#559 - Can I Still Sell My Amazon Business in 2024?

Ever dreamt of cashing out big time on your Amazon business? Scott Deetz of the Northbound Group, an Amazon business exit expert, joins us today to unravel the strategies that could lead to a windfall sale in 2024. His expertise in the shifting sands of Amazon acquisitions is not just a beacon for those sailing towards a lucrative exit, but a lifeline for those aiming to navigate the complex seas of e-commerce business sales. Together, let’s dissect the importance of positioning your business as an alluring catch for an array of buyers, from eager individual investors to the more discerning eyes of private equity firms. Scott shares golden nuggets on how diversifying your business and sharpening your niche can amplify your business's appeal and, crucially, its final selling price.

The conversation takes a turn towards the post-sale horizon, where your involvement could sweeten the deal even more. We dive into the world of non-competes and post-sale roles, revealing how your sustained presence and niche passion might command a higher premium and ensure a smoother transition for the new owners. Moreover, Scott illuminates the strategic planning and negotiation maneuvers that can elevate your business from a standard market offering to a premium, sought-after asset. With his guidance, even the most veiled aspects of exit planning become clear, from managing the intricacies of your financials to negotiating earnouts that benefit both parties.

Wrapping up, we pivot to the ultimate goal: securing seven to eight-figure exits that transform your financial landscape. Scott's advice ranges from the practical—such as maintaining a robust product pipeline and savvy capital management—to the tactical, like understanding the fresh impact Amazon fees may have on the buyer's calculus.

In episode 559 of the Serious Sellers Podcast, Bradley and Scott discuss:

• 00:00 - Amazon Business Exit Strategies in 2024
• 05:19 - Evolution of Successful Amazon Business Exits 
• 07:07 - Maximizing Amazon Seller Exit Strategies
• 16:11 - Financial Freedom and Business Exit Strategies 
• 16:28 - Maximizing Business Exits With Strategic Planning
• 22:08 - Exit Planning and Negotiation Strategies
• 25:03 - Maximizing Business Value Through Strategic Planning
• 28:25 - Strategies for 7-8 Figure Exits
• 31:08 - Capital Strategy for Business Growth
• 34:43 - The Importance of Business Forecasting
• 36:00 - Actionable Knowledge and Contact Information

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Transcript

Bradley Sutton:

Is exiting your business just a dream now, in 2024? Are people and companies still buying Amazon businesses? Today's guest is going to talk about a deal he just helped close for an Amazon seller that got him a payday in the millions of dollars. How cool is that? Pretty cool, I think.

Bradley Sutton:

And before we get started, just a quick shout out I want you guys to make sure to check out our Helium 10 Elite program. If you want to get in private meetings with Kevin King, you want to have one-on-one calls with me and Carrie and get some exclusive help, get access to certain cool exclusive training, like the exit ticket, like we're going to talk about today, make sure to go to h10.me/Elite and find out all the benefits of this program. As a matter of fact, we've got a special workshop that we are doing in person only for Elite members in Madrid, and I was just talking to our guest today, Scott, that you know. We tried to get him to go out there, but the schedules couldn't make it. But we'll have to get you out to one of these Elite workshops soon. Scott huh?

Scott:

Sounds great Absolutely.

Bradley Sutton:

Might not be in Madrid, though, like that's kind of like a one-time thing. We'll have to pick one of your other bucket list places. But anyway, Scott, you know you've been on the podcast a few times. You know you're one of the world's most known experts as far as how to exit your Amazon business and setting up. You know your company for exit, but in case you know, this might be one of the somebody's first episode listening to you, just maybe a little bit of brief background on your self-introduction.

Scott:

Yeah, so no, happy to be back here again. I got my start. I've been an entrepreneur all my life and I completed my first exit. It was a software technology company. A little over 20 years now. I tried to do it myself and I actually screwed it up, and then I met my mentor, who was an investment banker, which is another name for a broker. He helped us exit and the short version is he got more than three times the price that I would have gotten on my own, and when that check cleared, I recognized that I needed to pay it forward, so to speak, and spend a lot of my time in my life helping entrepreneurs get what they deserve out of their company. So, I've been doing that ever since, after taking some time off, and then I found Amazon 2013. Just really at the beginning of the sort of FBA journey, started up Northbound Group, which is the investment banking firm that I co-founded in 2016. And essentially, the purpose was to help anybody that was either a physical good seller, like a Helium 10 client, or tech and tech-enabled software that works within this industry, to be able to get the valuation that they deserve and, more importantly even than that, structure it in a way that meets their life goals. So I've been doing it ever since and you know we've done a significant number of exits in the space probably, you know, six or $700 million worth of exits up until this point, and it's really fun to help entrepreneurs kind of get that life-changing payday.

Bradley Sutton:

You got to prepare something special. Once you hit that one billion, you know whichever seller is going to help you hit that one billion mark. You got to have something special for them. But if you guys want to get more of his backstories, it's funny, I just looked it up what episodes he was in. This was not planned at all, but his first episode was 295. His second episode he was on was 395. So this one is not going to be. We already passed 495, but, uh, but there we go, I, I, uh. If you guys want to get some more of his backstory, uh, make sure to check that out Now. Uh, the first thing I wanted to talk about today was, you know, 2024,. Um, this conversation about exiting is probably completely not completely very different than the conversations we had, uh, in episodes 295 and 395, which might've been at the peak of the aggregator space and things. Somebody might think, oh, wait a minute, I thought aggregators were done. Does this mean that pretty much, I have no chance to sell my business anymore in 2024. How can you correct that erroneous thought?

Scott:

Yeah, absolutely so. First thing is yeah, just about everything has changed, but I don't look at it as any more changes than what sellers experience on the platform right. Amazon comes out with new algorithms, there's new techniques, DSP advertising, all those things. We live in an industry that has that. My answer to it is twofold.  First of all, more than half the money you're ever going to get from your business and actually put in your own pocket not leaving in your business comes from when you exit. So you know, I always like to say that fundamental is the one thing that hasn't changed, whether it was three years ago or now. And the reality is for most people. You're building up an inventory business. You're putting a lot of your money back into funding your growth and that exit is what gets you that out of your business and into your personal account. So, said differently, more than 50 cents out of every dollar that you ever take home will come through your exit. So if you're not doing that last step, you're going to. You know you're giving up more than half the money. You're leaving it out on the table. So the fundamental need hasn't changed. What has changed is the type of business that you're going to need to have in order to get a successful exit, and we can spend more time talking about that.

Scott:

But the easiest way that I like to describe it was three years ago you could get a very high multiple for a company that wasn't really a business, it was just sort of a collection of successful products. Now you need to be thinking more about this as a real business with an audience, with a brand, with a cohesion to it. Three years ago, you could sell an Amazon business if it had five products in automotive and five products in supplement. Well, today you know, people are much more focused. They're smarter buyers out there. So the demand for why you should do it hasn't changed a bit. The way that you go about it needs to be more sophisticated because the buyers are more sophisticated. But to your last point, there are still a lot of buyers that are out there, not only the aggregators that have now merged and kind of gotten through the difficulties, but a lot of what are referred to as financial and strategic buyers beyond the aggregators. That can be exit opportunities for you.

Bradley Sutton:

I mean, I know there are still some aggregators out there, but other than that, what kind of companies or are they mainly individuals just looking to invest? Who's buying Amazon businesses these days?

Scott:

Yeah, sure, so it does vary. A lot of things vary by sort of size. So if I'm thinking about, if I want to build up a business and let's say I get the business to be a small business, it's maybe making $200,000 to $500,000 worth of profit in a year. Maybe it's selling around a million dollars. The type of buyer for that is not going to be the aggregators as much anymore. It's going to be more, like you said, individual buyers that are looking for a good return on their money. But also what we're finding is a lot of our larger Amazon sellers themselves are now looking to expand into new niches or to expand in their current niche. So you take an Amazon seller that sold their business three years ago for $5 to $10 million. They're now faced with the decision do I decide to start from scratch or do I find a small business that I could apply some capital to and grow it faster? And you'll find those types of buyers I will call them individual buyers in the smaller size market.

Scott:

When you get over a half a million dollars worth of earnings in the business, that opens up now kind of the aggregators, and they're still out there. There's less of them. They're more focused on niches. But the key part is if you're in a specific niche, you'll have a good chance for an exit. What you can't do now that you maybe could get away with three years ago is you can't just say I'm an Amazon business and I've got a bunch of products in a bunch of different categories. That is much a harder exit to do because it's no longer just about optimizing on Amazon, it's about really having a customer channel and a pipeline. And then if you get over a million dollars worth of profit, if you are a larger seller out there, your options also start to include what are referred to as private equity companies. And you're now big enough that a company that is in the business of owning companies that's essentially what a private equity company does they will look to you as what's called a bolt-on to one of their existing platforms. So let's say they bought a large business in health and beauty and you're in a niche of health and beauty and they can continue to expand their reach and capability. You start to open yourself up to that buyer. And then the top niche, which is a very small minority. But for those people out there, if you get north of three or $4 million of profit yourself and you become a very large seller. Then you can actually go to the private equity companies directly and become what's referred to as a platform company, which means that they may then look to have you buy other types of businesses underneath your organization.

Bradley Sutton:

I'm not 100% sure I remember this correctly, but I vaguely remember, you know, in one of your previous episodes asking uh about, like, the importance of multi-channel. Like me, you know, maybe I'm not a gigantic seller, but hey, you know, like our two people does, does it increase my valuation if I, if I already started selling on Walmart or had my own website, and if I remember, like I'm not sure which one it was, you know it wasn't, it didn't seem to be too big of a thing. Is that still the case now? Or is it now more important? Does it give you some more valuation if you are established on some other platforms instead of just an Amazon USA exclusive company? And when I say other platforms, I also mean, you know, Amazon Germany or Amazon Japan, like what are some things that do add value to your valuation?

Scott:

Yeah, it is more value today than it was maybe a few years ago. So, I think that that is correct. I'm going to say that with a couple of caveats. The first one is that the diversification is really what you're referring to, right? The number one thing that my mentor taught me that I have lived with now for 20 years is we have to remember that it's not what the seller is selling, it's what the buyer is buying, and the easiest way I explain that to an Amazon seller is it's the same thing that you do on your product listing every day.  You speak in terms of the benefits that your customer is going to have when they buy your particular product. It's the same thing with your particular business. So, what is the benefit that your buyer is going to get when they acquire your business? And one of the things that they think about first is all of the things that can go wrong and all of the risk that might be in the business, and diversifying across channels reduces risks.

Scott:

So if I've got all of the least diversified Amazon business would be. I'm on Amazon.com only and I have 80% of my revenue is in one product SKU right If that SKU goes down game over. So if you think about diversification of risk, you can diversify in a few different directions. One of them is diversifying by number of products out there. Okay, so, even if I'm all on Amazon.com but I have, you know, 25 or 30 products that are out there and no one product has, you know, 25% of my revenue, that's one level of diversification. The next level of diversification that I would encourage people to explore would be diversification by Amazon marketplace. So, like you said, whether it be Canada or the UK or Europe, diversing by marketplace. The next level of diversification would be by other marketplaces. So think Walmart.com or other types, if you're in a niche of pets being on Chewy or other types of things. And then the next one is diversifying by e-commerce, and that would be think of that as Shopify direct to consumer, where it's a different. You're not on a marketplace Now, you're driving your own traffic. And then the next level of diversification is if you get into retail and wholesale.

Scott:

So, for each business here's the key point I listed them from the easiest to do to the hardest, typically. And so you don't want to diversify just for diversification sake, because each channel that you bring up has to be a meaningful amount of revenue and profit. Otherwise, it's more of a distraction than a diversification. So if, for example, if I'm going to diversify into Europe, I want to make sure that my European presence is, at a minimum, 10 to 15% of my profits as the US. If I diversify and I only do two or three or 4% now, I'm maintaining a whole bunch more work in my business but I'm not really adding meaningfully to the value of it. So the rule of thumb that I like to use is that any channel that you bring up, you'd like to have it be able to be 15% of your main channel's revenue. So if you're doing a million dollars on Amazon in revenue and you diversify to Shopify, you'd like to be able to be doing, over a course of a certain amount of time, 150 to 200,000 at similar profit margins. When you can do that, it is definitely more value because it shows the buyer that your brand is valued and it also diversifies the risk across multiple platforms.

Bradley Sutton:

I'm going to go back to the beginning, a little bit about how some people can start to get ready, but just to skip to the end, you don't have to give names or specific details, but just to help people understand what's happening, 2023, 2024, with what the potential is, can you give us a rough picture of a recent exit that an Amazon seller had, like maybe you know some details? Like hey, they started selling Amazon three years ago and they built it up to this amount of sales and they just had an exit for this amount and now they're living full-time on a cruise ship. I don't know, just uh, talk a little bit about a cool, inspiring story you know about, just so people understand the importance of this conversation that we're having here, what it could mean for them.

Scott:

Yeah, absolutely. I'll give an example of a transaction that we did. Let's call it maybe around the beginning part of the year. So I had a seller that was on Amazon, grew up the brand, tried to diversify off from Amazon, actually really struggled. It did not go well. The performance of the company went down. They repositioned the company around some different types of products. We started taking them to market call it middle of last year. We completed an exit sort of Q1 of this year, and think of it in this terms. We like to think of it as everything is a multiple times your profitability. So think of it as they had grown up and by profitability we refer to something called EBITDA or net profit, and so they had gotten the company. It had struggled. It had gone down to where it was only maybe as low as $100,000 a year profit when COVID and everything was changing, Very nervous about could they keep going forward. They doubled down, they worked really hard, they got the profitability up to north of a million dollars and we were able to exit the company for around what's called a four and a half multiple, which meant that if you had a million dollars of profit, you multiply that times 4.5. So you got a $4.5 million exit and what was really exciting about that one was that they sort of tasted defeat. They were really successful and they're really the story of sticking to it.

Scott:

They had to change a lot of things, a lot of stressful times. They could have given up when it was at its low point and literally walked away from it, buckled down, really figured it out, repositioned some of the products and product lines, got it back to that level and now they have an earn out on top of that, which, for people on the call, just means that, in addition to the initial amount, they have an ability to earn more. If the business does well, they're helping the buyer out for a year and they have a chance to get you know, call it between five and a half or, you know around maybe five and a half million dollars. So really fun and exciting. Someone I'd known in the industry for a while and obviously, depending on where you want to live and how you want to live, that goes a long way toward setting your financial freedom in place so that you can go decide what you want to go do in life.

Bradley Sutton:

Yeah, okay, that's pretty good, that's pretty cool. That's a big payday for that person. I think for anybody listening to this episode, we would be happy to have something like that as a goal. Now I'm just curious. I don't know if I've ever asked you this before, but from when I talk to people who have exited, there seems to be like two different ways. Like sometimes they're just like complete exits, like they have nothing to do at all with the business anymore. It's like you know they maybe check on it every now and then just to see how the, how their baby is doing on Amazon. And there's others where it's like they stay on as advisors and they even have a, you know, something built into the contract, where they still get a piece of the profits in the future as long as they consult, and things like that. What's more common nowadays? And would you suggest that somebody does one over the other?

Scott:

Yeah, this is a big area where the market has shifted, because the original thesis three years ago by the aggregators was I can run these businesses better than this small little seller that doesn't know what they're doing. What they found out was is that? The answer to that is generally no. The marketer that understood the niche, that understood the audience, that was passionate about it, is a valuable part of the equation and we've always taken that approach. So most of the exits that we have done and I would actually recommend that most sellers think in these terms is you used to be able to exit a business and then leave within 60 or 90 days transition and a lot of people, when they think about an exit, they think about I'm going to get one check at closing for 100% of my business and then I'm done within 60 days. The reality is that those types of buyers are often what I refer to as bottom feeders. They're paying you 100% cash up front and they're generally going to offer you a lower valuation than anybody else. So think of it as back to if I have a half a million dollars of profit and I could exit, an all cash buyer might be willing to offer you two times your profit, or a million dollars. Okay, the buyers that will be willing to pay more.

Scott:

One of the other things my mentor taught me was Scott always ask the question who should pay the most? And the person that should pay the most is somebody that values not just the SKUs but the skills that you bring to the equation, and they don't want to be dependent on you, but they want a good handoff period. So I like to tell people, think in terms of staying on and I would rather get you a multiple of three and have, you know, 30% of it contingent on you staying on and the business going well, than a multiple of two because it's all upside. And so I think you should be thinking in terms of staying on for six months to a year, depending on how complex your business is. A premium buyer is going to ask you to bear about 25 to 30% of the deal in some sort of contingency, and then there's two types of contingencies. There's what's called an earn out or a stabilization payment and the problem that a lot of people I'm sure people have heard about this in the industry. A lot of people didn't hit those because they sold to a buyer let's say it was an aggregator and the profits went down and it was what's called a cliff. It just fell off, they didn't hit, they got $0 on their earn out. We like to do a lot more of what are called rolled equity or synthetic rolled equity, where it's not a cliff, it's just a percentage of the deal that gets paid out pro rata based on how well it does, and so there's more to go into maybe than the scope of this. But if you're interested in getting a premium deal, recognize that if you can stay on and give the buyer comfort that they're going to be getting a good business and you can help it continue to succeed and continue to grow, you can earn a lot more because the buyer is going to be. You know. It's a true win-win deal as opposed to a sell and a walk away.

Bradley Sutton:

Another question I was thinking about when it comes to exits and I'm no legal expert, but I'm just wondering if this something I saw on the news has anything to do with the exit businesses. I know in the past, like, let's say, my coffin shelf business is 10 times as big as it is and then I sold it. Like usually that person would want me to sign some kind of maybe like non-compete, where I'm not going to go the day after I sell the business and start a new coffin shelf company to compete with them. But does this new ruling that I read about non-competes are not allowed or something in the employment world non-competes are not allowed or something in the employment world does that have anything to do with the exit, where now aggregators or buyers of businesses can't get the seller to agree that they are not going to dabble in that niche anymore, or what's going on with that?

Scott:

Yeah, so this is a really good point and I'll make the point about the non-compete and then I'll talk about a little bit more globally. Specifically, regarding non-competes, the legislation that is being proposed in certain types of states like California is that you can't have employment non-competes, but has not extended to what are called acquisition non-competes. So when you're buying an asset and you're a buyer, you can still require the seller to not compete in the niche. And the broader point is that all of these things become negotiating points with a particular buyer. So we like to negotiate what are called really narrow non-competes, which will essentially mean that in your example, I will not compete with any product, that I will not start up a new business that has any product that is directly or sometimes indirectly competitive. Some buyers will come to you and the most broadest is they'll say you cannot do anything when you sell me the business you're in supplements. You have to be out of the supplements category really really broad non-compete. So it's very important that you recognize that there's two things that are going on in the deal there's the economic terms and then there's all of the legal terms and negotiations that are going on.

Scott:

How do you make sure that your you know your buyer has enough money to be able to pay your earnouts? Or, if you haven't paid your sales taxes for your off Amazon sales, does that kill a deal? We just did a deal where there were some unpaid sales tax liability to the tune of more than a million dollars, but we still got the deal done. We just negotiated it that that money went into an escrow and then we were able to save the deal, so to speak. So I think it's really important as a seller, you know and I found this out when I did my first deal, and you know now we've done dozens and dozens and dozens of them you just keep getting better at understanding what are the best terms to negotiate, which is why I recommend whether you use a northbound or anybody else in the space. It really isn't something to try and do yourself, because you really need. Your job is to be the good person that the buyer likes you. My job isn't to be liked, but it's to be respected and to know what is the market that my client deserves. And so there's a natural call it mutton, jeff or however you want to look at it, there's a natural tension on the system that you want to have and you want to be able to push on and negotiate these terms, like non-competes and other ones, as aggressively as possible to protect yourself.

Bradley Sutton:

All right, Good to know. Good to know Now. You recently updated your module in our Freedom Ticket course. This is the one that all Helium 10 paying members have access to, regardless of the level, or even the starter plan has access. A brief overview of what you talk about in the module. I know we touched on some of the subjects today, but what is somebody who is a Helium 10 member? They can literally, after listening to this episode, go into Freedom Ticket and switch or go to your module. What are they going to learn in that one?

Scott:

Yeah, why I was excited to put it together and we put a lot of time into doing it is the key thing is that it talks about is exit planning from day one, and so the way that I like to think about it is, the time that you figure out how you should get out of a business is before you get into it, and so the exit ticket program. It's broken up into six modules. It starts out and it's got a workbook that goes along with it, and it starts out with you as an owner. What do you want out of this business? If you want to exit this business for $2 million, that's a lot different than for $20 million. So what niche you go in, what products you select? It goes through all of that first. Then what it does is it helps you. In module two, it helps you understand your finances. So for many Amazon sellers, they're more marketers than finance and they need someone to give them an understanding of what's important financially to have accurate, but I want it specific to e-commerce. I don't want to go learn a general accounting class, and so module two is it's all about the numbers. Module three then talks all about the buyers. So if I have to start thinking from. This buyer is my ultimate customer mindset, because that's what they really are. How do I learn more about what they value?

Scott:

Then module four goes into what I like to refer to as the mini exits. How do I raise capital for my business? How do I maybe bring on a partner? How do I reward a key employee as I grow? But there's usually about five or six key inflection points that you're doing when you're growing your business that have a huge impact on the value of your business. So that's module four, and then it moves sequentially to module five and six, which are essentially how do I go through the deal process itself? What do I need to have ready? It's something called a data room. What do I need to put in there so that I know that I'm doing this correctly? And then how do I negotiate a premium transaction for my business? So the thing I like about it is, even if you're not thinking about exiting right now, we built it in a way that it gives you the chronological journey for how to do everything right and when you put all of those things together, that's what's going to give you the highest likelihood of hitting that other 50 cents on the dollar payday of actually getting a successful exit. So for me, that's what I think, people, wherever you are in your Amazon journey, you might not need to go through all six modules at once, but start getting in there and start thinking about this, because it is a critically important topic and it takes a little bit of time to really digest how you want to go about doing it. So why not start early?

Bradley Sutton:

So everybody, after this call, if you have a starter up plan, get the base, the first module which is just recently updated in Freedom Ticket in your you just hit your learning hub on the top of your screen in your Helium 10 dashboard. So hit Freedom Ticket 4.0. and on the left hand side, go hit financial fundamentals and then his module right here, preparing your e-commerce business for exit right here, this good looking guy with a northbound shirt that you might recognize is going to be right there. And then, once you got that foundation, then definitely, if you're a dime member or above, go to the exit ticket program that he highlighted. All there a very, a lot of lot of modules there. There's, there's, you know, a good um, you know 10, 20 different videos on different topics. That, really, from A to Z, is going to help you get your company ready for exit. And again, like, like he said, you know this isn't something that, oh, you don't need to start thinking about this once you hit the seven figure or eight figure mark. You know, from day one, he, you know, Scott really has always said that you need to be preparing for that. So make sure to go to Exit Ticket.

Bradley Sutton:

If you want more information on the Exit Ticket program, go to h10.me/exitticket, h10.me/exitticket. Just some strategies for some of the newer sellers, but they've got some lofty aspirations. I'm not just some person who's doing arbitrage or wholesale which there's nothing wrong with doing but I'm trying to build a private label empire here and I do want to exit one day and have that four or $5 million payday like somebody else you just mentioned just got. What are some things I can be doing right now, today, to put myself get started on the right foot here?

Scott:

Yeah, so a couple of things come to mind. First of all, this point about why you want to study learning how to exit. One of the phrases I like to use is what's good for selling a business is usually really good for running a business as well, and so a lot of the strategies that you'll learn in the full exit ticket program, or even in the module as a part of Freedom Ticket, these are good things that are going to help you run a better business, so it's very important for that. You think, from that lens, for those of you that are really going for a seven or an eight-figure exit, there's a couple things I'd like to say. Number one is it can happen. We have taken dozens of e-commerce entrepreneurs that were just like you. They were starting out maybe five, six years ago, and we've done exits that 35 million, 20 million, we've done 60 million. These big exits, they can happen, and so it's a mindset thing. I'm not saying everybody needs to go for that big of an exit, but I just want to let you know that there is a market for these types of businesses to be able to exit for seven and eight figures.

Scott:

The key part that I would really focus on is two things. One of them is having a brand such that you can always bring out new products, because, whether it be on Amazon or other marketplaces, there's a shelf life to products, and so you have to always be thinking about you know how can I continue to successfully launch new products? A lot of people will you know they'll get a couple of good products going and then they kind of get you know. They rest on their heels a little bit there. I always like to think about you need to really focus on always having new products in your pipeline. And then the second thing that I would really focus on is getting very clear understanding of not just what's called your accrual profit. Accrual profit is very important to understand because that's how you're actually valued and the way to think about it is if I sell $1,000 worth of products and they cost me $200, I match the amount of costs that I have to the revenue, so it's what's called a smoother way of tracking it. But what most people don't focus a lot on and that's in the full exit ticket program is your cash flow and making sure that you have enough resources, whether it be debt, that you have access to line of credit or whether or not it be inventory financing.

Scott:

But as you grow, you're going to find you increasingly need what's called networking capital, and so I think from that side of things, I would really say to people make sure you kind of understand what's the cash that I'm going to need in the next year to actually launch these products successfully. Because a lot of people will think of it as, oh, it only cost me like $5,000 to launch a product. Well, that's the initial order, but if that thing is going to be successful, it's probably going to cost you $30,000 or $40,000 to scale up your orders in terms of cash flow into it. And so sometimes you'll find people that they'll say, oh, I'm going to launch five products, but they don't have $200,000 of free cash to be able to do it. You launch them, they run out of stock and you do that. So that would be other than the typical things that you might get with your Helium 10 tools. The thing I really would encourage you to focus on is the people that we see get the seven and eight figure exits. They almost always build, they have good launching capabilities, they've got good products, but almost all of them have found a way whether they're raising equity from I call it rich uncle Bob who's going to put $50,000 and say, hey, I'm in the Amazon game, or whether or not it's a lender or something.

Scott:

But you are going to need to figure out a capital strategy which leads to and we help people with capital strategy all the time at Northbound. And the one adage I've learned I've been an entrepreneur for 30 some years now is the time to raise money and get financing is when you don't need it, because nobody ever wants to give you money when you need it, and so you've got to be thinking. It's kind of the exact opposite. You get a successful couple products that's a great time to show profitability in the company and get a line of credit from someone, and then you use that. But if you actually need the money, then it seems like nobody's out there to borrow it to you. So that'd be a few things I'd really focus people know your numbers really well and figure out how you're going to grow and raise money to grow.

Bradley Sutton:

All right, two questions we as Amazon sellers and thinking about selling our business. What should we be thinking about that you find that most people out there aren't thinking about? And then the second thing maybe deals that started already happening early January or something that are still in process. Are you seeing some of these new Amazon fees affecting it? Like are some buyers getting a little bit hesitant? Like, wait a minute, I think the profit's going down. Or maybe some sellers like, oh my goodness, like I'm having to pay these new fees. Like are buyers going to get cold feet? So let's go ahead and close it off with those two questions there.

Scott:

Yeah, yeah. So the first one that I think about is most sellers don't spend enough time learning about buyers. So what I would say to you is take 5% of your time, two hours a week, and start thinking about your exit. And don't do it on a Monday when you're stressed out or something like that or you're burnt out, but really just say if more than half my money is gonna come from an exit, I'm gonna start spending 5% of my time and I'm gonna just start thinking about if I'm let's just say I'm in the automotive niche, who are the automotive buyers that are out there? I'm gonna start researching them. I encourage everybody, two or three years before you want to exit, just calling up a buyer and scheduling a meeting and learning how do they think about it. Go through courses like Exit Ticket. The smarter that you understand your buyer, the more you'll be kind of building it for that particular buyer segment. Now, I'm not saying you'll know your buyer by name, but you should start to learn your buyer by category and start to think about what they value. For example, a lot of them want to have a minimum of 15% profit margin, so you might as well learn that that's what the rules of the game are and start learning how to talk their language. And the analogy I use for that in the Midwest is you can't just go at harvest time and try and harvest. You have to plant the seeds early and you got to grow it, and that's the same thing for your business. You have to think about what is going to make my business exitable and then start building toward that.

Scott:

And then the second. I think the second thing that you talked about is Amazon is always changing fees. You've got different levels of profitability. Absolutely, buyers are going to be only concerned about what the future profitability of the business looks like. They may calculate it based on something called your trailing 12 months earnings, which basically means your profit for the last year, but they don't get a dime of the profit that you had the last year. You already blew that out in Vegas or whatever it is that you did with it. All they care about is the future profitability of your business. So at Northbound we spend an enormous amount of time presenting a very logical forecast, and I encourage sellers that's probably another thing. I would say not enough sellers spend enough time doing is actually forecasting the growth of your business out into the future, even though it's going to change. The better you can show a buyer what the potential of the business is, the better you can break out of a low multiple and really show them that. And so if your forecast is showing that with new Amazon fees you're getting less profitable, well then you're going to have to account for that and be able to explain that you're either raising prices or you're shifting your inventory strategy or those different types of things.

Scott:

But really the key to that is having a really solid understanding of what start with. Don't make it too complicated, but start with all of your products that you already have in your funnel. List the number of sales that you make per day and forecast out for the rest of 2024. And then list in any new products that you're going to do. Do the exact same exercise. Look at your you know, do I get a holiday bump or not? And start to be thinking about your business in what I call looking through the car's dashboard. Don't just look out the front window, don't just look in the rearview mirror, and that's another big thing that people get too busy to forecast and then they don't really understand and set goals for their business.

Bradley Sutton:

100%, 100%. Well, Scott, thank you so much for all this actionable knowledge that you dropped on us. If anybody wants to reach out guys, don't forget to go to hubHelium10.com. Just type in Northbound and there'll be a contact form right there and links to Scott's website. Hit that get in touch button right there and Scott and his team will be more than happy to help you guys out with your exit questions. Scott, thank you so much for joining us and although, sad, I can't see you in Madrid, I'm sure we'll link up at a conference soon.

Scott:

Okay, that sounds great. All right, take care, Bradley. Thanks a lot.