The Quiet Light Podcast

Chris got fired from his last job, thankfully! He was speaking with co-workers about his affiliate revenues he was making on the side and his boss found out and fired him! Fast forward almost 10 years and Chris is the host of the UpFuel Podcast and an expert in the Amazon Affiliate space. He is the owner of several businesses in the Amazon space, including affiliate, SaaS and physical product businesses. His opinions and recommendations are not theories…they are from real life experiences.

Chris is humble…you'll get that in the Podcast. He didn't sell or pitch anything. He just shared his experiences being an Amazon Affiliate entrepreneur. One thing he said over and over when it came to being successful within the Amazon Affiliate space is to "differentiate" your site. Make sure that whatever product line you choose to pursue, that you differentiate your site from others…there needs to be a strong reason why the end user would review products on your site versus the competition.

Episode Highlights:

• Chris has been self-employed for just under 10 years.
• His Amazon Affiliate income replaced his "job" income…before he was fired.
• He owns wordpress plugins, saas, affiliate and physical product businesses.
• Each niche has its strengths.
• Choose a niche that is of interest if you are starting out.
• If you are building a portfolio of Amazon Affiliate sites, then a system and process takes precedence over passion.
• Price point matters GREATLY within the affiliate space.
• Develop a product review site, not an information site to help buyers make decisions.
• Content is still critical, and Chris outsources much of it these days.
• Amazon's cookie length is 24 hours, allowing you to make money off products you are not reviewing.
• A long term approach is the key to long term success.
• Building links can accelerate ranking, but is no replacement for good quality content.
• When buying…beware of PBNs!

Mark: Joe how are you?

Joe: I'm doing fantastic Mr. Daoust, how about you?

Mark: Good. I'd understand you talked to a friend of Quiet Light and a friend of Brad one of our brokers here, Chris Guthrie.

Joe: Yeah Chris is from UpFuel.com and AmaSuite and I mentioned those upfront because we didn't talk about it at all during the podcast. He's an entrepreneur, have been self-employed for about 10 years, went off on his own after he got fired. He was actually talking to his coworkers and bragging about how much money he was making doing affiliate marketing and his boss found out and fired him; probably the best thing that ever happened to him because he'd been doing very well ever since. And the subject of the podcast is really specifically focused on the Amazon Affiliate Space. Meaning you build the site doing product reviews on say vacuum cleaners and people look at those reviews click on one that they like and it takes them to Amazon, somebody buys it on Amazon and you get paid. And it's really Chris's … one of his areas of expertise and I mentioned Up Fuel which is his podcast and his blog that he talks about this on so I would recommend people tune in. But also AmaSuite which is a software service that he's built that helps people sort of narrow the path in terms of what they want to find, what products, how to … what niche, what category and he didn't talk about it at all. He didn't pitch. He didn't promote so I'm doing a little bit for him because what I was trying to get was a clear path for people that want to either build one from scratch or buy one and grow it or things of that nature. And I think that he was hesitant to talk about his own product because he's such a nice guy. He really … listen Mark I'm going to, don't let this go to your head but he reminded me of you a little bit which is he just wants to have conversations and help people. And when he helps people it comes back around. And it was a great great great show and I think it'll help a lot of people in terms of the Amazon Affiliate Space.

Mark: He reminded you of me huh?

Joe: Yeah just the better looking, a lot better looking.

Mark: The poor fellow.

Joe: All right well let's get to it … I mean if you … it's got to be good so let's get to it then.

Mark: All right here we go.

Joe: Hey folks it's Joe Valley from Quiet Light Brokerage and today I've got Chris Guthrie on the line with me. Hey Chris how are you doing?

Chris: I'm doing well thank you for having me.

Joe: Chris you're like a … you're a little bit of famous in my world you know. You are. You're like a star. I know you from your podcast and we've run in the same circles for years but didn't get a chance to meet each other until last October right? It's Rhodium Event Weekend out in Vegas. It turns out you're very good friends with one of our brokers here, Brad Wayland. You guys are in the same neck of the woods I think right?

Chris: Yeah well actually he's an up and a little bit south to Seattle; he's over several states but-

Joe: Okay so in the internet world I guess you're in the same neck of the woods because you're-

Chris: That's right.

Joe: You should like candies; you guys don't even if grocery's on.

Chris: Yeah.

Joe: But you talk to each other often?

Chris: Definitely, yup.

Joe: Well he speaks very highly of you. And I … as I said pre intro here we don't do fancy intros. I don't have your bio in front of me. I know about you. I know what you do a little bit. But I think folks want to hear it directly from you. So why don't you give us a little bit of background on how you got started in the internet space and what you do for a living these days.

Chris: Definitely. Yeah so probably the reason why I try and put myself out in the first place is just because it leads to conversations and other different types of opportunities. That's kind of some eyesight a long time ago when I was digging into this online space that I wanted to blog about it and talk about it because it would lead to relationships and friendships that I count people out and they count me out. And that's sort of why when you said the famous thing I think … I don't really think that but it's more just that's kind of why I went with that direction. But yeah I pretty much just have been doing various online businesses now for about 8 ½ years full time. On the Amazon Affiliate Side of things that's actually how I was able to first leave my day job. I was just fired but I left ahead that job and was able to just keep doing online stuff because my Amazon Affiliate income had replaced my day job income. And so I just basically got to work the next day working on building more sites and growing the main primary site I had at the time. But yes so other than Amazon Affiliate thing I also run WordPress plugins, a SaaS company, physical product company, and other different types of Amazon Affiliate or well regular affiliate websites as well. So a bunch of different things along the way but yeah I've been here right for quite a while.

Joe: So what's your favorite in terms of running the business? Do you like the physical product space which takes working capital and things of that nature or the Amazon Affiliate Space?

Chris: It's tough to say because each one has its benefit. With the affiliate side of things, you don't have any … you don't have to deal with any capital it's just other than your initial capital to invest in the content creation and building a site out. There isn't going to be as many costs associated with that especially once you get up in ranks and start making money. And then there is … in many cases there's less ongoing expenses. But on the physical product side you're constantly putting in more cash and then a lot of cases it's just a matter of trying to lay the damage to yourself for as long as possible so you can continue to grow that business. I mean everyone has a different goal in terms of what they want to do with any business type but in the physical profit side you've got to do … you've got to re-invest so much more. So I can't really answer I guess one way or the other I think it really comes down to what people are most interested in. For me, I like both and so that's kind of why I still kind of have my feet in both areas; both on the physical product side and if the affiliate side and then also selling software and things like that.

Joe: Got you. Well as we talked a little bit before we started recording, I've sold a number of affiliate spaces, businesses where they're selling Amazon Affiliate products and making money through Amazon Affiliates. And it's becoming more and more prevalent in some of the event groups like Rhodium Weekend, a lot of folks getting very interested in that. I've always been in the physical products space, I had a couple of content sites and my physical products site was actually write good quality content and Google will reward me was my methodology. And it happened but I sold physical products. But the affiliate space is fascinating for me and I think more and more people are wanting to learn more about it. So that's obviously why we're chatting today and want to really get your expertise on how do you get started in this space? How do you focus on growth? Can you ramp it up? Can you do pay per click? Do you do social media? Do you do the tricks and tactics that they do with physical products on Amazon, or what's the approach? And then maybe keep in mind that we have both buyers and sellers that listen to the podcast. So tell me from a starting point how do you begin in the Amazon Affiliate Space? Do you just simply research a product, pick one, and go with it? Do something you love? What would you recommend to those listening?

Chris: Yeah definitely. So for the way I like to do things is I like to look into … it's more of a just general niche research. And that's of course … you said that where there's a lot of baggage because there's a whole different bunch of different ways you can do this. You can use various tools to help with the research process. You can just go out to Google based on things you're interested in and do research in that way. On the Amazon Affiliate side, that's what I'd spent more of my time doing was focusing more on areas that I was most interested in personally. So I had a site that was focused on like smaller computers and that was something that I was interested in personally. So that's kind of how I decided. I was looking at the various niches online and what people were ranking for and how they're making money. And it just seemed like a lot of the content they are creating wasn't really … in many cases at least for the niche that I was in before I sold that site, they weren't even actually reviewing the products that they're talking about. They are just basically writing articles and using CNET [inaudible 00:08:34.7] large conglomerates, larger websites to come up with the information they could write about. So what I did and so I was … you know contacted these companies and got them to send me products for free and I sent it back and do things like that. So with any site that I do whether it's Amazon Affiliate or anything else it's … for me, it's mainly about finding a way to differentiate. So looking at any niche is just okay what can I do to be better or to better serve the audience than the existing niches that are out there? So I usually-

Joe: Okay. I would think it would matter that it's something you're interested in because with an Amazon Affiliate Space you're reviewing the products. You're writing content about it. You're sharing your voice and your opinion. It seems like it'll be important that is something that you like.

Chris: Yeah definitely I mean that's … for me that was the approach. I mean I think that if the goal and this isn't something that I've done personally but if the goal is to really systemize and launch dozens of sites or something like that then you would need to just … you could really do just things your interested in because you can't potentially run out of those. But you'd be looking at different types of criteria just like what's the average sign price of a product, that's one of the things that you focus on as well is if you're focusing on a niche where the price is much higher then you can make more money in Amazon's Affiliate program because of the way they have the structure; their affiliate payouts. But that's something to consider as well is just the price of the items that are going to be sold.

Joe: Okay so focus a little bit on something that you like but also look at the math behind it in terms of the Amazon Affiliate Payouts and the different categories that they have and the price points. Because you're going to get a paid … you get paid a percentage of the close transaction I assume; is that right? Can you touch on that a little bit, how you make money as an affiliate? Start from scratch and assume that people are tired of physical products or tired of SaaS products and they want to maybe buy one of these. How do you make money doing it? Go right into that a little bit.

Chris: Yes, so the way that it's done pretty much is just focusing on … actually to see and try to pull up the actual charts that I have memorized it off the side of my head but each category will have different types of payouts. And pretty much the way you can … I would say and try and pull it really quick but I have it in front of me … yeah, so the way that I would that is find-

Joe: So somebody reviews a product and let's say they're reviewing vacuum cleaners. And someone sells vacuum cleaners on Amazon; obviously, they do. And I'm talking about the reviews on those physical products and someone clicks on the link and goes to buy it on Amazon, I get paid a percentage of that but I never have to own the physical product that's the upside of this right? I get a percentage of the sale but never have to purchase the inventory, correct?

Chris: Exactly yup and in pretty much the … and I was trying to find the category here, so every category is different and they'll show you which … what the fees are like I'd give you one example, so if it's outdoor tools for instance that's 5.5% as a percentage that you'll get. And the great thing too is any time that you send someone to Amazon you'll get a commission on any product that they buy while they're on Amazon. So even if you're referring people to vacuum cleaners then you can get sales on other types of these accessories as well within a 24 hour window. That's the cookie blank for Amazon.

Joe: Excellent. So I know that with physical products you can get to the top fairly fast. There's different processes and categories and not just on Amazon but if you're selling a physical product all that you need to do is pay some PPC ads for instance with Google Ad Words. It's not a winning formula oddly … obviously all the time but with affiliate how are you getting traction? How are you getting up to page one of the search engines and is it a short term game or is it a long term game?

Chris: Yes, definitely more of a long term game. With any website that I'm trying to build out and rank it's more of kind of like we say you're creating content or someone is creating content for you. Looking at what's ranking there and listing okay what can I do that's better than that? And then having someone or doing it yourself. Creating out that content and creating something better. Things that you can do to accelerate the process of trying to rank would be building links and doing things like that. For me most of the time it's more of an emphasis on the content creation side aspect but like in the case of the examples I was referring to before that I sold, I would do things like trying to … because mine was in the tactical category, I try to do things like breaking news within that niche. And I would contact larger sites to say hey this product is available on Amazon now. And like in gadget and other types of sites like that, I had a link back to my site because of doing that. So it's like another way to try and help with getting more link authority from external sites that would help with the content that I was creating for that site. But that's kind of the process that … and I would never do anything like pay advertising for affiliate sites. It's … and I'm not sure if any of Amazon affiliate person out there that's doing that. For me I just … it never [inaudible 00:13:30.0] just because I know that the margins you're getting from the sales of the products you're referring rather.

Joe: Yeah.

Chris: There's not really enough money actually if I'd like to drive then paid traffic to try and convert that paid traffic.

Joe: Right.

Chris: Years and years ago people would do just racked paid advertising straight to Amazon's website and you could do that before they banned it but that was like years and years ago.

Joe: Got you. Well, they get smarter every year and fix the problems and make it tougher. And the people that are doing it right, I think survive in the long run and knows that cheating to get to the top end up getting kicked to the curb hopefully anyway.

Chris: Yeah.

Joe: So with an Amazon affiliate site, some people have the impression that if you've got a physical product site that you're constantly managing customer service, constantly managing inventory and that it's a grind, you get to constantly churn out new skews to stay on top of the competition and then, of course, grow beyond Amazon.com to the different countries. It sounds like and some people get the impression that it sounds like, seems like Amazon Affiliate would be build it and let it grow slowly and it's a lot less work. But from what you just said which is breaking news and staying on top of things you're putting in the same kind of effort on a daily basis I would assume with an affiliate business as you are with that physical products business or is that not the case?

Chris: It's not necessarily the case. I think it really depends on the niche that you're in because you know it like before we hit recording you mentioned another mutual friend that does Amazon Affiliate things as well.

Joe: Yuan Fitzner let's just say his name out loud. So Fitzner it's you and he's a great guy. For anybody who doesn't know him, find him through Rhodium Weekend; he's fantastic.

Chris: Yeah so he's probably a good person at all as well but he doesn't do any link building, right? He focuses more on just creating the content and that's similar to the strategy that I do as well. But in the case of the niche that I was in specifically before I sold that site doing that as a strategy was … I knew there was a benefit there. Because I think one time Engadget linked to the site and they didn't change the affiliate link. I think it was like several thousand dollar affiliate fees that they … but in that case, it was more just like here is something that fits-

Joe: You didn't point that mistake to the under laying and good backing.

Chris: None of it, it's just like tip line and you just say hey here's this product that's out now and people are probably excited about it and it's available on Amazon now. And yes that was a nice little bonus but … so now it was more of like niche specific. I definitely think that … I'm probably more often than not actually. You're building out affiliate sites because I had other sites as well. I have other sites that it's not like that. Where we're not trying to break news or do things like that. It's just more niche specific. Even people in the technical space they don't want to do that approach and they don't have to. I mean that's just kind of the style that we chose for that site.

Joe: Okay so good quality content, SEO friendly over the long run and theoretically you'll get rewarded. Is that the basic simplified dumbed down approach?

Chris: Yeah I mean it does simplify it but that's really kind of the core. And I think I really emphasize just the differentiation aspect. Like any site that I build it's always like okay I don't really want to enter this area unless I'm willing to do something multiple times better than what's already there. So that's the approach I take for really building any site.

Joe: What are some of the mistakes that you've made then in terms of doing these affiliate sites? I mean what did you learn the hard way?

Chris: Yeah. So of the some of the mistakes I made was … at least for me personally, I do better having fewer sites and just focusing on doing really well with those sites as opposed to having many sites. Like another [inaudible 00:17:09.7] can find that was Spencer he … years and years ago he used to do like hundreds of niche websites and make money from Google AdSense. For me I never … she was interested in doing that type of approach and systemizing in that way. But for me at least it was just a matter of trying to focus on two small niches and so I can … I think I had one that was on HDMI cable reviews. Which was a fail because that was … HDMI cables are inexpensive and then it's also it's just kind of a small niche and … well, not necessarily a small niche but it was kind of a … it was hard to do well with that one then than some of the other niches I went after.

Joe: That could seem like it would change a whole lot over the years either.

Chris: Yeah I mean it was … well, that's the change in standards in terms like new for kay, signals and things like that. But yeah it was just like if you can go with higher price items that's helpful right? With the part that I was doing is computers and so it'd be you know … or small laptops rather that would be more of a payout each time.

Joe: Okay, I had an example given to me maybe at December, January you know someone that was passionate about … I think it was salt water fishing and writing a blog about salt water fishing and within that doing the affiliate links on the different tackle and lures that you can get with salt water fishing. Would that be an approach that someone could take? You know if I have a passion like that whether it's salt water fishing or basket weaving if you will, to build a site based upon that passion and then just go with that approach? And then the follow up question is all right great how do I learn about SEO as you have over the years? What resources do you have? Because it seems again really simplified to say just build a site that you really are passionate about, find great products, review them, and off you go. But you're still got to build an SEO from this site and write good content that that the … your Google is gonna love, right?

Chris: Yeah so going back to the example, I think if you're building out just a site that you're passionate about and then trying to then add Amazon Affiliate as like a monetization … kind of like an add-on, I think it's harder to make Amazon a larger portion of the revenue for that site. If the goal isn't from the start like hey we're going to build out like a more of a review type site as opposed to here's something that we're interested at about just general information and then here is while reading this article happened to may be interested in this specific lure or whatever the example is you gave.

Joe: Salt water fishing.

Chris: Yeah, so that just from what I've been looking at sites in the past it just seems like that's more challenging. What usually ends up happening in those types of cases, the website owner usually ends up making a larger portion of their money just from banner ads or other types of ad platforms like that and then Amazon is more of a supplemental as opposed to the sites that I build. It'd be more … really focused around the review side of things. And so it'll just be like people that are coming to this content are interested in reviews about this product and so then that traffic is more likely to buy something than people that are just interested in general information come to my site and then they may or may not be in a buying state.

Joe: So a clear differentiate is a content site that's just giving information about products in general versus a review site when you're comparing a variety of different products. And when you choose one of those products it's going to Amazon and you get a percentage of that revenue. That'd be, right?

Chris: Yeah and I don't think it's a bad thing to do … really your example where you're building out because it's great to generate revenue from ads and just have a lot of traffic as well just from various articles you're writing and all about salt water fishing and then also be able to make money from Amazon with the Affiliate Program. It's just there's two different ways that you might see sites if you're on the buying or building or selling side of things.

Joe: Well on those three sides which do you like … do you think, let's just talk about two; building or buying. We had Walker Deibel on the show a couple of weeks ago talking about build versus buy or buy versus build. It's actually in a book. He's coming on the Quiet Light team as an advisor in July. Do you personally in terms of specifically the affiliate space, Amazon Affiliate Space do you think it's better to build or to buy?

Chris: Well I've done all of them. Build, buy, sell, every aspect on the Amazon Affiliate Side. I prefer now at least … I've been doing this for a lot longer to … or that depends right? Because it depends on for me at least where my capital might be tied up; either I just recently bought something or I'm doing other investments that are outside the online space and I want it just free of capital. And so I'm not actively looking to buy something or I'm just trying to focus on okay now that I've got that other thing going on but I can try and focus on scaling up all my things and as well. I prefer, if I had to pick one I'd say I prefer building and then being able to sell after that because for me at least I'd like to be able to invest less of my own personal cash. I know you mentioned [inaudible 00:22:18.3] before, [inaudible 00:22:19.4], a lot of the buyers there they don't have access to capital that I don't have access to through … you know people have consider with more money that they can then use as investing partners. And so I suppose if I … given the opportunity I had more capital then I would probably be doing more buying. So I guess it's tough to say. If you don't have cash and you want to just get started then building would make the most sense and maybe you can sell once you get to a certain point. That gives you some capital to either reinvest and build more sites or maybe build or buy other things. But if you have access to capital from … for any reason then buying would be great because you're able to just start with something existing.

Joe: How long has it been for you from that build to sell? Do you typically hold something for 12, 24, 36 months? What have you seen? What do you try to set as a goal for yourself when you're building something? I think okay I'm going to build this to eventually sell it if that's your goal, how long do you like to hold it for? Or does it just depend?

Chris: Well, a lot of the times it's more just a … it really does depend. Because half the time I do this site … well most of the time actually when I do these sites it's more a matter of I'm building something up, I like the cash flow and that's kind of the main goals is just building our monthly cash flow from various websites, businesses, etcetera. So that's kind of more of what I'm after is just getting more cash flow and then rather than just trying to pull out my capital right away and just to sell. So for me, it's all about the cash flow and I am not always interested in exactly trying to sell.

Joe: How many how many balls do you have in the inner; Amazon affiliate wise, how many sites are you juggling now?

Chris: If I were to add up all the different sites it'd probably be … I had to look-

Joe: You know it's more than a dozen or so when you have to look.

Chris: Well, no it's more I was trying to get a specific number. I'll say it's less than a dozen but I also include in that other affiliate sites that just make money from other CPA type offers opposed to Amazon.

Joe: Got you.

Chris: Because kind of once … for me, Amazon was a starting point. That was kind of how I got into the whole space was building out this Amazon Affiliate Site, I was doing it on the side outside of my working hours in a completely unrelated job and just trying to find a way to earn enough money to do this full time. And then once I started making enough money from Amazon it opened up all these different opportunities to try and do other things as well. And that's one is going to software, creating tools for Amazon Affiliate Sellers or well affiliates rather and doing things like that.

Joe: How long has it been since you were thankfully fired from the last day job you had?

Chris: Yeah, I was looking it up. Actually, I have it on my calendar October 13th is the day and it was … it will be nine years this year, later this year rather. And then I'll be 10 years the next year but that will be sort of, that'll be what 2000 … I'm trying to think now what the year it is, 2018 so it's 2009 I believe.

Joe: 2009.

Chris: Yeah.

Joe: It's a long time to be self-employed; it's impressive that you pulled that off.

Chris: Yeah. And now for me at least it's more of a matter of just further building out multiple different income streams and revenue streams from a variety of different businesses. There's … well, that's a whole other discussion right whether you should focus on just one thing or kind of spread it out. For me, it was more like build something out that starts making cash. And it's like well I don't know if I can really sell this for enough to make it worth selling. It's not going to change my life in any meaningful way so I'll keep it and have someone help me out to run it. Well, that's kind of the approach I'm working with.

Joe: So if someone is listening to this and they were in your shoes, you know where you were 10 years ago and they had a day job and they want to do what you've done which is building Amazon Affiliate Sites and make some income on the side what should they expect? Should they … if they pick a category they like, they do a review site, they sign up, they get involved should they … would your expectations that they're going to hit 1 out of 10 on sites that they do, 2 out of 10, 5 out of 10. What would you give them in terms of a ratio so that they can understand and of course these are all ballpark numbers and what kind of money can they really make? I mean we're talking about on the small side a few thousand bucks a month and the people that are big and really experienced at this you know what kind of money are they making?

Chris: Yeah you know that's a tough … it's tough I think with the ballpark it's a challenge to give an answer to that because the experiences that people have may lend themselves to be able to be successful more easily.

Joe: All right, well look everybody listens to me all right. And they're like Joe you're an idiot but I like you and you know would … I have people tell me like they feel like we're old friends from this nude podcast. But you know me through Brad, we chatted, if I was to do this … let's be specific. You could say … be honest say, Joe, you're going to do 1 out of 10. Just face it, Joe, you're not going to do well. I mean you're the expert what would you guess if people are going to do this with some these in experience on a thing that they love and they're smart and they're going to do research online, they're gonna go to your podcast, they're going to go read everything about Chris Guthrie and figure how you do it. What are they going to do, 1 out of 10, 1 out of 5, what do you think?

Chris: Ah if they're learning from me it's going to be 100% right.

Joe: You're a humble guy every time okay.

Chris: Yeah and though I'd say probably it's … with a lot of things, you get into it and sometimes they'll hit and they'll do well. So for me, the best site that I have was doing over 10k a month.

Joe: Okay.

Chris: Worst site would be like $300 a month. And that's where I'll be some of the weaker ones and then some are them between where I have a few thousand or so. Hit rate would be more like maybe 25-50% with sites that would be doing pretty well. But it … yeah, it's just really tough to answer that question for me.

Joe: You improved that hit rate I would assume with the research that you do upfront. Is that right? I mean just like a physical products business on the web, on Amazon or Shopify whatever it is if you do your research up front; what are the competition price points, how are you going to sell it, things of that nature-

Chris: Yeah.

Joe: And you're doing the same thing with Amazon Affiliate; you need to pick a product with a great margin, something that you can write about, something that has been up searches online. What tools do you use to help … even if you have a passion for something whether it's worth it on … whether it's worth creating an Amazon Affiliate Business? So are there certain tools that you use to help that hit rate go up?

Chris: So well tools for like the research side of things?

Joe: Yeah to help ensure that the path that you're going down is going to be as successful as possible.

Chris: Yes, I use a lot of SEMrush actually. So I use that tool quite a bit because I just like to pull up a site, see what stuff is ranking well, where they're getting their traffic from and-

Joe: Do you have the paid subscription for that or do you just use the free version?

Chris: So I fluctuate off and on. So from the process of building or going back to yeah I'd more than all do the paid subscription, and then if it's okay we've got enough stuff on our plate let's just focus on what we have and not create anything new then it's like well I don't really need to pay extra subscription right now. So I fluctuate in and out. Ahrefs is another tool I use as well although that was another one that I just was okay I got a good sense of where our competitors are in their links, where they're getting traffic, and okay I cancel out as well. So it's like-

Joe: I always get that one wrong, it's A-H-refs is that right? We did a giveaway when we launched the podcast on an account on a subscription for that but it was Mark's area of expertise. Can you spell it out for me?

Chris: Yeah, it's A-H-R-E-F-S.com and I'm not even sure how you're supposed to pronounce that either.

Joe: Okay.

Chris: So I mean I met someone that works for the company at that conference as well. I didn't bring that up but yeah-

Joe: Mumble what they said that'll generally work. If you actually … the way my 16 year old does, he just speaks confidently and I believe him when he's comp … no idea what he's talking about but he speaks confidently. I think that's the trick.

Chris: Yeah.

Joe: All right so Ahrefs-

Chris: Yup.

Joe: You went through it and that one is more of what links the sites have right? Is that what you're looking at?

Chris: Yeah, so it'd be more like looking at both viewers and the lengths for me. I was merely just trying to see where my key rankings were and so I was kind of more just tracking how it is we're doing. For SEMrush that's why I would use just the tool for research. And the thing is that here's what … the thing with tools and especially the two tools I just mentioned they've been around for years and years and years so they have so many different things that I probably didn't even know. Like I probably didn't even need one or the other it's just like when you get comfortable using one tool for one thing you'd use it for just that one thing. And then you might use this tool for the other thing. But that's kind of what the approach I would do.

Joe: Okay. So do that research upfront and what you're looking for is traffic, competition, links, things of that nature before you go down the path to increase success rate, any other recommendations that you'd give somebody just starting off?

Chris: Just the main thing I would say is well … I mean if you're looking at what … just looking at larger sites that are doing well. Seeing … I try to reverse engineer a lot. So when you're looking at starting from now that you're doing your research process and seeing what sites are getting in the traffic beyond just like figuring out why are they getting this traffic. Is it because they have a bunch of links pointing at them? Is it because their content is much much better? That's … I guess I keep coming back to this like but it's always for me differentiation. What is it that they're doing that's really doing that is working really well for them and then how can I do better than that? And so in the process of doing that research and looking at that then you're going to see okay it looks like they're using AdThrive or something for their ad platform and then they're using Amazon's Affiliate Program and maybe they're using LinkShare so you link to Walmart and things like that.

Joe: From a buyer's side if somebody came to you and said "Hey look I'm looking at buying this site can you give me your opinion on it?" What things should buyers look for that maybe somebody in the Amazon Affiliate Space has done this sort of cheat and it's not going to last, is there anything that stands out that people should be aware of or look for?

Chris: It's not because … you want to look at where they … if they are building links you want look at where they're doing it because there's you know PBNs or things like that are definitely more gray area.

Joe: If I were … go ahead and say what PBN stands for, please.

Chris: Yeah, Private Blog Networks, that's where people build out like huge networks of blogs and then they use links on those blogs and point them at the site. And then those blogs are getting traffic or links part of them as well. So that looks like you're getting links from higher quality sites when in fact they're just sites people would construct pretty much solely for the purpose of pointing links at properties they own or properties their clients own. And I can't remember exactly how long ago it was but Google cracked down and quite a bit. From what I've seen people kind of just got it underground and so it's kind of the [inaudible 00:33:26.3] a lot but … so looking at that is helpful in terms of how a buyer can protect themselves from that. Usually, you're able to use some of these third party tools to help check that out. There's also things where if you're signing an agreement that's saying I haven't used a PBN and then you find out that they are because maybe you're ranking stopped or go down because they've stopped in turning to run that PBN and point the links at you then that's something that you could have legal recourse to go after them. But that might be something out of buying side that included-

Joe: Yeah, that's what you definitely don't want to have to do is to go after them after the fact.

Chris: Yeah.

Joe: Because you're chasing them for money that you gave them which is never a good position to be in.

Chris: Yeah.

Joe: But certainly doing the research to see where those … where the traffic's coming from and see if there is a PBN and trying to avoid it as much as possible. I think a lot of the times Chris getting to know the person, trusting a broker that's involved if there is one involved, really getting to know the seller in a positive manner. I always recommend whether it's a $35,000 site and it could apply to 3,500 as well, or a 3.5 million dollar site, if you're buying it, it's your money, you worked hard for it, get on a plane, spend an extra thousand dollars stay in a Holiday Inn whatever and meet the person face to face. Do a Zoom or Skype conference call so you can see them and talk to them but meet them face to face before you close the transaction. You can go under LOI in advance but I just don't think there's a better substitute for a handshake, having a lunch or dinner or beer and getting a better feel for them. Of course, you've got to do that due diligence and that research and hire experts like yourself or [inaudible 00:35:14.5] whoever might do the research if you don't have it to protect your money. It's something you worked hard for and I can tell you right now that when you make an investment and you blow it, it's really really hard to pull the trigger again. I know a lot of people that have done that. I know more people that have been incredibly successful and then unsuccessful. But those that thought they knew everything and thought that everybody was kind and trustworthy like they were and they pulled the trigger and something changed in the world, there was a shift with an algorithm update or whatnot and things just fall apart. They can fall apart very quickly. So lots of research meet somebody face to face, use the tools that you're talking about, the Ahrefs and SEMrush, check for PBN things of that nature. You know most people are good but it's the few bad ones that you just want to avoid in my opinion, in my experience. As far as up the top line revenue you think you know if somebody that can do this maybe they're making $10,000 a month that they do really well, how many hours a week are we talking about that is going to take to operate a business of this nature?

Chris: It's definitely if … so for I guess it depends. For me, I'll give … I can really only speak to my own experiences. So for that site that like my bigger site that I had before I sold it, it was probably 15 hours a week or so and then the rest of my time was on other projects. So it wasn't like a full time thing because I was doing it outside my day job in the first place and then I only added a little bit more time because then I thought okay well I've got this new time. I don't want to have all my eggs in one basket because now I have no job and just one primary site and then other sites that are also helpful but wouldn't be enough for me to cover my bills and for … at the time I was like okay I just want to make sure I could … I don't have to go back and get a job.

Joe: [inaudible 00:37:01.3]

Chris: And so that's kind of the approach that I took and it worked for that site. It really depends on me and a lot of times too with Amazon Affiliate Sites especially, you're able to hire out for a lot of aspects of the process of building; either building, maintaining, any aspect to that because it's just content creation and there are a lot of writers that you can find. They can cover that part. And so if you're not doing it yourself and you're finding ways to get yourself out of that process then it can be much further reduced. Now I try and just … for me it was I try to only come up with ideas and then work with people that can help implement a lot of these or to … it's more just about trying to really limit the amount of time I spend on actually like creating content for instance. I might like to write about something on a blog personally but if I can have someone else do it then it wouldn't make sense for you to do that.

Joe: Yeah, content creation can take an awful lot of time. Chris, we're running out of time. Can you share any last minute thoughts or recommendations for those that are listening that are either building, buying, or selling Amazon Affiliate Sites; any last minute advice that you would give them?

Chris: Yeah, I would just say that … well, actually I'd say if anyone is curious or has other questions feel free to … I would like to say feel free to email me.

Joe: You know without a doubt I want to … let's talk about how they reach you. We'll put it in the show notes as well but you know throw out whatever email address, phone number, blog sites, anything you want to share right now I'd be happy to do that. But we'll also put it in the show notes so everybody can find it in writing and get a link there too.

Chris: Yeah so to answer your question I'd say decide on what you want to do right? If you're trying to … and everyone probably has a different expertise or where they're at with their life, what they want to do. If you're limited by a capital and you have a lot of money to invest then it may make sense to just simply build something so you can build it up and then come to your brokers like you guys of course and then sell it and that can give you cash that would … you could then use to reinvest and do those things. And that might be something you would do while you're still at your day job. If you're already on a site where you have access to more money then buying something would make sense. And being able to then take where you're at and growing it from there. I'd really just say that decide which focus you want to go with. Make sure you find ways to differentiate. I mean I kind of bring out that this whole time but for me, everything that I've done with any business is always been for me differentiation and finding ways to do much better than the competition.

Joe: That seems to be the good … best key word here is just be different. You don't want to be like everybody else; differentiate yourself. Still do all the things right, still build something that people want to come to and trust but differentiate yourself in whatever way that you can. Excellent. Chris, how do people reach you? How do they find you? Share any information you can now so that they can get in touch with you and talk about this.

Chris: Yeah, so best place would probably just be UpFuel.com which is my site. We didn't talk about it much but I sell the WordPress plugin that helps people with Amazon Affiliate things as well and that's EasyAzon.com.

Joe: EasyAzon.com?

Chris: Yeah so if it's … if you're running WordPress and you know a lot of people do of course then that's a software you can use to help with creating links and earning more money from those links as well.

Joe: Excellent. I will make sure that link is in the show notes as well. So UpFuel.com, EasyAzon.com anywhere else that you are in the world?

Chris: Twitter @chrisguthrie and yeah so that's probably the main ones but I'm happy to … if any … if you're on the buying side and you're just looking for second opinion, I try and I've just done well with trying to provide value and people with no expectation, no return and then things work out so-

Joe: I agree. Just help people have good conversations and it comes back around. All right man listen I appreciate it Chris thanks so much for your time. Hopefully, folks that are either building buying or selling Amazon affiliate sites will get some good resources here. Thanks for your time today I appreciate it.

Chris: Thanks.

Links:

Upfuel.com: An up to date article with respect to the Amazon affiliate niche.

Easyazon.com: The plugin that a lot of WordPress users install as well (they have over 10,000 installs).

AMASuite.com: Discover products and how to differentiate and source them inexpensively.

Rochelle Friedman was a corporate lawyer representing some of the top products and brands in the world. A few years ago she jumped ship and started the Walk Law Firm. Now more than 50% of her business is representing both buyers and sellers in transactions that involved the transfer of an Amazon Seller Account.

Because of her specialty and expertise, I wanted to have her on the Podcast to share her approach, and what she sees other brokerage firms in the industry doing. In today's Podcast she covers the risks and pitfalls of transferring an account through an asset sale, and talks about the different types of transactions she sees occur.

Rochell also delves into the two big "stomach ache" clauses in a typical asset purchase agreement, and how to address them up front so the due diligence and negotiation process is successful.

As you've heard us often say…"don't decide to sell, plan to sell". The same holds true with legal matters. Make sure you are properly incorporated, that your trademarks and copyrights are up to date and transferrable. All of these are part of the assets of your business, and hiring a firm like Walk Law Firm to review them in advance of a sale is advisable.

Episode Highlights:

• Learn Rochell's approach to transferring an Amazon account. Hint…it is the same as ours.
• Transferring non-US accounts is the same process.
• Both buyers and sellers need to be happy at closing, or a deal falls apart.
• Having a qualified contract attorney truly matters.
• The same attorney will fight differently if their client is the seller vs. the buyer.
• There are TWO MAJOR stomach clauses in every APA. Address them early on in negotiations.

Mark: Joe how are you?

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

Mark: You know ever since you got back from Italy you are kicking my butt again when it comes to the number of interviews you're doing for the podcast. I think like three to one, four to one as far as the ratio is concerned and I'm sure our listeners are ecstatic.

Joe: I don't know. I actually have the easy part. I just do the interviews you do all of the stuff in the background so thank you and I appreciate it. I just do the interview. And this time for this show I don't … falsely, folks, I talked to an attorney and it was actually a really good call and here's why I had; her name is Rochelle Friedman, she's from Walk Law Firm and you know look with physical products businesses and the transfer of an Amazon Seller Account everybody has questions about how to go about doing it, whether it's a US based account or one that's international. And I came across Rochelle through some other folks that I worked with and I had a call with her. And I just picked up the phone and I called her and chatted with her. Look she does close transactions for Quiet Light Brokerage, for Empire Flippers, for Website Closers and you guys know who they are so it's okay to mention them right? And I know she does that so I wanted to confirm with her what processes, what she does and shockingly Mark it's the same way that we do it believe it or not. And she goes into detail about it, and she goes into great detail about it. Not only that she talks about contracts in general, she represents both buyers and sellers. She's a contract attorney that came from the corporate world representing businesses, every day household businesses, she was their attorney a very good one in the corporate world last went out on her own and now represents both buyers and sellers in transactions. And I think it's worth listening to. I think it's really really important as you and I have talked about how important planning is. Don't wake up and decide to sell but plan to sell, same thing should be said for an attorney; talk to one. Get your ducks in a row and make sure that you're doing the right thing as you go into your transactions you can do it with confidence.

Mark: I'm gonna put you on the spot because you said we're going to address in this podcast episode how do you transfer an Amazon business and how are people doing it pretty much across the board. But for anyone that already knows how to do that or has done that what else do we cover in this episode?

Joe: She covers the two big stomach ache clauses in contract negotiations. That being the non-compete and the indemnification clause. I think the indemnification clause is the bigger of the two because we do a pretty good job up front addressing the non-compete. And so if you do that work up front in the client interview and work with the seller on that to make sure they understand what a non-compete is and make sure there aren't going to be any issue is never really a problem. The hard one to wrap your brain around, your hands around is the indemnification clause and what that is from a seller's standpoint. You sell your business you think you're done, you get 100,000 200,000 a million dollars in your bank account and you move on about your merry way. You sleep really well at night because you got a bunch of money in your account. Well, your buyer's attorney is going to have something in there that is going to have them reach back into your bank account and take some money out if you lied or cheated or stole or did anything fraudulent in anyway. Now you should sleep well if everything was done right but if there's anything that wasn't they're going to put that in there. And they're gonna put that in there anyway and the big question is how long is that grace period for? Is it six months or 12 months or 18, and then how much is it for? And Rochelle you know towards the end of the podcast she laughs and she chuckles and she talks about how … well she has one standard when she's representing the buyer and she has a completely other standard when she's representing the seller so it's good to hear from both sides for sure. But the stomach ache clauses are really important in there as well.

Mark: That's fantastic. And those are easily interest almost guaranteed at it every time we send out a purchase agreement on those two clauses.

Joe: Guaranteed.

Mark: You always see stuff. All right let's get in to see what she has to say about all of this including in the indemnification stuff. Let's get to it.

Joe: Hey folks it's Joe from Quiet Light Brokerage and today I've got Rochelle Walk from Walk Law Firm on the line with me today. How are you doing Rochelle?

Rochelle: I'm doing great Joe, how are you today?

Joe: I'm doing well. I have a sister in law name Richelle so if I mispronounce your name during the podcast at all today that's the reason why. I'm apologizing in advance.

Rochelle: Not a problem at all.

Joe: As we talked about a little bit before recording we don't do fancy introductions so if you could just give the audience a little bit of background on yourself. Tell them about who you are and the work you do that'd be great.

Rochelle: Sure. Thanks, Joe. First off all thanks for having me on, I appreciate the opportunity. My background is actually a little bit complicated because I have been practicing law for 33 years but unlike a lot of other lawyers, most of my practice has been as a general counsel or as the chief administrative officer of very large public companies. So most of my time spent as a lawyer has actually been as a business person. And I like to explain myself as a business person who happens to also be a good lawyer.

Joe: Excellent.

Rochelle: And when I started this firm I was at the point where I was leaving a major public company, decided I wanted to do something different, and decided I wanted to use the same skills I garnered as a business person and lawyer for really large public companies and turn it into something that would work well for small to mid-size companies. So during my years in my big company world, I worked heavily in consumer products. I was head of license brands for Sherwin-Williams, brands like Martha Stewart, Ralph Lauren, I worked with Dutch Boy, I worked with Thompson-Minwax, Krylon, very famous brands. And then I left there and I was at a company called Oglebay Norton it was mining and minerals. We had clients and customers like Home Depot but we also had heavy industry as clients and lots of engineers. And then ultimately I went to a company called Anchor Glass and it was consumer glass, some of your favorite beverages, as a matter of fact, would be bottled in the glass containers whether you know beer, wine, Maker's Mark you know some famous brands. So my career has always been around famous brands and lots of retail. So when I looked at what I could do seven years ago when I started this practice, I thought about it and said I can really understand consumer brands. I really understand branding. I really understand intellectual property but it's a new world and we need to be able to do it online. And I dove into e-commerce understanding how Amazon works, how eBay works, how Jet works, of course, some of those came later, how Walmart.com as a marketplace work … Walmart used to be my customer at Sherwin-Williams and now here at Walmart.com it's a completely different animal and I dove into that. My practice has always been heavily mergers and acquisitions so about 50% of our practice is the mergers and acquisitions of businesses. And seven years later that has become a huge footprint of Amazon sellers, online sellers, e-commerce businesses that are seeking to flip. Entrepreneurs who have created … you know they have created great brands but in order to take them, to exploit them to the next level they need a lot more bandwidth. And it's, therefore, their time to move out of that business. Having spent a lot of years buying and selling Mom & Pop tank stores for Sherwin-Williams and Mom & Pop paint brands and Sundry brands it's no different, it's just now we're doing it through e-commerce instead of bricks and mortar.

Joe: Okay. So about 50% of your business is the M & A side, the other side is what; working with people on intellectual property, branding, things of that nature?

Rochelle: We're like their outsourced general counsel. It can be everything from intellectual property and branding to possibly contracts, employee issues, independent contractor issues, tax issues-

Joe: Okay.

Rochelle: Really almost anything they need. Leases, fire agreements, everything you might imagine a general counsel doing.

Joe: I got you. So for folks listening, the reason I have Rochelle on the line today is because a lot of you have asked during the buy or sell process if Quiet Light can recommend an attorney. We have several that we work with; Shawn Hussain at the Ecom Law Group is terrific. We work with him often and Rochelle knows him and came across Rochelle and we were talking about the transfer process of an Amazon business. And I know now that you've worked with all of the website business broker firms that are at a high level like Quiet Light and you've been on both sides of the transaction.

Rochelle: Right.

Joe: Do you prefer or do you most often work with the buyer of a business, representing the buyer in contract negotiations or do you find yourself on the seller's side more often?

Rochelle: It's really about equal and we don't really have a preference. We're perfectly prepared to work with both buyers and sellers. Buyers and sellers have different needs and one of the things that I think we're pretty good at and just so you know we're a firm of three full time lawyers. We are about to affiliate with a bigger national firm who also does quite a bit in e-commerce and emerging business and we can … I'm not prepared to tell you who and the details of that but that's coming down the pike so we'll have a lot more bandwidth. But what's important about us as we understand the difference between what a buyer needs, what a seller needs, financing it; if both you're a buyer and a seller how it's being financed matters, and understanding how this Amazon accounts transfer. Sometimes transferring the account actually isn't in your best interest or the buyer, sometimes it's the only solution for the buyer and-

Joe: Let's talk about that-

Rochelle: You have to assess that.

Joe: You know that the listener's ears just perked up because we're talking about the transfer of an Amazon account.

Rochelle: Yeah.

Joe: You and I both know as does everyone who has an Amazon account that the Terms of Service says that the Amazon account is not transferrable and that-

Rochelle: Generally.

Joe: Right there's a bracket in there that says generally. To me logically it never made sense that you could build an amazing brand on Amazon and never be able to sell that. And I've had experience direct with Amazon and they've proven that they do in fact allow the transfer of accounts but-

Rochelle: Of course.

Joe: Tell us, tell the audience, tell me how have you seen an Amazon account most often transferred with the different transactions that you've done with the top websites and business brokerage firms.

Rochelle: Sure you know a lot of times it's very much behind the scenes. If you are actually selling the ownership interest in the business you're not really transferring the Amazon account. Although Amazon may disagree with that but you're really not transferring the Amazon account, you're transferring the ownership interest in your business. And the only thing you're doing with the Amazon account is actually maybe changing an EIN if … depending on what you're buying and if you're getting the EIN of the new business and probably changing where you want the banking to go. I've even had situations where we haven't had to change the banking at all. If you're buying the assets however and you're leaving the ownership interest of the business behind by getting all of the assets of the business you're going to need to go in and possibly change the name of the owner of the account, change the … certainly, the EIN or the Employer ID Number, change the bank account number, and there may be some other things you're going to change as well. But there are some things that we recommend sellers do and frankly, it's better for buyers to help ease the pain of that process. First of all, we've never had Amazon stand in the way. As a matter of fact, if you text Amazon they'll even tell you how to go on and do it. So as much as they say it's generally not transferrable they actually don't get in the way as long as what you're doing is not disruptive. So where will they get in the way? If the IP address of the person making the change is different than the IP address of the person who has been running the account Amazon is going to have a big flag for fraud and they will get in the way and they may shut down the account. What they usually will do is let the sales continue. However, you can't access your account until somebody verifies that it was an intentional change. And they use to give you a couple of weeks to do that verification although my clients are typically through that verification process within a couple of hours. It may take Amazon a few hours to flag you but watch for the flag it's usually going to come to the seller. One of the great ways to avoid any of those issues, if you're using a VPN to access your account in the first place then you transfer the account with the VPN it has all locked in. You're not changing the IP address and that way when you do this transition there is no issue of the buyer or the seller plugging in the information as long as they're all going through the same VPN. Similarly, let the seller make the changes. Generally, the seller makes the changes. If it's a big enough account Amazon may flag it for fraud anyway but within a couple of hours the seller will get that email or will get contact from his or her account rep and that pain will be immediately fixed. We do it all the time and we haven't had an issue.

Joe: So do you end up having to have a contact yourself with Amazon if there's an issue or is it just something that the seller contacts them and it's resolved eventually?

Rochelle: So my rule of thumb, leave your lawyers out of Amazon at all times. We may be in the background helping draft the e-mails, helping respond to the emails, they always come from our client who has the most contact with their Amazon rep.

Joe: That's the sellers.

Rochelle: We want-

Joe: That's the owner of the seller account.

Rochelle: Exactly. We want the least amount of disruption in the communications. Amazon really doesn't need to hear from your lawyers. You just need to work directly with Amazon and frankly, it's a fraud detection problem. Amazon doesn't want to be caught where somebody somehow hacked into your system changed your accounts and you later come back and accuse Amazon of having changed your accounts or having diverted your money. So you can't blame Amazon for what they're doing. You just have to be able to work with them and be prepared for maybe a day or two of disruption. But typically we haven't seen it disrupt sales.

Joe: Okay.

Rochelle: We've seen product takedowns disrupt sales but we have not seen that transfer of the account disrupt sales.

Joe: Excellent. Okay. Well let's take a few things, we talked about you're seeing the most method text and then we talked about the VPN and then you talked about … well, I want to talk about different Amazon countries so-

Rochelle: Okay.

Joe: What I've seen in the transfer process is the same. You know we wrote the 10 steps to transfer an Amazon account in 2016 I think and the process that we see is actual phone calls to seller central saying "Hey look I'm transferring the business, one of the assets of my business to the Amazon Seller Account. How do I transfer control to the new owner?" and they do the same thing you just talked about in Texas-

Rochelle: Right.

Joe: They give you written instructions and they'd sent it via email.

Rochelle: Exactly.

Joe: Our clients tell us that sometimes they get lucky; in the 1st call it works and sometimes it takes 10 calls.

Rochelle: Right.

Joe: At 1st hold on you can't do that and then on 10th oh yeah exactly I know what you're talking about, they do it. I've had some chats with Amazon chats do the same thing but you said text. Now do you mean email, do you mean the chats, what do you mean by text?

Rochelle: I mean the chats.

Joe: You mean the chats, okay.

Rochelle: And it's usually the Seller Central chat system and we even have videos and screenshots of the chats that some of our clients have had.

Joe: Okay.

Rochelle: Remember with Amazon Seller Central you are dealing with … I'll describe this way my husband describes pizza. It's only as good as the 16 year old making it; when you order a pizza from a pizza parlor the quality control is a little bit lax. Well with Amazon it's not a quality control problem but the experience of a customer service rep is only what that person has had as experience. And depending on how specific you are, on how clear you are on what you're trying to ask them will depend on how good they are at getting it to the Amazon separate instructions and pulling back and telling you what to do. The more experienced reps are very good at telling you exactly how to go into Seller Central and make the changes.

Joe: I like that. I wonder if on the chats that the more experienced reps answer the chats versus the phone calls. DO you know if there's any data behind that or is that just an assumption?

Rochelle: No, I have no idea.

Joe: Okay.

Rochelle: I have not seen that and I really don't know and remember the chats are being answered by people all over the world.

Joe: Okay same as phone call side too.

Rochelle: Exactly.

Joe: Okay, good. So just to back up a little bit of what you are saying I've had many many Amazon … Quiet Light Brokerage has many Amazon transactions transfer just that very same way. I personally have a situation for folks listening who or had an Amazon account that had a gold status, I don't know if that exists anymore but it was called a gold status and that meant that. It was old enough and large enough where they had an Amazon representative assigned to their account. So they had somebody they could always reach out to and during that process, they reached out to that person and said "Hey look transfer selling the business one of the assets of the business is my account how do we take care of this?" And that individual went to Amazon legal and said hey look this is what we're doing and Amazon Legal provided a form-

Rochelle: Right.

Joe: And all they wanted to know was the name of the buyer. And it's always been a theory that Amazon wants to make sure that those that have been banned are permanently banned so they wanted to know the name of the buyer so to do that search to see if they've been banned. That's all they did was check the name of the buyer and the transfer went through with no problem at all. So just backing up what you said there. The VPN, I had Norman Farrar on the podcast, Norm is an expert in SOP's and marketing Amazon. He guested on many many podcasts. Norm recommended the same thing and for those that are listening that do a lot of traveling to different events and whatnot, you're all at mastermind groups and you're getting advice if everyone is using the local VPN and there's a hundred people that get it sitting in listen to an expert and they get a great idea they'll all log on to their Amazon account using that IP address in the local wireless, local hotel, or whatever it might be-

Rochelle: Right.

Joe: The Amazon bots are gonna go crazy and you're all going to get shut down.

Rochelle: Exactly.

Joe: So Norm does that. Norm recommends VPNs. Rob Green who does the same thing, high level seller, a lot of podcasts, a lot of speaking all that events. He's got three or four different seller accounts, different VPN for each one so he goes even to a further level.

Rochelle: All of my biggest clients are using VPNs. It is the smoothest, simplest way … as you said it's not just a matter of selling your business and having the VPN set up, it's actually an operational benefit. Because what it also means as you get bigger it's not just one person who needs to get into that account. You may have a team of people who have to go in and do different things at different times. They could be all over the world. But everybody coming in through the same VPN there's no confusion to Amazon bot. And frankly, it's a lot more secure.

Joe: I agree. And it's you $10, $15 a month.

Rochelle: Right.

Joe: You should be doing-

Rochelle: Absolutely.

Joe: Okay. Let's talk countries, you haven't talked about countries yet.

Rochelle: Right.

Joe: You haven't said Amazon.com eu whatever it might be.

Rochelle: Right.

Joe: Are you finding the same transfer process to be successful for Amazon.com, UK, Germany, France, Italy, etcetera or are you doing something a little different depending upon the country?

Rochelle: So generally we are using the same transfer process. Now one thing that I have to pull out when you are dealing with other countries you may have a V-A-T or VAT or Ad Valorem tax issue and generally that is not transferable. So you are going to need … the new company is going to need to set up their own tax ID in those countries. And there may be a change that has to be made and it may lag a little bit. Typically we use the same process. Most of our clients are driving their business through Amazon.com in the United States. It's a much smaller amount of traffic and a much smaller amount of sales going through the other countries. Although it's starting to pick up, it's starting to get a lot bigger. But we haven't focused as much on those international accounts but we haven't any trouble transferring them either. We just use the same process. There's been no disruption except for making sure that we have the Ad Valorem tax information necessary for those businesses.

Joe: Got you.

Rochelle: And it's been pretty seamless.

Joe: Got you. Okay, we've experienced the same thing. In regards to the value added taxes for people listening we did a podcast with Alex Lyon-

Rochelle: Excellent.

Joe: From AVASK Tax Advisors three weeks ago depending from when this is launched is it.

Rochelle: Right.

Joe: Let's put it this way, it launched 1st of June or so. Great detail on how to set it up, what the pitfalls are in trying to do it on your own and the cost associated with it. And we also addressed the transfer of a seller account when to set that up and what comes first.

Rochelle: Right.

Joe: And she sort of detangled everything and it's not all that complicated.

Rochelle: Perfect.

Joe: Have you had a situation where the seller wanted to keep their seller account but transfer the brand out to a new owner and if yes tell us about it, please?

Rochelle: We have. Actually, we've had it both ways where the seller wanted to keep their account because maybe their seller account had multiple brands, multiple A Sense and they were only selling one set of their product lines, maybe one brand. And if that happens it has to be up front at the beginning of the deal. Everyone needs to understand at the beginning of the deal whether or not the account is going to transfer. And the buyer needs to appreciate that they may not be getting the seller account and frankly sometimes it's not the worst thing. For instance if the buyer is already an active Amazon Seller, the buyer may be very happy to have its current Amazon account just take over the A sense and that is a very smooth transition and it's literally a relisting of the A sense moved over and then the seller account just delist those; takes them off their registry.

Joe: The only challenge with it, you know it just piped it's … is the inventory. The inventory in the FBA account, Amazon will not transfer it from one FBA account to another. So you've got to time it so that new inventory is coming into that new seller account. You might leave the older account open, it still sells through that inventory but the new owner gets the revenue or the profit.

Rochelle: And the seller, if they sell through the existing inventory, may do it for the benefit of the buyer.

Joe: Yeah.

Rochelle: So that the money still transfers and all of that inventory and we just do an accounting.

Joe: Exactly.

Rochelle: You're exactly right Joe that is what happens. Let me give you another scenario and I actually have this scenario right now. I have a seller I represent who has multiple seller accounts and he … they have multiple brands in their seller account and they're about to sell that business. That particular seller account is poorly rated. It has had lots of negatives for a whole variety of reasons part of it's because it's very old and part of it is because of mistakes that were made early on. But the nature of that particular business, the products they sell makes a lot of money but the seller account itself is not great. And the buyer is actually going through the process right now and determining if they would be better off just starting a brand new seller account and not taking that history because again, you're picking up the history of something that isn't really great.

Joe: Yeah I guess it's better to have no history if the old history is very poor. But the challenge is let's back up and start with for those listening buyers or sellers if you have multiple brands in one seller account think about that transfer process. Someday you may wake up and say you know what I'm tired. I want to just unload something and put some money in the bank, set something aside so I can see something for the worth that I've done. The best way to do that is to have a clean transaction; you know separate LLC, clean documents, clean financials, and a separate seller account.

Rochelle: Separate VPN.

Joe: Separate VPN, exactly. You can have multiple seller accounts, I've talked to people that have six seven different seller accounts. You just have to get permission from Amazon and they will grant it again like Rochelle said at the beginning you just have to talk to the right person at Amazon.

Rochelle: Or … and you have to do it right, you have to keep those businesses as separate businesses with separate seller accounts. They're not going to let one business have multiple seller accounts.

Joe: Okay that's good information and it's hard for people when they bootstrap things and they test and certain things take off and they think this is great. Selling a business is more of a challenge and you got to have those things as separate as possible. I can tell you right now if you're going to spend a thousand dollars setting up a separate LLC and an extra thousand a year doing the accounting for it; you know $600 a year for separate Quick Books account you will get that money back tenfold in the sale [inaudible 00:28:26.9] your account so it's absolutely worth it to do it. So in terms of transferring the brand out of an account here's the drawbacks is that your buyer has to have another Amazon account with good or better ratings than the one that you have. Otherwise, your buyer pull is going to shrink and when your buyer pull shrinks the potential value for business shrinks as well.

Rochelle: That's right.

Joe: I've talked to many experts and I've named a few whom here that I have talked to about the transfer of a brand into a brand new Seller Account and they all think that's crazy. If it's got … if a good brand is in a good Seller Account you're transferring that to a brand new Seller Account they don't know anything about it-

Rochelle: It makes no sense.

Joe: And it's just risky.

Rochelle: Exactly.

Joe: I have a transaction that's going on now where the buyer had just purchased an Amazon Seller Account, it happens to be in a different country than the US and has got a great seller rating and they're going to buy another brand and move it into that same seller account into that same country versus taking over their Seller Account. Because the seller feels that there's a risk there that he doesn't want to take on.

Rochelle: Right.

Joe: So there's a lot of different ways to do these transactions and I hope that people can hear Rochelle through your communications that you're an attorney that actually thinks a little bit outside the box and understands that there's always two parties that are coming to the table and both have to be happy and satisfied in order to close a transaction. And you agree?

Rochelle: I absolutely agree and you know Joe one of the things that I'd like to talk to people about is, remember it is the Seller Account you're selling and very often that's what's driving the value. But also keep in mind there may be other things you're selling such as techniques or technology that you've invented to support your Seller Account that helps to drive the business to that account. Or possibly even your own know how and they may need you as part of the transition team. There may be issues with a non-compete especially if you're running multiple brands and you're selling one channel or one brand. So as you're getting ready to sell your business you really have to think about what it is you're selling. It's the Seller Account, it's the brand, what else is being sold and can you really sell the things that the buyer wants?

Joe: Yeah all of that should be done up front. What … the worst thing to do folks is to wake up and go okay I'm tired I want to sell my business so I'm going to call a broker.

Rochelle: Right.

Joe: That's the worst thing that … the best thing to do is to do what Rochelle is talking about and plan it in advance. Think … okay, maybe someday I'm going to sell my business let me just sort of get my ducks in a row.

Rochelle: Right.

Joe: Maybe I never will and maybe I'll pass it on to my kids but in the event, I get tired and want to move on I want to be prepared. And you want to think about all those things in advance and have those sort of all those ducks in a row.

Rochelle: Right.

Joe: In any contract negotiation let's touch on this briefly, both buyers and sellers you see both sides of the transactions all the time. What other stomach ache clauses that you see in an asset purchase agreement and how do you rectify them? Give me a couple of examples.

Rochelle: So I can tell you the top two are always the non-compete and the indemnification provisions. Those are always numbers one and two sometimes you know in whichever order you want to put them in. But those are the two things that are almost always the most concerning. So the non-compete; the non-compete sounds easy. I agree I'm going to sell my business that sells paint brushes and I promise not to compete in paint brushes. Well, the buyer may be looking at it a little differently. The buyer may say, I don't want you to compete in anything that has anything to do with paint or anything that has anything to do with art or possibly anything that has anything to do with home or other kinds of activities. Very often they're going to look at Amazon categories and they're going to say I don't want you to compete in the category in which the product you sold is in. I've even had a buyer say I don't want you to be a … will compete in any category on Amazon or in any category in which I, the buyer may be in now or in the future.

Joe: Definitely nuts because I would tell them they're nuts.

Rochelle: Well, of course, we say as politely as we can. We don't like to queer deals but those are always fight issues. And my suggestion although I know people don't like to deal with difficult issues up front when you're in the dating period but my suggestion is that you understand the non-compete from the start of the transaction and the LOI point.

Joe: Absolutely. We put all of that in our client interviews in depth, we ask about the non-compete, we talk to our sellers in detail about it because that is an important part of it from the seller's side. Look if this … the person selling the business is selling class fishing poles and they want to sell that business but still sell fishing poles it's too close and I'll tell them right up front as will any broker at Quiet Light Brokerage it's not going to work. Buyers are going to have a problem with that. I've never had a situation though I got to tell you, Rochelle, where a buyer has made an offer and said that we don't want you to sell anything on Amazon. That's simply too [inaudible 00:34:05.0]. I've never had anybody narrow it down to the category either because if you think about Home and Garden it's just too broad. It's usually been specific to the product and sometimes you know a little bit around that product. Let's say that if it's pick one that is not an actual-

Rochelle: We can talk about your fishing poles.

Joe: Sure.

Rochelle: Some people will say nothing in marine so does that mean I can't sell a boat? A boat is really different than a fishing pole. Does that mean we can't sell a [inaudible 00:34:38.9]?

Joe: Fishing tackle or things of that nature. I would say that it's … you can you can dance beyond that specific product a little bit but you can't go okay fishing pole and maybe lures but you can't go to boats, right?

Rochelle: Right. And the reason I bring it up is I have had and I will tell you where it is the … a lot of the buyers today are private equity firms.

Joe: True.

Rochelle: And they're doing roll ups, and those private equity firms feel like they're buying the expertise of the person, not just the product and they are all over the idea that the expertise of the person could be used to teach or develop somebody else to sell against them. And as these private equity firms are rolling up multiple brands, multiple areas and their diversifying they have gotten very aggressive on this non-compete language. So we actually have seen … this may affect, I saw a language that was so broad that I said we absolutely can't have our client sign it because she couldn't even work at the makeup counter in Macy's. Because Macy's has an online site and even though she'd be working at the store it would be technically a violation.

Joe: Right.

Rochelle: And the private equity guy said to me well we didn't mean that. I said well that's your language says though. And he said I see where you're coming from. We were able to bring it back and this is really where the skills of your lawyer and your broker come in. Because the combination of the two helps bring people back to reality but it's important that conversation happens up front.

Joe: I couldn't agree more. I find the vast majority of deals go off the rails at some point and the difference between a good lawyer and a good broker and a great lawyer and a great broker is pulling that back on the rails. I think the ability to have open communications and occasionally you know maybe I'm wrong I don't mean to throw you in a category here but-

Rochelle: Yeah.

Joe: You know I think attorneys when they respond to an asset purchase agreement and do edits and send it directly via email and make comments. It's vastly different than if they actually get-

Rochelle: Get on a phone.

Joe: When they get on a phone and speak to the other attorney, it's-

Rochelle: Absolutely.

Joe: You guys are brutal in emails and comments but then when you get on the phone you can generally work things out.

Rochelle: So one of the challenges Joe is that really it's more than there was but today there are very few lawyers who have experience in this kind of business.

Joe: Yup.

Rochelle: And the typical document we're seeing has all sorts of stuff in it that makes no sense for an Amazon business. It's got loads of employee representations on employee benefit plans, it has loads of pages on environmental reps and warranties because they've taken the standard ABA form or the standard form they always use and they send it and say this is our asset purchase agreement.

Joe: Right.

Rochelle: And people like … and I'll use Shawn Hussain as a great example I do a lot of deals with them, people like us look at that and we just simply white out all those pages. So we start off with 75 pages when we're done it's about 35 and 40 of them were just garbage.

Joe: Let's jump to the indemnification clause.

Rochelle: Yes.

Joe: Stomach ache clause number two, tell us about that one.

Rochelle: So indemnification, for people who don't understand what it is, it's the clause that says if something goes wrong after the sale here's when and how I might be able not I the buyer may be entitled to get some money back. Or get some protection get some defense. So understood anything that happened in your business prior to the sale of the business is certainly the seller's responsibility. Anything that happens in the business after the sale of the business is the buyer's responsibility. But then there's the foggy world; what about product that was produced by the seller but not sold until the buyer owns that inventory? What about claims made on the websites, claims made in the marketing materials, claims of natural or organic that the buyer is relying on that the seller created, or what about simple … the business didn't do very well? You told me this business is a million dollar a month business but when the buyer takes it over the think tanks, the lightning deals go away. There's all sorts of speculation, the supplier doesn't supply quite as well to the buyer as the seller, and then the buyer comes in and says how do I get money back for this it's not what I expected. It's really really important that going into the deal you understand what the caps and limits are, what's the maximum amount of money a buyer can get back and under what circumstances, and is there a deductible. So for instance fraud; okay everyone understands that if the seller committed fraud, the buyer is going to expect their money back and probably all of their money. At the same time let's just assume that what really happened is that the seller had representation, some warranties and in it it said that the financial statements that are attached are true and correct and it turns out one line has one number transposed, it doesn't change the business, it doesn't change the quality of the business, it is an immaterial mistake, should the buyer get money back? Should they get all their money back for that? Should they get any money back for that? And so that's what I would call a typical representation warranty. Let's assume there was as a result of that mistake there really was a little bit of a material implication. Well, it will … let's say turned into a $10,000 problem, so what should the buyer get for that $10,000 problem? The language and the representation warranties are very important. What we recommend is that going into the deal there be a very clear conversation about the difference between fraud which might mean you get your purchase price back or maybe even the right to unwind the transaction versus an unintentional misrepresentation or mistake or something hiccups that you didn't anticipate. And we recommend that you have a clear cap, what's the maximum amount that the buyer can get back in the event of those issues and it might be we … generally, we see somewhere between ten on the low side and 30% on the high side as the range; that's today's market, as the range for those kinds of indemnifications. We might see a basket, so we might see something that says but if it's all under $25,000 or under $50,000 depending on the size of the deal the buyer gets nothing back. It's just a small de minimus issue whereas if it's hundreds of thousands of dollars of issue there might be a cap on it. There are fundamental representations such as title to the assets and if it turns out the seller sells you something it didn't have title to it, of course, the buyer is going to expect to be completely reimbursed for that. There are questions about whether or not you'll pay for the attorneys. These are provisions that both your broker understands and your attorneys understand. I strongly recommend that you line up an attorney at the beginning of the deal at the LOI for the base of this and you also line up an accountant who and as a seller.

Joe: Well in advance.

Rochelle: Well in advance.

Joe: Yeah for sure. I hope you have one already for those listening that are sellers you know the four pillars that Mark and I talked about; the risk, the growth, the transferability, and the documentation are all critical. And you can't have that documentation in place without having a good a. bookkeeper and b. CPA to figure out what's going to be and left with after the sale. That's why I don't want you to wake up and go okay I'm ready to sell, list my business, please.

Rochelle: Right.

Joe: You want to think about those things in advance. I did a podcast with Dave Bryant from EcomCrew way back on importing from China and Dave talks about how he planned in advance selling his business and renegotiated the cost of goods sold on certain skews over a 12 month period. Saved himself about $40,000 and got that back in a multiple of three when he sold the business so all of these things are really important. As you talk about the indemnification, and as you talk about the non-compete for those listening you know I'm sure some of you nodded off right? Just like you did when I talked about the doing the valuation in cash versus accrual accounting. You can make so much more money in the sale of your business someday if you ever decide to sell or your heirs do when you take care of these things in advance when you plan when you have proper documentation. Now all of that will make these stomach ache clauses like the indemnification, not an issue. Proper documentation in advance of the sale you'll know that you did the right thing with your customers, you know that you don't have any cash and potential liabilities; you know that your financials are correct. That transposing of the number you know is it material, is it immaterial?

Rochelle: Right.

Joe: I've never had it happen pretty small if it's immaterial to material. I always go back to things can be worked out for the most part with math and logic. Emotion is the wild card, a good attorney a good a broker will help keep those emotions in check and on track to closing. And I think one of the reasons why I wanted you on the podcast Rochelle is because you seem to apply that math and logic into the conversations that we've had and you realize really really strongly that both buyers and sellers need to be happy.

Rochelle: Right.

Joe: Otherwise that transaction is not gonna close. There's no point. A one sided deal is never going to close folks. So if you have an attorney that is fighting tooth and nail for indemnification clause it's going to have the seller not cover anything, not cover any risk for the buyer, it's not going to close. It has to be comfortable for both parties. I always tell a story, I'm not going to tell the full story but it boils down to I will not take on a clients that is married to an attorney that has an attorney's her mother father sister brother that's going to do their contract negotiations because they fight like rabid dogs for things that you know there's one tenth of 1% of it happening but they fight like crazy to make sure that their client, their relative is fully protected. Because they're gonna have to have drinks to that relative at the next 4th of July barbecue. Deals fall apart for those clauses that we've talked about more the indemnification in my experience than the non-compete because again a good broker will handle that upfront and take care of it upfront and it should be both buyer and seller free LOI. Now one last thing on the LOI face in terms of when to hire the attorney Rochelle, our experience is the letter of intent is non-binding and fully contingent on the asset purchase agreements on due diligence and the further detail of asset purchase agreement so we don't recommend that clients hire an attorney for the language in the letter of intent. Because it says right in there is non-binding and contingent on those things. I think as long as some of these points or all of these points are worked out in advance you know particularly the non-compete that it's in there that 9.5 times out of 10 it's not an issue. Occasionally we have a little further negotiation in the asset purchase agreement, would you agree though that you should be hired once the LOI is signed and for the asset purchase agreement negotiations?

Rochelle: Let me frame this a little differently.

Joe: Okay.

Rochelle: If you're getting ready to sell your business you should have a lawyer lined up who's taking a look at your business to make sure your ducks are in a row. Make sure if you have supply agreements that they are written signed enforceable supply agreements because if you're planning on selling those supply agreements then they have to have assignable supply agreements. So what I always suggest is just like you have your accountant in your back pocket you ought to have an attorney that you work with that's helped you think through your business. So I actually believe that you need to have a good business attorney lined up early on. Now having said that, 90% of my clients don't even though that is my advice and I wish we would be there. Joe is exactly right we are very often hired after LOI or right as the LOI is being prepared. And the only catch we have with LOI is if you have an LOI that doesn't address indemnification, it doesn't have a cap in it, when we go to do the asset purchase agreement the attorney on the other side will say the letter of intent didn't have a cap, the letter of intent said purchase price because it didn't say anything else. So when you're silent on those terms in the LOI you might have uphill battle. What you could do to protect yourself is to say a … indemnification with cap and basket to be agreed upon in the definitive document. So then you've at least left open the possibility that there's a negotiation to still be had on that topic whereas if you simply leave it silent the buyer is going to say that … I know I'd say when I'm a buyer I'm going to say no no no no no there were it said indemnification there were no caps, there were no baskets.

Joe: Yeah, you're going to say different things as the attorney for the buyer than you are for the seller.

Rochelle: Absolutely I'm very good at switching hat, as a matter of fact, I have represented clients who have been both buyers and sellers and they laugh about the fact that my tone changes and the way I look at the document changes. But we do what we have to do for our clients.

Joe: Yeah for those listening look like many of you had … you don't want to contact a broker to talk about the valuation of the business or what it might be worth and I've had people tell me that because they don't want to feel like they're committing. You've got to do the same thing with the attorney, I think you should have a call with a broker a year two years in advance just to understand the valuation process and how to gauge what your discretionary earnings are on a monthly basis, quarterly basis, so you get an idea for the value instead of just listening to podcast, instead of just listening to people in mastermind groups and their experiences because the full story is never told. Instead of just looking at listings and oh that's a 2.5 multiple, that's a three multiple, it's a four multiple, you don't get the full story. You can't do it that way. You should have a conversation and have it directly applied to your business and your business only because every business has its own unique qualities. The same applies I think as you're saying Rochelle to having a conversation with an attorney in advance because if there's a problem with the way that you set up your LLC or the trademark or a design or anything like that-

Rochelle: Right.

Joe: You should have those things addressed in advance. Well worth it. Do you do any … do you have an hourly charge for that first call? Do you have a free consultation? Do you just talk about business what it … how does it work if somebody wants to reach out to you and have that conversation?

Rochelle: Well we offer a 20 minute free consultation to all new clients. So we do it telephonically, most of our clients are not located. We're based in Tampa Florida which is a lovely place to live and do business. Most of our clients are all over the world. So we do it telephonically or through Skype or some other online method and we offer … we say 20 minutes and sometimes it goes a little longer depending on how in-depth we get. And in that call, we can then talk to you about what you need and how to price what you need. So sometimes what you need immediately is really just a few hours of our time and consultation and we'll bill it that way. Sometimes what you need is for us to dive in … as a firm we will do flat fees, we will do structured fees meaning that a certain price to cover the LOI and other price to cover due diligence a 3rd price to cover the asset purchase agreement and actually do it in phases. We will do capped fees, it all depends on the nature of your transaction and on how well we can get our arms around what you're asking us to do. So for instance, if we're doing it capped fee or a flat fee we're going to be very specific about the services you're getting from us and things that are outside those services might be in addition. If we're doing an hourly rate, of course, we'll have some sort of retainer up front and we will be specific about what's included in those services but you'll be billed by the hour. We try very hard to be transparent and easy for our clients to understand what they're being billed for and how they're being billed.

Joe: Excellent. Rochelle listen we're going to wrap it up here, appreciate your time today. Can you tell those listening how to reach you, how do they find you either online or via phone call?

Rochelle: Absolutely so by phone, our number is 813 999 0199 and I am in extension 115 if you press 0 when you call that number ask for Layla and she will set you up with me or one of our attorneys for an additional counsel. And by e-mail I am [email protected] And we have a policy of responding to people within 24 at the most 48 eight hours but we're usually pretty good about popping right back to you and getting something set up.

Joe: Terrific we'll make sure that that phone number the e-mail address and the website address are in the show notes as well.

Rochelle: Thank you.

Joe: Rochelle any last thoughts for those listening that may be either buyers or sellers that you want to share?

Rochelle: I just think in closing that when you think about buying or selling a business due diligence is the most important thing you can do. So even if you're an experienced Amazon seller whether you're a buyer or a seller you need to know who you're doing business with. Get some … if you're the buyer certainly understand the brand you're buying and understand what you're trying to accomplish by buying those brands, what services you need and frankly if you're the seller and you might be taking back seller paper which is a promissory note a seller promissory note you're going to want to know who the buyer is. Make sure you understand are they equipped to run a business like this and if they're not what kind of transition services do you need to provide them so they can hit the ground running. Know what kind of people there are, check them out. If you're dealing with people who are squirrelly get out of the deal in the … before you even sign the LOI. But if you're dealing with good people try and figure out how to make them successful because your success as a seller especially if you're taking back a seller's promissory note or consulting agreement your success is going to be very much related to their success.

Joe: I love your approach you know if you're … if you ever decide to leave the law business give us a call. You may be a very very very successful advisor here at Quiet Light Brokerage.

Rochelle: Thank you, Joe, I appreciate that and look forward to working with you again on some transactions.

Joe: All right. Well, thanks for being a guest I appreciate it. We'll talk to you soon.

Rochelle: Thanks, Joe.

Links:

www.walklawfirm.com

Walk Law Firm, PA

The Wells Fargo Building

100 S. Ashley Dr., Ste. 620

Tamp. FL 33602

Phone: 813-999-0199

Fax: 813-839-4896

LinkedIn

For those of you that don't already know Mike Jackness, he runs an ecommerce business approaching 10m a year in revenue, and is the co-host of the EcomCrew Podcast. On the Podcast Mike shares his direct experience with listeners to help them grow their ecommerce businesses.

If you've tuned in to our Podcast regularly, you've heard Mark and I talk about how multiple revenue streams increase the overall value of your business (by de-risking it). So…if you want a more valuable business why not expand it to include email? But email marketing is dead right? All junk mail and spam. If that's true why does Mike get an open rate of 30% on his emails…and generate over 52% of his revenue for ColorIt from email? Because it works…and he does it in a "helpful", customer friendly way.

On today's Quiet Light Podcast Mike shares his process with email marketing using Klaviyo, and talks about how their Facebook synchronization feature enhances his customer reach and overall return on investment. The Facebook ads produce a whopping 1500% return on investment!

You can learn about Klaviyo through their online training feature, and listen in to the EcomCrew Podcast and pick up additional tips and strategies. Mike and Dave also offer specific training such as importing from China, Launching on Amazon and finding your product niche.

Episode Highlights:

• Using Klaviyo email marketing software to produce over 50% of revenues
• Add on the Facebook Synchronization piece and boost your ROI (1500% in Mike's case)
• Email marketing should be "helpful". Treat the customers the way you want to be treated.
• The "trifecta" as a marketer includes an email address, a facebook messenger list and have the customer pixel'd.
• Google, Yahoo, AOL etc. look for a high open rate. Remove customers who don't open emails after 13 weeks.
• There are no "secret 10 step plans" that work for every model. Know your business variables and apply them to increase your success.
• EcomCrew Podcast has produced over 150 Podcasts. And yes..the best episode is #88.
• Knowing the value of your business and planning for an exit – is the smart thing to do.

Mark: Oh welcome back from Italy.

Joe: Thanks man, it's good to be back.

Mark: Ah is it really?

Joe: Yeah that's a good question, I don't know.

Mark: Well welcome back all the same. I'm sure everybody's glad to hear you instead of me for a change.

Joe: I'm a little tanner and a little fuzzy. I haven't shaved in a couple weeks.

Mark: Yeah.

Joe: Haven't trimmed it a couple of weeks I should say.

Mark: Haven't trimmed … are you missing the espresso and the-

Joe: Oh man café, ginseng, the views of the ocean. We were at the coast for most of the times as you now we're in Rome as well but up in the north and coast of Italy is absolutely gorgeous.

Mark: Hey I got a business idea for you. I think you and I need to start a podcast about traveling to Italy and of course, you would have to go onsite for that.

Joe: I think it's a great idea. Let's do it.

Mark: All right you guys we're going to shut down Quiet Light Brokerage and move on to a new business, new venture; a podcast about Italy but stay tuned for that. But in the meantime, we do actually have something related to Quiet Light Brokerage and that is … and to buying and selling online businesses; you talked to a mutual friend of ours, somebody who's been a friend of Quiet Light Brokerage for a while Michael Jackness.

Joe: Mr. Mike Jackness from EcomCrew. Mike and I go back to him at e-commerce shield presentation he did on email marketing and a Klaviyo on what he does within his ColorIt Company, the adult coloring book company. And you would think email marketing is dead but this guy generates 52% of his revenue from email marketing. Has like a 30% open rate and just nails it, hammers it down and produces a ton of revenue that way and does Facebook synchronization. He talks about it all, on his Facebook synchronization that's part of Klaviyo, don't want to get too technical but he gets a 1500% return on investment. You and I have talked about this all the time, diversification of revenue streams does what to a business other than add more revenue; it's more valuable, right?

Mark: It absolutely reduces the risk, increases stability, yeah.

Joe: That's right. So we talked about that. We talked about the ability to expand beyond your typical just one source of revenue e-commerce business whether it be your Shopify store or your Amazon FBA site using tools like Klaviyo and Facebook Messenger, things of that nature. And then we talked a little bit about EcomCrew what they do there. EcomCrew is yes a podcast Mike and Dave have been doing it for almost three years now and they just simply help people. They've got a … my favorite subject is the under the hood section where they actually talk to an e-commerce owner about the problems within their business and try to help them right there right on the podcast sharing a lot of detailed information for people to help themselves.

Mark: That is pretty cool. He has a ton of knowledge absolutely. The podcast they have is fantastic. I think the topic itself is really fantastic especially as people are trying to build up more integrated marketing systems. You know this idea of having their email coincide with a live Facebook audience and the marketing that you're doing there. Really really kind of advanced stuff but really good stuff and those numbers are staggering; 1500% ROI on Facebook.

Joe: Yeah, huge.

Mark: Incredible.

Joe: Huge and he started small. He started testing little things just like everyone else. It's not like he had all this knowledge, he figured it out along the way. And just to put some numbers behind Mike and his expertise he's hoping that 2018 will be the year when his business overall hits the 10 million dollar revenue mark. So he's not a small player, he's doing a great job. Somebody that is now traveling around the world doing presentations and speaking on E-commerce Group Podcast subject and on email marketing and e-commerce in general, so definitely somebody worth listening to.

Mark: You know one thing I do want to say before we jump into the episode, when people are listening to these numbers and hearing things like 1500% ROI, 10 million dollars breaking this year, I think it can be really intimidating for some people that are maybe at the beginning stages to hear this and to see all the opportunity and see so many advanced stuff these people are doing. We did an episode with Dan from Science of Skill who pulled about two million dollars of revenue from an email list of about 11 or 12,000 people. We've talked to Bjork Ostrom from Food Blogger Pro who is completely dominating that world. And I think the one thing just to keep in mind if you're hearing these episodes and seeing what some of these people are doing don't be overwhelmed by it and understand something that you alluded to Joe; he's done this over time. Focus on this continual improvement every day, small little group improvements and you can work yourself up. These guys didn't jump up to this in one month they did this over time.

Joe: Yeah and on the podcast EcomCrew, he'll talk to and work with people that are doing 50,000 dollars a year in revenue and that's what they do under the hood and they help that. He'll also do it for folks that are doing half a million in revenue or five million in revenue but you know at all stages there's different tools and resources that can be used to help people grow their business. And bottom line is Mike's just a really nice guy. He's an expert in the arena. He's sharing the information. He's not afraid of competition. He says if I share information about my business and competition comes up and bites me in the heels it's because I didn't do a good enough job in promoting my own products.

Mark: That's awesome. All right let's get to it.

Joe: Hey folks it's Joe from Quiet Light Brokerage and today I've got Mike Jackness on the line with me. Hey Mike how's it going?

Mike: Good man, it's good to be here. It's good to see you, I wish it was in person but it's … at least we're actually … we're in the same room.

Joe: I agree. Good to see you as well and I know you've been traveling the world, good to be back in San Diego I hear right?

Mike: It is man, like I can live anywhere in the world I want. At least we could at the time when we moved here I was like we had a virtual business but it's we're kind of anchored down here now but I want to be here and I feel sad whenever I had to go somewhere because it's San Diego, it's a pretty awesome spot.

Joe: Well you got good problems. You're kind of a big shot now; you're travelling the world [crosstalk 00:06:51.0] all over the place. For those folks listening that don't know you why don't you, as you know we don't do formal introductions here at Quiet Light. Why don't you share a little bit of background on yourself? So what your history is, what you're doing now so that they understand who we're talking to today.

Mike: Yeah no problem it's always [inaudible 00:07:07.3] to talk about yourself but I'll give it a shot. I've been doing this online marketing stuff for … this dates me for about 15 years. I actually quit my job back in 2004 and I've been doing this stuff ever since. Like some I retired in between a couple businesses that we were doing for a couple years and RVed around the country and got bored of being retired so we got sucked back into the business again and it was an e-commerce this time and we started doing that a few years ago. It's been almost five years now and are on the road to build an eight figure business this year. We'll get to crack eight figures this year or next year and along the way we've been documenting all that on EcomCrew. So it's been a much different environment than what I was doing before which was affiliate marketing where everybody was really guarded; you never talked about anything you did because everyone was kind of a competitor and going after the same traffic. But in e-commerce, it's like this multi-trillion dollar industry and you're never going to be the one selling all the things in your niche. And one of the things that we do is coloring for adults and I always say like I'm never going to select all the gel pens in the world. So talking about what we do and being open about it I think has been cool and yeah it might create some competitors but if they can catch me I feel like it's my fault. It's kind of been my philosophy plus I'm just more secure about everything I do now that I'm a little bit older. And I look at the things that come out of it positively, which is getting to meet people like you which would never happen if it wasn't for EcomCrew and speaking and all these things. So and for the most part like 99% of what we do; helping other people doesn't adversely affect us and for the one [inaudible 00:08:41.9] that does you know so be it whatever.

Joe: Well you just touched on it what you do believe and I'm … for people listening EcomCrew is just that. It's what we do at Quiet Light, it's helping other people. Help them first then things come back to you. And I've seen you do presentations on the adult coloring books and the email marketing behind it. I've listened to the EcomCrew podcast; I worked with Dave as you know as well. So I want to talk about both but let's just answer the simple question first about email marketing; you know I'm an old school direct marketer, I've been self-employed since 1997 believe it or not.

Mike: Nice.

Joe: It was radio direct marketing back then and then the next evolution at that point was email right? As old isn't email marketing dead, are you making any money with it?

Mike: Yeah and it's a trick question right, or it's a blue question, it's a softball question. You know when I first got into doing email marketing for e-commerce I felt the same way and I had drug my feet forever and it's probably one of my bigger regrets in this business for a couple reasons. Number one, I think its human nature to approach stuff in life and in business the way that you think about it yourself. So for me, I flipping hate email. It's my biggest nemesis. I cannot get to Inbox 0 no matter how hard I try. It … I'm unsubscribing for more things than I'm subscribing to just to try to get email under control and I just viscerally have this negative hatred in reaction towards email. So you know I didn't want to get into emailing people because I … you know how I am I like to treat others like I like to be treated. So for me, that was the conflict more than anything. It's like I'm going to start emailing people and I wouldn't want to even receive these emails myself. So that was the basis for the whole thing to start with so I was slow at doing it. But listening to other people talk and going to other you know a lot of these conferences and you still hear email as a prevalent thing and it's important; you should be doing email etcetera etcetera. So eventually I started dipping my toes into it and what I realize now many years later first of all email is 52% of our revenue. I was just looking before doing this podcast; it's 52% of our revenue for ColorIt. So it's a massive amount of our business. But our open rates-

Joe: That's 52% of nearly an eight figure business.

Mike: So just to … yeah [inaudible 00:11:07.1] that's just on ColorIt.com so we also sell on Amazon and Amazon is two thirds of our business so … but it's two thirds of a million dollar business because ColorIt.com does about a million dollars a year. And as a business overall ColorIt is bigger than that because you add in the Amazon component. But yeah what we do on ColorIt.com like when it's our own website and we control all of our own destiny; email marketing is a mass sort of part of that and it has a massive halo effect that you can't directly determine. But it has a massive halo effect on our Amazon business as well. Because people are reading these emails and they eventually go buy on Amazon. We have a lot of data on this but you can't … it's not empirical, you can't tell definitively like exactly what's going on there. But I mean totally you can look at the numbers and say okay by doing these things over here that it's affecting the stuff over here. So it definitely makes a big difference.

Joe: Yeah for sure and then we're going to talk about open rates there in the email before I interrupt.

Mike: Yeah. So our open rates are close to 30% so they hover somewhere 28 to 32% depending on what stage we are on scrubbing or list. So one of the things that we work really hard on is email deliverability; making sure things end up in the primary inbox, not in spam; that we are providing value to people so they want to open our emails. So that's been a really big angle for us so we kind of use the 80-20 rule here where at least 80% of our emails are helpful and they're not hitchy in any way of what we're trying to sell you something. And it's really more like 90-10. The vast majority of what we send out is helpful tips and tricks or things you want to know. So for instance in the coloring space; how to blend your shade with colored pencils, how to blend with markers or something like that, how to sharpen your pencils. Here's a time lapse video of how to draw this particular drawing and here's a free copy of it. Here's some stuff from our community other people submitted you might want to like it out as well. We're doing a giveaway this month or fan of the month contest. All these types of things that add value and every now and then once every six weeks or so or eight weeks we're releasing a new product and that will be a part of the sequence. Or maybe there's a Mother's Day sale or the month it's going to be come up soon it'd be a 4th of July sale. But very few of our emails are in that realm and most of them are in here are some helpful tips and tricks. So let's apply that to something besides coloring let's like it like tactical.com, your emails will be 10 things to bring on your next hiking adventure, how to prepare for an emergency, things to put in your bug out bag, what to do when the lights go out; whatever the types of things that we're doing in tactical world. Things that are like truly helpful for people especially I mean right now we're getting into hurricane season so we're going to be releasing a lot of content about that. And you know the fact of the matter is that most people just aren't prepared. Like a hurricane comes or an earthquake, a tornado comes whatever and you have no food and water or a flashlight that are is or all dead whatever it might be. It's actually quite helpful to people to bring us the forefront of their mind even if you just think about it for a second you can actually help save someone's life in this case. So these are the types of things we'll provide and every now in that cycle he check out on your products this might help you as well. So the vast majority we do is trying to train people to want to open our emails, to kind of like … you know and humans are very habit forming creatures. It only takes a few times of doing something to make it a habit. So we try to make this a habit for them and that's our approach.

Joe: Yeah it seems to have worked with your open rate which is pretty phenomenal. Let's back up a step, what email software are you using; what do you prefer?

Mike: So we're using Klaviyo for almost everything at least in the e-commerce space. You know Klaviyo is just heads and tails above everything else when it comes to e-commerce. It has a direct integration with Shopify, you can build segments within Klaviyo, people that have done particular things and then generate emails based off of that. And probably the feature that it has that's most valuable is the ability to then take those segments and synchronize those segments with a Facebook audience and then you can … it can currently run Facebook Ads to that group of people which is highly effective. And the thing that really got me going with this was actually a really funny story because I had just got done presenting at E-commerce Fuel; I think you might have actually been there. I was talking about email marketing and I was like-

Joe: That was Savannah?

Mike: Yeah. I think it was in Savannah. And I was like gloating about email marketing and all these cool things that we're doing and at the time that I was really … all I really focused on was mostly email marketing. And what I had said there was at the time our open rates where between 20 and 25% which is still double industry average and we've since improved that. But I was really proud of that fact and someone came up to me after the show. A good friend of mine, Kevin Stucco and he was like well what about the 75% of people that aren't opening your email? And I was just like … it was an instant like aha moment. It kind of knocked me down a peg because I was like all … kind of like in that gloating mindset but it was actually a really good point. Even … you know I was looking at it from one perspective of we're double or more than double the industry average on open rates on email. But what he made me think about was what about all these people that aren't opening email. And one of the things that Klaviyo at the same time was coming out with was that synchronization feature. So we started getting really heavy into Facebook Ads. And what you can do is if for instance there's like someone … let's say your average order frequency is 80 days so what we do as a win back sequence at 90 days we offer them a coupon; the comeback as an email. Well, why not run an ad to them, a Facebook Ad at the same time and Klaviyo makes that really easy. So yeah there's going to be basically three things that can happen; either they're going to open your email, they're going to see your Facebook Ad, or they'll do both. Some people going to see both of your email and your Facebook Ad. But either way, throwing the Facebook stuff into it is a much more effective approach. So it's been really successful for us and now we have these Facebook Ads that run 100 or 1500 to 2000% return on Ad Spend.

Joe: Wow.

Mike: But the most effective ads that we run are-

Joe: It's incredible.

Mike: Yeah. Because if you think about it I mean it's a super small audience, we're putting a really small budget together and these are like highly primed people. These are someone that's already bought from us. They kind of maybe forgot about us, you send and ad to them 10% off of course they're much more likely to convert than someone that's called traffic. It's way … this is what people forget about in e-commerce; it's way easier to sell someone something the second time than the first time. But the problem is that we all get our high off of getting new customers so that's what we always focus on is those angles. But what really brings the profitability to e-commerce is nurturing the existing customer.

Joe: Lifetime value of a customer.

Mike: Yeah.

Joe: Repeat customer acquisition all that good stuff. So Klaviyo is the software of choice. Your emails separate yourself out from the mass emails that we get just by being as helpful as possible. So you don't wind up in the unsubscribe section and then combine and sync with Facebook which is great to go back out to those folks. On the emails themselves, how many are you sending on a day or week or things of that nature, and do you have any concerns about people opting out and do you make it easy enough for them to unsubscribe?

Mike: Yeah. So we were sending millions of emails a month now literally; the number is actually crazy. We were just looking at our Klaviyo account the other day and it shows you the number of emails you've sent out. And in this particular account we're looking at it was actually just yesterday and it was 200,000 emails we had sent out and we were just like four days into the billing cycle. And I was like uh-oh like oh excuse me something might be wrong with … I think they were sending like … maybe people are getting two emails of the same thing or something. We kind of dug into it for a few minutes and realized just like the actual frequency, the number of emails we're sending is like in the millions a month now and it's actually accurate. And that's what we want to be happening it's just that we didn't quite have our … even have our heads around it.

Joe: At the millions a month, how many is one individual getting?

Mike: It really depends. It depends on how they came in to our system and what part of the sequences that they're in. There are some situations where someone might get an email from us literally every single day. So if they are coming in to one of this new lead magnet flows that we have which is basically I call this this the trifecta; this might be like a little bit of a version of what we're talking about today because we're talking about email but just as a real quick side note the trifecta to me as a marketer is getting them on a Facebook Messenger list, getting them Pixeled so I can also have their Pixel data, and getting their email address. So to me like-

Joe: What's the Pixel part?

Mike: So the Pixel part is just it when someone visits your website that's a piece of code that you have on your website that the Facebook Pixel or the Google Pixel and by having this script on your website you now know that someone has visited you and you know that they visit a particular pages or that they took particular actions. You don't know individually who they are like I don't know that Joe Valley visited my website today but I … you are in a bucket that I can say like I want to know all the people that did X, Y, and Z and you'll be in the bucket and I can then advertise to you in a particular way by being in that bucket. So what we do for Facebook campaigns or most of our campaigns is this whole … again the provide value first angle. So we'll offer people something for free whether it's free downloadable content, free drawings, a lead magnet whatever might be or offer them a free plus shipping off or maybe … so we start with these really compelling low friction offers and then send them to a Facebook Messenger flow. Which is basically are you definitely interested in this; yes or no. If they say yes we give them a link to a page and when they get to that page they're now Pixeled. So we have them on our Facebook Messenger list I can market to them that way. I have them Pixeled so I can remarket to them that way. And then that landing page will have a spot to give us their email address and I can market to them that way. And when they come through one of these flows for free downloads let's say we don't just give them all the free downloads in one day. We give them an email every single day for 30 to 45 days. It's actually a very long sequence where … so it's a 20 free download program or promotion I would say. And so we're giving them a download every other day and in between that we're giving them some other value. So and we tell them we're going to send you 20 free downloads, you're going to get one every other day. We don't tell them they are going to get another email every other day in between but they still open those as well.

Joe: Yeah.

Mike: And those other emails are still value, it's the how to blend or shade kind of emails or things like that, here are some stuff from our community and in it dispersed within there is here's a coupon for the book that you were just downloading these drawings from and things like that. So in that circumstance, their getting emailed incredibly frequently but the baseline minimum that people are getting email from our company is six times a month. That's the absolute minimum, someone, what would get.

Joe: And that's fine. I've seen people … I've seen your presentation and I've heard people say man that's a lot of emails but if they don't want then they opt out.

Mike: Yeah so-

Joe: And your open rates-

Mike: Exactly let me let me hit on that just real quick because it's a really important point. Again treating people like I'd like to be treated; I don't … if I don't want the email like I want to be able to number one at least [inaudible 00:22:39.8] easily unsubscribe so we make that easy for people. And I want them to be able to easily unsubscribe. What people … the shady email marketers don't get is you're actually hurting yourself more by trying to jam it down their throat because you want the open rates to be high. And Google and Hotmail and Yahoo all the different email platforms look at your stats of your open rates just like Google is looking at click to rates in inorganic search. And if your open rates are high, way higher than average; they're gonna say though this is content that people probably want we're going to put this in the main inbox. If you dip below a certain point you'll end up in the in the promotions tab, if you dip below even a certain point from that you'll end up in spam. And there's like no way to get yourself out of there. So we want to keep our open rates as high as possible probably for our own best interest right? So it's-

Joe: Yeah.

Mike: We make it easy to unsubscribe and if you don't open one of our emails for 13 weeks we unsubscribe you for yourself. So we figure after 13 weeks you know which is going to be probably something that range of 20 emails that we've sent out if you haven't opened one of those emails in that longer a time period you're probably just done with us and we'll just stop emailing you. And in that way … that's one of the reasons why our open rates continue to be as high as they are and we keep on adding our net gain every month is way higher than our unsubscribes or people we're removing. We've got something like 60,000 active emails on ColorIt where you know some people might look at that list and they would say it's 200,000 or something because we're not constantly scrubbing it. Our emails are active; these are 60,000 people that are actively open … we have 60,000 people that have opened at least one of our emails in the last quarter which is a much better stat in my mind than looking at the total number of people we've ever signed up.

Joe: I totally agree. We're constantly asking that question in our client interviews and trying to drill down into the relative usefulness of those total emails. Yeah for those that are listening can you touch on, I mean it's probably overwhelming for both buyers and sellers that are listening in terms of if they've never done email marketing if they don't know how to do any Facebook marketing. I want to ask a question; let me first touch on the fact that for those that are not doing these now, for those that are getting revenue from one channel your business is going to be 20 to 30% less valuable than one from multiple channels and you also … and that's because of the risk. You're at a greater risk of a catastrophe if you're 100% Amazon business or 100% email marketing business, or 100% Facebook. You want to spread out and do all of them and have more sort of legs on the stool to balance out the business. Buyers will love that. They'll pay more for it.

Mike: Yeah.

Joe: And figure how to do it so what kind of training would you recommend for anybody looking to learn Klaviyo, anybody learning Facebook marketing?

Mike: I mean we obviously do ourselves some I mean that's a kind of a loaded question but-

Joe: It's funny, wasn't actually for people listening it wasn't a loaded question because I didn't know that. I know that you're doing … I know I've listened to EcomCrew you know I know Dave well, I know you well know and I love your Under the Hood sessions and I didn't really hear that you're actually doing the training sessions on Klaviyo and email marketing so let's … on Facebook so let's move to that. Let's talk-

Mike: So we have a new thing called the EcomCrew Premium and what we were doing is like releasing a course every couple of months and charging 500 to 1,000 dollars per course depending on what the course was on. We did one on importing from China. Then we did another one on how to launch products on Amazon the white hat way without doing any black hat tactics. And as we kept on releasing courses we were getting emails of people just like this is getting expensive. It's like our core fans are like they're just buying everything we do, it was getting expensive and I also felt like starting to feel like a kind of a used car salesman in some respect because you're just constantly trying to sell them something different every couple of months. So we just said you know what like … because you know how Dave and I are like and we just we're not like that so-

Joe: [inaudible 00:26:36.0]

Mike: Well, thank you. Thank you very much.

Joe: [inaudible 00:26:38.4]

Mike: Okay well that makes more sense though he is Canadian so like by default he's just like already 40% nicer.

Joe: It's it.

Mike: Yes so we came up with this subscription model which is you just pay once a month, then you get access to everything that we've already done; everything that we're going to do in the future. And it includes webinars twice a month and the training we're about to release depending on this podcast will be released. The next one we're doing is on Facebook Messenger and we actually have a webinar later today as recording this on that topic as well. So we give those webinars to our EcomCrew Premium members as well. So we're constantly talking about this stuff and whatever's going on more current. The Klaviyo we don't actually have a course on yet I mean that was something that I learned on my own. I'm not really sure if there's one out there. We are going to be doing one on that but as a part of our subscription model, you also get access to us to ask questions so you can just email questions if you're having a hard time with Klaviyo as if for instance we would just help you with that as well. It's any type of e-commerce stuff we would help with. But Klaviyo is simple and it's complicated at the same time. Like I can understand why it would be overwhelming. I'm kind of a tech guy so I naturally kind of gravitate towards the stuff and figure it out. When I realize when it's complicated is when we hire a new employee and I had to explain to them how to do it and I see their eyes kind of glaze over. It's like I'm trying to explain the difference between a segment and a list or a flow and a campaign or how to synchronize something to Facebook and they're just like … you've been kind of giving that look and I … and then I understand that some things come harder to certain people. It'd be the same look I would give somebody if you asked me to do rock climbing or something. I'd be like yeah that's not going to happen. I'm not going to be able to do that. So yeah I don't know besides just Klaviyo's own website for that like what the best way to go about that is.

Joe: So yeah you sell a very visual product you know with ColorIt and the tactical gear stuff you know common sense makes sense, between your connections with the EcomCrew and the Under the Hood Segments what's the strangest … I don't want to say, I don't want to call somebody's product or service strange but the thing that you would think would not necessarily work via email marketing that or Facebook that they get a shot and actually made a difference in their business.

Mike: Yeah I mean let me start by saying give you like a whole another kind of answer to this real quick. What I always say when I when I speak at events or do these podcasts, whenever wherever I'm talking about and this comes up, one of the things that drives me crazy I mean you're in the same industry I'm in there is a lot of people out there that are like follow my secret 10 step plan, do these exact things and sprinkle this special dust in your business and you'll be a millionaire overnight. Those ads are on our Facebook feed like nonstop. We also go to events where some of these people speak and it drives me nuts. So I'm always cautious and tell people look like you have to use … you know your business better than anyone else and there's like all these variables that kind of go into it. You have a different margin than I might have or maybe there's a Facebook audience site that directly matches up with what you're doing. Maybe you have the ability to get user generated content really easily or you can make a lead magnet or a free plus shipping offer. If you have a lot of repeat business opportunity maybe you don't like I mean … so I try to talk about all these different types of businesses that we've been involved in and how we've approached it. And the thing that's cool about us now is we have four brands. We're doing things in coloring and hot and cold therapy we have a baby brand and we have a tactical brand. I'm gonna start talking a lot more about like our different approach for each brand but what your … the question you're asking is and I think that the answer to it really is that every business is unique. You have to follow maybe a basic outline of what people … like I'm doing with email marketing, here is like the different approaches we've taken with our different niches but you know it's hard to just say like do these exact 10 things. I mean there's a couple of things you want to do by default with email. You want to definitely have like an abandoned card sequence; that applies to everybody. You want to have a win back campaign; that applies to everybody. But what doesn't apply to everybody is 20 free downloadable coloring pages. That doesn't make sense for anybody else except for us.

Joe: Right.

Mike: Or like here's how to prepare for an emergency that probably doesn't apply to most businesses. You have to think out of the box and more importantly than anything is try a bunch of different concepts and don't be afraid to fail. This is where I think people get hung up like the human nature which I'm different in this regard for whatever reason. I'm wired differently. I just don't care about embarrassing myself or doing something that doesn't work. So you know I'll try 10 or 20 different things until I find the one that resonates and gives some traction where you know somebody else might try something once or twice and just give up. You have to keep on trying different concepts until you find the one that really seems to resonate and then with something in the world of Facebook when you find the thing that resonates or in email marketing it really seems to work. You'll get stats that are completely different than what you've done to that point. I mean 10 times better, 20 times better and you'll kind of hit that thing that kind of … that really works and I'm hoping that kind of answers the question. I mean I'm always reluctant to talk about other people's business specifically that we've run into at EcomCrew because I'm always pretty protective of the things that they're doing.

Joe: Yeah.

Mike: I never want to break anyone's confidence but I think that that is probably the best approach. And one last thing that I'll mention is when we got started in e-commerce with treadmill.com and I always talk about this. So it's like that's the most different thing that we've done compared to the other things that we're doing now. The approach there would be way different than selling something like a coloring book because you're only going to sell someone one treadmill. You've got no chance at a second sale. In fact, you just hope that they don't return it because it turns out to be like the most expensive clothes rack they ever bought right?

Joe: Exactly. That's right.

Mike: So I mean you have to take a different approach with that. And it's a much longer term sale cycle that you're not going to spontaneously sell somebody a 2,000 dollar treadmill. This is sort of like well long thought out, multi-year struggle with weight or whatever it might be that drives them to buying this treadmill, much different way to approach it so you've got to take a different approach there than selling somebody a sort of coloring pens or something. Because like yeah you can put an ad up, they're 30 bucks. Someone won't think twice about buying that and it can be a very spontaneous purchase versus the other way around. So you got the like … it's kind of like what you do, I mean people … like it's a very long sell cycle when you are trying to get someone to sell their business or purchase a business. That doesn't spontaneously just happen. So you're having to take a different approach with your email and your marketing than someone else that's actually selling widgets that are something that people just want to buy like that so-

Joe: And it's interesting; it's the exact same approach you take in email marketing which is help as many people as you can. Be [inaudible 00:33:45.2] as you can and it generally is it's the right way to do it number one. But it generally works. You build relationships with either customers or clients like you sell from whatnot that they come around and work well.

Mike: [inaudible 00:33:57.3] that works pretty well in life too by the way.

Joe: That is [inaudible 00:34:00.6] life lessons from Mike Jackness.

Mike: Yeah.

Joe: We're running short on time but I want to talk about just EcomCrew briefly. I want people to now how to listen in because if you're in the e-commerce world you got to listen to Mike and Dave on EcomCrew because all they do is help people. Talk about that for just a minute; when did you start it, how do they download, listen to it, that kind of thing.

Mike: We started it I guess it's been three years ago, three or four years ago. It's kind of hard to … I lose track of time. And we're out at Episode 150 something on the podcast as of recording this. My favorite episode we ever did was Episode 88 though, which was the Joe Valley EcomCrew podcast so-

Joe: [inaudible 00:34:37.6] we talked today.

Mike: I did. I just I was just looking on this great. But it's been a weekly podcast and we've now gone to twice a week. So twice a week we are talking about e-commerce stuff because between Dave and I we have plenty of things to talk about. We might even go to three times a week I just don't know if I have the time to do it. But as you're growing a business with the speed that we are there's plenty of talk about and I love talking about it because it produces a lot of cool stuff. I mean like I said it helps me meet people like you know but it also … it's really embarrassing to have to get on a podcast and start like you were … because I talk about my goals and the things that we're like looking to do. When you have to get on the podcast and say like I didn't get this done it's like there's nothing better than peer review and peer pressure. So I keep on pushing it till I get stuff done. So it's been very helpful for me as well. So yeah there's the podcast component so on iTunes E-C-O-M-C-R-E-W but we also have a blog which Dave does almost all of that content, EcomCrew.com all of that stuff is free. We even have actually a free … three free courses under the My Ecom Career Area none of that requires giving us a penny. It's just kind of us giving back. And you know I hope our long term strategy just like you is if we help people in they get an affinity towards the things that we're telling them and teaching that eventually they would want to become a premium member. But even if they don't like you were pretty financially secure and happy with what we're doing and all the other stuff is free. So definitely come check us out.

Joe: It's awesome. Thanks Mike. I appreciate it. Anybody listening I would highly highly recommend you go to EcomCrew and check it out, download, listen to the podcast; definitely Episode number 88.

Mike: Best episode ever.

Joe: Ever.

Mike: It actually was one of our best or highly rated episodes. And people are always interested in buying and selling their business. I mean it's something you should always be thinking about it's just I think people often wait too long to be thinking about these things and-

Joe: Nine times out of 10.

Mike: Yeah.

Joe: Planning in advance should be probably number five. Mark doesn't like it but plan in advance you're going to understand the valuations and you do things like we talked about today which is [inaudible 00:36:41.1] email marketing and you'll [inaudible 00:36:43.6] business and get high value profit so [inaudible 00:36:46.6]. I appreciate your time today Mike I know you're a busy guy.

Mike: No problem, thanks.

Links:

Ecomcrew.com

EcomCrew Premium

Episode 88

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We welcome Walker Deibel as the latest member of the Quiet Light Brokerage team. He's joining us today to talk about startup failures and how what he calls "acquisition entrepreneurship" can help buyers learn to grow value in their business after they buy it. Walker has acquired 7 companies in the past 10 years, both on and offline. By his third acquisition, he found that he was looking for businesses that had the right infrastructure and management already in place. Walker is here giving his insights into buying versus building your next business.

From a stint in digital printing at the dawn of the digital age, a film production "hobby" that has him listed on IMDb, to a failed startup that seemed to have every ingredient for success, right up to his current successes buying established businesses, Walker truly has experience in every aspect of the business building and acquisition spectrum. Perhaps there is no right or wrong way to come into business, but there are advantages and disadvantages to each approach.

Episode Highlights:

• Not every business should be bought. If you have an idea that you think can fly go out and by all means get that VC to get it started.
• You can have the best idea, the best team, and all the hallmarks for success yet still fail if you miss the mark on one key aspect.
• Take an existing infrastructure, finance the purchase, and from there go to work. If you succeed you have a great chance for high ROI.
• Buyers need to find the right business for them based on their strength and weaknesses.
• Acquiring an established business means you are free to focus on the particular parts of the business that most need attention, aiding the growth of the enterprise as a whole.
• Walker discusses what he calls the 4 Models of Building Value once you buy.
• Owners can get themselves out of the operation side and really work as an investor.
• A lot more can be accomplished by working on your business rather than in your business.
• Everything in business up until now has been about hitting the home run. Sometimes growing businesses should just aim to hit some doubles and triples.
• The buyer and seller relationship is a key element in the acquisition process.
• There are good buyers and there are bad buyers. The relationship is beyond just the transaction. Try to communicate with to seller why you are the perfect fit for that business.

Mark: All right Hey Joe How are you? Oh you're not Joe; Walker. Walker, how are you?

Walker: I'm great Mark how are you?

Mark: Good, good. For anyone watching or anyone listening obviously we do not have Joe this week. Joe is off exploring the eternal city of Rome and I am sitting here just a pile of jealousy wishing that I could be there. So … but good for Joe he definitely deserves the break. He works really hard. I will never say this publicly with him on the podcast but I will say it here and trust that he's not going to listen to it so his head doesn't get too big. But I do have somebody here, Walker Deibel right?

Walker: Deibel.

Mark: Deibel, I've been pronouncing it Deibel for a while. Walker and I know each other from a past transaction he bought a listing from me, a business from me a few years ago but Walker is also going to be joining the Quiet Light Brokerage team here in about a month. Maybe less by the time that this episode airs and so he is somebody to get to know as well. From that regard we're going to have a good conversation today mainly because your background Walker is super extensive. Like a lot of the people that work with Quiet Light Brokerage, you have that direct experience in buying, building your own online businesses. So let's do this, let's go back and have you introduce yourself a little bit a little bit of your background.

Walker: Sure. Gosh where to start, I guess I think I've started a few companies and all of them tend not to do very well. And that's not something that I'm prideful about but I think that it's a common theme that you hear from entrepreneurs which is you know fail. Fail often; I've done that plenty and statistically that's what startups do. Conversely I've had tremendous success in actually buying existing companies and growing them and over the past 10 years I've been able to acquire seven companies in all. Some of them offline some of them online as you've discussed and I just want to take one moment and say that having looked at hundreds of offering memorandums I became a very early fan of Quiet Light Brokerage. I just think that what you've been able to build at Quiet Light is very special. You work with sellers, you list them at the right time, and you think about it in the same way that buyers would. So whenever I look at a listing from Quiet Light I'm just absolutely thrilled with the package and excited to be on with you now because of that.

Mark: And if anyone's wondering I do pay by the compliment so [inaudible 00:03:37.5]. So your background is in buying and you bought a number of companies you said … how many was it, 10?

Walker: Seven, I bought seven over 10 years yeah.

Mark: Okay over 10 years, I thought it was seven. And not everything has been online you own a couple of different offline businesses as well.

Walker: Sure.

Mark: And you're back and before that was publishing right?

Walker: It was printing so yeah we … I, my first company I bought pretty much because when I was in graduate school, when I took in my MBA our startup failed [inaudible 00:04:07.2] something we called Avatar, it came out with the real 3D and we had that real 3D technology in point of purchase advertising and had a great team and had some real interest and it all just kind of got hung up in legal. I guess the people in the technology decided that they would rather build Avatar after that startup kind of washed up and I actually went and bought a book printing company. And it was a time when print is dead was a common headline. You know Amazon was sort of moving in, the Kindle was coming out, the iPad was coming out, and bookstores are going out of business left and right. And what I saw Mark was opportunity, it was one of these things where the industry was fragmented there was a lot of players, a lot of let's just say legacy teams doing the wrong things in the industry at that time. And so I bought a book printing company, all of our customers were publishers and you know they too were fighting the same things that we were seeing. And so although the offset book printing industry was declining, the digital book printing industry was climbing at a rate of about 28 [inaudible 00:05:17.8] was pretty clear when it happened. But yeah trying to get that business online and produce those short run digital products for authors and companies trying to manage their inventory levels was the challenge ahead.

Mark: Awesome, lots of experience there. And then you also have a little bit of experience in movie making and documentary and production right?

Walker: That's right. Yeah I consider that more of a hobby than a profession. But yeah I've probably been involved with about 10 films over the last five years and most of them were lucky enough to premiere at Sundance, South Buy, Toronto's from the biggest festivals out there. Print the Legend was … we thought was going be the first Netflix Original it turned out to be the 2nd and now we just released Bill Nye: Science Guy as a documentary.

Mark: That's you?

Walker: Yeah I was involved.

Mark: That's right you told me about that I forgot about that I've seen that pop up on Netflix right?

Walker: Yeah yeah yeah yeah.

Mark: That's fantastic. And you know that I can't let this go but you are IMDB listed and I always joke about how you are just three handshakes away from Kevin Bacon. You know as you come on board with the Quiet Light team and head up to conferences[inaudible 00:06:32.6] you could be 4th in line to kind of-

Walker: [Laughter]

Mark: There is that and there's also a couple movies that you're in which if anybody wants to have a good time go ahead and read the reviews.

Walker: That right there is a great example of why you should buy instead of build from scratch okay. In other words when I get involved with movie production, I look for teams that are already assembled that really have all the variables that are critical to success. And what we did early on was basically pull together a bunch of people who wanted to be filmmakers. Very analogous to people who want to be running a successful company and what came out was let's just say that we got it, we got an exit, we got a … we sold the film but it was pennies on the dollar in terms of the budget. And all you need to do is read the reviews to figure out the outcome of that recipe. So a lot of what I do is look for teams with directors who have the … they've got the right resume to elevate to the next level. Someone on the team usually has an Academy Award and I come in and pull some money together either from myself or from other people and help finance the whole thing. So it's very similar to business acquisition.

Mark: So a lot of times we link to resources in the show notes. I will spare you linking to the IMDB movie reviews and have listeners look that up and if they really want to read it they can read it and do the work. All right let's actually get into the topic though.

Walker: Let's go.

Mark: Buying versus building because this is an ongoing discussion, obviously everybody who has bought from us in the past understands the value of buying a business. But I think there is often a question in a buyer's head especially when they're looking at an opportunity. So they come across a business that we have for sale and they see it and like this wouldn't be that hard to build versus buying it. So I want to explore that a little bit and go into your experience on both because you've had startups. You've had startups that have failed and you're also successful with buying some businesses as well. What are some of the key benefits of both in your opinion, and what is from the drawbacks of both, and why at the end of the day and this is a big question so I'm going to just logoff from much of the talk in the next half hour; why in the end of the day does buying in your opinion win out over building?

Walker: Okay great. So okay let's start just by saying that in my opinion not every business should be bought. And I don't mean that to say like the businesses aren't sellable, what I mean is just the opposite. If you've got an idea that you want to start up I think that most times it makes sense to buy an existing infrastructure and go from there as opposed to starting from scratch. But there are some ideas out there that absolutely that's not the path okay. And so if you have an idea that's right at the beginning of an adolescent market you shouldn't be buying. You need to go get VC capital and go. And have a very clear understanding that 75% VC back startups actually fail okay. So it's still not … you know you might be getting 40 million dollars but Jason Yelowitz I think was a perfect example of that; it then happened with him.

Mark: It did, yeah. So anyone that wants to read his book Bathrobe Millionaire he talks about how … he bad, he was worth lots of money on paper and it disappeared.

Walker: Right and so that's actually more common than the opposite which is the Uber and Facebook story that we all love. That buying businesses in most cases is a better avenue to start. Now let me just give you a quick example; we had a company that we fully funded okay. We had a majority investor was a former CEO of a Fortune 500 Company, and we had a proven dev team that was already building mobile software for the military and special forces. Proven we had it was a … it was a Share Point, A Mobile Share Point application. We had recruited and secured the head of Microsoft Share Point Services as our CEO. We had the CTO of another Fortune 500 Company working with us. We went through on the top 10 accelerator programs in the country. We had beta programs that big corporations right, like all the hallmarks and less than 12 months later we were out of cash. We had no paying customers and it basically we were able to sell it for again pennies on the dollar to a company that I think is going to do really well with it. But it's a perfect example of when everything's right you still got to get that product market fit before the time runs out. After that I had worked with a broker who was about 3 ½ hours away from me and he called and said hey how's that startup going? And I said actually it's a little rocky and he said good because I've got such a great business out here that I really want you to come take a look at. And I went out there and I looked at it and long story short I end up working with a partner on this project and we looked at it and what we saw was a true opportunity to take the customer base and basically upgrade the entire experience to an online ordering system. And so I bought the company, we used the cash flow of the business to create a proprietary e-commerce storefront and we then rolled it out to almost 20,000 users. So the company is doing from the minute we walk in the door it's doing seven figures in revenue which by the wae coin at Verne Harnish it's scale up is 4% of companies United States are selling seven figures in revenue. So you already are walking in the door and one of the most successful companies in United States all right. Funding does not take 24 months and running around and selling stock; you go to the bank. They finance the majority of the purchase and you come in with your own investment and go to work. Everything that we achieved by buying this company in sort of a second tier market in Missouri was everything that we were trying to do at this well-funded start up with an all-star cast. So it's just a perfect example of sometimes you seem to think differently about what it is you're trying to achieve and take the short cuts to get there. Isn't that what entrepreneurship is all about?

Mark: Absolutely. Well, I loved what you said about the offline businesses, Ryan Tanzim and I did a podcast episode several weeks ago and he talked about that. He talked about somebody that he knows locally, I think they were doing air conditioning and they are really bringing online but what they are doing is they're using online … they are using the SEO tactics and SEM tactics that you would usually apply to an online business and he's applying it locally. So he actually bought this air conditioning repair company with the idea that they were just going to actually crush it online. They're doing super super well; I think there's a ton of opportunities for buyers in that space.

Walker: Can I jump in right here like so-

Mark: Yeah, please.

Walker: So one of one of the things that I do, I've got kind of a model that I have put together to help people find the right business for them. And what you just said is a perfect example of that because the first question I get is do I have the right what it takes, do I have the right attitude to actually be an entrepreneur? I don't think that the listeners of this podcast need that, I mean that's not where they are. The next one is what are your strengths and weaknesses? What are the actions that you want to be doing every single day? And it sounds like this is an individual who says look I know online marketing, I know how to apply it and you look at the vast number of companies that are coming online to sell and actually not online businesses at all. You've got all the baby boomers retiring at 9,000 a day and they own more companies in any generation ever in history. And they haven't done much since the internet came out. So Internet marketing has clearly passed the point of adaption. I mean it's the way now but not everyone has caught up and you've got a huge amount of opportunity to do exactly this. Move and buy an offline business and basically apply online skills to grow it in a whole new way.

Mark: Let's talk a little bit about this because I know that you are in the process of writing a book on buying businesses. What was the book about specifically?

Walker: Yeah basically everything I've been talking about. It's called Buy Then Build, why entrepreneurs should buy existing companies rather than starting from scratch. And it's really everything that we've just been talking about. So the argument is that not only is buying businesses a better way to start, despite the popularity of entrepreneurship we haven't engineered a better way to make startups succeed. And I think that the answer to that question is to buy existing companies with existing cash flow. And if you look at buying a small business compared to just as an investment pretend you're not an entrepreneur that's going to move in and use your skill set to grow it [inaudible 00:15:31.2] buy it like a real estate investment or anything else. The returns that you can generate on something like that, the ROI is not really comparable to anything that I've seen. Especially if you want to maximize the ROI and use a lot of leverage that opportunity is there. I mean the SBA is lending … I don't want to over speak so I'm not sure an online business as without you know but you can quote as little as 10% out in these kind of instances. So I mean you can be up and running and off to the races very very quick. Are you seeing that in online businesses as well Mark?

Mark: I've seen what specifically?

Walker: Like 90% leverage on some of these deals.

Mark: It would … currently yes. I mean historically that's higher than what we've seen in the past and that's the rule change as of 2018 so-

Walker: Okay.

Mark: So in the past it was 80% though which is still … yeah 80 to 75% which is still crazy amounts of leverage.

Walker: Right we're right and you know 90% leverage. What I am saying is that if they choose to do that and if it succeeds they're going to have a great ROI.

Mark: Right.

Walker: Pretty much incomparable to anywhere else. But there's obviously inherent risk in doing something like that. So just understanding the model and being careful. However the odds of success are ridiculous compared to a startup of the same caliber.

Mark: So your book is called Buy Then Build which you know often when we think about build then sell obviously. But obviously a big part of what you're talking about here is also that act of building on top and I think in an area where a lot of buyers, especially first time buyers struggle is identifying how do I build on this; what do I look for? And so when I talk to buyers, especially first time buyers that are looking to get into this for the first time they start thinking about well I want something that already has a history of growth. Or maybe they're looking at the opposite side I want something that has a history of not [inaudible 00:17:21.7] you know because I don't want to lose on the business. How should in your opinion and maybe you specifically how have you attacked that build portion of the equation? You've obviously bought and I know it did the one business you're talking about you saw a way to be able to look the entire customer experience up. What are different ways that you think buyers can look at building after they buy?

Walker: Yeah. I've been calling this acquisition entrepreneurship. I mean it seems to make sense and so basically I think that there's four models of building value in a company after you buy it. Some people will say … I mean the market will very quickly jump to exactly the opposite and say like oh no I want a company that's a complete disaster. Like I want something that I can go in and put in lean operations and fix it up because then I can buy a cheap, create immediate value by improving all of the internal systems and then exit or run it or whatever. So that's the sort of turnaround kind of mentality and those are great in my opinion if you know what you're doing. I mean if you already are an operation … great at operational excellence that's going to be something that's good. Others will look at you know you get these sort of like there are these two models the guys over at Harvard wrote a book on how to buy a business and they buy what I believe they call internally profitable businesses. This is a bad example here but it's one that I always think of which is I always think of like snowplows or something like that. Like something where there's no obvious technological innovation that's going to get rid of the need for snow plows. And so it's going to be a slow growth but you know something you can hang your hat on. And I think that the way that they grow … they build value is really for the owner in that instance and just through equity build up. And so you're putting you know say 10% down and then over 10 years building up the rest of that value that way. The other model which I'm getting to the point sorry but the other model that scares me a little bit as you look at these high growth companies like the ones you're talking about and what maximizes a sale price are things like growth, revenue, earnings. I mean these are the things that people want. I mean it's a very marketable company but by doing that it's almost the opposite of the turnaround. The risk is a little separate like it needs to continue growing as fast in order to make sure you're getting the right deal. So that's something that in my opinion you have to know what you're doing to navigate that properly. Then you've got this sort of Platform Company and a platform is something where you take your skill set and apply it to the existing business in order to take it to the next level. Now it might be accelerating what's already happening or it could be simply diversifying. So in other words the first online business … so I bought a company from Quiet Light Brokerage and when I looked at it I really liked it because it was taking this sort of like old economy product and it had a kind of innovative twist to it. And so it was still on known in the US market and so as that awareness grows the company continues to grow. However what I acquired in this business was not only the cash flow, it was the infrastructure. It was all the people. I had an entire customer service team. I had a reliable PPC guy. I had SEO you know I've got … now I've got all the tools and all the things that I need to do this. And so what I've done is I've started building other sites as well. And so I'm not quite to the point where I've built a seven figure site from scratch that you can list for me. But I'm hoping to do that and I'm doing it the actual infrastructure that I acquired through Quiet Light.

Mark: That's fantastic. Of course you'd be able to sell that business on your own when that day comes. Because you'd be working with us and you'll just put it up for sale and it all will be like oh this is great, Walker owns this, I trust him completely.

Walker: Absolutely.

Mark: Well you know what you've done though recently in anticipation of coming on board I know that you have been working your way out of your companies as an operator and really working as an investor. And I know this you know talking to buyers one of our most popular episodes was with Shakil Prasla who has bought eight companies in two years and he does this all the time. He does not work in his businesses. What was that process like for you or what has it been like to get yourself out of the operations of the business, and how did you go about doing that?

Walker: Yeah it was kind of a slow evolution. Like in other words the first company that I bought I had a key man, woman actually that I worked alongside with very closely and she did … all of my time was spent on marketing sales and really strategy like taking the company to the next level. And you can do a lot more what do they say work on your business and serve in your business. And so I fell in love very quickly with the freedom that comes with having other people you can rely on in your company. As a result as I continue to move forward I always look for business opportunities and people that I know whose skill set matches up with the growth opportunity for that business. And so the 2nd company I bought it was more of a partnership and I learned the hard way that … how do I say this without being, I was messing the company up. It's one of these where he had his hands on everything that was going on, I would show up, you know I would drop in I was there about a day a week. I had relationships with major customers and walk in and just kind of I'd see something that I thought was wrong and I would fix it or give instruction or whatever else. No matter how minor it was it was still the left hand didn't know what the right hand was doing. The employees didn't know who was in charge. And so it was one of these I've got to remove him or remove me kind of situations. And so I've tried to put the emphasis where the skill is. And the other thing that comes out of that is by not operating in the business you can actually scale the number of businesses that you own. And that's what your other guest was doing if I recall correctly. He was actually interviewing and hiring managers. I typically do it with people that I know already so it's not … you know I network and find the people and then I wait for the opportunity as opposed to kind of trying to scale up that rapidly. It got to the point where the 3rdbusiness I acquired I was buying specifically because I had a manager to grow it. And it's working now because that's at a point where I think last year we grew 38% year over year so that's working. And I think the hard decision comes from entrepreneurs at every step of growth where they say okay I'm the one doing this and if I actually pay someone to do that then I make less money so I'm not sure I want to do it. But then the second they hire it out they have all this other money that you know whatever the difference is that's coming to them for essentially doing nothing or essentially moving to that four hour work week model. But if you have a four hour work week kind of company you can go buy 10 companies.

Mark: I do. How do you get over the ego part though? You know for example I am in my opinion the best content marketer in the world.

Walker: You are.

Mark: I'm not. I mean this is the reality but when I'm dealing one on one with people, when I'm dealing one on one with somebody who I've hired to do that I micromanage. I get too involved in what they're doing. How do you get the ego portion out of this so that when you go and visits … do you visit that company anymore? Do you do-

Walker: Absolutely. Oh, absolutely. No I'm very involved in everything. I think that … well I should speak carefully there, what I'm trying to say is just I'm not involved in the day to day. The truth is I'm probably more of like a chairman but I don't have enough gray hair so I don't call myself that. I have a baby face so … but it's you know I work more on a strategic level and looking at metrics and talking to the managers every week if not more often if something comes up. So the ego, I think Mark what I would say to that is there's certain things that okay it's twofold. There's certain things that you're not going to be able to let go of. And you feel like they have to be a very very precise thing. Those are not the things that you want to let go of. Especially to use your example like content marketing; content marketing is something that makes Quiet Light exceptional. It's something … you know Quiet Light both stands in with the best of the best but then they stand out by doing exceptional work. And that content marketing piece is so critical to what makes Quiet Light Quiet Light that that might be a driver that can't be outsourced. It's something that has to be precise. It's something that has to come from your mind or your advisors' minds and that piece might not be there. That said here's the answer your question, you're not going to like it, and I have a good answer for this. But here's the thing I have three children, they're seven, five, and three and they make mistakes. They made the same mistakes that I made when I was seven five and three and you have to stand there and watch them do it. And often with my managers I wanted to go over their mistake and then I realize it worked it just wasn't the way that I was going to do it. It's not a mistake at all. Or it's the other way and you've just got to end up paying for that mistake and so it's just that you've got to get that balance right. Partnerships are a good answer for it. Partnerships are like marriages and you just have to figure out how you work and how you communicate. And if there's something that you fear isn't going to work because it's not being rolled out the way you want to do it, I think that what I do is I just make that clear at the beginning and then we put metrics in place to make sure to watch it and measure it and then kill it if you know feel quick. If there's anything I have learned it's if you're going to fail do it really quickly because you save money.

Mark: Right.

Walker: So I think that's the way to do it.

Mark: Right fire quickly, hire slowly.

Walker: That's right.

Mark: Yeah Chuck recently was talking to me about that so and the need to be able to do that. Awesome well you've covered a lot of ground in this and I really like this discussion of should you buy, should you build, what's better and I think you're right. Absolutely a lot depends on the type of company that you do have and what are you trying to build. Some companies did not lend themselves to being bought or to going that route but if you're looking for that cash flow, if you're looking to get into entrepreneurship a faster way to return investment is going to be that buy-in route. It's a lot faster and a lot more sure than the VC route. I think I was talking to a VC, this was four or five years ago now and he was really coming around to this idea of buying online businesses. And one thing that he told me he said you know with my angel investing with the VC investing that I'm doing everything is about hitting the homerun, it's like … and with that we're hit … we're striking out a lot. We're taking big swings, we're not hitting the home run but when we do hit the home run it's really really good. He said but I'm starting to wonder now maybe if we should just aim to hit some singles and some doubles and some triples instead and just play station to station. And I think that's a huge difference here like if you have the money to be able to go in there and swing for the fences and go for it, sure okay you know what go ahead. If you have the time, the resources, the desire, or an idea that you think really can take off absolutely. If you're looking to hit a single or a double you know that … it's a risk profile; what is a risk profile look like in buying for as risky as buying an online business can be and people should be aware of that. It's certainly a lot more safer than trying to build something from scratch.

Walker: So in an early version of my book and I think I just cut it out actually it's … we're trying to get it done this summer but I actually call that entremetrics. Which is stop swinging for the fences and just get on base, based on that savermetrics, you know money ball right?

Mark: Yeah.

Walker: And that resonates with me completely. That's exactly the point. I think that you know VC again if it was a Harvard Business Review really sort of 75% of these companies are like going to zero. So being able to fast forward, you ask earlier hey I've got … I'm a potential buyer, I'm looking at this company I can build this. Like this isn't that hard, fine go build it. But like looking at it as an investor you've got that cash flow tomorrow. I mean it's you know and what's your time worth and what's the … what's it going to cost to build and you've got to put all those pieces together and yeah go build it and then bring it back to Quiet Light and we'll sell it because these are good investments. So yeah I think it's a simple way to get to the goal faster and to your point you're getting on base. You're engineering success right from the beginning so that you can move to second base on your own.

Mark: Yeah, awesome. So your book is coming out sometime this summer maybe in the early-

Walker: Hoping for late August.

Mark: Late August all right. And at that point you will hopefully be a part of our team fully and we will be able [crosstalk 00:30:13.1]-

Walker: I hope so.

Mark: The book so when we do pay attention that. I'm sure it's going to be just one step above that Harvard Business Review which I actually have that up my shelf. They sent me a copy and a good stuff; it's seriously good stuff though. And right now eventually people be able to reach out to Walker at a Quiet Light Brokerage email address. In the meantime if you want to reach out to Walker contact me [email protected] and open to have contact with him. He's got a ton of real world experience both in as you said some failures but a lot of successes as well and always a good person to talk to. Any final parting thoughts?

Walker: You know there … one thing forgive me but there is one thing that I thought we would talk about and it just didn't come up and that's normal but I spent two and a half years trying to buy an acquisition target when I was at Corley. And we looked at 27 companies in depth talking with them. And what I learned along that path is that there are good buyers in there are bad buyers. And I just mean that from the perspective of the seller, and when you're trying to sell a business, how do I say this, the buyers it's almost like the first thing you want to do when you're just starting out is you want the seller to like come in with a slide deck like a startup and pitch you. Like here's what you're going to get and here's why you should buy my company and that's just not the mentality at all okay. I guess that somebody's built something and it's usually like yeah the timing is right I'm considering it but it's not like I'm trying to sell you something you don't need and so trying to go … I try to go out of my way to understand the business, understand the drivers, and really communicate to the seller why I would be the right buyer for that business. Because trying to get that emotional connection established at the beginning is so critically important. It's very emotional and everyone starts second guessing everything they're doing at one point or another and trying to build that bond at the beginning and getting on the same side of the table to acquire a common goal is just critical in the whole process. So it's something that I did learn that we can talk about I want to share.

Mark: Well I'm glad you brought that up because I've used you as an example in countless presentations, I think at this podcast as well.

Walker: That's right.

Mark: Many of you have heard me use this example before about a buyer who after we submitted an LOI, you submitted the LOI and we had our very first call in due diligence and you stopped. And at the very end you said I want to take a moment and thank you for agreeing to sell me your business. And I tell this story because it was … it had a seismic shift on the way that entire transaction went and it established this common working goal and understanding that I think a broker definitely needs to have. I think a buyer should have as well. The sellers work for years to build something valuable, something that you want to acquire and take in. Showing some basic appreciation for that and yes they're getting well compensated through money, there's appreciation in that as well. But showing that verbal communication of hey I really appreciate and respect what you've done up till now, even if it's a distressed sale but that makes a big difference at the end of the day. And it really helps get through some of the tough spots that will come up doing due diligence.

Walker: And they have a choice. As a seller they have a choice especially at Quiet Light. Quiet Light moves a lot of inventory really fast and I think we ended up closing on the 3rd deal I looked at and so there was a couple of deals that went to other sellers and I just didn't went out for whatever reason and they've got a choice. I agree, it's important.

Mark: Yeah Walker thanks so much for coming on, I really really appreciate it.

Walker: No, thank you Mark. I'm really looking forward to the next chapter.

Mark: Well, we're looking forward to have you on. So again if anyone wants to reach out to Walker feel free to contact me [email protected] if you guys have ideas for guests please let me know. I'm always looking for new guests. So we'll talk to you next week.

Links and Resources:

Contact Walker

Buy Then Build – Why Entrepreneurs Should Buy Existing Companies Rather Than Starting from Scratch. Walker's book is coming out this summer!

I had a buyer recently tell me: "I don't trust SEO traffic. You can't change it. I only trust paid acquisition channels."

Times certainly have changed since just a few years ago.

A lot of buyers look at natural SEO traffic as untrustworthy ever since the major index updates of Panda, penguin, and hummingbird. Others see SEO as a much more difficult (and possibly more expensive) avenue towards traffic. And some buyers think that the relevance of SEO will be discounted with new voice-enabled searches and paid advertising pushing natural search rankings down Google's SERPs.

In this conversation with Corey Northcutt, we discuss the future of SEO, whether there is a good opportunity for buyers to exploit SEO opportunities, and what he would look out for on the SEO front before buying any online business.

Episode Highlights

• Can we trust SEO long-term? Where is it going, and can you build a business on SEO traffic?
• What key SEO factors should you look at before buying an online business
• Google's primary goal, and why it is good for business owners
• Why SEO traffic will always beat paid traffic
• Why the major Google updates (Panda, Penguin, etc) were a good thing (and still are a good thing)
• Will paid ads continue to push organic rankings out of SERPs?
• Are voice-based search devices going to destroy SEO?
• Click through rates for top rankings in organic listings vs. paid listings

Joe: Hey Mark, how are you doing today?

Mark: Doing great.

Joe: I understand you recorded a podcast with Corey Northcutt and it was all about SEO.

Mark: That's right so Corey and I know each other through Young Entrepreneurs Council which is a great collection of entrepreneurs, some of the best resources that you can find online for anybody that is an entrepreneur out there and is looking for good networking opportunities. You do have to meet certain thresholds in order to join and Corey obviously hits those. I've used his services for another business of mine and was really really impressed with what he had to offer. Brad who works with us is actually the one who first recommended him to me. This guy has been working in the online world and SEO capacity forever. I mean he's a dinosaur in the SEO world, knows a ton about SEO. And one of the questions I posed for him and I really wanted to drill down on this podcast was whether or not there is value at all in SEO anymore from a buy in standpoint; in other words can it be trusted? I had a buyer tell me just a few weeks ago we were talking on the phone about one of the businesses I was representing and he wanted to know where our customers are coming from on the websites and I said well he's got good rankings and then he also does paid. And he came back and he told me and said I don't really care about the organic rankings because I can't control that at all. In fact all I care about is a paid acquisition channel. I think we hear that more and more from people that they trust that paid acquisition channel more than the organic channel. But I think it's almost an overreaction and there's a lot of opportunity being lost because everyone focuses just on the paid and just use the organic just has a sort of bonus to everything else. The couple of the topics that we addressed in this podcast is whether or not the future of SEO is going to be strong. You know we have more and more devices being added for voice-based search. We have the paid creep that's been happening on organic rankings where organic listings are being pushed down the page. And so this is really kind of a step back to look at your online business and say should I be focusing on SEO, what's the opportunity here with SEO as well.

Joe: Okay so I'm not going to say whether I think you know you should be focused on it or not. What I can say is that a business with multiple traffics of multiple channels of revenue is worth a lot more money and from my experience a long time ago SEO was a long term game. I survived the Penguin updates, Panda update … actually I sold before the Penguin Update but it didn't matter because I didn't know anything about link building anyway. All I did was good quality content over a long period of time and I was rewarded. It's a lot more complicated than that I think. So I'm really excited to see what Corey has to say. Let's go ahead listen.

Mark: Well one second, I'm going to give away a bit of a teaser on this and that is something that you said; I think what you said is perfect because it is the sense that a lot-

Joe: Did you say that what I said was perfect just now?

Mark: Dude, don't let it get to your head. Yeah it was actually perfect because a lot of people think that SEO is more complex. They think it's complicated. They think that it's a nut that's very difficult to crack. And a lot of us, especially those who have been around through the panda, penguin, hummingbird, you know all these sort of updates; animal updates that happened look at a SEO and like my goodness you can't trust this. Look what happened back then it got completely destroyed. One of the big takeaways from this and Corey gets into this is that SEO now is more predictable than it's ever been. Google's gotten better at what they're doing so they don't need to shake things up as much anymore. Now is a little bit harder to rank; sure because Google has done a better job of putting good information in front of people. But rankings are more stable now than they've ever been before. And so you need big takeaway is that while it's somewhat complex there's a huge opportunity because people like you and I have kind of looked at SEO as that thing as a bonus out there.

Joe: From a buyer's point of view what you just said might be very valuable. You know it takes … it's harder to rank now and so if we're listening to business and there's good organic rankings, that in itself could have more value to a buyer. Because most everybody else just cheats to get to the top and you can't actually do that anymore but if you're at the top on page one that's really strong strong value. And I think hopefully in the long run for any business will add more diverse revenue channels which brings its a valuable.

Mark: All right can we listen to Corey now?

Joe: Absolutely, let's go.

Mark: All right Corey, thank you for joining me on this quick episode here on SEO.

Corey: Absolutely, thanks for having me.

Mark: So yeah I know you've listened to a couple of the episodes before so you know that we like to have our guests introduce themselves. So why don't we provide everyone listening here with a background on yourself.

Corey: Yeah I'd love to. So I've been doing SEO for going on 17 years. I've been … I guess running business of different shapes and forms for about as long. I came from web hosting and doing different IT brands and now I run an SEO agency called Northcutt.

Mark: That's awesome. Yeah and I've actually … just full disclosure I have user services in the past but with a lot of the guests that we have here on the Quiet Light Podcast, the people that we've use in one cast in another their services so we trust the services, we trust you as far as your … the quality work that you do. And I also know Brad who works with Quiet Light Brokerage; he has used your services quite a bit in the past as well which is how I was referred to you. It was actually through Brad. So that that's pretty cool. Now you have a past in we posting as well is that right?

Corey: That's true. Yeah I started at a provider called Ubiquity that was eventually acquired by LeaseWeb but not before I actually exited the company and sold it back to my business partners.

Mark: That's pretty cool, so my background is actually web hosting as well. My first job out of college was with a company called Alabanza Corporation and they were the first ones to create the people know like web hosting manager or cPanel. They were the first ones to actually come out with a cPanel and cPanel's a competition to Alabanza. And I remember when we developed that the CEO talking about competition told me he's like I'm not worried about competition, it take … took us years to be able to create our I think he called it the account management [inaudible 00:07:01.2] stupid like that. And of course the temple was already out there so it didn't take them years to replicate what we were doing and it done quite well; so cautionary tale there. But the first business I sold under Quiet Light Brokerage was a web hosting company, so very familiar with the space. So you sold that, how many businesses have you bought and sold over the years?

Corey: So I like to call myself a three time founder in all my bios. It's tough to say though because I have partners and in that I've had a lot of failed ventures too. A lot of projects that I've spun up or that maybe sold for cheap so it's been all over the map. I did web hosting. We spun off a data center services brand from that. We had Ventrilo provider called DarkStar Communications which was the largest provider of Ventrilo for quite a while. Most people I think don't even know what that is anymore.

Mark: Yeah I've never heard of it.

Corey: It was a big bank for a while. And it wasn't even my world but it was kids play World of Warcraft, they would need voice chat for that and it sounds insane today we've got Zoom and Skype and all these tools that are free but they would pay for it. So you'd have 50 or 100 people on one voice server and you needed tools to manage it. So a lot of different businesses; I kind of created a framework for how I like to build and market them but all in completely different spaces.

Mark: You know I like to segment Internet entrepreneurs as to those that were started before the panda, penguin days and those that have come into it after because the world is so much different. You know people like you and I that have been in the online world for I'm going on 20 years here since I've built my first website. And you know back then and actually back when I started Quiet Light Brokerage, when I decided to start Quiet Light Brokerage what did I do? I went out and I built a website from scratch and then I custom coded an affiliate program in there and that was kind of how I launched everything was me going out coding, designing, launching, doing the SEO; everything top to bottom. And today I mean if you want to start a new site you can still do that but boy it's so much different today you don't … you really wouldn't want to take that approach as much. It's gotten a lot more complex.

Corey: It's true.

Mark: Yeah. And you seem to come from that sort of past entrepreneur pay and this is a good idea let me see if I can just build this out real quick.

Corey: Yeah and yet it's changed so much. Yeah and I have … on one hand I love how quickly you can spend things up like you've got Shopify, you see people with stores in 10 minutes; it's completely insane. On the other hand I feel like a lot of people don't go as deep with their businesses now. You've got projects I can start a company and it might make 500 dollars a month and that's fine and it … I'll do 10 of those this week. The mindset has changed.

Mark: Yeah I know definitely it's changed quite a bit. So I wanted to have you on to talk about SEO and I'll tell you kind of the question that spurred this on for me and I think it would be a good start for our discussion here. I was talking to a buyer the other day about one of my clients and he's Amazon and Magento mixed so he's got his own websites but you know a good portion of his business comes through Amazon. But we're looking at the websites because they're doing really well. Amazon is struggling but the websites are good; really really well. And we're looking at the host and this buyer was asking where does the client … where did the clients come from, are they coming from organic rankings or they're coming from paid service or good mature search campaign out there. So I told him well it's a mix you know there's really good SEO on the site, there's room to improve that as well but they also have a paid campaign that they will get. And this buyer almost seemed to dismiss the SEO side and said well I can't control the SEO world at all, I'm interested in the paid acquisition. And I see this more and more and I think this is kind of the people waking up from the hangover of the panda, penguin which is almost quick as far of be coming up on seven years or something like that; is that right? Seven years is that pretty close?

Corey: Well-

Mark: [crosstalk 00:11:06.9] try to also work. It's been a while since this happened and I think people have really adjusted their mindset to not trusting SEO at all. So my question to you and to ask in behalf of everyone that out there looking to buy an online business, can you trust SEO and can you build or grow a business on the back of SEO and have it be sustainable?

Corey: Oh my God Yes. So there is one question that has been around since I feel like SEO began which is where this is going, it … can I trust it long term, and I think Google's actually been very transparent about what they want to accomplish. As much as we've had different updates like Panda, and Penguin, Hummingbird, chip things up to there's been quite a few but Google's always been forthcoming. And I feel like most of the media out there sensationalizes what's happening and it does a disservice to business owners. Because … and what does Google really care about? They want to reward an experience that is naturally relevant, popular, and enjoyable; that's it. And they've been working towards this goal for all of this time and I don't think it goes away. There is never going to be a point to where a better experience is paid advertising for what they deliver. If they ever reach that point I think all bets are off. I think somebody disrupts them; being or somebody else overtakes them. There's no way people want that. It is a better experience when it's not simply rented. So that doesn't go away it's just they keep it iterating towards getting better at what they set out to do. Like we talk about that pre-panda, pre-penguin world, I think it did a lot of good. I look back at how I did SEO back then and you know it was a little gray. It was hard to … like that was the conversation we were having with people. It's like I think we should be as white hat as possible. At that time I feel like that that was a source of a lot of that grand fish can spam. At the time he was not getting very much respect from professional SEO's and he was saying no, completely white hat, don't mess with anything, no schemes, no link real pyramid tetrahedron. Yeah like I'm sure you've seen all the different diagrams and wacky ideas that people were coming up with back then and that panda made him correct that just overnight everything shifted and it was like well yeah they finally got better and they really are rewarding people that aren't going against Google like do you want to work with them.

Mark: Let me play devil's advocate a little bit here and argue against SEO. Now this is not my personal position. I actually agree with you. I think there's a ton of opportunity in SEO and I actually think the world is a … the SEO world is a lot more stable today than it was back in the pre updates of pre-panda, penguin, hummingbird updates mainly because the results are better and Google is still having a better experience and before it was very easy to came, the search engines. You were doing grey hat, I was doing grey hat, everybody was doing grey hat back then. But anyways let me play devil's advocate. Two changes that people look at and they see it as encroaching on the organic SEO. One would be the number of paid listings that show up above the fold on Google and where organic rankings start to be pushed down. And two voice enabled search. Let's start with the first one here the placement of organic rankings. I have another business that I own and I absolutely absolutely hate bidding on my brand keyword. Because it's my brand keyword, I show up number one, I show up number two, I show up number three, but if I don't bid on it I I've got four other people bidding on my brand and they're above me. So from that standpoint has SEO become less valuable for business owners or is that a trend that you think is going to continue where paid listings push out the organic rankings?

Corey: I don't and in fact I … you know I saw the same trends. And by the way if somebody just for the benefit of listeners, if somebody is pushing you out that way on your branded searches if they mention you by name you can file a trademark request with Google and get them shut down. It … they're still able to use your brand name as a keyword but it can water down their messaging if somebody is getting too aggressive with that. So I don't see it going too much further and yeah that was a big story each time Google has experimented with expanding the ad block but there's data on quick relates that's out there. Rand Fishkin actually threw his new startup SparkToro all those Jumpshot's analysis on this and it's incredible how many people still click on organic overpaid. The overwhelming majority still click on organic across the board even in the most extreme like biased examples I've seen. I actually just sent out our quarterly here a few weeks ago that looked at this AAReps had their own click through rate data of tons of searches that they've scraped and in their example they said the maximum went up to 46% with click on ads. Up to is the operative word there I think that's the most extreme example. It's 46% where you know it's a branded, your brand is number one; obviously, that's what they wanted. We're going to click that sure but the Jumpshot data said 3% was their average. So somewhere between 3% and 46% are clicking on paid ads. It's still the minority and I don't see that ever changing.

Mark: 3% to 46% is pretty broad.

Corey: It is pretty broad. The average is three.

Mark: Okay.

Corey: But yeah.

Mark: That's amazing. Yeah and in the example I have we have a lot of brand confusion in our space and my main competitor has been very very good at causing brand confusion. So it's a personal annoyance for me right now, my personal mission to get them out of that number one spot even though I'm losing money on it.

Corey: Not this.

Mark: Yeah. So that's interesting. I would have tend to agree that there's only so much real estate that they're going to give to the ad spot, to those ad blocks because it's … they have been focused from day one on that user experience. So they want users especially brand searches to be able to find the brand that they're looking for. What about voice enabled search? I know for myself and if I want to find out some quick data or whatever I've got a Google Pixel Phone I just give a little squeeze and Google's system comes up and I just ask it the question and more and more it's becoming intelligent in giving the response. More and more it's taking those responses of course from other websites and so they aren't getting any of the traffic to that. This wouldn't be so much a concern for e-commerce sites but for content sites I mean is this something to be looking out for and maybe something that's going to encroach on their opportunities in the future?

Corey: Yeah there is definitely demographics that are going to be hit by this. You and I talked about famous quotations here a week ago in how that is an industry that got hit pretty hard by Panda. I think the nuance is any short simple information is going to have a hard time. Like just the example from last month, Google actually started returning no results searches and people asked for the time of day. And there was a website that was timeanddate.com it ranked number one for all of these and I'm sure they were raking in a lot of AdSense doing it, not probably great ads for those people but still it was working for them in the moment. So there are really nuanced types of businesses that I think buyers should probably be a little wary of. If it doesn't give deep information it can't be [inaudible 00:19:11.5] by a simple answer from Google. But if it does go deeper I think it goes outside the scope of what Google can accomplish with voice search because it's going to be complex. There's going to be value in multiple results then so that's [inaudible 00:19:26.1].

Mark: Okay well you know I think that's a fair answer. I think when you ask Google a question, if it's a quick answer like time and date that makes sense. But if you're asking how to replace a sprinkler head, Google might give you a short response but you're not looking for a three step process for that. You're probably looking for pictures or video or more in depth you know of your in-depth guide. And so getting that response is actually a good thing, getting that being that featured response at Google will probably be a good thing because more people are going to click through to your page right?

Corey: Yup and there's also still value being lost right now from what they call no click searches. Where maybe you appear within the knowledge card, like the top of the results; people see your brand, they see that it's from you; they don't click through and see your analytics. But at some point who cares, if they still saw your brand you still helped them, and they still see then you may have accomplished what you set out to you anyway. It's just not going to be attributed as well.

Mark: Right; of course. I get it the top of funnels sort of just brand awareness and awareness to your brand, what's better to vouch for you than Google right?

Corey: Right.

Mark: If Google's going to feature you on their search result page that's a pretty good thing and if people don't know what I'm talking about here do you have an example that you know off the top your head where a knowledge card will show up.

Corey: Recipes are a big one now. I don't know any exactly at the top of my head but-

Mark: Well didn't … wasn't there that one for a while which was why are fire engines red; do you remember seeing that?

Corey: I think that so, it sounds familiar.

Mark: Yeah if people haven't looked at this, do a search for why are fire engines red and take a look at what the response is. They may have updated it since I last did it but it was just somebody had the game of the knowledge card and it was kind of a crazy response.

Corey: Yeah, but it's still not that hard to do.

Mark: So I … okay so if I already had, you can't leave with that not go into it.

Corey: Well we know what their data sources are so yeah you can … what Google is not good at is understanding what you're telling it, and that's what they're working on back checking right? Being able to actually understand is this good and not are these words here and phrase didn't maybe kind of mean something. And that's what I think they'll improve that maybe next. I think it'll take a while because they're still behind what a lot of the articles give them credit for now if you like but we do know which way they're going. There's an analogy. I love Aj Kohn as an SEO blogger; his company is called The Blind Five Year Old because that's how he perceives Google still. Kind of hyperactively bouncing out of your sight not really knowing what it's doing but they are still moving in a direction that makes sense. And with the knowledge cards there's different sources of data where I mean you can literally just put it in and hope that Google crawls it. So you can update Wikidata at wikidata.org put in some bunk information and sure they might index it. They might see that it's not that hard to fool it.

Mark: That's funny. All right well I got some pressing question to get to here. Even though this is fascinating and would be fun to explore all the idiosyncrasies of the world of Google but let's talk about, let's put ourselves in a position of a buyer looking to acquire a business and I want to have more opportunities for SEO and how to uncover some of those and where some of the mistakes are. But before we do that let's talk about due diligence side of things. So he's looking to buy a business, it receives a good amount of traffic from natural organic rankings. What are some of the things that people should be looking out for when doing due diligence? For example private blog networks, are these still something to look out for or are there other things that you may want to caution people on inspecting before they do an acquisition?

Corey: Right so without a doubt I would never buy any website without looking at its backlink portfolio. There are basically two arms of SEO right, you've got what happens on the website and off of it. I'm not so concerned about what's happening on the website. I know just based on my background I can probably make it a lot better. But I know that it's not a danger zone, the links are. So first are they trending upwards that's a good sign; bad links tend to get moderated. It makes sense, if somebody spams a whole bunch of forums or blogs they use a piece of software, it's going to get turned away and their Google patents that talk about this as a signal. Like if somebody blasts 100,000 links and all of a sudden they disappear I immediately know something's wrong. And even if something's not wrong if they had a good reason for that to happen, I still haven't really seen one, but if they did it … that pattern looks really bad. So that's the first thing, okay I guess I start to dig into it and I start to look for schemes like you mentioned; are there link wheels, are there … you mentioned that you and I are pre-Panda people a little bit here. I've … I know the schemes because I've used the schemes. I've tried the schemes and I know what all of them look like. There's any of maybe a dozen which might go beyond our time right now but-

Mark: So with some of these schemes how would somebody identify these? Obviously link patterns so seeing declining back wings would be an example of things being moderated away from low quality sites or even high quality sites where it's been spammed to a public place. But for like a Link Wheel or a PBN, are there tools that you would recommend somebody use for this or is it really just something where you need to hire somebody like you to be able to help identify these schemes?

Corey: Sure. Well I won't go so far as to say someone has to hire me but I do have a lot of skepticism in the tools only because we see them throw a lot of false positives. They do good things too but I've got a team that's used every backlink auto link tool I think at this point and they're flawed certainly. Especially when you pair them with the activity of disavowing links which is usually the natural next step. When you find bad links people tend to use the disavow form in Google Search Console and that's irreversible so it's really really dangerous. We've very frequently been approached by people that ran an automated link audit, got a lot of terrible advice, disavowed a lot of good links, their rankings went away, and they need help and all we can say is well now you've just got to rebuild like you shouldn't have done this. That was a bad idea. So I think it's just about recognizing the schemes and the most overarching witness test in my mind is does this double as good marketing. Sometimes it's just a completely automated site like you see a lot of these like statistics websites, and he ways websites, those big automated plays. I would usually say if a site links to every site on the internet which you can usually see, like is it linking to every domain alphabetically; you see that a lot on the backlink tools. I don't worry about those. I don't think you should disavow those because that's not a scheme. That's not a pattern that you want out and will and that's a flaw in every auditing tool I've used. So I wouldn't worry about those. I also wouldn't worry about anything that is editorially relevant. Like is it editorial, a guest post, a press release, a mention of any kind really that happened from a human but if it didn't and you can usually tell by this kind of thumbing through the side a little bit that usually means that your link is appearing besides other schemes. And if a link is really easy to get that by definition kind of makes it a bad link which is counterintuitive right? You've got all these SEO services that are offering fast easy links for everybody. That's flawed because if it's really for anybody that means that you're link appears besides porn sites you know fill affiliates like all sorts of really kind of sketchy looking stuff. It shouldn't be easy for everybody and that's really the way to tell it I think.

Mark: So something that we see with Quiet Light Brokerage in our backlink profile is we'll get a piece published informs or entrepreneur or in [inaudible 00:27:36.5 a good piece and obviously we love those backlinks. But then sure enough there is these really low quality sites that will take that article that blog post and they'll republish it and you know it's just a complete spammy site. You can tell that there's never a human that has touched that site other than initially [inaudible 00:27:55.7]. Are those backlinks, if somebody is doing a backlink analysis on the site and they see some good high quality backlinks but then they see a whole bunch of copycats stuff is that anything to worry about in your opinion?

Corey: It depends a little bit on the site. If they're purely just scraping forbes, I'd say well today link back because if they do it reminds me a little bit of press indication which is perfectly natural and it's a signal that I think any grown up brand is going to have. Like you've got basically every publicly traded companies running out regular press releases so if I put on my … like if I'm Google Ad that actually looks okay. But if it's a really low quality site you might see them also doing other shady stuff so you might have to look at their backlink portfolio and kind of pick apart what they're doing.

Mark: Okay fair enough that is good advice. And if anybody is listening to this and you're completely lost as far as what Corey is talking about here I'm sure you could reach out to him and get a little bit more insight into some of these things. The world of SEO is kind of this big old rabbit hole, you can understand on a very basic level or you can get into [inaudible 00:29:02.3] sort of the more nuanced stuff. In which case you're talking about link wheels and different types of shapes as far as linking patterns which I've thrown most of that out the window years ago when I started seeing a lot of the updates come through. So and I want to talk about that you know we talked a lot about backlinks and backlink profiles, it's been my perception and please correct me you are the expert in this not me, it's my perception that backlinks haven't been so much devalued as might have been surpassed or might have … might be having other ranking indicators kind of come up alongside backlinks as being important. And one of the ones I've seen has been topic coverage, topical coverage on a page. So an example of that would be we have a blog post on I want the Seller's Discretionary Earnings well we also want to cover not only what a Seller's Discretionary Earnings but what does it mean for an Accrual Basis versus Cash Basis Accounting and you know what is Net Income, what is Gross Revenue because these are related topics to the one thing so having all that content now is a good signal to Google. In my correct or incorrect or off based when I say that the backlinks while still important are playing alongside some of these other newer ranking factors?

Corey: Yeah I mean you'd be correct in saying On Page matters more and in more nuanced ways. It's tough to weigh like do links matter less because links are infinite really. On page is still finite so I think in that math equation links can never matter less because you can always do more with links. You can't always do more with your site so that makes that equation interesting. But yeah since the Hilltop Algorithm which I believe was written by Krishna Bharat, he published a paper that it's actually really old but it was pre-Panda by a lot and it broke down I think what they've been building upon for a really long time which for the first time defined what they call topical experts. And if you really dig into the paper it appears to be talking about domains as experts and they played but there's a little bit you know you had authorship of Google+ I think was one sort of riff on that idea of trying to figure out who really knows about a topic. And around that time SEO's like crazy with the concept of relevance. People are saying well you only want links from relevant sites. I think that's bunk because well do I not want to link from CNN they don't … they're not an SEO website, obviously I do, obviously that's still a good link. But there's more value if I get somebody from within my space on average. So it's just one more metric, it's a little bump I feel like in their favor if they're relevant or if you're relevant. They're looking at the themes throughout your site definitely. So to your point yeah that exact same idea, the more you cover a topic the more I think your ratio of expertise is strengthened there. And for the same reason Mike & Mitch E-commerce Shop should absolutely be able to outrank Amazon. They're generic, they don't have that focus and we see that a lot.

Mark: That seems to be a recurring theme of this podcast here; how to be Amazon at their own game. And I've talked to so many e-commerce business owners who get frustrated by … when they put their own listings up on Amazon and all of a sudden Amazon's outranking their niche store. But I think your point of if you have good topical coverage on your site, if you're doing … if you're making sure the on page is right you should be able to outrank Amazon because it is a specialized site. And that actually said was a really nice link into the final section I want to cover and that is opportunities for pretty much any buyer when you're looking to acquire an online business opportunities in SEO. I see huge opportunities with most of the stuff I look at and working on the on page SEO, what are a few areas in your opinion that people should look at when they're looking to grow the SEO presence of either an e-commerce shop or a SAS business or a content business but really kind of looking at that a SEO portion, what are a few areas that are common pieces of low hanging fruit that you see?

Corey: Sure. Well since Panda there are a lot more diamonds in the rough I feel like that just have broken on page SEO and the poster case study going all the way back was Danny Webb right? Everyone was talking about Danny Web which was one of the biggest tech forms, they lost easily all their rankings when Panda first hit and they managed to recover by removing what people later called thin content. Which were just pages that might have fifty words on the page, it was all the different individual profiles that people had, there were millions of them. Most of them were a bad search engine experience. So when I see a site that has a lot of pages that don't offer value to Google but don't carry the no index tag, the media tag, and the source code [inaudible 00:33:56.5] but code in the source that says keep us out of Google's index. I know well hey I can do that and overnight strengthen the stuff I want to keep and cut out the stuff that's just never going to be of any value and that's going to help a lot. I also look for sites that don't have a keyword strategy, sites that for whatever reason have never had any links but still enjoyed some organic success. There's a lot of ways to play this. In total there's I think a couple hundred ranking factors. I basically just look for a couple that have been 100% neglected because I feel like that's where people leave the most money on the table basically where I can see a quick one.

Mark: Yeah, I think again coming back to round out this discussion, I think since the updates and after the updates everybody was scared of organic traffic and understandably so. I mean it was very difficult for a lot of people because they owned a business overnight an update happened and the rankings are gone, revenue is gone. A lot of businesses were built on this kind of shaky SEO and Google's done a good job of cleaning that up. But people now see the benefit of relying on paid acquisitions. As a result though I think there's a huge opportunity for buyers to take a look at pretty much any property that is not on Amazon. So any web-based property content sites etcetera etcetera and be able to really grow that business through good SEO practices. As you said looking at keyword strategies are, is there any keyword strategy there, or do they have good topical coverage, are they doing the basics to be able to rank well, and because no one is really doing that or very few people are really doing that on page SEO anymore it's kind of amazing how quickly it's fallen out of favor. Yeah so let me ask you if anybody wants to talk to you what's the best way to reach you?

Corey: Sure. Well they can pop on our website which is just northcutt.com drop me an email it's just [email protected]or follow me on Twitter corey_northcutt to be my first name, any of those work.

Mark: All right good. We'll all link to those in the podcast page the show notes so everyone can take a look at that. And you know again we don't get kickbacks from guests or anything like that but we do refer people that we've used in the past successfully and the services of yours is definitely a service that I've gotten good value out of. I know you did some work for me, I think it was back in October your group did some work for me and those pages are doing quite well now so thank you for that. I never gave you an update on that; they're doing pretty well.

Corey: Yeah, sure.

Mark: Yeah so thanks so much for coming on. I think this is an interesting topic and maybe one that we need to explore again in the future.

Corey: Oh I'd like that.

Mark: All right, thanks Corey.

Corey: Thanks Mark.

Alex Lyon from Avask Tax Advisors works with over 2,000 eCommerce and FBA clients. Her role is to help them understand, register for, manage and comply with VAT registrations and payments.

• Did you know that when selling online in Europe the taxes (VAT) are included in the purchase price?
• Did you know if you don't increase your list price your margins shrink by the VAT amount?
• Did you know that if you have a UK company there is a minimum total revenue threshold amount you can reach before you have to collect VAT?
• Did you know the biggest mistake made by US companies is not registering for VAT, but that you can sell on Amazon prior to having the registration number?

If you answered "no" to at least one of the above questions…and plan to expand to Europe, hearing Alex's explanation of the VAT process could be critical to your expansion success.

Episode Highlights:

• The biggest mistake Alex sees is not registering for VAT, and it is costly!
• You can sell before being registered, but it'll cost you if you don't increase your prices to account for VAT.
• You do not have to set up a foreign corporation to sell in Europe, regardless of your overseas location: i.e. US, Singapore, etc.
• You only collect in countries you are shipping from (there is a caveat).
• Amazon does not show VAT charges separately in your seller account.
• The PanEU program makes sense for some, most only register in the UK and Germany.
• If you don't pay VAT…your Amazon account will be suspended and/or closed (eventually).
• "Import VAT" is charged on the inventory shipped into the country and paid immediately.
• "Sales VAT" is charged on the retail price of your goods, and paid quarterly.
• The UK and Germany are the two largest markets for selling online in the EU.
• The UK is the easiest to expand to from the US because of language and the challenges of shipping to Germany.
• Wiring VAT payments can take 4-5 days and a currency account in Europe shortens the wire times.
• Using an intermediary bank, or currency account, can save 1-3% in exchange rate fees.
• With Avask, the costs to register for VAT in the UK is about $200 USD, and then about $1200 USD per year.
• Caveat to costs: "Distance Selling Thresholds", if met, require more than $1200 per year because VAT is required in countries you do not store inventory in.

Mark: Good morning Joe. How are you?

Joe: I'm good Mark. How are you?

Mark: I'm hanging in there. I'm enjoying the weather lately and getting outdoors a little bit not working as hard but we're still recording podcasts. And you recorded one on an interesting topic and something that I think more and more people are having to face that have Amazon businesses and that's some of the tax implications going overseas.

Joe: Yes. Actually, anybody who has a physical products business that wants to sell in Europe and it's on value added taxes, oh my God not exciting at all. But did you know real quickly that you know obviously here in the States you buy something and then the tax is added? When you buy something online, or in Europe, UK, Germany, France, Italy, etcetera the price is built into…I'm sorry the taxes are built into the price. So if it's 120$ the item might be 100 but the taxes are 20. And a lot of buyers that ex…by sellers that expand overseas don't quite understand that concept initially and they could immediately start losing margin by not increasing the prices for the value added taxes. A great conversation it was with Alex Lyon from AVASK Tax Advisors they have over 2,000 FBA clients and e-commerce clients throughout the world that sell and need value added tax compliance so really informative stuff. And anybody that's considering expanding overseas should absolutely listen to this because it's not that complicated once you listen to what she says.

Mark: What are the consequences if somebody is not taking care of the value added tax? Do you know by any chance?

Joe: Yeah absolutely. So they're very-very compliant over there. It's not gray like it is here in the States, its black and white. So the problem is that if you sell in let's say the UK and you're not registered, you're going to be determined. Amazon has to share the information with I think it's the HMRC. They have to by law; they share the details of everybody that sells on Amazon. So the HMRC has access to your sales information and therefore can force you to pay the value added taxes that you should have collected. If you didn't collect it you're going to pay for that out of your pocket simple as that. So you've got two choices: pay for it out of your pocket and lose that 15 to 20% margin and probably make no money at all or walk away and be banned from selling in in Europe on Amazon.

Mark: That's significant. I think moving across the ocean to selling in different countries is a huge opportunity for anyone. Buying an e-commerce business that wants to ship overseas that you need to start taking advantage of that opportunity but you also have to go through some of the understanding of what sort of regulations are in play. I think this you know isn't…this is not exactly an exciting topic but you know and I think it's a really important topic for anyone to listen to, to possibly unlock an opportunity that your competitors are not taking advantage of.

Joe: Yeah and before we say let's jump into it let me just say this that I've seen explosive growth with people moving and expanding their products to the EEO, explosive growth in particular France. I mean the UK and Germany. And the cost associated with it using someone like AVASK and they're not the only ones who do it, it's not all that expensive. You're looking at maybe 1500 $ to get the ball rolling and get it done right. And you can you can start selling immediately as long as you're registering and then you pay from the date you started selling. It's really not that complicated. There's a lot to it but it's really-really important that if you're going to sell overseas which I think everybody should if they have real growth plans that they listen to the whole podcast.

Mark: All right with that I will say let's jump into it.

Joe: Hey folks it's Joe from Quiet Light Brokerage and today I've got to Alex Lyon from AVASK Tax Advisors with me. She's an expert on VAT which I believe is value added tax. Something a lot of folks trying to expand their e-commerce businesses over to the UK and beyond really need some help on. So Alex welcome to the Quiet Light Podcast.

Alex: Thank you. Thank you, Joe. Hi everyone. Yeah as Joe has mentioned my name is Alex. I am Indirect Tax Client Manager of AVASK. So I've been working here for three years now just helping e-commerce sellers expand over into Europe. So we've got over 2,000 Amazon sellers that we work with. UK companies also companies based all over the world as well. So yeah that's been us.

Joe: That's fantastic. Are they all FBA clients (Fulfilled By Amazon) or do they you know sell off FBA as well (off Amazon) with their own e-commerce businesses?

Alex: It varies so a high majority of people are FBA sellers just because it's a lot easier to hand everything over to Amazon and kind of let them do fulfillment. But there are quite a large number of Amazon Sellers as well such as shipment from your own country which obviously makes a lot of things easier in terms of the VAT because you don't have to actually declare the sales in Europe because you're not fulfilling from his countries. So yeah it's kind of a majority FBA but we do have MFM sellers as well.

Joe: Okay, good. Good. Good. So let's talk about the basics, get things straight here for our listeners because a lot of people here in the states are expanding their Amazon.com accounts beyond Amazon into the European countries and seeing explosive growth. But the big mystery is how to set up the VAT's and how to find an agency like yours to handle it most of the costs associated with it are. So you can start am I getting it right is it Value Added Tax and tell us how it works?

Alex: Correct. Yes, it's value added tax. It's the same principle across the European countries but they have different rights and different filing frequencies. The easiest way to explain it would be that it's similar to the sales tax you have in the US. But the main difference would be the way which you include it within the price of your product. So this is kind of the biggest hurdle where people fall over on where they don't actually include the VAT amount within the price of the product which means that you're not actually collecting the VAT from your customer but you still have to pay it to the revenue. So you're essentially paying it out from your pocket if you don't include it. So in the US for someone like myself when I come over I don't realize it works like this when I go to the checkout in sell sites because I didn't know and I'm kind of how…where is this amount coming from. Whereas in the UK you don't know that it's already there in the price of the product so yes its essentially the same as the sales tax but it's more hidden.

Joe: So Amazon is collecting that 20% for units built into the purchase price of the product. So if it's 100 $ if the VAT is 20% for instance, 20% is something set aside to pay your VAT…your taxes?

Alex: Yes.

Joe: Okay.

Alex: So you need to list in on Amazon for the straight 120. Amazon won't do that for you.

Joe: Okay and do a lot of people make that mistake where they just list their business without bumping it for the value added tax?

Alex: Yeah there's a large number of that do. Without getting kind of proper advice on how VAT actually works. So it is…see it's hard enough to in taxes in your own country let alone I'm kind of working out how to do it in a foreign country. So yeah that's a big hurdle where quite a lot of people fall over on.

Joe: Okay. So you're located in the UK. AVASK is located in the UK. But I think I saw offices around in different parts of the world, is that right?

Alex: Yes that's right. So we've got an office in London and I'm on based on in Winchester which is about an hour south of London. And then we've also got offices in Shenzhen and LA. We try to come over to the US as much as possible as well just because oversea it's kind of US sellers that we've [inaudible 00:08:19.0] work with. So yeah we try and get over to the events as much as possible as well and get that travelling.

Joe: So the vast majority of clients as you said are US based clients and they start selling and Amazon.com and then expanded to the European countries?

Alex: Yeah, definitely. Amazon is oversea, it's huge in America and it's just kind of been taking off here in Europe as well. So it's a massive market in Europe and I think if you're product is successful and you've been able to make it successive there in the US then there's absolutely no reason why you shouldn't also be able to do in Europe.

Joe: Okay. So let's say I own an Amazon.com account, I want to reach out to you what…and I want to sell in the European countries, step one two three can you walk us through that?

Alex: Yup sure. So step one is to work out where you're going to be shipping your products from. So most people go with the UK or Germany just because they're the biggest markets, UK is obviously a lot easier because you don't have to translate any of your products. So whichever country you decide you're going to fulfill from you then have to get a VAT number in that country and also an EORI number for all of your shipments. So those two numbers you have to have those before you make a shipment. If you make a shipment without those numbers you're going to get charged import VAT and then you won't necessarily be able to reclaim that back whereas you would if you have the numbers. So that's very important. In terms of the registration process, engaging a UK agent is really helpful because you've got someone who can communicate with tax authorities on your behalf. And that also means that we know exactly what documents are needed for each of the registration. We'll process all of that for you. Once the application has been submitted and you're waiting for the numbers to come through at that point you should start getting your listings up. Working out some shipping quotes and kind of working out all the details on actually how you're going to get your product there and what the listings are going to look like.

Joe: Okay. And I just had a conversation with someone that is buying an Amazon business and they were confused about when the VAT was going to be applied. Is it to the amount of products being shipped into the country or is it the amount that's sold?

Alex: It's both. So if you're doing FBA you're making a box shipment to an Amazon warehouse. That box shipment you're going to have to declare at customs. So any shipment that's out into a warehouse is going to have import VAT at UK customs charged on it that's assuming of course that your shipment has come from outside of Europe, so most people ship from China or from the US. So import VAT is going to be charged on the cost of your goods. When you put together a commercial invoice of that shipment, that's the amount of the import fees then we charge on also with freight charges and things.

Joe: And then what time do they pay that import VAT, when it arrives?

Alex: Yeah correct so usually depending on what shipping company you'll go for usually they'll pay it for you and invoice it back to you. But they still have to do your kind of clearance number to create a shipment.

Joe: And then do they have to…then they collect that VAT when it sells and they keep it or is it a different…are we talking about two different things? The import VAT versus the VAT that's charged to the customer on the Amazon account is that two different things or it's the same?

Alex: It's the same tax but it's computed in different ways. So import VAT is non-cost whereas VAT on your sales is on the retail price of your goods. And they're also kind of declared differently so with the VAT when you [inaudible 00:11:35.18] you pay that in your VAT within each quarter. You don't pay that immediately when you make the sale. Whereas the import VAT, you pay it immediately at customs. And the way that those kind of…they tie in together although they're separately you…it's within your VAT return. So you do your VAT filing every quarter. So every three months you declare the amount of sales you made and then obviously you're declaring the VAT that's due on your sales and then any import VAT that you pay you can get that refunded and it's used as a credit within your VAT return.

Joe: And how easy is it within the Amazon seller account to see that money that you've collected and have it match up against what you're going to owe? Or is it not as black and white as I think it would be or is it really relatively easy?

Alex: It's gotten a lot better, to be honest. And so Amazon have got a specific VAT report that you can now download so you can see the breakdown. But in terms of the actual…when your customer purchases an item they won't be able to see the breakdown of VAT and the amount that's going to the amount that's going to the revenue. Another kind of stumbling block where a few Amazon sellers fall over where they don't get the kind of proper…do the proper research before is that's that although Amazon take their fees from the money you receive in terms of your sales, the VAT is [inaudible 00:12:49.6] on the total sales price. You can't deduct Amazon fees and then the amount that you actually receive from Amazon is what you pay VAT on it's the total amount that you're costumer is paying you pay VAT on.

Joe: Why is there any calculation at all that the seller does? Doesn't Amazon calculate it for you it seems like they would since they know the exact sales?

Alex: Yes so, unfortunately, it doesn't work like that. You have to include it. You have to price your product you have to do your pricing matrix. If you're expecting to move due your pricing and then Amazon add the VAT on it…that's not going to happen. You have to make sure you're including them.

Joe: Well then I was thinking in terms of Amazon that in your pricing you would say this is my price and then this is my VAT amount it's not done that way you just simply mark it up to 120$ if it's a 100$ item.

Alex: Yeah, exactly. Mark out straight away. And you can tell Amazon with the VAT calculation service you can let them know if you've got any kind of reduce rated or zero rated items which will reflect on the actual sales report. But it's not going to affect what your actual retail price is on Amazon and what it's listed as.

Joe: Okay. Let's talk about volume. Here in the States, there's a lot of question about when should I start collecting sales taxes and [inaudible 00:13:58.6] and all these different [inaudible 00:13:59.8] unfortunately not black and white yet. It's still very-very gray. I had a situation where I listed a business for sale and asked about collecting VAT and he said well I'm not…I haven't hit that threshold yet in the UK. And I think it was a UK corporation as well, can you talk about thresholds and when and if you have to collect. In different [inaudible 00:14:21.4] what if you're a UK corporation or a Hong Kong Corporation if you're someone at the LOC or corporation here in the States?

Alex: Okay, so if you have a company that's incorporated anywhere apart from the UK then you have to register for VAT immediately so that's sale number one whether it's going to have 1$, 10$, or 100$ it's straight away so no threshold whatsoever, you have to be registered. If however, you have a UK company there's a threshold of 85,000 Pounds and that's in terms of a turnover over a 12 month loaning period. So if you hit that within three months you have to be registered if you hit that in 11 months you have to be registered but that's just for a UK company. So if you've got an overseas entity you have to register straight to it there's no threshold.

Joe: As far as buyers go, when you and I talked about this and have conversations with buyers when they buy an Amazon account that has a European component to it there's always questions about TMI not going to be collecting during a certain period of time, how do we sign up, how do we get that registered, what kind of danger I'm going to be in. I think you said the other day in a call separately in preparation for this that you can start pricing your products right away while you register and you're not going to…you're not going to lose any grounds or sales while you're registering and then paying VAT down the road a bit. Can you talk about that again a little bit so that…and talk about it from a buyer for perspective. If say someone is buying an Amazon account and taking it over and would reach out to you to register how do they ensure that they're collecting from day one of ownership and that they're not going to…not get themselves in a little bit of trouble?

Alex: Well, first of all, I want to make sure, well check whether the Amazon account has already previously been charging VAT. So what we've discussed in terms of the pricing, obviously if you're taking over an Amazon account you're buying that account. And if they haven't been including VAT in the prices, you obviously then need to…the first kind of goal is to straight away go ahead and increase everything by that 20%.

Joe: Let me just jump in here for a sec. So that's a consideration when someone…this is for the buyers that are listening, correct me here Alex if I'm wrong but when someone's buying an account and the owner has UK corporation, if they're below that annual threshold of 85,000 Pounds in revenue they're not charging VAT. But if I buy it and I'm not a UK corporation I immediately have to increase the prices in order to collect VAT or leave it alone and I'm going to lose 20% of my sales to the VAT. Is that correct?

Alex: That's correct. Yes, so you because you're an overseas company you have to charge VAT on your sales even though they haven't been charged previously.

Joe: Okay really critical for buyers to understand that when it's a UK corporation. Okay sorry to interrupt please continue.

Alex: Okay so once you have then kind of taken over the company you can actually back date a registration. So say I'm talking over…I'm buying an Amazon account under my US company from a UK company we'll stick to that example. From the 1st of May you know going through the whole process it's taken a couple weeks to actually get everything set up. When if it got to the 1st of June and you still hadn't registered you can then back date that to the 1st of May. So as soon as you know that you're going to be buying the Amazon Seller Central, I would make sure that you're charging VAT to your customers because although you may not be registered you can backdate the registration. And it means that you have to pay VAT in all sales you make previous even though at that actual moment in time you weren't registered but you're back dating registration.

Joe: Okay just to summarize. Don't change a thing in terms of prices assuming it's a…let's go with back to the it's a non UK entity so that they're a US entity buying a US entity but they have a UK account to it. If they're charging 120$ now and they're collecting VAT you don't have to change prices at all.

Alex: Correct.

Joe: You're going to register with a firm like yours and then when it's time to pay for the first time you're already collecting those and you'll go back dating and calculate what's due.

Alex: Yes, exactly. Yeah.

Joe: And how often do you pay? I think you said was it quarterly?

Alex: Yes quarterly so every three months yeah.

Joe: And is it the same every three months? Is it the beginning of the 15th of the next quarter is when you have to pay the taxes or is it depends upon when you register?

Alex: So you got one month and seven days to actually do the filing and make the payment. As you can fall into different stagger groups in VAT quarters so it's not necessarily you are January to March you can be February to April or March to May. So there's three kind of different groups of VAT filings you could fall into. Your VAT advisor should obviously let you know and would be contacting you when everything's due. In terms of the frequency yeah it is quarterly.

Joe: Listen, Alex, as you can see I'm an old guy, got some gray hair here. I fell asleep in accounting class in college. I honest to God I did fell asleep, the next class came in and I think I've told the story again so I won't go to much detail. I don't like this stuff. I don't like this level of detail because of what I do for a living it's absolutely critical as an entrepreneur and know how important it is. Do I have to really…if I'm the guy that's buying an FBA business and it's got European components to it, how much do I have to really know or can I just rely on you guys to do the work for me?

Alex: You can definitely rely on us to kind of advice you and let you know. But it is…I do think it's good to know kind of the basics of what you're doing. In terms of Amazon, you've got two different programs so European Fulfillment Network or Pan-European Program. Pan-European Program is great you get to move your stock around to seven different countries [inaudible 00:20:03.1] you're stock is close that your costumers time are positive reasons to do that. But if you just kind of turn that on on your Amazon Seller Central and you'd haven't done any prior research, you won't know that you then actually have to get [inaudible 00:20:17.6] registered in seven countries. You have to do filings maybe month in more than half of these countries. So everything that you do in terms of where your stock is located, where your sales are going will have an impact on your VAT registration, your VAT applications within Europe. So yes it's good you should have [inaudible 00:20:36.6] in there. We'd let you know but don't be completely ignorant to what you're doing and where your stock is going.

Joe: Hey it sounds like you just touched on being able to shift from seven different countries in a penny you…there's a lot of potential savings in terms of the shipping costs and fulfillment costs that you're closer to the customer. But you talked earlier I think that if you've got your inventory in the UK or Germany in the two biggest centers that you register for VAT in those countries what if your inventory is spread around seven different countries so you're closer to the customers do you then have to register in all of those countries?

Alex: You do. Yeah, as soon as your stock is in that country and you can sell in from there you have to be VAT registered in that country. So VAT is basically payable to the country and is being done close at supply. So if your stock is in a Czech Republic warehouse the place of supply VAT sale when it's going from the Czech Republic to the customer in Italy is going to be in Czech Republic. So being VAT registered in the UK is completely useless.

Joe: Okay.

Alex: So yeah-

Joe: Very much like nexus here in the States if there's 15 Amazon centers theory is that if you have 15 different locations of inventory you have nexus in those states and that's where you collect sales taxes. Not as formal as where you are. Tell us about the biggest hurdles and biggest mistakes that you've seen people make…well that you have in been bringing people to the European countries and selling an FBA. What things are really obvious? What mistakes are really common that people can avoid?

Alex: So first one is to not get registered at all. So with that threshold, quite a few people get confused that the 85,000 threshold is applicable to them; sounds really appealing and really lovely so they just don't register full stop. And then when you do get registered you just do it from today's date because [inaudible 00:22:27.3] realize but now I know that I'm going to do it from today. There's a huge amount of compliant checks going on with the revenue in the UK. They are hurdling through every single Amazon account and doing tax investigations. You know we've had to help clients where we're going all the way back to 2012 when the legislation came in that they have to register. So that's kind of six years of taxes you're going to have to go back and pay and if you don't your Amazon can get shut down. So the first kind of hurdle is actually getting registered. It's kind of what you'd think is the most simplest part just to do the application.

Joe: Six years of VAT taxes you've had people in that situation?

Alex: Yeah.

Joe: I would think that in some situations people will just throw their hands up in the air, close the account, and walk away, and not pay the taxes.

Alex: Yeah.

Joe: Is that something where if you're a US resident where you're going to be found and have to pay those taxes in some way shape or form?

Alex: Well you spent a nice six years building up your Amazon account. You've got all of your reviews you know you've built up that kind of brand in the UK so to kind of just throw your hands up and walk away is a big thing to do in the first place. Because even if you opened up a new Amazon account you're not going to have all of those reviews and obviously the name of you as a director of that company when you do a VAT application in the UK you have to state that information and you have to kind of give all of those details of yourself anyway and yeah so you'll have-

Joe: So if you're going to walk away there walk in away forever.

Alex: Yeah.

Joe: Unless they cheat and get around the system somewhere.

Alex: Exactly and unfortunately like in the US…so as not like in the US there's now amnesty in the UK so if you think that you're going to be negotiating and kind of say that oh I'll make sure to pay everything going forward so I'll pay a percentage you wouldn't get that and you also have to pay mass penalty as well so it do not kind of sound all that great if you haven't done the right thing to start with.

Joe: Okay. So I've talked to a lot of Amazon sellers. I've seen their financials. Some people tell me you know I've done the analysis Joe and it's just not worth the effort for me to sell in Germany and Italy in France and in the UK. It's just not worth it. And I think they're completely and utterly wrong because I've seen the explosive growth. You've got 2,000 FBA clients. What country are you seeing people get the most bang for their buck? What's growing rapidly over there and what country should they pay attention to the most?

Alex: UK and Germany definitely. They're just the two biggest markets. France is…does follow very closely but yeah 100% they're the biggest.

Joe: Okay. And the easiest of those two might be the UK because you don't have to do translation?

Alex: Yeah, exactly. And I'm shipping direct into the UK is a lot easier than it is shipping to Germany.

Joe: Okay. Okay. There are a lot of concerns about money laundering. I've heard people talk about this and how complicated it is and on the German side and German FBA accounts. Am I just hearing people with sort of the chicken little mentality that the sky is falling and being really paranoid or is there something to that?

Alex: I think sales in Germany in terms of my money laundering and everything is all going through Amazon. So amazon are collecting the funds and sending it to you. You don't need for some representation in Germany so payments go directly to the tax authorities whereas in France you've got to pay to your French advisor and then it goes to the tax authorities so yeah I'm not sure of what grounds.

Joe: Do you even know who Chicken Little is or what that theory…okay, I see you just-

Alex: No sorry.

Joe: Okay. It's a cartoon character here in the States disguised-

Alex: Okay [crosstalk 00:25:55.9]

Joe: I used that terminology when there's so many people online talking about all the horrible things that can happen when you're own an Amazon seller account as opposed to the reality of how many great things are happening and it's changing people's lives.

Alex: I think that's like when you go to a restaurant or you go anywhere, you're more likely to leave a bad review if you've had a bad experience whereas if you've had agood review you probably leave any review at all. I do notice that happen.

Joe: A hundred percent, you're absolutely right. One of the things that I see often and I know you guys are AVASK tax advisor so I want to talk about that advisory part and the tax part. But one of the things that I see happen is that sometimes when sellers expand overseas they just take the easy route and they'd let Amazon handle making deposits directly to their US bank account. Whereas other people that take a little bit of time, do some research, still use World's First Bank or somebody else to be that intermediary and the money will go there at a lower exchange rate saving them tens in…tens of thousands of dollars annually. Do you find that to be the case, do you would advise folks to do that and if so what world banks do you suggest they use or look at or is that a service that you provide as well?

Alex: Yeah, definitely. So if you kind of first of all from a VAT paying perspective there's…most people have to pay via wire transfer. And if you're getting kind of close to the payment deadline it can take for to five working days for that payment to clear with HMRC. They then if any payment is received late they will give you a surcharge with subtentiative liability and that can go up to 15 cents. So if you've got a currency account located here in Europe the time that it takes for the funds to actually clear and consider the payment to be made is a lot quicker. So that is a big benefit of getting a bank account over here even just a currency account.

Joe: Can you define what a currency account is and how it differentiates from a bank account, please?

Alex: So it has kind of all the benefits of a bank account and they're very similar but I don't think I mean don't 100% take my word for this. Obviously, it's better to speak to a currency account provider. But you can't hold large amounts of funds in that account. It's kind of like an intermediary way. You're basically doing a transfer and a transfer to your local account. You can't also do things like direct debits and buy out checks and things like that.

Joe: Okay. And as I understand it just for people listening that currency account I think Amazon, for instance, may charge you if you are a…may charge you 4% currency exchange. Whereas the currency account you may only be charged 2%. And so you might be…and these are ballpark numbers so you're saving 2% on whatever amount of money is flowing through that. And if it's a million dollars, you do the math on that. If it's 10,000 $ you do the math on that. So I see a lot of people do that as well. That's what a currency account is right?

Alex: Yeah. And especially with kind of making payments in Europe in terms of VAT you're going to be transferring your money from Amazon to the US and then back so the UK again so you're kind of transferring it a couple of times and to make that payment. So if you want to incorporate a UK company [inaudible 00:29:08.3] you could have get an actual high street UK bank account which is obviously a benefit of that UK company. You could just kind of grow the funds and leave it in a high street bank account in UK.

Joe: Well, let's talk about that for a minute. Maybe I should have asked this at the very beginning and listeners I apologize because this is a question I get offset. You know I'm expanding to the UK, I'm expanding to Germany do I have to set up a UK business with a UK address or German company? Do I have to set those up or can I simply be a US based company selling products overseas? Can you explain, you've got 2,000 clients what are they doing? What do you recommend?

Alex: You do not have to incorporate a UK company. It's the majority of people use their overseas company just because it is a lot easier and has less administration in terms of the accounts that you are drawing up each year. It's all just falling onto one company. You've got your CPA in the US. He's doing everything for you. You don't have to hire a CPA equivalent in the UK so ask accountants to do your [inaudible 00:30:03.9] paying your kind of all those tax due filings. In terms of what's actually best is really hard for me to say because it is on a case by case basis. It's you know do you want to build a brand, do you want a UK bank account, do you want to take advantage of the VAT threshold, there's so many factors. It's not one, it's one size fits all, unfortunately.

Joe: Okay but the simple answer is for anybody listening if you're US based with a US bank account a US corporation, you do not have to set up a European company a UK company or in Germany that's misinformation. You don't have to do that. You can register for VAT and start collecting and paying and still have your one CPA here in the US. Is that correct?

Alex: Yes.

Joe: Good. Of your 2,000 plus or minus clients, what are their sizes? I mean you have you got people that are doing you know a million, two million dollars a month in revenue and those that are just doing five or 10,000 $ a month? How does it range and how does it flash out [inaudible 00:31:01.5] so we just know more about you guys.

Alex: Yeah, exactly that range I don't [inaudible 00:31:05.4] information but-

Joe: Maybe I should have said a half a million a month.

Alex: Yeah there's a huge range there is. And that's for the UK companies and also overseas companies. You know we've got a lot of Chinese clients as well. We've got kind of a whole Chinese department [inaudible 00:31:20.6]. So yeah the range is massive. We can help you whatever size.

Joe: Okay. Let's say that I'm doing a quarter of a million dollars a month here in the States and I decide I want to expand overseas and I'm going to start with UK and Germany. Aside from my inventory costs and getting the product there, what are my costs for someone like you in setting up VAT and getting registered and compliant and all that stuff?

Alex: Well it depends which country you're going for. If it's just one if it's selling-

Joe: Say I'm gonna start with two. I'm going to start with the UK, actually I'm just gonna go with one. Let's go with UK.

Alex: Okay 150 Pound registration one up fee and then 870 Pounds a year annual compliance and that doesn't depend on turnover. So whatever your turnover is it's the same.

Joe: That's pretty cheap, if I'm doing a quarter million a month, 150 Euros a couple of hundred bucks tops and then maybe a thousand US dollars a year simple as that. Who calculates what my VAT is owed each month? Is it me and my CPA or is that part of your 870 5,000-

Alex: Yeah we do that. We calculate everything. And you can give us limited access to your seller central we'll go in and download all the reports directly. You don't have to be a part of that process. Your sole responsibility is to make the payment.

Joe: Can I just have you make the payment for me if you have access to funds or you just tell me what to pay and I pay it?

Alex: No we don't do that. We will tell you what to pay and then you have to make the payment yeah.

Joe: This is…okay I'm a little [inaudible 00:32:47.2] I haven't talked to anybody about pricing but to me, this is so incredibly fair and reasonable. Are you guys…is this the standard fees? I mean this is normal cost or you're really expensive or really cheap? What's the situation?

Alex: I think that's about average. We pride ourselves over the service that we give kind of in comparison to the actual fees to other providers and things. We don't get too hung up on what the actual charges are in terms of that. What I would say though, I don't want to be [inaudible 00:33:16.2] in terms of that 870. Because if your turnover was in the millions you will be breaching distance selling thresholds to all of the European countries.

Joe: You'll be what? Say that again.

Alex: Breaching distance selling thresholds, we haven't spoken about that so-

Joe: Distance selling threshold.

Alex: We'll go into that really quickly. So if you've got all of your stock in a UK company…country sorry company the UK country, UK warehouse and is going to customers in Germany. So UK from a warehouse going to a customer in Germany, if their sales go over a certain threshold to Germany you then have to register to VAT in Germany even though you're not fulfilling from that country.

Joe: Okay.

Alex: Makes sense?

Joe: Yeah, all right. This is the part where Joe doesn't love this level of detail but thank you for that.

Alex: It's just that I don't want to be misleading in terms of 870 Pounds you know whatever your turnover is because that's all UK fee. If your turnover is massive you will have an obligation to register in other countries as well.

Joe: And if the turnover is massive to probably going to be shipping from those countries to save that fulfillment cost anyway.

Alex: Yeah, yeah.

Joe: And that's something that they would do the math on and you guys may help them with.

Alex: Yeah.

Joe: Okay we're running out of time. We're about 30 minutes in which is actually a bit long but this is a fascinating subject, a critical one, and I'm sure some people just they fell asleep because it's also not their favorite which is a shame. Because the number one thing people can do to make their business more valuable is get the books right. Get the details like this absolutely correct. It's going to help with the transition of the business as well as well as the value. Alex thank you so much. Any last thoughts that you can share with people listening? Whether they're buying and selling in terms of what they should do and how they should do it other than just do it and do it right.

Alex: I honestly I would just say to speak to someone you know we do free consultations [inaudible 00:35:07.0] if you just give us a call then we can just run through everything with you. There's you know all though we've covered a lot in half an hour it's a lot of information, there are still some things that haven't been mentioned so yeah I would just speak so when I mention we've got all the information for before you completely just jump start in.

Joe: Okay. Well, we'll make sure that all of your contact information is in the show notes.

Alex: All right.

Joe: But for those listening that can't see them there it's AVASK tax advisors that's A-V-A-S-K tax advisors and they do free consultations. I think it's really important as a buyer or seller if you're planning on selling over in the UK. Alex thanks so much for your time today I really appreciate it.

Alex: Okay thanks. Thanks, everyone.

Links:

Alexandra Lyon

Indirect Tax Client Manager

Skype: alex.avask

Email: [email protected]

T: +1.213.330.4904; +1.213.256.0537

https://www.linkedin.com/in/alexandragrant4/

https://www.avaskaccounting.co.uk/

James Shayler

International VAT Technical Officer

Skype: james.shayler16

Email: [email protected]

T: +1.213.330.4904; +1.213.256.053

Your online business is likely your MOST VALUABLE ASSET. And calculating its value is critical to setting goals and knowing your net worth. "But I never plan to sell" is something we hear often…and as entrepreneurs most of us @ QLB have said the same thing. Yet each of us has built, bought and sold our own online business…even the ones we never planned to sell.

When I sold my web-based business in 2010 I was a novice. With what I know today if I could go back in time I would have planned my exit and likely sold my business for 2-3x more than I did. Instead…I waited until I was emotionally tired of the business, and sold it when the numbers were half what the once were. Not smart.

Don't be like me…listen to this Podcast and implement our suggestions. You risk everything building and running your business, and you should get maximum value if/when you exit. The first step in getting max value is understanding the valuation process and being able to calculate your Seller's Discretionary Earning (SDE).

Mark and I joke about falling asleep in this podcast due to some of the content…we're joking…and the material here is incredibly valuable.

Episode Highlights:

• Learn the basic web based business valuation formula.
• Get to know what parts of a business swing the value range up or down.
• Net Income, plus Add Backs = Seller's Discretionary Earnings (SDE).
• What's an Add Back? Learn what are acceptable and unacceptable add backs.
• How add backs boost the value of your business.
• Using accrual accounting vs. cash for COGS…critical to understand for both buyers and sellers.
• Learn the typical multiple (value) ranges for an online business.
• Why a larger business fetches a higher multiple than a smaller ones.
• Inventory is SOLD SEPARATELY. If you own a physical products business, while listening to this Podcast your inventory levels will change. Including it in the list price artificially inflates the multiple of the business and results in an unstable list price.

Transcription:

Mark: Hey Joe how are you?

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

Mark: I'm good. Today we have an unusual guest at least for our podcast.

Joe: That's what my wife calls me unusual.

Mark: Well that's because you are the guest right? And in Quiet Light Podcast fashion, I'm going to have you introduce yourself to all of our listeners who have no idea who you are. Actually, they know you probably better than you may know yourself at this point because they've listened to you so much but I want to provide just a quick introduction for yourself.

Joe: Wow this is how our guest feels. Now I'm on the spot. I hadn't thought that you were going to do that to me. But who am I? Self-employed since 1997, I'm kind of an old guy. Can you see that? A gray hair. 52 years old. Built box sold own online businesses, sold my last e-commerce business for a company called Quiet Light Brokerage. Jason here was my broker; you were the first guy I talked to. I loved the process in transactions so much. I reached out to you and six months later I said you know I'd love to be a broker and you said yeah let me talk to Jason. Jason thankfully said yeah talk to this guy. I came on in early 2012. You and I are now partners now. You're the majority and I'm just a small guy in the process but since then closed what approaching 30 million in total transactions might get 50 by the end of this year depending upon what happens, been around the block a little bit; lots and lots and lots of transactions of all shapes and sizes.

Mark: And I think it's safe to say that you have built a name for yourself in the industry quite a bit. People know you. And I think for the first time in the history of the company we had a client you are working with and your plate was getting a little bit full so you thought about trying to hand him off to me and he said "No, I don't want to work with the founder of the company. I'd rather work with you, Joe." And that's never happened. I'm totally happy about that though not that I don't want to be working with a client but it just goes to show the reputation that you built in the industry.

Joe: Or how your represent…reputation is now destroyed. I'm not sure.

Mark: Probably, now the word has gotten out. Well, he's not actually as good as we thought compared to Joe or Jason or these other guys. Well, we did a podcast episode a while ago with Chuck Mullins and we're going to be doing more of these words "Meet the Broker". We also did one with Jason. So those you can find back in the podcast history but we obviously don't want to just talk about you and your background as fascinating as I'm sure that might be. You've got lots of years of wisdom to share with everybody. But we want to actually talk about a specific topic and I…and today we're going to talk about specifically how to calculate the value of your web based business or any web based business and what is the process that goes on behind the scenes to calculate that value. I know you gave a presentation recently, I think back in January out in California on this and it turned into a lot of questions about the actual valuation process. Like just the formula itself and how do we arrive at a certain number. So for those listening, we are going to talk you through this. But for those that are watching we will have something up on the screen a presentation that you can follow along. If you're listening in your car and you want to come back later you can find this on our YouTube Quiet Light Academy or on our podcast page at Quiet Light Brokerage. So tell us a little bit about the presentation Joe and how you kind of spent so much time just on the first half of this presentation.

Joe: Yeah the presentation is really supposed to be about you know the pillars of growth. There's generally four of them and I put planning in there as a fifth. It was supposed to be about the pillars of maximum value but in order to get to that, I had to talk about how to calculate your seller's discretionary earnings in the value of your business and then it got into add backs. I really was going to do about a five minute presentation on that, about a 40 minute presentation on the rest, and then 30 minutes at Q and A. It turned into about 45 minutes of Q and A alone on calculating the value, in particular, the add backs. What was acceptable, what was not, and then the multiples and ranges depending on the net. So today in this first episode I want to touch on how to calculate the value of your business and then we'll get to the four pillars of value after that. So simply put Mark it's an easy formula. There should be no confusion about it. If you're looking at the screen there trailing 12 months seller's discretionary earnings times the multiple equals the list price of your business, simple; right? 300,000 in discretionary earnings times three you got a list price of a business of 900,000 in the key plus the landed cost of good saleable inventory on hand at the time of closing that. All of that language is really critical. Now I've been a guest on podcasts as well as you on other people's podcasts and we've talked about this formula at the beginning of the podcast and then literally 15 minutes in the host will say "So how do you calculate the value of your company again because it's simple but really-really confusing." So I want to go through it. So we know this formula it's up to the screen again for listeners it's your seller's discretionary earnings for your trailing 12 months times A multiple equals the list price plus the inventory if you've got a physical products business. But the problem here is calculating the seller's discretionary earnings. We'll get to how to figure out what your multiple is but the most important thing is how to calculate seller's discretionary earnings. So it's up there on the screen now. It's simple if you use accounting software which is kind of important. Right, Mark?

Mark: Very very very much important, yes.

Joe: One of the four pillars. It's net income plus add backs equals your seller's discretionary earnings. So if you run a profit loss in Quick Books or Xero it's going to give you a net income number on the bottom. But every entrepreneur, for the most part, sometimes partnerships have better books…cleaner books. But most entrepreneurs, if you take a small salary, if you have a car that you ride after the business, you have your mobile phone as run through the business, all these things are personal in nature and then there's some one-time expenses as well. Those are considered add backs. So if you run a business and your net income is zero, that doesn't mean your business is worth zero. You could take a hundred thousand dollar salary and that's an add back as it's a personal benefit. Makes sense?

Mark: Makes sense. But I'm going to back up just a minute here.

Joe: Okay.

Mark: Go back to the previous slide.

Joe: Yup.

Mark: Now where we're talking about the formula that we're using to calculate value. In that formula again, just to drill it into people's heads, it is the trailing 12 months seller's discretionary earnings which is close to a bit in most cases but not always. So we take that we times it by a multiple and that's where we come up with the asking price or the estimated value of a business. But let me ask you or to give an objection that we hear a lot from sellers when they see this. Isn't this too simple, what about all the other aspects of their business? What about the unique relationship that they have with the supplier or the upward mobility or upward scalability of the business and the trajectory of it? Isn't this just looking at the income only and not paying attention to all those other things?

Joe: Yes and no. Right? And that's the answer is that we come up with a value range it's not a firm number, it's a value range and your business may swing in that range depending upon some of those things. If you've got a five year old business and you've got 30% year over year growth versus an 18-month old business, one is more valuable than the other. If you've got a patent on a particular skew that you have that prevents other people from competing with you that brings more value. If you have diversified revenue streams, you know Shopify, or your physical…your website, Amazon…different Amazon countries, Jet, Walmart, Daily Deal sites that's diversified revenue. Diversify…diversification means less risk. Less risk means higher in that multiple range. So all of those things come into play but as I say often we can't take an email list of 10,000 and say each email address is worth five dollars and do that math and add that to the value of the business. What it does simply is boost the value range of the business itself.

Mark: Right.

Joe: I think another way to understand this as well is that although our formula has two main parts the trailing twelve months seller's discretionary earnings in one part and in multiple being the other part, that doesn't mean that is…we're looking at two things. As we're going to go into both sides of this the multiple and the trailing twelve months are summations of bigger calculations. So when we could get to the SDE, when we're calculating that seller's discretionary earnings, we're going to go over that in this podcast episode, there's a lot involved in calculating seller's discretionary earnings just as there's a lot that goes into understanding what makes its multiples. These things kind of summarize the business and all of those intangibles as well. And I think a lot of people that do know this formula they focus a lot on the multiple. But I love the fact that what we're going to do here is we're going to unpack this seller's discretionary earnings number and see what goes into building that. Because this is actually an area where there is a lot of opportunity for optimization [inaudible 00:12:44.4]. And once you understand this aspect of it and you plan in advance sale of your business you're never to sell but someday you may wake up and want to move on, you understand the value you're going to have a much more valuable business down the road. And you know I think we were at a presentation together where someone got up and said adds are the most valuable asset that you own as your business and if you don't take care of it and you don't understand it's value you not really maximizing it; so really important. You know the key point here is Mark the trailing 12 months. It's not the trailing three, trailing six times two or anything like that; the trailing 12 always takes into account the seasonality of the business and we do every…a year over year comparison when working on that multiple valuation as well.

Mark: Yeah and just one last [inaudible 00:13:32.3] on this, this is one formula that is used. It's used in this industry for online businesses which is why we use it. It is not the only way to estimate the value of a business but what I would tell anybody out there that wants to look at different valuation approaches they all essentially do the same thing. Some do it more complex than others and at the end of the day, these are predictive formulas right? I'm trying to predict what's base trying to pay. So anyways on with the next line, I took us back a little bit but I did want to get in to that a little bit. So add backs-

Joe: Keep doing it I do this every day and it's simple language to me now but it is not simple, it's pretty complex.

Mark: Right okay so let's get into the seller's discretionary earnings if I'm going to Quick Books because everybody I know that's listening is using Quick Books or Xero or a professional accounting software right? Everybody's using that I'm sure nobody's using Excel. Where can I go in Quick Books to calculate or see what my seller's discretionary earnings are?

Joe: You can't.

Mark: That is not in Quick Books?

Joe: No.

Mark: What is that, what is seller's discretionary earnings?

Joe: It's your net income what you get out of Quick Books or Xero plus the add backs. That's what you call seller's discretionary earnings. So the big question is what's an add back? And this is why it took 45 minutes in the Q and A session that I did. So when you get to add backs and I'll go to the next slide here this is a lot of information but really an add back is something that is a personal benefit to the owner of the company or a one-time expense. Now there are always exceptions to the rule and you always want to use math and logic. But an example is owner payroll, if someone takes a payroll of 128,000 dollars to maximize their social security, that's an owner benefit and if your business is doing net income of 500,000 dollars, you add back 128 to that so now your discretionary earnings should be 628. Simple round numbers if you're doing 50 in net income and you take salary of 50 you're discretionary earnings becomes 100,000. And so if your multiple is 3X on the net income it's only 50, on discretionary earnings it's 300,000 big difference.

Mark: Right. So why are we adding back these expenses? Because basically what you're doing is you're going through, you're taking a look at a company's income statement or profit and loss statement and that's something that you can generate in Quick Books or Xero or any professional accounting software. And you're going through those expenses and you're looking at some and you're saying okay we're going to add…and right now this is acting as a subtracting number to the revenue and that's how it would get to net income. But you're saying we're going to actually add that expense back so effectively take it out. Why are we taking out these expenses?

Joe: They're personal in nature and they're personal benefit but you need to in your terminology taking it out you have to go with full disclosure to the buyers. They want to see every cent and so you don't go into the Quick Books accounting, you delete these personal expenses. You leave them there yet you run the report you export it to Excel and then below that net income you create an add back schedule and you go up to…okay this one's personal mail and entertainment travel or what you did a website redesign you spent 10,000 dollars three months ago. That's a one-time expense, for the most part, we could add that back. And you had an employee that did outside sales and she tried, she was only around for three months it was a 15,000 dollars expense she produced zero outside sales commissions is that an add back? We could talk about in some cases it is. But there's a lot of that today goes deep deep deep in the conversations with the owner of the business in order to get to the most important number which is a seller's discretionary earnings.

Mark: All right very good. So when we're doing these add backs what we're doing is we're taking out these expenses because we want to present it to buyers and show them what the business operates from a standard starting point. So we call these discretionary expenses and we call them discretionary expenses because their expenses that the owner is spending at their discretion could be circular about it. So how do you go about or I'm going to hand back over to you, what's the next step for going through and explaining and understanding these add backs?

Joe: Let's just give some example, some things that people brought up and I just pop something up on the screen you know question. Can I go to the gym every day? You go to the gym pretty often right? You try to get out and you might run it after your business is that a personal benefit you tell me?

Mark: Yeah.

Joe: Absolutely. So if you spend 50 dollars a month for the gym that's an add back, it's 300 dollars a year. That's a thousand dollars added to the value of your business if your multiple is over three times. Your car, your meals, and your entertainment; a big one that you and I and the entire team talked about recently was as an entrepreneur you may travel to different events. You may go to the Prosper Show that we were out in March. You may go to arket a conference. You may go to Seller Con, whatever the case might be. Can you write those things off as an add back? And we collectively said yes. Because it's a personal choice of the owner, in most cases you can learn those things online but you're going for the camaraderie and it's helping with your business in some ways but it's not a required expense that carries forward to the new owner. And that's the most important thing; it's not an expense that carries forward to a new owner.

Mark: Let's talk about that trade show example because I think that's a really good example where we can get in and show how understanding what gets added back and what doesn't get added back and be somewhat nuance. So let's take two different scenarios and start with…well we'll start with Rhodium we talked about them a bit and we like the guys in Rhodium quite a bit, it's a good community. I would go to that event just for the camaraderie and the networking alone without necessarily have any business…there's always a business interest with what we do but my main reason would be to go there for the camaraderie. Looking at Quiet Light Brokerage would that be considered an add back yes or no? Probably because we're not necessarily selling our services at that point but if we display a pub con, if we get a booth display there, we're making out to contacts would you consider that an add back?

Joe: Well let me tell you, let me correct you if you will on Rhodium. When we go to Rhodium and we are sponsoring the event, so it's an expense to us, we stay in hotels, we have meals, we have entertainment, and we produce revenue from it because we build relationships with those people who then come to us to list the business for sale; and that produces revenue. So when you've got an expense that produces revenue it's not an add back; simple as that. But an example of someone going to Rhodium…a real example, someone went to Rhodium recently and her husband decided to go as well, didn't go to the events but was there and then they stayed an extra week and called that their honeymoon. Went on a helicopter ride that…all sorts of different things and it was a complete business expense and write off. Absolutely a write off, she can't tie a revenue to that expense. So it's an add back. There's always math and logic with these, sometimes the buyers are not going to see it the same exact way that the seller or the broker will see it but we don't push them. It's got to be crystal clear because and full disclosure because once you're under [inaudible 00:21:01.9] we don't want any surprises. An example that is not an add back that someone brought up they said well I'm using an ad agency to do all my Facebook advertising and I pay them 15% and I spend [inaudible 00:21:14.4] a thousand dollars a month. That's 150 dollars a month expense. I'd like to add that back because my logic is if the new owner has those…that experience that doesn't need that ad agency then they're not going to have the expense so it doesn't carry forward right? Well, no it's an expense that that ad agency spends money, it produces revenue, you can't…it's a big leap of math and logic. We don't know if that particular buyer has that experience or not. If they do, good for them it's a savings on their part but we can't add it back assuming everybody has that experience. Makes sense?

Mark: Yeah absolutely. I think there's a common sense factor here and that is what we want to do is we want to look at the expenses that have been used for the normal operations of the business, so expenses that's been used for normal operations they stay. The elements that are outside of normal operations of the business those are the ones that are typically going to be added back, so personal benefits, those one-time expenses that'll be outside of normal operations because it's…it is part of normal operations but it's such a rare occurrence. We want to show buyers what's their expected ROI from this business if they were to acquire it. And so you can't…you have to have a common starting around and that's where you end up getting into the add backs and taking out those discretionary expenses.

Joe: Yeah. Let's talk about one more sort of not black and white example just to talk about what you said which is common sense. So I listed a business last fall and the owner of the business really literally worked five hours a week. He had a full time person doing inventory planning things of that nature customer service…doing inventory planning and design and then he had someone that he had do customer service. That someone that he had do customer service was his brother and he paid him 30 dollars an hour for customer service work. The customer service work involved canned responses and canned responses and email canned responses in a pop up chat. He was grossly overpaid doing that kind of work, 30 dollars an hour. My advice at the time and you laughed at me and called me a Scrooge at one point [inaudible 00:23:24.5] was fire your brother. Okay, you're paying him way too much. I think the total amount that he might have been paying him was roughly 30,000 dollars a year. When in reality he was paying him too much money was paying him for hours that he didn't really work. So he should have fired his brother, hired somebody with half the cost, it made up the difference of 15,000. Let six months pass and he would have…his business when it was listed at 3 ½, so it would have 3 ½ times 15,000 dollars which would have been added to list price. He wasn't willing to be a Scrooge because that was just before the holidays. He didn't fire his brother. So we went with math and logic and we presented an adjustment in the add backs accounting for his brother going away.

Mark: Okay.

Joe: It wasn't ideal, it was a little gray but the math and the logic made sense and it worked. We had multiple offers under LOI closed with no issues with that add back mostly because it was right there in black and white and detail that talked about prior to the LOI.

Mark: Right. So it does work the other way as well too. I've actually had the opposite scenario where somebody had a bunch of friends and family helping out in their business and they were grossly underpaid because they were doing favors. And he was like the Uncle Vido or someone like that was doing the books for almost no money whatsoever. And in that case would go the other direction and we would actually inject a cost into that P and L that will basically say hey they're here in a sweet heart rate that's not going to continue we need to see what this role is important but necessary and here's a pretty reasonable market rate for math and logic once again.

Joe: Yeah, it's math and logic in there as well. Okay, I have a look at our time here Mark and where we are but a really really important thing for physical product owners is in the valuation of the business is the thing that put me to sleep in college. Literally, I fell asleep in the classroom and the new students came in and I was asleep in a classroom. It's accounting. Okay if you're driving pop a couple of no doze for this part but it is so vastly critical and this is critical for buyers and sellers. For buyers listen to this closely because if you find a broker that lists something that is growing like crazy, physical products business and they don't do accrual accounting or flipped it to accrual, you're getting that business at a discount because it should be accrual. When it's accrual the business is…it's the right way to do it first of all but the discretionary earnings is higher and the business is more valuable.

Mark: Hold on accrual? What are you talking about here…we're just doing something excel at this point. So what is accrual and why is it so important?

Joe: You're selling a widget, so let's say you're selling a widget for 10 dollars and your landed cost of goods sold on that widget is two dollars, 20% landed at your 3PL at your Amazon FDA. That's a cost of goods sold of 20% that…that's accrual so that when you sell that widget in the month of June that cost for that widget is applied to that month of June, so it's 20%. So your cost of goods sold…landed cost of goods sold shouldn't be roughly the same every month, month in and month out when it's accrual. If it's cash you're going to see that 20% go to 60%, 102% down to zero back up again to be all over and what it's going to look like on the bottom line discretionary earnings is that your earnings are all over the place; up and down, up and down and it's uncomfortable for buyers. The way that they look at these things and the way that we train them to look at these things is discretionary earnings and then have some working capital for inventory. When you purchase inventory moving up to 4th quarter, if you are cash basis and you're wrapping up inventory and normally you've got 50,000 dollars' worth of inventory but all of a sudden your stroking checks and you've got cash out of the 150,000 dollars that depresses your net income and your discretionary earnings and the value of your business if it's presented on a cash basis accounting. Does that make a little bit of more sense and not put you to sleep?

Mark: Yeah, that does make more sense and what I would…the way I've explained it to some people as well is that when you move to accrual basis accounting it's kind of like going from a two dimensional picture to a three dimensional picture because it looks at your business and where its value is in all places. So instead of just taking cash out when as you said your 4th quarter you're stroking checks because you've got to stock up that inventory you're expecting a busy Christmas season so you're writing all sorts of checks out. Instead of saying okay I've just lost that much value of business, no you haven't lost much value you're just taking cash and converted it over to inventory. So accrual says hey you still have value in your business because you have all those inventory, you just exchanged cash for inventory. And then when you sell that product now you recognize the expense of that individual item.

Joe: That's the key when you sell that product that's when you recognize the expense. And a good bookkeeper can set it up for you. And trust me if you spend a little bit of money a couple hundred, 300, 400 dollars a month on a good book keeper you will make that back multiple times over in the sale of your business because buyers will have more confidence. Brokers will be able to do a better valuation with less complexities and you won't pull your hair out during the valuation process. And I've seen people do that it's really-really hard to go back and do it. We do it more often than not we do it right Mark? We have to go back and flip it from cash to accrual then and I want to show you how to do that. So right now up on the screen, I've got a sample profit and loss station, a sample statement. Net income you can see there we're going to call it 425,000 dollars. Again, we've got an add back schedule below it for those listening here is some of the add backs; we've got interest expense that they had a loan, legal and professional fees for a patent for example or a trademark those are one-time expenses, meals, and entertainment, office expenses you work from home but you've got your kids' school supplies that you [inaudible 00:29:33.0] your business, your own payroll and I've got vehicle expenses here. So we take that 425,000 in net income plus the add backs on 120 and we're not at 545,000 in change in terms of discretionary earnings. So again you just say a three time multiple we added 360,000 in value to this business just for the add backs. But when you look at this gray line in the cost of goods sold the cost of goods sold as a percentage of total income goes as high as 97% and as low as 5%. It's all over the place. In the next screen, I'm going to flip it down so we know that that's cash because it's all over the place so here we flipped it from cash to accrual.

Mark: So this is the same company?

Joe: The same company this is the same exact P and L but within the Excel spreadsheet there was exported from Quick Books or Xero or in some cases produced, we've flipped the cash to accrual on the total cost of goods sold line only. We don't change those numbers in the cost of goods sold expenses the only thing that's changed is that total cost of goods sold line. You see sometimes those total doesn't add up to the individual things it's because we flipped it to accrual and we work with a formula on that. So there's more than one way to do almost anything but we work with the seller on calculating new accrual and we'll go into that in a minute but the key difference is when you look at this we went from cash to we were at 425,000 in net income right? Now we've flipped to accrual you look at that net income line that's jumped from 425 to 485,000 so we've added 60,000 dollars in discretionary earnings just by flipping it to accrual. Let me repeat that for those that are almost asleep because we're talking about accounting. By not producing any more revenue, by not hustling any harder, by not renegotiating cost of goods, by not doing anything other than good accounting we've increased the net income from 425 to 485. By you know proper accounting.

Mark: [inaudible 00:31:45.6] the question is this dishonest in any way?

Joe: No. It's the absolute right way to do it. It's standard acceptable accounting principles. The other way is the ready fire aim approach that unfortunately most of us take, me included because I didn't know any about Quick Books or accounting, I fell asleep in class, I never had a bookkeeper. This is actually the right way to do it.

Mark: All right so that [inaudible 00:32:09.8] both cash and accrual are acceptable ways of filing your taxes and doing books. That gap does recognize both, however, accrual for a product space business is going to be more accurate and more thorough and so what you're saying is that the cash basis actually undervalues the business when you record your books in cash basis.

Joe: If the business is growing rapidly absolutely because they're taking almost every expendable dollar that they have and putting it back in inventory. So an example is you know you and I talk about this valuation a lot, I had a client that went to every other brokerage firm. They really needed to sell their business because they had a house under contract contingent upon sale of their business. It was for an income they lived in New Zealand they had an Amazon US Business. They had to sell the business [inaudible 00:32:58.7] tough situation to be and a foolish situation to be in. They went to…got different valuations and every broker is trying to push that multiple high to help them achieve their goals. Too high for that 18-month old business, [inaudible 00:33:13.4] we did the proper accounting flipped, we did it in accrual. I was able to push that multiples down and other brokers like 3 ½ it was never going to happen. We were able to push it down to about 2.7 yet the value of their business was a couple hundred thousand dollars higher. So we had a higher value and a lower multiple more attractive to the seller more attractive to buyer. We had a buyer that was really good at accounting, really good entrepreneur, fully understood it, bought it, went through to do diligence, really happy. Both buyer and seller happy. So there's just huge value.

Mark: This is actually really good I guess pro tip for people buying as well. If you come across an opportunity that's now with Quiet Light because we are going to almost always be pushing our clients simply in order to accrual in pretty much every circumstance for an e-commerce business. But if you come across an opportunity as a buyer and you see cash based books for an e-commerce business, take a look at the trend of the business. If that business is growing as you point out Joe the net…then the cash basis accounting is going to undervalue the business. On the other hand, though if that business is shrinking and they are not adding new inventory, they are going to have inflated or apparently inflated margins because they've stopped by an inventory, they've stopped recording expenses and you could actually end up over paying for a business if it's on the decline. So that cash basis accounting just for a product based business it's unreliable because of the fact that it doesn't take into account when the expense of the item when it's sold and so you really have to pay attention to the other aspects of the business such as this trend.

Joe: Absolutely and you know cash basis accounting is okay for SaaS business and things that don't have accounts receivable…things of that nature. But for a physical products business accrual is the way to go. Buyers will be aware if it's cash especially as Mark said if it's declining buyers get excited. And it's growing unlike crazy as cash basis you buy it hold it for a year or two and then you do accrual based accounting and your value is instantly higher. So in this example again to move things along we've added 60,000 in discretionary earnings if by example we were at a three time multiple that's 120,000 dollars…I'm sorry 180,000 dollars added to the value of the business by not selling a single widget more. Really [inaudible 00:35:34.3] so how do you calculate accrual? It's really complicated, to be honest with you and you've got to have a good history and records to do it. Again, start with a good goalkeeper but the formula is simple beginning inventory plus purchases minus ending inventory that equals your cost of goods sold. And this should all be landed and this is ideally on a monthly basis. Now you can do it, right? If you haven't done it yet you can't do it. So what you got to do is go back in history and figure out what your cost of goods sold are with different formulations and calculations and it's different for each client that I work with. Absolutely doable I get two listings in the last two months where we had to do that and couldn't do this. I'll be honest with you most of the times we can't get to this. It's ideal if we can but more often than not we have to go with another method which is take all of those purchases take all of the shipping cost average out the shipping cost times the number of units that your shipping…it's complicated and I can't tell you exactly how it is because every situation is different. But that's the formula. The end result again when you put to accrual is a higher value. Again going back quick review before we put too many people to sleep with this your most valuable asset is more than likely your business. You should know what the value is within a certain range 10% I hope and then the question is okay I know how to calculate seller's discretionary earnings, the final thing is what kind of multiple range do I put on it? And what I've got here up on the screen is for physical products businesses and I'll talk about content businesses and SaaS businesses and so on so forth as well. So a larger business is more valuable and in what ways Mark?

Mark: Large businesses are more valuable. And at today's podcast episode that actually launched today was on that very topic is buying big better than buying small, I'll go back and [inaudible 00:37:27.9] that one fun episode. Larger businesses are more valuable because they are more stable. You have more resources available to hire out work or to reinvest in the business. So generally speaking businesses that have higher earnings and higher revenues end up getting a multiple boost just because they are more stable and have more room for or investing in and changing the format of the business.

Joe: Right and the other thing is odds are we've been around a little bit longer too or they have multiple streams of revenue balanced less…essentially they are less risky therefore they're worth more. So in the examples, I've got up on the screen and we'll talk about [inaudible 00:38:10.6] for listeners. If you have seller's discretionary earnings on a physical products business of less than 700,000 you're going to be in the 2 and I'm going to do a broad range 2 ½ to 3 ½ multiple range. So if your business is 100,000 dollars in discretionary earnings, the value big range 250 to 350 plus the landed cost of good saleable inventory on hand at the time of closing. Again as Mark said at the beginning we take all of those other factors, how many streams of revenue do you have. do you have any patents, how do you launch new products, do you have a big social media following that proves that your margins are done without discounts or advertising. All of those things come into play and could push a multiple higher or push it lower even below this 2 ½ times in the even when we do that client interview we do the valuation process, let's say that you have a patent infringement issue and it's still something that's scary and hanging out there. That might push the value down a little bit. Or if you're trends are going down that's definitely going to push the value down a little bit. So again, less than 700 in discretionary earnings 2 ½ to 3 times plus the landed cost of good saleable inventory on hand at the time of closing. When you get that bigger more valuable business with discretionary earnings that are north of 700 and again these are great numbers by the way again nothing here is in black and white but the value is going to be higher. Because it's more established, less risk that somebody is going to pay more because their money safer. That value range is going to jump instead of 2 ½ to 3 ½ you're going to go from 3 ½ to 4 ½ sometimes possibly higher.

Mark: And if anyone is listening to this a few years down the road and have dug back in the Quiet Light Podcast archives and are now listening up. Multiples do change over the years as well. So this is where the market is at today and always check with us to see where multiples are if you're listening to this at a different time.

Joe: Got it. SAS businesses. SAS businesses is in the last 12 months good ones that are trending well that have a reasonable [inaudible 00:40:14.7] and have a good handle on the metrics, I'm going to talk about that in the next episode, you're in the four to five time range. Content sites again and much of the same dollar ranges here. Content sites probably 2 ½ to 3 ½ times unless you're much larger. I've got one with multiple offers that's between four and five times because of the size of it and because of the growth. It's discretionary earnings are well north of a million dollars. Affiliate sites, same thing. The real separator here is I think the SaaS business because it's generally B2B recruiting revenue and the value is a generally higher at least felt…buyers feel as though they're worth more. Buyers are usually right no matter what Mark and I and the seller thinks. Buyers [inaudible 00:41:03.1].

Mark: And we're going to be doing another episode of talking about multiples and how do you determine the multiple of your business because that's a pretty complex valuation as well. Where there's literally dozens of factors I know I wrote a guide…I think it's on the website right now called The Ultimate Guide to Website Value. I wrote it three years ago. I think maybe four people have read the whole thing because it's long. It was around 30,000 words of all the different things that can really impact the value of a website. I should probably go back and update that because I'm sure there's some things in there that needed to be updated now, a few years later. But there are a lot of things that can influence that multiple up or down.

Joe: Let's leave the listeners with this Mark and it's something that we talked about a little bit. If you look at your own values and your own assets, anybody that's listening and you own a business, think about the different things that you own: your bank account, your retirement portfolio, your house, your car. Do you know what the values of those are plus or minus 10%? You probably do but do you know the value of your business plus or minus 10%? You probably don't. Hopefully, this podcast will help a great deal. But even with all the information we've shared you really can't figure it out until you do a proper add back schedule and do all those details. I've had calls, we've had lengthy calls with buyers, we've gone through it all and if I…yeah on my values about 850 and then we get to P and L it turns out their value is at 1.2, really important to get the details down. Get a handle on it even if you don't plan to sell the business either ever or six or 12 or 18 months down the road.

Mark: Very good well if you made it to the end of the episode here congratulations and we really appreciate you while listening in. I'd be interested in hearing feedback what do you think about episodes like this where it's Joe and I or maybe we'd bring Jason on or Chuck on again and we delve deep into some of the things that we do on a day to day basis. Are these helpful for you? Do you like them? Did I put you to sleep? Do they…are they things that you would want us to do more of? Let me know send me an email [email protected] if you absolutely hate it then email Joe at [email protected]. So anything left to…anything more to say here?

Joe: No, that's it. It's a lot of information it's a bit overwhelming and just digest it. We'll have a link to this presentation in the show notes so people can download it. You'll get a little summary video of it as well that we can share [inaudible 00:43:32.2] can go through their own process. And then one more thing I guess yes I do have something. I have a client recently that I've been talking to for 18 months and you know I said: "What's the one takeaway after all we've gone through?" And she said "More than anything else if I could convey and share something with people that are trying to understand the value of the business and might sell it is don't be afraid to talk to a broker, get a valuation, figure out those things that you need to fix so that 12, 18 months down the road, the business is more valuable and you're prepared." That's the key thing.

Mark: Absolutely we do have resources on the site, articles that break down how to do a seller's discretionary earnings calculation. We'll link to those in the podcast show notes. So if you want to get deeper and couldn't follow along everything in this episode there are some articles that you can refer to which will be easy to follow as well. so thanks for listening and we will be talking again in a week.

Links:

PDF Version – How to Calculate the Value of Your Business

In the last six years I (Joe) have only had two people tell me that Vendor Central is a great opportunity for Amazon sellers to grow their business. The first was at IRCE in Chicago in 2015 when an ex-Amazon Vendor Central executive told me his view of Vendor Central. The next time – was on this podcast. Both opinions were very favorable! And you know…I believe them both.

If I owned an Amazon FBA business or was purchasing one, I would look very closely at Vendor Central and at least test it out with a SKU or two. That's right – you do not have to make the leap of faith with Vendor Central. At least not any more. According to our guest expert, Fahim Naim, Vendor Central is a viable option that most Seller Central sellers should consider. He openly states it is not for everyone, yet he took his first client from $4,000,000 in Q4 revenues to $16,000,000 by expanding the customer reach using the Vendor Central tools. Do I need to say more? Yes (apparently)…you do not need to be selling 4m per quarter to make Vendor Central work for you. Listen to Fahim's expert advice and make your own decision, it could be the best investment of time you have ever made.

• Hear firsthand how Fahim's Clients have done when engaging with Vendor Central.
• You don't have to make a "leap of faith" and leave Seller Central.
• If you haven't gotten an invite to Vendor Central – find your representative and contact them.
• Learn how to get more attention from a hugely overwhelmed Amazon representative.
• Vendor Central is not right for every product or seller.
• Some categories are more competitive and require higher volumes to be accepted to Vendor Central.
• Vendor Central is not just for brands…distributors can use it as well.
• "Seller Central" on steroids…that is what Vendor Central is.

• www.eshopportunity.com
• LinkedIn: https://www.linkedin.com/in/fahimnaim/
• 10 Tips When Considering Vendor Central

Mark: Joe how are you?

Joe: I'm doing great Mark. How are you, sir?

Mark: Good, good I heard you explored the depths of the mysterious Vendor Central recently?

Joe: Yeah. Listen, the good, the bad, the great Amazon sellers that we know…that we've talked to over the last decade for the vast majority they all say no way don't lose control to Vendor Central, don't do it, don't do it. When you when I went to IRCE in Chicago in 2015 I talked to somebody that was an ex-Amazon Vendor Central manager, he's the first person that ever told me that it was great and that he could double somebodies business using vendor Central and I believed him. We never reconnected afterwards; this guest today is the second one. His name is Fahim Naim, he's from…originally he was an Amazon Category Manager and he left and went and started his own company called ‎eShopportunity. And he gave me one example and this is a huge one so don't get scared away if you're doing $50,000 a month in revenue listeners. His first client he took and quadrupled the revenue in Q4 alone by using Vendor Central Tools. So he took it from 4 million dollars a quarter to 16 million by using Vendor Central.

Mark: Oh wow, a huge growth.

Joe: So that alone is reason enough to listen. And as firsthand information from somebody that's actually done it, and seen it, and uses it services and he's quite honest and open about it. It's not for everyone and it's not take a leap of faith and you no longer run Seller Central anymore. It used to be that way and I think that's why people feared it. He's got some great ideas on how to take just one skew and test it out and slowly move over and things of that nature. I'll make a whole lot of sense if I were a seller, if I were a buyer, I would very very closely at Seller Central.

Mark: Fantastic. Well, I can't wait to get into this before we get into the episode though I'm going to make a public plea to the listeners out there. I want to know what conferences you guys go to because we like to go to conferences. We'd like to meet you so send me an e-mail at [email protected] with your favorite conferences to go to throughout the year and I know that's completely unrelated to what we were just talking about but you mentioned the IRCE and it just sort of triggered that. All right with that, I'm actually anxious to hear this because like you I've heard the same sort of feedback from most Amazon Sellers. They're saying no way, I don't want to do it but it's really hard to ignore quadrupling revenues by jumping over there so let's get into the episode and hear what he has to say.

Joe: Hey folks it's Joe with Quiet Light Brokerage and today I've got Fahim Naim with me on the call today. How are you Fahim?

Fahim: Wonderful how about yourself?

Joe: I'm doing good man. Welcome to Quiet Light Podcast. Listen, you've got a ton of experience from being at Amazon as a Category Manager and now running eShopportunity I was going to try to do the intro and talk about you a little bit but I just want to make sure it's done right. So if you could brag about yourself a little bit, tell everybody that's listening about your experience in e-commerce world, then Amazon, and now at eShopportunity that.

Fahim: Wonderful. I was previously a Category Manager at Amazon, managed one of largest category at Amazon retail, managed a team of vendor managers, and one of the categories in Consumer Electronics, super sexy stuff like computer components and portfolios and things that are going to computers; very exhilarating as you can tell.

Joe: That's exciting, yes.

Fahim: All jokes aside it was tons of fun, it was over a half billion dollar business, they booked to double the size of my category while I was at Amazon even though the market was flat. Had a fantastic time but ultimately made the decision to leave and start my own venture. I started eShopportunity about a few years back, we wanted to help companies grow and be on the other side of the table of some of those conversations that happened at Amazon. Started off with one initial brand, hard time, we grew his Q4 business from four million dollars to 17 million dollars that year eventhough he's been set in declining he was excited, introduced me to a couple of other brands, I started tailing the team and I guess fast forward about three years we've worked with over a hundred brands to date. Some fortune 500 brands, some brands we've seen a shark tank, a bunch of startups and companies in between. Either brands that had been on Amazon for a while but really wanted to take it to the next level. Brands that have had successful businesses off of Amazon and finally wanted to launch on Amazon or a [inaudible 0:05:06.5] of the type.

Joe: That's an impressive resume. You took somebody from four million to 17 million and he was only excited? I would think it'd be ecstatic.

Fahim: He was probably more excited when we went on the phone. I think he did a good job keeping his poker face that I'd imagine based out of his expectations when we started he threw a pie in the sky number saying if you help me go to twenty million this quarter that would be beyond real and I was pretty angry that we fell just short of it. So my take is probably a little bit different than his. I was hoping that we could get to 20 and again his Q4 business the previous year was maybe…it was about flat to where he was that year so it was a…he had some phenomenal growth and the good news is that after I checked in whenever the project concluded the business had continued to grow. So I think a lot of Amazon is how do you start the right foundation, how do you get the things clicking, and then organically if you're doing the right things and you [inaudible 0:06:07.9] screwing up which is probably easier said than done you see that your business continues to scale which is obviously great for the business owner's standpoint.

Joe: Right. Now you mentioned you manage a team of vendors and Mark and I talked in the intro about Vendor Central, you and I are here to talk today mostly about Vendor Central and your expertise in that area and why some people should start paying attention to it. As I told you I don't think I've talked to a single Amazon seller that has a seller account whether they're doing fifty thousand a month or a million or two or three or four million dollars a month in revenue, they all say there's no way I'm giving up control to Vendor Central, absolutely not and there's a huge paranoia about it. The only time I've ever heard that is a good thing is from you and from someone else that I met at IRCE in 2015. Tell us if you will with the basics what's the difference between Seller Central and Vendor Central and then let's get in to the details of Vendor Central and who's a good candidate for it and how you can help somebody grow their business by using it or how anybody that chooses to use it can use the cheat sheet that you and I have talked about that we're going to share in the notes and to go ahead and do it themselves if they want to go that route, the difference between the two as well.

Fahim: Well first off, Vendor Central is often treated as a red-headed stepchild, people not very optimistic based off of what they've heard in the seller communities especially. I'm in the forums, at speaker conferences, I do a fair amount of publishing and I've similarly heard a couple of things. One is I think that's a misinformation that hopefully we will dispel at least a certain degree in just doing this podcast and some of it is probably warranted. I think the decision between Seller Central and Vendor Central depends so much on the specific details of that brand that anybody who says hands down this platform is better than that platform is probably doing you a disservice in that Seller Central certainly has some benefits, Vendor Central has some benefits. Back to the matter as most of the largest brands or the businesses that are doing the most amount of volume on Amazon all have Vendor Central. It seems to be working for people that are growing very quickly and have larger business. Yes there's probably some bias on it that a lot of those are large companies anyways and are Fortune 500 brands that sell across the board but I can't tell you the number of times we've taken a brand and got their business from a let's say a couple of hundred thousand, two or three hundred thousand dollars on Seller Central per month and got that business grow up three or four X when they made the transition to Vendor Central when all things align. Things don't always align and again we delve with the details and we'd get to that but there is certainly an opportunity. If you want to scale your business and become a five, 10, 15, 20 million dollar brand on Amazon and more, Vendor Central offers you a set of tools that are much tougher to get to than Seller Central or possibly not even available to Seller Central. So to answer your question more specifically, Seller Central you do have more control, direct control of the pricing and inventory. Seller Central they're starting to open up some of the things that used to be available just to vendors, things like A+ Content like me deals, catch deals. headline search, so certainly this becomes this a little more parity to come into the seller part [inaudible 0:09:29.8] but when you sell your products directly to Amazon Wholesale, a couple of things, one is it's not you sell it to Amazon and then take care of the rest of it. It's very similar to Seller Central in that you get a tool kit that you can use to grow your business but it's not Amazon's going to optimize your pages, Amazon's gonna run all these ads for you, Amazon's gonna give you higher search results and check out what the right pricing is for you and run promotions by themselves etcetera. Vendor Central is very similar to Seller Central in that it's how much you put in to it and you have access to tools in Vendor Central in many cases that you may not have access to on Seller Central. For example, let's talk about deals, lightning deals on Seller Central are recommended only and even that just we can't go build on the last year to; at the Vendor, you can submit a proposal. It doesn't mean it will always get approved but you can submit and be a lot more proactive on lightning deal on Vendor Central. There is something called Best Deals which most people on Seller Central don't have access to unless you have an account manager that's idea that you show up on Today's Deals Page which is the most popular page on Amazon after the homepage. And you can run a deal for up to two to even four weeks but they with less aggressive discount at the Lightning Deal. In many cases, Best Deals has been phenomenal for [inaudible 0:10:47.8] that's another option. Coupons just became available to Seller Central until a couple of months ago that had been a popular program that many vendors have utilized for a long time. Subscribe and Save Again started on Vendor Central before it became available on Seller Central. Programs like Amazon Prime Now, Amazon Fresh, Prime Pantry are primarily not exclusively focused on Vendor facing brands so that's another example. If you want to be on the homepage of the furniture page on Amazon to be…go to navigations click on Amazon Furniture Amazon Computers Components and Peripherals and there's a lot of people that search for products that way, most of those placements are available for vendors only. If you want to be on Gift Guide and Amazon has done a great job over the last couple of years holding some excitement over this idea of having a holiday gift guide we can browse through products. Because Amazon obviously has been a great place to shop if you know what you want, it hasn't been ideal if you want to browse for things and Amazon has [inaudible 0:11:46.8] most if not all the brands in many of the gift guides or vendor. So again there is a unique set of tools that vendors have of or have access to. That set is certainly not all rosy; things get a lot more complicated. You have a little bit less direct control on inventory, you get a weekly purchase sorted that Amazon cuts every week and that's the amount that you can send tens and more. You could send less although that's probably not a good idea unless you don't have inventory- [crosstalk]

Joe: So you…holding on right there in terms of that inventory because as I know as people are listening to us they've probably written down twenty questions there hoping I asked. Let's just talk about that inventory for a minute. So many Amazon Seller Central folks send money to inventory directly from their manufacturer to Amazon, in this case do Vendor Central folks have to have a 3PL where they store the inventory in between and ship on a regular basis?

Fahim: That's what most people do. There are some variants where you can get around that. Amazon and on the Vendor Central site has a direct import program where you can import all of your inventory likely from Asia directly to Amazon. Not the easiest thing to work with setup to be transcribed but certainly exists and I know some brands that have done well with that. I think the vast majority of brands on Vendor Central either have their own 3PL or use a separate 3PL to fulfill those orders. And in some cases, you could do a little bit of both. You can have some inventory and multiple warehouses and you get PO's from different warehouses and you have to send it to different places. So there is some level of flexibility although it tends to get a lot more complicated on how this passes works in Seller Central. Seller Central, I want to send 500 units I go on create a shipment, it will tell me what [inaudible 0:13:33.3] I want to use, I even have the option in inventory placement service dependent to just [inaudible 0:13:37.8] and I'm done. And then Amazon manages all the interactive shipments, Vendor Central doesn't-

Joe: [inaudible 0:13:43.2] for [inaudible 0:13:44.0] center right?

Fahim: Correct. On the Vendor Central-

Joe: [inaudible 0:13:47.2]

Fahim: Yes, no that's good. Stop me because I live in acronym words so if you will-

Joe: Okay.

Fahim: It's good to get clarity. On Vendor Central when you get a weekly Purchase Order or PO they can have you send it to eight or nine [inaudible 0:14:03.0] but sometimes less, sometimes more. So the process again works all over differently, for some brand that's not a big deal and for some brands that's probably a little bit more complex and they want to be…especially early on in the lifecycle of the business.

Joe: Okay, so you just used the word brands this is in assumption maybe everybody already knows this or is thinking this that Vendor Central is really for brands, not resellers simple?

Fahim: Yes or no, I think primarily most of the brand…most of the companies that are on their own brands. There are a good number of distributors that also have Vendor Central accounts. Some of the largest, most of the large distributors or many of the large distributors have Vendor Central accounts and they supply directly at Amazon. And even if you are a brand meaning manufacturer and you sell to Amazon, if Amazon consorts your product cheaper to a distributor they'll buy from the distributor in many cases. And that sometimes business pisses off brands but yes you…it could be either in the context of a lot of things I'm talking about I'm probably talking more down the brand manufacturer route but you, to answer your question you could be a distributor and have a Vendor Central account and you could be the company that's been selling Purchase Orders from a variety of different brands or distributor. I know some distributors that are doing 10, 20, 30 different vendors, different selling inventories for 10, 20, 30 different vendors-

Joe: Okay.

Fahim: That are not exactly their brand.

Joe: Well the fear that I think a lot of the brand owners have that I speak with is that they lose control and going back to that you mentioned it they don't lose control. They still have control, they can…can they write their copy? Can they work on their keywords? Can they send organic traffic to it? Can they…and then do all of those discounts and promotions you talked about as well is it essentially Seller Central on steroids where they've just got access to more things?

Fahim: I like that. I like the Seller Central on steroids, I'm [inaudible 0:15:58.2]. Yes, it's…I would argue, you probably have more control on Vendor Central than Seller Central. [inaudible 0:16:04.0] common that very often even if you're a brand registered on Seller Central, I hear it all the time brands say somebody changed my copy, somebody changed my picture, somebody changed my variation, even if you are the brand owner and you're on Seller Central there's a brand hierarchy in terms of who owns [inaudible 0:16:20.9] page edits and at the top of the list is vendors. So anybody who has an Amazon Vendor Central account has ultimate [inaudible 0:16:28.4] goes on. Even if you are the brand owner and you have a Seller Central account and you have brand registry but the distributor is selling that to Amazon and they have a vendor account, they actually have ownership over that page copy. In most cases over the brand that's on Seller Central. So I'd say you can change titles, you can change bullets, you can update images, it actually works much easier on Vendor Central than Seller Central. At Seller Central sometimes doing things like variations could be fairly complex with Vendor Central it could be as easy as a ticket and somebody would do it for you. Images similarly the turnaround time of Vendor Central is pretty good but ultimately up to you have at least as much control probably more control over your page copy, and content, and landing on Vendor Central than Seller Central.

Joe: And then all of the other things that Seller Central folks do whether it's striving outside traffic, keyword optimization, discounts, reviews, YouTube social media reviewers that are talking about and driving traffic to that Amazon page they can do the same thing it's just an Amazon vendor page correct?

Fahim: Correct. You can do all that and to the average customer, they can't tell the difference of a vendor and reseller.

Joe: Okay.

Fahim: Most people don't even realize it so yes it works the same way. You can send X number of traffic, you can run discounts, you can run promotions, all of the same-

Joe: Okay.

Fahim: As both cases the same way at Seller Central.

Joe: Is…I mean we've got people that you know if they're doing a million dollars a month and running a lifestyle business meaning they've got some VA's and they work from home part time they don't want to really risk very much. There's no sense in going I'm going to just lose that million a month and I'm going to jump into Vendor Central. Tell us about if they're doing Seller Central what the leap is from Seller Central to Vendor Central? So they have to shut down the Seller account and then open Vendor or can they have both running simultaneously, is it a one way street? Talk to us from that perspective as if you were that guy running a lifestyle business making a million dollars in revenue on a monthly basis.

Fahim: A couple of things, if I were running a lifestyle business and I was happy at my current run rate and didn't want to…if I was more risk averse I'd potentially keep it as is. If I wanted to grow that business and take it to next level I think Vendor Central becomes a lot more interesting.

Joe: What's the risk part in terms of Vendor versus Seller? You said risk-

Fahim: Well you know-

Joe: More riskier?

Fahim: Yeah if you're risk averse you already know what to expect, you know how to manage everything as the current process that takes on Seller Central. When you transition to Vendor things change. Typically for the better if everything aligns. But the way pricing works changes, the way pricing should work certainly changes, the way inventory fulfillment work changes etcetera, etcetera. At the end of the day once you get on boarded and in most cases not all cases but in most cases you do a good job in negotiating with your inventory manager which we'll talk about a couple seconds but imagine on your terms and you are not paying that net much more on Vendor Central than Seller Central I think there's a little bit less [inaudible 0:19:35.3]. If you are going into a category where your net margin expectations from Amazon is severely higher on Vendor Central than Seller Central there could be some risk that at the same amount of volume Amazon is taking a bigger cut of that. So I think there are some nuances but I think the risk is the unknown and it's a new process and you have to manage that.

Joe: And do you have to shut down your Seller account or to open the Vendor Central obviously that it's not you lose days or weeks of revenue, I would assume that its very seamless.

Fahm: It's semi-seamless. Amazon has changed their stance on this on the last couple of years. A couple of years ago it [inaudible 0:20:14.6] have both a Vendor and Seller Central account. And in many categories now and the Vendor Manager technically has the ability to shut down your Seller Central account if they want to. If you were doing anything to really damage your Vendor Central business, there's officially a clause that says if you sale wholesale and you have a Vendor account that they can shut down your Seller Central account. I actually haven't seen that happen although I've seen some threats but that exists for a couple of good reasons. In the last couple of years, Vendor Managers and teams at Amazon have been a lot more open to the idea of having both but being strategic about it. The idea is the Vendor Manager owns the retail or what they would call the retail part of the [inaudible 0:20:54.5] and Seller Central is almost a competitor to that Vendor Manager. And they do that to keep more competition on the platform so better for that costumer at the end of the day. So the Vendor Manager doesn't get a lot of benefit when you have a Seller Central account. If you're competing on the same skew and you have lower prices on your Seller Central it actually hurts this plus on the metrics, they're out of stock, their loss by box, a bunch of their metrics or sales are going to be a lot lower here. What many brands do today, they do which…a little bit more strategically with is I'm gonna have both the Vendor and the Seller Central account, I'm going to do some skews on Vendor Central to start. I'm gonna keep some skews on Seller Central to start and see how that process goes. Depending on how close that brand is with the Vendor Manager that person may push to get more and more of the catalog from Seller Central to Vendor Central. But think of it as like you're negotiating with a buyer at Walmart, or Best Buy, or Target, there is a lot of negotiation that goes back and forth. So maybe you decide that it's not a good idea to transition your entire catalog or maybe things are going so well and you want to everything overnight. I think that's where it's a very personal decision. For many brands the way they started, they open a Vendor Central account, get a couple of skews on Vendor Central, get used to the process and things work a little differently. One thing we should mention is pricing because a lot of people worry and I hear this misconception a lot that Amazon will lower your prices and you lose control of it. It's not really true, and what Amazon's pricing and there's certain things that I'm allowed to say and not allowed to say. Ultimately, Amazon [inaudible 0:22:23.6] in a game of let's proactively lower your price so we can sell more inventory and create a price war in the market. That's not Amazon's idea, that's actually what a ton of other retailers do and I can tell you firsthand many of the big box retailers like to put things on the go back and promotion and discount pricing. On Amazon Vendor Central if you have control over your pricing in the market, so externally and third party wise there's nobody undercutting your price, you have a lot more control on the pricing than many people think.

Joe: And most of the cases I think the people listening to this podcast, they own their brand and they do not sell it to distributors so it's not going to be an issue. They're the sole person or company selling that brand so-

Fahim: Yup.

Joe: They're going to get their wholesale price from Amazon anyway. It doesn't really matter if the Amazon decides to sell it for two dollars above they're still going to get their wholesale price from Amazon correct?

Fahim: Yes but it's a dangerous way to look at it because let's do an example. Let's say you're selling the gross sales price of [inaudible 0:23:24.6] but the price the customer pays is 20$ and I'm just making up some numbers. The price that you sell it to Amazon is 16$ net of all cost and whatnot. If you then have somebody selling your product on third party or let's say externally at Target. You have a small assortment that Target decides to lower that to 18$ or let's call it 17$, Amazon will match this 17$ likely and in your mind, you may say you know it doesn't matter Amazon paid me-

Joe: [inaudible 0:23:55.9] they're not gonna buy any from you again obviously it has to be profitable.

Fahim: Exactly.

Joe: Yeah what I was referring to is that most of the people I think listening to this podcast are not selling to Target and Walmart retail big boxes display. I really like the idea for I just want to repeat it that you don't have to take a leap of faith from Seller Central to Vendor Central. You pick a couple of skews and you test Vendor Central with that. And you talked about negotiating with Vendor Central, do you actually get to talk to a live person and have that one person as your contracted contact, your trackling? For those that are not watching this on YouTube he smiled and he looked up to the left going oh my God could I tell you some stories I think, don't but is it a human that you get to talk to or is it email?

Fahim: It depends, like with everything else it depends. There is a human that lives behind the desk that ultimately manages that and the team that manages that. It depends on if you're able to get a hold of that person. So sometimes the Vendor Manager is a lot more proactive especially for brands that have a larger business whether on Seller Central or externally and the Vendor Manager or somebody on that team reaches out and you have that direct line of contact. Sometimes people find the Vendor Manager Buyer on LinkedIn then and they start a relationship [inaudible 0:25:18.6]. That way sometimes a leverage, consultants and agents and people like myself, I get a hold of the buyer and broker a meeting and start some of those conversations, and many times the invite comes from a separate team. We get on boarded to Vendor Central and your business is not large enough in the eyes of the buyers [inaudible 0:25:38.1] you get a whole lot of time and attention. And you're often told to use Vendor Central's tools and file tickets to get answers so it does depend on the brand some of the brands that we work with…some of the larger brands or brands that more potential has better chances of getting some of that one on one relationships with the buyers. And some brands especially when they're earlier on their business isn't fully at scale form an Amazon perspective. They're often told to use Vendor Central, file tickets and try to leverage from the automated processes that exist. So it's possible but-

Joe: Let's talk about that then. Two points, number one I want to hear your top negotiating tactic with vendor Central that you want to share with people today. Number two, maybe start with number two, size wise when…how big does a brand have to be in terms of let's just say that I'm going to peel off a couple of skews again what kind of revenue does that have to be producing in Seller Central to make a difference to the point when I can actually negotiate your top negotiating tactic? So if somebody is doing 50,000 $ a month is that enough, if they're doing 25 is that enough, do they need to be doing a hundred, what's the number?

Fahim: It differs so widely by category as you can imagine. I'd say generally a lot of times I put the benchmark growth sales you want to be doing over a million dollars a year that will probably get the attention of the Vendor Manager. Again, it differs; if you're in a category, a huge consumer electronics category that number may need to be five million annual gross sales, if you're in a growing category, if you're in help and personal care, if you're in grocery, if you're in passion that number may end up being even lower than one million dollars. But I would say if you're doing less than a couple hundred thousand dollars annually on Amazon it's probably a lot of low hanging fruit to scale your business from Seller Central initially. If you're already doing north of a million plus dollars annually on Amazon then it depends on your category, it depends on your ranking and how big you are as a portion of that catalog but certainly the bigger your business the higher the likelier that you're gonna get the ear and the attention of that Vendor Manager. If you're doing some 10 million dollars annually in almost any category the Vendor Manager should not always does but should want to convert your business. Figure out how they can scale your business and they have tools again that you wouldn't have in the [inaudible 0:28:09.7]. So they really could if they wanted to help you grow that 10 million dollar business to be 15 or 20 million fairly quickly. Which is doing that on Seller Central is certainly possible but it's almost like you have one hand behind your back because you don't have access to the same set of tools.

Joe: All right tell me about the negotiating tactics you and I have talked about. You're gonna create a little cheat sheet it's in the notes for people to download in terms of top negotiating tactics with Vendor Central. Can you give me one or two that we can share with folks? And I know it's going to be…it's going to depend upon the category and all that but throw something out.

Fahim: Yeah, take them to dinner create a-

Joe: Take them to dinner?

Fahim: Yup take them to dinner or when you go to Amazon [inaudible 0:28:50.3] you want to create a relationship with that person and treat it like you are sitting from their side what do you want to hear. So it's less complaining and demanding it's more this is what I've been able to do so far I know you have the tools to help me really grow this business, I want my brand to be a big part of your business-

Joe: You're not gonna say what I tell every buyer which is just be likeable. The more likable you are the more people are going to work with you is that? I mean this is part of the secret [inaudible 0:29:17.6] likeable?

Fahim: I think that's certainly some part of it. I mean I think in the context of the conversation put yourself in their shoes again and why should they…this person literally has thousands of brands that technically fall under them. Why should they spend some time trying to invest in you? And being likeable certainly a part of it explaining why your brand has a big opportunity. Whether that's your growth rate on Amazon, whether that's things that you've done off of Amazon, whether that's new products that are coming on, whether that's quest and things that you've been able to capture externally, make them care. The more they care about it and certainly it helps if you likeable, although that's not always the case, the more that person is gonna want to invest in it. This person literally has to make a…there's not enough hours in the day for the Vendor Manager to keep everybody happy. And I know now being on both sides of the table how difficult that job can be and it can be very frustrating from a brand's perspective. But every day as a Vendor Manager you have to pick who are the 95% of people I'm going to piss off by not answering them by giving them the time of the day. Just because they have so many things going on and by creating a relationship, by understanding what they need, by taking care of the easy things yourself and not bothering them with things that you can complete by yourself by filing tickets on Vendor Central you're certainly gonna increase the chance that that person is going to invest in you. If they feel like their time on the phone with you, or in meetings, or doing annual planning meeting from Seattle, or meeting at trade show is valuable and they're actually helping you grow the business they're going to want to invest more. If most of the time you're talking to them it's about I filed this ticket and it's not working, or can you help me with this bank account issue, or I can't figure out why this [inaudible 0:31:06.8] of a thing is not working that person's again going to be stretched up and the answer is probably going to be file a ticket, reach out to somebody on Vendor Central anyway. So I think the more you can keep the picture on the long term and understand there's going to be some bumps along the road the better the chances that that buyer is going to want to invest in this relationship. So nothing, no silver bullet except for be likable, think about long term, think about it from that person's perspective.

Joe: Got it, geographically where are you located?

Fahim: In San Francisco and I spend my time in Texas as well. But between San Francisco and Texas.

Joe: And the vendors, the Vendor Central Managers are they all up in Seattle, are they located around the country, where are they?

Fahim: For the most part, most of the Vendor Managers are in Seattle yup.

Joe: Okay and if someone wants to learn the basics of Vendor Central to make sure that they're understanding it as much as they can, is vendor Central on Amazon.com? The best resource and knowledge base to learn the basics out there or is there another resource that you'd suggest?

Fahim: Vendor, so there's certainly less and this is a little bit frustrating I think for brands, there's less information about Vendor Central than there is for Seller Central externally, there is lot of tutorials, there's a lot of training, there's a lot of information, there's Seller Central's forums etcetera that exists for Seller Central and not a lot for Vendor Central. There is a lot of information on Vendor Central if you get an invite. The help section has tons and tons of guides probably not [inaudible 0:32:33.5] to go through all the different guides. So it's a little bit [inaudible 0:32:36.0] by fire. I would certainly spend a little bit more time on the operations and figuring out how inventory management works and if you want EDI support and what that looks like and managing that part of the process early on and getting a feel for it. There are some pretty good documents on Vendor Central again but they're pretty long and exhausting. So I think you have to scour Vendor Central support, talk to other brands that are on Vendor Central potentially, pop in to the Vendor Manager and kind of just learn by doing. The good news is that you-

Joe: Sounds like there's a [inaudible 0:33:11.0] in the making here. Somebody should be creating [inaudible 0:33:13.7] and teaching Vendor Central.

Fahim: Yup.

Joe: And you and I get a royalty for that right? Now it's just an idea.

Fahim: I like the idea.

Joe: It's just an idea. Now, okay this is just a theory but I want to hear what you would say and this is really not just for sellers but it's for buyers of Amazon businesses. We're running short on time so I'm gonna just say I'm launching a listing this is all theory quote unquote for air quotes for those not watching, it's going out next week, the brand has been around for about three years growing quite rapidly, there's 12 skews and 60 variations doing about 1.3 million dollars in revenue in the trailing 12 months and there is a design patent on the product as well; Seller Central only. I'm going to come to you or I'm going to try to figure out Vendor Central myself. It's in a category of well I can't really say what it's in but it's not in a massive category with tons and tons competition. It's just something that you'd look at me if we were having a beer right now you'd say, Joe, you're nuts not to look at Vendor Central.

Fahim: Potentially I think you could I mean within your interest to evaluate it. So maybe you're nuts if you're not thinking about it and evaluate it. Not necessarily that it's the right decision but you need to start doing your homework to figure out if it is. And the interesting thing is it may not be right now, it may be next year or maybe six months from now. But I think if you'd simply wrote it off and say it's too complicated I don't want to do it then I'll tell you're nuts. If you said I looked at it here's the pros here's the cons, ultimately Seller Central makes a lot more sense then I think you're doing exactly what you should do.

Joe: What's the first step in evaluating it?

Fahim: Getting the invite. So Vendor Express used to exist and fortunately that platform is retiring in this month. It was the idea that you can sign up…anybody can sign up to be a vendor on Amazon through this Vendor Express platform and you get a lot of the same tools, not everything, but a lot of the same tools with Vendor Central. Vendor Central is an invite only platform so you need to get invite from somebody at Amazon. Whether that's your category manager or there's a selection team or somebody who lives within that retail team. So it's tough to get a lot of information until you actually get that invite because when it comes down to look to your total margin, and what is this going to look like, what's your payment terms, you don't get that information until you get the invite. So I'll tell you the first step is starting to figure out who your Vendor Manager is and starting to have some conversation. Before that I think you could probably do some level of research and see other brands in your category; how many of them are vendors, how many of them are sellers. If you are continuously being ranked in the top 20 but never in the top 10 for your category look at…you should be looking at who those top 20 are on a regular basis, what are the brands, what are the skews, what are they doing that you're not doing. And if you find that 80% of them seem to be vendors and they have access to much better A+ content than you have and videos and they're all over holiday gift guides and you see them all over Today's Deal page, and they're getting Deals of the Day, and they're on Amazon Prime or Fresh and what not then I'd certainly be keeping that at mind. If you look at the list and say nobody's doing any of that everybody has the same tools as me, maybe you come out and say I'm not getting hurt or maybe you'd say there is an opportunity just for the go. So I get…prior to getting the invite and having a conversation certainly wanting to understand what you're dynamics are. I've seen categories like luxury beauty for example, where the vast majority of brands [inaudible 0:36:40.0] are vendors. And again it's because of a variety of different tools that they have access to that are not on the Sellers Central side. So in that category if you're a brand that wanted to do north of a million or two million dollars a year I would probably very heavily consider Vendor Central and start looking into the process of figuring out who the buyer is and what can I offer and how do I get a hold of them and what would this look like for example. So I think unfortunately there's not a whole lot of prep and information out there on exactly what your margins and your…would be ahead of time and some of those other details and how much inventory they're going to order or anything like that until you actually get the invite so just the first process is research, second process is find out who the Vendor Manager is, where you could get an invite off.

Joe: Yeah if you can find out who your Vendor Manager is through LinkedIn or however you might be able to strike up communications and get that invite if need be. This may be a simple question but how do I look at Amazon and find a competitor and tell if they're Seller Central or Vendor Central, is there an obvious way?

Fahim: So if you're going through a listing and you look under the price there's three different options that you'll see one of them for ships from and sold by Amazon.com, one of them will say sold by ABC and fulfilled by Amazon.com, and the third one will say ships from and sold by ABC.com.

Joe: Gotcha.

Fahim: The third one which says ships from and sold is a seller who is also doing their own fulfillment, most cases are not Prime eligible unless they're [inaudible 0:38:09.8] prime. The second option when it says sold by ABC.com and fulfilled by Amazon means they're a seller that's [inaudible 0:38:17.7]. And the first one that says ships from and sold by Amazon.com means that Amazon is buying that. In most cases that means that brand has a Vendor Central account but again there could be a case where the brand actually doesn't sell to Amazon but a distributor does. But either way that is what they would call retail or Vendor Inventory is a ships from and sold by Amazon.com. And a final tidbit is there's been a lot of research done that shows that it differs by category but customers have more [inaudible 0:38:49.4] when it that ships from and sold by Amazon.com and conversion could be significantly higher even than an FBA listing. Certainly, both a retail and FBA listing would have higher conversion than something that's not Prime eligible than something that's not SFP but in some categories I've heard the conversion could be 30-50% higher, all else equal for something that's been shipped from and sold by Amazon.com. Not all customers understand the difference but people are becoming a little more savvy and if you're on the fence and you say I've never heard of this brand but if Amazon is buying it it's a little bit easier. But [inaudible 0:39:23.7] work a little bit easier because the brand doesn't even need to get involved. I can just reach out to Amazon Customer Service, sometimes that's the difference [inaudible 0:39:30.9] when somebody is making a difference.

Joe: I hadn't even thought of that conversion rate on things 30, 40% percent maybe that's just even if you divide by four and you get a 10% bump. That's a pretty big bump for a lot of people that are listening today. Well, listen Fahim you've been great, we're running out of time I know you're gonna put together a cheat sheet for negotiating with the Vendor Central, maybe you can throw in some links there for any place that people can learn about Vendor Central. You'll share some details about eShopportunity as well and how do people find you if they are listening to this now and are driving down the street and they don't want to go to the notes. How do they find you right now?

Fahim: Probably the easiest way is going on eShopportunity.com and there's a contact us form. I also do go to a bunch of conferences so oftentimes I meet and talk to brands there. I'll be at IRCE, I'm the Chairman of the Amazon conference for this year so I'll be around all day so if anybody would love to have a conversation in person that's certainly possible as well.

Joe: Fantastic. Man, you've been great I appreciate it. You've cleared up a lot of things I think a lot of people are gonna ask a lot more questions and hopefully look at Vendor Central more realistically both sellers of businesses and those that are investing in them to help take it to the next level. Appreciate your time, thank you so much.

Fahim: Absolutely. Thanks, Joe, wonderful time. Thank you.

Joe: Talk to you soon.

Thanks for listening to another episode of the Quiet Light Podcast for more resources from this episode head over to quietlightbrokerage.com. If you're enjoying the show please leave a rating and review in iTunes, this helps share the messages from the show with more business owners like you.

When it comes to buying internet businesses, is it better to buy big or buy small? Today we are chatting with Jeff Hunt of Own Optimize. Jeff has one of the largest web business portfolios we have come across here at Quiet Light. Through close to 60 transactions, he has owned a total of nearly 500 websites. These days Jeff spends his time working on his websites and educating others on how to buy internet businesses.

After a career with IBM in the services business, a move overseas led Jeff to the internet where he started a real estate website. Despite a tech background, he didn't really know anything about websites when he started out. Soon he learned that buying them was much easier than making them and started to build his portfolio. Today we talk to him all about what to focus on once a website catches your interest.

Episode Highlights:

• Start off on the right foot at the very beginning of the process.
• When buying a site, what you're really looking to buy is a quality website that you can grow and automate.
• Jeff's range of investment is typically sites valued at $50,000 and under.
• Of course Jeff experienced failure, 8 out of 10 of his sites didn't make it. He admits to being guilty of chasing too many things at once.
• Success for Jeff has come from a combination of buying and building.
• Making a smaller purchase is not always for financial reasons, it can be for a new buyer to explore whether or not they even like the business.
• When a buyer starts small they get an opportunity to learn the transaction process.
• Smaller websites can carry more risk. They may not have had enough time to grow.
• With large sites, you still have some leverage even if you come across hard times.
• Owning larger sites that garner larger revenue allow buyers to afford to hire a team.
• Before a purchase, study the heath of the business; the historical data, the ratios, and the percentages of cost that make up the total cost.
• The seller should have found the key to attracting new buyers and that knowledge can be passed onto the buyer.
• The buyer needs to really understand the business model and hone the process that the seller has achieved.

Mark: Joe, How are you?

Joe: I'm good Mark, how you doing today?

Mark: Good, good! I got to talk to another member from Rhodium Weekend, which is one of those events that we talk about a lot on this podcast, to talk to Jeff Hunt.

Joe: I know. Jeff Hunt's a good guy. I think he's bought four hundred (400) businesses in his lifetime.

Mark: Websites, a lot of these– yeah it's about forty (40) or fifty (50) transactions that he's done, so mostly some 50,000 dollar transactions.

Joe: Pause, I said four hundred (400). Am I completely wrong?

Mark: No, you're not completely wrong at all. So forty (40), fifty (50) transactions but whole of about 400 to 500 websites at all.

Joe: Okay, got it!

Mark: Yeah, can you imagine trying to manage that many sites?

Joe: Absolutely not! –trouble doing my job here at Quiet Light that is an immense amount!

Mark: Yeah, I know everyone recognizes you as a slacker.

Joe: (laughs)

Mark: So anyways, he's bought a lot of businesses, he's bought a lot of sites and he has a lot of experience on that. Now he's teaching people, he's got the website investor– the book that he wrote. And he talks about developing systems to buy sites, successfully. And he talks a lot about some of the mistakes he made along the way. What we talk about some due diligence, but also about this ongoing question: Is it better to buy small or buy big? Now what was better for you, what's– could've helped you avoid risk more and how's that changed from the years. He's got a lot of insights into due diligence that were fascinating and honestly, the interviews I've done, I kind of wish we would flip this one around because towards the interview, absolutely, really going to miss some good topics.

Joe: It's interesting that the subject of should I buy a million dollar business for– or ten– how many thousand dollar businesses always comes up. And all we can do is thought from own experience and on what other people like Jeff have done. And I think, I've had Kevin Peterson on the upsell buying portfolio SAS business as he said– I think we've quoted him that it– it takes the same amount of work to run a million dollar business as it does a hundred thousand dollar business in some cases actually takes less because it's more established. And Jeff bought forty to– 5400 smaller sites, right?

Mark: That's right. And we talked about that. I do think that running-a-large of business is often less work And I wrote an article on this, years ago, We have not been blogging for almost a year now because we've been focusing on the podcast but I did right an article on this rad. I went into the data actually to take a look at: What are the average number of hours that people are working on smaller sites versus larger sites. And what is the average number of staff and how does that correlate with revenues. Really some fascinating data in there, so excited. I got to transcend you deep dive there. So all in to that much show notes, anyone wants to do some further reading. But larger sites, they're often less work. And in some ways, that's risky because there's– you have more cash flow and we talked about that. If you have a business that's– that has twenty (20) thousand dollars of revenue and you lose a key client or you lose a key-traffic source when things get cut in half, you don't have but ten (10) thousand.

Joe: Absolutely! That's why, just to say it so people hear it that the– the multiple's evaluation on these jump when your discretionary earnings is up that million dollar mark, you're going to jump significantly in terms of the over-all value not– obviously because of numbers but because the multiple actually jumps too, from a– let's say from a three (3) to four (4) for an instance.

Mark: Yeah and I was talking to a potential client the other day who has a business who– it's multi-million dollars of revenue but the earnings are starting to have troubles and he said, "Would anyone buy this?". And I explained to him that if a business has millions of dollars in revenue, even if it's struggling from an earning stand point, yeah, that's going to really negatively affect the business but this is probably still is soluble. But if you have a business that makes five (5) or ten (10) thousand dollars a year in gross revenues and isn't making any money probably not going to be sold. An orgs couldn't be very difficult to sell for anything of value, so can newly certain size? It's just more flexibility on the part of a buyer.

Joe: Yeah! But Jeff has a different model in system and he's buying lots of smaller one's so he's doing something very, very right. Different than your blog couple of years ago, talked about so be real interesting series got to say.

Mark: Yep, let's get to it. Alright, hey Jeff! Thanks for joining me.

Jeff: Hey, it's great to be here, Mark.

Mark: I know we know each other from a mutual group that were both part of. And people who have listened to the podcast before will be familiar with this group, at least you've heard of it before, and that's Rhodium Weekend. You and I have attended it from the past some years, right?

Jeff: Yeah, love–met a lot of fantastic people–Rhodium is a good– as you know, it's a group of people either buying, or have already bought in to operate online businesses so it's kind of really unique crowd and be part of it.

Mark: Yeah, if anybody wants an introduction 0:05:43.3 let me know, I'd be more than happy and of course, Chuck will surely be able to provide that as well. Chuck Mullins who works at Quiet Light Brokerage, introduced me to Rhodium. And really– Chris had actually stopped me, but really Chuck encouraged me to go. And it's been a good investment of our time and place. It's good group and I met you there few years ago. We talked at the conference and we've seen each other at conferences since then. I think the last time we met in person was Afilias somewhat last summer.

Jeff: Yeah! That's right! And I met Chuck there I think the first time at Rhodium and I formed a number of partnerships there so it's a great group of people, it's your (0:06:22.0) way around the business that were in.

Mark: Alright! So, let's start getting into little bit in the– as our listeners know, we usually love our guests introduce themselves. So if you want just give, just kind of quick background on who you are and what you do, that'll be really helpful.

Jeff: Okay. Well, you know, I maybe one of your older guest– I don't know but if the white here kind of gets it away a little bit, I'm in my fifty's and I'm still on the website business so…

Mark: Oh, my!

Jeff: Kind of funny like the bunch together that we hangout or they're a little bit younger than I am but I give them a run through their money. I actually started out in the corporate world. Probably like a lot of people buy websites and I had a crew with IBM and I was in middle managements. I had a pretty lardge organization, people who were in to service this business. So, big companies with give us their I.T. departments to run so I had development organization, infrastructure guys, and a lot. And how to buy a budget of about twenty five (25) million dollars, at that time. It's kind of funny that even though I was kind of that technical business, I didn't know anything about the internet at all. And so my first introduction to the internet was actually I started a real estate business. So I moved overseas, left IBM, moved overseas, I started this real estate business and I realized it needed a website. And so, I kind of just dove in and I learned out to do all the websites, staff and crew website for this business. And then after that , I– you know, my eyes kind of got opened to the side of the all. Starting website really hard and so I started looking at as ways to buy them. And I started buying websites and over the last ten years I actually– I've done probably fifty (50) or sixty (60) transactions and about something like three hundred (300) websites, actually probably closed to the five now but while it does ring, big groups like networks of websites that did some more functions than those kind of things. So– Then along the way, I kind of wanted to leverage some of my assets. One of my assets was just– I have been doing this for a while and you know, having my fingers and all kinds of online businesses and different business models across all the sites. And so I wrote a book called The Website Ambassador and then I've done courses on website investing and some networking like at Rhodium and other places and stuff. I really enjoyed this– I just love– I really love almost everything about online businesses. And just the lifestyle part of it but really like the analytical part of it, the marketing component and operations component. Component is just– is just low fun. So that's my story.

Mark: So– I'm sorry, you said three hundred (300) and four hundred (400) websites in total? Maybe more?

Jeff: Yeah! Like one of my purchases is something like two hundred and fifty (250) websites that were– I can't even read the domain names. They were German and French. And there were these affiliate websites selling Amazon FiliA products and to Amazon Germany and Amazon France. And I ran with those for couple of years some of them died off and then I sold them.

Mark: Oh, okay. How in the world do you begin to even manage that many sites?

Jeff: Yeah, well–you know, that's one of the many mistakes that I've made I think in the course of my website career is buying too many and chasing too many ideas that looks really interesting like– it's probably happen to you. Maybe it hasn't happen to you though like I see these things and I think "Woah! That's a very unique business modeling and that's really cool. I like to learn more about it and pick it up. Like uncharmed by those particular sites, actually those who're kind of template sites and so there was a lot of automation. There were programs that could make the same update to, ten's, twenty. Sometimes more sites at a time. So that's how we managed them.

Mark: Okay, That makes a little bit more sense. Now when you say that you've been buying all these websites, we don't have to talk specific dollar amounts but who are we talking about larger sites, smaller sites, what's the range that you really been investing in.

Jeff: Well I've bought in– again maybe this is something I would do differently for starting over again but most of my sites for sub- fifty thousand dollars only handful of that amount, just a lot of them as like mentioned. And I've done kind of a combination of buying and then building and typically for me the cycle's ban or buy something that I don't really know that much about like I started out with Google news approved sites and merely day so I bought a dozen different news site over time but then after a while after a year or two into that, I really understood that news business borrowed so it was very easy for me to actually create my own news websites and then go from there and I've done some more things. For example Mozilla site– so one of the reasons that we buy is because were learning something, were picking up. Were kind of learning from something that's already working. And then later on if you want to add to it by building from scratch, that's kind of a logical sequence for me.

Mark: Yeah, alright, let's dive in to that topic a little bit because we get that–this question a lot from potential buyers, especially first time buyers. People that might become mean and in. They know that they want to get in to the website business or some sort of online business, they're coming from the corporate business world like you did and they might have good enough money to do a larger deal but their wonder, is that the right thing to do? And I think you might have touched a viewpoints here which might be interesting. let's talk about, specifically, let's just start with the benefits, binds small to start. You've done a lot of bind small sites and smaller sites. What were some of the big benefits that you've gotten from that and then maybe later on we can move in to some of the drawbacks from that.

Jeff: Okay, yeah! That sounds great! And one of the first things that I say when I get that question by big or small is: Whatever you buy, it needs to be a good quality so it needs to be something that's very stable no matter how big or small it is. So, kind of get to your specific question, what are the benefits of buying small, first the obvious one is that you're risking less capital and for many people, that's important, especially when they don't have that experience that leads to the confidence to something bigger. So that's kind of important. And many people are running to ask me that question and it doesn't even matter what their capacity is. Some of them have a capacity in capital to buy very very large websites, multi-million dollar websites. They still don't want to do it. They want to spend five (5) thousand or twenty five (25) thousand or something like that and the reason is because it gives them the, yeah. One of the things that they think about necessarily is they don't even know what it's like to be a website owner. So it isn't just the risk of the money but they're not even sure that they'll enjoy the– be and stay which is being the owner and upper of your website. So that's one thing that binds small can do. Kind of give them a taste, what it's like. And then secondly it gives them an exercise of the transaction process. That's as you know, the transaction process is quite different from very small sites than from a large one but at least they're going through the steps of– during the evaluation, looking, evaluating, waiting, executing a transaction, setting up the accounts, perhaps hiring the team, and all of those kinds of stuff. And then some basic things that if you've never been on the website business, you've never done before like giving hosting setup and domain ownership and some of those basic things. So that's kind of the value. And the other thing is that, whereas the dynamics and management of large versus small can be quite different some of the basics in terms of the actual business models behind the sites are actually quite similar. So the content website monetized by advertising is very similar too. Whether it's big or small. Just the mechanism and process you put around that are different. So if you're unfamiliar with the business model, you can pick up some familiarity from buying a smaller site.

Mark: So, you said that I think it's a key point here, and that is bind for education. And bind small for education is something that you've done quite a bit, in where you bought, you've learned in this industry a net shore, a style of online business. And I've been able to use that as an education, they will build your own as well. I talked to buyers a lot about their first purchase and an advice to buy smaller if they want to get that education set, understanding that, can you talk about that a little bit more how you've used buying small to be able to learn more about the nature, about the business style?

Jeff: Yeah, that's excellent accredit in general sense education and one of the ways that we educate our self is through relationships and at working and so really, the important part when you buy a site is the relationship that you have with the seller and those have been valuable to me. I meet so many really , really instructional, educational relationships, from sellers who– and that starts with setting at the relationship– setting off at the right flow with the relationship at the very very beginning on the process. But many of the sites I bought I got really good coaching, I have relationships to this day with people that I bought sites from eight (8) years ago who were entrepreneurs, they figured something out. Most– as you know, most business is fail. Very high percentage of business is fail, off line or online. And even at higher percentage of online business is fail, been off. And I think it's just because more people try at the online business but when you have any site that's been around for a while and it's kind of built up a following and so on, is one that hasn't fail or at least not yet. And so the entrepreneurs who're able to do that and figure that out, a lot of times, they know things that you want to know from them so the key thing is actually learning what has been built, what the process is, that they use to attract customers and we'll probably talk more about that later. I hope we could.

Mark: Yeah, I'll get you to talk about whatever you think will be worth talking about. I do want to talk a little bit about the differences though on bind big versus small. You mentioned in there one of the benefits to bind small is you're obviously risking what's capital. And I would completely agree with that. I mean, it's pretty obvious, if you're buying a million dollar site to buy in a ten (10) thousand dollar site, there's significantly less at stake. When I tell buyers to buy small, initially, often times I'd tell them that and say, you know, be prepared for a little bit higher risk profile. And in my experience in– feel free to disagree with this , that's in my experience buying small often comes with a little higher level of risk. I know you said you have to buy quality. What's been your experience as far as the quality businesses that you bought in this small range?

Jeff: I totally agree with you and the reason that buying small carries more risk is because most smaller websites don't have the same age. They don't have the same momentum they haven't necessarily withstood the test of time. And what that really means is, in the internet business they change really fast so new competitors enter the space, there's changes in technology, changes in software, and most importantly there's changes unlike the big players like Facebook, Google and the like. And they're making policy changes and all those things, so when you buy a smaller site, in most cases, they may be successful, cause they're flying under a radar of sorts and they haven't been around long enough to see the change from desktop to mobile or from easily making Facebook ad purchases to a more competitive environment, faced to capture all those things, so as a result, the lower in sites is almost always more risky. Now obviously, you can mitigate the risk the longer you look but sometimes it takes a really long time to find the site that's– that has true stability. That's still kind of that low end so, yeah, that's right. So my experience with that, that answers a specific question is that I've failed a lot of times. Probably, my early sites that I bought, I bet you eight (8) out of ten (10) just didn't make it. Either they didn't pay for themselves and some of them might've made almost no money, most of them made some money but not nearly what I wanted and then they kind of take her off. It's hard.

Mark: I found as well what larger sites having that extra cushion more discretionary earnings and more revenue, gives you a lot more ability to, not to make a mistake and absorb it. With the small site, if it's only generating twenty (20), thirty (30) thousand dollar per year, if it loses a major source of traffic, all of a sudden that twenty (20), thirty (30) thousand will go down to five (5). And now, all of a sudden you're questioning why I'm even doing this anymore. Where, you were as a few–you have a business's doing five hundred (500) thousand dollars a year and discretionary earnings and it gets hit hard. You're still probably making six (6) figures and have some leverage that are to be able to– may buy yourself out of this situation or fund what needs to be fixed Maybe place that better or so, there's a little bit of subordinate there. Workload as well, I mean– I've found in your website, in some sense, I found that with larger sites, sometimes that workload can actually be less because you can afford the higher people, where as with other site that's kind of on the edge. And I ran into this with my first company actually that I owned, I got it to a hundred twenty(220) thousand dollars in revenue and really I needed to hire people but I needed all the money. I was getting so– I couldn't really afford six months of that financial hit. What's been your experience with that? With dealing with casuals and maybe the freedoms that casuals would– of a large business would bring you?

Jeff: My experience is exactly what you said where– and in fact I have websites right now where I'm forced to do things that I really shouldn't be doing, I should be spending my time thinking about the strategy, looking in for competition, time plotting on a road map, and in managing people on. And some sites is just aren't making enough money for me to hire someone to do that on month you have. So that's absolutely right, that when you get that, and you know– as I mentioned I– that there were intersections and that I've done everything where I sweep the floor myself, so I kind of gone the whole gimmick and certainly when you have a team then it really freeze you up to use your mind in a different way and that's a lot of fun if that's kind of where your skills are, what you want to do. So definitely not to big advantage of buying big.

Mark: Alright, so you have done– how you told me at the beginning, I didn't worry about, how many transactions again, estimated?

Jeff: Only sixty (60).

Mark: Alright, that's a ton! I mean quite label with more or less than a thousand for ten years, that's with lots and lots of buyers and sellers. Sixty (60) percent is a lot. I'm going to put you on the spot and if you don't have an answer for this please just ignore it. I'm curious, what's one of the craziest thing that you can share that you've ran across in your process of buying sites?

Jeff: Well. you know, I've ran across more than I– there's some crazy one's I've ran cross that I haven't bought. But there's several of them, one of them that I talk about in my book is– I found this site that– I had a hard time finding out what product is sold but it was insanely profitable like nine (9) percent profit margins but it was an E-commerce site. So it was a hard physical good and when I looked into it carefully, what they were selling was a urine. Laboratory processed urine for people who're trying to pass drug tests. And so they said, after I finally understood exactly what their product was, I understood why it was hard for me to understand, because they didn't want to like, advertise it too much that they had to do it enough to be on the safe side.

Mark: There you go. One of the first clients I took on was selling poppy flowers and they were selling them for couple rearrangements, I may be naive. I had no idea that they were used for opium as well. And I had one person tell me, one buyer was like, "So are you okay with selling drugs?" I'm like, "What? What are you talking about?" Ends up, they were not, but there is people buying the poppies. At least my theory at probably buying the poppies thinking that they were buying drugs. They're probably just get stomach ache.

Jeff: Alright, well, you know, that's interesting you bring that up because it's an example of one of the subtle eficlosures and we ran into this issues a lot in this business crossly, even for sites that you would think don't really have controversy around them. We ran into this kind of things. So it's one thing that buyers should be aware of.

Mark: Let's (0:23:21.2) to that because you've got your course to write your book as well. Your course is at website investor.com? Is that right?

Jeff: Yeah, ownoptimize.com is a good place right now.

Mark: ownoptimize.com, Okay.

Jeff: Yeah!

Mark: We'll link to that in the troll notes so just go over to our website and look in the troll notes for the course, the online course. Let's talk about some of the lessons that you teach in this course. Obviously, we'll keep the best secrets for the courses. So– but, what are some of the things that you try and teach buyers who are taking your course?

Jeff: Well, one of this– I don't want to over simplify and this may just sound too simple but one of the biggest mistakes I think that new buyers make is they don't just look at the graphs. And it's amazing what this simple graphs can tell you, the direction of the traffic, and the direction of the financial, those two simple things are really, really important. And a lot of times when you look at a graph, let's say twelve (12) month graph and it's– you can kin od tell visually that it's down or gently downwards sloping, but in truth it may actually be like twelve (12) or twenty (20) percent downward sloping and if you just extrapolate that into the future– I mean, business is going to be worth nothing in just a few years and so I think people tend to have an optimistic view when they look at numbers and sometimes they realize that their businesses that are losing money overtime and they feel like the moment that they buy this site, it's going to stop losing money, it's going to start– it's going to be flat or go up from there and there's no real reason to think that. So that's kind of really simple but that's a way that you can dismiss a lot of sites unless you have really specific knowledge about why it's going down and a very specific idea about how you can turn it around. Now we can talk about that way or two because a lot of people– that's hard to really know for sure. So then you need is just to stay away from those kinds of sites so we need to look–. So overall, key thing is you look at the graphs, if it's a stable business, you're looking for a stable business because the most important thing is– I kind of teach a risk-based methodology but for valuation and also for valuation-selection websites so for me, real core thing is you're looking for the engine for customer acquisition and you can– all kinds of sites she can evaluate, usually the successful ones. The owner, the creator, has found a way to systematically attract new clients and if it's a content site and the client is website visitor or if it's a services site, a client, whatever it is. And that process–whatever the process is, it might be toasting the Facebook every day, it might be buying Google ad words, ads, it might be just content creation regimen, it might be a product launch, philosophy on Amazon like these kinds of steps, I'd choose these kinds of products, I'd brand them in this way, I'd quadrant them in this way. And the process may be –it may not be like mind blowing in terms of what it actually is, but it might just be very consistent and perhaps complex and blast. and whatever that process is, it's that– is that engine it drives the site, that's really what you're buying because if you can get your mind around it and understand what it is that they're doing that attracts these customers consistently and then you can start envisioning how you would do that yourself and perhaps, how you would scale it, how you would tweak it to enhance it, then that's kind of the whole agree, So you want a process like that but you feel like doesn't have a hauls or gas in it, like you can see why it's working and how it's working and you get your head around that then you know the business model and then if it's historically if it's a cheap pretty solid results, consistent results, there's always going to be pivoting and changing strategies and so on but you get a model like that, that's kind of what you really want to buy, to probably grow what you're trying to buy as a buyer so that's kind of a key thing and then there's all kinds of methodology around you, valuation. We look like — there's like several dozen things you can evaluate that there's content and ownership and reasons people are selling and the financials and branding, legal aspects–all, all those kinds of things that you want to look at but the core thing is that how do they get their customers and what's the risk profile on this side.

Mark: So how do you– how do you, work for– so that's really, really good advice, understanding the customer journey from beginning– from top of funnel, just awareness of the site that you're looking at down to the actual acquisition of the client. Right? How do you handle that insane environment like Amazon or were dealing with all the market places or even with– I guess with E-commerce, you do have a customer journey but have you worked much with Amazon to see how you would evaluate that?

Jeff: Well, no, I don't have a lot of very specific experience with Amazon but I can tell you that– Amazon FBA is actually a very sophisticated business because there are so many elements of it and you have to do each of them quite well, actually. That's one of those cases were it's not just a simple three (3) or four (4) silver bullets and you win. It's like the people who do Amazon FBA well, do a lot of things well. They do product selection very well. Niche selection first, product selection well, then they understand the launch process like putting the right brand on their product and giving those initial reviews. And they understand the inventory process. They don't have cash problems with having generating a man and then having nothing to sell to people. Then they have to understand the operational aspects too like how do they wants making sales, how they actually get the product out and in a good way and then servicing the customers later on and answering their questions from there, just get a review and so it's really kind– it's a complex process so the– what I just said earlier about what's the engine behind it, well in that case, the engine is, are there good SOP's, is there a good team, is there like –what's kind of the new ones that has a loud– like some people, super good at branding and they're super good at that product launch process in Amazon and so that's kind of what's giving them the edge over the competition and other people were good with analytics and numbers and ratios and shipping cost, cost of good sold to whatever they're spending on customer service and all that kind of stuff. Which that's all fine but it's kind of that it's up front-end that's probably more important in Amazons like how they're interacting with the customer.

Mark: Well this is why it's so important for pre-sellers to document their processes because a lot of this stuff is done almost from a skills like that is developed over years. Having those processes, documented, the stuff that you're doing on day-to-day basis helps buyers like you, Jeff or any of the buyers out there understand what's going on and try to sum it– that is as well. I want to go back about what you said about graphs because that really caught my attention. I–I'm with you on that. I love graphs. I think visualizing data, specifically the financial data is something people don't do enough. And I might geek out a little bit here, and save my finger craft that I used when I'm evaluating business myself, is year over year analysis that I like to look at both the revenue and to those gross profit. Definitely take a look at that if you're able to, if it's done on cruel basis. My discretionary earnings, it was a year-over-year because it soothes out some of the seasonality that you're naturally going to have in pretty much every business (0:31:12.3) has, even a little bit of seasonality. Is there a better–like a favorite approach or favorite sort of graph that you would recommend or any other piece of geo that you would look at to say, "Hey! Here's kind of a peak into the future or maybe what the drafts of help of these businesses"

Jeff: First of all, I love year-over-year analysis too when you have a business that has enough historical data out there to be able to do that, and that's really, really helpful. But in terms of adding to that, for me, one of the important things is ratios and if you have a numbers degree, whether it's finance or accounting, whatever they teach you about that. But actually it's simpler than– you don't have to learn what you do in school. What it is, is your looking for things like the percentages of the cost that make up the total cost of the product or the service and a lot of times you can find problems where, for a few months, shipping was a lot of money or cost of product or cost advertising is a lot of money and then there's–and then some of those cost drop-off where the ratio changes, the percentage change radically. And for me, those are kind of– a lot of people are afraid of financial analysis in funnels but actually, we understand that what you're looking for is kind of that stability in the business and then a little– the flags or things that changes in the ratios, changes– the peaks and valleys in the chart. And is there good explanation for those peaks and valleys. Peaks and valleys are just fine. The only concern is what are the reasons behind those peaks and valleys and sometimes, for example, sellers, so they really have– they may not have any idea why they're getting more customers or any idea why they lost customers. And the big problem with that is that when you buy the site and something happens, you're not going to be able to get those customer back if you don't know the reasons for those things. So some of the tools and things that I look at. And also just say, they kind of end in the evaluation stage and stay on in due-diligence stage. One of most important tools for new buyers is to compare different sources of information, just in the content, for example, a lot of times, you'll have analytics reports then you have your ad network reports and sometimes you have bank statements, you have taxes, you have– you actually, a lot of times have a lot of different sources for very similar information and it's important to kind of compare those sources together to see if something's missing, something's kind of wack. And it kind of really helping, so in E-commerce is same thing, where a lot of times you'll have traffic and saying why I'm getting this many sales, repay-dues and then you have shopping cart software on your website, you have merchant processors who have similar data and then whatever is in half-thing in your back account and all of those things that's lying out. So , there's actually some, pretty simple tools, once your kind of aware them to take the mystique off of what're people are a little bit concerned about when they first enter business.

Mark: Wow! there's– I kind of always restarted with this, rather than buy a big verse and buy a small sort of conversation that is a lot of details you get in to hear, but we are up against clock a little bit here. I think this idea of understanding the customer journey, understanding how they become customers, and the process they're involved there both can help any buyer understand how healthy a business is and how new was or how specialized they're going to have to be in their–works with that business but also potentially uncover some opportunities if there's leakage, for example in that customer journey wherein you're losing a lot of people at a certain step maybe they are taking advantage of cart abandonment technologies or maybe they don't have a good e-mail automation. Well these are opportunities that might be available for buyers. And then also this idea of looking at ratios; really, really solid advice.

Jeff: Yeah, the ratios– what I will do again when I'm evaluating business is I'll look at cost of good sold– gross profits were the first things I will look at. Is that ratio staying healthy because you don't want a business where that's getting squeezed up at time or at least you need to understand that. But also you compare advertising to total revenue are you having to spend more just to keep the same revenue? Or has that owner adjusted another area so maybe they're spending more but cutting back on staff–But to make the bottom line look healthy but ,maybe lying underneath there's a few issues that you have to be aware of.

Mark: I would love to sit and talk for a couple of hours because I think we could talk for a couple of hours. So, maybe what we'll do is we'll have you on again in the future and we can continue the conversation. In the meantime where can people learn more about you?

Jeff: I've a website called "HeckYeah.org" and then "OwnOptimize.com" is where I'm selling my courses right now. So those are the two places. And yes Mark, I would love to– this is one of my favorite topics really is this idea. First time buyers, second, third time buyers; what are the questions that they have, which they look for and as you said, lots of things we could talk about. We're just barely scratching the surface so I'd love to come back and talk some more about it.

Mark: Cool! Hey Jeff, thanks for coming on. Really appreciate you coming on and well, stay in touch.

Jeff: Yeah, sounds good, great. Thanks a lot for having me.

Links and Resources:

Jeff's Website

Jeff's Course

The Website Investor

Andrew Youderian is the founder of eCommerceFuel, a private community forum for six to eight figure eCommerce sites. After getting out of finance and buying and selling two eCommerce businesses, Andrew saw the need for a platform for the 7-figure eCommerce community. Looking for a space where this group of exceptional entrepreneurs could bounce ideas and information off one another, he started the website and has never looked back.

In addition to the forum, eCommerceFuel holds a live annual event, publishes a yearly "state of the merchant" report, and now hosts a job board exclusively for the eCommerce domain. We spend this episode discussing the results of their 2018 state of the merchant eCommerce report.

Episode Highlights:

• This year there were about 450 survey participants with an average store income of $2.3 million.
• Andrew shares the three big takeaways from the survey.
• Which niches are growing versus which are stagnant or shrinking, according to the survey.
• The fastest growing stores have a high component of Amazon revenue to them.
• A strategy that some bigger merchants are taking is to use Amazon as a way to help launch a brand, then taking the cash and momentum generated from Amazon to help build offline presence.
• We discuss top trends in shopping carts, email marketing, help-desks, and product reviews.
• We learn that eCommerce revenue values seem to be generally going up across the board.
• Which business models are experiencing the most growth and why dropshipping may have made a bit of a comeback last year.
• What the fastest growing eCommerce categories are among the survey takers.
• Who the favorite entrepreneur was from last year from among the top in the world.

Mark: Hey Joe, how are you?

Joe: I'm good Mark! How are you doing today?

Mark: I'm doing good, I've been busy these past week doing a few interviews.

Joe: You have? You have been slacking and then picking up that slack and doing it more yourself. Thank you!

Mark: I think anybody who's been listening to our show knows that you're not a slacking on this, but I'm just trying to play catch-up here to your three(3) episodes to everyone that I have done. But, I've been catching up this week and I'm really excited about the someone guest that we have coming up weeks. And one of the first ones is Andrew Youderian, whom we both know well from E-commerce field.

Joe: I do! You know I tell the story often. The first time I went to an E-Commerce field event was in Nashville, I think it's 3 or 4 years. but I remember saying specifically that when I got back, you know, I talked about it. I heard more intelligent E-Commerce conversation in 24 hours than I heard in previous 24 months. It's an exceptional group of entrepreneurs and they help each other on a regular basis which is incredible.

Mark: Yeah, I think, there are couple of groups out there which I have zero hesitation endorsing and have told people that they need to be a part of it. If anyone listening is in E-Commerce, E-Commerce Fuels is a private form that requires that you apply in order to get access to it, you have to have a business of a certain size to be able to get in. Some of the most intelligent that we know in the space and the most successful people that we know on the space are members of that form. It's a really, really good community. They have an event that they put on every year which is one of our favorite events to go to, all the E-Commerce feel alive. So, one of the things Andrew does every year though, because he's got all his members, you know, several hundred members who have successfully E-Commerce stores, is he surveys them and he puts together a full on report called 'State of E-Commerce' or 'State of the Merchant'. Can't remember the exact name of it. But this entire interview, he and I are talking about this report because the data in here is awesome! It's really, really cool! You get to see how fast are businesses is growing. What percentage of businesses are Amazon. We get to sift through (2.55) revenue side. What is the typical breakdown by channel. And one of the cool businesses data in the report this year was what niches are growing versus what's shrinking. For example, one of the cool things that got pointed out when we talked about a little bit is, men's clothing and accessories was among one of the fastest growing sectors. Conversely, women's clothing and accessories was one of the ones that was stagnant or declining. So, we go into, what's going on there! Lots of really cool data in that report.

Joe: Interesting! Interesting! Andrew is a super nice guy! Full of integrity and character in the whole E-Commerce Fuel Group is a reflection of him. I believe so, let's just jump to it, see what he's got to say!

Mark: Absolutely! Hey Andrew! Thanks for joining me!

Andrew: Yeah! Thanks for having me here in Mark appreciated.

Mark: Alright, you are joining me from a van obviously.

Andrew: Yeah, look like a total sketch fall hair. It's kind of a old Mobil office I have. I'm on the road with the family and when I need to do podcast or interviews or phone calls, I usually come out here coz it's little quieter. As you know, we got kids, it can be tough to do inside with kids and ah.. Yeah, so here we are!

Mark: I love it! Yeah, you're not the first guest to actually show up in the vehicle. We had Chad Annis on a while ago and he was on his RV. He's been doing it for nine months, just living the RV life for nine months. But I know you're out there, just kind of traveling around and on a vacation, so to speak, with your family, right?

Andrew: Yeah! We're just kind of doing, doing a little trip. We love to get out of Montana. You're from—you'll appreciate this. I mean you're from Minneapolis, you know the winters can be a little brutal up north. We're in Montana and trying to get out of town and get us some more climate, you know, 2-3 months, the winter and work along the way but trying to get a little more vitamin D in the body, so that's what we do.

Mark: Yeah! Our winters been super long here, my wife has told me that if it's goes on for a few more weeks, were leaving, she doesn't know where, were just going to go. Not move, were just going to go somewhere. I'm going to come home and she's just going to say, "get in the car." So, see this, you and I know each other from E-commerce feel but I'm going to let you introduce yourself to our listeners and kind of your background and what you do.

Andrew: Sure! So my background is- I'm trying to get from the beginning as brief of a story as possible at my points. Got on a school, working finance for couple of years and kind of invest in making world and learned a lot, got a lot of great experience but decided that didn't want to sell my soul to the corporate world, so quit and was looking for an opportunity to start a business and only enough, got into E-commerce, started selling CV Radios. I ran that business for a number of years, kind of two years into that. Start a second business, selling trolling motors, knowing E-commerce space, drop shipping business and couple years after that I just found that I was meeting a lot of people doing similar things that I was and it's kind of interesting very isolated, entrepreneurs in the E-commerce space. You know it'd be really cool if there was a community for these group of people so, started, it was called E-Commerce fuel which ended up evolving into a community for a high six (6) and seven (7) and eight (8) figure E-Commerce store orders. So I've since sold both of those moving E-commerce businesses. Now, my primary fulltime gig is running that community which in the ways, I try to add value in our team choice. To add value is through light events which Mark you and Quiet light has been generous enough to sponsor and support so thank you. Through live events, through a private forum that we have, kind of curated [inaudible 0:06:11.1] forum of people with experience in space and then through some proprietary software's that we've built. So that's my story and what I do.

Mark: Yeah, and for anyone that is not familiar with the E-commerce fuel and the forum they're associated with, really, really valuable. I don't anybody who's a member of that forum who doesn't consider to be one of their top resources. And the conference put up every year, it is phenomenal. We go to a lot of conferences, absolutely love E-commerce fuel. Here in the E-commerce space we have a store that's six (6), seven (7), eight (8) figures. I don't know where you are with your registrations or what you're doing for accepting your memberships but tough work in the resource.

Andrew: Well, thank you. I appreciate it.

Mark: Yeah. So every year, you do a survey of the members, performance survey of the members of your forum and it's the State of the Merchant Report. Tell me a little bit about that and how you put those report together and what it talks about.

Andrew: Yeah, so, I wanted to try to get a sense of what was happening with Merchants and that sudden figure range, 'cause you–Forbes will put up reports about, you know, the fortune five hundred (500) and you hear these stats about your target in Amazon and that's interesting but it's a very different world when you're in that kind of size business that I was in, that our members are in. And so every year, I put it together like you mentioned and just– it's a survey of about 50 questions. This last year we had about four hundred and fifty (450) people respond. The average size of the store owners responding was about two point three (2.3) million and we put together a lot of stats. Everything from— We put together everything together from: where the people are from, and what type of businesses they have , conversion rates, revenue growth, how Amazon is impacting their business, all those kind of things. So, yeah, that's the kind of the survey in a nutshell and there's kind of three big take aways that I can go into or if there's something else you wanted to talk about first , we can do that too Mark.

Mark: Yeah, so let's go onto the three big takeaways and for anyone looking at this, there's –this is freely available online, the ecommercefuel.com and we'll link to it in the show notes. And probably, I hope for a member, I'll link to them an e-mail that I'll send out people as well about this podcast, but lot's are really good data in here. So you do this every year, you pour over the data and you take a look at the– you know, what's important, what were the big takeaways for you these year?

Andrew: Yes! So the big takeaways, let's say for the last 2018, really 2017 but published 2018 was this incredibly strong year for growth for kind of that seven (7) figure store owner demographic. Revenue, year over year, revenue was up, thirty eight (38) % and only about eleven (11) % of stores didn't see any growth at all, so like last year- you know it was in it's high twenty's (20's) or twenty five (25), twenty six (26), you look at E-commerce in general it tends to grow in a twenty (20), twenty two-ish percent range. But this year was just an incredible year, really strong growth. That was one. The second thing was, was that Amazon was a driver for a lot [inaudible 0:08:57]. This isn't surprising but it's you see, how much Amazon is contributing to merchant's revenue. So, last year, the year before this, Amazon was supposed to be responsible for about twenty (20) percent of overall revenue so let's say, you know- of a someone who's near a million dollars in sales for an average store. Two hundred thousand of that would've been generated from Amazon. This year was up to twenty-eight (28) percent so this year, two hundred and eighty (280) thousands of their million dollars in revenue was coming from Amazon. So Amazon's definitely making up a bigger portion of merchant's pie. Counterpart of that though is, Amazon also is generating more headaches and complaints for people so we looked at the number of people every year who say that- you know, we ask them what their biggest challenge and struggle in their business is, and this last year, the number of people who said Amazon is the biggest struggle or one of them was to almost 3X. And this wasn't just people complaining that Amazon was killing their business, saying that they were drop-shipper and "Oh no, all my sales are dying because Amazon was stealing them" that was only a small fraction. Probably, you know, twenty (20) percent of people complaining, thus majority of them were complaining about things like Amazon's being more competitive, I'm too reliant to, I'm tired of dealing with some of their terms of service and policies or things like that. So Amazon's more up to a greyer revenue but also there's also additional overhead burden with that. And finally, the last big takeaway was that conversion rates increase dramatically across the board for all sellers. The rates were up about twenty five (25) percent- you know, year over year. So, last year conversion rate on average was at 2.10 percent this last year it jumped up to 2.664 percent, right on that range. And, you know that was, probably the most surprising step for me for the whole survey because, it's difficult enough to bump up your conversion rate by twenty (25) percent across a single site but to see that across a group of twenty (20), four hundred and fifty (450) stores on average and I thought maybe, you know maybe what we were saying was that you can be seeing more people shift to manufacturing or product labeling which tends to have a much higher conversion rate than let's say drop-shipping. But I saw that conversion rate boost across all different store types from drop-shipping to just reselling, to manufacturing and so, hard for me to explain, I kind of hypothesize that perhaps our community is getting a little bigger and merchants are maybe getting a little more advanced; the economy and the US particularly has done well this last year. Whatever the reason something back there, those were probably the three biggest takeaways that I have to work for.

Mark: Alright, so one thing that I've always found interesting about your report is the percentage of sales that Amazon takes from some of your largest stores. What are the data show–if you remember of hand, I don't know if you have the report in front of you, but what are the data show from your largest stores and how much they are actually getting from Amazon?

Andrew: Let me see here if we actually calculated that this year, so I don't think we actually– Let's see, we have– we measured a couple things, we didn't get the actual revenue from, you know, what percentage of the revenue Amazon was generated by stores that had a lot on Amazon but we did measure was kind of revenue growth for different stores if they weren't selling on Amazon, if they were selling on Amazon, or were Amazon was sixty (60) percent of their revenue. So when you break it down that way, Amazon, you know, stores aren't selling on all on Amazon, they're growing in about thirty (30) percent. Stores they're selling a little bit on Amazon, you know some of them are growing in about forty one (41) percent and stores where Amazon is, you know, makes up to sixty (60) percent plus of their revenue, they're growing at fifty one (51) percent. So, you're definitely seeing the fastest growing source, definitely have a very high component of Amazon revenue to and the same thing too for income growth, it follows kind of lock step with the income that people are seeing as well.

Mark: Right, now I'm just going to go through this here, one chart that I see is the Amazon dominance trance. Amazon as a source number channel, looks like you have twenty six (26) percent there?

Andrew: Yep, so that's twenty six (26) percent of merchants listed Amazon as their number one channel up from twenty (20) percent last year.

Mark: See, that number right there, actually is almost staring 'cause it seems like with the restore I see, it may have started flying with the website and then they move over to Amazon and Amazon took up all of the revenue. This is showing what seventy four (74) percent are still have other channel as their dominant channels or maybe they're just so diversified, What's the story behind that?

Andrew: That's good question! I think it's a lot of our members are, I would say probably three quarters of them for whatever reason don't– are not a primarily–they have a very good presence off of Amazon as well and maybe, I don't know if that's just culture or part of it's to the [inaudible 0:13:20.7] silver screening and who we kind of bring in to the community but I think that might be more of–a bias of our community as to maybe just a general market thing 'cause you see, as you said, a lot of–it's probably under what you've expect to see. So I'm not exactly sure, I think part of that might just be a demographic work community report.

Mark: I think it's fast– I think it's useful data, especially for people that have an E-commerce businesses who're think that they want to make Amazon their pear play. I've talked to a few business owners they've said wildly, "I'm going to focus my attention to-on Amazon because, it's for the money, yes, and why would I take away my other efforts from Amazon and make as much money." But it appears as if you do have a number of stores that are doing that seven (7) and eight (8) figure revenue almost, without Amazon being that dominant channel.

Andrew: yeah definitely and I think what a lot of the savvy merchants that I see in our community doing in any kind of floss and secret to Amazon is, it's hard to pass up free money and easy money and granted that Amazon's getting harder but still it's a pre-power form and conquering opportunity even in 2018. But their mindset much of the time is use Amazon as a way to help launch a brand, to help generate some cash flow and then use the momentum you can generate from Amazon, Use the cash you can generate from Amazon to help build your off Amazon, your own dot com, your own web store presence, because all fully that's the asset that you own and i's much less rescue than being be-haunt by Amazon going forward so I think that's a strategy a lot of us, as bigger merchants are taking.

Mark: That's absolutely see as well with Amazon is that launch process tends to be. You want to be testing your products and been able to launch a brand so much faster because of the size of the market place. Let's talk real quick about software. You guys have a very cool part of your community where your community rates software that they're using and it's feedbacks. So you have like a star rating. If somebody wants to find like a good shopping card or what shopping card they should use, or maybe help desk software. You guys have a whole record of software within the community that rates that, right?

Andrew: We do, yeah, and so part of it is the ratings like you mentioned another part of it, and maybe more telling is– is the usage stats. We have about a thousand members in our community and our software goes out and crawls all of our member's stores on a weekly basis and uses an integration we've built with to be able to tell what all of the members are using. So we can tell in a real time that "Oh, you know, forty four (44) percent of our members are on Shopify this year versus, you know thirty seven (37) percent last year." Whatever it is. So we can get stats on what people are using but also people– our members who rate the software as well as, with essence, what's– you know, what people like.

Mark: That's– that's pretty cool. So what software would you say is really– sum of the people should be paying attention to in 2018? What's really been growing quite a bit over the past year?

Andrew: I'd say, you know, search shopping biggest one's and that's probably become as a surprise to people but Shopify just dominates in this area, you look at that thousand-ish area in our community and I think probably about forty (40)– Four hundred and twenty (420), four hundred and thirty (430) of them succumb, you know, over forty (40) percent close to forty five (45) percent use Shopify and the number of people we've seen switch to Shopify from Magento over the last two (2)- three (3) years is just unbelievable, they've done a really good job capturing that market shares. So, on a shopping card side, that's when I'd say, the other four well kind of three that we have within the– still the merchant E-mail marketing, Mailchimp is the number one. They've got two hundred and eighty two (282) out of our top one thousand and Clivio's to seventeen of our top one thousand. So both those are kind of the leaders there. Fairly close. Help desks, we've got Zendesk- is the top to use, sixty one (61) out of a thousand use them, but help scouts pretty close behind there and they get slightly better ratings. And I would be surprised if we didn't see a flip-flop of that seen help scout come on the top over the next year. And for product reviews, Shopify parse based on the facts that people use, Shopify is reviewed, built on reviews the system has most popularly used. YAGPO used to be that number one spot but they dropped to number three (3) this last year. Partially, they got great functionality but I think a lot of the kind of experience that I've heard from stores is just their pricing is getting quite a bit more expensive. And so you see, companies like Stem Dot ayo who offers similar functionality at a much lower price might come in, they'd jump up significantly this year up to the number two (2) spot. So, those were kind of the trends I'm seeing. For disclosure we've had the Claygo sponsor of our podcast. YAGPO use to sponsor us and Shoprite sponsored us in the past.

Mark: Right so that might be infusive but I'd want to share something, cause I think you'll actually appreciate this. I'm working on a client right now and hopefully, let's say business here soon, tell me last time you heard this: He's on Yahoo! shopping card.

Andrew: Well occasionally we get somebody on the forum saying "Hey, I'm on Yahoo! stores, should I migrate or how do I migrate." It's always an entertaining thread to read. Yeah, that's– curious people laugh.

Mark: When they told me that, It's like "Woah, I haven't heard that for at least like five or six years. It used to be the gold standard that everybody used.

Andrew: Well, I think- I mean, if you look in the cell that's probably a decent positioning stand point for someone who's careful of migrations and reason. I'd still say "Hey!" but you know, I'm sure there's some incredibly converting Yahoo! store sites out there but you can probably modernize and probably get thick enough conversion, it's a rebrand, it's a nice value out of your– if you're going to buy this thing.

Mark: Yeah, that's an interesting listing, which I'm sure a lot of people will be looking at once it comes out but yeah. So , let's talk a little bit about Magento and fact that there's– I seem I heard a little bit, my only foreign in E-commerce that I wrote a blog post on this years ago but it was kind of disaster for myself. My foreign in E-commerce side, what with Magento and– My goodness, I had so much trouble with it. What do you think the problem is with Magento. Are they just losing out at Shopify or are there problems that are kind of inherent at Shopify.

Andrew. It's– I think it really depends year-use case. It's–Magento's incredibly powerful. They've got a decent eco-system for a lot of their extensions but it's just so complex. Like I've been on multiple shopping cards; Zencard, Shopify, Magento. And by far, the hardest one to customize was Magento. Even just changing layouts around on the homepage was a nightmare and I– so I think, I think the problem is, is that it's-it's very powerful but it's much more complex than your average store owners specially in the seven (7) figures is going to need. When you look at the benefit of having full customization verse's the benefit of ease of administration and up key maintenance Shopify or another Host solution just makes, just makes more sense. And I think that there, when you think about it, if you do actually need to have access to the code base to be able to fully customize your site which is definitely–there are definitely stores out there that would be able to create custom functionality, be able to put together custom integrations that you can, with maybe some hosting solutions if the IPI's would allow it. If you need a hundred percent customization there are other cards out there that maybe– a little lighter way or quite as heavy and resource intensive and hard to customize as Magento that are probably a better option for people on that seven (7) figure range.

Mark: Yeah, alright, cool. I want to go to the first point that you brought up, and that is, that revenues are up across the board from a review that you've seen, which this is something that is seen across the board as well with the business that were selling right? The business that you're selling, the values just seem going up, up, and up. And I don't know if this is a maturation or the industry just businesses that have been around longer and now are a richer skill or– really what's behind it? You make a point in your report here about– where is it? That would be the margins, the cross margins seem to hold up as well. Can you come on a little bit on the margins that you're seeing on E-commerce. I think the margins here– seen: growth margin, average of 39.2 percent and that margins of 17.4 percent. What is the trend to start with bend with that and over the past few of these revenues growing that's all same level?

Andrew: Yeah, So this is something that surprise me, with how much Amazon is growing and how, you know much it's supposed to talk about. Our margin bends this opportunity. You would expect that margins to come on with more pressure this year. What I found was that they didn't slide as much as I thought they would've. Tiny bit but not very much, like you mentioned, the growth margin was 39.2 percent I think last year was a little bit higher, like 39.7 or 8 percent so it sled like a tiny bit but not much and same on the net merchant this year it was 70.4. I think last year it was 70.8 or 9. So it came down a little bit but nearly as much as I was expecting to see and if you look at the margins of stores for selling primarily on their own platform versus that are primarily selling on Amazon. This might be interesting for people, the growth margin for people primarily signed on Amazon is thirty six (36) percent versus 40.4 percent selling by their own store. And neither I expect that because Amazon takes a fee and new work fees that pays on top for Veer store. But even when you count for all the fees and the advertising you get bend your own store versus Amazon. You're still going to set a better margin selling on your own stores 17.7 percent after all said and done versus Amazon which is 16.6 so that's kind of hell of margins broke down this year.

Mark: That's fascinating! Something that I feel being of interest with a lot of buyers is this average growth by business model and the format. So obviously with E-commerce you have a lot of different ways that you can do E-commerce and I'll get buyers sometimes say "Men, I want to buy a business." "What are you thinking of?" "E-commerce." "What type of the E-commerce?" I don't know. Okay– You have to understand like, in E-commerce there's some significant differences. Drop shipping had growth of 32.7 percent recently 27.6. I'm actually a little surprised to see more growth in the drop shipping category than in reselling category.

Andrew: I was too. I was very surprised to see that. And one of my guesses about why that was, just a guess but this last year, Shopify bought Oberlo, I believe it's that pronounced, the integrator with Ali Express. You kind of have seen a significant up taken in people using that drop shipping from China via AliExpress model this year or last eighteen (18) months and I wonder if that– part of that is a responsible fact 'cause looking back at last year's report, if I remember correctly, drop shipping was– had the lowest growth. I think our selling beat it out. So, I wonder if that is what potentially changed the tides on things.

Mark: Yeah, possible. And in all fairness you list here the percentage of stores that are also have flatten beckoning revenues and drop shipping seems to be just kind of split right down the middle here. You have thirty three (33) percent, basically growing thirty three (33) percent that are flat or declining so they're also– although they're doing okay there is a number that are also in a hurting category.

Andrew: Exactly! yeah, Exactly, about a third of drop shipping business is at either flat or in declines. So last year, again surprisingly it's–I was– seeing the numbers, having a drop shipping business myself, whether reasons I sold that business was because I saw they had wins with drop shipping, it's pretty much more difficult with Amazon and with some other forces and last year you stated, the merchant fifty (50) percent of drop shipping stores were either flat or declining. And that's come down significantly where you're only thirty three (33) percent or in that category now. So I think part of that is potentially or below, I think part of that is just an improved year. But when you look at the stores in the other categories in rough shape, either stalled out or shrinking, you'll see much smaller numbers. Any more from fifteen (15) to twenty (20) percent for all the other categories, reselling private label, manufacturing. So yeah, so definitely some stronger areas, I think still drop shipping– there is still drop shipping business I think that work well. It's just a much harder nut to crack and you really have to be able to have a good way to add value outside of the product because you're resetting commodities and come on in and sell this as well. So it's just trickier to get right at it.

Mark: Right! And I think there are some industries back with the shoverey I had into E-commerce with doing gun safes. It's going to be not very realistic to the warehouse. Gun safe in most cases once you're doing very large volumes just because the shipping cost or so, so high regardless what you're doing.

Andrew: Right.

Mark: So there are some businesses that land themselves to that. I think it should be no surprise to anybody that private label and manufacturing seem to be the biggest winners with forty three (43) and forty two (42) percent on every forty three (43) percent both the categories were growing and only twenty one (21) of fifteen (15) percent of those categories respectively were shrinking.

Andrew: just to clarify mark, that's– so for private label and manufacturing that's the actual revenue growth rate per year. So private label will be growing like forty three (43) percent and manufacturing growing in about forty two (42) percent per year.

Mark: Okay! Good! Good clarification. Fastest growing category. Is this something that we could ask all the time or what businesses are hot now? Which should I be looking for a buyer or looking to buy something? At the top of your list pet supplies which isn't a huge surprise whenever we get a business that deals with pets. Oh men, I think just flies out the shelf when I get someone with inquiries on that. But I'm well surprised about food.

Andrew: And I'll put on a disclaimer on here. We have forum of fifty people respond, you break down, let's say twenty (20) or thirty (30) categories. We do not have growth bust to this as I would love and I imagine that if we got– if we have five (5) thousand, I'm sure that this numbers might be a little bit different. Take this with a little bit of a aggression that if we didn't have–we had almost no data points, these are coming off to history businesses to come off you know. It's nine (9) or ten (10) or more businesses so-. But yeah food is on there and I've seen, and I told you, a handful of businesses doing well in the food space over the last year so, That was little surprising but yeah, definitely nonetheless. It was coming in about fifty six (56) percent year over year. And again another carry up for this is again our stores are in a small in a high six (6), seven (7) figure range a lot of them so, you probably want to see high gross rates here than you would, just across the board for any businesses but still strong show food.

Mark: Yeah! and probably one of the most eyed- piece of data that I've seen in to support in again. I'm focusing a lot on this one category because I think it's going to be interesting for a lot of our buyers. Men's clothing, thumbs up! Women's clothing, not growing as fast. Such an interesting this really.

Andrew: Yeah! I mean it's not even-it's a huge gap. Fifty three (53) percent, men's clothing and accessories versus twenty eight (28) percent in woman's clothing and accessories and I think it's– I think part of that is just you have– I mean woman's fashion, I think is more saturated, more– just traditionally. And I think you're starting to see more interesting kind of men's apparel come out. Specially direct to consumer, men's apparel and– yeah it's almost current twice as fast 'cause I just think there's more room than there is much competition. There's still, I mean your apparel, not an easy place to be in but men's versus women, I think men's probably much easier place to make money right now.

Mark: Yeah, absolutely! So, last, put them in a do with the steadily commerce– clocking pretty quickly, I think this is probably the funniest question I've seen, anybody ask on survery about your favorite entrepreneur. How did you select these four entrepreneurs. And the four that you choose likely just set anyone, let's see: Ian Moss, Richard Branson, Mark Cuban, and Jeff Basels. Some of those makes sense, how did you slot those four?

Andrew: Oh, I got to have Basels on the right 'cause he's the you know, king of E-commerce. The other, I was just trying to come up with, with four well-known billionaires, the idea of being cool, do you know what billionaire who you want to have lunch with and just top up of my head once that came to mind that were worth the billion dollars at least is Ian and kind of just came to me quickly was those four, kind of those than that.

Mark: I'm actually surprised Ian Moss by large margins.

Andrew: (laughs) You want to be the– Almost thirty (30) percent it was Richard Branson, second was twenty five (25), Cuban twenty three (23), and Basels. Surprisingly or maybe not so surprisingly given this is an E-commerce survey and– some people in here, a little help with the others as well, was Basels with 22.2 so–

Mark: I'm not surprised at all. I was really hoping back think we are can you get to it this time, so maybe we can do it at future episode, I was really hoping to talk a little bit about you're experiences on your own businesses, your own E-commerce businesses and what that was like because you self-sold, you didn't use appropriate off those and I think the first one you did– Didn't you do a public auction with that?

Andrew: First one? I did and it was kind of strange and I think you were kind enough to retouch me after that and give me some tips and talk to me about it in a real gracious way. I did it was reverse auction, so the way it worked was like I listed the site– well first it was– everything was publicly transparent as you know most of the sales that you do, fairly quiet about the financials, the instance, the data. And I– the options, I published all the financials, all the key things, there was a few things I held back that might have been easy to rip-off the business with but ninety (90) percent, for PINO balance sheet, all I can have set, I made public and– so that was one part. Second part was I do the answer, reverse auction and so the price started at a hundred and ninety to eighty five thousand dollars, and then every week would drop by ten thousand dollars until somebody decide they wanted to buy it and I had someone, I think at the first week of before evening drop, and take it up. So it was kind of a very unorthodox way to sell a business and only the first one to say I think I lacked out on getting a great buyer from the out set that we work well together and close the deal. I very much could've blown it in my face, but -yeah. A little bit different.

Mark: If somebody wants to look at that, you can do a search on Google for E-commerce fuel and sign E-commerce business. I believe it actually come up in the third results, if I'm not mistaken or we can make it easier and link up our show notes, and some one will like the post .

Andrew: Also, new link for the show notes and also if you could Google E-commerce fuel reverse auction or reverse auction "trollingmotors.net" That's the name of the business that might pop-up as well.

Mark: That's right, remember that new E-mail do you have? I mean it was completely selfish forums on my part, I just wanted to be in front of the audience so–

Andrew: (laughs)

Mark: But see you got a lot of really cool resources available in E-commerce field obviously there is a form which is you have to apply for in order to get in to say no that you're going to get high quality members there. You guys also have a job board that you release in week. I think it's so , discretion it's so often to people who buys site and who want to have fines with good confidence and help. I don't really recommend anything to people but you guys just recently started up a job org.

Andrew: We did, yeah! That something we saw was a both kind of a gap in the market and also just like you said, something our members are having a hard time with was finding a really good quality E-commerce talent. and our job award is focused on E-commerce directors or managers kind of high level. You know people they can run an entire operations for an owner as well as exceptional marketers PPC, E-mail Mark any things like that and exceptional customer service reps so people that are really good on customer service over the phone or email or chats. So that's our job board list in the positions we really focus on, and try to– try to build a community, a job board that's healthier so that when you run a store, you know where you can go to get in front of an audience of people looking for dispositions and if you're lucky to get the E-commerce world it's a great place to going to be able to find an opportunity, hopefully to get plugged in and you can actually find that at ecommercefuel.com/jobs.

Mark: you're going to owe me a lot of thanks, I'm going to send them, all on the show notes.

Andrew: , So Mark, I will happily send you as many links– [inaudible 0:32:58.6] I bet that won't be a problem.

Mark: Of course, it's been an awesome state of Merchant report, this is your second doing it, is that right?

Andrew: Second year doing it, hope to do it every year. And yeah– this is the second year.

Mark: It's also lot of work to put together but there's few things I look forward to. As one of those things I look forward to, I think there's actually really good data insights in this report. Anyway that's been invite, or anyone who's in E-commerce space in general. This is something that you want to check out for sure. If you are not familiar with the E-commerce fuel I would definitely recommend checking them out and I know I'm completely endorsing you, this is not something I normally do but I really do believe we should do in over there at E-commerce fuel. I know so many members there that they become friends of our company and personal friends as well. I like to brag about things that I think will actually help people and honestly your group is out there helping a lot of people in space.

Andrew: well thank you, I appreciate the kind words, Mark. And one thing I wanted to mention just on a say the merchant if you're a daily geek and you want the add the numbers or your smarter than me which is almost certainly the case and one plots some more insights from these, we make all of the data just openly available so you can go to the webpage for this post and download the full data set so by all means a stats measure or try to do the best I can but if you want to -if you have insights you can plot of it we do make whole data set available for people so,

Mark: Yeah! and if you pull on any insights send an email over to Andrew, just let him know. I'm sure he would love to see it.

Andrew: I'd love to hear about it, yeah , please do.

Mark: Cool, Andrew thanks, so much for coming on, I hope to have you on some time in the future. Really, really appreciate it.

Andrew: Mark, thanks for letting me, you know, the invitation and for the support that you've given the- to our fans, to our community over the years. Appreciate that as well

Mark: Cool, alright, well hey, enjoy that vacation!

Andrew: Thanks appreciate that!

Links and Resources:

eCommerceFuel

State of the Merchant 2018

Story of Andrew's first eCommerce site sale

eCommerce fuel job board