budget initially does that include the advertising budget when you launch?

Anton: Most of that would be going in there. And this is another good thing I should have mentioned earlier but speaking about how these are cash flow businesses with the way that we do advertise to get the majority of the time it's either coming from a Google product listing at search or someone searching for a brand name or a product name or an SKU number or it's something that we optimize for on our website where they're searching again and they're finding us organically. But by the time people find us they're typically trying to figure out am I going …with where my going to buy from basically. They know they want product X, Y, Z and they're looking to figure out where they should buy it from. So we do a bunch of stuff on our websites to have them choose us. But also by the time they click one of our ads they're either going to buy or not buy typically in like three to five days. So it's not like we're spending whatever a hundred dollars today and hoping it comes back to us two months from now.

Joe: Wow.

Anton: Spending money now and if we're not [inaudible 00:21:34.0] positive within a few days then turn it off.

Joe: Let me just summarize and differentiate the business model between owning your own physical brands folks and the drop ship store. Again I just want to wrap it up and summarize if you're not wrapping up a summarized. So building the shop … you're building the store, you're spending a total $2,000 budget all in and that includes advertising. With a physical products brand, you're doing that as well but you're ordering the product from let's say China, for instance, waiting for that product to come in, putting it up on Amazon, spending some money to get traffic either to Amazon from Facebook or some other source and doing sponsored ads in Amazon. So far we've spent, we've spent, we've spent, we've spent, and then you're going to get paid out every two weeks from Amazon. Your advertising budgets are going to take and blow your credit cards once a month. With Drop Ship Lifestyle or drop shipping, you're not spending any money on product. You're building the website and you're building … doing the marketing campaign. And it sounds like if somebody is going to take … you start getting orders right away after a few days, weeks of advertising again even your advertising budget is with your credit card and you're not getting … you don't have to pay that depending upon the time or the month when you launch for another 30 days. So you're getting the revenue from the sale before you have to buy the product and you're just sending the … do you send an invoice, an ACH wire, or do you—?

Anton: No.

Joe: Or some of your manufacturers take a credit card as well?

Anton: Most of them are credit card. So whenever we can we go credit card and so yeah the points if anybody's into that is amazing. I haven't paid for travel in like 12 years so you'll want to use rewards cards.

Joe: There was a time when I was spending … the highest I ever spent was 50,000 a month on Google Ad Words when I had my business and we furnished our house, we took vacations, everything for the points. Now let me just talk to buyers and sellers, particularly sellers out there when it comes to points. Something like this if you've got a drop ship business and you're doing it this way that Anton's talking about, if you are spending $100,000 a month on inventory and advertising, of course, you've got to pay for it in advance.

Anton: Mm-hmm.

Joe: So … but if that's 100,000 points if you use a point converter or a cash back credit card. That is what's called an owner benefit. Anton, I want you to pay attention to this and talk to all the folks that you train.

Anton: Okay.

Joe: That is an owner benefit that you should track because if and when you sell your business it needs to be added back to the add back schedule as an owner benefit and can boost the overall value of your business. I just launched one recently and he travels the world and does it all with … no, I'm sorry he buys all of his inventory with credit cards and that gives him an enormous amount of cash back. I think it was something let's call it $25,000 cash back over the course of the trailing 12 months. If your business is listed at a three time multiple everyone that adds $75,000 to the overall value of the business. For buyers, if you're looking at businesses and you're looking for some instant equity if a broker didn't list cash back points or anything like that and sometimes you've got like Anton said travel you can convert those. With our American Express there's we've got a certain number of points and we can convert that to cash. That's the amount we're talking about. But that could be instant equity in a business for a buyer if you're taking over drop ship model and your broker didn't do that or the broker that listed the business didn't do that you can. Okay, how much are you spending? What kind of points? You know using credit cards do the math and it's definitely instant equity. Okay, sorry long rant there. The biggest thing for me and so when I'm talking to buyers and mostly sellers and I'm going to say this for the folks that are listening the biggest mistake you can do … make is not pay attention to the details of your financials and documentation. A little thing like that, we all work so hard when we've got our own businesses to drive top line revenue and talk oh I'm doing this many millions in revenue. That doesn't matter as much as the bottom line number and when you pay attention to that that actually brings more value when you do decide to exit your business. Okay, Joe is done ranting. All right so other than Google Shopping what other marketing channels are there in terms of paths to growing the business itself?

Anton: So the ones that we … I'd say use every time so it varies, so you find some industries where there are certain placements but whenever we're building a new store we will be obviously Google is our number one. Organic traffic is big. We used to invest a lot of money into it trying to rank major keywords. We don't do that anymore. What we do now is just focus on site and make sure that all of our product pages especially once we know which our top 20% of products are going to be, we make sure those are extremely unique and optimized because that's just free clicks and free sales. So organic is big for us. Bing, believe it or not, we advertise. It's probably 10% of our overall marketing budget.

Joe: I'm not sure if I believe it or not. Okay, 10% all right.

Anton: We're putting some money there. There are people, they're sales.

Joe: Okay.

Anton: We can't scale it. Every time we try to scale it it breaks. But add a small budget and it works. Facebook we are big on but only for remarketing and the reason being we do sell high ticket products. So to put an ad for a chandelier in front of someone that likes I don't know what interior design they're not going to buy it so … retargeting though we are big there. YouTube ads actually work really well for us as far as remarketing also. And then one of our other ones that budget depends on what industry are in and what's out there but advertising on other content sites that already exist. So you can call it influencer marketing but it could either be a business, website, a content site, it could be someone's personal content site. But either doing like paid promoted articles or taking out ads in the sidebar. Either way but trying to form relationships with people that already have the audience there and then paying them to either have them talk about us or to allow us to put a little banner on their website.

Joe: I got you. And a lot of the stuff you just talked about, we've had guest experts on that do YouTube ads or might do influence or marketing things that of that nature. Are you generally finding the people that you work with managing all of this themselves early on how … somebody that doesn't have the expertise to do that what do you advise them to do?

Anton: Typically if they're starting from scratch and they want to build a business and with this type of business I don't recommend hiring anybody from day one. I recommend like learning at least … look do it yourself and get it profitable and then okay look for someone that might want to run your content side of the business or look for an agency that can manage your Ad Words but I really … for most people when they're starting I say do it yourself. It's easy to throw money away and I made this mistake early on with my e-commerce businesses. We were profitable but when I look back I spent all this money in like fees into all these companies and I didn't know enough to know that I was grossly overpaying for a lot of things. So yeah lesson learned.

Joe: That's the beauty of experience and age and wisdom right? You get to remember all your mistakes and what you might have done differently. Talk to me about Amazon. Anybody got drop ship businesses that are reselling on Amazon and if so how do you do that?

Anton: I'm sure the answer is yes. I'll tell you we don't do any drop shipping on Amazon haven't even ad … I used to advertise there back when they allowed Amazon product ads to go to external sites. But that's been gone for a few years. Yeah, there's some people that I work with, some of them are students at Drop Ship Lifestyle that have their own drop ship stores that do what I've spoken about earlier where they'll introduce their own brands into the mix of their drop ship store. And typically when they do that they'll also have their products on Amazon because they know that people at least a percentage of them will also with Amazon and look there. With the type of brands that we work with typically when we are getting approved to sell for them and we're signing the agreements, one of them says that you're not going to sell on 3rd party platforms like companies like e-Bay. They don't want to sell us to sell there. Same thing with Amazon reason being is because if they're going to have their products there they usually do that internally. A lot of the times because the items are usually expensive and margin heavy they're not the type of items that people are private labeling and putting on there. So it's really at this point I'm sure this will change in the future but at this point, it hasn't been a huge factor because I think our price points are higher and again the items are usually like too big to be sending over to FBA and paying storage fees. The numbers don't work at this point with that model.

Joe: Do you foresee any danger as a drop shipper that the Amazon business model is going to be a challenge for drop shippers because those manufacturers can go directly to them and guys like me anytime I want to buy something I go to Amazon first?

Anton: Yeah I do. And I'll say at this point I'm not like freaking out like oh my God like I … were gone but I do think that five years from now 10 years from now, if Bezos gets what he wants then Amazon will have the entire market share of everything. So I … you know I've talked about this before but I think like we'll see. Like that's definitely where they want to go. I think they're pretty upfront about it so unless someone else steps in or unless the government breaks them up from getting too big then yeah we'll see what the market looks like. Again I don't think it's coming anytime soon but maybe call it 10 years we'll see what things look like then. But I'm in no way confident that they're going to just back down and say we have enough. They're not about to stop.

Joe: Yeah well I think your approach to larger ticket items that higher value, not easy to ship, not easy to store at an Amazon warehouse kind of eliminates … they can't have everything right? I mean Jeff—

Anton: They're not now they haven't. I mean they've taken over pretty much every market in that call like $100 sub priced product range and even electronics; like I buy some of my electronics from them. But as far as the types of products that we sell it's been that one area that they haven't really stepped into at least not in a big way. Like they sell basically … at this point, they sell cheap versions of the stuff that we sell. So you know if you search for a lot of the brands we sell they wouldn't sell for those brands but they'll sell like an inferior type product I would say at this point.

Joe: I got you. I know that I say the first place I go is Amazon and I rarely buy anywhere else but them but when I find a certain brand I will go to that website and I would certainly buy from them. And I know my wife will certainly buy from the brand manufacturer or in many cases we built our house three years ago and she was that person looking at 30 different websites for the lighting fixtures and probably brought from one of you guys at one point.

Anton: Probably, but for anybody that's like thinking about that and kind of like worried like well yeah that probably is going to happen. I think one of the biggest things you could do is look at sites now that are … I don't know I would say going above and beyond like don't do the bare minimum as far as content and as far as usability and as far as like everything; the whole experience. One website that I buy from all the time is the bnh.com. They sell you photo and video equipment. And they do have a huge store and warehouse in the middle of Manhattan but most of their orders now are online. And I think that all that stuff that I buy from them I could buy from Amazon and I buy it from Amazon all the time but I like the experience there better for that type of product. So if anyone wants inspiration check out B&H and see how they do things. They do a great job.

Joe: Thanks. So I think this whole podcast has been inspirational for those that are looking to build an e-commerce business in this case specifically drop shipping. It's a great alternative to the risk and cash outlay of building your own brand. Any last thoughts in terms of what the benefits are anybody should think about in terms of drop shipping versus e-commerce?

Anton: Yeah I think for anybody even if you're listening to this and you're like oh that sounds good but I already have half a million dollars in the bank and I just want to build a brand. I still think you could do both simultaneously and it's a great idea to start with a drop ship model in whatever industry you want to private label or manufacture in. Start drop shipping, build a website, build an audience, get sales, see what people buy, see what they like and don't like about products. You'll have all that market data you'll be making money and then you can go ahead and start your own brand with all the information and really increase your chances of just hitting on your own bit.

Joe: That's great Anton. Your website is DropShipLifestyle.com you're helping folks understand the drop ship model. What's the best way for them … anyone to reach you that want to chat? Should they just go to the website is there a—?

Anton: Website, DropShipLifestyle.com click contact, and everything is linked up off there.

Joe: Fantastic. I appreciate your time today. I look forward to doing business with you in the future.

Anton: Definitely. Thank you, Joe.

Links and Resources: DropShip Lifestyle

Contact DropShip Lifestyle

Here at Quiet Light we often like to hire people who are just a bit smarter than us. Amanda Raab is one of those people. She has been helping our clients through her own expert entrepreneurial experience since 2012. Having started the famous Pure Pearls online retail company at just 25 years old, Amanda has gone on to buy and sell multiple businesses. She's with us today talking about the benefits of building a business without working herself to death.

Amanda shares tips on how she's acquired multiple businesses, outsourced their growth, and sold them successfully. The buy versus build topic truly never gets old and every time we talk to a guest about it there is something new to be learned. Amanda makes a good case for both.

• Amanda takes us back to how she got started in the online world.
• Her pearl company story and the press surrounding her success.
• What it took for Amanda to realize she could hire people to run her businesses.
• The absentee owner business model that she's been able to replicate several times over.
• Reasons to hire someone who is good at every component of your business.
• What Amanda looks for when she's hiring and what building a solid team requires.
• How much she manages her creatives and monitors their input.
• Where Amanda lands on the buy vs build spectrum and why.
• The first areas Amanda outsources when starting a business?
• The last thing she would outsource.
• Amanda's number one piece of advice for buyers looking to invest in an internet business.

Joe: So one of the things that you and I have talked about over the last few years is that we keep hiring people that are smarter than us, maybe smarter than both of us combined which may not be saying much.

Mark: Yeah you set the bar pretty high there Joe.

Joe: For you anyway but Amanda is talking about a number of different things in this podcast coming up. Amanda and I started at the same time back in 2012 and I'm really looking forward to listening to it because honestly, I don't know that much about her history. But every time a new broker connects with her, talks with her, they get kind of blown away with her experience. Walker, as we all know, wrote a bestselling book and we like to make fun of him and prod him on and we're proud of him for it as well called Buy than Build and in this episode, Amanda's doing the opposite. She's talking about the benefits of building a business, outsourcing some of the things that people don't like to do themselves, and then actually selling them off. Kind of the opposite of what Walker talked about.

Mark: I mean you're right she's kind of a more private person and I think I was working with her for three or four years before I realized that she was … or I even learned that she was featured in Time Magazine when she was in her young twenty's for some of the entrepreneurial work that she was doing. And she actually had a documentary filmed on her about sourcing pearls from China of all things.

Joe: Oh.

Mark: Yeah I know right?

Joe: I didn't even know that.

Mark: Yeah to think we've been working with her for seven years and you didn't know that there was a full documentary on this person that we've been working with. And also that she was invited and actually spoke at a conference. Did you know this Joe? She actually spoke at a conference in the past.

Joe: She did?

Mark: I know right.

Joe: I have absolutely no idea. We're underutilizing her talents. There's no question about it.

Mark: That's what I'm saying. And she is actually crazy smart, one of the most talented entrepreneurs that I know and have known. So in this conversation we ended up just talking a lot about her background because I wanted to find out just in this conversation what wisdom would come out and what revelation would come out of this and getting in a couple of things right away, finding out how did she start multiple businesses, grow them but not work herself to death because she's always building a new house or a new rental property. She's always got some other project with a business on the side. And then she's been working with us for as long as she has. So her time management skills are great. So we talked about this idea of how do you outsource your business people. And I know we've covered this before on past podcasts but I don't know if this topic really gets old because people are doing this in different ways and every time I talk to somebody about this I learn something new about how they're doing it. And so I asked her what is the first thing that you outsource when you start a business? And I'm not going to share the answer now because it actually surprised me a little bit as to what the first thing was and what the last thing was that she does. And then we talked about this idea of is it better to actually build a business or is it better to acquire a business and when should you look at both options? And I thought it was a pretty good conversation, a very honest conversation as well that hey there's room to actually start a business in this entrepreneurial world of ours where people might think we only want to talk about buying a business. She made a pretty good case for when it makes sense to actually start something from scratch. So a fun conversation honestly and really just lots of interesting tidbits of information throughout the entire podcast.

Joe: Well I think it goes to the depth and breadth of the quality of people that you've hired at Quiet Light over the years so I'm looking forward to listening to it. Let's go on and so people can stop hearing us chatter.

Mark: Well I'm going to say one more thing. Joe, did you know that she decided to start an affiliate business and within four months became the number one super affiliate for that product?

Joe: You know I had no idea because the only one who I thought was ever a super affiliate was Jason because he wrote the Bathrobe Millionaire.

Mark: He's our other author.

Joe: He's our other author, our super affiliate. Wow, no I didn't know that. She's never said a word. I wasn't—

Mark: Exactly, I love it. So anyway let's get to know Amanda a little bit and hear some of her past and some of the things that she has to say about online business.

Joe: Let's go to it.

Mark: All right Amanda thank you so much for finally agreeing to come in the podcast. I've been trying to get you on the podcast for a while but I know you've been building houses, building rental properties, doing business … starting businesses, and of course helping Quiet Light Brokerage clients as well.

Amanda: Yes, I've been busy that's for sure.

Mark: That's for sure.

Amanda: So now I have some down time and I decided to take on the challenge of doing one of these podcasts.

Mark: Yeah well, of course, doing the podcast is always a little bit interesting but I think again we're just going to have a conversation here about your background and everything else. So I tell … I don't want to embarrass you right off the bat here but when I talk about the Quiet Light Brokerage team to people I often say well Joe is a client, Jason is the one that kind of forced his way in the door of Quiet Light and I tried to scare him away by giving him all these awful leads and the next thing I know Jason is breaking every record in the book. Joe came on and has been doing the same. But when I talk about you I said … I always say one of the smartest buyers I've ever worked with. And that's how you and I initially met; you were looking at one of my transactions … a deal I had. Do you remember that deal?

Amanda: Yes I do.

Mark: Yeah. Okay so … and a real lot of competition for that deal but of all the buyers you're able to kind of hone in on some of the key metrics right away. [inaudible 00:06:06.8] was super impressed. I deal with a lot of buyers so super, super impressive. So let's do this. Let's go back a little bit to how you got started in the online world because you actually started with a website called PurePearls.com. You were featured in Time magazine at a super young age. And then you filmed a pearl documentary in China as well right?

Amanda: Yes it's kind of crazy to think about it because that part of my life was much of a whirlwind. But I was actually in grad school when I started my pearl company and thought it would make a great hobby. Something as a creative outlet outside of the day to day just what I was doing already in grad school. And so it kind of just snowballed and I just loved it. I was super passionate about learning the business not just the pearl business but just e-commerce, internet marketing, what it would take to get in front of customers. And that opened up so many other opportunities from public relations to search engine optimization. At the time those were big channels for marketing and it just kind of went from there. At the time I was focused on the pearl company I realized there's much broader market and I started getting interested in other opportunities as well. I was invited to a conference in DC to do a speaking engagement for Yanik Silver's Mastermind Group. And as much as I do not like public speaking I decided to face my fears and do it. And I met so many awesome people there. And I just kind of basically looked at what everybody was doing and thought wow there's just so many things that we can be doing with this internet space. And that was kind of a long time ago so I'm thinking that was probably around 15 years ago. So at that point, I just started another company and built that company, sold the pearl company because it was exploding at the time and I just … I couldn't manage it all. So I kind of started small with my new company in the printing industry. So its check printing and I started five new websites. So I just kept building, building, building and developed relationship with manufacturers and started printing basically our own custom products. I scaled that up and realized that I could develop a team to make sure that was a lifestyle company and I didn't have to be in the business. And that's kind of where I got the idea of starting my self-company. Businesses that I did have to work in that I could work on building teams to run them and basically allowing me to do a lot of different things. And so I didn't have to focus on just one niche.

Mark: I've just run being been in the business. I've met a guy over the weekend. I was at a conference in Los Angeles … not it the Internet marketing world it was just kind of a more generic business conference. And he used to be a professional fighter and then we were talking about his business career. He said well I have 13 companies so I founded 12 and acquired one. I'm like oh my goodness and he said well I don't really do that much I've put teams in place. And we've talked about this on the podcast as well. We had Shakil Prasla on twice talking about this and how he hires CEO's and puts people in place. And this seems to be kind of this recurring theme with a lot of what we're doing here talking about that. At what point did you learn to put people in place with your companies? What did it take for you to be like you know what I'm going to hire people? Was it … well did you have kind of like a moment where it kind of struck you or was it more organic over time that you realized this is a good way to go?

Amanda: I'd say both; a combination. With my pearl company, I realized I needed to put systems in place because I wanted to do a lot of different things. And so I went to an event and I heard somebody speaking about outsourcing things that you don't like to do. And I was like wow that's really smart because when you run a business there are going to be things you don't like to do. There are those dreaded tasks that you put off and put off and put off right? But you need to do them to run a functional business. And so at that point, I started outsourcing things for the pearl company. When I first started obviously I was wearing all the hats in the company but then I started hiring a customer service person. I was lucky enough to have somebody to handle all of the manufacturing and the shipping for me, the packaging so I don't have to actually even touch the product. And from there I hired a marketing team, content writing and things like that. So basically all I did was make sure that the marketing was on point, develop new ideas for marketing channels, and keeping the books in line. And then when I brought on my new company Check Printing, a financial printing company, I kind of used the same system and developed it for that business and it worked really well. I started that from the very beginning and so it was very much an absentee owner business outside of me looking at new marketing channels and keeping the books and whatnot. And so I was able to replicate that with each of my other businesses as well. I think it comes out of a necessity because when you want to do a lot of things you realize you have to create these systems right? But also I don't think you can be really good at everything and I'm not. And so you hire people that are really good at each individual component. So somebody who's customer service is likely not to be the greatest at book keeping, right? And somebody who's great at Search Engine Optimization may not be that great at Facebook Marketing. So I think it's really important to hire somebody that is really in tune with each different component of the business. It just makes more sense.

Mark: Okay so we're going completely off script here because we're going to talk about the buying versus building and kind of building off of Walker's episode that we filmed. You know Walker who is a … we always have to say now best-selling author Walker Diebel because he's done such a great job with his book Buy than Build. People are like … we're at CapCon this past weekend and we gave away his book and when people realize he was there like oh the author is here, oh that's super cool and like he's kind of a big deal. So we'll get to this I do want to talk about building versus buying and making sort of the argument of why would you want to build a business someday. But I want to go back something you're talking about here, hiring out different pieces. Okay, it sounds so easy to do to say hire a marketer and hire somebody who's really good at what they're doing. Okay, great. Look I've hired people before, I've fired people before, these are all … it's usually in the agency sort of roles. When you're looking for somebody to hire specifically for marketing let's delve into that, how do you A. qualify them or what do you look for? Are you looking for an agency? Are you looking for an individual that works for you directly? Or does it really matter to you? And then also how do you … you said keep the marketing message on point? How? What are you doing to keep that marketing message on point and to check that?

Amanda: That's a great question. I was actually reading something last night that said there's no such thing as a getting rich quick scheme. They often take a lot of work to get there. Even though it sounds simple it's actually really difficult. And it kind of goes with the same thing that success is like an iceberg, you only see the top part but there's a huge component at the bottom to making that work. And so there's a lot of trial and error with that to find the right person. Obviously, there's going to be a lot of hiring and letting go and finding somebody else because you learn what you don't want, you learn what you actually need. And sometimes that can be an agency if they have all those components built in. So if they have everybody you're looking for and they're doing exactly what they say they're going to do and holding themselves accountable then great since that makes sense. And to me, that's ideal because there's less hand-holding and less training involved. A lot of times though, it does involve finding one contractor to do something very specific. And it does require constant monitoring to make sure that they're staying on task and basically meeting those milestones that you've put in place for them. So I think that building that team does come with trial and error. It does come with some unfortunate firing of team members because they're not performing. But at the end of the day finding those quality team members are what kind of drive your business. So it's really important to stay on top of it.

Mark: Yeah and I think it's important as well when talking about letting people go. Like this is the unfortunate part of being an entrepreneur, sometimes you have to let people go. But I do think it's important to look at the options available to you as well. Maybe like you said somebody is really better suited for customer service and you can really apply that. I often think about like sports teams and what do they do right? Sports teams are often handicapped by who they actually have on their teams and so a lot of times they play to the strengths of the team members that they currently have. And so this is something that for those of you that are currently like me that kind of cringe at the idea of letting people go this is something that you can do; it's invest in the people that you do have to find out where they do thrive. That doesn't mean that you should just need and see hold on to somebody. Everybody is an adult and should understand that obviously, it has to be a good fit. But you can definitely invest in people as well. How involved do you get with that marketing message when you are taking a look? Let's say that you hire somebody to do some Facebook Marketing for you and they're going to set up the creatives and everything else. How closely are you monitoring their ad work and how much are you kind of saying okay I'm going to let you run and possibly fall and this is your gig … I guess my question is how do you avoid micromanaging versus letting them run wild with a completely wrong message?

Amanda: Well that's a good question because I think that first of all I am a natural manager and anybody in my family will tell you that … so especially when it has to do with your marketing dollars and getting a return on investment. However, there are things that I just don't know how to do really well and … for example Facebook Marketing or an email, like Amazon PPC or something of that nature. And a lot of times you will be told that they need a ramp up period so they can kind of test campaign. See what's working and then dial in on a more targeted marketing after they do broader match term. And so they do require a period of time to really get those conversions up or an Amazon to take the a-cost down and so with that I really only check in every three months to see if they are meeting our goal. And if they're not then you have to decide okay am I going to give them another three months period or do I need to move on? And so … I mean it really depends on what it is, what channel. Obviously, with SEO, there is a really long period of time that you kind of have to wait to see if its working and that can be really hard for people who are not patient enough. Because with Google with all of the algorithms that have come through in the last couple of years it can take a lot longer than it did previously before that in the old school days to get results. So it just really depends whether it'd be Instagram, Facebook, where I think you can see a lot quicker results versus Amazon or Google PPC and SEO. It's just a completely different ballgame.

Mark: Are you an old enough internet marketer … and I don't want to call you old but are you old school enough to remember the Google Dance?

Amanda: Yes. Am I showing my age now? Absolutely.

Mark: I'm so glad that we got that recorded that I'm here calling you old publicly to everybody. No, I just … you know I often … I love talking to entrepreneurs. I have been doing this for a while because we remember the Google Dance. Every 30 days or 45 days and then the forms will light up like all right the Google Dance is happening and you'd want to see where you … everything is shook out and did you gain, did you lose? How—

Amanda: Worse than the stock market. I tell you … unbelievable, yes. I don't miss that. There's a lot more opportunities for diversification now it seems so—

Mark: Yeah. I think Google has done a good job of … because if you got edged out by like a spammy site or somebody that was just been [inaudible 00:19:19.4] the search results you're done.

Amanda: Right.

Mark: You had to wait 30 days minimum to be able to correct it and it was just torture but exciting at the same time. All right let's get to the topic that we were going to talk about. I want to talk a little bit about building versus buying. And I know I brought this up with Chuck at CapCon and he's like why would you guys talk about this? You're going to shoot yourself in the foot because we obviously make our money when people buy businesses from us. But there's an argument to be made as well especially for creatives for building something. So let's start right there and just ask you've done both, you've bought businesses and you've built businesses.

Amanda: Mm-hmm.

Mark: Where do you fall kind of on that spectrum and why?

Amanda: Well I'm more on the builder side. I'm just a natural builder, a natural creator. I love the challenge of it. I love actually creating something from nothing. That is very much who I am. And you can't buy something without having somebody to build it right? So there is the other side of that coin and so somebody has to build a business, hopefully, a great business for a buyer to want to invest in. And so I love talking about building businesses because that's really where I'm passionate. I'm also very analytical as you know with data and statistics and marketing. And so I just … I think that when you're looking at buying a business versus building I think there's great opportunity for both right? If you're … if you have a portfolio of businesses for example like Shakil does and obviously he's willing to buy businesses because he doesn't want to invest the time to just necessarily or take the time to grow because they have a team ready to jump into something and run with it. Whereas I like to take some time to build it and see kind of where it's going to go and then run with it that way more organically. And that's kind of where my passion lies. And I like to kind of have that control of what I'm … the product how it's being made, packaged, the overall message around it. And that goes with pretty much everything whether I'm building a home or a business kind of my thoughts on it.

Mark: Yeah and I met him. You've built multiple properties physical like … since you've been with Quiet Light one rental property, two homes at least that I know of.

Amanda: Yes, three.

Mark: Three? Wow.

Amanda: Uh-huh.

Mark: Holy cow. And I know you're really involved in the design process as well. When we met down in Austin you've had floor samples and everything like that in the car because you were going through all this. You do like to get in to that. Do you think it makes more sense? Let's just talk purely investment strategy here from just an investment standpoint. So I'm looking to place money into something and really kind of grow from a financial standpoint, do you think that there's a benefit in buying versus building in that scenario?

Amanda: Today it is harder. It's more competitive to build. There's no doubt about it. It's much harder than when I started out. When I built my pearl company it was in 2003. We launched in 2004. Obviously, that was a total different time, kind of similar with my check manufacturing company. And then with Amazon, I still think that there's easy room for building obviously and even with Facebook Marketing you can see some pretty quick growth there. But there is something to be said for businesses that have really paved the way and are established and the foundation is there. And so I think it just depends on how you want to invest and so if you want to invest in something that's established and that has a history, a foundation that's already been done, they've already built a team for you and you're just walking right into it. That makes for a very sound and smart decision versus taking a risk and just seeing where it takes you in building a business. Because I mean I've experienced this, I've built a lot of businesses that haven't been successful either because I either burnt out or the marketing just didn't pan out. But I've learned from those and so I think one of my greatest successes is built off of just learning from the failure and then building off of that platform. So I think there's something to be said for both. From an investment standpoint though I'd say if you're looking to invest in something investing in a business that's established makes more sense. So I guess it's just different. I am a creator and a builder but at the same time, I do like to invest in sound vehicles so I've done both.

Mark: I've asked this question to a few people before. If you were to guess how many domains you own right now how many would it be?

Amanda: Oh gosh I don't know. And I'd hate to look because I'm sure I'm spending a lot of money just wasting away.

Mark: Yeah.

Amanda: Yes I actually purchased domains for my daughters as well because I don't know where this internet space is going and so I just want them to have the opportunity when the time is right. So yes I have a lot of wasted domain right now.

Mark: Yeah I've logged in to my domain account and it's kind of like going down memory lane of bad business ideas or maybe—

Amanda: Yes isn't it?

Mark: They're not always bad but some of them are bad. Some of them are like oh my gosh what was … was my diet bad when I did that … decided to because this is—

Amanda: The someday businesses; yes, what I might do someday.

Mark: Exactly, there's a couple in there like you know what I actually still want to do that. It's just a matter of A. it doesn't pay anybody if I do it and B. the prime.

Amanda: Right.

Mark: But I think before that you were actually getting on to a point that I thought was really interesting and I found this with buyers. You've been with Quiet Light now seven years I think?

Amanda: Yes, seven going on I think eight; crazy.

Mark: I know right? So you've dealt with a lot of buyers over the years as well and I find that buyers tend to be … tinkers a lot right? The people that love to buy and do really well they're great at taking something existing, tinkering, modifying it, improving it. But a lot of buyers … and this is speaking generally; this is the rule for everybody. The creative process of starting up something from scratch and having to create and have that runway isn't really of interest to them. You know those are things that kind of bore them. And I know in Walker's book he talks about this. He starts out saying that he had start-up companies and they … it failed, including companies that received quite a bit of funding. And that process, that ramp up period was really painful. But once he started buying he really enjoyed that part of it. That was super exciting to him. So I think some of it does come to just personality.

Amanda: Yes.

Mark: What do you get excited about? You are a creator. You're a creative person. You love design. You love creating systems and you are data driven and data oriented. So that makes sense that you are going to really go towards that starting side to help exercise some of those creative muscles. So what are some of the first areas that when you're starting a business you like to outsource?

Amanda: Obviously, the website design that would be the first step and it really depends on what the business is. But the first step would be product manufacturing, a website design, and how to start your first layer of marketing. And I would outsource all of that. And basically, I would just be managing that process to make it look and feel like I want it to so the business imparts the message that I want to integrate into the business. But that part is the hardest part I think of running a business. It does require a lot of thought, creativity, and management. At the same time for me, that's really what drives me when I'm creating something. That push and that challenge is what I look forward to everyday or stay up super late at night thinking about. And so I think it really is important to start outsourcing from the beginning. Because I'm obviously not a manufacturer, not a web designer, and I don't do the day to day marketing per se. I hire all of that out.

Mark: Yeah and I've heard it a lot. Start at the beginning don't try and run a bootstrap with and then think that it's going to be easy. It's going to be easy just to hand that off because it's really hard as an entrepreneur to do that. What's the last thing that you would outsource?

Amanda: Probably bookkeeping, to be honest, because … yeah, it pains me to say because I want everybody to have clean books right? But the last thing for me is bookkeeping because I know how to get a bank account and a credit card. That's easy; those are things that most people can do if we're generic. But running your books, you actually need to have a history of at least a couple of months and so it's pretty easy to integrate that into Quick Books or whatnot from your bank statement. So typically that's the last thing I would hire out because it seems to me that it doesn't take them very long to catch up.

Mark: That's interesting. So I'm actually reversed on that. I like to outsource books first because I just don't enjoy it at all.

Amanda: Right.

Mark: And like you said outsource the stuff that you don't enjoy and keep things that you do so cool. Well, this has been interesting, it's been useful, it's not everything that we planned to talk about but I actually liked what we talked about and that there was something interesting. So I'm going to end with this, you've been advising buyers and sellers for a long time now and most of the people that listen to the podcast are looking to buy, there are some people selling. If you were to give one piece of advice for people buying an online business whether it'd be through Quiet Light Brokerage or through any other place; you find it online or another brokerage firm, what would be just kind of the one thing that you would advise people on?

Amanda: I think the best thing that you can do is take some time to research just overall broad marketplace. Don't just look at a few packages. Really allow yourself several months at least to get a good feel of what's a good fit for you. There are so many different models of businesses, SaaS businesses, Amazon, to e-commerce and so forth and so one may seem more attractive to you. It may not necessarily need to be a certain niche but it may just be a certain type of model that is attractive. And I just want to add to that that the other thing that I recommend is don't basically pigeonhole yourself into a certain niche because you might find a business that doesn't have an attractive product but everything else could be right; the lifestyle component, the workload, the margin, the net profitability. And so I think that's really important to keep an open mind.

Mark: Awesome. Well, hey, thanks, Amanda for coming on the podcast. I really do appreciate you coming on and I'm sure everybody else will as well. Everybody knows where to reach you, amanda@quietlightbrokerage. If you have questions about buying, about starting, about … you know or just have really general questions about this I will stand by the fact that your entrepreneurial background speaks for itself. And I think the success that you've had repeatedly speaks for itself. So we appreciate you sharing some of the wisdom you've gained over the years of doing this entrepreneurial thing that we do and everything else.

Amanda: Yeah.

Mark: So hopefully we can have you on again sometime in the future but we'll wait a year or so before we do.

Amanda: Yes please do.

Mark: All right.

Amanda: Well thank you, Mark. I appreciate it. Have a great day.

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Today's episode is the first installment of a new Quiet Light series entitled "incredible acquisitions." In these features, we'll bring you guests involved in successful acquisitions of Quiet Light listings. This is something we're trying out in order to feed our listeners what they want to hear – so email us your feedback!

Today's story is interesting because the buyer made his deal using ROBS. Rollover for business startups (ROBS) allows you to invest retirement funds from a 401(k) or individual retirement account (IRA) into your business without paying early withdrawal penalties or taxes. Rick, the new owner of the website Gunskins, a financial executive looking for another income stream to take him into retirement, knew his stuff and made the decision to make his purchase with ROBS. Today's episode is the soup to nuts of the acquisition process and will be beneficial whether you're doing this for the first or the fifth time.

• The process of searching – how long did it take and what approach did Rick take?
• The depths of the search process – how far Rick dug into each potential business.
• When the focus narrowed to selling physical products.
• How he structured the finance for the purchase.
• ROBS vs. SBA
• What was it about this particular business that stood out to Rick.
• The importance of the person behind the business for sale.
• How many other business Rick looked at in his multiple range.
• Whether a buyer should look beyond their multiple range.
• We (re)stress the importance of due diligence.
• Rick walks us through the first days of the takeover of the business.
• The transition process is never easy nor stress-free and escrow agents are key.
• If he had to do it again, what Rick would do differently.
• Rick's plans for building out.
• Staffing changes Rick worked through in transitioning.
• Rick shares last minute thoughts for buyers and sellers.

Mark: So a few years ago I had a couple of experts … I had a call with a couple of experts for a way to buy a business called ROBS, right? Roll Over for Business Startups. It's kind of an unknown or pretty little known way of financing a purchase and we mixed up in a lot of red tapes and everything else but is it a viable option to be able to buy a business and run a business and finance that purchase outside of kind of the traditional spend cash or SBA loan. I know you and I are starting up this new series within the Quiet Light Podcast called Incredible Acquisitions. We don't have a great schedule for it yet but this is the first installment of that episode and I'm excited because you've got somebody who made an incredible acquisition thus the name using ROBS.

Joe: Yeah absolutely and it's an interesting one because the individual behind the purchase, a guy named Rick. He's about 50 years old; very mature high level CFO in public corporations. So he knows his stuff. He gets the numbers, he understands it. And so it's not a light decision that he decided to go with the ROBS. He was going to do an SBA but he and his wife who's a CPA decided the best approach for them would be a ROB and they purchased GunSkins, closed … I want to say about nine months ago and we talked about his search. We talked about his due diligence process. We talked about his take over, what training and transition was like and now whether or not it's a family run business.

Mark: Yeah this Incredible Acquisitions is really everything soup to nuts about doing an acquisition for people that have actually done an acquisition. And hopefully, it'd be able to give some insight especially to first time acquirers or fifth time because there's more than one way to go about this. So I love the fact that this is a family run business not just because I'm a family guy but … his son is doing customer service.

Joe: At 14 years old, that's right. It's amazing. Well, he's not going to pick up the phone it's all … let's go back, I launched this business or I was going to launch it. I think I did … maybe I did just before Christmas of '17 and the guy that owned the business was overpaying his brother dramatically and my advice was to let his brother go. [inaudible 00:03:02.7] before Christmas remember that?

Mark: Yeah we had … I remember that I called you all sorts of names on the podcast.

Joe: You did and so did his brother. He's a predator off the podcast. But we worked it out, we did an adjustment that just was logical mathematical and it made sense. And you know it turned out that the brother stayed on during the transition and training period and then literally the 14 year old spends about five to ten minutes a day doing customer service by just doing … choosing the auto responder in the chat focus … in the chat like itself. It's great. It's a great story and I think it's great to hear buyers talk about their process and what they did to purchase a business and then to have some pretty amazing growth along the way which is a good part of what he talks about.

Mark: All right I got a quick message for the listeners here on the podcast. We've been doing this now for about a year and a half if I'm … or actually less than a year and a half but we have a lot of episodes and I spent some time recently going over what you guys have actually listened to and responded to. This Incredible Acquisitions is something that we're trying … a new way to do it, it's not something that we're going to be able to do every week but listen to this episode and send me an email [email protected]. Let me know what you think. Do you want more episodes like this? We're trying to be a bit more intentional this year about the guests that we bring on to be able to feed what you guys want to hear. So let us know is this right up your alley or do you want us to continue bringing on experts to … that specialize in PPC or whatever. We're going to still have some of those guests. Let us know. Let's get into the … today's episode of Incredible Acquisitions from Rick and hear this awesome story.

Joe: Hey folks it's Joe Valley from Quiet Light Brokerage and today I have a client on the phone. Actually, it's a buyer. We're starting the Incredible Series in 2019 and this is the first of Incredible Acquisitions. I have Rick on the line. We're not going to actually share Rick's name for confidentiality purposes but Rick how are you today?

Rick: I'm doing good Joe. How are you doing?

Joe: I'm doing fantastic. We are going to talk about the site that you bought. We're going to share that. We're going to share a lot of information. Let's start first though with a little bit of your background. What was your professional life and what is your professional life now that you own an e-commerce business?

Rick: Sure, that's a great question. I graduated from college with a degree in business specifically in accounting. I spent a good chunk of my career working for public accounting firms. And then over the last 15 or so years, I've been a financial executive for mid-sized companies, companies as large as one billion in revenue.

Joe: And it sounds like you are about the same age as me. Do you mind sharing how old you are so the folks out there that are in the same boat can—

Rick: Yeah, no problem at all. I turned 50 this year so it was a big year for me.

Joe: Oh happy birthday in 2018. Good for you. It's a big number that's for sure. All right so you were in the corporate world and at one point you said all right I'm thinking I want to get into the online world, spend a little bit more time with family and friends was that the goal and objective?

Rick: Yeah I mean it started off with look I'd like to diversify where my income streams are coming from. And my wife and I over the years have done many, many passive investments in the real estate, in the stock market like many people have. And we're really looking for something that was going to be … that we could be a little more actively involved and engaged with. And at the start, I wasn't at all convinced that I needed to throw my pencil down so to speak and run out of the corporate world. I was just simply looking for another source of income that would keep me active when I wasn't sitting at my desk.

Joe: I'm recalling now that your wife is a CPA or something along those lines right?

Rick: Yeah. We're both CPA's. We met in world of public accounting and as you might imagine we have a stimulating dinner conversation, CPA things.

Joe: Okay so for those out there that own online businesses and are thinking maybe I want to exit someday Rick and his wife are the caliber of buyers that we're going to bring to the table. They're CPA's, they understand financial documents. So as always get your financials in good shape because someone's going to come through them in great, great detail. All right let's jump into a little bit about your process of searching for a business, how long did it take you and what approach did you take?

Rick: Yeah, boy it took … I got to think about this, I'm going to say we probably were looking for at least 18 months maybe two years. And you know we started off quite broad and we were looking at everything. Not just e-commerce but also brick and mortar opportunities ranging from franchises to mom and pop businesses etcetera. And as we learned more, we looked at more businesses … and this is something I can't emphasize enough because it's really important to look at a lot of businesses. There's no cost to doing that as a perspective buyer and you learn a ton. You learn how folks are doing things right and maybe how folks are … some things you might want to avoid. And so we looked at a ton of different businesses and ultimately became convinced that the e-com was the way to go for us for a variety of different reasons. I continued to be amazed by the tools and resources that are available to e-commerce businesses and the low overhead, low touch nature of e-commerce businesses and that was really attractive to us. We were real about it, we knew that we weren't just going to buy something and then it was going to magically grow on its own and increase revenues but on the other hand we wanted to use the tools and resources available to run that business as efficiently as possible.

Joe: A couple of things there that you're repeating so thank you. I say it all the time I feel like I could put on my hand on my desk or my head occasionally that looking for a long time. Finding a great business … and I think you bought one of the great ones, finding a great one is like looking for a needle in a haystack inside of a ginormous haystack. So it's doubly hard. The more you look at … you looked for a year and a half, the more you look at the more you knew the right fit when it came along and you were able to act quickly. Now when we talk about look at them you're not just looking at the listing online and saying yeah that sounds good or no that doesn't sound good. You're digging in and looking at the full details of a business listing right? All the way down into the financials.

Rick: Yeah absolutely and you guys at Quiet Light make it really easy to do that. You sign … I think it's still this way anyway, you sign an NDA on the front end and then as you guys post listings and send out emails or put them on your site all I have to do is click a button to receive that information. And you know I think it's important to have the courtesy to follow up with a broker and let them know what you thought of the business and whether you want to move anything forward. But just the ability and the ease with which you can do that; get the information, look at it, and start to learn about the business and about e-commerce, in general, is amazing. And I'm sure there are some other brokers out there that operate similarly but I found your … Quiet Light's process to be very clean and easy in that regard. You know for a prospective buyer it's … you make it easy to look at businesses which is great.

Joe: And just for clarification purposes I'm not paying you to say that or give you any kind of discount on the commission correct?

Rick: No that's … not yet maybe we'll circle back to that.

Joe: Maybe someday I'll buy you a cup of coffee how is that? At what point did you narrow your focus from everything in the possible entrepreneurial world to physical product e-commerce? Because e-commerce can be a broad term meaning anything sold online but you narrowed in to physical products. At what point did you make that decision? Was it simply because you came from the CPA world and it just made sense and you were comfortable with it and not necessarily SaaS or content development?

Rick: Yeah you know … I think that's a good question and I would say that there's a step before that, before I narrowed it to physical products I narrowed it to … initially, I was looking at any and all businesses that had … that were the right size and had the right cash flow that I was looking for. And my first narrowing process was really to say okay, I need … if I'm going to do this it needs to be something I'm actually interested in. And initially we were looking at everything from e-commerce businesses that sold ballet tutu's and the other ones that sold toilet products and so forth and so on and that may well be interesting to somebody, it wasn't that interesting to me. And that's where I said okay I need to narrow this up a little bit and make sure that if I'm going to move forward with something it's something that I actually have some passion around. So that's number one. As far as products it just sort of … I don't know if that was a real conscious decision on my part but we did just sort of gravitate that way and that's what appealed to us. And I would say as we got closer actually to pulling the trigger and moving forward on an LOI we found ourselves looking more and more at product companies. It's just … it's what suited us. Not to say that SaaS or something else isn't something … it's something we would definitely consider but for whatever reason, we just sprinted towards products.

Joe: I got you. Well, let me get into the business itself that you bought. But before we get there and talk about that particular business can you … one of the things we always talk about is sort of get all your ducks in a row and you and your wife had determined how you're going to do … how were you going to finance and purchase this business? Can you touch on that briefly? Because we did not do an SBA loan in this situation and it was a little creative. Go ahead and talk about that for just a moment.

Rick: Yeah I'm happy to because I think it was a really good solution for us. We actually started thinking … we started down the SBA route. We got SBA approval. You've got a great contact with Stephen Speer at Bank United. He's a great guy and it was a smooth approval process. We are sitting there, we had it ready to go and the more my wife and I started looking at it and thinking about it it's like oh gosh. You know I've been working as an executive for over 20 years and over the years we've put some money into 401K's, both of us and that's sitting there idle or not idle but it's in mutual funds and the stock market and so forth; basically passive investments. And we ran across a program that the IRS created called the ROBS program R-O-B-S and it stands for Roll Over Business Startup. And there's a company … first of all you need an advisor to do this but … and there's a company called Guidant Financial in Bellevue Washington that we worked with that are very professional and have a very good process to kind of help you through a ROBS financing. But essentially what you do is you use your 401K money to purchase the business … the target. And what the real beauty of the ROBS program from my perspective is that one I can take that money that's invested in the stock market that I have less control over, I can put it into a business that I have complete control over and as dividends are paid out or when I exit this business those proceeds go or those dividends go tax free back into our 401K. And we don't get taxed on that until we start going on it for retirement which is outstanding. So it was creative and I'm glad we stumbled upon it. It's been really good for us.

Joe: That's a beautiful thing. Mark here at Quiet Light wrote an article on it. So folks if you Google ROBS and Quiet Light Brokerage the article will come up in Google and you'd be able to figure that out and take a look. And of course, you can Google Guidant Financial as well. They're quite well known in the space. Okay so let's talk about this particular business. It's rare in my experience and I've been doing this since 2012 that we get a listing that has a utility patent on it. When this one came across my desk it was kind of special. Not only did it have a utility patent for a SKU that was generating about 40% of the revenues but it also had the majority of the revenue coming from its own Shopify store which is in contrast to what we see with a lot of physical based e-commerce businesses these days when they're selling on Amazon as well. Amazon is just growing so quickly that no matter how much they try to build their Shopify Amazon eats up a larger percentage. So what was it about this listing … and it was called GunSkins. I like to call it stickers for guns. What was it about this one that stood out to you right away?

Rick: Well, first of all, we don't refer to them as stickers; they're high quality, high performance vinyl. It's the same vinyl that folks put on the cars and trucks and buses and so forth it's … or in boats too. I have seen boats wrapped. But what it is is it's a protective camouflage wrap for your gun. Now there are products out there like Sera Coat or solutions like hydro dipping that allow you to either camouflage, protect, and or dress up your gun … those guns are your standard black. Both hydro dipping and Sera Coat allow you to do something similar to what we're doing with vinyl. The difference is that those processes are both fairly technical. They're fairly expensive. And they're also basically permanent. So you've got to really like whatever it is or whatever pattern you're putting on your gun because you're going to live with it as long as you own that gun.

Joe: Correct.

Rick: Our product is a vinyl wrap. It's a 3M vinyl. Again the same vinyl they put on cars, trucks, buses, and etcetera. And it's … so it's a do it yourself solution. Our prices range from 10.99 to a high of 64.99. It could generally be applied in two hours or less to your gun. And getting back to your point Joe the patent … the founder of GunSkins applied for it to receive the patent related to the vinyl kit … the template that he created for the AR15. And we happen to make vinyl wraps for a variety of different guns from pistols, to rifles, shotguns, air fifteen's, AK47's, and etcetera. But he received a patent specific to the AR15 which is pretty cool. And so yeah that's the product.

Joe: Was it the product category that stood out or the price point of the business with the discretionary earnings and the multiple or the utility patent or it was the utility patent not the design patent, right?

Rick: Yeah that's right.

Joe: So was it that that stood out that made you go okay this is what I'm passionate about or maybe the category itself because I believe you're a hunter too, right?

Rick: Yeah I mean I'm not necessarily a gun nut. I have many friends who are and there's nothing wrong with that. But yeah I have hunted and shot most of my life and so that was attractive. There was a number of things that were attractive about this business and a number of boxes that this business checked in terms of what I was looking for. We were looking for something that had strong growth potential that had multiple sales channels which this one does. We sell on Amazon. We sell through our own website on Shopify, we have eBay, Walmart, FC believe it or not and so … and they also have multiple SKUs so that's another box. And probably most importantly we were looking for a business that had a good foundation. And by that, I mean that it was built in such a way as to it has got good processes. Processes that are relatively simple but also well documented and scalable. And the other adjective I guess I would add to that is portability. So it was very easy for us … I mean I didn't have any previous e-commerce experience outside of my own experience as a consumer to come in and get our hands around this business, understand it very quickly. That's not to say the learning curve wasn't steep. It was quite steep and we expected that but the founder of the business just did a really good job setting it up. That's the number one biggest factor. You know the other things are boxes I need to check like interesting category and the patent and things like that. But the number one box for us was this thing has good bones to it. We're dealing with a seller that has … that's trustworthy and has high integrity. And by the way, you know … and again I'm not being paid for this but also a broker that has the same characteristics, particularly on your first e-commerce purchase. I think that we could go and find our way a little bit easier now having gone through what we've gone through in terms of the acquisition and running this business that wouldn't be as important. But on the first purchase, I think it's critical.

Joe: Yeah.

Rick: You feel good about the seller. You got to feel good about the broker. And if you don't I wouldn't do the deal frankly.

Joe: I agree. We've got a big thing here at Quiet Light and that is follow your gut. And you've got to. You're putting a great deal of your life savings on the line and you might only have one chance and you want to get it right. So for the business owners out there what Rick is saying is that who you are matters a great deal. You want to get yourself put together. You want to get those financials in great shape. You want to be a professional. You want to be somebody that you would buy a business for. There's a lot more to it than just those gross revenue numbers and trends. The person behind the business is often what I see makes the difference in the sale or not. And believe it or not in a 3.0 multiple to a 3.2 multiple you do make a difference. On that point, though Rick this was a good strong multiple. We went out at 3 ½ times multiple I believe … gosh was there any negotiation on the price? Folks I didn't look this up before we decided to—

Rick: [inaudible 00:22:30.4] down just a little bit. But yeah it was a 3 plus multiple.

Joe: Yeah I think we went out at 3.5 and it was pretty darn close. We're not going to talk actual numbers. We'll just talk those numbers. We won't talk dollars but did you look at many listings that were in that multiple range before making a decision on this one or did you go oh wow that's high I need to look anyway? What was your initial response to the multiple?

Rick: Yeah well my initial response was well that's high and … but it was an interesting business. And as I dug into it it's like okay I mean … and as I started checking off those boxes that I was talking about it's like okay well maybe this is just the [inaudible 00:23:09.8] as I went through the diligence process I could see where there is opportunity. I think that the founder and the owner … he was a brilliant guy. He created this idea. He created this business. He built the foundation but everybody that comes to the table brings with them a different set of skills. And when I was looking at it through my eyes I thought okay well I can do X, Y, and Z, and I think leverage this opportunity that much more. So yeah my initial reaction was that's high. I ultimately got comfortable with it and it was the right deal for us.

Joe: Yeah. You know it's the valuation process I think with this particular listing because it was mostly Shopify, 60%, 70% Shopify at the time, they get to own their own customers; more value. It had a three plus year track record; more value. It had a patent and 40% of the revenue came from that SKU that the patent was on; more value. The lower the risk, the higher the multiple and in this case there were multiple conference calls. I cannot recall if there are multiple offers. Again I didn't really prepare for this I just wanted it to be a casual conversation.

Rick: You told me there were.

Joe: There we go. So you remember I don't. You see I've done 20 deals. And I wouldn't lie I mean the reality is that we're going to be forthright and honest with every single person we work with. So even at that 3.5 my point everyone is that sometimes the first thing you look at is the multiple and then you make your decision and that's not always the best choice. In this case with Rick, you've had what 20% month over month of growth since you bought –

Rick: Yeah.

Joe: Okay so simple math is … go ahead and double check it up for me but if you've got a business listed at a 4 time multiple you buy it at a 4 time multiple and you've got 25% year over year growth and that sticks after you buy the business you're going to make your money back in 2.7 years. In Rick's case, that's going to go down dramatically because of that 20% month over month growth and the multiple is a little lower than that; that 3.5-ish times maybe a little bit lower. All right so let's talk quickly about due diligence. We only have one snafu in due diligence and that was the question I think about when a business owner writes things off that are personal and they put them down as let's say office supplies which I think was the case here. You being a CPA, your wife being a CPA, you got an export of all of the expenses on the American Express or Visa credit card and literally went down through every expense and said: "Well why is it that this trip to Staples is a personal expense?" Because what we did folks is instead of making Kevin the seller go back and re-categorize every single thing that were office supplies I said okay these are normally personal expenses because Kevin worked from home. If any of you saw the listing and watched the video if you remember Rick I think he was building this house and he shot it on his … we interviewed him and he had his iPhone and he did the circular view and mountains in the distance in the background and yeah it's a beautiful. But very casual work from home, the expenses were clearly mostly personal but we went down through them item by item. Or you and your wife did and we had to work on that negotiation a little bit and we worked it out ultimately. But your due diligence process was pretty thorough right down to that level right?

Rick: Yeah it was. And our approach was really to grab the P&L that you and Kevin had put together and go line by line and understand what was in each one of those categories and look at different fluctuations and variances month to month or year over year or quarter over quarter. And there's really two questions you're asking yourself if you do something like that. One is: is there anything here that should be particularly on the expense side? And then the other question is: is there something not here that should be? In other words are there expenses that you would expect to be in this business that you're not seeing anywhere and maybe they financed it personally for whatever reason. And so you're really looking for those two types of anomalies and just asking questions and make sure you understand them.

Joe: Right, right for sure. Okay so we got through due diligence, we moved on to the asset purchase agreement and then closed. Can you recall the time it took roughly from the letter of intent to closing with the ROBS program that you were involved with?

Rick: You know it wasn't bad. It's like anything in life it comes down to organization both theirs and ours. By theirs I mean Guidant … our advisor that helped us through that process. They have a highly structured organized process. And if you follow their process they will help you be organized as well and it will go pretty smoothly. I would say I think it was … well, I don't remember Joe. I'm going to say 45 days.

Joe: That sounds about right you know for … this is in effect to cash deal and not on SBA deals. Cash deals take anywhere from 30 to 45 days to close, SBA you're going to add another 30 to 45 days. You did disappear for a little while on us there. You went silent on me if you recall and that was just an incredible job opportunity for you that you took and had to get that going and relocate briefly and make it work and you still managed to juggle that and due diligence and getting the business closed and eventually take over. So let's talk about that we closed and then there is the training and transition period where generally it's up to 40 hours over the first 90 days after closing. Talk briefly about the first few days and what it was like for you when you went to take over the business from Kevin.

Rick: Well sure and just to go back very briefly Joe on what we were struggling with and you said I went silent a little bit on you. That's true and what we are struggling with was gosh this business is big enough and has enough potential is this what we want to commit ourselves to do and forget me going to the corporate job. And I struggled with that and I continue to struggle with that. You know I've been struggling with that last frankly because I think we have a pretty good balance and a pretty good system and cadence going now where I can enjoy doing both. You know helping manage the GunSkins business as well as my corporate CFO job that I have. So that's what we're struggling with and who knows that could change as the business grows or changes or what have you we'll see where that takes us. But in terms of transition, I would say we put a lot into due diligence. If I had it to do over again I would probably be better dialed in on transition and really making sure that it was clear between the buyer and seller and sellers/buyers employees or contractors who was going to do what when it was going to get done and so forth because this isn't a small business it's … I'd say a medium sized e-commerce business. We do about 20,000 orders a year through both our website and through Amazon and there's a lot of moving parts that you got to get transitioned over. Simple stuff like making sure that your postage is going to the right credit card. Making sure you've got seller central transitioned over. Making sure that PayPal is set up correctly under your name etcetera, etcetera. And I would say that … and that's probably my lack of … our lack of e-commerce experience that contributed to being a little less organized as it relates to the transmission. It was with a case where we didn't necessarily know what we didn't know. And so I'd probably spend a little bit more time on that. It went fine it was just … it was a little bit anxious for us because the light bulbs are starting to go on. It's like oh gosh or what about this or what about that, well if we got to do this then we have to do this over here and it was … it ultimately was all seamless but I wouldn't say it was stress free. I mean it was a lot of learning.

Joe: There's never a transaction like this that is stress free. There's always a lot of emotion involved. And you know part of the purpose of doing recordings like this is to learn. So look we've been at this for almost 11 years as a brokerage firm and we don't have a transition checklist that should probably or could probably help ease those nerves a little bit. So it sounds like maybe what we can do as a brokerage firm is to have the seller create … and we do this but it's not very formal, a complete list, this is in the asset purchase agreement of course. But a list perhaps in Google Sheets of every item that is going to transfer and during the transition period you're going to check each box and ensure that you've got complete control of it before the asset … before the funds are released. That is the way it works folks. Rick wires funds into Escrow. Kevin transfers all of the assets over to Rick's control. And once Rick has control of all of those assets he informs Escrow … the Escrow agent and they release the funds. But we could formalize that process a little bit but it will never … I'm sorry be stress free and emotion free. That's the biggest challenge in these transactions. It's just … it's a big deal. You're making a big life changing investment, putting your hard earned money … your 401K money on the line and you want to make sure you get it right. So we we're going to make sure it's stress free but obviously, it's not always and cannot always be that way.

Rick: Correct. And the other thing I would just add to that Joe is that with a [inaudible 00:33:23.6] it's unrealistic to think that you're going to fund Escrow, transition all these assets over and accounts over in 24 hours and be done. It simply takes longer than that. And part of it is out of the control of both buyer and seller. You're dealing with the different tools and resources and platforms that the company is using out there and it takes time for those folks sometimes to work through their process of transitioning that to a new owner.

Joe: Yeah. And that's part of the process and that's why … regardless of the size of the deal, I want Escrow in the middle. I want that money that you've invested safely with an Escrow agent. And for your seller to know that as he transfers control over all the assets that he's money is safely … which is his future money, is safely in Escrow as well. Let's talk a little bit about if you had to do it over again what would you do different? This just business as you say was mid-sized, is it big enough to support you financially so that you can quit the corporate world and never go back and if it's not do you think maybe in hindsight you would have held off and try to buy something bigger or are you really happy with the decision and purchase that you made?

Rick: Yeah. You know that's a good topic and I'll go back to some rules we operated under in the corporate finance world [inaudible 00:34:51.0] acquisitions in the corporate world. And [inaudible 00:34:54.5] said that the smaller deals take just as much time and are just as hard to work if not harder than the larger deals. And it's absolutely true. It's something I've always found to be true. And so I would say that my advice would be look do something that is going to be meaningful to you. And by meaningful I mean that the investment is meaningful, the cash flow that the business is going to generate is meaningful. Because if it's not … you know I love playing poker and sometimes you get in a poker game where the stakes are too low and it sort of distorts the game and people don't play the way that they ought to play. It's kind of a similar analogy here where putting up at risk so that it's meaningful to you. You're going to pay attention to it and as it bears fruit it's going to mean something to you because you're going to work hard on it. It's not … there's no free lunch. You're going to put blood, sweat, and tears into it. Make sure it's going to be meaningful when it comes out the other side.

Joe: Yeah.

Rick: So for us, the dollars that we invested out of our retirement savings were absolutely meaningful; they're significant. They're dollars that I don't want to lose. And moreover, the cash flow that this business generates is meaningful. It has the potential to equal or exceed my earnings as a corporate CFO. So yeah I … and the other thing tying back into what we were talking about earlier is what you'll find is that when you start looking at the larger businesses they generally are … they generally have a better foundation.

Joe: Right.

Rick: You could get into an e-commerce business on the cheap but I think the probability of getting into one that has a strong foundation like the one that we have that GunSkins has is low. It's lower I should say. You got to be a lot more careful and you are at higher risk that when you start getting into the actual processes, how the business is put together, maybe even the integrity of the seller you just … it's a little messier in my experience.

Joe: Yeah for sure there's no question and that's why the multiples go up the larger the business. When you get into six, seven, really 7, 8, 900,000, a million dollars in discretionary earnings it's a larger more well established business and therefore as Rick just said it's lower risk. With lower risk, the multiple goes up. Smaller businesses lower multiple because there is more risk without question. Rick let's talk … we're running a little short on time but I want to talk about what types of things you thought you were going to be doing with GunSkins in terms of marketing channels that worked or didn't work, what surprises there were, and we got an audience of both buyers and sellers and there's people out there that are e-commerce experts that may be able to point you in the right direction in terms of getting this marketing in certain places. So let's talk about what worked and what didn't and what are you're hoping to achieve in terms of marketing channels with the business.

Rick: Sure so I would say going into the acquisition and early on in the transition I was absolutely convinced that we needed to aggressively build out our dealer channel, our brick and mortar dealer channel. Not necessarily e-commerce stores but brick and mortar dealers like gun dealers, pawnshops, etcetera. There's thousands of them across the country. I thought well maybe we take a look at big retail as well, big box retail. I wasn't as convinced in that but I was convinced on the gun dealerships and that we needed to invest time in building that out. And I'll tell you … and this is again what I learned pretty quickly is that to build out a dealer network, a dealer channel through brick and mortar stores is labor intensive; labor and cost intensive in a very large way. It takes a lot of boots on the ground to go and knock on all those doors and try and sell that product. And what I learned was the cost per conversion on e-commerce is so attractive, it's so incredibly attractive compared to other sales channels. And if you can build your scale and build your brand through e-commerce the dealers will come to you at least in our case, in our business.

Joe: They are finding you now. You're not going out and getting them.

Rick: Absolutely.

Joe: [inaudible 00:39:34.4] they're finding you.

Rick: Absolutely. I mean we love our dealers but I think investing a lot of time and money in trying to grow that channel on its own is a little bit silly. And it surprised me because I didn't think that going in. Where we spent our effort is really reinforcing and building our brand, our brand awareness, and private awareness online through social media, through Google Ad Words, etcetera, through Amazon etcetera, etcetera, blog posts and the like. And what we find is people hear about us … dealers in particular and they come to us. Even some of the online distributors, very well-known online stores for guns and guns accessories have reached out to us and say hey we'd like to talk to you about distributing your product on our site.

Joe: Excellent.

Rick: And that's the way to build a dealership for our business. You can't go out there and put enough boots on the ground to do it otherwise.

Joe: Excellent. One last question we talked about staffing very, very briefly but there were two VA's I believe or virtual assistant or remote contractors. You are here in North Carolina where I am and I believe they're both out west or were out west. Are both of the individuals that were working for Kevin still working for you?

Rick: One of them is, one of them is not. The gentleman who's continuing with us we call him … but really he's a lot more that—

Joe: You broke up right there. Say that one more time for me what do you call him your?

Rick: Graphics genius.

Joe: Your graphics genius, okay [inaudible 00:41:09.0].

Rick: It really doesn't do him justice to be honest because not only is he our graphics design guy for our patterns and so forth but he also handles a lot of the e-commerce side of things as well; our website and Shopify and Amazon etcetera. He's invaluable and he probably puts in maybe 20 hours a week something like that.

Joe: Okay.

Rick: So he's continuing. The other VA that Kevin had handled customer service and social media and we've picked that up on our side. My son believe it or not … my 14 year old son does a fair amount on the customer service side answering customer questions.

Joe: Excellent.

Rick: And this again goes back to the tools and platforms available to e-commerce businesses. We use in Zendesk on the customer service side; it's spectacular. I mean it makes it so easy and so he's enjoying doing that and making a little bit of money.

Joe: That's great. I have to tell a brief story … I mean in talking to Kevin we listed this just before the holidays in 2000— was it seven … '16 right? I forgot. Just before the holidays and the customer service person was Kevin's brother who he loves dearly and here I am going man you are so overpaying a relative. It's crazy what he was paying him; I'm like you need to fire him just before the holidays. And he didn't fire him but we … because it just … it was logical and used logic and math and we made an adjustment in the profit and loss statements for really still overpaying a virtual assistant. We made the cost of the VA probably twice what it would normally cost to put that in as the cost to make the adjustment. Full disclosure put that in black and white right in the package. But he did stick with you for a while and you eventually took it in house which is great because you're saving money on the bottom line and teaching your son some business skills as well.

Rick: Yeah I mean he's a great guy by the way and he was doing a great work and was very flexible with us on the transition and so … but yeah ultimately we took that over after about three months I think it was. And it takes probably 20 minutes a day something like that.

Joe: Yeah I know okay so he was even more overpaid than I thought. If he's anything like Kevin he is a great guy. Kevin spoke very highly of him and I know he did a good job and the transition and training period Kevin and he worked it out and you worked it out so that he was there for you. Because the last thing you want to do is you have to jump in and take over the role of a contractor when that is not what you're intended to do.

Rick: Yeah absolutely and again making sure your seller is trustworthy and is operating with high integrity. And Kevin I can't say enough about, he's an outstanding guy and he did things and handled himself in such a way he cared about the business, he cared about our success in taking on that business and that makes a big difference. He didn't have to be as cooperative as he was but that's just who he is and that makes a difference.

Joe: Without a doubt, we'll try to get Kevin on the podcast as part of the Incredible Exits series.

Rick: Yeah.

Joe: Instead of just the Incredible Acquisitions. Well, listen, man, I'm so happy that you bought GunSkins. I'm excited for you. I'm excited maybe to have you on again as an update and talk about where you were able to take it. I mean you've had it for about a year now and we can do it again in another year. Any last thoughts, any last advice or suggestions you can give people that are considering selling their business and what they should do right, do differently than what you normally see or anybody that's buying a business any last minute thoughts for them?

Rick: That's great, for sellers we've touched on it a bit through our discussion but really have yourself organized. Have your processes documented. There are great tools out there that you can use to document your processes. Also, have your financials put together. Both my wife and I are CPA's we use a partner in CapForge bookkeeping here out in Carlsbad, California. They use these Quick Books and they are e-commerce experts. I don't know how they make money with what we're paying them but that is money well spent because they—

Joe: Perfect and let me just interrupt and point this set down. I'm pounding my desk people. We have two CPA's who own the business and they still hire an e-commerce bookkeeper. Please, folks please do what Rick is doing and get your books in good order. Okay, I'll stop pounding my desk.

Rick: No, look I agree it's cheap and they do [inaudible 00:45:51.7] when you go to exit you're going to have all your ducks in a row and Joe's going to be very happy. He won't have to recreate the financials on the Excel spreadsheet.

Joe: And you'll get more money.

Rick: Yeah.

Joe: You'll get more money. Good books instill confidence in buyers and confidence increases the value in the valuation and the multiple so without a doubt. Well, Rick if anybody has a great idea and wants to reach out to you how would they find you?

Rick: Right through the GunSkins site, [email protected] and that email is us as owners and we answer every inquiry we get.

Joe: Awesome and for everybody out there that is a hunter or owns a gun of any kind please go to GunSkins.com check it out. Go to the YouTube site, you'll get to see the before and after of lots of different guns. The wraps are very, very cool; camouflage wraps, different seasons for camouflage, and even just the American flag and things of that nature if you want to spice it up a bit. Or if you're female and hunting I think there's even some wraps for females too right Rick?

Rick: We're going to be launching some great ones here in the next 30 days. We're launching real tree patterns and those include … there's a tiffany blue camouflage pattern. It's popular with women as well as we have paradise pink barrage in the theme as well. But yeah there's something for everybody also visit our Facebook page. We've got over 70,000 Facebook followers and we'd love to count each one of the listeners as a follower as well.

Joe: Fantastic. Rick, thanks for your time. Thanks for being a professional. I look forward to having you back on the show to talk about maybe your incredible exit someday.

Rick: Absolutely. Thanks, Joe. I appreciate it.

Joe: You bet.

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