The Quiet Light Podcast

In the second installment of our Incredible Exits series, we welcome Mike Jackness back to the podcast. Mike, one of our favorite guests, is here discussing the recent sale of his online business, ColorIt. Mike is a lifelong entrepreneur and hosts a podcast with a 30k listener following. On his show, he talks all things about e-commerce, email marketing, and Amazon. Mike’s decision to sell this particular business was based not on struggling to grow it, but simply on the the need to offload something from his plate. He was well aware of what he’d done to grow it, and the potential for its future growth, he simply knew it was time to hand over the reins. We wanted to have Mike on to tell us firsthand how that process went, the challenges he faced, and how he eventually reached multiple offers. He shares some of the key things he did to get the business sold at 96% of the list price. We discuss how some acquisitions don’t go as smoothly as others, even for someone who seems to have a great grip on how to grow and eventually sell an online business. Ths episode chronicles the sale and buying process: what Mike has done right and what he would change if he could. Episode Highlights: We hear about Mike’s journey as an entrepreneur and what led him to start the Ecomcrew podcast. The factors that led him to sell one of his e-commerce businesses. Mike talks us through the 10 risk factors to take into account for e-commerce success. How Amazon can be the judge and jury when it comes to keeping your e-commerce business alive. The one thing he would go back and do differently in the transaction. The importance of planning in advance for an easier buyer transition. Why some entrepreneurs get caught up in the squirrel syndrome and often find that as they take on too much they run into trouble. Mike takes us through the launch process and how we got to the multiple with the right buyer. The importance of instilling confidence in the buyer. The inventory issue specific to this brand and how that affected the sale. Why one can’t plan the perfect inventory in e-commerce business. How to find middle ground on the inventory excess in the sale and acquiescing when necessary. Why the seller makes all the difference in the sellability of the business. The way a seller should act under any circumstances.   Transcription: Mark: Joe you got to have one of our favorite podcast guests on; Mike Jackness. And Mike actually retained you or hired you to help sell one of his properties. And we get to do another episode … is this part of our Amazing Acquisitions? I don’t know … our Amazing Exits I’m sorry. Joe: Incredible Exits, come on Mark get it right. Mark: My goodness, I made it up. It’s a good— Joe: I don’t even know what it’s called. Somebody’s going to tell me there’s a certain term for things that flow off the tongue very well … incredible. Mark: It’s almost as if I’m not paying attention to what you’re doing at all. You got to have him on the podcast about selling his business. Joe: Indeed. Mark: I’d like to know about it. Joe: You know he’s just an awesome human being and that made selling his business and the person buying it that more excited about it. Look, Mike is an influencer. He has a podcast where he’s got 30,000 people listening to him every month and he talks about e-commerce and email marketing and Amazon. We had challenges because people are like well if Mike Jackness isn’t killing it with this I don’t know if I can do any better. But the reality was Mike was just simply chasing too many rabbits as he says. He had four brands inside of one seller account. He has the podcast and he has other projects going on. So he wasn’t giving his full attention to this. So really the reason I wanted to have him on was to have people hear from him some of his … well-known and an influencer much larger audience in his podcast than we have what he was doing wrong. If he could go back and do it all over again how he would have changed things so that it would have been an easier process for him and we would have had … we had multiple offers but would have had a much easier process in reaching those multiple offers. And some of the key differences that he did to seal the deal. He didn’t do it to seal the deal, he was just doing it anyway and it is what sealed the deal and got us under LOI at 96% of the list price. Mark: Yeah you know one of the most popular articles that I wrote on our blog back when I was doing all the blogging on Quiet Light Brokerage was the story of my own process of buying a business and in my own estimation failing at it. And frankly, as the founder of Quiet Light, it’s kind of humbling to go out there and say yup I made an acquisition I completely failed but here is why. And I got so much good feedback from that saying this is great thank you for sharing these details because it really helps. So hearing from someone like Mike Jackness and his episode that you did with him is probably my favorite episode that we have that I’ve listened to. I don’t listen to my own episodes which is why they aren’t like [inaudible 00:03:51.2]. That episode from Mike Jackness in all seriousness he talks about email marketing and how he does email marketing. That’s fantastic so if you haven’t listened to it, go back and listen to it. It would be interesting to hear what he had as far as his own self-assessment when it comes to selling his business and some of the struggles that he had as well. And I think it might be encouraging for those of us that are out there like how are these guys doing all of it because we only hear about the successes, right? Joe: Yeah. There are challenges in here and I was … my initial plan was to do a two part series but we managed to get it all in. It’s a little long folks. It’s about 45 minutes or so and then the plan is to do a follow up episode about due diligence, closing, transition, and training. We may even have the buyer on and have all three of us on the podcast. Mark: It’s 45 minutes? Joe: Yes. Mark: Well, I should shut up. We should get to it. Joe: Let’s go to it. Joe: Hey, folks Joe Valley here from Quiet Light Brokerage and today I’ve got somebody that’s been on before; Michael Jackness from EcomCrew. Welcome to the Quiet Light Podcast. Mike: Welcome back. Joe: Welcome back is right. You actually inspired this type of episode as I said before we recorded. Folks Mike has … when he was on before he shared his expertise on email marketing and the use of Klaviyo. Today he’s actually going to be our first exit entrepreneur or Incredible Exits guest. Mike decided to list his business for sale last December. We talked about it. We got it listed. And now we’re under Letter Of Intent. We’re recording this on February 12th and we wanted to share Mike’s direct experience so that you hear it … hear about the process, and what you should do right, what you’ve done right and what you do wrong, and hear from somebody other than me. Mike has been through it. He’s got an audience of 30,000 that listens on a monthly basis at EcomCrew. If you’re not listening to EcomCrew … I know I’m promoting another podcast but it’s one of the absolute best out there. Go to EcomCrew.com they’re always helping entrepreneurs in the e-commerce space. So Michael Jackness, 30 seconds just tell some folks who you are again for those that didn’t listen to the first episode that we did together. Mike: I’m basically a serial entrepreneur. I started my first business when I was a kid. I did have a stint for seven years in corporate life. One of my clients did hire me but for the last 15 years, I’ve been doing my own thing either in affiliate marketing or e-commerce lest the 5 plus years. And when I got on e-commerce I realized that we were coming at things a little bit differently. We kind of got at it as a tech company rather than a product company. And we realized we had a lot to share. So the entire process pretty much; as you mentioned EcomCrew, even blogging, and podcasting, and telling the world about what we’ve been doing. But one of the things that make us unique is we also talk about all the negatives not just the positive sunshine blue smoke up your ass crap. In fact we go out of our way to talk about some of the hardships of running a business and specifically e-commerce. So yeah that’s a 10,000 foot view. Joe: And in just about 30 seconds; so thanks. Yeah, I get it, I can’t emphasize enough. If you are a current e-commerce owner you should listen EcomCrew as well especially the Under the Hood series that I enjoy so much and inspired the Incredible Exit series here at Quiet Light. All right Mike at one point, you came to me. You reached out I think probably around Thanksgiving or so and said you wanted to exit. Did you plan that well in advance or did you just find yourself tired and ready to move on? Mike: Yeah, there were a ton of factors that went into that initial conversation. We had a different plan. I can tell you what. We’ll talk a little bit about that but the plan was to do this a little bit longer. But I actually just did a podcast about risk factors in e-commerce and we don’t have 30 minutes to go over the entire episode but there were 10 risk factors that I called out. Which basically were like the amount of inventory that you have, tariffs, taxes … just kind of like a risk to reward type of thing, competition, Amazon getting involved in brands, Amazon shutting your account down, getting unbalanced to be more Amazon than not off Amazon things of this nature. And for me what I realized … I started waking up one day realizing that for us this stuff they’ve kind of gone a little bit out of balance. We’re at a point right now as we’re doing this podcast because I haven’t quite done the exit yet where we have $1.3 million in inventory total company wide as we’ve been growing. As you know in e-commerce it’s hard to get any money out of your business because we are growing it 100% per year and it’s a situation where money just keeps on piling back in the business. You have a tax bill every year and without the money to even pay for that because you’re plowing everything back in the inventory for growth. And we have been running at that speed for almost four years. And because of some of those other risk factors, the kind of leverage is changing a little bit. I felt like it was time that we needed to take some chips off the table. And combining that with just honestly being a little burned out; running at that speed is definitely exhausting. I found myself either dreaming about Amazon shutting my account down or waking up every morning first thing and checking my inbox and seeing if they had been shut down. Not because we do anything black hat at all but because I see things that happen out there because of EcomCrew and also [inaudible 00:09:05.1]. You hear stories of people that legitimately didn’t do anything wrong but it doesn’t matter because Amazon can be the judge and jury and executioner all in one. And factoring all these different things in it just … it felt like it was time. And we didn’t know it when I had that initial conversation with you. I didn’t know exactly what that was going to look like. At one time we had talked about selling everything. I was kind of like just in a bit of bad mood that day and then we kind of start walking through some more realistic and better options to kind of end up [inaudible 00:09:35.9]. Joe: Yeah, let’s talk about that the realistic option of selling everything I have things or setup because I really want people to learn from this process and what your goals were and the challenges that we’ve had and some of the amazing things that you have done throughout the process as well. So the first thing we looked at was selling all four of the brands that you have. You have it under one LLC and two of the brands are doing very, very well. And two of the brands are start up brands where they’re really working at a loss because you have a tendency to just focus on organic traffic and brand recognition for a series of months to a year and don’t mind operating at a lost. First and foremost Mark had a podcast with somebody from a PE firm that painted this picture. He said the thing about private equity investors is … well, think about it when you were a kid. And he says you get a bag of marbles from and you try to negotiate a deal with your buddy for the bag of marbles. The first thing you want to do is reach into that bag of marbles and take out all the chipped ones. You don’t want to buy the chipped marbles. And then you want to focus on the best marbles. And so when looking at your four brands, two of them were really operating at a loss so my advice right away was let’s take those out of the picture. Because when you’re selling a business let’s say at a three time multiple and you have two brands in the bag and they’re both operating at let’s say negative $10,000 in discretionary earnings; that’s $20,000 times three that’s $60,000 off the list price of your business if you go with the multiple of discretionary earnings valuation model which is what we do in marketplace valuations. So we had to pull those two out. And then we looked at what at the time was one of the larger brands of the two. We’ve got ColorIt that we’ve talked about. We’ve talked about it openly and you’ve done presentations all over the world on your email marketing campaigns with Klaviyo and ColorIt. But the other one, different space, and we had a challenge. See one of the things that we talk about all the time are the 4 pillars of sellable businesses; age, documentation, growth, transferability. And the big thing that we had a problem there was the transferability of that particular brand. Two of the SKUs that you had which were not the largest used by any stretch, you were reselling those, right? And you reached out to your vendor to confirm that you could transfer those and what did they say? Mike: They said no. Joe: Simple as that. So that takes away one of the pillars. It makes it more complicated. But again as you said you were in a bad mood that day that we talked. A lot of emotions in selling your business and as you say in the introduction that we did for ColorIt, you’ve been chasing too many rabbits. When you’re doing that you’re getting tired, exhausted, and pulled into many different directions and often going nowhere. So we ended up setting that one aside as well and focused only on ColorIt and went with that to launch. Before we get into the initial launch multiple and things that we found that were really amazing about it we found one more challenge or maybe two. You have one LLC with all four brands under one LLC and all four brands in one seller account. What have you done since our initial conversations back in late November early December to rectify that? Mike: Let me kind of set the stage just real quick of why we got there as well because it’s interesting in business. There’s two phenomena that is existing, first of all, I’ve been in business for 15 years so I kind of knew some of the hiccups and roadblocks we might get into down the road. But I had run multiple businesses in the past. So whenever you do something and you don’t like it you tend to correct for that in another way in a future endeavor whether it’s a business or in personal life. And the thought of like having … we actually have more than four things going through this LLC, there are other non e-commerce stuff and some other things as well. And the thought of having six or seven different tax returns and credit cards for each business and trying to figure out how we’re going to separate employees or like the lease or back in software like Skubana or you know a UPS count; all these different things like having to have them all segmented out just was not appealing to me in any way shape or form. And I was more concerned about today than tomorrow as far as operating the business. And I also had this thought process of when I’m ready to get out of e-commerce I’m going to get rid of all of it once. I’m a pretty binary kind of guy like I’m either all in or not doing it. And I thought the day that … when it came that we would get out of e-commerce we would just sell that conglomerate. But life happens and business happens and like I said some of these risk factors changed and the reality was that we wanted to pivot and change our philosophy and our business plan pretty quickly. I equate this also to like when you want to pay taxes you want to have your business show the lowest amount of money. You’re trying to figure out any expense you can have. That’s really good for a tax but when you go to apply for a loan it better be showing lots of income. So it’s like … it’s a similar kind of phenomenon where like in one part it makes sense to do one thing but in another … on the other side, it makes sense to do another. So we were kind of at that spot where it was obvious that this was going to be a problem because the things that came up in the calls over and over again were really two things. Number one shared resources of employees or other resources which I understand the challenge there. And also the fact that everything’s in this one Amazon account. And let me tell you man if there was anything I can go back and do differently it would be having multiple Amazon accounts at a much earlier stage. The challenge is Amazon doesn’t make this easy. They won’t allow you to just create multiple accounts first of all without getting permission. And in order to get permission, you have to have a separate company. You have to have a separate … either separate ownership structure, separate EIN, separate checking account, separate credit card. All this stuff has to be 100% separated out in order for them to grant you permission to create another Amazon account. So we are going through that now and I mean what a disaster. Like we’re having to … we’re trying to close within about six weeks of recording this. And to hand over the account at closing we have to have just Brand A which is going to be ColorIt and the Amazon account and Brand C or B, C, D have to be out of the Amazon account and in a new account and it has to happen as seamlessly as possible which is impossible because we’re … we only have inventory in Amazon. All of our inventory is on Amazon. So we’re having to recall some of it and relabel it, get it into the other account. And we keep a relatively [inaudible 00:16:34.1] amount of stuff in Amazon so it’s not … looking on a SKU by SKU basis it isn’t that big of a deal but because we’re a high seven figure seller total we’re recalling truckloads with the goods from Amazon. It’s not going to be cheap and when you recall stuff it gets damaged a lot of times. The stuff shows up and looks used by the time that … you’re shipping it in and it’s getting … someone’s handling it and putting it on the shelf and they got to go take it off the shelf put it in another box and crate and when you recall stuff it doesn’t come back in the best of shape. So yeah I mean it’s kind of a disaster all around but this is what we’ve had to do to get to where we are. And moving forward they all are all going to be in separate companies. So at any point when the time comes to put Business B up for sale, we’ll have it all in one clear concise company; one account and we’ll just pull the trigger and be done. Joe: You know I think you had said at one point you knew what to do and you had one plan and it was to sell the entity and all the brands within it at one time. And then we found three stumbling blocks. Two of them were operating at a loss because you are focused on organic traffic and brand building. And one where two of the vendors said: “yeah no, we like you, Mike, we don’t know anybody else we’re not going to do this deal with anyone else”. So you ran into challenges there. And you also said if you have to make those changes someday you’ll do that. And all of a sudden you woke up and someday was here and we had an action that we wanted to take right away whereas the idea of I always say don’t decide to sell which is eventually you do decide to sell but plan to sell. So my little slogan there doesn’t actually work all that well. But seriously though I think the thing to do is to plan it out in advance as much as possible to make it strangely enough as easy and seamless as possible for the buyer. For that person that is going to put a million dollars of their life savings on the line or two or three or 100,000. The amount doesn’t matter. It’s a lot of money for the person that stroking the check or sending the wire. So that’s the key thing. Mike: Can I just … I want to mention one other thing if you don’t mind? [inaudible 00:18:48.4] this thing. Joe: Yeah. Mike: You’re asking just kind of like some of the other things that kind went wrong and we could’ve done better. This is stuff that’s often not talked about again in entrepreneurship but the reality is is that it would have been better just to have one brand and focus on it or maybe two rather than trying to do too many things at once which is a trap that a lot of entrepreneurs get caught in. Something I tell myself all the time, I even had it in writing on a blog post like eight years ago like I won’t do that again; get into too many things. Entrepreneurs are different … there are different classes of entrepreneurs but the kind of entrepreneur that I am it’s the squirrel syndrome. It’s always exciting to do something new rather than what you’re working on. I get bored really easily. To me, the business aspects are way less about the money than the personal enjoyment and excitement part of it. And oftentimes you end up with this … you chase rabbits both will get away saying that I use all the time. But I give that advice and don’t follow it as well as I should. So that’s another thing that you could really take away from this if your … the existing business you have is probably the best one that you have, the same type of thing with a car like the cheapest car that you’ll ever have is the one that you own right now. You are then going on and buying a new one. Or any of these types of things can be applied to other aspects of your life as well. But if you are focused on one company like you typically have all your T’s crossed and I’s dotted and that’s how I like to run my companies because I am a bit of a perfectionist. But as you spread your resources across multiple businesses things like to fall through the cracks that make things less attractive to a buyer. And the reality is is it’s not as easy as it should be to just cookie cutter your business into another one. We had a really great podcast about this a year and a half ago. It was actually something we recorded live at E-commerce Fuel Live last year back in Gohana. So I just want to throw those things out as well as just other things that to be thinking about. As you’re planning your exit you should be a lot of times it’s … well, I want to get in this other thing or as you’re growing it’s really exciting and it’s infectious and you want to keep on that path because it’s fun to tell everybody how fast you’re growing. And everyone pats you in the back and society makes things even worse because they’re always like yeah man good job and everybody is like oh good job you only grew by 5% last year because that’s just how we’re all wired. Which the reality is that as Dave my partner always says is that revenues are vanity and profits are sanity. Joe: Yeah. Now I love that again this is … I want people to hear from you more than me. I say his stuff all the time and you’re someone that’s going through it right now and coaches thousands of people on a regular basis to improve their businesses and Dave as well. The other thing that is separating out the brands and separating out the LLC does for you the seller and the potential buyer is it casts a broader net of potential buyers. And the broader the net the more interest level there is going to be in the business. And the more interest level the more likely you’re going to get an offer at or close to list price. And in this case we did not say SBA prequalified, technically you can take a business like yours and go through the process and have your accountant separate all those things out and certify it. It’s not a full audit and you could try to go through the process and make it SBA prequalified. But in the time frame that you and I were trying to do this, you wanted to be under Letter Of Intent by January 31st. It didn’t happen. We came close but we couldn’t have gone through that process because that process would have taken six to eight weeks for your attorney to do it. And given the time of year, it might have taken longer because he’s in full on tax preparation now. So that’s the other thing that separating out your LLC’s by brand will do for you is that when you wake up one day and you want to exit it’s clean, it’s simple and you can do that with a lot less work. And that work Mike we … it was a lot of work in preparing the listing for sale. In the Profit & Loss statements and then in that client interview everybody’s heard about it … I told my wife when I sold my business I felt like I was working harder preparing the business for sale and going through the process of getting it sold than I was actually running it. And when I was running my own I was working about 20 hours a week running the business so that tells you what that workload is like. In terms of what we did, I want to talk a little bit about the launch process and talk about the multiples and some of the things we did but you did it just absolutely right spot on. We did go out a little early the right? We talked in late November early, early December and you had a goal and I wanted to help you achieve that goal. I’m human and I think that what I probably should have done in hindsight is said no, this is probably not the best approach. We went out in I think around the 10th of December, listed the business at a pretty strong multiple. It was at a four time multiple. And went out and said Look December is going to be great. Trust us these numbers will drop to a 3.5 once the December numbers are read. And the ultimate answer we got was cool, I think I’ll just wait to see if that’s true. So we’ve got a … I think we had a phone call, maybe we had one buyer seller conference call in the month of December and then you’re a man of your word and you like to under promise and over deliver. And when December numbers came in they were up 80% year over year. Mike: Yeah. Joe: I’ve used this analogy with a lot of folks before and they’ve heard me say this again you can list something at a four time multiple and if it’s growing 25% year over year consistently the buyer earns their money back in 2.7 years. I did not do the math on 80% and I won’t but that really got people off the fence a little bit. We updated the P&L’s, got the December P&L’s and then we’re relaunching I think on January 8th, 9th, or 10th, in and around there. And we actually dropped the price by $75,000 too. So the multiple didn’t drop to just a 3.5 it dropped to a 3.2 multiple and we relaunched. And I think we had three or four phone calls out of the gate. The goal is to have three to five in the first 30 to 45 days and one acceptable offer. We did have just two offers in this case and one was just not there. We had two or three phone calls with them. One was interesting, right? I was traveling to Dallas so I’m on a conference call with Mike and the buyer and I’m actually going through TSA security on the conference call. And thankfully Mike can talk folks. So he was talking as I put my headset down and went through security. I picked it up on the other end and you were still talking. And you had a terrible cold. Mike: Yeah, that was a pretty embarrassing call. Joe: It was great though and the thing that you do so incredibly well is you instill confidence in the buyers. You’re honest. People trust you. And it made them … anybody that had the opportunity to talk with you I think wanted to make an offer if they could pull it together. But we couldn’t do an SBA buyer because of that commingling issue so we were focused primarily on cash buyers. Keep in mind though that not all SBA buyers don’t have the cash. Many of them do they just prefer to make their money go further with an SBA loan. So I think we were both at ECF, that’s E-commerce Fuel, at the event down in New Orleans and I drove you nuts a few times saying I think I may have an offer right? Did I—? Mike: It was so funny, you texted me at the opening party I think I have an offer and then you went to bed. I think like you didn’t actually have the offer yet I just think I read the text a little long but … so I was like walking around the entire thing looking like anybody know where Joe Valley is? Like I want to know where Joe Valley is. Joe: Yeah, I think I heard somebody say Joe likes to go to bed early. He doesn’t stay up late at these events. He’s probably in bed. And that … I felt a little embarrassed there. I’m like okay I’m getting a reputation for going bed by nine. But we ended up not going under LOI— Mike: [inaudible 00:27:07.7] morning than I did. Joe: I think I probably did. I was really hopeful that we could go under LOI while at E-commerce Fuel because that would be a great feather in your cap and mine. We would be able to have a drink there and celebrate. But it didn’t quite work. It took an extra … probably four or five days. But we had some challenges with the business. We ended up getting fairly close and I’ll do the math as you answer this next question in terms of that asking price; that 3.2 multiple. But we had some challenges and the big challenge was something you talked about earlier. One of these big issues that you’ve got is you’re taking all the profits from the business and putting it back into inventory. And when you have a business that’s growing at the rate that yours was that’s a lot of inventory. Can you talk about that a little bit in terms of the challenges that we had there? Mike: With inventory specifically in terms with ColorIt? Joe: Yes. Mike: Yeah. And this is something that we have worked really hard on in our business and we’re very [inaudible 00:28:06.7] which is that you basically want as little inventory as humanly possible at all times. I mean you don’t … there’s a lot of reasons for this. If you have too much inventory when something goes wrong like you’re stuck with a hot potato. That always sucks but probably more importantly especially when you’re in this growth phase is cash flow is the most important thing. There’s this saying that’s been around forever which is cash is king and there’s a reason for this; for every dollar that you have an excess inventory that’s a dollar that you don’t have in some new product … some new product launch or some other thing that can make you more money. And every inventory business is going to go through this. There is no inventory business I think on earth that … especially when it’s newer and growing at this speed that can plan inventory perfectly all the time. Either you’re going to err on the side of caution of not having too much inventory and be willing to run out of SKUs because of that. Or you’re going to err on the side of caution of having too much inventory and err on the side of caution of never running out of a SKU. And for me, we went with the latter because in the early days of selling on Amazon we realize that when you run out of stuff it can be really detrimental. We had one SKU that we still are trying to recover from. It’s a part of this issue here with this business sale we’re now we have too much inventory because we could never get it to recover back to the point where it was before. So we try to in our inventory business turn our inventory three to four times a year which means that you should have no more than three to four months of inventory at any one time. And with ColorIt that was definitely not the case. So it was not the case. I mean there’s a bunch of different exceptions that put things way further out than that but there was an old legacy book manufacturer that we work with that had very high MOQ’s. So if we wanted to even sell the item we had to order a year worth of it at one time. And that was a decision that we made in Q2. We had a newer product that we just started selling and it was selling really well so we’ve ordered more of it and again at their MOQ so we have more than 4 months of inventory there. And so the bottom line was that of the 300 … actually it was $400,000 in total inventory that we have for ColorIt both from stuff that’s in stock and things that we had already placed orders for that haven’t shown up yet. There was about 100 … I don’t have the numbers in front of me but $100,000-ish I think of inventory that that would take longer than 12 months to sell. And so for me because I’ve been on both sides of the fence as both a buyer and seller of businesses and I really believe living life like don’t ask others or don’t do what you want to do yourself, I realize that before we even start talking to the buyer that we probably have to make some sort of concession on the inventory. It just would be unrealistic to just be like no you’re going to the inventory and too bad because I wouldn’t feel comfortable doing that myself. The other thing that I don’t like doing is like having someone pay me with my money. So that one thing I was steadfast about was that we’re not going to take financing or delay the purchase price. I want an all cash offer for the for the purchase price but the inventory component I thought the right thing to do was to pretty quickly acquiesce and come into a middle ground with a buyer. So what we had agreed to do was, first of all, there was one SKU that I admit that just doesn’t sell well. It was a bad buy on us. We just rid it off 100%. It’s about $8,000 dollars. They can either … they were in a trash can if they want to transfer or they can keep it and do whatever they want with. There were a couple of SKUs that I kind of conceded to that were slower movers that I felt like was going to be kind of detrimental to their business to buy at with 24 months with the inventory at face value. So what we agreed to was we’ll sell you anything that we think is going take longer than 12 months within that inventory at a 50% haircut. We’ll just write off half of it and you can buy it for 50% off. So now you … yes, you carrying more inventory but you’re buying it at a price that makes sense to carry it. And then the third group of SKUs were things that were basically like in this 12 to 18 month window, they weren’t really that low for stock, and the biggest culprit of that was this new item that we’re trending higher on. So I think ultimately and I convinced the buyer ultimately especially once the Christmas season comes they aren’t going to have … they aren’t going to actually have more than 12 months with the inventory. So we agreed that even though our forecast shows it’s going to take more than 12 months to sell it’s because we were using like a January sales number for that we weren’t including sales growth in that forecast and we also weren’t including what I believe that was going to happen in December which is December is about 3X any other month in our business. So ultimately we wrote off $40,000 with the inventory and agree to give them 12 months financing on the inventory at 5% interest which basically I think helps normalize that situation for them. And it’s also something that I can tolerate as well. Joe: Yeah, and it happened and then we succeeded with it A. because of you; the likability and trust factor. But you have something that I preach again and that’s when you’ve got an inventory based business you should have inventory aging reports. Sophisticated buyers are going to ask for them and they’re going to want to see the inventory by SKU when you bought the inventory and how old it is, how many months you’ve got. As Mike said you want to turn your inventory every three to four months if you can but in his situation, it was 9, 12, 18 months in some rare instances. And so on that inventory report one of the key things that your buyer Matt said that made a difference for him in sealing the steel and getting it done was the inventory aging report and the notes that you put by each SKU and right there in one of them you said this is all inventory and it’s not going to sell so we’ll write this off. You just acquiesced on that 8,000. He didn’t ask for it. You just put it in there because you knew it was the right thing to do. And then you went line by line on every other SKU and justified the 100% value or where you needed to discount. And let me just say for everybody listening, it is rare to need to take a note on inventory. It’s rare to have to discount it. But when you’ve got that much you’ve got to do the right thing. What I don’t want to happen here is for buyers to go “oh well hey Jackness took a note, I’m always going to ask for a note” because that’s really, really the exception rather— Mike: Like I wouldn’t do that with IceWraps for instance because there’s … if we were to sell that we have four months with inventory. It’s really clean and smooth. It’s a more established business with fewer SKUs. It doesn’t have a lot of the other things that cause us to have extra inventory. And like you said I mean just doing the right thing and being realistic of both sides. I mean this is what happens … like a lot of people when they’re sellers they want to be way up here when they’re buyers they want to be way now here and they’re just like … they have this gap in which I think that just makes them not the best of human beings right? I mean you’ve got to be like more in the middle and realize the person that’s buying and what they’re thinking and what their [inaudible 00:35:24.6] is. And conversely when you’re in the sell side be thinking about as well. It’s not always just about you. There is another side of the coin. And I wish our politicians are covering this a little bit as well but it’s just good business it’s being a good human being. It’s what makes deals get done. It’s just doing the right thing and being fair about it; being equitable about it. I could … I just … I would feel like a dirty shyster if I have that guy by that one SKU that I know … like he doesn’t know the business as well as I do. I know that one SKU [inaudible 00:36:00.9] it’s been around here for two years. No matter how hard we try to sell it, we threw it at a 50% off sale or we even did a 75% off sale around Christmas to try to get rid of some of them. People just don’t like that title. It was the one title that we made out of 25, it’s a pretty good track record but one title out of 25 that was just this complete failure. I’m like how could you have someone take that? That’s just basically like I’m stealing from them or trying to pull the rug over their head. And you know when they discover that later which they probably will in due diligence they’re not going to trust you. Joe: Yeah, exactly I was just going to say that. They are going to discover in due diligence. And I’ll tell you what for folks listening, we’re going to run a little bit long on this episode. I’m going to lock this all up in one episode instead of doing two series here. The due diligence process would reveal anything like that so you need to get ahead of it. You have to be a good human being. This is a transaction that has to end with two satisfied individuals or entities at the closing table; that’s the buyer and the seller. It’s not winner takes all because the buyer is putting their life savings on the line again and they can walk away at any time. If you fake it, lie, cheat, or steal, it is going to be discovered in due diligence. More and more folks are hiring Centurica, your buyer is. That’s Chris Yates’ team. Chris owns the company called Centurica. C-E-N-T-U-R-I-C-A, they do due diligence for buyers. And honestly, as a broker, I love it when they join the team because they’re working for the buyer. And I have yet to see a deal go sideways on any of the listings that we’ve put out. What they do more than anything else is they reinstill confidence that the numbers are right, that the seller presented information, and they create a roadmap to growth. They can point out certain things where there are flaws and sometimes it’s a little scary but the buyer goes oh okay that’s a flaw, I can fix that. I can make this better. And it’s a path growth that we aren’t able to do on the client interview which is great. One other thing I just want to say that we won’t get into in great detail but without a question when you plan to sell instead of decide to sell, one of the things that you should always do, your partner Dave did it, is to take a look at your cost of goods sold. And if there’s a possibility that you can renegotiate your cost of goods sold 12 months out in advance and reduce that cost of goods sold, for every $10,000.00 you save you’re going to wind up with at least 2 ½ to 3 ½ times that depending upon your business and the trends and whatnot. Mike, you did it but you were able to renegotiate the cost of goods sold on just one of your SKU’s and you placed an order for it so was locked in and loaded and the future sales would all be locked in at that lower cost of goods sold. And you sold through all of the other stuff at a higher price. So we were able to increase your seller’s discretionary earnings by a total of $43,000 on that overall. And it was just because of that one SKU where you were able to renegotiate the cost of goods sold. In hindsight Mike do you wish you had done it on all of the other SKUs as well? Mike: Yeah I mean I don’t think this is necessarily a selling your business thing more than this is just good business at that time. Joe: Yeah. Mike: What I’ve realized again after four plus years of importing stuff from China is that I wasn’t as good of a negotiator as I thought I was. And I’ve always thought of myself as a really good negotiator in all aspects of anything that I do in business. And we had negotiated down from the original price they gave us but it still wasn’t like the Chinese price. And when you get like a really good sourcing agent or you have someone that’s more in tune with the local business and customs there they’ll probably get a better price. And that’s what happened for us. We met somebody … and these contacts are hard to find in business. We were out there doing it all ourselves like going to the Canton Fair, walking the floor finding manufacturers, and we did that because we’re never really able to really find a good sourcing agent and didn’t really know any other way to go about it. But because … mostly because of EcomCrew which is one of these things where the more you get back in life a lot of times the more you get rewarded. A lot of things we do in EcomCrew we don’t get anything direct for our time for what we do. Like most of the stuff is just giving people free information and giving back to the community but what I found that happens in these types of situations is that makes relationships with people and the people you meet they know people that makes relationships with other people and eventually that path led to us finding this amazing sourcing agent that not only is he helping with ColorIt but everything else that we’re doing now. And he was in our office here one day and we were actually sourcing something else for our tactical brand. I wasn’t even looking to resource price I was looking to source new stuff. We were just chit chatting and we have this display up on our wall of all of our products and he is like what if I try to go source this for you? What do you pay for it if I can do better when you buy it from me? And I was like well man I’m also like not just about money. I’m really about relationships. I really like the factory I work with. We’ve been working with them for a while. It had to be like one hell of a cost savings for me. Like if it was I’m going to save you know a couple $1,000 here and there it’s not worth it for me to blow that up. But he came back and was able to reduce the price of that particular thing from … well, he reduced it by 16% is what it was; which is massive. It’s like this ridiculous cost savings. And at the same time the other factory as much as I … it’s so funny like I’m really big on relationships and I was really concerned about them they actually copied our product during this process and even used our [inaudible 00:41:30.2] that we had paid for and everything and released our product to someone else. Sold our product to someone else. Which we then have to go spend money on a lawsuit to fight them which we got them to stop but … so between those two things we switched. Now the switch engine is going out and repricing our stuff and that’s going to end up benefiting the buyer way more than it is for us on ColorIt which is fine. But I guess the end result is you should always be looking at price. Even when you think you have the best price you probably don’t. There was a great … a presentation at ECF about this as well when it came to shipping rates. I don’t know if you saw Craig Gentry’s presentation on FedEx and UPS when he was just like if you think you have great rates you don’t. Like there’s … you can still do better because there’s still another … they make you feel like you’re getting the best deal ever because they’re really good at negotiating. And it was similar with our products and we realize that we could be saving quite a bit. I mean 16% percent is a huge difference on COGS … I mean it ends up in your net profit. It’s way more than 16% percent increase rate because it’s going to be SKUed. It makes you … you could just throw money around the bottom line. So yeah I mean it was massive and the timing was great because we did get some benefit. But yes I wish that we had time to go through and renegotiate all those SKUs for sure. Joe: Yeah and I think you said it best. It’s just good business. It makes smart business sense. Not necessarily sorry for the exit planning and the eventual exit and sale of your business. Can you say one more time what Dave always says it’s not profit it’s—? Mike: Yes. Revenues are vanity and profits are sanity. Joe: Perfect. Mike: I’m sorry I’m going to go off on a tangent; another tangent. [Inaudible 00:43:05.7] I got you and just like people are like counting their chest. Like I’m a seven figure seller and well I’m an eight figure seller and I sold this stuff … no one ever goes around saying well I sold 10 million dollars of stuff last year but I actually lost money. I mean there are plenty of businesses out there that are like that. It’s very easy to get in that trap because it’s actually pretty easy to sell stuff online. You can just spend way too much money on advertising and you can sell stuff but the profit is what really actually matters. Joe: Absolutely and that’s where these marketplace valuations are. It’s on the profits so discretionary earnings. All right so look I want to read one more thing and I’m going to wrap it up. I’ve said that you the seller, in this case, you Mike makes a huge difference in the saleability if that’s a word, of your business. How you act prior to selling the business, how you manage your business, and how you represent yourself all throughout makes an enormous difference. And the way that you handled yourself on the client interview, on the recorded interview that we did as part of the package, on the conference calls with buyers, in the inventory challenges that we had, in writing those notes there, and just acquiescing on that $8,000 of inventory that you knew was no good; it all made the difference and it’s why we’re under Letter Of Intent. I did the math. We’re actually under Letter Of Intent at 96% of the list price of the business. Again the inventory we’re doing on a note which we don’t love but sometimes you have to do that. I want to just read an e-mail that you sent to Matt, your buyer within a couple of hours of when we were under Letter Of Intent to just reemphasize what’s important and the way that a buyer should treat their sellers … or seller should treat their buyer. So here we go. I feel like I’m in second grade standing up and reading this— Mike: I was not planning on this being read but it’s okay read it. Go on. Joe: It says, Matt … his first name is Matt we’re not going to say what his last name is. I just received the signed LOI from you and wanted to take a minute to thank you for putting your faith in me and my love child ColorIt. It’s been one heck of a ride but I’m ready to pass off the baton and experience a year or two of not having too much on my plate. Of course, I realize there is still a lot to accomplish to get to the finish line but I wanted to say cheers. With the growth rate of ColorIt along with some of the other fundamentals, I’m convinced this will be your best purchase to date. My goal is to make sure that it becomes a reality for you as we progress through the transition. I look forward to working with you in that regard over the next few months. Mike. Guys, that is the way to transact business. It’s just the right thing to do and it feels good. And I can tell you [inaudible 00:45:45.4] 80% year over year growth in December and didn’t even mention it 74% year over year growth in January. It made a huge difference and Matt making an offer at 96% of the list price. But this kind of thing, the way Mike handled himself as a professional, as a good human being in this entire process sealed the deal ultimately. So Mike, thank you. I appreciate the way that it’s gone so far. I think what we’ll do is have a follow up episode to talk about due diligence and the training and transition and how the transaction wound up at the end of the process with this closing that we’ve got if you wanted to come back on. Mike: Yeah. Can I say one thing about the letter that I wrote? Joe: Of course. Mike: Since you took the time to read it I just … I got to preach because I’ve been on both sides of these deals. There have been times where I’ve been the buyer and at that moment that you sign the LOI there’s always this anxiety, right? Where you like man I’m about to jump into this thing and you don’t necessarily know what you’re getting … everything that you’re getting yourself into. And I just wanted to let the guy know that first of all I appreciate him again like it was sincere like I appreciate him … this was like now the sales person parts over like I’m not trying to sell him anything. It’s always awkward when you’re saying stuff in the call part of it. It almost sounds manufactured even though I don’t do that but I’m sure to them it comes off as like this guy is probably just saying this to get me to write a check. But it’s done. The finish line is there from that perspective I just … and I do want it to be a success story. I want the guy to buy it and look back at these years later and feel like he made the right decision. And yeah that was really all; just kind of being sincere about it. And I think all too often again people are more way about themselves they’d be all high fiving everybody and saying that we got an LOI and celebrating their success more than thinking about what this guy’s about to endeavor in. And I think that’s important. Joe: I appreciate that and the last thing I’ll say is what I said to everyone which is we’re under Letter Of Intent. There’s no guarantee. Mike: You’re right; the money is not in the bank yet for sure. Joe: It’s not on the bank yet. So let’s have another killer month in February. We’ll get through all of this. Due diligence is very detailed but again they’ve got Centurica doing it for them. We’ve got to do a lot of work but we know it would be done right. And that emotion will be left out of it as much as possible and it’d be math and logic and we’ll get through it. And then we’ll have you back on the podcast to maybe high five. And maybe we’ll get the buyer Matt on it as well. Mike: Yeah, I think it’ll be cool to have him and come join us and talk about both sides. Joe: Alright, I’m looking forward to it Mike. You’re a good man I’m glad to do business with you. I look forward to hearing you back on the podcast. Mike: Thanks, Joe.   Links and Resources: ColorIt.com Mike’s Podcast Email Mike Call Mike 703-216-3225      

It seems that with certain Quiet Light Brokerage listings, there is just a mad rush of activity as soon as they come out. Most of the listings that we put out will receive at least 100 inquiries right away, but what does it look like when we put out a “hot listing” that garners two times that much interest? Today we are discussing the type of business that gets 9 offers. We go over how many inquiries those types of listings get, how much discussion and conference calls happen around these potential transactions in a short time frame, and just what it takes to get these listings under contract. We hope you enjoy this little case study of how to set up for a successful sale from the seller side and tips for how to act from the buyer side. Being thoroughly prepared and running a real, viable business are keys to success. Episode Highlights: The main characteristics that made this business so attractive. How the pricing decision played into the transaction. The process of selecting the 15 buyers we entertained. The conference call screening process between the seller and potential buyers, facilitated by the broker. How to choose a buyer and deal with disappointing those who lost out. The 4 pillars of success and how this business checked them all. The one intangible thing that took the business to the next level and attracted the buyers. How the packages that Quiet Light puts together tell a story about the listing and the journey of the brand and its seller. Transcription: Mark: It seems that with some Quiet Light Brokerage listings as soon as when they hit the marketplace there is just an absolute mad rush of buying activity towards those listings. Now to be clear most of the listings that we put out at Quiet Light Brokerage, the vast majority, in fact, it could be an exception to the rule is going to receive at least 100 inquiries from buyers and calls right away. So what does it look like when it we come across a “hot listing”? Well, it looks like a lot of conference calls scheduled very, very shortly and just a mad rush of inquiries probably upwards of 200 and 250 within the first 24 hours in some cases. What’s the difference between a listing that is not as hot like that that gets on a 100, 150, which is still a lot and something that doubles that? Joe, I know you launched a listing 3 or 4 weeks ago from the time that we’re recording this episode that we would definitely throw in that hot category. What were the top line statistics on that? Joe: It was a let’s call it a 95 to 98% Amazon business. It was 30 months old. It was in the category of America’s fastest growing recreational sports. It was run by a single owner operator that was a stay at home dad that was a CPA by training yet outsourced the bookkeeping to an e-commerce bookkeeper. $440,000 in discretionary earnings and we went out on a 3.3 which is lower than my recommendation. But in this case, the conservative CPA said no I don’t want it to be listed for too long. I really like to get it sold let’s … can we go out at a three. I suggested a 3.5. Rarely does somebody come back and say can you sell it for less and he did in this case and we ended up [inaudible 00:02:50.9]. Mark: The guy sounds like one of these unbelievably likable guys. How many inquiries did you get within that first 24 hours? Joe: You know I didn’t count the first 24 but I know that you and I were … we were in Dallas and on the way to Houston for a meeting and I think we pulled it up and within the first 4 hours, we had something like 185. So within the first 24, I think it probably doubled to close to 400 would be my guess. Mark: That is insane. Now I do remember obviously these are all loaded questions so anyone listening like I know the answers to most of these questions— Joe: No, he doesn’t. He forgot them all. He can— Mark: I actually— Joe: Yeah. Mark: I was introduced by the way this is completely outside; a complete diversion here. So sidebar I was introduced at a group of CEO’s yesterday. And in front of the entire group of CEO’s the guy that introduced me said “And Mark, by the way, took his son, they have seven kids or is it they’re expecting their seventh kid. He’s got so many kids he forgets their birthdays because he took his son to urgent care the other day and he got his birthday wrong.” I’m like thank you for that. I’m so glad to be known as the guy who forgets his kids’ birthdays. Joe: You’ve got a lot of kids man. Mark: I got the month right. I didn’t get the year or day right. I know the answer to this. We were in the car together and your phone was blowing up. We were at a conference. You were trying to schedule out all of these people wanting conference calls and you did this right over the conference itself which maybe we can talk about in just a little bit here. Within that first 24 hours if you would just guess how many conference call requests did you get? Joe: Well, let’s keep in mind that that our process requires that the buyer either speak to me first before requesting a conference call or we’ve spoken in the past. So in this case in the first 24 hours, I had at least 10 requests for conference calls with buyers that I’ve already spoken to in the past that have looked at prior listings of ours and they wanted to make sure they were on a call with this one. We wound up with a total of 15 on this. As I said the owner of the business, Paul, is a stay at home dad. It’s funny and I don’t know if they loved this or just love making fun of Paul for this but he’s a stay at home dad right? His son is a couple of years old but he takes his son to daycare at eight and picks him up at five. So I’m not sure how stay at home that is. Anyway so … but the beautiful thing is that he maybe … Paul if you’re listening I’m sorry, maybe it’s nine to four and you expanded it. Either way, you’re a great guy and people love you and your business. I am not getting a Christmas card from Paul this year. Mark: I’m sure you are. Joe: Anyway, he was able to clear his calendar which was great. I was getting so inundated and I was at eCommerceFuel and I’m like I can’t do these conference calls. And I had said to Paul on the way through eCommerceFuel look I want to bump this launch a week because it’s going to get crazy and I’m not to be able to be on this conference calls. He says oh god really? Come on I really want to get it launched and it totally got my heartstrings so we launched it anyway. So I took the two days … it launched on a Wednesday I think and I took Thursday and Friday and all I did was talk to folks and schedule the calls for the following week. Paul cleared his calendar. We set up a link so that people could just grab a link and schedule them. We did a max of three a day separated by at least an hour a piece and we wound up I think by Monday closed the business. We had all 15 slots scheduled. We capped it at 15 which is really five too many. You just don’t have to have that many conference calls. Normally we have three to five conference calls and we have at least one acceptable offer. Here we had 15 scheduled and we wound up with nine. Mark: These are 45 minute slots or are they an hour long slots? Joe: They were hour long slots. I go with an hour yeah. Mark: So just to put this in perspective for people that have not been on the sell side, I know I had this with a listing last year that I represented where it was just a really favorable price on the business and so we had that 15 conference call sort of scenario that we were doing in one week. For anyone on the receiving end of that our clients, the sellers, that’s exhausting to go from one conference call to the next to the next; an hour where you’re being asked the same questions and you’re doing the majority of the talking during that time. This might be a little bit beside the fact but how did he hold up throughout all those calls? Joe: He did pretty well. They were spread out which was nice. He usually had … he had a minimum of an hour but usually, it was two or three hours in between. And we had one drop out so it ended up being 14. But he did pretty well. He had to keep moving around the house. That particular week his son was home because he got a fever a couple of days before and he was quite sick so he couldn’t take him to daycare. And his mother flew up from Arizona to be with his son while he moved around the house to be in an appropriate place to do the conference calls. Most of the time he was actually in the nursery doing the conference calls from his laptop. Mark: Right. So I want to get into a couple of big topics here. I want to talk about what were the characteristics that made this business and you already talked a little bit about this but what were the characteristics that made this business so attractive? Because I also know that we suggested to Paul going out at a 3.5. He’s the one that wanted 3.3 for the asking price on this. That’s the multiple that we’re asking on the earnings. So I want to go into what was it that made this such a hot listing where people just needed to look at the teaser that we gave and that alone generated 200 plus inquiries within the first 24 hours? So what’s going on there and then second I want to go through a little bit more of the process that you went through in selecting the buyers that were going to get those conference calls. Because out of 250 finding 15 you know I know a lot of buyers out there would be like well how would I become one of those 15 if I’m going to be competing against this? And then last I mean this is kind of the darker side now or the bad side I guess of what we have to do when you have a hot listing like this is we have to disappoint a number of people that actually really want this business but lose out in a bid for it. So I want to go over those three categories with you and then obviously Joe you’re better at this podcasting thing than I am so if there’s something I’m missing let me know. Joe: Can you repeat that last part again, please? Mark: You are better at this podcasting thing than I am but I still have the number one episode thank you. Joe: And two and three, yes you’ve got them all, but you do the title so I think there’s a little trickery going on it. Mark: And I used to do the promotion too so … your podcasts easy for me what with number one. Joe: I mean you talked about the four pillars; risk, growth, transfer ability, and documentation. And when you go through these things Paul’s business just checks all of these off and all the subcategories within those checks them all off. He owned his own brand. He developed it himself. It’s in a niche that is out there and there are other brands but he picked a … he specifically chose a niche within a larger niche to serve a certain segment of these people to start with. So there’s a growth opportunity to go. He picked the sort of beginners in this sport. He didn’t go with the top end of the product. He went with a middle of the road product that beginners … a price point that beginners would enjoy. So right away you could say okay well I’m learning this business and now I’m going to take this to the new level and go with the more professional people that play this sport. It’s not quite professional but retired professionals can play. So he did a really nice job there in picking the category. It was just by happenstance. He happened to be on vacation visiting his folks in Arizona and saw this game that they are playing and said what the heck is that? Looked it up, studied it, researched it and it started growing like crazy and chose to go in that category. A registered trademark, beautiful brand, beautiful packaging, and again let the business age. We’ve been talking for probably nine months and it was getting close to the 24 month mark but we got through that Christmas holiday season. This particular business is not fourth quarter heavy seasonal. It’s actually better in the spring and summer months. So we got prior to the spring and summer months so that a new one would have a great advantage with an upswing in the summer months. It was clean books, SBA eligible which helps cast a broader net to probably half the offers. I can’t say half because they were nine. So four out of the nine offers, five out of the nine were SBA offers. The growth trends were fantastic; 80, 90, 100% year over year, month over month growth. It looked really good comparing month to month and from year to year. Transfer ability; super easy, he owned the brand. He wasn’t reselling anything. He had a good relationship with his manufacturers. And the documentation, of course, good SOP’s in place. He did it all himself so there weren’t VA’s that were combing [inaudible 00:11:42.3] anybody else or people that works on his house or anything like that needed to transfer. This sort of intangible thing that I think took this to the next level is the person behind the business. He’s not transferring with the business but he is so, so likeable and so trustworthy; just the full story behind him. And I’m not suggesting that everybody goes and becomes a CPA, quits their job, and works from home and be a stay at home dad. But people want to invest in a business and buy something from somebody that they like and they trust. As Mike Jackness said on a call recently you have to be a good human being in order to get the deal done. It needs to work for both parties. And just describing who Paul is and then how he is in the video and how he came across, he’s just a good person and people wanted to buy the business from him. Mark: Yeah, I’m looking at the teaser right now. It’s cool if I read some of the teaser, right? Joe: Yeah of course. Mark: All right so again I’m just looking at this. I’m … this is selfish on my part, the next listing I put out I want to get 250 inquiries because that’s awesome. I mean that’s great for our clients. All right so I’m looking through this and look in through the prism of those four pillars of risk, growth, transfer ability, documentation. Risk; Amazon businesses, this is primarily Amazon. The biggest thing that I find and maybe you’d disagree is that it needs to be defensible against competition. In here I see towards the bottom there’s a trademark and the brand is brand registered, there we go. There are over 2,000 reviews you are … these are getting harder and harder to fake. So you’re speaking towards this … the main risk that people associate with Amazon. Right away people are thinking oh awesome that’s great. Growth; this is rapidly growing. You leaved this but this is rapidly growing as one of America’s fastest growing sports. So A. this business is growing, B. this niche is growing; two really good things, so growth is checked off pretty easily. You have some other stuff in here. Transfer ability; the owner, single owner, dedicates approximately 15 hours per week running the business. I could do that right? Who can’t do 15 hours a week on something? And then lastly documentation; the owner is a former CPA. Do you need to say anything else? I think you checked each of those boxes with a giant red check mark to say everyone looking at this; this thing is going to check all of these boxes and become really valuable. It turned out surprisingly enough to be true. These four pillars work. Joe: Yeah, they do. They do. And one of the pillars is growth but within that is growth opportunities and growth trends. And the opportunities I’ll dig into the package itself. I can’t quite remember but he had launched new SKUs in 2018 and so we look at the revenue when did he launch those and the revenue by SKU during that time period. And it was clear that some of these SKUs had gained some traction in 2018 but they hadn’t been available for the full 12 months. So that’s a built in path to growth. So it’s one other thing that buyers liked. And then when you … I mean that teaser it obviously checks all of those four pillars but then when you get into the package and we recorded a video, a video interview with him via Xoom like we’re doing now. Obviously, people are listening to mostly audio but we do the video as well. And he’s in his home you can see the kitchen in the background and he’s got the packaging and he holds up the packaging and it’s just beautiful. It’s a really nice product and this is again hard for people to duplicate but this particular product it’s just cool. It’s just a cool niche and a cool place to be and he did a really nice job with the packaging. He did everything right as far as I’m concerned and obviously as far as buyers are concerned as well. Mark: Yeah, one thing I want to touch on here because we talked about this a lot for buyers that you want to be likable and come across well to the potential sellers. But it works both ways too right? I mean obviously, somebody who’s selling who’s a complete jerk probably isn’t going to get too far with us because the process is just too difficult. So most of the … most of our clients are great people anyway but there are some people who have just magnetic personalities. And for this deal, you for I think one of the first times we experimented or you experimented by doing more video conferencing between buyers and sellers on that. How did that impact the deal and what should buyers take away from boy these guys want to do a video conference should I turn on my camera or should I, oh no, no I don’t really have good lighting for this and a good set up for it. Joe: Do it. One of the best calls we had was with a guy named Noah. And he hadn’t planned on doing video because he was on his dad’s party boat. I know he’s 35 years old but he’s helping his father move this big boat from one port to another because it’s being sold. And Paul and I are on video and we said the video is optional and said it’s recommended but optional. And he said well both of you guys are there and he goes I’m kind of embarrassed. I’m on my dad’s boat. I’m on a boat. I’m like we have to see it, turn it on. Mark: It’s great. Joe: Yeah. His dad was in the background moving stuff around and he’s shooing him out of the frame. It was fantastic. So Noah was like able and memorable and that stuck with Paul. Paul wanted to sell the business to Noah at the end of the call. So that makes a huge difference. Not everybody did it. There were two or three that were in the top three. Yeah, obviously three when the top three but two or three that stuck out. Two of them did a video one of them didn’t do video. The very first person that we had a call with he chose not to do video. He made a great offer and he … we came close on having him but we ended up … Paul ended up choosing someone else. But I think you do the video. I’m doing it more and more and if you’ve got an opportunity as a buyer to do a video if your broker allows that then, by all means, do it. Mark: I think on the sell side this is something just to note. To people listening, we’re going to be doing this more and more because it really makes a difference on the sell side as well. Sellers most likely will be doing video. And I love that he was able to just hold up some of the product on the video to be able to show it there directly. I mean how cool is that? Joe: People are … I mean they’re buying a business potentially just based on the black and white information that we put in a package. It’s worked for years but we moved to doing videos in the interviews and making it part of the full business summary. 24 months ago I remember doing the very first one. It was horrible. I just did audio actually. I recorded it on my phone and it was horrible but beneficial. And now we’ve moved beyond that to video. You get to look relatively in the likes of someone’s eyes and gauge whether you trust them or not and if you’re going to put your life savings on the line and buy their business. And I think it just makes a tremendous amount of information. Mark: Yeah, absolutely. That’s really cool. And again this is coming from somebody like myself that does not like video … doing video personally. I tend to be one of those shut the camera off types of guys but I’m more and more warming up to it and definitely getting more accustomed to it as well. So that’s pretty cool. And also the odd story, by the way, I know our content director Chris Moore and Chris I know you’re listening to this you’re going to hate this that I’m saying this but some of the most memorable conversations I’ve had with people have been in the oddest places. The podcast with Chad Annis where he was in his RV and I could see the pine trees out in the background or Andrew from ECF Live, eCommerceFuel, awesome forum, he was in his van holding up a microphone. I’m like this is great. It’s this weird background that only entrepreneurs understand. Joe: Exactly it’s classic entrepreneur stuff. You know people when I’m having calls with them and valuations and you hear the dog barking in the background oh I’m sorry, I’m sorry, I’m like you’re an entrepreneur you’re going to hear mine any minute. This is the life that we live. It’s great. So back to the points, the last point I want to make in terms of what makes a difference … what made a difference for this particular business I think is the images. Paul provided me with great images for the package. And he had them because he had professional photography. And it helped. Obviously, everyone knows that runs an Amazon business what a difference good images make. But he had great images of packaging, of the product being used by human beings having fun and all that stuff. And I was able to litter them throughout the package and it just brought the whole thing to life. And I think it made a bit of a difference too. Mark: Yeah, you know something I’ve said over the years I’ve told you Joe and the others here at Quiet Light is that some of the packages that we put together are supposed to tell the story of the business. And I look for that with every business I represent. Like what is the thread that I want to tell you? What is the common thread throughout this? The data and everything else supports a story. And hey people love stories right? That’s … we’re all drawn to them. Joe: Right. And you said data, I just want to say one more thing I keep looking at the package and I’m like there’s another thing. One more thing they gave me was data; data from the outside world that proved that this is one of America’s fastest growing recreational sports. So I was able to link to outside magazine articles and newspaper articles and outside sources that backed up what he was saying and what I was saying in the package which is really, really helpful. Mark: Okay, I might regret this question because I don’t want to go long on the episode here but you said more than once that he was just a really likable guy. Do you know what made him likeable? It’s such a hard question to ask, right? How can somebody be more likable than another person? We’ve identified when Walker did an acquisition through Quiet Light Brokerage thanking the seller; taking the time to thank our client and saying thank you for agreeing to sell me your business and how much of a difference that made at that point. Was there anything that kind of stood out outside of the video that really made him stand apart? Joe: He was who we described him to be which was a CPA, a stay at home dad, and honest, and uncomfortable in front of the camera, and vulnerable, and real. He never watched the video that I did with him. I told him. He’s like I might watch it because I hope that was okay. I was really conscious here and there. I’m like well let’s not watch it because you were great. You were human. You were real. And I’m not editing anything out of it and I’m not redoing it because you were great. People are going to love you because you’re just normal. And he never watched it. I don’t know if he’s … I ought to ask him if he’s gone back and watched it since we’ve got it under contract. But he was just real. Just real and honest and he wasn’t selling. He was just stating the facts and that’s one of the things that we do … I get excited so maybe it feels like selling but stating the facts is what he did. He didn’t try to pitch or sell. He was just being himself; likable. Mark: That’s … I think I heard that somewhere recently about authenticity among like millennials and I would broaden that out and say among those within internet realm because we’ve seen so much stuff that it’s so easy to colossal or make yourself look bigger or better or more polished than you are. I think people within the internet world we tend to value authenticity a bit more than people might think. And so that vulnerability I think is a key. I’m not saying that you put on a show like oh look at me I’m all vulnerable. Hey, look if you are really confident in what you’re doing be confident. Be true to who you are. That comes through. You can tell that in people, right? You can tell when they’re being real or when they’re trying to make themselves sound better than they actually think they are. Joe: Absolutely, no doubt about it. You want to go on to process and what we do there? Mark: Yeah. I want to know. So 15 conference calls tell me … again mistake that you probably made in this and you told me this, I’m not accusing you of this; launching a listing during two conferences. You were sick that week. You were flying to two different cities, driving to one city with me as well. So how did you manage getting that many inquiries, that many requests for conference calls with everything else going on? Joe: Well, it actually worked out pretty well because I was not feeling well and I was at the conference and I said I am not doing this over the next two days we’re going to push it all the next week. And it enabled me to communicate in writing with all the people that inquired, all the people that … look there were a couple of hundred in the first few hours of course but those that I’ve spoken to before that know the process they reached right out to me. They called me, they texted me, they e-mailed me and said, Joe, I want to talk to this guy. I want to get on a conference call. Because they know that’s the process. And so those that have followed our process, looked at as many listings as possible so you know the right fit when it comes along and you can act quickly did just that and reached out to me. And so I just walked it all off and we scheduled the calls. For the process when we had the calls if anyone hasn’t been on them, us the broker we talk as little as possible. We make introductions, hand the call over to the buyer to give a little bit of background on themselves and then go right into their calls. We put ourselves on mute and in this case, I took myself off camera as well and we listen and we jump in if we can help out but for the most part we stay quiet until the very end of the call and then we just wrap things up. At the end of each day, I had a quick wrap up call with Paul and I said okay you’ve had three today, its Monday, you’ve had three, who do you like the most? And then on Tuesday, I said all right you’ve had six who are your top two? And the same people kept rising to the surface. Although people near the end of the week very quickly got to the … Noah I think was probably on Wednesday or Thursday. So we ran through the process and I think one mistake I made Mark in hindsight when I look at it, I knew it was going to be a frenzy and as much as people think oh multiple offer situation you going over asking price etcetera. We did. Yes, we had them and yes we did go over asking price because we priced it right. We didn’t price it too high or too low; we priced it right. And that gets more increase than anything else buyers know. We chose to go best and final. And I think in hindsight I probably would have had two rounds so that … you know what we did was we told everyone we’re going to have a call with every buyer. You may submit offers prior to the following Monday at noon if you wish too but we will not be making a decision until close the business the following Tuesday. You’ve got to have it in my Monday at noon and we’ll make a final decision close the business Tuesday. It gave us a little time to review. Everyone gave it to us in the same exact format that I provided so it was easy. We didn’t have to interpret different offers. And most kept it simple which is what I knew Paul was looking for and what I suggested that they do. One made it a little complex but I know them and I know what their goals are. They’re raising funds so they’ve got investors to satisfy. And then tell me what you did? We get a clear deadline of Monday at 12 pm Eastern Standard Time. I got one that came in maybe at 4 o’clock that day and one that came in at 9 o’clock that day, pm, with apologies and a text saying I thought it was midnight. Would you have allowed those offers to be presented or would you’ve been cold and said no? Mark: I don’t … it depends on the situation. That’s a tough one especially because of the [inaudible 00:27:08.9] when you said 12, and 12 is I mean you can interpret that both ways. Joe: 12 no we had a total of nine offers. We ended up with 14 conference calls because one fell out. We had nine offers. Mark: No I mean you put your deadline at 12. Joe: Why? I said 12 pm Eastern Daylight Time. Mark: Yeah but I mean you have to think like 12 pm, you think night and you know. Maybe I’m the only one that can read time but— Joe: I don’t … I only speak Eastern as I tell everyone else in every other time zone. There’s too many time zones and I just say Eastern. I try not to coordinate with their times anyway now we were accommodating. In hindsight I think we probably should’ve narrowed it down to the top two or three and gone back out to them. But the reality is that when you have a seller that has multiple offers it’s hard on the seller. First is that they’re on … in this case 14 conference calls that are lasting about an hour each. That’s 14 hours. And then he’s talking to me for 15 to 20 minutes at the end of each day as well. That’s a lot of time in one week. More time than he spends running the business right? 15 hours a week of running it. More time selling it than running it. And then you’ve got to make a decision based upon we had one offer that was … let’s see; it was $150,000 over asking price. Mark: Wow. Joe: A pretty big jump. Mark: Yeah. Joe: That one was an SBA offer. So the benefit there is that not only is it $150,000 over asking price but it’s going to take upwards of 60 days longer to close than a cash buyer. So he’s going to put another $50,000 in his pocket by waiting an extra two months. I mean just a cash windfall right? Mark: I want to disagree with you on something real quick before we get too far away from this point because it said that— Joe: Is it back to me being the better podcaster or something else? Mark: I’m going to say that to the end after this because I think I’m doing such a stellar job at this interview. Joe: You’re doing great. Mark: It’s easy when you know the person you’re interviewing and you know the story as well. But I’m going to disagree with you on is should you have gone a second round with the offers. Okay, that would be the standard process when you’re not expecting multiple offers and when maybe … like if I have a listing that’s been sitting around for a month and we narrowed down and we happen to have three buyers that kind of called us around the same time then it makes sense. Because the buyers don’t know that they’re in a competitive situation but … and I might sound a little harsh here but hey if you’re a buyer and you’re in a situation where you know it is competitive, and the buyers, in this case, knew it was competitive, that there was a lot of stuff going on. Joe: Yeah. Mark: My guidance has been the same like put in your best and final. There’s two sides of that coin; the first … one side is don’t try and necessarily get a discount because the market is going to speak. It is going to push that price up necessarily. And two don’t over bid what you’re comfortable bidding. Find out if I get it at this price I’m going to be happy or satisfied at least? If I go above I’m always going to wonder if I paid too much. Find that, make the offer, and get it done. So I actually think that you did the right thing by doing one round instead of two rounds. I would recommend the two round again if it was kind of a surprise multiple offer situation. Joe: Well, I think … you know I had one person tell me they wish there was a second round. But it was crystal clear in writing in black and white that it was best and final. And so I took his suggestion and constructive criticism in a way that I thought maybe was worthwhile and we could do a second round next time possibly. But when you’re in a multiple offer situation it’s emotional for the seller. Mark: Yeah. Joe: Believe it or not people it’s hard. It’s hard for the broker as well. So I just want to reemphasize one thing that you said and that is you don’t want people to get … the buyers to get emotional in their offer. We want them to make an offer that they’re going to be happy with after they’re under letter of intent because we want two happy individuals at closing; the buyer and the seller. It has to be a good transaction for both of them so we don’t want them to overbid and so we work really hard to make sure that they’re making an offer that they’re comfortable with that assuming everything’s good in due diligence that we’ll get all the way through the closing with. Mark: Yeah and I think if you’re a seller out there you’re thinking why wouldn’t you want to get something above what they’re comfortable with? The reason is simple; the offer is the beginning of a longer journey, right? You’ve got to go through that due diligence, you’ve got to go through transition, planning, there’s a lot of time in there for those cold feet to really, really freeze up a little bit. And for the buyer to say I made a mistake I got caught up in the heat of passion and now yeah. And I want to emphasize one other thing that you said here and that is we think multiple offers is a really good situation and it is but for anyone that hasn’t been in that situation before where you have multiple buyers all of whom are very qualified to buy your business and given you good offers. It’s really tough to choose because you can’t choose five offers. You’ve got to choose one. Joe: Yeah. Mark: And in your head, you’re going to be thinking I’ve got to get this right because I don’t want to go through this again or I don’t want to go through this due diligence process and then have to go back and what are people going to think I have to go back. So it’s actually really stressful and one of those good problems to have but still a problem. Joe: And that’s where I think the video … the folks that did video you know a better connection with Paul little bit although one of the top three didn’t do the video but just a super nice guy. I mean I just wanted … we both, Paul wanted him to be able to buy the business. He travels all over the country all the time and has two teenagers that he just doesn’t see enough and he wants to work from home. Mark: So there was that personal connection. Joe: Well, it’s that personal connection tugging at Paul’s emotional heartstrings, at mine. I think he’s a great guy. I would love to help him find an amazing business so he spends more time with his family and becomes an entrepreneur which he’s not now. He’s in the corporate world. Mark: All right we’re getting close to the end so let’s wrap. I want to get to the end here and talk about— Joe: Sad news. I’m sorry. Sad news having to tell eight people they didn’t get it. Mark: Then also I want to know the metrics. Because I know you had recommended to him go out, we should go out at a 3.5 multiple. We covered that the beginning and he said I don’t know if we need that you know as … being and Paul sounded like a great guy 3.3 is what it went out at. I’d like to know where the highest and lowest came in and then also the sad news portion having to tell so many people that wanted this business sorry we’re going to keep you in mind, we’ll keep looking for you. Joe: Yeah, again I wanted it to go at a 3.5. I thought it was worth a push and I let him know it’s a bit of a risk. We haven’t sold one at 3.5 that’s 100% Amazon business with discretionary earnings this “low”. It’s still 440,000. We wound up with the highest one being at 3.6, 150,000 over asking and the one that he chose was 50,000 over asking at 3.4, 3.41. And it was an all cash buyer and had the funds on hand. Had had the funds and had the experience and has bought Amazon business before so he looked at the full package. Cash buyer, close in 30 days, hiring Centurica for due diligence but understands Amazon really well and that training and transition was going to be a breeze. It’s the full package and that’s why he chose that particular buyer. Mark: Yeah, again we’ve talked before about people winning with lower bids. Not necessarily being the top bidder but still being able to win. And we’ve also talked about the idea that financial motivation isn’t always the sole motivation right? People sell for a variety of reasons and so being able to understand, as a buyer understand some of those secondary goals can really help you out quite a bit. Joe: Let me just jump in, it’s not always a cash buyer that wins as well. If everybody remembers the story I’ve had Syed Balkhi on the podcast and he chose a buyer that was an SBA buyer at full price on his business versus a cash buyer because he just really bonded with that SBA buyer. And he carried a 10% seller note on that particular listing too. So he chose an SBA buyer and a seller note over an all cash buyer. So SBA wasn’t necessarily the problem it was just a combination of a number of things and Paul really wanted to get the business sold. And he is kind of a nervous guy a little bit so he didn’t want to have to wait upwards of 90 days; 30 was comfortable. Mark: All right what final thing should people know about this particular deal? Because this is a fascinating little case study of just a listing that’s going crazy, how to act on the buy side, and also how to set your business up from the sell side. So what final things should we probably round this episode with? Joe: Well I hate to finish it with … you know just because this one sold a 3.4 doesn’t mean yours is worth 3.4. This one has all of these little points and metrics to it. I launched one this week Monday at 3.3 and some of those same buyers, those eight buyers a few of them have looked at it and said no. Others are comfortable with the niche and like it and see the upside to it so I think we’ll get at or close to asking. But just being prepared running a real business, think about it from a buyer’s point of view. They’re going to be investing their life savings and if you were them what type of business and what type of person would they want to buy that business from? We want them to succeed. You want them to succeed. And that’s really what you need to focus on. Mark: That’s fantastic. Hey, thanks for sharing all of this. I know that you always have the best case studies mainly been because you do the most deals at Quiet Light. So thanks for sharing this one. The next one I’m going to write a better teaser than yours and I’m going to try and get like 251 inquiries in the first 24 hours. Joe: You taught me how to do it so I know you can do it. Mark: Well, then I’ll make sure that I’ll let you know in every podcast. All right cool, hey thanks, Joe. I appreciate all of it. Joe: You bet.     Links and Resources: https://www.quietlightbrokerage.com/ Listen and subscribe on Itunes  

Going back six years, the concept of owning an e-commerce business where you could set up a site, sell a physical product, and never have to hold stock was extremely appealing. That concept has died down in recent past. Today we have someone on the podcast who is here to report that drop shipping is not dead. It is sustainable if it’s done right. We’re going to hear how our guest is perpetuating that sustainability with his business. Anton Kraly is the founder and CEO of DropShip Lifestyle & eCommerce Lifestyle. His business is focused on empowering people through eCommerce and effective marketing. From a book that he absorbed in one week, Anton got his website up and his business going. He learned all about AdWords and how to make it so his site got those clicks. Anton takes us on his twenty-year journey from delivering a physical product, then moving onto product listing and inventory on a larger scale, to eventually going back to the true drop ship model. A successful drop shipper’s job is to build a store with a desirable product, make it look good, have excellent customer service, and then sell, sell, sell. Episode Highlights: Benefits of drop shipping versus building your own brand. The disadvantages of drop shipping – if any! Anton’s tips on where to find products. The average order value Anton recommends. How to convince the manufacturer to take you on as a seller. The best platforms to use for sales and website examples to review. How to advertise and where to find clients. Marketing channels to use other than Google. The importance of self-management/DIY when building. We discuss the Amazon factor and its implications for the drop ship model. How to use drop shipping as a stepping stone to building a brand. Transcription: Mark: About five or six years ago Joe we had an e-commerce business … man maybe even more than that, maybe seven years ago or right around the time you started at Quiet Light Brokerage. I remember like the hierarchy for e-commerce businesses right at the top was having a drop ship business. Because people love the idea that you could set up an e-commerce physical products business but never actually have to touch the product like oh this is beautiful. Today they’ve kind of fallen out of favor. We don’t see drop ship business as often and I think it’s because people think that they’re just kind of easy to spin up and then they get wiped out. But you had somebody on who is in the drop ship world and loves it and is doing a great job. Joe: Yeah. Anton Kraly ‘s been doing it for about 20 years. He actually started in New York. He had a bakery route where he had a truck literally delivering bakery products to different retail outlets and set up a website and started dropping shipping bakery products all around New York online back 20 years ago. Fast forward to today he really talks about the differentiation between owning a physical products e-commerce business and large amounts of working capital rolling like crazy and taking all the profits putting it right back into it and [inaudible 00:01:56.5] that story versus a drop ship model. A drop ship model; he really hones in on the fact that it is mostly pure profit. You’re focused on advertising dollars; that’s important. We talked about the average ticket size and why it’s important to be larger rather than smaller and US manufacturers and how to find them. Like you said five, six years ago it was all the rage. I think it’s a great model, to be honest, we think it’s fantastic. It takes less working capital to get started if you do your research and really focus in on some of the things that he’s talking about. I think it’s a great opportunity for somebody to start their own business versus buy. I know you had Amanda on the podcast about that. I think it’s a great opportunity to go that route if there’s not a ton of money for startup capital and you really don’t want to do imported from China which can be complicated. Mark: Yeah. Look at one thing and think about these ideas of fading niches and fading business styles is that if you find a business today that is in one of these fated business setups like drop shipping; if it’s doing well today that’s most likely a highly sustainable business. We look at these things and we say oh well drop shipping didn’t work because it’s just not sustainable for the long term. If somebody has been doing it and is doing it now today then there’s something sustainable about it. I would agree that the old model of just taking a product feed and throwing it up there, yeah there might be some problems with that. But drop shipping is still viable if it’s done right. So I’m interested to see what he’s doing specifically for that sustainability and protecting against that competition and hearing how this will all work. And this is fascinating. Again this is kind of a blast from the past but how it works today. So let’s get into it and see what he has to say. Joe: Let’s go to it. Joe: Hey folks it’s Joe from Quiet Light Brokerage and today I’ve got Anton Kraly with me on the line. Welcome Anton, how are you? Anton: I’m doing very well Joe. Thanks for having me. Joe: It’s great to have you here man. You know the process; we’ve talked about it just before the recording started here. Why don’t you give the folks a little bit of background on yourself and what you do with ‎Drop Ship Lifestyle? Anton: Sure. So yeah my name is Anton Kraly. I built my first e-commerce store way back in 2007. I started off then selling cookies online and basically just got into the business after reading I think a book that got most of the entrepreneurs [inaudible 00:04:07.8] started which was the 4-Hour Workweek. I mean it introduced me to back then Yahoo Stores and AdWords. So I spent a week figuring it out and it worked. I since then kind of been working my way up selling more and more expensive products and transitioning from what used to be an importing model to the drop shipping model. Joe: One week? You took the book 4-Hour Workweek and in one week you got a listing up and running and a business off there? Anton: Yes but before that, I thought that e-commerce and building websites was like this big thing that took a team and $100,000 plus and all these … you know just technical people. And that book what all it gave me was you can go to YahooStores.com and spend $29. And the website was ugly. It was very ugly but I had a delivery route for a bakery in Brooklyn, New York. So I had this idea that I could build a website. I had access to these bakery products. I figured out Ad Words and just said hey we’ll use keywords like New York Bakery, New York Cookies, and said I think my little descriptions were moved out of New York and missed New York Bakeries? Click here. And yeah I started getting sales like almost right away on that. Joe: That’s amazing. I love it. I love the story and I love the action in terms of just doing it and getting things done. It didn’t have to be perfect. If you waited for it to be perfect you would still be working on it for sure. I think I built my first site for $50 so congratulations you got me beat. So … but you were actually physically owning the products in terms of the baking goods and at one point you worked in to just drop ship. Can you touch on that a little bit? Anton: It’s funny actually I was I guess technically drop shipping then but what I had at that time … I was 21 years old right out of school and I bought a delivery route for a bakery in Brooklyn. Joe: Ah okay. Anton: What I had basically was the rights to pick up boxes of cookies and sell them to a section of Long Island where I was living. And once I started this business at first I was just shipping them myself like literally having USPS pickup branch boxes and then I just said to the bakery like hey can you guys just ship these things for me and they said yes. So that was drop shipping. I didn’t know what it was but after I was doing that … not for long, probably a few months I just was thinking like okay I’m selling $20 boxes, $30 boxes making like $10 per sale if that net so why can’t I sell something that costs $200 or 500 or a thousand. So my initial plan back then or is my plan of action and what I did was go on e-Bay, look at completed listings and just looking for things that sold consistently. I buy at now prices, basically identified some items, I still don’t know what drop shipping was so I found a website Alibaba.com and started importing. So I did that probably for two or three years import only. Bringing in dozens of containers from China to Long Beach in California and all my e-commerce stores back then were on that model. As I did that again after a few years of traction and doing really well growing like doubling over year over year I actually started to have companies reach out to my stores. And they would say hey we saw your website, we see you sell these things, we make these things do you want to sell ours? And they basically introduced me to drop shipping. Because they explained you don’t need to buy this, you don’t need to put it in your fulfillment center. You can just list these products, you sell them, and we’ll ship them for you. Joe: Let’s define that then. For people that don’t have the experience set that you and I have go ahead and define drop shipping and how it’s different from owning your own brand and physically owning the products and shipping them yourself. Anton: Got it. Drop shipping really is a high level term so if you Googled it you could find probably 10 different business models that technically would be drop shipping. And the way that we do it is basically we consider ourselves Internet retailers. So the way I like to describe it is if you went to a shopping mall and let’s say you went to Dick’s Sporting Goods right? They’re a retailer. You go there and you buy Nike shorts and maybe Callaway golf clubs and whatever brands make kayaks and they sell other people’s products. So that’s how we do drop shipping. So again instead of building a site and let’s say … you know I have a sofa behind me, so instead of making sofas or private labeling sofas we would just go out there and find the top 50 or 100 whatever it is sofa company is for us in the US because that’s where we do business. We would reach out. We would say hey you know we see your products and we own this site and would like to sell them. And the arrangement on the drop ship model is they give us their full product catalog. They give us all their descriptions, their SKUs, their images, they just give us all the content and then us as retailers it’s our job to make them look good on our websites. Basically, make sure we’re taking care of customers and then, of course, our job is to drive visitors and then turn those visitors into customers on our online retail stores. Again the difference is I wouldn’t ask those 50 sofa companies can I buy ten of all your best selling products and ship them to my warehouse. I would just get the sales on my website after the sale is made the order gets forwarded to whatever brand it is. The brand ships it direct to the consumer. So again your job as a … and the way that we do it your job as a drop shipper or internet retailer is to build a good store that has great product descriptions that actually has existing customer service and that gets really good at finding buyers bring them to your website. Joe: Yeah. So you touched on some things that I think are advantages of drop ship over owning your own brand but I want you to go ahead and give me two or three there and then we’ll talk about them for those listening in the audience. Anton: Yeah; definitely, so back again let’s … maybe 2008, 2009 when I was only importing. Basically, I was limited in terms of growth, in terms of revenue because every time I place an order with China I had to put down at least 30%. Before the container got to California I had to pay the balance. Joe: A container … I mean we’re talking about a tractor trailer load size— Anton: Yeah. [crosstalk 00:09:32.2] Joe: —a lot of money there. Anton: Yeah. That’s right a lot of cash. And basically, that’s what happened. Our growth back then was limited based on how much cash I had. Again I had … only I had what was coming in so it was a bankroll sitting there that I could draw from. So basically yeah that was an issue. And then also if I wanted to add new products, back then I probably had between 10 and 20 different SKUs. So I couldn’t just say I want to sell … I want to double the amount of products we offer and sell those. I just didn’t have that option because again it was cash prohibited. Joe: Number one might be … I mean if someone is starting out on their own and they don’t have a whole lot of working capital they may seriously consider drop shipping versus finding, building, designing, private labeling their own brand and then ordering some from an overseas country. Anton: Definitely. Joe: So working capital. If somebody is strapped and doesn’t have tens of thousands of dollars to start off with. Anton: Yes. Joe: Okay. I got you. What kind of working capital do you think the … an average drop shipper that’s someone that you train needs? What’s the ideal situation? Anton: So it depends if you want to outsource things. Again like when I first started I built all my own websites and I created all my own ads and I wrote all my own emails and I did it all myself. So if you want to be the type of person or if you are the type of person that does all the work it really doesn’t cost that much as far as a budget. Maybe honestly like a thousand dollars, $2,000 in the high end is like that’s okay, again, if you’re willing to do the work. If you do want to outsource things like uploading products and having unique descriptions and having content created for your website, I wouldn’t recommend outsourcing ads at first but if you wanted to do all that then maybe 10,000 bucks and you can get set up with a nice looking store that’s pretty much ready to go. Joe: So drop shipping is not dead right? You know I just … before we started recording we’ve just had a very attractive drop shipping site go into contract in the in the mid million and a half range actually. Most people that are out there looking for a business think physical products and own their own brand so that they can in many cases they do it on Amazon or a Shopify store. What are the disadvantages that you’ve experienced by being a drop shipper versus owning your own brand … well owning your own brand, you still own the customers as a drop shipper. Anton: Yeah. Joe: But what are the disadvantages? Anton: So we’ve done it both ways and let’s go to it. We can talk about this but if you are again we’ll just keep using the sofa example. If I sold for 50 different sofa brands and I had a successful store I would know what the top 20% of products were. I would know what sells the best. And then again what I used to do … I don’t do this anymore I’m planning actually my move to Charlotte is to get back into this but what we used to do is introduce our own brands then on our website. We basically just okay we have 50 brands now we have 51, one of them being ours where we could sell our versions of the top products and maximize profit there. So that’s the biggest advantage if you have your own brands. The margins just simply are higher. You can make more money because you’re not paying for someone else’s brand equity basically. Joe: Okay, I got you. That makes a heck of a lot of sense. Anton: Yeah the other one is we usually … I mean you could speak about this but sale price. If you want to sell your store and you have your own brand that could be a bigger package. It could be more valuable to a buyer that wants that. But that would be another advantage. Joe: Maybe. Yeah, there are a lot of advantages and attractive features about drop ship. Number one, no working capital required. A lot of the people that own their own brands and launched their own business with a brand starting out they do it bootstrapped. Maybe they don’t have … maybe they have got 5,000 instead of a thousand or two like you talked about for drop shipping business but every ounce of profit that they make if the business is growing like crazy and they’re just trying to keep up with volume of orders and inventory so they don’t run out what I see is for 24months they’re taking all the profit and putting it right back into buying more inventory and there’s hardly left … any left over for them; its discretionary earnings, its taxable income, because they’re buying a lot of inventory. But they don’t get to pull a hold off out of the business and I sense that with a drop shipping business and I’ve seen it there’s a lot more pre-working cash flow because you’re not actually buying that physical product and so you’ve taken the order and have the money hit your account right? Anton: Yeah and that’s the beautiful thing. So like you mentioned with building your own brand and constantly having to reinvest if you’re growing to purchase more product, typically with that the payday does come when you sell the business. That’s when you get all that money out. As the business value grows but your cash flow doesn’t … or your free cash flow. And with drop shipping yeah if you do this the right way and you’re working with the right type of suppliers and of course you’re not overspending on traffic you really do control your costs. So most of your costs are variable so having … even if you’re in reinvesting like a little bit more into traffic and trying to raise your budget it is realistic to have a 20% net profit every month in cash that you can then again determine what you want to do with. If you want to invest it into a business or do you want to take it out? So our cash flow from day one is much much higher than when you’re going to be trying to scale your inventory. Joe: Okay. So let’s talk about I want to start the drop ship business, I’m convinced I want more cash flow. I’m not worried about a big sale down the road although they are very, very sellable businesses. How do I find the products? How do you find manufacturers that are willing to allow me to sell their products on their behalf? Anton: Yep. So as far as finding products there’s so many things out there but basically what we look for for some general rules of thumb is expensive products. Our average sale price we want to be usually a thousand dollars or more. We do sell products for less than that but that’s the average order value we’re looking for. We also look for different product types where customers really don’t care what brand they get it from. So an example I sometimes give is let’s just say someone heard oh a thousand dollar products price. I want to sell televisions or high end gaming monitors. Well, I would say that’s a bad idea because if someone wants to buy that they’re going to buy a Samsung TV or an LG monitor and that’s not a company you get approved to sell. But if you wanted to sell something like sofas or books shelves or any of these products types no one cares … no one says I want this brand name sofa and I have to have that. So things that … yeah, there’s really not brand loyalty. That definitely helps and things where there is a lot of possible variation or colors. So another example I give is chandeliers. So someone buys a new home like we’re trying to do now you want to replace the lighting fixtures. If I want a chandelier I can go to Home Depot and Lowes and see what they have. But if I see something on Pinterest or Instagram and I want this specific size and color and amount of bulbs like I’m not going to find that at a local store. So China might stack the cards in your favor by going for things where customers are usually drawn online, to begin with, to make those purchases. Joe: Okay so – Anton: [inaudible 00:16:14.8] to search for a new iPad but something generic. Joe: Right. So something generic with a high ticket item. How do you find those manufacturers? Anton: Yeah. So Google … I mean that’s really what we do. And one of the tips I could tell people not to do is don’t look for drop ship suppliers online. Because when you go that route what you’re going to find is directories and middlemen that typically charge like a monthly fee for access to their products. They really are middlemen. What you want to do is always get approved directly with the brands that you’re selling for. So you don’t want to go through a distributor if at all possible. You definitely don’t want to go through any one that calls themselves a drop ship supplier director or anything like that. Again going back to the sofa example, I would go on Google, I would type in whatever I want to sell; maybe three sitter fabric sofas. I would go through Google. I would open every website in a different tab that sells them. I would look for either a page called brands or manufacturers or suppliers. And I would go ahead and then open or make a document with every company name I found there. And basically, I would work off that list. So I would build my own list of not … again like I wouldn’t call them a list of drop shippers, I’d call them a list of brands that manufactures sofas. And then I would reach out to them old school by picking up the phone and saying hey this is Anton from AntonSofas.com, I found your website and these products and thought they’d be a great fit and who can I speak to about getting approved for an account and take it from there so yeah. Joe: How do you convince them to allow you to be a drop shipper when you haven’t built a website first or is the—? Anton: We built the website first. So yeah if I was getting into a new industry let’s … again sofas, I build a website. I would upload maybe five or 10 stock images. Everything else would be finished though, the about us page, all of it. Then we have blog posts up there. The whole thing; the phone number would work, the live chat would work. And then when we spoke to them we would say basically we’re launching this website on whatever it is you know March 1st and our plan is to work with X, Y, and Z companies. So mention some of their competitors that makes sofas that’s probably well-known and respected. And we could say our plan is to launch with again these companies, we’d love to have you on board. We think that your products whatever it is X, Y, Z that we found on their website would do really well. If they ask tell them a little bit about our previous experience, how we’re going to get traffic. Tell them about how customer service is everything with our business and kind of go through the things that we know that they’re looking for and the things that … they’re also the things that we know we have to do to make the store successful. Joe: Okay. So build a website on the product and then start the marketing and we’ll get to that in a second. So in terms of building the website do you have examples on Drop Ship Lifestyle of what one looks like that would be an ideal one to build? Anton: We do. We have a bunch of different links. I could send you some to check them out but I think one of them that we have a lot now is in lightandchandeliers.com so if anybody wants to check that out. We also have HappyPawsDogStore.com. So those are websites that are built on Shopify using the Drop Ship Lifestyle theme that we had built and they just show again what the site would look like at that stage when you’re ready to start contacting suppliers, get approved, and [inaudible 00:19:17.6]. Joe: So you answered one of my other question which is which platform do you prefer and it sounds like Shopify. Okay. Anton: For 99% percent of stores, yeah. Joe: All right so you’ve identified the niche that you want to go in to, you build the website, and then you find the manufacturers and develop the relationship and bring their catalogues into your website. How do you go ahead and find the customers and market the brands? Anton: Yep so our favorite way is still through Google Shopping by using Google product listing ads. Those are the ads if anybody goes on Google and types in a product name or you can just use the general niche name you’ll see the little images of different products. It’ll show the product’s price. It will show the store name. So we advertise there and then also if you’re … if you search that on Google and put shopping you’ll see all the ads there. And it’s just always been like back in the day I think when I first started it was called frugal.com and like that’s always been our highest converting source of traffic. So we focus on not just having our products there but really optimizing our product feeds to make sure that we are getting a good ROI. Because the big … since again all of our expenses are variable our biggest expense is marketing. So we spend a lot of money on ads. And so I’m just making sure that we are putting it in the right places and monitoring it. Like we we’re always reviewing our ad campaigns. That’s what drives the business. Like you need a high converting website, you need great brands, but if you’re not really active with … inside your Google ads account then it doesn’t matter. So yeah that’s what drives our sales. Joe: So that initial one to $2,000 that you thought was a big budget initially does that include the advertising budget when you launch? Anton: Most of that would be going in there. And this is another good thing I should have mentioned earlier but speaking about how these are cash flow businesses with the way that we do advertise to get the majority of the time it’s either coming from a Google product listing at search or someone searching for a brand name or a product name or an SKU number or it’s something that we optimize for on our website where they’re searching again and they’re finding us organically. But by the time people find us they’re typically trying to figure out am I going …with where my going to buy from basically. They know they want product X, Y, Z and they’re looking to figure out where they should buy it from. So we do a bunch of stuff on our websites to have them choose us. But also by the time they click one of our ads they’re either going to buy or not buy typically in like three to five days. So it’s not like we’re spending whatever a hundred dollars today and hoping it comes back to us two months from now. Joe: Wow. Anton: Spending money now and if we’re not [inaudible 00:21:34.0] positive within a few days then turn it off. Joe: Let me just summarize and differentiate the business model between owning your own physical brands folks and the drop ship store. Again I just want to wrap it up and summarize if you’re not wrapping up a summarized. So building the shop … you’re building the store, you’re spending a total $2,000 budget all in and that includes advertising. With a physical products brand, you’re doing that as well but you’re ordering the product from let’s say China, for instance, waiting for that product to come in, putting it up on Amazon, spending some money to get traffic either to Amazon from Facebook or some other source and doing sponsored ads in Amazon. So far we’ve spent, we’ve spent, we’ve spent, we’ve spent, and then you’re going to get paid out every two weeks from Amazon. Your advertising budgets are going to take and blow your credit cards once a month. With Drop Ship Lifestyle or drop shipping, you’re not spending any money on product. You’re building the website and you’re building … doing the marketing campaign. And it sounds like if somebody is going to take … you start getting orders right away after a few days, weeks of advertising again even your advertising budget is with your credit card and you’re not getting … you don’t have to pay that depending upon the time or the month when you launch for another 30 days. So you’re getting the revenue from the sale before you have to buy the product and you’re just sending the … do you send an invoice, an ACH wire, or do you—? Anton: No. Joe: Or some of your manufacturers take a credit card as well? Anton: Most of them are credit card. So whenever we can we go credit card and so yeah the points if anybody’s into that is amazing. I haven’t paid for travel in like 12 years so you’ll want to use rewards cards. Joe: There was a time when I was spending … the highest I ever spent was 50,000 a month on Google Ad Words when I had my business and we furnished our house, we took vacations, everything for the points. Now let me just talk to buyers and sellers, particularly sellers out there when it comes to points. Something like this if you’ve got a drop ship business and you’re doing it this way that Anton’s talking about, if you are spending $100,000 a month on inventory and advertising, of course, you’ve got to pay for it in advance. Anton: Mm-hmm. Joe: So … but if that’s 100,000 points if you use a point converter or a cash back credit card. That is what’s called an owner benefit. Anton, I want you to pay attention to this and talk to all the folks that you train. Anton: Okay. Joe: That is an owner benefit that you should track because if and when you sell your business it needs to be added back to the add back schedule as an owner benefit and can boost the overall value of your business. I just launched one recently and he travels the world and does it all with … no, I’m sorry he buys all of his inventory with credit cards and that gives him an enormous amount of cash back. I think it was something let’s call it $25,000 cash back over the course of the trailing 12 months. If your business is listed at a three time multiple everyone that adds $75,000 to the overall value of the business. For buyers, if you’re looking at businesses and you’re looking for some instant equity if a broker didn’t list cash back points or anything like that and sometimes you’ve got like Anton said travel you can convert those. With our American Express there’s we’ve got a certain number of points and we can convert that to cash. That’s the amount we’re talking about. But that could be instant equity in a business for a buyer if you’re taking over drop ship model and your broker didn’t do that or the broker that listed the business didn’t do that you can. Okay, how much are you spending? What kind of points? You know using credit cards do the math and it’s definitely instant equity. Okay, sorry long rant there. The biggest thing for me and so when I’m talking to buyers and mostly sellers and I’m going to say this for the folks that are listening the biggest mistake you can do … make is not pay attention to the details of your financials and documentation. A little thing like that, we all work so hard when we’ve got our own businesses to drive top line revenue and talk oh I’m doing this many millions in revenue. That doesn’t matter as much as the bottom line number and when you pay attention to that that actually brings more value when you do decide to exit your business. Okay, Joe is done ranting. All right so other than Google Shopping what other marketing channels are there in terms of paths to growing the business itself? Anton: So the ones that we … I’d say use every time so it varies, so you find some industries where there are certain placements but whenever we’re building a new store we will be obviously Google is our number one. Organic traffic is big. We used to invest a lot of money into it trying to rank major keywords. We don’t do that anymore. What we do now is just focus on site and make sure that all of our product pages especially once we know which our top 20% of products are going to be, we make sure those are extremely unique and optimized because that’s just free clicks and free sales. So organic is big for us. Bing, believe it or not, we advertise. It’s probably 10% of our overall marketing budget. Joe: I’m not sure if I believe it or not. Okay, 10% all right. Anton: We’re putting some money there. There are people, they’re sales. Joe: Okay. Anton: We can’t scale it. Every time we try to scale it it breaks. But add a small budget and it works. Facebook we are big on but only for remarketing and the reason being we do sell high ticket products. So to put an ad for a chandelier in front of someone that likes I don’t know what interior design they’re not going to buy it so … retargeting though we are big there. YouTube ads actually work really well for us as far as remarketing also. And then one of our other ones that budget depends on what industry are in and what’s out there but advertising on other content sites that already exist. So you can call it influencer marketing but it could either be a business, website, a content site, it could be someone’s personal content site. But either doing like paid promoted articles or taking out ads in the sidebar. Either way but trying to form relationships with people that already have the audience there and then paying them to either have them talk about us or to allow us to put a little banner on their website. Joe: I got you. And a lot of the stuff you just talked about, we’ve had guest experts on that do YouTube ads or might do influence or marketing things that of that nature. Are you generally finding the people that you work with managing all of this themselves early on how … somebody that doesn’t have the expertise to do that what do you advise them to do? Anton: Typically if they’re starting from scratch and they want to build a business and with this type of business I don’t recommend hiring anybody from day one. I recommend like learning at least … look do it yourself and get it profitable and then okay look for someone that might want to run your content side of the business or look for an agency that can manage your Ad Words but I really … for most people when they’re starting I say do it yourself. It’s easy to throw money away and I made this mistake early on with my e-commerce businesses. We were profitable but when I look back I spent all this money in like fees into all these companies and I didn’t know enough to know that I was grossly overpaying for a lot of things. So yeah lesson learned. Joe: That’s the beauty of experience and age and wisdom right? You get to remember all your mistakes and what you might have done differently. Talk to me about Amazon. Anybody got drop ship businesses that are reselling on Amazon and if so how do you do that? Anton: I’m sure the answer is yes. I’ll tell you we don’t do any drop shipping on Amazon haven’t even ad … I used to advertise there back when they allowed Amazon product ads to go to external sites. But that’s been gone for a few years. Yeah, there’s some people that I work with, some of them are students at Drop Ship Lifestyle that have their own drop ship stores that do what I’ve spoken about earlier where they’ll introduce their own brands into the mix of their drop ship store. And typically when they do that they’ll also have their products on Amazon because they know that people at least a percentage of them will also with Amazon and look there. With the type of brands that we work with typically when we are getting approved to sell for them and we’re signing the agreements, one of them says that you’re not going to sell on 3rd party platforms like companies like e-Bay. They don’t want to sell us to sell there. Same thing with Amazon reason being is because if they’re going to have their products there they usually do that internally. A lot of the times because the items are usually expensive and margin heavy they’re not the type of items that people are private labeling and putting on there. So it’s really at this point I’m sure this will change in the future but at this point, it hasn’t been a huge factor because I think our price points are higher and again the items are usually like too big to be sending over to FBA and paying storage fees. The numbers don’t work at this point with that model. Joe: Do you foresee any danger as a drop shipper that the Amazon business model is going to be a challenge for drop shippers because those manufacturers can go directly to them and guys like me anytime I want to buy something I go to Amazon first? Anton: Yeah I do. And I’ll say at this point I’m not like freaking out like oh my God like I … were gone but I do think that five years from now 10 years from now, if Bezos gets what he wants then Amazon will have the entire market share of everything. So I … you know I’ve talked about this before but I think like we’ll see. Like that’s definitely where they want to go. I think they’re pretty upfront about it so unless someone else steps in or unless the government breaks them up from getting too big then yeah we’ll see what the market looks like. Again I don’t think it’s coming anytime soon but maybe call it 10 years we’ll see what things look like then. But I’m in no way confident that they’re going to just back down and say we have enough. They’re not about to stop. Joe: Yeah well I think your approach to larger ticket items that higher value, not easy to ship, not easy to store at an Amazon warehouse kind of eliminates … they can’t have everything right? I mean Jeff— Anton: They’re not now they haven’t. I mean they’ve taken over pretty much every market in that call like $100 sub priced product range and even electronics; like I buy some of my electronics from them. But as far as the types of products that we sell it’s been that one area that they haven’t really stepped into at least not in a big way. Like they sell basically … at this point, they sell cheap versions of the stuff that we sell. So you know if you search for a lot of the brands we sell they wouldn’t sell for those brands but they’ll sell like an inferior type product I would say at this point. Joe: I got you. I know that I say the first place I go is Amazon and I rarely buy anywhere else but them but when I find a certain brand I will go to that website and I would certainly buy from them. And I know my wife will certainly buy from the brand manufacturer or in many cases we built our house three years ago and she was that person looking at 30 different websites for the lighting fixtures and probably brought from one of you guys at one point. Anton: Probably, but for anybody that’s like thinking about that and kind of like worried like well yeah that probably is going to happen. I think one of the biggest things you could do is look at sites now that are … I don’t know I would say going above and beyond like don’t do the bare minimum as far as content and as far as usability and as far as like everything; the whole experience. One website that I buy from all the time is the bnh.com. They sell you photo and video equipment. And they do have a huge store and warehouse in the middle of Manhattan but most of their orders now are online. And I think that all that stuff that I buy from them I could buy from Amazon and I buy it from Amazon all the time but I like the experience there better for that type of product. So if anyone wants inspiration check out B&H and see how they do things. They do a great job. Joe: Thanks. So I think this whole podcast has been inspirational for those that are looking to build an e-commerce business in this case specifically drop shipping. It’s a great alternative to the risk and cash outlay of building your own brand. Any last thoughts in terms of what the benefits are anybody should think about in terms of drop shipping versus e-commerce? Anton: Yeah I think for anybody even if you’re listening to this and you’re like oh that sounds good but I already have half a million dollars in the bank and I just want to build a brand. I still think you could do both simultaneously and it’s a great idea to start with a drop ship model in whatever industry you want to private label or manufacture in. Start drop shipping, build a website, build an audience, get sales, see what people buy, see what they like and don’t like about products. You’ll have all that market data you’ll be making money and then you can go ahead and start your own brand with all the information and really increase your chances of just hitting on your own bit. Joe: That’s great Anton. Your website is DropShipLifestyle.com you’re helping folks understand the drop ship model. What’s the best way for them … anyone to reach you that want to chat? Should they just go to the website is there a—? Anton: Website, DropShipLifestyle.com click contact, and everything is linked up off there. Joe: Fantastic. I appreciate your time today. I look forward to doing business with you in the future. Anton: Definitely. Thank you, Joe. 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Here at Quiet Light we often like to hire people who are just a bit smarter than us. Amanda Raab is one of those people. She has been helping our clients through her own expert entrepreneurial experience since 2012. Having started the famous Pure Pearls online retail company at just 25 years old, Amanda has gone on to buy and sell multiple businesses. She’s with us today talking about the benefits of building a business without working herself to death. Amanda shares tips on how she’s acquired multiple businesses, outsourced their growth, and sold them successfully. The buy versus build topic truly never gets old and every time we talk to a guest about it there is something new to be learned. Amanda makes a good case for both. Episode Highlights: Amanda takes us back to how she got started in the online world. Her pearl company story and the press surrounding her success. What it took for Amanda to realize she could hire people to run her businesses. The absentee owner business model that she’s been able to replicate several times over. Reasons to hire someone who is good at every component of your business. What Amanda looks for when she’s hiring and what building a solid team requires. How much she manages her creatives and monitors their input. Where Amanda lands on the buy vs build spectrum and why. The first areas Amanda outsources when starting a business? The last thing she would outsource. Amanda’s number one piece of advice for buyers looking to invest in an internet business. Transcription: Joe: So one of the things that you and I have talked about over the last few years is that we keep hiring people that are smarter than us, maybe smarter than both of us combined which may not be saying much. Mark: Yeah you set the bar pretty high there Joe. Joe: For you anyway but Amanda is talking about a number of different things in this podcast coming up. Amanda and I started at the same time back in 2012 and I’m really looking forward to listening to it because honestly, I don’t know that much about her history. But every time a new broker connects with her, talks with her, they get kind of blown away with her experience. Walker, as we all know, wrote a bestselling book and we like to make fun of him and prod him on and we’re proud of him for it as well called Buy than Build and in this episode, Amanda’s doing the opposite. She’s talking about the benefits of building a business, outsourcing some of the things that people don’t like to do themselves, and then actually selling them off. Kind of the opposite of what Walker talked about. Mark: I mean you’re right she’s kind of a more private person and I think I was working with her for three or four years before I realized that she was … or I even learned that she was featured in Time Magazine when she was in her young twenty’s for some of the entrepreneurial work that she was doing. And she actually had a documentary filmed on her about sourcing pearls from China of all things. Joe: Oh. Mark: Yeah I know right? Joe: I didn’t even know that. Mark: Yeah to think we’ve been working with her for seven years and you didn’t know that there was a full documentary on this person that we’ve been working with. And also that she was invited and actually spoke at a conference. Did you know this Joe? She actually spoke at a conference in the past. Joe: She did? Mark: I know right. Joe: I have absolutely no idea. We’re underutilizing her talents. There’s no question about it. Mark: That’s what I’m saying. And she is actually crazy smart, one of the most talented entrepreneurs that I know and have known. So in this conversation we ended up just talking a lot about her background because I wanted to find out just in this conversation what wisdom would come out and what revelation would come out of this and getting in a couple of things right away, finding out how did she start multiple businesses, grow them but not work herself to death because she’s always building a new house or a new rental property. She’s always got some other project with a business on the side. And then she’s been working with us for as long as she has. So her time management skills are great. So we talked about this idea of how do you outsource your business people. And I know we’ve covered this before on past podcasts but I don’t know if this topic really gets old because people are doing this in different ways and every time I talk to somebody about this I learn something new about how they’re doing it. And so I asked her what is the first thing that you outsource when you start a business? And I’m not going to share the answer now because it actually surprised me a little bit as to what the first thing was and what the last thing was that she does. And then we talked about this idea of is it better to actually build a business or is it better to acquire a business and when should you look at both options? And I thought it was a pretty good conversation, a very honest conversation as well that hey there’s room to actually start a business in this entrepreneurial world of ours where people might think we only want to talk about buying a business. She made a pretty good case for when it makes sense to actually start something from scratch. So a fun conversation honestly and really just lots of interesting tidbits of information throughout the entire podcast. Joe: Well I think it goes to the depth and breadth of the quality of people that you’ve hired at Quiet Light over the years so I’m looking forward to listening to it. Let’s go on and so people can stop hearing us chatter. Mark: Well I’m going to say one more thing. Joe, did you know that she decided to start an affiliate business and within four months became the number one super affiliate for that product? Joe: You know I had no idea because the only one who I thought was ever a super affiliate was Jason because he wrote the Bathrobe Millionaire. Mark: He’s our other author. Joe: He’s our other author, our super affiliate. Wow, no I didn’t know that. She’s never said a word. I wasn’t— Mark: Exactly, I love it. So anyway let’s get to know Amanda a little bit and hear some of her past and some of the things that she has to say about online business. Joe: Let’s go to it. Mark: All right Amanda thank you so much for finally agreeing to come in the podcast. I’ve been trying to get you on the podcast for a while but I know you’ve been building houses, building rental properties, doing business … starting businesses, and of course helping Quiet Light Brokerage clients as well. Amanda: Yes, I’ve been busy that’s for sure. Mark: That’s for sure. Amanda: So now I have some down time and I decided to take on the challenge of doing one of these podcasts. Mark: Yeah well, of course, doing the podcast is always a little bit interesting but I think again we’re just going to have a conversation here about your background and everything else. So I tell … I don’t want to embarrass you right off the bat here but when I talk about the Quiet Light Brokerage team to people I often say well Joe is a client, Jason is the one that kind of forced his way in the door of Quiet Light and I tried to scare him away by giving him all these awful leads and the next thing I know Jason is breaking every record in the book. Joe came on and has been doing the same. But when I talk about you I said … I always say one of the smartest buyers I’ve ever worked with. And that’s how you and I initially met; you were looking at one of my transactions … a deal I had. Do you remember that deal? Amanda: Yes I do. Mark: Yeah. Okay so … and a real lot of competition for that deal but of all the buyers you’re able to kind of hone in on some of the key metrics right away. [inaudible 00:06:06.8] was super impressed. I deal with a lot of buyers so super, super impressive. So let’s do this. Let’s go back a little bit to how you got started in the online world because you actually started with a website called PurePearls.com. You were featured in Time magazine at a super young age. And then you filmed a pearl documentary in China as well right? Amanda: Yes it’s kind of crazy to think about it because that part of my life was much of a whirlwind. But I was actually in grad school when I started my pearl company and thought it would make a great hobby. Something as a creative outlet outside of the day to day just what I was doing already in grad school. And so it kind of just snowballed and I just loved it. I was super passionate about learning the business not just the pearl business but just e-commerce, internet marketing, what it would take to get in front of customers. And that opened up so many other opportunities from public relations to search engine optimization. At the time those were big channels for marketing and it just kind of went from there. At the time I was focused on the pearl company I realized there’s much broader market and I started getting interested in other opportunities as well. I was invited to a conference in DC to do a speaking engagement for Yanik Silver’s Mastermind Group. And as much as I do not like public speaking I decided to face my fears and do it. And I met so many awesome people there. And I just kind of basically looked at what everybody was doing and thought wow there’s just so many things that we can be doing with this internet space. And that was kind of a long time ago so I’m thinking that was probably around 15 years ago. So at that point, I just started another company and built that company, sold the pearl company because it was exploding at the time and I just … I couldn’t manage it all. So I kind of started small with my new company in the printing industry. So its check printing and I started five new websites. So I just kept building, building, building and developed relationship with manufacturers and started printing basically our own custom products. I scaled that up and realized that I could develop a team to make sure that was a lifestyle company and I didn’t have to be in the business. And that’s kind of where I got the idea of starting my self-company. Businesses that I did have to work in that I could work on building teams to run them and basically allowing me to do a lot of different things. And so I didn’t have to focus on just one niche. Mark: I’ve just run being been in the business. I’ve met a guy over the weekend. I was at a conference in Los Angeles … not it the Internet marketing world it was just kind of a more generic business conference. And he used to be a professional fighter and then we were talking about his business career. He said well I have 13 companies so I founded 12 and acquired one. I’m like oh my goodness and he said well I don’t really do that much I’ve put teams in place. And we’ve talked about this on the podcast as well. We had Shakil Prasla on twice talking about this and how he hires CEO’s and puts people in place. And this seems to be kind of this recurring theme with a lot of what we’re doing here talking about that. At what point did you learn to put people in place with your companies? What did it take for you to be like you know what I’m going to hire people? Was it … well did you have kind of like a moment where it kind of struck you or was it more organic over time that you realized this is a good way to go? Amanda: I’d say both; a combination. With my pearl company, I realized I needed to put systems in place because I wanted to do a lot of different things. And so I went to an event and I heard somebody speaking about outsourcing things that you don’t like to do. And I was like wow that’s really smart because when you run a business there are going to be things you don’t like to do. There are those dreaded tasks that you put off and put off and put off right? But you need to do them to run a functional business. And so at that point, I started outsourcing things for the pearl company. When I first started obviously I was wearing all the hats in the company but then I started hiring a customer service person. I was lucky enough to have somebody to handle all of the manufacturing and the shipping for me, the packaging so I don’t have to actually even touch the product. And from there I hired a marketing team, content writing and things like that. So basically all I did was make sure that the marketing was on point, develop new ideas for marketing channels, and keeping the books in line. And then when I brought on my new company Check Printing, a financial printing company, I kind of used the same system and developed it for that business and it worked really well. I started that from the very beginning and so it was very much an absentee owner business outside of me looking at new marketing channels and keeping the books and whatnot. And so I was able to replicate that with each of my other businesses as well. I think it comes out of a necessity because when you want to do a lot of things you realize you have to create these systems right? But also I don’t think you can be really good at everything and I’m not. And so you hire people that are really good at each individual component. So somebody who’s customer service is likely not to be the greatest at book keeping, right? And somebody who’s great at Search Engine Optimization may not be that great at Facebook Marketing. So I think it’s really important to hire somebody that is really in tune with each different component of the business. It just makes more sense. Mark: Okay so we’re going completely off script here because we’re going to talk about the buying versus building and kind of building off of Walker’s episode that we filmed. You know Walker who is a … we always have to say now best-selling author Walker Diebel because he’s done such a great job with his book Buy than Build. People are like … we’re at CapCon this past weekend and we gave away his book and when people realize he was there like oh the author is here, oh that’s super cool and like he’s kind of a big deal. So we’ll get to this I do want to talk about building versus buying and making sort of the argument of why would you want to build a business someday. But I want to go back something you’re talking about here, hiring out different pieces. Okay, it sounds so easy to do to say hire a marketer and hire somebody who’s really good at what they’re doing. Okay, great. Look I’ve hired people before, I’ve fired people before, these are all … it’s usually in the agency sort of roles. When you’re looking for somebody to hire specifically for marketing let’s delve into that, how do you A. qualify them or what do you look for? Are you looking for an agency? Are you looking for an individual that works for you directly? Or does it really matter to you? And then also how do you … you said keep the marketing message on point? How? What are you doing to keep that marketing message on point and to check that? Amanda: That’s a great question. I was actually reading something last night that said there’s no such thing as a getting rich quick scheme. They often take a lot of work to get there. Even though it sounds simple it’s actually really difficult. And it kind of goes with the same thing that success is like an iceberg, you only see the top part but there’s a huge component at the bottom to making that work. And so there’s a lot of trial and error with that to find the right person. Obviously, there’s going to be a lot of hiring and letting go and finding somebody else because you learn what you don’t want, you learn what you actually need. And sometimes that can be an agency if they have all those components built in. So if they have everybody you’re looking for and they’re doing exactly what they say they’re going to do and holding themselves accountable then great since that makes sense. And to me, that’s ideal because there’s less hand-holding and less training involved. A lot of times though, it does involve finding one contractor to do something very specific. And it does require constant monitoring to make sure that they’re staying on task and basically meeting those milestones that you’ve put in place for them. So I think that building that team does come with trial and error. It does come with some unfortunate firing of team members because they’re not performing. But at the end of the day finding those quality team members are what kind of drive your business. So it’s really important to stay on top of it. Mark: Yeah and I think it’s important as well when talking about letting people go. Like this is the unfortunate part of being an entrepreneur, sometimes you have to let people go. But I do think it’s important to look at the options available to you as well. Maybe like you said somebody is really better suited for customer service and you can really apply that. I often think about like sports teams and what do they do right? Sports teams are often handicapped by who they actually have on their teams and so a lot of times they play to the strengths of the team members that they currently have. And so this is something that for those of you that are currently like me that kind of cringe at the idea of letting people go this is something that you can do; it’s invest in the people that you do have to find out where they do thrive. That doesn’t mean that you should just need and see hold on to somebody. Everybody is an adult and should understand that obviously, it has to be a good fit. But you can definitely invest in people as well. How involved do you get with that marketing message when you are taking a look? Let’s say that you hire somebody to do some Facebook Marketing for you and they’re going to set up the creatives and everything else. How closely are you monitoring their ad work and how much are you kind of saying okay I’m going to let you run and possibly fall and this is your gig … I guess my question is how do you avoid micromanaging versus letting them run wild with a completely wrong message? Amanda: Well that’s a good question because I think that first of all I am a natural manager and anybody in my family will tell you that … so especially when it has to do with your marketing dollars and getting a return on investment. However, there are things that I just don’t know how to do really well and … for example Facebook Marketing or an email, like Amazon PPC or something of that nature. And a lot of times you will be told that they need a ramp up period so they can kind of test campaign. See what’s working and then dial in on a more targeted marketing after they do broader match term. And so they do require a period of time to really get those conversions up or an Amazon to take the a-cost down and so with that I really only check in every three months to see if they are meeting our goal. And if they’re not then you have to decide okay am I going to give them another three months period or do I need to move on? And so … I mean it really depends on what it is, what channel. Obviously, with SEO, there is a really long period of time that you kind of have to wait to see if its working and that can be really hard for people who are not patient enough. Because with Google with all of the algorithms that have come through in the last couple of years it can take a lot longer than it did previously before that in the old school days to get results. So it just really depends whether it’d be Instagram, Facebook, where I think you can see a lot quicker results versus Amazon or Google PPC and SEO. It’s just a completely different ballgame. Mark: Are you an old enough internet marketer … and I don’t want to call you old but are you old school enough to remember the Google Dance? Amanda: Yes. Am I showing my age now? Absolutely. Mark: I’m so glad that we got that recorded that I’m here calling you old publicly to everybody. No, I just … you know I often … I love talking to entrepreneurs. I have been doing this for a while because we remember the Google Dance. Every 30 days or 45 days and then the forms will light up like all right the Google Dance is happening and you’d want to see where you … everything is shook out and did you gain, did you lose? How— Amanda: Worse than the stock market. I tell you … unbelievable, yes. I don’t miss that. There’s a lot more opportunities for diversification now it seems so— Mark: Yeah. I think Google has done a good job of … because if you got edged out by like a spammy site or somebody that was just been [inaudible 00:19:19.4] the search results you’re done. Amanda: Right. Mark: You had to wait 30 days minimum to be able to correct it and it was just torture but exciting at the same time. All right let’s get to the topic that we were going to talk about. I want to talk a little bit about building versus buying. And I know I brought this up with Chuck at CapCon and he’s like why would you guys talk about this? You’re going to shoot yourself in the foot because we obviously make our money when people buy businesses from us. But there’s an argument to be made as well especially for creatives for building something. So let’s start right there and just ask you’ve done both, you’ve bought businesses and you’ve built businesses. Amanda: Mm-hmm. Mark: Where do you fall kind of on that spectrum and why? Amanda: Well I’m more on the builder side. I’m just a natural builder, a natural creator. I love the challenge of it. I love actually creating something from nothing. That is very much who I am. And you can’t buy something without having somebody to build it right? So there is the other side of that coin and so somebody has to build a business, hopefully, a great business for a buyer to want to invest in. And so I love talking about building businesses because that’s really where I’m passionate. I’m also very analytical as you know with data and statistics and marketing. And so I just … I think that when you’re looking at buying a business versus building I think there’s great opportunity for both right? If you’re … if you have a portfolio of businesses for example like Shakil does and obviously he’s willing to buy businesses because he doesn’t want to invest the time to just necessarily or take the time to grow because they have a team ready to jump into something and run with it. Whereas I like to take some time to build it and see kind of where it’s going to go and then run with it that way more organically. And that’s kind of where my passion lies. And I like to kind of have that control of what I’m … the product how it’s being made, packaged, the overall message around it. And that goes with pretty much everything whether I’m building a home or a business kind of my thoughts on it. Mark: Yeah and I met him. You’ve built multiple properties physical like … since you’ve been with Quiet Light one rental property, two homes at least that I know of. Amanda: Yes, three. Mark: Three? Wow. Amanda: Uh-huh. Mark: Holy cow. And I know you’re really involved in the design process as well. When we met down in Austin you’ve had floor samples and everything like that in the car because you were going through all this. You do like to get in to that. Do you think it makes more sense? Let’s just talk purely investment strategy here from just an investment standpoint. So I’m looking to place money into something and really kind of grow from a financial standpoint, do you think that there’s a benefit in buying versus building in that scenario? Amanda: Today it is harder. It’s more competitive to build. There’s no doubt about it. It’s much harder than when I started out. When I built my pearl company it was in 2003. We launched in 2004. Obviously, that was a total different time, kind of similar with my check manufacturing company. And then with Amazon, I still think that there’s easy room for building obviously and even with Facebook Marketing you can see some pretty quick growth there. But there is something to be said for businesses that have really paved the way and are established and the foundation is there. And so I think it just depends on how you want to invest and so if you want to invest in something that’s established and that has a history, a foundation that’s already been done, they’ve already built a team for you and you’re just walking right into it. That makes for a very sound and smart decision versus taking a risk and just seeing where it takes you in building a business. Because I mean I’ve experienced this, I’ve built a lot of businesses that haven’t been successful either because I either burnt out or the marketing just didn’t pan out. But I’ve learned from those and so I think one of my greatest successes is built off of just learning from the failure and then building off of that platform. So I think there’s something to be said for both. From an investment standpoint though I’d say if you’re looking to invest in something investing in a business that’s established makes more sense. So I guess it’s just different. I am a creator and a builder but at the same time, I do like to invest in sound vehicles so I’ve done both. Mark: I’ve asked this question to a few people before. If you were to guess how many domains you own right now how many would it be? Amanda: Oh gosh I don’t know. And I’d hate to look because I’m sure I’m spending a lot of money just wasting away. Mark: Yeah. Amanda: Yes I actually purchased domains for my daughters as well because I don’t know where this internet space is going and so I just want them to have the opportunity when the time is right. So yes I have a lot of wasted domain right now. Mark: Yeah I’ve logged in to my domain account and it’s kind of like going down memory lane of bad business ideas or maybe— Amanda: Yes isn’t it? Mark: They’re not always bad but some of them are bad. Some of them are like oh my gosh what was … was my diet bad when I did that … decided to because this is— Amanda: The someday businesses; yes, what I might do someday. Mark: Exactly, there’s a couple in there like you know what I actually still want to do that. It’s just a matter of A. it doesn’t pay anybody if I do it and B. the prime. Amanda: Right. Mark: But I think before that you were actually getting on to a point that I thought was really interesting and I found this with buyers. You’ve been with Quiet Light now seven years I think? Amanda: Yes, seven going on I think eight; crazy. Mark: I know right? So you’ve dealt with a lot of buyers over the years as well and I find that buyers tend to be … tinkers a lot right? The people that love to buy and do really well they’re great at taking something existing, tinkering, modifying it, improving it. But a lot of buyers … and this is speaking generally; this is the rule for everybody. The creative process of starting up something from scratch and having to create and have that runway isn’t really of interest to them. You know those are things that kind of bore them. And I know in Walker’s book he talks about this. He starts out saying that he had start-up companies and they … it failed, including companies that received quite a bit of funding. And that process, that ramp up period was really painful. But once he started buying he really enjoyed that part of it. That was super exciting to him. So I think some of it does come to just personality. Amanda: Yes. Mark: What do you get excited about? You are a creator. You’re a creative person. You love design. You love creating systems and you are data driven and data oriented. So that makes sense that you are going to really go towards that starting side to help exercise some of those creative muscles. So what are some of the first areas that when you’re starting a business you like to outsource? Amanda: Obviously, the website design that would be the first step and it really depends on what the business is. But the first step would be product manufacturing, a website design, and how to start your first layer of marketing. And I would outsource all of that. And basically, I would just be managing that process to make it look and feel like I want it to so the business imparts the message that I want to integrate into the business. But that part is the hardest part I think of running a business. It does require a lot of thought, creativity, and management. At the same time for me, that’s really what drives me when I’m creating something. That push and that challenge is what I look forward to everyday or stay up super late at night thinking about. And so I think it really is important to start outsourcing from the beginning. Because I’m obviously not a manufacturer, not a web designer, and I don’t do the day to day marketing per se. I hire all of that out. Mark: Yeah and I’ve heard it a lot. Start at the beginning don’t try and run a bootstrap with and then think that it’s going to be easy. It’s going to be easy just to hand that off because it’s really hard as an entrepreneur to do that. What’s the last thing that you would outsource? Amanda: Probably bookkeeping, to be honest, because … yeah, it pains me to say because I want everybody to have clean books right? But the last thing for me is bookkeeping because I know how to get a bank account and a credit card. That’s easy; those are things that most people can do if we’re generic. But running your books, you actually need to have a history of at least a couple of months and so it’s pretty easy to integrate that into Quick Books or whatnot from your bank statement. So typically that’s the last thing I would hire out because it seems to me that it doesn’t take them very long to catch up. Mark: That’s interesting. So I’m actually reversed on that. I like to outsource books first because I just don’t enjoy it at all. Amanda: Right. Mark: And like you said outsource the stuff that you don’t enjoy and keep things that you do so cool. Well, this has been interesting, it’s been useful, it’s not everything that we planned to talk about but I actually liked what we talked about and that there was something interesting. So I’m going to end with this, you’ve been advising buyers and sellers for a long time now and most of the people that listen to the podcast are looking to buy, there are some people selling. If you were to give one piece of advice for people buying an online business whether it’d be through Quiet Light Brokerage or through any other place; you find it online or another brokerage firm, what would be just kind of the one thing that you would advise people on? Amanda: I think the best thing that you can do is take some time to research just overall broad marketplace. Don’t just look at a few packages. Really allow yourself several months at least to get a good feel of what’s a good fit for you. There are so many different models of businesses, SaaS businesses, Amazon, to e-commerce and so forth and so one may seem more attractive to you. It may not necessarily need to be a certain niche but it may just be a certain type of model that is attractive. And I just want to add to that that the other thing that I recommend is don’t basically pigeonhole yourself into a certain niche because you might find a business that doesn’t have an attractive product but everything else could be right; the lifestyle component, the workload, the margin, the net profitability. And so I think that’s really important to keep an open mind. Mark: Awesome. Well, hey, thanks, Amanda for coming on the podcast. I really do appreciate you coming on and I’m sure everybody else will as well. Everybody knows where to reach you, amanda@quietlightbrokerage. If you have questions about buying, about starting, about … you know or just have really general questions about this I will stand by the fact that your entrepreneurial background speaks for itself. And I think the success that you’ve had repeatedly speaks for itself. So we appreciate you sharing some of the wisdom you’ve gained over the years of doing this entrepreneurial thing that we do and everything else. Amanda: Yeah. Mark: So hopefully we can have you on again sometime in the future but we’ll wait a year or so before we do. Amanda: Yes please do. Mark: All right. Amanda: Well thank you, Mark. I appreciate it. Have a great day. Links and Resources: Contact Amanda About Amanda  

Today’s episode is the first installment of a new Quiet Light series entitled “incredible acquisitions.” In these features, we’ll bring you guests involved in successful acquisitions of Quiet Light listings. This is something we’re trying out in order to feed our listeners what they want to hear – so email us your feedback! Today’s story is interesting because the buyer made his deal using ROBS. Rollover for business startups (ROBS) allows you to invest retirement funds from a 401(k) or individual retirement account (IRA) into your business without paying early withdrawal penalties or taxes. Rick, the new owner of the website Gunskins, a financial executive looking for another income stream to take him into retirement, knew his stuff and made the decision to make his purchase with ROBS. Today’s episode is the soup to nuts of the acquisition process and will be beneficial whether you’re doing this for the first or the fifth time. Episode Highlights: The process of searching – how long did it take and what approach did Rick take? The depths of the search process – how far Rick dug into each potential business. When the focus narrowed to selling physical products. How he structured the finance for the purchase. ROBS vs. SBA What was it about this particular business that stood out to Rick. The importance of the person behind the business for sale. How many other business Rick looked at in his multiple range. Whether a buyer should look beyond their multiple range. We (re)stress the importance of due diligence. Rick walks us through the first days of the takeover of the business. The transition process is never easy nor stress-free and escrow agents are key. If he had to do it again, what Rick would do differently. Rick’s plans for building out. Staffing changes Rick worked through in transitioning. Rick shares last minute thoughts for buyers and sellers. Transcription: Mark: So a few years ago I had a couple of experts … I had a call with a couple of experts for a way to buy a business called ROBS, right? Roll Over for Business Startups. It’s kind of an unknown or pretty little known way of financing a purchase and we mixed up in a lot of red tapes and everything else but is it a viable option to be able to buy a business and run a business and finance that purchase outside of kind of the traditional spend cash or SBA loan. I know you and I are starting up this new series within the Quiet Light Podcast called Incredible Acquisitions. We don’t have a great schedule for it yet but this is the first installment of that episode and I’m excited because you’ve got somebody who made an incredible acquisition thus the name using ROBS. Joe: Yeah absolutely and it’s an interesting one because the individual behind the purchase, a guy named Rick. He’s about 50 years old; very mature high level CFO in public corporations. So he knows his stuff. He gets the numbers, he understands it. And so it’s not a light decision that he decided to go with the ROBS. He was going to do an SBA but he and his wife who’s a CPA decided the best approach for them would be a ROB and they purchased GunSkins, closed … I want to say about nine months ago and we talked about his search. We talked about his due diligence process. We talked about his take over, what training and transition was like and now whether or not it’s a family run business. Mark: Yeah this Incredible Acquisitions is really everything soup to nuts about doing an acquisition for people that have actually done an acquisition. And hopefully, it’d be able to give some insight especially to first time acquirers or fifth time because there’s more than one way to go about this. So I love the fact that this is a family run business not just because I’m a family guy but … his son is doing customer service. Joe: At 14 years old, that’s right. It’s amazing. Well, he’s not going to pick up the phone it’s all … let’s go back, I launched this business or I was going to launch it. I think I did … maybe I did just before Christmas of ’17 and the guy that owned the business was overpaying his brother dramatically and my advice was to let his brother go. [inaudible 00:03:02.7] before Christmas remember that? Mark: Yeah we had … I remember that I called you all sorts of names on the podcast. Joe: You did and so did his brother. He’s a predator off the podcast. But we worked it out, we did an adjustment that just was logical mathematical and it made sense. And you know it turned out that the brother stayed on during the transition and training period and then literally the 14 year old spends about five to ten minutes a day doing customer service by just doing … choosing the auto responder in the chat focus … in the chat like itself. It’s great. It’s a great story and I think it’s great to hear buyers talk about their process and what they did to purchase a business and then to have some pretty amazing growth along the way which is a good part of what he talks about. Mark: All right I got a quick message for the listeners here on the podcast. We’ve been doing this now for about a year and a half if I’m … or actually less than a year and a half but we have a lot of episodes and I spent some time recently going over what you guys have actually listened to and responded to. This Incredible Acquisitions is something that we’re trying … a new way to do it, it’s not something that we’re going to be able to do every week but listen to this episode and send me an email mark@quietlightbrokerage.com. Let me know what you think. Do you want more episodes like this? We’re trying to be a bit more intentional this year about the guests that we bring on to be able to feed what you guys want to hear. So let us know is this right up your alley or do you want us to continue bringing on experts to … that specialize in PPC or whatever. We’re going to still have some of those guests. Let us know. Let’s get into the … today’s episode of Incredible Acquisitions from Rick and hear this awesome story. Joe: Hey folks it’s Joe Valley from Quiet Light Brokerage and today I have a client on the phone. Actually, it’s a buyer. We’re starting the Incredible Series in 2019 and this is the first of Incredible Acquisitions. I have Rick on the line. We’re not going to actually share Rick’s name for confidentiality purposes but Rick how are you today? Rick: I’m doing good Joe. How are you doing? Joe: I’m doing fantastic. We are going to talk about the site that you bought. We’re going to share that. We’re going to share a lot of information. Let’s start first though with a little bit of your background. What was your professional life and what is your professional life now that you own an e-commerce business? Rick: Sure, that’s a great question. I graduated from college with a degree in business specifically in accounting. I spent a good chunk of my career working for public accounting firms. And then over the last 15 or so years, I’ve been a financial executive for mid-sized companies, companies as large as one billion in revenue. Joe: And it sounds like you are about the same age as me. Do you mind sharing how old you are so the folks out there that are in the same boat can— Rick: Yeah, no problem at all. I turned 50 this year so it was a big year for me. Joe: Oh happy birthday in 2018. Good for you. It’s a big number that’s for sure. All right so you were in the corporate world and at one point you said all right I’m thinking I want to get into the online world, spend a little bit more time with family and friends was that the goal and objective? Rick: Yeah I mean it started off with look I’d like to diversify where my income streams are coming from. And my wife and I over the years have done many, many passive investments in the real estate, in the stock market like many people have. And we’re really looking for something that was going to be … that we could be a little more actively involved and engaged with. And at the start, I wasn’t at all convinced that I needed to throw my pencil down so to speak and run out of the corporate world. I was just simply looking for another source of income that would keep me active when I wasn’t sitting at my desk. Joe: I’m recalling now that your wife is a CPA or something along those lines right? Rick: Yeah. We’re both CPA’s. We met in world of public accounting and as you might imagine we have a stimulating dinner conversation, CPA things. Joe: Okay so for those out there that own online businesses and are thinking maybe I want to exit someday Rick and his wife are the caliber of buyers that we’re going to bring to the table. They’re CPA’s, they understand financial documents. So as always get your financials in good shape because someone’s going to come through them in great, great detail. All right let’s jump into a little bit about your process of searching for a business, how long did it take you and what approach did you take? Rick: Yeah, boy it took … I got to think about this, I’m going to say we probably were looking for at least 18 months maybe two years. And you know we started off quite broad and we were looking at everything. Not just e-commerce but also brick and mortar opportunities ranging from franchises to mom and pop businesses etcetera. And as we learned more, we looked at more businesses … and this is something I can’t emphasize enough because it’s really important to look at a lot of businesses. There’s no cost to doing that as a perspective buyer and you learn a ton. You learn how folks are doing things right and maybe how folks are … some things you might want to avoid. And so we looked at a ton of different businesses and ultimately became convinced that the e-com was the way to go for us for a variety of different reasons. I continued to be amazed by the tools and resources that are available to e-commerce businesses and the low overhead, low touch nature of e-commerce businesses and that was really attractive to us. We were real about it, we knew that we weren’t just going to buy something and then it was going to magically grow on its own and increase revenues but on the other hand we wanted to use the tools and resources available to run that business as efficiently as possible. Joe: A couple of things there that you’re repeating so thank you. I say it all the time I feel like I could put on my hand on my desk or my head occasionally that looking for a long time. Finding a great business … and I think you bought one of the great ones, finding a great one is like looking for a needle in a haystack inside of a ginormous haystack. So it’s doubly hard. The more you look at … you looked for a year and a half, the more you look at the more you knew the right fit when it came along and you were able to act quickly. Now when we talk about look at them you’re not just looking at the listing online and saying yeah that sounds good or no that doesn’t sound good. You’re digging in and looking at the full details of a business listing right? All the way down into the financials. Rick: Yeah absolutely and you guys at Quiet Light make it really easy to do that. You sign … I think it’s still this way anyway, you sign an NDA on the front end and then as you guys post listings and send out emails or put them on your site all I have to do is click a button to receive that information. And you know I think it’s important to have the courtesy to follow up with a broker and let them know what you thought of the business and whether you want to move anything forward. But just the ability and the ease with which you can do that; get the information, look at it, and start to learn about the business and about e-commerce, in general, is amazing. And I’m sure there are some other brokers out there that operate similarly but I found your … Quiet Light’s process to be very clean and easy in that regard. You know for a prospective buyer it’s … you make it easy to look at businesses which is great. Joe: And just for clarification purposes I’m not paying you to say that or give you any kind of discount on the commission correct? Rick: No that’s … not yet maybe we’ll circle back to that. Joe: Maybe someday I’ll buy you a cup of coffee how is that? At what point did you narrow your focus from everything in the possible entrepreneurial world to physical product e-commerce? Because e-commerce can be a broad term meaning anything sold online but you narrowed in to physical products. At what point did you make that decision? Was it simply because you came from the CPA world and it just made sense and you were comfortable with it and not necessarily SaaS or content development? Rick: Yeah you know … I think that’s a good question and I would say that there’s a step before that, before I narrowed it to physical products I narrowed it to … initially, I was looking at any and all businesses that had … that were the right size and had the right cash flow that I was looking for. And my first narrowing process was really to say okay, I need … if I’m going to do this it needs to be something I’m actually interested in. And initially we were looking at everything from e-commerce businesses that sold ballet tutu’s and the other ones that sold toilet products and so forth and so on and that may well be interesting to somebody, it wasn’t that interesting to me. And that’s where I said okay I need to narrow this up a little bit and make sure that if I’m going to move forward with something it’s something that I actually have some passion around. So that’s number one. As far as products it just sort of … I don’t know if that was a real conscious decision on my part but we did just sort of gravitate that way and that’s what appealed to us. And I would say as we got closer actually to pulling the trigger and moving forward on an LOI we found ourselves looking more and more at product companies. It’s just … it’s what suited us. Not to say that SaaS or something else isn’t something … it’s something we would definitely consider but for whatever reason, we just sprinted towards products. Joe: I got you. Well, let me get into the business itself that you bought. But before we get there and talk about that particular business can you … one of the things we always talk about is sort of get all your ducks in a row and you and your wife had determined how you’re going to do … how were you going to finance and purchase this business? Can you touch on that briefly? Because we did not do an SBA loan in this situation and it was a little creative. Go ahead and talk about that for just a moment. Rick: Yeah I’m happy to because I think it was a really good solution for us. We actually started thinking … we started down the SBA route. We got SBA approval. You’ve got a great contact with Stephen Speer at Bank United. He’s a great guy and it was a smooth approval process. We are sitting there, we had it ready to go and the more my wife and I started looking at it and thinking about it it’s like oh gosh. You know I’ve been working as an executive for over 20 years and over the years we’ve put some money into 401K’s, both of us and that’s sitting there idle or not idle but it’s in mutual funds and the stock market and so forth; basically passive investments. And we ran across a program that the IRS created called the ROBS program R-O-B-S and it stands for Roll Over Business Startup. And there’s a company … first of all you need an advisor to do this but … and there’s a company called Guidant Financial in Bellevue Washington that we worked with that are very professional and have a very good process to kind of help you through a ROBS financing. But essentially what you do is you use your 401K money to purchase the business … the target. And what the real beauty of the ROBS program from my perspective is that one I can take that money that’s invested in the stock market that I have less control over, I can put it into a business that I have complete control over and as dividends are paid out or when I exit this business those proceeds go or those dividends go tax free back into our 401K. And we don’t get taxed on that until we start going on it for retirement which is outstanding. So it was creative and I’m glad we stumbled upon it. It’s been really good for us. Joe: That’s a beautiful thing. Mark here at Quiet Light wrote an article on it. So folks if you Google ROBS and Quiet Light Brokerage the article will come up in Google and you’d be able to figure that out and take a look. And of course, you can Google Guidant Financial as well. They’re quite well known in the space. Okay so let’s talk about this particular business. It’s rare in my experience and I’ve been doing this since 2012 that we get a listing that has a utility patent on it. When this one came across my desk it was kind of special. Not only did it have a utility patent for a SKU that was generating about 40% of the revenues but it also had the majority of the revenue coming from its own Shopify store which is in contrast to what we see with a lot of physical based e-commerce businesses these days when they’re selling on Amazon as well. Amazon is just growing so quickly that no matter how much they try to build their Shopify Amazon eats up a larger percentage. So what was it about this listing … and it was called GunSkins. I like to call it stickers for guns. What was it about this one that stood out to you right away? Rick: Well, first of all, we don’t refer to them as stickers; they’re high quality, high performance vinyl. It’s the same vinyl that folks put on the cars and trucks and buses and so forth it’s … or in boats too. I have seen boats wrapped. But what it is is it’s a protective camouflage wrap for your gun. Now there are products out there like Sera Coat or solutions like hydro dipping that allow you to either camouflage, protect, and or dress up your gun … those guns are your standard black. Both hydro dipping and Sera Coat allow you to do something similar to what we’re doing with vinyl. The difference is that those processes are both fairly technical. They’re fairly expensive. And they’re also basically permanent. So you’ve got to really like whatever it is or whatever pattern you’re putting on your gun because you’re going to live with it as long as you own that gun. Joe: Correct. Rick: Our product is a vinyl wrap. It’s a 3M vinyl. Again the same vinyl they put on cars, trucks, buses, and etcetera. And it’s … so it’s a do it yourself solution. Our prices range from 10.99 to a high of 64.99. It could generally be applied in two hours or less to your gun. And getting back to your point Joe the patent … the founder of GunSkins applied for it to receive the patent related to the vinyl kit … the template that he created for the AR15. And we happen to make vinyl wraps for a variety of different guns from pistols, to rifles, shotguns, air fifteen’s, AK47’s, and etcetera. But he received a patent specific to the AR15 which is pretty cool. And so yeah that’s the product. Joe: Was it the product category that stood out or the price point of the business with the discretionary earnings and the multiple or the utility patent or it was the utility patent not the design patent, right? Rick: Yeah that’s right. Joe: So was it that that stood out that made you go okay this is what I’m passionate about or maybe the category itself because I believe you’re a hunter too, right? Rick: Yeah I mean I’m not necessarily a gun nut. I have many friends who are and there’s nothing wrong with that. But yeah I have hunted and shot most of my life and so that was attractive. There was a number of things that were attractive about this business and a number of boxes that this business checked in terms of what I was looking for. We were looking for something that had strong growth potential that had multiple sales channels which this one does. We sell on Amazon. We sell through our own website on Shopify, we have eBay, Walmart, FC believe it or not and so … and they also have multiple SKUs so that’s another box. And probably most importantly we were looking for a business that had a good foundation. And by that, I mean that it was built in such a way as to it has got good processes. Processes that are relatively simple but also well documented and scalable. And the other adjective I guess I would add to that is portability. So it was very easy for us … I mean I didn’t have any previous e-commerce experience outside of my own experience as a consumer to come in and get our hands around this business, understand it very quickly. That’s not to say the learning curve wasn’t steep. It was quite steep and we expected that but the founder of the business just did a really good job setting it up. That’s the number one biggest factor. You know the other things are boxes I need to check like interesting category and the patent and things like that. But the number one box for us was this thing has good bones to it. We’re dealing with a seller that has … that’s trustworthy and has high integrity. And by the way, you know … and again I’m not being paid for this but also a broker that has the same characteristics, particularly on your first e-commerce purchase. I think that we could go and find our way a little bit easier now having gone through what we’ve gone through in terms of the acquisition and running this business that wouldn’t be as important. But on the first purchase, I think it’s critical. Joe: Yeah. Rick: You feel good about the seller. You got to feel good about the broker. And if you don’t I wouldn’t do the deal frankly. Joe: I agree. We’ve got a big thing here at Quiet Light and that is follow your gut. And you’ve got to. You’re putting a great deal of your life savings on the line and you might only have one chance and you want to get it right. So for the business owners out there what Rick is saying is that who you are matters a great deal. You want to get yourself put together. You want to get those financials in great shape. You want to be a professional. You want to be somebody that you would buy a business for. There’s a lot more to it than just those gross revenue numbers and trends. The person behind the business is often what I see makes the difference in the sale or not. And believe it or not in a 3.0 multiple to a 3.2 multiple you do make a difference. On that point, though Rick this was a good strong multiple. We went out at 3 ½ times multiple I believe … gosh was there any negotiation on the price? Folks I didn’t look this up before we decided to— Rick: [inaudible 00:22:30.4] down just a little bit. But yeah it was a 3 plus multiple. Joe: Yeah I think we went out at 3.5 and it was pretty darn close. We’re not going to talk actual numbers. We’ll just talk those numbers. We won’t talk dollars but did you look at many listings that were in that multiple range before making a decision on this one or did you go oh wow that’s high I need to look anyway? What was your initial response to the multiple? Rick: Yeah well my initial response was well that’s high and … but it was an interesting business. And as I dug into it it’s like okay I mean … and as I started checking off those boxes that I was talking about it’s like okay well maybe this is just the [inaudible 00:23:09.8] as I went through the diligence process I could see where there is opportunity. I think that the founder and the owner … he was a brilliant guy. He created this idea. He created this business. He built the foundation but everybody that comes to the table brings with them a different set of skills. And when I was looking at it through my eyes I thought okay well I can do X, Y, and Z, and I think leverage this opportunity that much more. So yeah my initial reaction was that’s high. I ultimately got comfortable with it and it was the right deal for us. Joe: Yeah. You know it’s the valuation process I think with this particular listing because it was mostly Shopify, 60%, 70% Shopify at the time, they get to own their own customers; more value. It had a three plus year track record; more value. It had a patent and 40% of the revenue came from that SKU that the patent was on; more value. The lower the risk, the higher the multiple and in this case there were multiple conference calls. I cannot recall if there are multiple offers. Again I didn’t really prepare for this I just wanted it to be a casual conversation. Rick: You told me there were. Joe: There we go. So you remember I don’t. You see I’ve done 20 deals. And I wouldn’t lie I mean the reality is that we’re going to be forthright and honest with every single person we work with. So even at that 3.5 my point everyone is that sometimes the first thing you look at is the multiple and then you make your decision and that’s not always the best choice. In this case with Rick, you’ve had what 20% month over month of growth since you bought – Rick: Yeah. Joe: Okay so simple math is … go ahead and double check it up for me but if you’ve got a business listed at a 4 time multiple you buy it at a 4 time multiple and you’ve got 25% year over year growth and that sticks after you buy the business you’re going to make your money back in 2.7 years. In Rick’s case, that’s going to go down dramatically because of that 20% month over month growth and the multiple is a little lower than that; that 3.5-ish times maybe a little bit lower. All right so let’s talk quickly about due diligence. We only have one snafu in due diligence and that was the question I think about when a business owner writes things off that are personal and they put them down as let’s say office supplies which I think was the case here. You being a CPA, your wife being a CPA, you got an export of all of the expenses on the American Express or Visa credit card and literally went down through every expense and said: “Well why is it that this trip to Staples is a personal expense?” Because what we did folks is instead of making Kevin the seller go back and re-categorize every single thing that were office supplies I said okay these are normally personal expenses because Kevin worked from home. If any of you saw the listing and watched the video if you remember Rick I think he was building this house and he shot it on his … we interviewed him and he had his iPhone and he did the circular view and mountains in the distance in the background and yeah it’s a beautiful. But very casual work from home, the expenses were clearly mostly personal but we went down through them item by item. Or you and your wife did and we had to work on that negotiation a little bit and we worked it out ultimately. But your due diligence process was pretty thorough right down to that level right? Rick: Yeah it was. And our approach was really to grab the P&L that you and Kevin had put together and go line by line and understand what was in each one of those categories and look at different fluctuations and variances month to month or year over year or quarter over quarter. And there’s really two questions you’re asking yourself if you do something like that. One is: is there anything here that should be particularly on the expense side? And then the other question is: is there something not here that should be? In other words are there expenses that you would expect to be in this business that you’re not seeing anywhere and maybe they financed it personally for whatever reason. And so you’re really looking for those two types of anomalies and just asking questions and make sure you understand them. Joe: Right, right for sure. Okay so we got through due diligence, we moved on to the asset purchase agreement and then closed. Can you recall the time it took roughly from the letter of intent to closing with the ROBS program that you were involved with? Rick: You know it wasn’t bad. It’s like anything in life it comes down to organization both theirs and ours. By theirs I mean Guidant … our advisor that helped us through that process. They have a highly structured organized process. And if you follow their process they will help you be organized as well and it will go pretty smoothly. I would say I think it was … well, I don’t remember Joe. I’m going to say 45 days. Joe: That sounds about right you know for … this is in effect to cash deal and not on SBA deals. Cash deals take anywhere from 30 to 45 days to close, SBA you’re going to add another 30 to 45 days. You did disappear for a little while on us there. You went silent on me if you recall and that was just an incredible job opportunity for you that you took and had to get that going and relocate briefly and make it work and you still managed to juggle that and due diligence and getting the business closed and eventually take over. So let’s talk about that we closed and then there is the training and transition period where generally it’s up to 40 hours over the first 90 days after closing. Talk briefly about the first few days and what it was like for you when you went to take over the business from Kevin. Rick: Well sure and just to go back very briefly Joe on what we were struggling with and you said I went silent a little bit on you. That’s true and what we are struggling with was gosh this business is big enough and has enough potential is this what we want to commit ourselves to do and forget me going to the corporate job. And I struggled with that and I continue to struggle with that. You know I’ve been struggling with that last frankly because I think we have a pretty good balance and a pretty good system and cadence going now where I can enjoy doing both. You know helping manage the GunSkins business as well as my corporate CFO job that I have. So that’s what we’re struggling with and who knows that could change as the business grows or changes or what have you we’ll see where that takes us. But in terms of transition, I would say we put a lot into due diligence. If I had it to do over again I would probably be better dialed in on transition and really making sure that it was clear between the buyer and seller and sellers/buyers employees or contractors who was going to do what when it was going to get done and so forth because this isn’t a small business it’s … I’d say a medium sized e-commerce business. We do about 20,000 orders a year through both our website and through Amazon and there’s a lot of moving parts that you got to get transitioned over. Simple stuff like making sure that your postage is going to the right credit card. Making sure you’ve got seller central transitioned over. Making sure that PayPal is set up correctly under your name etcetera, etcetera. And I would say that … and that’s probably my lack of … our lack of e-commerce experience that contributed to being a little less organized as it relates to the transmission. It was with a case where we didn’t necessarily know what we didn’t know. And so I’d probably spend a little bit more time on that. It went fine it was just … it was a little bit anxious for us because the light bulbs are starting to go on. It’s like oh gosh or what about this or what about that, well if we got to do this then we have to do this over here and it was … it ultimately was all seamless but I wouldn’t say it was stress free. I mean it was a lot of learning. Joe: There’s never a transaction like this that is stress free. There’s always a lot of emotion involved. And you know part of the purpose of doing recordings like this is to learn. So look we’ve been at this for almost 11 years as a brokerage firm and we don’t have a transition checklist that should probably or could probably help ease those nerves a little bit. So it sounds like maybe what we can do as a brokerage firm is to have the seller create … and we do this but it’s not very formal, a complete list, this is in the asset purchase agreement of course. But a list perhaps in Google Sheets of every item that is going to transfer and during the transition period you’re going to check each box and ensure that you’ve got complete control of it before the asset … before the funds are released. That is the way it works folks. Rick wires funds into Escrow. Kevin transfers all of the assets over to Rick’s control. And once Rick has control of all of those assets he informs Escrow … the Escrow agent and they release the funds. But we could formalize that process a little bit but it will never … I’m sorry be stress free and emotion free. That’s the biggest challenge in these transactions. It’s just … it’s a big deal. You’re making a big life changing investment, putting your hard earned money … your 401K money on the line and you want to make sure you get it right. So we we’re going to make sure it’s stress free but obviously, it’s not always and cannot always be that way. Rick: Correct. And the other thing I would just add to that Joe is that with a [inaudible 00:33:23.6] it’s unrealistic to think that you’re going to fund Escrow, transition all these assets over and accounts over in 24 hours and be done. It simply takes longer than that. And part of it is out of the control of both buyer and seller. You’re dealing with the different tools and resources and platforms that the company is using out there and it takes time for those folks sometimes to work through their process of transitioning that to a new owner. Joe: Yeah. And that’s part of the process and that’s why … regardless of the size of the deal, I want Escrow in the middle. I want that money that you’ve invested safely with an Escrow agent. And for your seller to know that as he transfers control over all the assets that he’s money is safely … which is his future money, is safely in Escrow as well. Let’s talk a little bit about if you had to do it over again what would you do different? This just business as you say was mid-sized, is it big enough to support you financially so that you can quit the corporate world and never go back and if it’s not do you think maybe in hindsight you would have held off and try to buy something bigger or are you really happy with the decision and purchase that you made? Rick: Yeah. You know that’s a good topic and I’ll go back to some rules we operated under in the corporate finance world [inaudible 00:34:51.0] acquisitions in the corporate world. And [inaudible 00:34:54.5] said that the smaller deals take just as much time and are just as hard to work if not harder than the larger deals. And it’s absolutely true. It’s something I’ve always found to be true. And so I would say that my advice would be look do something that is going to be meaningful to you. And by meaningful I mean that the investment is meaningful, the cash flow that the business is going to generate is meaningful. Because if it’s not … you know I love playing poker and sometimes you get in a poker game where the stakes are too low and it sort of distorts the game and people don’t play the way that they ought to play. It’s kind of a similar analogy here where putting up at risk so that it’s meaningful to you. You’re going to pay attention to it and as it bears fruit it’s going to mean something to you because you’re going to work hard on it. It’s not … there’s no free lunch. You’re going to put blood, sweat, and tears into it. Make sure it’s going to be meaningful when it comes out the other side. Joe: Yeah. Rick: So for us, the dollars that we invested out of our retirement savings were absolutely meaningful; they’re significant. They’re dollars that I don’t want to lose. And moreover, the cash flow that this business generates is meaningful. It has the potential to equal or exceed my earnings as a corporate CFO. So yeah I … and the other thing tying back into what we were talking about earlier is what you’ll find is that when you start looking at the larger businesses they generally are … they generally have a better foundation. Joe: Right. Rick: You could get into an e-commerce business on the cheap but I think the probability of getting into one that has a strong foundation like the one that we have that GunSkins has is low. It’s lower I should say. You got to be a lot more careful and you are at higher risk that when you start getting into the actual processes, how the business is put together, maybe even the integrity of the seller you just … it’s a little messier in my experience. Joe: Yeah for sure there’s no question and that’s why the multiples go up the larger the business. When you get into six, seven, really 7, 8, 900,000, a million dollars in discretionary earnings it’s a larger more well established business and therefore as Rick just said it’s lower risk. With lower risk, the multiple goes up. Smaller businesses lower multiple because there is more risk without question. Rick let’s talk … we’re running a little short on time but I want to talk about what types of things you thought you were going to be doing with GunSkins in terms of marketing channels that worked or didn’t work, what surprises there were, and we got an audience of both buyers and sellers and there’s people out there that are e-commerce experts that may be able to point you in the right direction in terms of getting this marketing in certain places. So let’s talk about what worked and what didn’t and what are you’re hoping to achieve in terms of marketing channels with the business. Rick: Sure so I would say going into the acquisition and early on in the transition I was absolutely convinced that we needed to aggressively build out our dealer channel, our brick and mortar dealer channel. Not necessarily e-commerce stores but brick and mortar dealers like gun dealers, pawnshops, etcetera. There’s thousands of them across the country. I thought well maybe we take a look at big retail as well, big box retail. I wasn’t as convinced in that but I was convinced on the gun dealerships and that we needed to invest time in building that out. And I’ll tell you … and this is again what I learned pretty quickly is that to build out a dealer network, a dealer channel through brick and mortar stores is labor intensive; labor and cost intensive in a very large way. It takes a lot of boots on the ground to go and knock on all those doors and try and sell that product. And what I learned was the cost per conversion on e-commerce is so attractive, it’s so incredibly attractive compared to other sales channels. And if you can build your scale and build your brand through e-commerce the dealers will come to you at least in our case, in our business. Joe: They are finding you now. You’re not going out and getting them. Rick: Absolutely. Joe: [inaudible 00:39:34.4] they’re finding you. Rick: Absolutely. I mean we love our dealers but I think investing a lot of time and money in trying to grow that channel on its own is a little bit silly. And it surprised me because I didn’t think that going in. Where we spent our effort is really reinforcing and building our brand, our brand awareness, and private awareness online through social media, through Google Ad Words, etcetera, through Amazon etcetera, etcetera, blog posts and the like. And what we find is people hear about us … dealers in particular and they come to us. Even some of the online distributors, very well-known online stores for guns and guns accessories have reached out to us and say hey we’d like to talk to you about distributing your product on our site. Joe: Excellent. Rick: And that’s the way to build a dealership for our business. You can’t go out there and put enough boots on the ground to do it otherwise. Joe: Excellent. One last question we talked about staffing very, very briefly but there were two VA’s I believe or virtual assistant or remote contractors. You are here in North Carolina where I am and I believe they’re both out west or were out west. Are both of the individuals that were working for Kevin still working for you? Rick: One of them is, one of them is not. The gentleman who’s continuing with us we call him … but really he’s a lot more that— Joe: You broke up right there. Say that one more time for me what do you call him your? Rick: Graphics genius. Joe: Your graphics genius, okay [inaudible 00:41:09.0]. Rick: It really doesn’t do him justice to be honest because not only is he our graphics design guy for our patterns and so forth but he also handles a lot of the e-commerce side of things as well; our website and Shopify and Amazon etcetera. He’s invaluable and he probably puts in maybe 20 hours a week something like that. Joe: Okay. Rick: So he’s continuing. The other VA that Kevin had handled customer service and social media and we’ve picked that up on our side. My son believe it or not … my 14 year old son does a fair amount on the customer service side answering customer questions. Joe: Excellent. Rick: And this again goes back to the tools and platforms available to e-commerce businesses. We use in Zendesk on the customer service side; it’s spectacular. I mean it makes it so easy and so he’s enjoying doing that and making a little bit of money. Joe: That’s great. I have to tell a brief story … I mean in talking to Kevin we listed this just before the holidays in 2000— was it seven … ’16 right? I forgot. Just before the holidays and the customer service person was Kevin’s brother who he loves dearly and here I am going man you are so overpaying a relative. It’s crazy what he was paying him; I’m like you need to fire him just before the holidays. And he didn’t fire him but we … because it just … it was logical and used logic and math and we made an adjustment in the profit and loss statements for really still overpaying a virtual assistant. We made the cost of the VA probably twice what it would normally cost to put that in as the cost to make the adjustment. Full disclosure put that in black and white right in the package. But he did stick with you for a while and you eventually took it in house which is great because you’re saving money on the bottom line and teaching your son some business skills as well. Rick: Yeah I mean he’s a great guy by the way and he was doing a great work and was very flexible with us on the transition and so … but yeah ultimately we took that over after about three months I think it was. And it takes probably 20 minutes a day something like that. Joe: Yeah I know okay so he was even more overpaid than I thought. If he’s anything like Kevin he is a great guy. Kevin spoke very highly of him and I know he did a good job and the transition and training period Kevin and he worked it out and you worked it out so that he was there for you. Because the last thing you want to do is you have to jump in and take over the role of a contractor when that is not what you’re intended to do. Rick: Yeah absolutely and again making sure your seller is trustworthy and is operating with high integrity. And Kevin I can’t say enough about, he’s an outstanding guy and he did things and handled himself in such a way he cared about the business, he cared about our success in taking on that business and that makes a big difference. He didn’t have to be as cooperative as he was but that’s just who he is and that makes a difference. Joe: Without a doubt, we’ll try to get Kevin on the podcast as part of the Incredible Exits series. Rick: Yeah. Joe: Instead of just the Incredible Acquisitions. Well, listen, man, I’m so happy that you bought GunSkins. I’m excited for you. I’m excited maybe to have you on again as an update and talk about where you were able to take it. I mean you’ve had it for about a year now and we can do it again in another year. Any last thoughts, any last advice or suggestions you can give people that are considering selling their business and what they should do right, do differently than what you normally see or anybody that’s buying a business any last minute thoughts for them? Rick: That’s great, for sellers we’ve touched on it a bit through our discussion but really have yourself organized. Have your processes documented. There are great tools out there that you can use to document your processes. Also, have your financials put together. Both my wife and I are CPA’s we use a partner in CapForge bookkeeping here out in Carlsbad, California. They use these Quick Books and they are e-commerce experts. I don’t know how they make money with what we’re paying them but that is money well spent because they— Joe: Perfect and let me just interrupt and point this set down. I’m pounding my desk people. We have two CPA’s who own the business and they still hire an e-commerce bookkeeper. Please, folks please do what Rick is doing and get your books in good order. Okay, I’ll stop pounding my desk. Rick: No, look I agree it’s cheap and they do [inaudible 00:45:51.7] when you go to exit you’re going to have all your ducks in a row and Joe’s going to be very happy. He won’t have to recreate the financials on the Excel spreadsheet. Joe: And you’ll get more money. Rick: Yeah. Joe: You’ll get more money. Good books instill confidence in buyers and confidence increases the value in the valuation and the multiple so without a doubt. Well, Rick if anybody has a great idea and wants to reach out to you how would they find you? Rick: Right through the GunSkins site, support@gunskins.com and that email is us as owners and we answer every inquiry we get. Joe: Awesome and for everybody out there that is a hunter or owns a gun of any kind please go to GunSkins.com check it out. Go to the YouTube site, you’ll get to see the before and after of lots of different guns. The wraps are very, very cool; camouflage wraps, different seasons for camouflage, and even just the American flag and things of that nature if you want to spice it up a bit. Or if you’re female and hunting I think there’s even some wraps for females too right Rick? Rick: We’re going to be launching some great ones here in the next 30 days. We’re launching real tree patterns and those include … there’s a tiffany blue camouflage pattern. It’s popular with women as well as we have paradise pink barrage in the theme as well. But yeah there’s something for everybody also visit our Facebook page. We’ve got over 70,000 Facebook followers and we’d love to count each one of the listeners as a follower as well. Joe: Fantastic. Rick, thanks for your time. Thanks for being a professional. I look forward to having you back on the show to talk about maybe your incredible exit someday. Rick: Absolutely. Thanks, Joe. I appreciate it. Joe: You bet. Links and Resources: Gunskins.com support@gunskins.com Gunskins Youtube Gunskin’s Facebook Guidant Financial Quiet Light ROBS article CapForge Bookkeeping Quiet Light ROBS Article

Hosts can talk faster than they can type. Followers can listen while doing any number of other tasks. A business that comes with a podcast following of 15,000 is more valuable than one that comes with a 35,000-person email list. Podcasts are pretty hard to get wrong. They can diminish the laborious reading and writing aspects of emails and blogs by automatically offering content within the conversations with guests. Today we are talking with podcasting expert Craig Hewitt about ways that adding a podcast to your business can be beneficial both for a recent acquisition and a potential sale. Craig is the owner of Podcast Motor, a company that handles the end to end podcast production process for businesses. He’s an entrepreneur in the podcast space, running two service companies and producing 35 podcasts. He believes, and we here at Quiet Light agree, that a good podcast is a great tool for building your business. Episode Highlights: How podcasts differ from blogs. Where podcasters should get started. Whether they need all the “stuff” to get up and running. Why podcasters use external services to create their episodes. Craig’s solution for launching a podcast quickly and easily. Challenges hosts face in getting started and putting themselves out there. Why it’s important to find the right guests and create relevant conversations for your business. How podcasting can be a fit for different types of businesses. Ways starting a podcast with a newly acquired business can help promote ownership. Why businesses need fewer followers for a podcast than for a blog. How a podcast can create repurposable content. Ways a podcast can benefit a business you are getting ready to sell. Whether podcasts are transferable. The basic technical tools you need to get started. How long you should test for success. Transcription: Joe: So Mark today’s episode we’re going to talk about why someone should start a podcast. Stutter, stutter, stutter, Chris edit that. Mark: Chris don’t edit that just keep that in there. Joe: Yes let’s keep it in because folks this is about podcasting and I was going to ask Mark a question … oh, man, did somebody put something in my coffee this morning [inaudible 00:01:34.2] in my coffee … it’s a Northern thing. Do you have to be well spoken, intelligent, and an expert on the subject matter to start a podcast? Of course, the key is to have a successful podcast to build an audience and a brand and a reputation but what do you think? Do you have to have all of that to really begin? Mark: No absolutely not. And look at the risk of narrowcasting and just talking about what we’re doing here which is running a podcast, I thought it would be interesting to have Craig Hewitt on the podcast here. Craig owns PodcastMotor. They do the editing for all of the Quiet Light Podcast episodes. He also has a podcast hosting service Castos.com which he’s recently started. He’s an entrepreneur cut of the same cloth that all of us are made of. He likes to start, he likes to buy, he likes to grow businesses and living in France actually. He’s an expat living in France so a pretty cool backstory there which unfortunately we didn’t have time to get into. But I wanted to talk to him about why anyone who’s out there looking to buy or even grow your business and create something really unique and special might want to consider adding podcasting to the mix. And look I get it we’re looking a little bit at our own experience here and how beneficial a podcast … the Quiet Light podcast has been at Quiet Light brokerage, but I asked Craig this question. Joe, I’m going to ask you and put you on the spot here again like I do on a third of these intros I try and ask you a question that we didn’t prep for. If you’re looking at a business for sale and it’s got 30,000 e-mail subscribers, okay and that’s one option and then there’s another business in exact same niche but they have 15,000 podcast downloads per month, where do you put more value in your opinion? Joe: Oh without a doubt on the 15,000 because those people are listening. They’re hearing your voice and they feel like they know you already. We’ve gone to events where people have come up and said hello and they joke and they say I feel like I know yo. I’ve heard Mike Jackness talk about that as well. But I think the number one thing that this podcast has done for us … and John Corcoran was a guest on the podcast as well where we talked about networking and how important it is to a business. And I think if you’re a business owner, if you’re launching your own products, if you’re a SaaS product owner, you just look to prior examples of huge podcast success like Michael Jackness or Scott Voelker for instance. Scott has got a quarter of a million people that listen to him every month. You network and learn things from the people that you network with to grow your business and grow your brand and I think it’s invaluable and it blows away the e-mail. Although the e-mail is something specific and different because you’re probably trying to sell a product right then and there, I think on a podcast you’re talking about the bigger picture and your brand. If you’re a SaaS business owner I think it’s a great idea because you can talk about what updates you’ve got to your product and the market in general. But I love the podcasting and obviously, I’m not very well spoken or eloquent so if we can do it anybody can. Mark: That’s right. So this is a bit of an advertisement for starting a podcast and I feel confident in doing this because I know a lot of people out there probably will listen to this and won’t start a podcast. You’ll think about the technical challenges, you’ll think about the fact that your voice has to be out there and Craig and I go over this. There is an element of fear because you’re a little bit more intimate with your audience when you have a podcast. There’s a third dimension that gets added, right? When you are just writing a blog post it’s very two dimensional, you’re words are out there, you can go back and edit it whenever you want, people don’t hear your tone … your voice, they don’t hear you screw up because you get to go and edit it. And of course you can edit a podcast but there’s still … it’s still you, a little bit more real and raw. So I know a lot of people are going to listen to this and not start podcast but I’m going to make a pitch to just say look if you’re trying to build something unique, if you’re trying to build something valuable, if you’re trying to grow your existing business with the [inaudible 00:05:24.7] towards selling it down the road, there is some value to starting up a podcast which is going to make it different if you are able to grow a good sizable audience. And I think in the 11 years we’ve done Quiet Light Brokerage I can’t think of a single business that we have sold that actually came with a podcast attached to it. Joe: I don’t think I’ve ever had one. And as far as return on investment I would think that the podcast and the cost associated with it, the ROI would be huge and probably not measurable; an invaluable. But one other thing look this is we’ve got Craig from the podcast company that manages ours but we’ve talked to lots of people like Taz from the Amazon Entrepreneur. He launched his podcast, does two a week and he does it all himself. So it’s possible to do it for very little or nothing at all if that’s … if it’s a budgetary problem and you still want to get started. Mark: All right let’s hear it directly from somebody who’s been in the podcasting niche for a long time. He knows all … a ton of what he’s talking about, Craig Hewitt. Let’s get to it and cover this topic and I’ll hopefully inspire maybe one or two of you guys out there to go ahead and start a podcast with your business. Mark: Hello Craig welcome to the Quiet Light podcast. Thank you so much for agreeing to come on. Craig: Hey Mark thanks for having me. I appreciate it. Mark: All right you and I know each other from a ways back at Rhodium; do you remember the … I don’t remember when we met each other at Rhodium, do you? Craig: Gosh yeah. Like I’m optimistic with my time projections these days I want to say it’s three years but it might be four years ago. It will be four years in April probably yeah. Mark: All right my wife does this thing I call it Megan math where she’ll … something would be 2 months away and she’ll somehow compress that down to like just two weeks away. Craig: Yeah [inaudible 00:07:06.4] great exactly. Mark: Again full disclosure and I’m sure I probably said this in the intro. We always do the intros after … we record the intros after we record the interviews themselves but I’m sure I will say this just out of full disclosure I do pay you professionally. You have been doing the editing … probably it’s your group that has been doing the editing for the Quiet Light podcast so thank you for that. Craig: No it’s my pleasure. It’s my pleasure, yup. Mark: Awesome, all right so we’re going to talk about podcasting today and whether or not somebody should consider adding it to a business. And I obviously with Quiet Light I want to focus a little bit on does it make sense to add on to an acquisition like if you buy a business, does it make sense to add that on? What’s involved in starting up a podcast? What are the impacts that you might see? And I also want to … if there’s time allowing probably talk about the personalized aspect of podcasts and how that’s going to affect the buying and selling of businesses as well. We can all just talk a little bit about SaaS. I know you have some SaaS work as well which could be an interesting thing to get into as well. But let’s start off real quick with your background and your history and kind of how you came into doing what you’re doing. Craig: Yeah so we know each other through kind of why my first successful online business and really the way I escaped the rat race of the professional kind of corporate world which is called PodcastMotor. So PodcastMotor is a product tied service that does podcast editing and production, really kind of like end to end everything from Mark records an episode, sticks it in Dropbox and an episode shows up in iTunes a week later. We really try to take care of every aspect of that whole process for our customers. And that business has been going since … it just turned four this year so a couple of months ago. So we’ve been doing it a long time in the podcasting world. And we have about 35 customers that we service on a regular basis. So weekly or every other week that they have a podcast come out. About two years ago I acquired a WordPress plugin also in the podcasting space called seriously simple podcasting. And on top of that, we built a podcast hosting platform that we now call Castos. So I run two different businesses in the podcasting space and it all happened just by chance. To be honest I started a podcast … jeez, four and a half years ago I guess and saw it really quickly like a lot of people that podcasting is really difficult. There’s a lot of nuts and bolts and technical stuff and gear and all this junk that you need to start a podcast as opposed to like a blog where you just get a WordPress site and a keyboard or your iPhone and you could start blogging as good as anybody else. Podcasting there’s a technique and gear and equipment and all this stuff that you have to have to be decent. And then to be really good is a whole other level. So we started offering the PodcastMotor service based on me seeing that pain I guess. Mark: Yeah and I don’t want to scare people right at the gate but let’s get into that kind of a scary different world of podcasting because it is a little bit different. Let’s start with just the hosting side and you talk about Castos your podcast hosting service. Isn’t it enough to just have a regular website? I mean I think one of the things that was confusing to me with podcasting when we got into it before we started the Quiet Light podcast was well why do I need all this stuff? Why do I need Libsyn? Why do I need all these other things? Why are we … why do podcasters use these extra services? And what are some of things that if somebody is thinking about podcasting what do they need to consider from a technological standpoint outside of the equipment just from the webhosting setup, the technical setup? Craig: Yeah so the logic around having a dedicated media hosting platform with you know hear, Libsyn, and SoundCloud, and Castos or whatever, the idea there is so you have a hopefully a very popular podcast and you have thousands of people downloading your podcast every Tuesday morning when it comes out right? Mark: Just like the Quiet Light podcast, thousands and— Craig: Yeah okay so thousands of people listening to your podcast and downloading this 60, 80 megabyte file every Tuesday morning. If you’re a business like all of your customers are and a lot of ours the last thing you want is this enormous strain on your web server on Tuesday morning when customers are coming to your site and trying to buy your stuff or schedule a meeting or something like that because both the streaming and download of the podcast will be bad. And your website will at least be very slow if not crash. So you separate the resource strain from podcasting and serving up your website and have a dedicated hosting platform just for those audio files and let your website run on you know WP engine or flywheel or wherever it’s running so that the two aren’t using the same resource. That’s kind of the logic around why you needed a dedicated media hosting platform. It’s just like you don’t put your video files under use Wistia or something like that. It’s the same kind of idea. Mark: All right exactly. Okay so there’s this whole other technological world with podcasting and then there’s also the equipment side of it. And then there’s the editing side of podcasting as well. Craig: Yeah. Mark: And then there’s the distribution to the different podcast networks. And we’re kind of jumping on the deep end or I guess we’ll swim to the shallow end because I’m going to talk about listing the praises of podcasting here in a little bit. And specifically as kind of a leading tease here for anyone listening why I think it’s a really, really good idea for any acquisition that you do, any business that you’re looking at to potentially acquire to consider adding a podcast and potentially even on the sell side as well. But let’s talk about the setup here a little bit as well and the equipment. Now I’ve got as you can probably see from the video that you can see and we do these podcast over video is just a little more personal. Craig: Yeah. Mark: I got the road podcaster and I got like three other mics back there as well. [inaudible 00:12:52.1] and everything else. And you, you got I see a pop screen of yours, there’s pop screens, there’s mics, there’s the Vulcan power stuff, it’s a whole different world, isn’t it? Craig: Yeah I mean so it is totally a different world and this is the bad scary thing about podcasting is that there’s more opinions and resources out there than are necessary honestly. And there’s so much information that so many people get scared and they go and read five or six different articles just about the best podcasting mic and what web … what podcast hosting platform to use and there’s everyone has an opinion about that and you know how long should you’re episodes be and blah, blah, blah. Do you need a pop filter? Do you need a boom mount? Do you need all this stuff and so actually we created a resource to kind of counteract this and we call it launch in a week. And the idea is we’re going to give you like one or two options not like all these million things out there that all these other resources give you is like they create the analysis or paralysis by analysis. So we … so castos.com/launch takes you to launch in a week and we give you like in a week seven day, seven e-mails and videos exactly what you need to launch a podcast to dispel a lot of that over information and misinformation that’s out there a little bit. Like microphones I only recommend two microphones you know it’s like this one that I’m using Audio Technica ATR2100 and another one is called the Shure SM7B. That’s a really really really good mic. This one is $65 that one is about $500. And so it’s like kind of whatever you feel like you want or need. We try to do a lot of that like you can do this or this and don’t overthink any of it because you can get in way over your head. And the unfortunate thing is a lot of people never get started because they just think so much about all this stuff. Mark: All right let’s talk about that point because I think this is the biggest obstacle to podcasting right? With writing a blog you can put it out there and you can get it up and going. Everybody knows how to write something even if it’s not very good but there doesn’t seem to be as much of a barrier to getting started. Maybe it’s because of the technical challenge but I think there’s also a mental challenge of getting out there. And I know for a podcast standpoint we toss around the idea forever. I actually had a false start at starting the Quiet Light podcast and I think I recorded three episodes, launched two, and then stopped because I didn’t record enough episodes. I think one of the challenges people have is the idea of being out there and trying to get this audio presentation perfect from the get go. But like you said just get out there and start. You have to actually start doing it. Craig: Yeah I mean I think part of it is with writing you can write a blog post and save it come back two days later and edit it and tweak it and you haven’t even be published by someone else on your team if you want maybe it’s your name it’s not associated with it. But like right now you and I are seeing and talking to each other and like covering a lot of the senses all at one time. And when you’re podcasting your literally in someone’s ear for 45 minutes every week or whatever it is. So I think it’s just the senses that you’re covering and the emotional connection you crave with somebody which is why it’s so great if you can do it and get it right. But it’s also why it’s so scary to just get started and overcome some of this fear of putting yourself out there. You know I think about … I’ve done a little bit of video work and it’s a lot harder because then you have to get the voice and the physical kind of presentation right the first time and there’s no editing. You can’t just edit out a flub in a video it looks horrible. And so I think in a way if you’re already doing video podcasting is so easy because you can just cut it up a million ways from Sunday and it’s no big deal. But it is so much harder than writing. Mark: Yeah and I think one of the other obstacles that we run into is written content can be repurposed in so many ways right? Craig: Yeah. Mark: And there’s different focuses that we can really measure written content from an SEO standpoint. So you can definitely say hey I’m going to optimize for this keyword. And I know I’m going to get this keyword density out there and then I can actually turn this into a downloadable white paper. And I can go out and I can maybe use the same sort of topic and write you know 10 different guest posts and get involvings. So there’s that other benefit as well but you actually lead into one of the benefits and maybe this way you could [inaudible 00:17:18.0] to segue into that. And probably the number one reason that we started the Quiet Light podcast and the number one benefit that we’ve received from it is that personal touch that having a podcast creates. I’ll tell you a funny story. You’ll actually like this because you listen to our podcast by default from doing some editing. Craig: Of course. Mark: And I know you’re not doing all the editing yourself but- Craig: No I do listen to the show though, yeah. Mark: Okay well here we go … thank you for that. That makes me feel better. So obviously Joe and I host the podcast and we were at Brand Builder’s Summit. And somebody came up to our table at Brand Builder’s Summit and said “hey it’s Joe here” I’m like “ah no Joe is [inaudible 00:17:54.7] right now” and they go “oh man I really wanted to meet Joe, I absolutely love his podcast” I’m thinking “wow that’s great you love Joe’s podcast, I’m so glad that you love Joe’s podcast” and he goes “yeah I know I was really hoping to meet Joe”. And Walker was staying right next to me and goes “no this is Mark over here he also does the podcast” he goes “ah is Joe going to be back soon?” I’m like “yeah Joe will be back soon”. Craig: That’s wonderful, that’s wonderful. Mark: But you know one of the things that this podcast has been able to do is it gets us in people’s cars. It gets us in people’s ears for a certain amount of time and it really breaks down some of that barrier that I think can happen when you’re writing. Like you said it’s very two dimensional. Craig: Oh yeah. Mark: It’s the words on a page, you don’t have the voice of the person in your head. This is … it’s not as full-on as video but it’s a little more personal. And I’m sure you’ve seen that a ton with what you’re doing because I know you work mainly with businesses right? Craig: Oh yeah I mean for PodcastMotor all of our customers are businesses like yourselves. You know like small, medium size business and entrepreneurs, startups. And I think that the medium of podcasting is unique in two ways. One like we’re having right now it’s a conversation. It’s not you on a video and your YouTube channel talking and everyone else is listening. That’s not so helpful. And it’s not so helpful in a very particular way when it comes to businesses and that is rapport building and networking. And this is like the secret sauce I think when it comes to like B2B podcasting is you have this podcast to reach a broader audience of buyers and sellers … of buyers maybe but really probably to get sellers in the door right? And so like for PodcastMotor we have a podcast. If we’re going to go kind of strategically and think about who we’re having on the podcast it’s thought leaders in the podcasting like B2B podcasting space. So they can say wow you know I had this podcast with Craig last week, we talked for like an hour and he really knows his stuff. Dean my friend over here who runs a coaching business who wants to start a podcast should really talk to Craig because he really knows what he’s doing. He can help him be successful. Like that really like micro networking opportunity that you have in interviewing a thought leader in your space on a podcast is not something you can measure by like download statistics or something like that. But for a lot of people should be the reason they do a podcast. It’s not your listeners that you do the show for it selfishly a little bit is yourself and the networking ability that the podcasting medium allows for. Mark: Yeah I would agree 100%. And this is one of the main ancillary benefits that we received from the Quiet Light podcast. One of the biggest benefits is that it just keeps us in touch with people in a very personal way. And in some ways it’s a little bit weird when people do come up to you and [inaudible 00:20:44.9]. Craig: Yeah. Mark: But I shouldn’t listen to my voice that’s weird but kind of cool at the same time. But that secondary benefit of that micro networking that you talk about I know we’ve had this happen actually recently we had Ezra Firestone on the podcast. And sure enough I had opened up my e-mail the other day and there’s an e-mail from Ezra promoting his podcast episode with Joe, Joe’s podcast. And I mean just think about that, I mean he’s just one of the biggest Internet marketers out there right now promoting this one episode. And how many extra people are going to be exposed to the business, to us in general just because of that one episode. So this is definitely a benefit and might not be my number one goal but it’s definitely one of those goals of the podcast is to be out there spreading our network for referrals. I think any referral based business that’s out there this is a fantastic medium and probably a must that you should do is having some sort of a podcast if for nothing else to be able to bring in that network and grow that small network. Craig: So just to pile on there a little bit for folks who might be a little bit outside of the agency or consulting world so like starting from really high dollar and down to more transactional type businesses the other thing I think that podcasting does is it allows you to showcase publicly your knowledge and expertise. So if somebody sees you on another person’s podcast they’re going to say “wow Mark really knows what he’s talking about when it comes to buying and selling businesses”. It automatically boosts your credibility with that person if they’re looking to do this thing down the road. Yeah, I think that’s massive. It’s kind of like your little online CV that you build along with your social media and YouTube and all this kind of stuff but podcasting should be a part of that for a lot of people. Mark: Well and that actually leads to my next question really well and that is what do you think about podcasting on the more just B2C side as somebody selling baby shoes online. Craig: Yeah. Mark: I mean how can podcasting fit into that fold … with that type of business? Craig: Yeah I mean there’s really two … in my mind there’s two ways to go and admittedly this is a bit outside of the wheel house of what we do at PodcastMotor but there’s really two kind of schools of thought or areas that you would run into there. One is just hobbyists, right? And so like you’re a hobbyist you like the Pittsburgh Penguins, you want to have a podcast about that. That’s just a hobby and that’s great but it also does the thing about like building your social proof in the world. And so you want to go do something with that later on. You have this bank of 200 episodes that you want to do something with. If you’re thinking about like a B2C area I think that you can either provide useful content to … you have a show about being a parent, provide useful content to other parents about how to be a good parent, organic parenting and all this kind of stuff. Or you have what’s called like sponsored content and this is where a company would pay a creative agency like I believe it’s Pacific Media is the real big one in this to create a show like Serial. So Serial is the Gimlet Media podcast from a few years ago. They would create a podcast like that and it would just be you know this podcast is brought to you by Huggies Diapers or something like that. And it’s this totally awesome show about parenting and motherhood or whatever but it’s just sponsored by this B2C company. And you see more and more sponsored content out there these days where a business is saying look this is a massive branding opportunity for us. We’re going to create this piece of content that we know our audience will love. It probably doesn’t have a lot of like direct business impact, people are not going to go buy our diapers because of this podcast but they’re going to know our name really well because every week the show they love the most has our name all over it. Mark: Yeah that makes complete sense. I also think of the episode we did with Mike Jackness from colorit.com and the show is on email marketing. So it had nothing to do with podcasting but we were talking about how often he was sending emails. They were sending emails to their subscribers every single day but the vast majority of what they’re sending is ridiculously useful content that is not selling their clients in any way, their customers in any way. And the result of this is that people end up looking forward to communications from them. So I can imagine that impact as well if you have a B2C company and you’re in this hobby, this niche, or you really have a very unified sort of product that you’re selling. Or it can even be a type of service as well. You’re growing an audience that is kind of a group of raving fans for what you’re doing. And you’re offering so much value that when you do offer that sale when you do go out there and promote something you have this group out there that’s just super excited to hear from you. And that’s a nice problem to have, right? Craig: Yup. Mark: Yeah all right let’s talk a little bit about this from an acquisition standpoint. Obviously, we should bring this back into this and I want to talk about from an acquisition standpoint and also selling and we’ll end with the selling question because I think there is a pretty significant question there. But on the acquisition side the one struggle I can see … I did an acquisition recently my guess and that’s almost two years ago now and – Craig: It’s not funny, math coming back in there. Mark: Yeah [inaudible 00:25:57.8] absolutely, time flies too. And you and I have actually talked about the starting up a podcast on this acquisition. It’s a little bit weird though you know like Quiet Light Brokerage has started … I own, I’ve kind of grown with it so I feel like I own it. It is a little bit weird to start a podcast with something that you don’t own. But I wonder if there is almost a sense of growing ownership if you start building something on top of that like a podcast with an acquisition. Craig: Hmm. Mark: Kind of an open ended thought but I don’t know if you’ve had any experience with that or any thoughts on that. Craig: Yeah I mean I think that … so I had not run into this personally like with some of our customers having acquired businesses that they didn’t want to start a podcast around. But having acquired several businesses the one thing that I think is really important and often times really difficult is for an acquirer to really know the business model and the types of people that kind of live and breathe this product or space that you’re in. And there is nothing better than to say I want to go interview the 50 best people in Instagram for kids whatever … whatever niche it is you know than a podcast. Mark: Instagram for kids sounds like it should have some predatory laws about it I’m just saying. Craig: Yeah sure whatever it is right … it’s underwater basket weaving. I mean you interview the 50 best people on underwater basket weaving. You’re going to know basically everything there is to know about the influencers and the things that really matter to people in that business. So for me it’s like someone who is always looking to acquire businesses and kind of dabbling as like a serial entrepreneur if I was going to get into a business I didn’t know a lot about lot about starting a blog or really continuing a blog would be really daunting because I … there’s a lot of opportunity to waste a bunch of time and money there. You can write a bunch of articles about things people don’t care about but it’s really hard to have a podcast that’s bad if you will in a space you don’t know a lot about because you just go interview people and ask them interesting questions. And what they have to say is the content it’s not what you have to say, it’s what the people you have coming on the show. So I’d say for people looking to … who have acquired a business that might be a little out of their wheel house just start a podcast, interview the thought leaders in that space and you have like the nexus of all the really interesting content for your audience. And you as the new owner know exactly what’s so important to everybody in that space. Mark: Yeah and I’m going to compare this actually to the blogging world because I went from the blogging world pretty heavily into the podcasting world almost exclusively now. Libby has been writing blog posts on every one of our podcast episodes so we can keep up with some blog content. But in the blogging world, you would have to sit down. You would have to come up with your own idea for a blog topic. You would have to research that topic. And then you would have to write on that topic. And the way blogs are going you have to write more and more and more. I was writing 1,500 to 2,500 word blog posts. I was doing four of those per month plus four outside of Quiet Light blog posts per month. So I was doing eight blog posts on average 2,000 words a piece. And then best practices after you publish that blog post you should go out and you should do outreach. So you should reach out to the influencers and say hey take a look at this and how easy is it for an influencer to ignore your e-mail or give it a cursory look. I’d flip this around for this I’m doing my research right now on this interview with you I’m reaching out to you and you’re an influencer on the podcasting world so I already got my influencer locked in as well. We’re getting great content at the same time. It kind of brings all of this into one hopefully easily digestible format. So that’s a huge benefit I think as well. And when you’re looking at getting into a space like you said trying to network and get to know the influencers in a space that you don’t know is one of the biggest challenges. And having a podcast I’ll tell you what when I ask people to be on the podcast I’d get one of two reactions. One is no I’m super shy I don’t want to do it. And two is yeah that sounds great because who doesn’t want to be in front of a big audience and get heard. People like to be on podcasts. They’d like to think that they’re important enough to be interviewed. Craig: They want to take their Joe Rogan. Mark: Exactly even though … you know I’m not going to tell them that there’s like three people that listen to the Quiet Light podcast but they’re still excited. Craig: So you brought up two things I really want to touch on quickly. One is three people listening to the Quiet Light podcast, one is not true right? But in a B2B sense and even a B2C sense in your niche, the number of people listening to your show doesn’t matter at all. So if you have a hundred people listening to your podcast that is great. Those are a hundred really passionate people about what you have to say. As opposed to a hundred people reading a blog post that has almost no impact whatever. You need tens of thousands of people reading a blog post for it to really be impactful in the in the greater sense. But 100 people in your niche listening about your podcast is fantastic. So they’re really high intent people for whatever your business purpose is. The other thing is talking about repurposing content. I think podcasting has the ability to repurpose content really easily right? We’re doing audio, we’re doing video, it will be created in to show notes for a blog post, you have it transcribed, you can syndicate the video to YouTube. Like you can do all of these things with one … what we’re going to talk for 45 minutes today piece of investment and your time and you have a team or someone do all of the extra work to produce all that for you and you have two or three or four pieces of content you can syndicate to everywhere that people consume this media. As opposed to writing a blog post it can ever only ever be in your blog. You can’t go create a podcast out of a blog [inaudible 00:31:29.4] could but that’s just kind of silly. Mark: Right and you’re absolutely right as far as the repurposing content. Again if people haven’t checked out in a quick plug in the Quiet Light brokerage blog, I think it was last fall we brought on [inaudible 00:31:41.3] and she listens to every one of these podcasts. Hi, Libby thanks for all the work you’re doing. And she’s putting together awesome blog posts like I’ve been reading these myself and she’s taking the information that we’re picking up in the podcasts and then she’s going out and supplementing it with outside research as well by putting together a full on blog post with quotes from the blog post as well but bringing out a slightly different narrative than what we cover in this this conversation. It’s a great way to be able to repurpose this content and give it just a little extra layer and a little extra dimension. And so that is one way to repurpose the content. And again I can’t emphasize this enough the amount of time it takes to do a podcast significantly less time than it takes to do the blogging side. Let’s address the question of a podcast in a business that you hope to sell someday. And I think this is a question that is a little bit more difficult to answer here because we talk a lot … let me ask you this have you seen the Princess Bride? Craig: Yeah of course. I have an eight year old daughter, yup. Mark: Well I always like to say that getting a business prepared to sell is you have to follow the Dread Pirate Roberts rule right? You don’t want to be actual Dread Pirate Roberts. It’s the name that counts right? That’s the quote from the movie; it’s the name that counts. The actual Dread Pirate Roberts has been retired and living like a king in Patagonia. That’s what we want to be able to do. We want to pass on the name of our business. We don’t want to actually have to be tied to the business. Well, we just talked about podcasting, it’s being in somebodies ear and being that personality in somebodies ear. And so from a standpoint of selling maybe, it’s a little bit of a disadvantage on that when you go to sell. But I don’t think it has to be a disadvantage but I’m going to put you in the uncomfortable spot here and see first have you thought about this much and what are your thoughts on it? Craig: Yeah so I guess two things; one, I know that podcast themselves have definitely been bought and sold more and more right? We’re recording this in beginning of 2019, you hear more and more about people selling and buying podcast especially in a space. It’s like buying and selling a blog in a space. If you’re a business and you acquired this blog redirect it and then pour your content into your domain and you already have this audience that’s seeing your brand. The same can be said for podcasting so people want to come in and buy a podcast in a space because it has a built in audience. I think it’s a really good kind of audience and customer acquisition strategy for a business that already kind of exists and has their own podcast to look at selling the business and transferring the podcast to the new owner. I think that a lot of the standard knowledge and business process transfer things apply there. Like if you have a process around Mark how you identify the guests that you want to have and how you invite them and you send them a [inaudible 00:34:23.3] like an as a zoom thing in it and you have an outline you send them three days before and all this kind of stuff and you have a team behind it to edit and produce the podcast. Then someone buying your business that has a podcast in it is not nearly as daunting as just saying like I wing it every week. And the new owner is saying holy crap I can’t imagine doing that. So I think that … I mean the truth is a podcast is not really hard. Like once you do a couple of them it’s not really that hard. So giving the buyer of the business that would acquire this asset but kind of responsibility of a podcast, give them the tools to be successful and I think it’s definitely a net win. The worst thing I can see though is you have a podcast and you have an audience and people that really enjoy and want to connect with you through the podcast and the acquirer comes in and drops the ball, obviously, a big negative. So if people have podcasts and they’re going to be selling their business or business with podcasts I would definitely make sure like the rest of the business like you said with the Dread Pirate Roberts thing it’s like make sure that it’s totally transferable and that the person’s going to be successful. That intimate nature of the podcast I think can transfer from one person to another pretty easily. You know the new person is going to have some level of domain expertise and you’ll love a different spin on the podcast and that’s cool. Yeah, I think it’s definitely a net win as long as the person is set up to be successful. Mark: Yeah and I would agree. And the other thing I would point to is that when talking about an exit strategy when looking at what you need to do to prepare a business for sale there’s going to be this push and this pull on various factors of the business. And when you’re looking at this, when you’re looking at the business holistically it’s always going to be better for you to build a strong, loyal, happy, faithful audience right? Craig: Yeah. Mark: That’s way, way more valuable than anything else. And is there maybe a little bit of a demerit when it comes to having something like a podcast which may be tied to your voice. Yeah, okay there’s … I think just being honest yeah I think there’s going to be a little bit of concern about the transferability. But that can be addressed right? That can be addressed pretty easily. You can agree to do the podcast and co-host with the new owner for six months and have a very warm hand off that way. That would be a very natural way to do it. I think the benefits that a podcast adds in building an audience, let’s think about this real quick here what is the value of an online business when we actually look at it and when we do all the tax returns and everything else on it we allocate most of the purchase price towards goodwill. The sort of nebulous who knows what it is that makes this business successful. Successful and having a podcast is really a big part of building that good will. So if you take the time and build a lot of good will through a podcast and that’s a good source and driving avenue for customer acquisition within your business that’s going to be a net plus in the grand scheme of the things. So I think people that are out there thinking about podcasting thinking well I don’t want to start that because it’s going to hurt the transferability of the business. I wouldn’t necessarily say that. I wouldn’t necessarily say don’t do in fact I’ll probably say the opposite especially if you have enough time. If you’re looking at a year, two or three years before selling and you’re able to build that audience I think it actually makes more sense because it’s really hard to replicate that. Craig: Yeah the value you can get in those two years is so much more than the potential drawback of the new owner flubbing it and your audience being upset which is basically the worst thing that could happen right? Mark: You’re totally biased in this but I’m going to ask you this question right now. If I could give you a business with 30,000 e-mail subscribers or a business with 15,000 podcast listeners what would you take? Craig: Yeah I mean the podcast listeners are going to engage with your message a lot more. You probably also would get all of them on an email list so you’re already halfway there to having both. I mean you’re literally … and we say it all the time, you’re literally in someone’s ear creating like some kind of like different neural connection with those people. I get your e-mail; I read your e-mails fine. I hear you on the podcast; I hear you talking about your kids and the Dread Pirate Roberts and all these kind of stuff that like has a different level of meaning. And it is that personal stuff that in a situation where you’re going to be transferring it to a new owner is a little different. But for the time that you have the business or you’re looking in acquiring a business that has a podcast it is a huge benefit. Because a lot of people are scared, right? You didn’t start the podcast for some period of time probably because you’re like … I don’t know this is an onerous task I don’t know if I’m up for it right? I mean maybe I did sure like I didn’t start a podcast because I was like I’m not going to talk into a microphone and then put it out on the Internet for anyone who wants to hear it to hear because I sound like an idiot right? Like a lot of people don’t like the sound of their voice and you just have to get over that stuff because the net is such a huge win. Mark: Yeah. Craig: Think about like you’re at a conference now and like you know Mark I heard you on the podcast right? Mark: Right well it was that conference question that actually led us to do the podcast because we’ve been going to so many conferences and conferences are expensive. You have to fly out there for sponsoring and now that the sponsorship fees are ridiculously high and … but the benefit of being there in front of somebody and having those little jokes here and there or just playing… we’ll play it a game. Well, we’ve done golf, we’ve done jenga, we’ve done darts … or something like darts it was actually sharp objects that we’re throwing out our booth but that’d be dangerous they wouldn’t let us do that. But that actual physical presence being there it really relaxed people so much more and allowed us to connect on more of a one on one basis. And that’s why we started the podcast and sure enough, I think that happened. Given that choice between e-mail list and podcast, I would take the podcast audience as well. I think you can mobilize a podcast audience much faster. I think they’re more engaged. I think they’re more likely to quite literally listen to you but be more attentive to what you’re saying. I think there’s … that’s just different [inaudible 00:40:07.3]. Craig: Yeah I would say like that one look at guys like you know Gary Vaynerchuk right or Pat Flynn or whoever that you look up to in the business and marketing world they all have podcasts right? So like that says something I think. The other thing is the volume of information that we are relaying in this episode is massive. Like … you know we transcribe episodes for customers a podcast and a typical you know 45 minute conversation is about 15 pages in a Google doc. Mark: Wow. Craig: So you’re like how are you going to relay 15 pages of content to anybody ever? That’s impossible, right? No one is ever going to read that blog post or email but they’ll listen to that podcast every week. Mark: Yeah absolutely, in fact, I have our director of content marketing now Chris Moore who also listens to the podcast, hey Chris how are you doing? He’s been going back through every one of our podcasts and pulling up quotes. And he was telling me just earlier this week about how much volume is there that we put together in what feels like a very short amount of time of doing this podcast. It is a ton of information. Craig: Something … a bit of a carrot I think for both the buy and sell side you know of your audience is you can bet your bottom that Google will be indexing audio very soon. Mark: That’s a really nice tease. Craig: Oh you know the SEO impact of podcasting ya-da-da-da-da, you’re going to create like show notes that are like 700 words or whatever for an hour long conversation. 100% guarantee that there will be an audio tab in Google whatever soon in the next couple of years. Mark: Yeah all right so let’s go to this. We’re almost up with our time I want to end up with what does somebody need at a bare minimum if they want to test a podcast for their business? How long … we don’t have to get in the details of the equipment like we don’t … I mean you want to give a couple of recommendations there and what are the basic things they should think about if they want to get and test it out for say two or three months and how long should they test it? Craig: Yeah so I think that the basics you need a microphone. I mentioned the two microphones before. If you really just want to test use the Apple ear buds they’re actually quite good. Mark: They are actually. Yes, I’ll second that actually, yeah. Craig: Get in a quiet place; don’t have your kids running around or the train going by with the window open or something like that. Do some kind of environmental safety measures for the sound quality. You need something to record and edit the audio with. A tool that does both of those is called Audacity. It’s open sourced and free in cross-platform so Windows or Mac. So you can record and edit with Audacity. Something to record with select a microphone or the Apple ear buds perfectly good and then you probably want something to store the files on so like a podcast hosting platform like a Castos or Libsyn, or SoundCloud and then you need to create what’s called an RSS feed. And that is the thing that places like iTunes and Stitcher and Spotify read. And then share information about your podcast like as a whole like the title and description and image and all likely stuff and about each episode. That’s kind of how podcasting works is you submit this RSS feed to these directories and the directories read the meta information about your show as well as information about each episode as it’s published. So that’s kind of a 20,000 foot view of podcasting. How many episodes? I think if you can’t come up with 20 good guest interview or topics to cover or something like that then you have a couple of problems. But you probably shouldn’t get into content generally but you really, really, really need to think about at least having a couple of episodes to launch with. Two, three, four something like that and but you really should have a general idea of what the first 20 episodes is going to look like. Mark: Yeah and I recommend actually recording probably about two months’ worth just to start. If you’re running a business as well I know like the recent first … my first go with Quiet Light podcast didn’t really happen as I recorded three episodes and then I got busy and three weeks goes by really, really fast. And we do this here at Quiet Light we will get like a nice buffer of about two months but next you know we’re staring down an empty set again of episodes. So get a nice buffer set up for that first trial and see what happens. It’s a great medium and I’m going to do a plug for you just like you don’t have to come across self-promotion. Honestly, your service makes this whole thing dead simple. Like I don’t think about it at all, I don’t think about what I’m doing. The only thing I thought about was what sort of graphic are we going to use for the podcast. Outside of that everything was set up, everything was done, the introduction was done. It makes it really, really simple. And so if you are looking to go this direction don’t add a bunch more to your plate. Go out talk to PodcastMotor I recommend your guys service highly enough. Craig: Cool. Thanks so much that’s great to hear. Mark: Hey thanks for coming on. I really appreciate it. If you guys have questions feel free to reach out to Craig@podcastmotor. We’ll put contact information in the show notes and yeah if you have any other questions or suggestions for podcast episodes send me an email mark@quietlightbrokerage.com. Thanks, Craig. Craig: Thanks, Mark. Links and Resources: Podcast Motor Castos Contact Podcast Motor

Another one of the top 10 guests of 2018 is returning today to review the SBA process for both buyers and sellers. We’ll discuss what’s changed and things buyers and sellers need to look out for in 2019. Stephen Speer of ECommerce Lending, based in Florida, is a specialist in eCommerce acquisition deals. He offers a superior financing experience to buyers and sellers. Stephen urges sellers reach out to him to get their game plan ready and advises buyers to get pre-approved in order to get the ball rolling in the right playing field. Episode Highlights: What Stephen looks for in a business when prepping SBA on the seller side. Why co-mingling of multiple business can be problematic for a seller. His recommendations for cleaning up and consolidating financials when preparing to sell. What the the “debt service coverage ratio” (DSCR), also known as “debt coverage ratio” (DCR), is all about. Where the add backs come from and where Stephen’s team looks for them. He advises companies to use an external bookkeeping outfit – for a great ROI! How Steve and his group think outside the box when it comes to SBA lending and refinancing in order to make the purchases happen. What he looks for in an SBA financing candidate. Just because you can write a check doesn’t mean you don’t have to be likeable. Situations or factors that can stop an SBA loan. The importance of reaching out to Stephen before starting to shop for the business that falls into your price range. Stephen reveals his lending sweet spots – the floor, the ceiling, and his averages. All the financing details – down payment, terms, and interest rate. Why sellers and buyers both need to go through the vetting process. Transcription: Mark: Joe last week we aired the episode with Shakil Prasla and we started out the episode with me basically having you fess up to the fact that I have the number one most downloaded and listened to episode. Joe: You’re amazing Mark. Let’s just say it right now you’re incredible. Mark: But you’re [inaudible 00:01:07.9] with Stephen Speer and at the risk of becoming a rethread podcast where all we do is bring back our top guests. We are having back one of our top guests this week again. Joe: Stephen Speer that’s right. He’s an SBA lender which is interesting in that the top two podcasts that we had had been about buying online businesses and we’re brokers that sell online businesses. But hey … look you are amazing and you started this company 11 years ago and your focus was education and helping buyers understand the process and helping them as much as the sellers. So it’s worked. And the fact that our top two podcasts are about buying online businesses has proven out that theory. We had Stephen back because last year there were a lot of changes in the SBA policies and guidelines. The dollar amounts came down a little bit, seller financing wasn’t required on certain deals, and we recapped some of that and we reviewed the process both for if you’re a seller what you need to do to get yourself in good shape to be SBA pre-qualified. And if you’re a buyer out there looking to build that portfolio of businesses or buy your first one what you need to do in order to connect with someone like Stephen and get yourself in a position that you best be able to act quickly when that perfect business comes along. Mark: So yeah these rules do update on a yearly basis but fortunately this year it doesn’t sound like there’s a ton of new changes. With that said there’s a lot of good information in this podcast because we get these questions over and over and over again about what does it take to qualify. And I think one thing that … I know we talked to Stephen the other day as a company. We had him and a couple of other SBA lenders come into the company and just— Joe: Yup. Bruce from [inaudible 00:02:47.2] bank, yup. Mark: Yup. Bruce from [inaudible 00:02:48.8] bank. You know I think it’s important for people to understand that there is SBA guidelines. Yeah, that’s one thing, but then outside of the SBA guidelines, there are some individual bank guidelines as well. And to understand that even though these rules and these guidelines that we’re going to cover in this episode might be out there they’re not hard and fast when it comes to finding an individual lender. Did you cover any of those guidelines from Stephen’s group with the podcast? Joe: Yeah, we went over some specific things that he looks for and his firm looks for. He’s with Bank One now … or I’m sorry First Home Bank but some of the topics that we touched on on the podcast and even when we talked to him separately and that you and I talked about is why is it important to pre-qualify your business for an SBA loan? Sellers may be thinking well it doesn’t matter why should I do that. And the answer is because it casts a broader net and not a broader net of buyers. There are definitely some buyers out there that only want to use SBA funds because that’s … they only have 10 or 15% to put down. And then there’s another pool of buyers that could stroke a check for one, two, three million dollars but they’re building that portfolio like Shakil and using SBA money so they’re only putting 10 or 15% down each time. So it’s really important from a seller’s standpoint to understand the value of clean financials and getting prepared so you’re pre-qualified for an SBA loan. And from a buyer’s standpoint, it’s a great way to go if you’re comfortable with that option. Mark: Absolutely. All right let’s get into the episode, let’s find out what’s changed in 2019 and then also recap some of the rules and some of the things that both sellers and buyers should know about SBA loans. Joe: Let’s go to it. Joe: Hey, folks, it’s Joe from Quiet Light Brokerage, today I have one of our top 10 guests back for 2019 Mr. Stephen Speer. Welcome back Stephen how are you? Stephen: I’m doing great. Thanks for having me Joe I appreciate it. Joe: Awesome. Man, well listen I want to go through all of the SBA lending practices, what it takes to qualify for a business, what buyer’s should be looking for, and I also want to get an update on you and your team. I think you made some changes in 2019 … I’m sorry ’18 I want to cover those as well. But for those that have not listened to you in the podcast in the past can you give us a little summary, a little background on yourself? Stephen: So I have an e-commerce lending team at First Home Bank. The bank happens to be located in St. Petersburg, Florida. Our team are lending throughout the country. As a matter of fact very few of our loans are actually in Florida but I made a transition months ago with the privilege of being able to grow my e-commerce team and we provide a level of support as we go into the new year. So I’m pretty excited about that. Joe: Yeah, it’s exciting and I know that we’ve done a number of deals together and you’ve done a lot of work with Quiet Light and some of the other website brokerage firms. How big is your team going to get to? Where are you at now and how big are you going to be compared to where you were before? Stephen: So my team comprises of four people. Myself, a gentleman named Bill [inaudible 00:05:55.9] who is kind of my right hand man along with my underwriter and closing team. So I’m pretty excited about that. I plan to add an additional person in Q1 and another person who I have identified for Q2. So I plan to have three people do what I do. In other words, myself and two more and then stick with my underwriter as well as the closing team. Joe: That’s huge. I always worried about you getting hit by a bus. Now you can get hit by a bus and we’ll be fine. Stephen: Well yeah, my wife would love to hear that so. Joe: We don’t want her listening to the podcast [inaudible 00:06:32.5] buy a bus and start driving around looking for you. That’s great man, that’s great. One of the things that I want people listening to this to understand is that we’ve dealt with a lot of SBA lenders over the years and you’re a … you’re not a banker. You don’t come across as a banker. You don’t have certain boxes that you must absolutely check every time when you speak our language. And you hang out with e-commerce entrepreneurs which is great. Let’s talk a little bit about what it takes to qualify for an SBA loan from the sell side of the business. What do you look for from a business? When I send you a listing and say “Hey Stephen will this qualify?” what things are you looking for? Stephen: Well, first I’d like to … I would say I’d request financials. So first what I look for is what type of business is it? Is it FBA driven, is it 3PL, or do they provide their own fulfillment? So I look at that. If it’s a product based business I look at the number of SKU’s, type of product. I really do dive into that because one thing I try to avoid is having … trying to finance a single type business that’s [inaudible 00:07:45.1]. So that’s one thing I look at. So once I get past that I really kind of dive in to the financials. When I mean financials, the holy grail of financials are the tax returns. So for example now that we’ve entered 2019 I look for tax returns for 2017, maybe 2016 [inaudible 00:08:05.5] year, solid tax return for 2017, and solid year ending financials for 2018, and as we continue down the path of Q1 obviously 2018 tax returns. So basically back to your question a wrap up of … in 2016 of the business, solid year of 2017, and a strong trailing 12 month or strong and the word strong – Joe: Lots of people listening that are on their business will say “Hey that’s not a problem. I got tax returns. Everybody files tax returns.” and then they give you a tax return and it’s co-mingled with four other businesses that they’re selling and they’re only selling one … I’m sorry four other businesses that they run and they’re only selling one. That’s a problem isn’t it, the co-mingling of multiple businesses under one tax return? Stephen: That is a problem and unfortunately, it’s a problem that seems not to go away despite your best effort and your team’s best effort as well as my team’s best effort. They just seem not to follow that advice so that is a challenge. Now I do … with that coming up so often I do have a set of things I’m able to put in place, for example, I direct this seller back to his or her accountant and be able to income streams and expenses done in a professional manner. It can’t just be Quick Books and I’ve been able to still get financing for businesses that do have co-mingling within a tax return. Joe: Does it just take a little bit longer to get those worked out and closed? Stephen: It does take longer. Generally, it adds roughly two months to the entire process. Joe: Woah. Stephen: It does take time depending on the responsiveness of the accountant. Especially as we enter Q1 and then start working on returns and start getting buried because [inaudible 00:09:52.5] season. It does take a little bit of time but it’s not something that’s not doable. The biggest recommendation I have either if you’re thinking about selling a portion of your business now is to get on that and have your accountant provide or put together what I call consolidated financials. And basically what we do is we take the tax return and compare it to the consolidated financial which show a delineation of the different businesses and we’re able to perform. Joe: Okay so for the sellers out there listening to that and going well I don’t have to have an SBA buyer I can just sell to a cash buyer. You’re absolutely right, there’s a ridiculous amount of money out there in the landscape for people buying online businesses. The reality is though that you want to cast this broad of a net as possible for potential buyers. And we see this over and over again somebody that’s from another country that is selling a business if it’s a multi-million dollar business but you’re not US based, not filing US tax returns. It is more difficult to sell because the buyer pool is not as large. There are buyers out there that I know personally that have the ability to stroke a check for five million dollars but they’re smart and they don’t want to. They want to keep as much money as they have … as they can and buy multiple businesses and maybe use someone like Stephen and SBA lending and only put down 10 or 15%. So you do cast a broader net if you can do the consolidated financials. If you’re just starting off in business your best approach is to have one LOC for that line of product that eventually you may sell. We had Syed Balkhi on the podcast as well and Syed has a number of different businesses and every time he says “okay I’m done with this one” we’re able to list it and sell it very, very easily. And the last one I think we did cash … actually, I think we did two SBA loans and it was very easy because he files separate tax returns for each business. That’s the ideal situation. How do you feel Stephen about someone selling a business and they’re coming to you with Excel spreadsheets for their profit and losses versus Quick Books? You don’t really care about that you’re looking at the tax returns and a P&L anyway that’s in excel format right? Stephen: Primarily if we’re talking just a single business, single return, single P&L’s yeah that is fine. So that’s not a problem at all. Obviously, the more … accounting is all about substance over form, it’s kind of an accounting term. That is true but it can’t be hand written or something very unprofessional I mean because ultimately underwriters look at that. If that’s just kind of run together and it doesn’t make much sense it’s not done by someone who knows how to do a P&L or a [inaudible 00:12:47.0] but as long as it looks presentable that’s fine. Joe: Well, you and your team are betting on the future success of the business. So first you want to see that the business is run properly. And if somebody is not using Quick Books or Xero or some form of accounting software it’s an indication that it’s not being run in as professional a manner as possible right? So that … okay, and the buyers look at that that way as well. And I could tell you from a brokering standpoint when you’re using Excel spreadsheets for your financials and co-mingling it’s much more difficult to get maximum value for it because no matter what things are missed. I had a call this morning where there was several thousand dollars that was buried inside of a marketing budget that was actually a personal thing. We had to dig very, very deep to find it. And that times three adds nine, ten thousand dollars up to the value of the business. So ultimately your view is you want to make it a safe investment in financing this loan and make sure there’s a success down the road for the future. Is there a … some sort of multiple barrier that is a ceiling for you? Is it … how do you … it’s … I can guess you call it debt to income ratios right? Stephen: Debt service coverage. So let’s say … okay, so debt service coverage is primarily what we look at. We really don’t look at EBIDTA multiple. I mean we do and we don’t. The valuation piece definitely we look at that but primarily we look at a debt service coverage. So for example, if the overall loan is the obligation, annual obligation for a loan is $100,000 let’s say, the bottom line number on the tax returns needs to reflect at least $115,000. Giving us a debt service coverage of 1.15. Now a lot of sellers run their similar personal expenses through the tax returns. I’m able to add those back so you can’t just take a tax return and say okay it’s a bottom line of 115,000. You got to take whatever the bottom line number is and then their add backs. Standard add backs would be interest, [inaudible 00:15:02.7], depreciation, amortization, those are primarily some of the add backs. Some of the seller discretionary add backs might be … especially if it’s an FBA setup type business where there’s run expense, well, the new owner probably will just run it as a home based business, some people add that back. Some people tend to run their car expenses through even though it’s a home based business. I’m able to add that back. And any one time expenses, the revamping of a website or other ancillary things or a one time they could add those back. And I take that number and determine the means and debt service coverage. Joe: Do you pull those from our spreadsheets because we have add backs and do you look at those or do you dig into the tax returns for the add backs? Wouldn’t it be hard to find them in tax returns? Stephen: Yeah so both, I look at what you provide in terms of your spreadsheet but some of those I’m not able to add back like typically insurance would be really hard. It’d be hard fought to have an underwriter add back insurance expense for example. Joe: It shouldn’t be added back. I agree. If it’s an expense that’s going to carry forward it shouldn’t be an add back. Stephen: Yeah and really those … so of your add backs, the ones you reflect typically on your spreadsheet I’m able to add most of those back and those … I use that spreadsheet as a roadmap. But I do go into the tax returns and make sure that the numbers are aligned. And then I’m able to really dig into a tax return and see if there’s any other type of add backs that I’m able to find. Joe: Okay, so from a seller’s perspective they want to do the best they can not to co-mingle multiple businesses under one tax return. Obviously, have tax returns and a good financial so we can dig into the add backs and make sure that debt to income ratio is going to work, anything else that they should be considering? I think you said obviously you don’t want a business that’s balanced on just one SKU doing 90% of the revenue. Ultimately the bottom line is you want to make sure that the bank is going to get paid from the person buying the business and it’s going to be a success right? Stephen: Yeah and another thing we look at if there’s any sort of declining revenue or a blip where … for example I had a client last year that completely lift Chinese new year and didn’t have inventory to sell. So there was a blip but I was able to explain that to an underwriter. And obviously with the new buyer who felt that this business [inaudible 00:17:38.3] little bit higher. He was able to avoid any blips in the coming [inaudible 00:17:42.9] for example. So it’s also an explanation there. The key for sellers is even if you’re not considering selling your business now get these things in place so when you go to sell you’re going to get the most amount [inaudible 00:17:58.5] of your business. I had a lot of sellers come to me and it’s kind of like they want to list now and their financials are a disaster now. So I recommended that buyers kind of get on the ball. Maybe it’s a new year’s resolution to fire your current accountant and hire a good one and to really get the financials in place and put certain financial things in place now or pay dividends in the future. Joe: Yeah, I’d refer people to certain e-commerce bookkeepers, two or three of them on a regular basis and have them go back … they’ll go back in this case to 2019 and import all the bank statements and vendor invoices and everything and get things updated and accurate. And Quick Books actually helps the CPA do their job better. On a go forward basis, it’s the best thing in my experience for a decent sized business to use somebody else. Let them focus on the bookkeeping and you focus on running the business and doing … driving revenue and maximizing profit. I think that’s really going to work. Stephen: Oh absolutely. And the return on that investment Joe, I mean you had a podcast recently that— Joe: I’m touched. Stephen: The return on that investment is enormous. Joe: And it’s incredible. I’ve seen it happen firsthand where we’ve had P&L’s in Excel spreadsheets and the deal fell through three or four times and then the guy took the same information, hired a bookkeeper, they put it into Quick Books and we sold the business for 50,000 more of that … I think we had again three or four LOI’s and it sold quickly which is fascinating; a fascinating study. Let’s talk a little bit Stephen about you. About e-commerce lending and your group and how you think outside the box. Because I want to talk about this a little bit. Not all lenders are created equal. You and I have a transaction going on right now where you had to really think outside the box. And I’m going to summarize it and I want you to then just talk about what your thought process was and how you approached it. We have a buyer at Quiet Light Brokerage that again has the money to stroke a check but he is in a situation where he’s building a portfolio of businesses and he’s using the SBA lending process. Buyers can take up to what … five million dollars in money right? Stephen: Primarily. Joe: So somebody could buy five … I guess that would be one million dollars I’d then be putting in loans right? They’re liable for up to five million. So he’s buying multiple businesses— Stephen: One loan or 10 loans it doesn’t matter. Joe: Okay perfect. So he has two under a letter of intent with Quiet Light Brokerage now and mine is in the process first. And he’s got the wherewithal but I think he had some pretty sizable loans that threw off his overall debt to income ratio. How did you work that out? Stephen: So … and that definitely took a lot of out of the box thinking in the sense that he had … he has an Amazon loan and I can’t divulge too much personal information but the monthly payment on the Amazon loan was staggering. It was five figures on a monthly basis. I looked at debt service coverage and throw in a very large five figure monthly payment through all the numbers ROI. Joe: And this is on a separate business that he owns. Stephen: Separate business that he owns. Joe: Right, okay. Stephen: Because it does affect what’s called global debt service coverage. So on a separate business that he owns which happens to be an online business. Joe: Right. Stephen: He has very large payment and then he purchased a bunch of inventory and financed it through Amazon. So it threw all the numbers off. So you kind of have to dig deep and say okay how about we refinance at that, take that monkey off his … that large knot off his back and be able to incorporate, be able to reduce that monthly payment and still get the new purchase done. And that’s what I’m in the process of doing. His new purchase, his loan on his new business acquisition was just approved and I’m going to process at refinancing his Amazon loan. Joe: Now the Amazon lending loan is very prevalent these days with Amazon based businesses. And you and I have done just for the record content site, SaaS business, all sorts of [inaudible 00:22:00.5] certainly not just Amazon. But in this situation, this particular individual had several hundred thousand dollars in loans and the money gets withdrawn out of their Amazon deposits. Do you recall what the interest rate was then? What his payments were? What the interest rate was and compare it to what you’re going to be able to do for him? I just want to emphasize you thinking outside the box and how much money you’re going to save this guy on a monthly basis. Because he’s thrilled right now I got to tell you he’s thrilled. Stephen: So his monthly knot with Amazon was 48,700 and something. Joe: Holy cow, okay. Stephen: It’s going to be a couple of grand. Joe: No way 48,000 down to $2,000 … that’s amazing. Thank you for thinking outside the box. You’re helping him and you’re helping a couple of the sellers of the businesses that were doing deals on now. That’s fantastic. Stephen: Yeah, and you touched on something really important now. I do have a fair amount of buyers out there, actually, currently 347 buyers out there looking for businesses to buy. And quite a few of them can easily [inaudible 00:23:03.5] for a two three million dollar business but they’re building a portfolio. So back to your comment about portfolios a lot of buyers out there right now are building portfolios. They want to buy two, three, four different businesses … online businesses for the course of the next two or three years. And they don’t want to use up all their cash. And the fact remains is that when you’re trying to scale a business cash is king. You need cash to scale a business. You need to buy additional inventory. You need to grow it. And if you’re cash strapped it’s really hard to grow an online business. So I’m helping several of those buyers accomplish that. So an SBA loan is not just for the person who needs a little bit lower barrier to entry. An SBA loan is also for the person that could easily pay cash but chooses not to, to stay in line with his or her business goals Joe: Absolutely. Well, let’s talk about the buyers a little bit and what you look for in a buyer? You and I have never had a situation where we brought a buyer and you said yes and then it turned out they weren’t qualified. But I had a situation a few years ago where I had a couple of Harvard MBA graduates. They literally just graduated a month before from Harvard. They got their Master’s in business and they decided to partner on an investment in an online business. And they had some funds. One of the graduates had some funds from a parent. It went through the process. They’re pre-approved from a different lender and then underwriting said these guys have absolutely no real world experience we’re not betting … I think the deal was two million dollars. We’re not betting two million dollars on these guys. Yeah, their pedigree is good, their education fantastic but no and the deal fell apart. What do you look for? Are you looking for real world experience? Is there a certain asset value that they need to have? How do you handle it when somebody comes to you? What do you look for? Stephen: So first I look at … I try to determine and I do interview my buyers. So once you refer them to me I do interview them as you know and one of the first things I really touch on is experience; so first determining if they have direct experience or indirect experience. And then as I mentioned in a previous podcast it’s almost like going for a job interview, even if you don’t have direct experience you need to make the person real comfortable with hiring you. The same goes with a loan is that even if you don’t have direct experience what business … what skill sets do you have that’s transferrable and also who’s going to fill the void of having direct … let’s say SEO experience or direct experience in the space? So those two things I look at. So if the person has direct experience, pretty much a no brainer. A person that doesn’t have direct experience it’s putting together the narrative like paying underwriter even though here she doesn’t have direct experience but indirect experience in these categories. And additionally, they’re going to have support via an employee or a contracted employee that that fill a void. Joe: I got you. Stephen: So I’m able to … I’ve never … honestly, I’ve never had a deal where an underwriter has said gosh that’s great they went to Harvard but they have no direct experience. Joe: We had a situation … I’m going to name a name here but I’m only going to use their first name; a guy named Rocky. Rocky was I think he was in his 60’s. He retired and ran a General Manager for some car dealership something … somewhere in the country. I loved the guy. I thought he was amazing. Just as a broker, as a lender you just … you connect with somebody like I want to help this guy. I want to find him the ideal business. Although let me say I told him he’s crazy. He didn’t need to buy a business. He was retired. What for? You have plenty of money I’m like you’re crazy just go play golf or something. But he ended up buying something from us and he didn’t have any direct online experience. He was a GM for dealerships that yeah they had websites but he didn’t run them himself. I find there are a lot of people in the corporate world that are putting in 60 hours a week that look at the e-commerce entrepreneurs that are selling a business when they’re working 20 hours a week and they’re making more money and they want to live that life. They want to spend more time with their family, with their kids, travel. Are a lot of the folks that come to you these types of people, and is that in direct experience still okay? Stephen: Yeah so to answer your question yes a lot are. Be it Rocky or any other, they don’t have direct experience. So the thing about Rocky is that … first, off he is incredibly likable, incredibly well spoken, and have a very strong resume. The guy was successful in his professional career. Joe: Yeah. Stephen: And then unlike somebody working at a low skill job the guy ran the car dealerships which he was 60 hours. Or he was probably working 90 hours a week now but with a transferable skill set. And also he filled that void of not having direct experience in running an online business but was able to fill that void by bringing somebody in. So we felt very comfortable with that and he ultimately was approved. And the last time I talked to him he’s doing very well. Joe: Yeah, I think he bought a business from Amanda. I didn’t have one for him at the time but Quiet Light, in general, had one. And I think Amanda loved working with him as much as you did. So the likability factor that Rocky had, when buyers come to you is that important? Do you have to like them to do business or? Stephen: Well not like … I think— Joe: Make a difference with human right? Does it make it a better—? Stephen: They are human. So an underwriter is human and if they have a good dialogue with the buyer, for example, Nathan was incredible as well. Joe: Yeah. Stephen: One of the reasons Nathan’s loan sailed through is because he was very well spoken and had the incredible background to be successful. So yeah it does. Joe: Okay so we’re going to just touch on that thing that everybody knows but they don’t talk about and that is if somebody comes to me, if somebody comes to you and they want to buy a business we want to sell you a business. But if you are 10 times more difficult than the next person and they also want to buy a business, my client … my seller is going to say okay well I’ve got an offer from each which one do you like more Joe, talk about the plus and minuses. And we’ve got to do that. And in your case you just said you’ve got something like 354 buyers on your list. They’re looking for a business, they’re not buying it from you, they’re buying it from the likes of Quiet Light Brokerage. Stephen: Right. Joe: But you still have to work with them on a regular basis and you still have to go through the process with them and be likable. Simple thing guys, everybody listening just be likable. Just because you’ve got the ability to stroke a check doesn’t mean that you can push a guy like Stephen around. There’s lots of people that are trying to buy a business, lots of people that are trying to sell businesses and being likable is so-so key because this is an online world. We’re not sitting across the table from each other and it makes a huge difference being likeable in the process. Stephen: We’ve kind of touched on that. I was recently … I have a buyer who’s been looking for a year and a half. Not to scare new buyers out there but sometimes it does take a while. But he’s not likable. Joe: Okay. Stephen: And he was on a phone call … I was on it as well with the seller and he was beating up the seller on the phone in front of me like I wasn’t on the call. I don’t know but … and the seller chose another buyer. Joe: It’s not hard. I’ll talk from personal experience. When I sold my business I remember being on one of these buyer conference calls. I had three or four. Jason Yellowitz here at Quiet Light sold my business way back in 2010. And I had three or four calls with potential buyers before it went under contract and sold it. But I remember sitting … I was in the car on a call and I’m sitting in a parking lot and I’ve got this guy just belittling my business and talking about all the negative things and I’m just to all I can do to end the call. It’s you know … to not end the call and to be polite and it was really hard. And even if he made me a full price offer … all cash, full price offer I have to take into account, sellers have to take into account how difficult that particular type of buyer is going to be in due diligence and in the training and transition period. There’s a cording, a relationship it’s … it ends at a certain period but you’re going to be in a relationship with that person and you want to make that as pleasant and as enjoyable as possible. So being likable is critical without a doubt. Stephen: Absolutely. Joe: What are the top two or three qualities that you look for aside from good financials from the buyer? Like, do they have to have a certain debt to income ratio? Do they have to have certain assets in order to buy a business? Stephen: As I would say assets it’s more present driven unlike buying a house. I think we definitely look at what’s called post-closing liquidity. For example, when all the dust settles is it broke after closing or still has a fair amount of cushion. So we definitely look at that. Is there outside income? Does [inaudible 00:32:09.5] have a … what I call a day job to … for outside income? That’s another thing we look at. So those are two very important variables. Credit score is important but it’s not like buying a home where you get to really perfect your lending terms. It’s pretty much either get a loan or you don’t get a loan in the SBA world. A recent issue … if the person is being down with a ton of personal debt that’s something that we look at. Generally, that’s a character … it’s the ones living beyond their means that’s generally not liked. So those are just some of the variables. And also what I look at is does this person have the skill set to be able to scale a business or is the business going to go stagnant as it transitions over to him or her. So that’s another thing we look at but [inaudible 00:33:00.5] just some of the variables. Joe: So when someone comes to you and says I want to buy a business part of what you do is you look at their financials. You look at all those variables and you say okay great you qualify to buy a business up to a certain amount. Is that the process? Do you say okay … do you give him a guide as in terms of you can buy something up to a million or two million [inaudible 00:33:19.8] like that? Stephen: Yes and a lot of the determining factor is based on their … is it direct, do they have direct experience or indirect experience? So that is going to move— Joe: Noted. Okay. Stephen: Secondly, post-closing liquidity that’s really what I focus on. If the person is trying to buy a million dollar business he has to inject or put down a hundred grand and he has 110,000 in the bank that’s not going to work. So we kind of have to move the needle down. Joe: And in that situation, they wouldn’t … it’s not that they don’t qualify to buy a business but in that situation, they wouldn’t qualify for a million dollar business maybe a half a million dollar business. Stephen: Right, it would move the target price down a little bit. Joe: Okay so just let me clarify that so that somebody has a $110,000 and they want to buy an SBA business and put 10% down, for those listening that’s generally the number 10 to 15% down, 110,000 you’re going to be left with 10 grand; not going to work. So you got to look at a half a million dollar business. Stephen: Or 800, 750 something like that. Joe: Yeah and then you look at their debt, what they have, what they need to live off of and that smaller business is not going to cash flow as high especially after the debt service from your loan. So you look at all of that and help them with what they’re capable of buying first and foremost right? Stephen: Yeah, most of my buyers have what I call a day job so most of their … in most cases their day job covers their personal debt so that’s rarely a real factor. Now I do have an individual recently who didn’t have a day job and had tons of personal debts so that kind of blew her out of the water. But generally we do look at that. So again back to post-closing liquidity what I do is … so for all of you out there once Joe refers a client to me for pre-qualification I’m able to have an interview with that person on a scheduled call and ask some questions and also they provide me what’s called a financial statement. And then I’m able to in most cases issue a pre-qualification and give them a target amount. In the case … in the example that was well over 800,000 for example. And then that person goes back to Joe and says okay I’m pre-qualified with Stephen, he told me to look at businesses around 800,000 let’s go. Joe: And then they have a path which is the most important thing. Somebody that doesn’t know what they’re looking for, doesn’t know what they’re buying capabilities are is less qualified from our view. So one of the things we want you to do folks if you’re out there as a buyer reach out to someone like Stephen and get pre-qualified so that it will help you narrow your focus. And then the next step is to look at as many listings as possible from the online world and figure out what you like and don’t like about the business. When you find the right one if it’s a great business you want to be in a position where you’re already prequalified to act quickly. Because if it’s a great business guess what other people are going to be looking at it and making offers as well, really important there. Stephen: Absolutely especially since there are a lot of buyers out there and if you snooze you’re going to lose. So you need to kind of get your house in order before looking. Joe: Absolutely, I agree 1000%. So let’s talk quickly about the qualifications of the buyer. Do they have to be a US citizen? Stephen: They could be either a green card holder or a US citizen living in the United States. Joe: That green card holder or US citizen living in the United States, the business itself does it have to be a US citizen or a green card holder filing US tax returns? Stephen: In most cases yes depending on the structure of the business. Joe: Okay, there’s always a sort of gray area in the situation. Stephen: Yes, it depends on the structure, you kind of different components as in the past few company on the foreign entity— Joe: Right. Stephen: Things that does affect that answer. Joe: Right. Okay and then your business and the size of loans that you guys generally do, are we’re looking at you’re looking for a half a million and up two, three million, where is your sweet spot in terms of lending? Stephen: So generally my personal loan floor let’s call it is half a million dollars. But obviously, if it’s a client I’ve been working with and happens to just look at $800,000 businesses I would grant one for 400,000 on that person. My average loan amount is about a one and a half million dollar range. So … and you know looking at my 2018 numbers that’s close to 60 million, 40 transactions, that’s about that number. Joe: I got you. I think we have 38 of them that were directed at me I think right? No, I’m kidding. Stephen: 41. Joe: So you’re loaning on the value of the business. And what about if it’s an inventory based business are you loaning for the value of the inventory as well? And then working capital … does somebody, do you always loan … give working capital money so that they— Stephen: Always. So a very good topic here so obviously I’m going to finance the business itself. I’m also … if the purchase price of the business does not include inventory I finance the inventory, the on-hand inventory. And what I do is I work with you Joe in determining what that number is going to be at closing. So I finance that. I also include working capital. And that working capital I generally work it into a loan in a sense that I’m able to include it in your market … not directly your market, so okay of that 100,000 working capital 50 is going to be for additional inventory above and beyond what’s being purchased with the business. And the other 50 is going to be marketing campaign or advertising campaign, it could be for hiring support staff. Joe: Okay and then lastly I want to talk about the term of the loans. We’re talking five years, 10 years, 30 years, what are we looking at? Stephen: It’s a 10 year loan and of all those components, by the way, it ends up being all in one loan. It’s not where you have separate loans for each. So it’s all incorporated into a 10 year SBA loan. Joe: Okay and 5, 6%interest rate somewhere in that range; five to seven? Stephen: Base prime plus two and three quarters, right now it’s 8.25. Joe: Prime plus two and three quarters. Okay so for those that want to run their own numbers 10% down, 10 year note, prime plus two and three quarters, do the math on that. Stephen: Yeah. Joe: The seller note in 2017 and prior to that in most of the transactions that we did or did together you required some sort of seller note. And that changed in 2018 so for … got a business that’s a million and a half and somebody wants to put down 15% are you requiring a seller note on a deal of that size or are you not anymore? Stephen: So up to 2017 a seller note was required by the SBA and not by the invidual lender. Joe: Okay. Stephen: So typically it was 10% down payment let’s call it from the buyer, 15 from the seller or vice versa in terms of the seller note for a total of 25% down payment rejection. Joe: Okay. Stephen: In ’18 the barrier to entry was lower. The overall requirement paying on a deal is the minimum 10%. In terms of what lenders require, some lenders require a seller note. We do not. Sometimes I incorporate a seller note to strengthen the loan especially if the buyer does not have direct online experience. So it gives kind of the underwriter warm fuzzies in the sense that the transition will most likely go smoother. The seller has a little bit of skin on the game. So there are situations where I do incorporate a seller note for approval purposes. Joe: So for buyers, sellers, even other brokers listening to this, this is you know you’re hearing Stephen say I incorporate this or I incorporate that to help the underwriter feel better about the loan and make sure it goes through. What I do personally is when I have a deal that’s pre-qualified by Stephen or someone like Stephen when I get an offer on the business A) I want to know if Stephen knows who they are and if they’re working with him and how they look qualification wise. But B) I really like to send the deal structure to you Stephen and say this is the deal structure is this going to float with your underwriters? And I think that’s critical to the ultimate success of the loan and the transaction process. Because the last thing that we want … it’s happened once or twice and I don’t recall if it was with you or not but … where you’ve … actually no it was with you where the underwriter looked at something and they had to tweak it just a little bit, had to increase the seller note by 5% or something like that. That’s not what we want to do so now I run everything by you prior to having a letter of intent signed. I recommend everybody to do that if they’re going to do an SBA loan through Stephen and e-commerce lending. Stephen: Absolutely, so that’s a very good point as we continue down the path of e-commerce lending I am constantly tweaking the way I do things. And that’s one thing I do is I bet really hard upfront so there aren’t changes on the backend. Fortunately some of my buyers don’t [inaudible 00:42:26.4] the businesses that they’re looking at prior to signing a letter of intent. It’s kind of an after they do that they come to me and say hey I just bought this business and here’s the deal structure I want you [inaudible 00:42:38.3] well that’s not going to work. Joe: Yup they don’t do that with Quiet Light they have to [crosstalk 00:42:41.7] so the whole process we require that conference call. Because we … it’s not, we don’t want people to go under a letter of intent just to tie it up and then make a decision. We want them to make the decision, go under letter of intent, and close and go through that process. It just saves everybody a lot of time and hassle. Stephen: It really does. Joe: Okay, any last thoughts about … you want to share with the buyers or sellers that are listening to the podcast today? Stephen: Yeah in terms of sellers even if you’re not selling a business now please reach out to me in general and have us put together a game plan for future sale. It’s really, really important and again it will be dividends on the backend. And then for you buyers out there reach out to me. I’m more than happy to pre-qualify you for a business. You can reach me at stephen@ecommercelending.com and the first name is spelled ph or call me at 813-766-4524. Joe: Thanks. I will put that on the show notes as well. The last thing I want to say is just to reiterate what you’re talking about there with the sellers and it’s called choose your pain. Go through the pain of getting your financials in good shape now and having a great transaction and a sale or don’t do it and you’re choosing your pain later because it’s going to be difficult. You’re going to be … you’re bank account is going to be in pain because you’re not going to get as much value for your business. So make the choice and hopefully you’ll choose that first one. It’s not fun, it’s not exciting but it’s the right thing to do. Do some valuation exit planning, reach out to Stephen; reach out to anybody at Quiet Light. Go to inquiries@quietlightbrokerage.com myself, Mark, anybody on the team is happy to help you even if you’re not planning to sell your business for another two, three, four years. That’s what we’re here for. Stephen, you’re awesome as always. Thanks so much for your time. I look forward to a great 2019 with you. Stephen: Absolutely, Joe. Thanks for having me. I’m looking forward to it as well. Joe: All right man, talk to you soon.   Links and Resources: ECommerce Lending Email Stephen Call Stephen 1-813-766-4524  

Experienced entrepreneur Shakil Prasla discusses how to hire a CEO for a new acquisition. He emphasizes learning to delegate and focusing on owning multiple companies. Topics include finding good CEO candidates, managing salaries and bonuses, handling poor performers, and empowering CEOs for business growth.

At Quiet Light, we recently sent out a survey to our buyers to get insight into what they really want to learn about the buying and selling process. Today the hosts of Quiet Light are sharing the number one thing that first-time buyers want to know about getting the inside track to a deal. How do they break into the industry if they lack the experience in acquiring? This episode is just Joe and Mark, guest free, talking about breaking into the business for the first, second, or even the tenth time. They are sharing five things to keep in mind when shopping. There are a whole host of things you should do as well as things you should not do. Joe and Mark have built, bought, and sold businesses and have helped countless deals come to light, so you can trust that they learned all of this from hands-on experience! Episode Highlights: Give really good feedback. Review as many listing as possible in detail. Put time into the process. Make it a job. Prepare your financials. Get out on the conference circuit. Make a checklist of wants. Act quickly. Be likable to the buyer and the broker. Tell us what else are you doing. Be willing to overpay for a great business. Transcription: Mark: As you know we recently put out a survey for our buyers. And by the time this airs we’re already going to have closed on that survey … that poll and we should have some really good conclusions. Nobody at Quiet Light other than myself knows the results of the polls yet. And I’ve been maniacally hitting refresh seeing what people are saying both the good and the bad and sometimes the ugly of what’s being said. But I’ll share one thing with you, Joe, right now that has come through that we’ve heard from a number of buyers and that is wanting to know how to get the inside track on deals. Basically feeling like there is this completely competitive disadvantage if they’re a first time buyer. And there’s some truth to this right? I mean if I’ve got three buyers looking at one of my deals and I have one that we’ve done four deals with already I’m probably going to prefer that buyer just because I already know them. They’re a known quantity. We’re going to be able to go through due diligence with them. We know what to expect. We know that they’re going to not get cold feet at the 11th hour and so it’s a problem for new buyers. How do you break into this industry? How do you break into your first acquisition? How do you get the best deals when you’re competing against some guys that maybe have done three or four deals with us already? So this episode is containing no guests. We don’t have any guests. It’s just Joe and me talking about how to get the inside track to deals. And Joe I gave you an exercise at what … like 7 o’clock this morning I texted you and I told you to write some things down. Joe: You did. But first I want to say that to those listening that are first time buyers I’ve been at this for seven years, Mark’s been at it for more than a decade, and I can only think of one buyer that has bought three listings from us. Maybe two actually if I think Shakil and 101. So there’s only a handful of people like that that have bought more than three and then maybe a few more that have bought more than two. So I think the competitive advantage is in preparation and instilling confidence. We’ve had new buyers that beat repeat buyers. So I don’t want anyone listening to feel like they’re second in line, there’s no way to break in. And that’s the purpose of this podcast correct? So yes you gave me a task this morning. Thank you. I did not sleep last night and I know I’m doing the podcast and then you send me a text that says “Come up with a list of five things buyers can do to get the inside track on our listings.” Thank you for that. Mark: You’re welcome and I came up with a list a little late like 10 minutes ago of five things as well. And I had to think about it because five was just kind of an arbitrary number right? If we want to get really minute we could probably come up with 12. If we want to talk about the big points it’s probably three or four. But I think that what you said is true. I hope people that are listening to this, especially first time buyers that maybe have been looking a while and feel like they don’t have inside access to deals will end this episode knowing that there is more myth to that than reality. And you can be an established buyer by following some basic principles. We’ll go over some of those today. So I think the reason I sent you that text Joe I thought it’d be kind of fun to compare lists to see if you and I would agree on what these five things are. And honestly, I made my list a little bit with the knowledge of what I thought you would be putting on your list. So I purposely tried to avoid things and also get a little bit more creative. Joe: I did the same. Oh my God, we’re a match made in heaven. Mark: Well no doubt. Now we’re not going to be hitting any of the key points because we’re going to be avoiding the obvious. So if we missed the key points we’ll include them at the end here. But I don’t know how you want to go about this, do you want me to just go with my first and then you talk about your first? Joe: Yeah. Mark: All right the first is really simple. It’s super simple. Give really good feedback. Like just give us some feedback on what you like and didn’t like about a listing. It’s really easy … if I’m talking to a buyer and you look at one of my listings and you don’t like it, it doesn’t fit, that’s totally fine. Let me know. But in addition to letting me know maybe give me a call and say “Hey I really appreciate you showing this” now you don’t have to say that but you can say “I took a look at it it’s not a good fit. I was kind of looking for something more along these lines”. The more conversations you have like that with someone like myself or Joe our anybody at Quiet Light Brokerage, the more that sticks out in our minds. Not only does it A. give us really good feedback on our listing which we can use to help get that listing sold but it also helps establish a relationship between us. And when we’re bringing a business to market oftentimes we think about well who’s a good fit? Who are some people that I know? And obviously, we can go into our database and start to do some matching. But if there’s somebody that we know and we know they’re a good fit yeah they’re going to get … we’re going to think of them, they’re going to become like top of mind. We actually had this recently with a discussion we had internally at Quiet Light. Often when somebody is taking on a new client and they want some feedback on maybe the valuation or their approach or any strategy we’ll have an internal discussion about it. We have just a generic email address and we all talk about it. And one of the brokers, Bryan was talking about a client that he was kind of worried about whether or not he’d able to find a good match for it and he wanted some feedback. And what immediately came to mind was one of our buyers Matt and we said maybe you should talk to Matt and see what he thinks about it and you know this will give him a chance to have an advance look at the listing. And sure enough, Bryan came back and said I already talked to him. And you know why two of us thought of him? Because we talk to him on a regular basis and he reaches out to us and we consider him a friend of the company. So that’s my first item, give good feedback. Don’t just say not interested. You can say thank you, you don’t have to say thank you. I had somebody say that recently and said “thanks not for us”. All right that’s nice but that doesn’t really help me that much. Tell me why. Explain to me why so that I can at least have that in my mind. Joe: And that’s the building of the relationship. Whenever I get feedback … I ask for it every time, all of us do saying if it’s not for you, let us know your thoughts on the listing. And the professional buyers … meaning they’re just professional people, thoughtful people they send us that kind of email. And my response to them is “Understood. Thank you. We will find the right one for you eventually”. If I’ve written that 500 times, I’ve written it a million times. I’m not sure if that math makes sense but I write it all the time. And I mean it because I know that it is an arduous search trying to find the right listing and these people are trying really hard to find it, they’re reviewing the listings and it’s a long, long process. So that goes to my first list of things to do here and these are in no particular sequence. But the first thing I wrote down and I’ve said this at least a thousand times over the last few years, review as many listings as possible in detail. And I wrote in detail in capital letters; IN DETAIL that’s the most important thing. The more listings that you look at … not just the teaser that’s on our website or a competitor’s website; you can’t really learn anything from that other than well that seems interesting but you don’t really know what it is. You dive in, you look at it, and you learn what it is that you like about these listings and what you don’t like about these listings. You learn what excites you about it and what scares you about it. And you begin to develop a sense for the right fit when it comes along. And that’s really important because when that right fit does come along you’re going to want to be able to act quickly and you’ve already looked at 300 listings. So you need to look at them in detail, digest the financials, look at the history of the business, look at all the products and the SKUs that are offered, and everything that we’ve prepared in our packages and really digest it and make your decision. And you’re going to look at a lot of them. It’s not an easy process. It’s not a quick process. It takes a long time. One of the things that I love when I’m talking to … I’ll say a new buyer, someone that I haven’t spoken to before and they tell me they’ve been looking for a year. To me, that’s great because they’ve gone through a lot of this and they’ve worked really hard to find that right listing. When someone says they’ve been looking for a couple of weeks or a month to me I know that they’ve got a longer road ahead of them and this is one of the things that I advise more often than anything else. Mark: It actually fits in really well with the next point that I had in my list and a point on there will just kind of piggyback on what you said are two just kind of general philosophies when you’re talking about this process. Obviously, what you’re talking about Joe it takes a lot of time and everything else I think to complement the first point I had and your point here would be two things. One, when you’re looking for a business and you want to get that inside track be intentional about what you’re doing. Intentionality right? So it’s taking that time like you said to actually digest what you’re looking at and reviewing it. I can’t tell you how many times I deal with buyers or I talk to buyers who summarily dismiss a listing based on something which is frankly not an accurate assessment. But because they’ve already made that conclusion and despite the best efforts to be able to explain otherwise that conclusion becomes gospel truth to them and this is … they’re missing out on some really good opportunities because of that. Or maybe they’re not missing out, maybe they would say no otherwise but they will say no for more appropriate reasons than what they’re saying no to. So that would be the first thing, intentionality. The second thing is … to piggyback on what I was in before is this is a relationship based business right? At the end of the day finding that really good business for sale is going to require some level of relationship and you need to find that blend. I think as internet entrepreneurs we love our processes. We love automation. We love efficiency. I mean that’s the hallmark of what makes internet businesses so great. But you have to find that blend between slowing down and taking the time being intentional and having a process because there are a lot of listings out there that you can get a lot of deal flow coming your way. I know RJ over at 101 talks about how many deals they have looked and the numbers stay green. I mean it’s well in the hundreds so you do have to have a process. But processes should not take away that intentional spending of time. And that leads into the point- Joe: Let me jump in I just want to say something in terms of the relationship Mark and being intentional. We’re talking about the five things to do in between each of those five there are a number of things that you should not do. And one of them is in that relationship building don’t send an email that says “I think you’ve overpriced this business it’s only worth a 2x multiple, it’s not for me”. Because the 10 year old in me wants to send an email back to them saying “thanks for your feedback it’s actually currently under LOI at this time at full price”. And I’ve been in that situation a dozen times where I get a semi rude email on a listing that … it’s been out for a week or two and some folks have looked at it we’ve had some conference calls and somebody sends me an email that says essentially “Joe you’re a fool, you’ve overpriced this business. It’s not worth merely what you and your client is saying it’s worth.” and then that very same day where just prior to that email it’s under contract at full price. That little boy in me wants to reply to that person and say “thanks for your feedback it’s actually under offer at full price”. I say “thanks for your feedback we’ll find the right one for you eventually” because I’m not 10 anymore but I want to. And so it is the relationship thing … again in between each of these five things to do, there’s probably a half a dozen things not to do and that’s really one of them. Mark: I admire your restraint. You know an appropriate response there … because look when it comes to valuations I tend to get very philosophical on this sort of stuff mainly because I’ve been around for 11 years and I’ve seen multiples that have went up way higher and I’ve seen a market where people weren’t willing to pay more than 2.5, 2.6x on anything at all. Rather than saying you overpriced this business you can just simply say the price is too rich for me it’s not a good fit at the price that it’s at. That’s fair. Well, you’ve got a price that makes sense for you. We get it. Don’t tell us though that it’s overpriced for the market. We listen to what every individual buyer is saying and if every … if all the individual buyers say not for me then yeah you’re right. So I think that’s a good point to have. All right so my second point, you’re talking about going in detail. We’re talking about making sure that you’re talking to the broker and giving us some information about who you are, what you’re looking for, why you like that, why you didn’t like this. You might be hearing all of this and thinking that sounds like a ton of work. Yes, it is so that’s my second point; make it a job. If your goal … when we did the survey by the way this … I’ll give you another insight when we did the survey I’ll tell everyone listening who took the survey a little secret. We actually had two surveys. One was just open ended questions the other one was very quantifiable information. Those that filled out the ones … the survey with very quantifiable information we asked how many businesses have you bought and the vast majority of our buyers have not bought their first business and are seeking their first acquisition within the first year. Okay, if your goal is to find a business within the next 12 months make that your job. This is what you get up in the morning, this is what you think about when you go to bed at night; how are you going to go about finding that business? Deal flow is difficult. When we put out a listing … I put out a listing recently that was 8 figures and we had almost a hundred inquiries within a couple of days. Okay, that’s a substantial amount of inquiries on a single listing and that’s not even close to what we get on something that’s going to be in a more accessible price range. It’s a competitive field so you have to make this your job. You have to dedicate the time to it. Read up on it. Subscribe to the podcast if this is the first one you’re listening to it subscribe to the podcast because we’re going to tell you how to do these things better and hopefully give you some insights. But read up on these materials, learn just like you do with any other thing and apply yourself to this in a full time way. Set up those processes to be able to filter through all of the noise and to be able to really take a look at the information in depth. So that’s my second point; make it a job. Joe: And along those lines, my second point is prepare your financial approach. You can’t get to the end point if you don’t know what it is. If you’re a cash buyer it’s a little bit easier to understand what you’re capable of stroking a check for but you also have to figure out okay if I’m buying an ecommerce business I have to buy that inventory too right? Okay is there a seller no possibility maybe on much, much larger listings but I’m over listening certainly not for the most part but that goes back to well … to whatever other points coming up. You need to prepare your financial approach if you’re … if you have a limited amount of cash and you’re going to do an SBA loan I love to hear from folks that are doing that that they have been pre-qualified for an SBA loan up to X dollars. And then they tell me the name of the lender. If it’s somebody I don’t know I’ll reach out to them so we can build a relationship. If it’s somebody I do know it’s great, fantastic. I feel good about that because it’s people in the network that we know and that we trust and that we know work hard to get deals done for buyers and sellers. If you’re going to do get something under LOI now where somebody is going to be rolling over their 401k … I think it’s called the ROBS. Mark’s written an article on it “Quiet Light Brokerage and ROBS” and you’ll find that article in Google. But that’s another way to source funds to buy a business but it also … you need to understand the timelines there and how long it takes to do that. Mark, can you do a ROB without having the asset chosen that you’ll purchase yet? Do you recall; yes or no? Mark: I don’t recall, no. It’s been a few years since I wrote that article. Joe: If you can … well read the article everyone if you can, which I think you can and you know you going to buy a business; do it, roll it over. Are you going to incur some cost up front that you’re … if you’re committing to buying an online business and making it a job like Mark says then you’ll be prepared to buy that business because going back to my point number one you got to look as many listings as possible in great detail so that you’re going to know the right listing when it comes along. And then you’re going to want to be able to act fast because other people are too. It’s not like you’re making a quick decision here because you’ve been doing this for six to 12 months and looked at a hundred listings and you’re prepared to act fast and you’ve got your financial ducks in a row. Because I can assure you if it’s a great listing other buyers are looking at it and they’ve done this; they’ve prepared. It doesn’t matter if it’s all cash. It doesn’t matter if you’re rolling something over into a ROB and it doesn’t matter if you’re doing an SBA loan as long as you’re prepared and instilling confidence in the broker and the seller of the business that you’re capable of going from letter of intent all the way through to closing that’s the most important thing be prepared. Mark: And to answer a question no you do not need to have the asset chosen before you convert to a ROBS. But take a look at the article; consult an expert on it because it’s definitely a trickier thing to do. It’s not something to do on your own I should say. You definitely want to have a consultant. All right, cool. All right I’m going to diverge from some of the traditional advice with my third point that I’m bringing out there. And it’s not too crazy and it’s pretty simple and that’s get out on the conference circuit. More importantly get out on the conference circuit where brokers are going to be and you can meet them in person. And this comes back to this basic principle that this is a relationship based business. If I see you in person, if I have dinner with you you’re going to be far more memorable than somebody who sends me an email once every two weeks saying “Hey do you have anything in this sector with this sort of EBIDTA?” you know what? I get a lot of those emails and I don’t have a face to go with that email. It’s very impersonal. If I see you at a conference and we spend a little bit of time together I get to know what you’re doing. I get to know what your background is. That’s way more memorable and honestly, the conference circuit is a great place to just meet all sorts of different connections that can help you. I know Stephen Spear who we’ve talked about from an SBA lending standpoint he’s gone to a lot of these conferences. And think about this you’re now dealing with people that you’ve met in person. Maybe an attorney, Shawn Hussein who shows up at a lot of the conferences, Stephen Spear who might end up helping you get an SBA loan. And then any of us here at Quiet Light Brokerage, you’ve seen all of us, you’ve met all of us, we’ve all talked, we’ve all joked, we’ve all had drinks together and everything else. It just helps pop of the mind and get to know everybody a little bit more closely. So that’s just a very simple way to get some of that inside track. Joe: Let me add to that. For those folks that are spending a full time job on top of a full time job and pinching pennies to be able to buy this business, if you cannot do what Mark is suggesting which is a very very wise suggestion because there’s nothing like human contact; emails doesn’t work as well. This podcast is a great example. Mark had written amazing content for 10 years and then we started the podcast and we’ve been at it for just over a year now and people call us and they say “I feel like I know you already, I just listened before to your podcast”. We never got that kind of call when someone said “I feel like I know you already, I just read four of your articles”; very different. So if you cannot go to the conferences and get that face to face contact, Scott Voelker from The Amazing Seller gave me a great great tip about a year ago. We were talking and he said he was trying to break through to an [inaudible 00:20:25.5]. He read the guy’s book, he loved it and wanted to have him … I forgot if he wanted to have him on the podcast or just have a conversation with him and straight up email wasn’t working and he didn’t have a friend to introduce him. So Scott turned the camera on himself clicked record and said “Hey so and so this is Scott from the Amazing Seller I just want to tell you I’ve read your book. I loved it and it’s fantastic. I’d love to chat with you for a few minutes because I’ve got some things that maybe we can help you with and I’ve got a very large audience yada, yada, yada” 30 second video inside of an email, hit send, he had a response within about 30 minutes. If you can’t go to the conferences, that’s a free option. If you’re uncomfortable in front of a camera, that’s okay. It puts a face to it. It’s one of the things that we’ve started doing with our listings. As many of you know that are looking at our listings we now … for the most part on most of the listings we do a 15 to 20 minute recorded interview with video and audio of the client … our client, the person that's selling the business. We don’t do that to convey a lot of detailed information. We do that so that you can get a feel for who they are. If you feel like they’re a good person. If you feel like they’re likable. If you feel like you could trust them, feel, feel, feel. If you can’t get to the conferences that little video I think … shooting email to one of us or all of us with something like that. But I tell you what don’t do a template email … a template video because that’s the … again the thing not to do, I want to throw it in here between, don’t send a template email to every broker in the industry because we’ll know it’s a template. And generally, those are unpersonal … impersonal and we don’t pay much attention to them. Okay, why don’t I go ahead and I want to jump to a different … it’s my third one I guess right not my fourth one? Third one, create a checklist of your wants. Now, this isn’t necessarily a thing that you could do to get the inside track to our listings because it’s all of the other things that we’re talking about. But for you, it will be conveyed to us that you are preparing, that you are really diligent about your approach. I was at eCommerce Fuel a few years ago and someone that we sold a business to got up on stage and talked about his processes and his experience. And he put a checklist up on the screen and it had a checklist of all of the things that he wanted to buy in a business; all of the features the business must have. Whether it’s re-locatable, whether it’s got virtual assistants, whether it stores its own inventory, whether it’s a software as a service business, etcetera. And then on the right hand side, he had a checklist of the business that he bought from Quiet Light and all of the boxes down beside it. And not all of them were checked off and he still bought the business. So if you’ve got this list and Kevin Petersen was on the podcast Mark a while back and he’s got a portfolio of SaaS businesses and this is what he does. It is a checklist of things that they know what they want and then they always, always, always, always use that checklist on a listing that they were viewing and see how many of the boxes and checking. They’ve developed a process to score it. They’ve made this a job like you talked about. But doing that gets you away from the emotional approach and more to sticking with the logical approach. Because this as a buyer you’re going to put your life savings on the line it can get emotional. You can get frustrated, you can know that there is a deadline … a horizon to your job, to the bonus that you’ve taken and it’s going to run out and you’re going to feel pressure to buy a business. You want to avoid the emotional decision of buying a business and buy it with logic and reason and a checklist I think is a great way to go. Mark: Did you know Joe that I tried to start a podcast before we actually started this one? Joe: No, I didn’t know that. Mark: Yeah I actually did like two episodes and I had four recorded and as anyone who’s trying to start a podcast knows getting started is often the most difficult thing. Because you get the first few done and you’re kind of excited about it and then you realize it’s difficult to keep the momentum up. It’s not easier when you have somebody else on the podcast, a co-host who records 70% of the episodes like you do Joe. I did and I think the second episode … I don’t know but you can still find this this somewhere back in the industrial archives of QuietLightBrokerage.com. There was a blog post and a podcast on do you have an acquisition checklist. It was the exact same thing, right? How do you process these deals quickly and how do you keep it objective. And it was … I have a checklist that you’re looking for and modify that checklist and understand that it needs to be this balance between being too broad and too narrow. And that you’re not necessarily going to check off all the items in the box on the checklist but are you hitting the major points enough to warrant that deep dive, that deep investigation that somebody makes. So that’s one of the good tips as well. I see a thing developing in these as well right? An overarching thing that you want to have this blend of having processes in place but also somewhat of an analog approach … a non-digital approach to this as well. So Joe is talking about … you’re talking about recording a video of yourself, just a personalized introduction so that we can see your face; that’s very personal in human relationship and somewhat analog in that sense or going to a conference and meeting there some person or calling and having a conversation but also making sure that you have a process and you know what you’re looking for as well. And I’m going to pirate I think my last point … I’m going to flip them around and that is when you see something that you like act quickly. And I’m going to put a couple of sub points on this. One, speed … when you’re in this space and you’re trying to buy a business and you’re talking to us and maybe you set up a call and all of a sudden that business is snapped up, it goes under LOI with somebody else, you might think that person must have had an advance notice or they have some sort of an inside track. Speed is really the product of solid preparation. It’s executed by people who know what they want and are putting in the time to have the processes in place to be able to evaluate these deals quickly and get back to us in a timely manner. I’ve dealt with buyers who are looking at an opportunity or they inquire on an opportunity, I do my follow ups with everyone that inquires and then I hear back two weeks later “Oh I haven’t had a chance to look at the listing yet”. Okay, well you know what … very good chance that you’re not going to get this. It’s just the nature of it is that there’s a lot of people looking at it and those that look at it within the first 24 hours and get back to us are typically going to be ahead of “the inside track”. So the basic lesson here is pretty simple, learn to act quickly. That doesn’t mean that you have to make rash decisions. It just means that when you receive the information if you like what you see send out an email and get on the calendar right away for that conference call. The buyers who are first in line often do get some level of preference when it comes to that offer time and there’s nothing [inaudible 00:27:28.1] to doing that. So act quickly is my fifth point now I’ll do my fourth point last. Joe: And there you go now on Mark’s point he said review it and get in line to be on a conference call with a buyer. I don’t allow conference calls and we’ll do most of the brokers at Quiet Light allow conference calls between a buyer and seller unless or until I have spoken to the buyer. So this goes back to reaching out and connecting with us and getting that out of the way. If we’ve had a conversation we’re not going to have to take an extra 15 minutes to schedule that before scheduling a call with the seller of the business. Okay, I actually have a few more points I’m going to blend two into one. One is be likeable and the other is be likable and squeaky, all right? We’re repeating things a little bit here but that’s very important. It’s because we are trying to hone in on these because they’re critical and they make a huge difference. So the be likable first one is actually be likable to the seller of the business. When you get to the point of being on a conference call with the seller of the business your objective is to ask the same questions we asked. See if they answered in the same way. Get to know them a little bit. Get a feel for them. Be on the video. Be on the client interview. Determine whether or not you can trust them and move on with an offer of the business. That’s the upper level objective of the call. The hidden thing, the most important thing I think is to make sure that when the call is over that seller doesn’t want that call to end or that they hang up that call and think god man I really like Mark I hope he’s the buyer of my business. Because if it’s a great business as Mark said you’ve got to act fast. There are going to be lots of people that are really prepared to buy a great business and it’s going to move … what feels like fast? Fast maybe three or four days all right, you get 24 hours to review the package, you ask for a conference call, you have a conference call and 24 hours later you make an offer or shortly thereafter you make an offer. We don’t let things go under contract one hour after they’ve been listed simply because there’s no way for you the buyer to fully review the package. There’s no way for you to get on a conference call with the seller all within one hour. It just doesn’t happen. When someone presents an offer this is one of those don’ts in between the lines don’t make an offer without having gone through the process of a call with the seller within an hour. Because we know you’re just trying to tie the listing up under a lot of intent and then make a decision. We want you to make a decision about a business go under letter of intent and go all the way through the closing. Okay, so be likable. Make sure as a buyer that your seller likes you on that conference call. And then the be likable and squeaky is be likable to the brokers. We’re human right? I didn’t sleep very well last night. I had a bad day. When you call me and you’re hard on me I’m going to remember that the next time you want to buy a business. I have a particular buyer that comes to mind right now where he did just that what I said a few minutes ago. He said “I love it I want to go ahead and put in an offer.” and I said great well let’s have a … he and I have already spoken before. He’d given his LinkedIn profile. He was preparing. I said “Great. Well, let’s schedule a call with the seller first. When are you available?” total silence 24 or 36 hours … total silence and then the listening goes under contract three or four days later because there were multiple buyers because it was a great listing. And he sends me an email on the next listing that launches and says “I really like this one Joe can we get on a call with the seller of the business?” I said “Yes we can. What happened last time? You’re ready to make an offer and then you disappeared on me.” and he emailed me back and said “Well my wife had decided that it wasn’t really the business for us. There were some things that she didn’t like.” to me that that’s fine, that’s okay. You got to do your homework first before you say I want to go under contract but it also tells me his intention was to tie it up under a lot of intent and then make a decision to buy it. And that’s a big no-no because this is a very emotional process for both the buyer and the seller. So be likable to broker and respect their trusts … our time, respect our time and build that positive relationship. Okay, so that’s my fourth I think. Be likable and be likable and squeaky. Mark: So yeah … and I’ll just say as far as being likable to the broker, we’re not asking you to sit there and give us all sorts of praise and compliments. Unless you’re talking to Jason in which case that’ll probably get you somewhere but when it comes to the … it’s just the basic manners, right? Joe: [inaudible 00:32:02.5] by the way Jason doesn’t listen to the podcast. We need to stop making fun of Jason because he doesn’t even listen to it. Mark: Well, who can we make fun of at Quiet Light? Joe: Oh, let’s make fun of you. Mark: Well, I’m always game but I’d say we pick on the new guy and the best-selling author Walker. Joe: You know what … yes, Walker. Right and we’re not making fun of him right now I want to pay him a compliment. Before Walker came on as a broker I had a listing and we had three conference calls with three separate buyers and one of them stood out. He didn’t end up buying the business but he stood out to me and I’m going man oh man that guy is awesome. I hope I can find him a business. It turned out to be Walker. And so when you like two months later had a great listing and your seller said “Look I really don’t want a million calls is there anybody that comes to mind that would be a great broker, a great fit for this business, a great buyer, a great fit for this business?” Walker came to mind and I introduced you and guess who bought the business? Walker did folks. And now he’s, of course, an advisor broker at Quiet Light because he’s fantastic. But it’s that be likable [inaudible 00:33:06.7]. Mark: Here where I was about to pick on him and just kind of tease him but I’m going to pile on with the compliments because if you guys are listening to the podcast you’ve heard me say in the past the story where I had a buyer after his offer was accepted told my client at the end of the … you know hey we just got under offer let’s plan due diligence, took the time just to say “thank you for agreeing to sell me your business”. Well, that was Walker and the impact that I had on that deal was so significant. I mean it was again such a simple little thing that you can do and just … it wasn’t disingenuous it was a genuine hey look I get it it’s your asset. It’s what you built and you’re agreeing to sell it to me. I really appreciate that. Take the time. Be intentional. We’ve said that before … be intentional and think about all sides of the transaction here. Everybody hopefully benefits from this transaction so we shouldn’t be sitting there and thinking man I’m giving you a lot of money you should be grateful. You should also be thinking I’m also getting a great opportunity by buying this business and being respectful of that … of the person selling their business. For the person selling their businesses especially if it’s their first time, this is probably the biggest revenue event they’re going to have in their lives at least to date and so it’s a very personal thing for a lot of people selling their business. Take that time be respectful. I think that helps when you’re in a competitive situation and you have multiple buyers. Like you said Joe we have people get off the phone and say “I really hope I get to sell my business to this person” right? Now everything else needs to line up, the offer has to be there but you can definitely help your case with that. All right last point I have is … I’ll just go over it quickly because I think we’ve covered it pretty well but tell us what you’re doing. What other businesses are you part of? What are you really good at? Are you really good at CRO? Are you really good at SEO? Are you really good at SaaS businesses? Are you really interested in getting into something different? Are you really interested in certain niches? Don’t just send us a blank email on can we get these all the time and if you’re listening to this and thinking these guys just want us to cater everything that we’re doing to their way. That’s not the case. Look work whatever way you want to work but understand we get a lot of noise that comes in through our inboxes. The whole point of this podcast episode is how do you stand out from the noise? How do you distinguish yourself from other buyers? Well here’s what other buyers are doing they send us a template email telling us what they want. That’s what everybody else is doing. We do look at those. We do categorize those. We have a spreadsheet that we share internally with that data but it’s a spreadsheet with a hundred other names on it and growing every single day. If you want to stand out do some things in different. And one of those things is when you do talk to us or have an opportunity to have a conversation with us tell us what you’re doing and don’t just talk to us about what you’re doing in the monologue. Let’s talk about your business a little bit. Let’s get into it a little bit. Share some details with us. Not because we necessarily want to know but look we’re entrepreneurs we like to talk about this stuff anyways. It’s always fun. I was talking to a guy the other day who is not a client, probably won’t be a client of ours but a fellow entrepreneur and we just spent probably 45 minutes talking about his business. It was a fascinating conversation. I gained some things from it hopefully he gained some insight from it. And you know what that’s now in my mind and if he ever does come to the point of buying or if he ever does come to the point of selling one of his businesses that’s something that’s always going to stick out in my mind. So how do you cut yourself out? How do you stand above the rest of the noise? Again and have a conversation and let’s get into some of the things that you’re doing because it’s a lot easier for you to be top of mind if I know that you’re like a Shakil buying just a gazillion businesses or if you’re looking for that first time acquisition. I can think of a buyer right now, I’ve met them for coffee in person here in the Twin Cities. A husband and wife team I know that they’ve been looking for a long long time and I have a general sense for what they want. And I’ll tell you what because I had coffee with them, because they shared a couple of opportunities that they’re looking at with me I know what they’re looking for pretty well and hey I’d love to find something for them. So if you’re listening to this know I’m still looking for something for you and it’s still on my mind. So that’s my fifth point, let us know what you’re doing. Tell us a little bit. Let’s get into the details not just the high level details. Joe: Yeah, back to the human part. When you have coffee with them you talk to them as entrepreneur … as a broker in this industry, you get excited. I want to find them that business. I want to see them succeed. I want them to be another Quiet Light success story and five years from now come back to us and sell the business worth five times the value. Or hear that they’re traveling the world while running the business and just changing their lives completely because there’s something that occurred over a cup of coffee. So I think that’s fantastic. All right my last and final point may sound a bit crazy but if you listen to our podcasts and you’ve heard Ben Carpel on the podcast … Carpel we always pronounce your name wrong Ben I’m sorry. You’re awesome though we love you. If you have listened to Ben and if you have listened to one that aired in early December of ’18 RJ you would have heard two pretty, sophisticated, intelligent, likable, passionate buyers say the same thing and that is be willing to overpay for a great business period. There are lots of great businesses that come out and when they do they get sold quickly [inaudible 00:38:37.3]. Mark: Hold on Joe are you just saying this because you’re a broker and you get paid on commission for the deals that you’re doing? Joe: No. They said it not me. I’m quoting them. And it’s true I mean … look it’s true we had a listing that I put up in August right? We had 10 offers on it. It was squeaky clean. It had the four pillars. It had age, growth, transferability, documentation. Everything was perfect in it. It was just fantastic. I knew it when I looked at it. We priced it right to achieve the buyers and the sellers goals. We didn’t over price it because it was perfectly priced at right still and we had 10 offers. And one … actually, several buyers were willing to overpay for it. One buyer got it because of all of the things we’ve talked about. He was really likable. He was going to be easy to work with in due diligence. He was going to be easy in transition and training and he paid a little bit of extra. And he was okay with that because this is a great asset. We’ve got an email from him since then about the crazy growth that they’ve had in the fourth quarter. And my thought is oh I should share this with seller and then my thought is no that might put him in a little bit of a bad mood. But he achieved his goals. He wanted to get out at a certain time in a certain price and we actually overachieved that. So if two people like RJ and Ben are saying it I think there’s some validity to it. Because if it’s a great asset, if it’s a great business and others only were willing to pay a certain amount it’s great for you. It’s not going to be great for everyone; that’s the thing. Be willing to overpay for a great asset that’s great for you. If you’re into hunting and fishing and it’s a hunting and fishing ecommerce business that’s doing amazing things it’s something you’re going to be a little bit more passionate about. And in my experience when you’ve got some passion for something it’s going to help you overcome those hurdles and those tough times that will come to you as an entrepreneur. So if it’s a little bit … if you pay a little bit more for it I think you’re going to get that return investment quicker than if you buy a complete fixer upper that’s going to take some time. Mark: Yeah so I’m going to … based on that go back to what you said earlier about people who email you and say “you’re way overpriced like there’s just no way that this is priced right. It’s overpriced by a ton”. Valuations are relative. That is just the reality of it. In that survey that we put out we had people give us feedback that said I love you guys but I think that your listings recently are getting overpriced. And then I had other feedback come back that said we love you guys but the perception is that you kind of underprice your properties. So we have these two conflicting things where we have some people saying hey you’re overpriced and other people saying no you’re underpriced. Look when it comes down to it the price of these assets varies based on the economy at the time but also probably, more importantly, they’re based on the individual ROI that you can get. And what you can get from a particular business is going to be different from what somebody else can get from a business based on your specific skill sets. And so if you find something that’s a good match it comes down to return on investment. What can you do with this business? If you can make that thing work be willing to pay more than what the average person in the marketplace is willing to pay. You’re still going to get a good deal. But with the competitive nature of thinking am I going to overpay for this you know crush your ability to get a deal done because somebody else will pay a little bit more. When we price a business one of the big mistakes I think happens in our industry is that people price a business for the marketplace average. That’s a mistake as a broker. And for those that are on the buying side here, I’m sorry about this next point but it’s just the case, we work for the seller. I’m not looking for the marketplace of buyers. I’m looking for a buyer within the marketplace which means I want to aim towards the top end of that average range or the marketplace range so that I can find that buyer. Be that buyer at the top of the range for the business that matches for you. Otherwise, you’re going to be competing against the full marketplace of buyers. I don’t know if that makes any sense or not but again the idea of finding that opportunity for you and standing out and making sure that when you find it move on it. Joe: Absolutely I’ll just wrap up my side of it with the fact that we’re all entrepreneurs as Mark said. And we love what we do. It’s crazy but a lot of what we’re doing is simply helping people. We’re giving up our time and we’re getting something in return for it. We are making a living but we love it and it’s exciting to work with great buyers, great sellers who are achieving their financial and personal goals. It’s a lot of fun and we want to help each and every one that comes through our email or over the phone or text or whatever it might be. Help you achieve your goals whether you’re a buyer or a seller. And all of these things that we’ve talked about we’ve talked about it through direct experience. We built and bought and sold our own online businesses and now we get to see what thousands of people do both on the buy and sell side. And so it does come from experience. It comes from the school of hard knocks more than anything else. We’ve learned a lot of things that people shouldn’t do and a lot more things that people do right that stand out in these five things that we’ve each talked about or all these things. Mark: Right. So, Joe, you know what I’m going to do right now? Joe: I have no idea. Mark: I’m going to end this podcast episode because I have an appointment with somebody who wants to buy a business and wants to spend some time talking on the phone with me. Good for this guy. He’s doing the right thing. Guys if you’re listening to this and you have ideas for an episode like this where you have a question … again that survey [inaudible 00:44:06.9] some great feedback from everybody. If you took it thank you, thank you, thank you. And I’m serious- [crosstalk 00:44:12.5]. Mark: Answer a question that we’re trying to tackle in your quest for your first acquisition or your tenth acquisition. Yeah, send us an email … send me an email at mark@quietlightbrokerage or joe@quietlightbrokerage.com. We’ll either find an expert to bring on the show to talk about it or Joe and I will jump on it on a show like this. And we’ll cover the topic as best as we can. Joe: Perfect. Go and hunt that buyer. Mark: All right, sounds good.     Links and Resources: https://www.quietlightbrokerage.com/  

Some sixty percent of people go to Amazon when they shop for a physical product. If you have one to sell and you’re not on Amazon, this episode is for you. In today’s product market every seller has got to learn the Amazon ecosystem. Today’s guest is the person to turn to when looking to save, grow, and make more money on Amazon. Michael Zagare was doing something he hated for many years. He was ready for a change and finally sold his Physical Therapy practice and began dabbling in internet sales. Amazon FBA was a great fit. Mike now owns PPC Entourage and runs his own profitable Amazon business. PPC Entourage is an Amazon Seller software that analyzes all of your sponsored advertising data and then optimizes everything for you. Today Mike shares his insights from his own selling experience and from helping countless Amazon FBA sellers. Episode Highlights: When you should start optimization. Finding a niche in the marketplace and breaking in. Organic rankings versus paid rankings. Lowering ACOS with optimization. Your average ad spend. How to go about optimizing a paid spend. Sifting through the search terms in order to fine-tune your listing. How much data is needed to draw a good conclusion on a product’s optimization. What to look for in opportunities to expand through optimization. Creative tips and strategies to use for sponsored ads. What Amazon sellers can implement today in order to start optimizing. Ways sellers can protect against the competition and dying out. Continual product development and brand building. The importance of the intellectual property portion of your products. Transcription: Joe: So, Mark back in the day … I could say that now because I have gray hair on my chin. Back in the day I learned Google Ad Words I used to spend a little bit of money and eventually grew it and grew it and grew it and grew it. It got to the point that I was spending $50,000 a week on Google Ad Words. I maxed it out and then you know just do that on a monthly basis. And I didn’t take any courses and I should have. And I didn’t hire any experts and I should have. And I didn’t outsource it and I should have. Maybe they didn’t exist, I don’t know what the issue was, it was probably just inside my head. Today there’s almost too many experts and in every possible category and some of them really just take your money. But you had someone on the podcast specifically talking about Amazon sponsored ads which if … folks if you’ve got a physical product and you’re not selling on Amazon simply because you don’t think you need to … I personally will not shop for anything other than on Amazon. I will go there first. If I can’t find it there I think it doesn’t exist. So, I think something like 60% of people looking for a physical product shop on Amazon. So, you’ve got to learn the Amazon ecosystem and sponsored ads and their marketing and things of that nature. And you had Michael Zagari is that how you pronounce his last name talking about this? Mark: Yes, that’s right and he is an Amazon ads expert. And you’re right back in my day I don’t have the same gray hair mainly because I don’t have a chin … I’m sorry a beard, I have a chin. Joe: It’s very revealing about how you feel about yourself. Mark: Why do you think we’ve stopped the video? I have no chin. So, I had Michael on and you’re right back in the day it used to be that you could setup campaigns with pretty much every advertising platform. Set them up run them and take a little bit to get them up and going but today really need to be an expert in each of these categories, each of these advertising platforms. Amazon is really no different than that. And what Michael does is he really helps people. He’s developed a platform that people can use which will help manage their advertising platform through Amazon. Be able to identify those keywords that maybe they are paying for and add them to this negative keyword list to be able to make their ad spend a lot more efficient. In our conversation which … it’s pretty funny actually, so he actually has an Amazon store and they sell litter boxes and other cat things and they’re in the video which hopefully we’ll get some clips up. That’s a note to our editor Chris you’ve got to get the clips up. His cat was literally like walking around all over the chair behind him and everything else so very, very appropriate. We talked a little bit about the strategies that- Joe: I want to say “ah cute” but I’m not sure if it actually was. Mark: I made a joke that we developed into cat videos here at Quiet Light Brokerage just to get more views. We got over some of the strategies that he’s employed over the years to be able to get some really crazy returns on his ad spend. And I don’t want to quote them off hand, we’ll let you listen to this because there are some solid numbers that he puts out and some solid techniques. We really talked about some other techniques that you can do to help out with your organic rankings as well on Amazon. So, anyone that’s an Amazon geek or has a business or mobile business on Amazon put this episode on. We got somebody here who’s doing this at a pretty high level and very interesting as far as adding that paid portion and maximizing that paid portion to your acquisition channels. Joe: I think you know even if you think you’re an expert at it and you do pretty well listening to other folks that do things maybe just slightly differently in the next 30 minutes you maybe will pick up a nugget that will help boost one of your campaigns or decrease your CPA. Mark: All right Michael thank you for joining me. Mike: Hey glad to be here, what’s up guys? Mark: All right let’s go ahead and start with an introduction and I’m going to let you go ahead and do that like we usually do. Mike: Sure, yes. So, my name is Mike Zagare. I am a recovering physical therapist and I always lead with that because I was doing something from nine to five that I absolutely hated for many, many years. I love that it’s helping out people but it was definitely not my passion or my dream job. I’m a thorough grade entrepreneur and I think that runs in my family. And I realized that as I was going through college that this is just like not what I want to do the rest of my life. So actually, my hair is starting to fall out and I kind of went through and was a physical therapist for 10 years. I started and sold a physical therapy home care practice in that time. Thankfully I no longer have that and I can focus now fulltime on Amazon. It has been an amazing journey along the way and a part of that journey was discovering how to build an Amazon business and how to scale that business and get as much traffic and eyeballs to our listings as possible. And that’s why we started working with sellers to help that as well. To help them get as many [inaudible 00:05:31.8] for as sufficiently as possible to their listings. Mark: So, when did you start your first Amazon business? Mike: So, I started in 2015 and at the time I had a bunch of … I had a homecare business and I had a bunch of losing entrepreneurial ideas. Actually, the first time I dipped into Amazon it was started off as eBay and I realized well that’s not something I can do full time; it’s just too time consuming it’s not scalable. And then I tried to do retail and online arbitrage. And if you guys have ever heard of that, it can be profitable but I think you really have to be in the right place at the right time and I had no experience. I ended up ordering hundreds and hundreds of the wrong units on my house and completely shut down the post office in doing that. So, like I really had the energy and the intensity but it really had to be channeled in something that was like … something where it was streamlined. Like Amazon FBA was perfect for me because you get to combine value creation and creativity. Create something that’s really, really great and new to the marketplace and then it’s much more scalable and it’s like kind of out of your hands at that point once it gets to the FBA warehouse. Mark: Sure, so with retail arbitrage you’re going out and you’re finding this kind of products in other places, ordering them, and putting them into Amazon FBA, right? Mike: Yeah that’s retail arbitrage. And online arbitrage is finding discounted deals on sites but then the problem with that is if a lot of people found the same deal. So, by the time you got your inventory over to Amazon your profit margins were gone and then you’re left with a lot of inventory. So, I just felt like the model wasn’t right for me and Amazon FBA was like lethal … definitely the way to go in terms of selling on Amazon. Mark: Sure, and we’ve had kind of a hierarchy here at Quiet Light as far as the businesses we like to see on Amazon that we consider to be most sellable with the retail arbitrage obviously being towards the bottom of that list because it really requires that special skill in being able to find products. And like you said the problem with that is there’s a lot of arbitragers out there. They are looking for all the same opportunities. Everybody has the same equal opportunity for those and it can be pretty difficult to scale that. Not that it can’t be done, I’ve talked to some people that are doing arbitrage at a really, really high level but it’s pretty hard to transfer that as well. So when you’re saying that you were doing Amazon FBA are you doing private label or did you create a brand and a product? What … where would you fall on that ecosystem? Mike: Yeah, I do private label and we have a brand that we’re building. We sell cat products around litter solutions. We started there and basically, we started with one product that did really, really well and we found a niche in the marketplace, made it better, and then we just were the first ones to the market. And then we reinvested all that cash into other products based on the search term report. So basically, we got into the minds of people who are shopping for our products and you can see what they’re actually looking for and what they purchased and sometimes it’s not always the same thing. So, we would try to find the search terms that were similar to the products we were selling and then come out with those products because we knew that there was an audience there and we knew we could cross sell. And then it steamed rolled into that okay we have a bunch of litter solutions products, why not cat toys and why not this and why not hospitality item and now we’re going to health and skin care as well for pets. So, it’s just kind of branching out from there and now we have a brand and we’re more focused in on building that brand. We have a community manager, we have all these different channels that we’re engaging people on. We’re getting Facebook groups, YouTube channels, stuff like that to really build up the brand which I know when you get to sell a business I feel like this is the secret sauce that people probably can utilize. Mark: Right and I would agree that brand … being able to have a good brand set up is towards the top end of that scale, right? So, the arbitrage is kind of at the bottom end because it’s really, really tough to sell those businesses. It’s really tough to transfer those businesses and a brand you obviously have a protection of the brand and the goodwill that comes with that. And even in the pet space too that’s awesome man. I know we don’t put up our full interviews anymore, we’re hopefully going to putting up some clips but your cat is literally like obviously are behind you so. Mike: Yeah, I locked him in the room so he wouldn’t make any noise but yeah, he’s here and he’s the inspiration behind the whole thing. It was me and him. I was a bachelor when the whole thing started and he’s been the … he tests all the products so he’s at [inaudible 00:09:39.3]. Mark: So, we’re now devolving into the world of cat videos at Quiet Light Brokerage. Mike: There we go. Mark: In order to stealth views videos. All right cool so the heart of what I want to get to let’s get into like the real meat and potatoes and that is paid product placement on Amazon. And I think there’s a lot that we can really talk about here. And I want to start with just sort of the basics with this. And when I say that when I think about an Amazon business, when I know a lot of our buyers are evaluating an Amazon business they’re going to take a look at its organic rankings in Amazon. Obviously, you want to have good organic rankings but there’s also a really big role that paid placement can take in any Amazon business and especially from a buying opportunity being able to maximize that just in the same way that we would have organic rankings and Google versus paid rankings they are a little bit different they have different flavors too. I’d like to pick your brain for it in the next 20, 25 minutes here about that whole process of paid products within Amazon. So why don’t we just kind of start there … what would you describe the difference and kind of the role maybe that a paid product placement on Amazon should take in an Amazon business? Mike: So, it really depends on your strategy. If you’re going and you’re launching a new product and you’re trying to get of the best visibility on Amazon then paid advertising is the way to do it. You can get top line visibility right from the very beginning. And that’s something that we’ve been really doing really well is because now we have an audience and we do paid advertising and we target people from our list over to Amazon and we have them purchase but we also use the paid advertising to supplement that. We love paid advertising because it gives us massive visibility for specific keywords. And we know what people are shopping for and for those specific terms we want to dominate the marketplace. We want to have what’s called the sponsored branding ad which is the very top of the ad. We want to have a sponsored product ad which is basically an ad directly to our listing. And then we want to have the organic placement and we call that the swimming the competition approach. Because now we have a lot of visibility for our major keywords and if people see you two or three or sometimes four times because on sponsored branding ads you can have your image in there a couple of times then you’re more likely going to get that sale. And the way we look into it is that we make sure that our … what we call the true ACOS which is the average cost of sale which is our ad spend is about 10% of our … [inaudible 00:12:08.7] margin is about 10%. And as long as that’s happening we’re cool with that. We want to get as much visibility and as much exposure to our brand as possible. So typically, what we look for is what we call an average cost of sale about 40% or less and then we scale at that level. And if it’s affecting our account about 10% in total then we’re cool with that. When it starts to get more than that then we start to optimize because there’s a lot of ways … you can spend a lot of money on Amazon. You have to know how to optimize the right way otherwise you can lose your shirt. You have so many people on that site. And there’s different ways to do that with keyword, bid traces, and negative exacts, negative phrases, that kind of stuff. Also sending traffic to the right listing. There’re various things you can do but there’s a lot to talk about so I’m interested to get into it. Mark: Well let’s back up a little bit here because you threw out a couple of numbers here I just want to clarify here. So, it’s a 10% into your margins so what do you mean by that? Mike: So, your ad spends, let’s say you’re spending $10,000 a month and you’re making 100k a month then that’s 10% percent right there. Mark: Okay and then you said 40% percent of ACOS. Mike: Yeah, so if you’re spending 10k a month, let’s say you’re spending $1,000 on ad spend then you want to make the fourth … so basically the $2,400 you want to make 1,000. That would be 40% ACOS. So, it’s 400 in ad spend to make a thousand return on ad spend. Mark: I got it. Thank you. Okay so let’s start with just kind of the how this all works. How do you go about optimizing a paid spend because we get a lot of our buyers who … a lot of our listeners are buyers right? They’re going to be inheriting a company that has an existing paid account or some paid advertising going on. Where do you start in that evaluation process to find out what you need to do to be able to optimize it? Mike: So, you start by looking at the search term report to see what people are actually searching for and how much the bid prices are. And there’s a couple of different ways to optimize you can do on a keyword level. If a keyword is too expensive and it’s really not … it’s driving a lot of traffic but it’s not doing it at a profitable level then that’s just not a good thing. You want to start to lower down that keyword bid price to get a lower cost per click. And you really want to determine how many clicks it’s going to take you to get that sale. And if it’s too many clicks and your average cost per click is too high then you’re simply … unless there’s another advantage of getting that traffic, maybe you’re getting a lot of return customer. You’re selling sport supplements and you got to do 100% ACOS to get them in one time and have them come back again and again and again that would be a good idea of wanting to do that. You could be a little bit more aggressive but for somebody like me who sells cat products typically about 12 to 15% of our customers are return customers so we take that into account. But we try to keep it so that it’s within our 40% ACOS because of that. And you have to tailor the keywords to make sure that they’re not too expensive and that you’re wasting all of your ad spend on keywords that are just draining your ad spend. Mark: Okay. All right so you start with a keyword report and then you look in to see what’s driving sales right now, the cost, the areas that you could drive that down right? Mike: Yes. Mark: Okay and then where would you go after that? Mike: So basically, we’d start with the keyword report … search term report and then you would also find the search terms that are really, really not doing well at all. Some of them have zero like sales whatsoever but tons of clicks. And those are the ones that you want to start to do a negative exacter phrase on so that you can start to fine tune who’s going to your listing and what you’re paying for in terms of your ad spend. So, we use a tool inside of entourage called negative word finder which will tell you the words that are never … that have never been associated to a profitable sale. And you find those and you can do a negative phrase match which means any search term that the customer puts in you’re not going to get that exposure to your listing and you’re never going to get hit again. If you do it on a campaign level your entire campaign will be sensibly shielded from any time somebody types in that word. And then negative exact is like if you could take the exact search term that’s not generating any sales and you could use that as a negative exact so that’s why you’re not getting any exposure to that that search term in its entirety. Mark: How much … this is exactly the same process that you would use with say Google Ad Words itself like you’re taking a look to see what people are searching on, the stuff that’s not really related or not really driving the traffic to a site, what have you driving conversions that’s within the ad words world, how much data do you think you really need before you can start ruling out certain phrases or certain words and adding those negative words? How long do you have to let it run before you can really know and draw any good conclusions? Mike: There’s a lot of factors that go into it; seasonality, how new the product is, is the listing seasoned. Because you can make some decisions early on where a listing doesn’t have a lot of reviews and doesn’t have a lot of questions that people could ask. People could ask questions on a listing so there’s a lot of factors that go into it. Typically like a general rule of thumb it could be 10 clicks without a sale is when you start to make some adjustments and optimizations and that’s to a really, really good well-seasoned listing. If it’s earlier on then there could be a little bit more leniency in terms of when you start to optimize but really the fundamental thing is you have to have a really good listing. You have to have a solid product. You can’t just sell a me-too product that’s up there just competing based on price. It’s got to have a really good high value to people who are searching for it. So, if you start with that then you can really get a better understanding of when you should start to optimize. But the rule of thumb is basically 10 clicks without a sale is when you would start to do some work. Or 10 clicks with a relatively high ACOS you would start to optimize that cost per click so that it’s at a better cost … the bid price is better and not as expensive. Mark: Okay so in this case if we’re evaluating a business for sale and taking a look at it one of the first things we’ll be looking for that low hanging fruit of hey these guys are wasting money on their product sponsored listings spend right? They’ve got a lot of keywords that they’re paying for. We’ve received 10 maybe 20 clicks we’re not getting any sales from them and that cost is pretty high. So that seems like a pretty low hanging fruit there. When you’re evaluating the campaign and let’s say that it’s pretty clean that way and looks like they’re doing a decent job of going through and eliminating those nonproductive keywords, where do you look for or what do you look for opportunities to be able to expand a product that they currently have? Mike: So, there’s a lot of opportunities when typically you can see keywords that are performing really, really well within the desired ACOS range. Meaning if you’re … let’s say you got an ACOS of 15% that means for every $15 you’re spending you’re making a 100. So, you may be missing out on some of the potential opportunity because your bid price is a little bit too low or Amazon doesn’t really … maybe your campaign budgets are a little bit too low. So, you want to give Amazon more room to breathe. You want to basically tell them hey this works out for me you know I want to do this any time of the day. And you would then go ahead and optimize your keyword bid price and also raise your campaign budget so that you can get as much exposure to that opportunity as possible. And now it’s a lot easier to see that stuff in bulk with software. You can see all of the individual keywords that are performing really, really well over a given period of time and where they really could use a little bit of a boost in terms of their ad spend. So, you can give that more love and then direct traffic there and then negate it elsewhere. Mark: Okay. Do you ever use paid sponsored listings for anything other than just the direct sales? I mean are there some more creative strategies that people can use with these campaigns to be able to maybe do some other parts of like with their organic rankings or other aspects of their account? Mike: There so many things you can do. Yeah, it’s really exciting. There’re different things that Amazon is coming out with. Now they just came out for sellers and sellers central sponsored brands, headline search ads. So basically, there’s a big … there’s a much bigger creative element to that and you can really brand to get massive exposure to your brand doing that. And if you’ve ever seen on Amazon they’re very top ad when you go there. There’s a [inaudible 00:19:53.2] to the left, there’s a headline, and there’s three product images and you can direct your traffic to a storefront which is basically your website on Amazon or you can direct it to a single list of items on Amazon. And there’s a whole bunch of strategies to do that. Very creative headlines, you have to be really good at copyrighting, good main images, you have to connect the copy to the main image and to the three main products. It is very simple but I feel like there’s a lot of opportunity and a lot of sellers really don’t take the time to make a good headline. They just kind of put stuff up there and just kind of set in and forget it. And I think that’s a really big headline. It also sets the stage for sponsored products and for organic visibility. It’s like the first line of defense when people see your brand and then they see unsponsored products they may not want to click on it and they see you organically. And as long as your numbers are right we find that approach really sets stage for a sale. Mark: All right so you’re talking about this again once you could be on multiple places so that people have those multiple touch points with you. Okay what are some of these other strategies? You said that there’s lots of opportunities, I want to get in to one of these here and see something that the listeners can take away here as something that they could actually implement today. Mike: Right so if you have a brand I think the biggest opportunity is to dig into your search form report and actually find out what people are looking for. That has been the best opportunity there still that people just don’t really dig into that as much as they could. So that’s like instant intelligence as to what people are looking for and how you can build and expand your brand. The next opportunity I would say is to really dive into sponsored products and headline search ads because a lot of people … well there’s opportunity moreso overseas now with sponsored products it’s getting a little bit congested in the USA. Canada, UK, Germany, all of these overseas markets there’s plenty of opportunity there. If you have a good product in the US that’s an easy way to expand. We’re getting better numbers over there in terms of our PPC recently as we are in the US. So that’s a killer opportunity. And since the world is really open right now there’s … the doors have come down. There’s plenty of opportunity out there. But in terms of opportunity really coming up with creative ideas and creative products and really diving into that is the way to go in my opinion. Mark: Are you able to share any creative things that you’ve seen over the past six months? What’s one of the most creative … obviously not explaining or giving away anyone’s trade secrets here but what are some of the most creative things you’ve seen in the last six months? Mike: Yeah so, I like to build a listing that incorporates the entire product line. And this basically is you’re getting … you’re paying for traffic anyways, you’re spending a lot of money to get your people to your site why not cross sell your other products, why not … and there’s like five or six ways to do it within your listing that I think a lot of sellers aren’t doing. You can have an image that has basically a visual of all the products in your line. A bullet point that explains that this is part of a product in your line. You can have a coupon that allows them to purchase another product in that line for a little bit less money. You could have what’s called enhanced brand content now which shows the entire product line and has comparison charts with links to your other products and also you can link people to your storefront. So, I feel like that’s the big play right now is to get traffic over but then really build the customer [inaudible 00:23:11.7] retarget them with emails and then get them on your sequence and then go from there. And then launching becomes very simple because you have this entire list. We did that process and we have about 7,000 new emails in one year which doesn’t seem like a lot but these are customers who came to our site. They basically gave us their information, they registered for a coupon. They’re loyal customers and now we’re retargeting and also, they’re part of our fanbase and we can grow at that rate. That would be a great thing for us. So that’s one tip is to get more exposure to other products in your line. Mark: Okay let’s talk a little bit about competition this is something that I hear from a lot of people that are looking at the Amazon space looking to possibly buy but aren’t quite sure about it and their number one fear and even among sellers for that matter. What I hear is this kind of worry about competition and taking away from that share that maybe they’ve built up over the years. What are some ways in your opinion that sellers can start to protect against that slow believe that happens so often with product lines? Mike: Yeah it does happen it really does. I mean there’s going to be competition within 60 months or less of whatever you’re selling. That happens to us with all of our product lines and it’s always been about reinventing and coming up with new stuff. If you’re not reinventing I feel like there’s the entropy is going to take place and that’s just inevitable. Also, just keep in mind that Amazon consistently raises their fees. And then also from a PPC perspective there’s more competition so the cost per clicks are going up not down. So constantly squeezing out that margin which is something that you have to be very mindful of. So, the protection mechanism that I feel is the best thing is your audience. If there’s so many who is loyal to your product brand outside of Amazon … if someone loves you outside of Amazon they’re going to come to Amazon to purchase your products even if it’s a little bit more expensive. So, you can maintain your profit margins that way. The other thing is having … going where people typically don’t go, so oversized items. Like really, really big items. People that are just usually scared away because the cost per unit to purchase that may be a little bit too expensive and basically there’s a less … there’s a bigger barrier to entry and it scares more people which I feel like is a bigger opportunity. So, if you combine that and even if you sell five or ten of those a day versus 100 widgets a dollar profit it just pays off that way. I think those are ultimately the mechanism to really scale. Mark: And those are things that we’ve been emphasizing for years. I’m glad that you said that because it makes me look smarter than I probably actually am. But these things, the less desirable is just one that we see you know not with Amazon businesses alone it’s actually with any online business, right? The barrier to entry which might be a little bit scary from a buying standpoint. I remember we had a business that was selling a certification program and a lot of buyers are worried because they we’re thinking I don’t know anything about this how can I actually teach people how to get certified with it. Well you know what that’s protection against competition. And so, when you get into that sort of less desirable niches where you have to solve a problem … and I think that’s the big thing if you can figure out a solve a problem that problem is something other people are going to have to deal with as well. That’s really key. And you’re echoing as well with something that Chad Rubin from Skubana told me on the podcast several episodes ago and that is that continual product development. He made the point that Apple comes out with an iPhone every year and pretty much cars come out with a new car every year. It’s not that the previous cars don’t work well, they do. They could continue to just produce those ones but they want to create some new excitement among their consumers. And then finally get I know I’m literally just reiterating what you said but I think it’s important to do so. Moving that brand so it’s not just Amazon centric and dependent but creating that brand and kind of loyal customer base outside of Amazon as well. Mike: Yeah so … and one more thing I want to add to that is intellectual property especially at Amazon. I mean that we … I’ll give you guys a quick story. So, we sell cat products and we started selling this cooling pad basically two summers ago. And it was a huge seller; a very seasonal item obviously but it was a huge seller. And then the next summer we got an email from a company saying that they had intellectual property rights to that thing. It basically kicked off everybody on Amazon and they are just doing … just normally you can’t … now obviously we can’t compete with them. And they’re making so much money. So, if there is a product out there that you think is … and I’ve actually had trouble with this. I’m not … I don’t have a lot of experience with this but I’ve never really come up with a product that is truly patentable but I feel like if there is something, some intellectual property you can get and you have something great on Amazon and there’s no other competition because you’re the only one man you do really well. Mark: Yeah and nobody thinks about the IP portion until it gets crowded right? I mean that’s when you start thinking about IP. At first, it’s like hey it’s a big pie everybody can have some and then you’re like why actually this pie is starting to get a little bit crowded. I’d like to be able to protect my slice. But you’re right being able protect what you have through intellectual property is a really, really key thing to do and do it early as well. Mike: Oh yeah and then on Amazon it’s almost inevitable you’ll come up … there’ll be people who will try to get your slice. I mean sooner or later and maybe from random countries and sometimes they don’t always play the right way. So, it’s important to make sure you have that in feel. Mark: Awesome. All right I feel like we could probably branch into another topic but then we would end up going completely off our existing conversation. So, I’m going to have us wrap up right there. I know that you also started PPC Entourage and that is to help Amazon paid accounts correct? Mike: Yes, it is, yeah. Mark: Okay do you want to tells us just a little about what you’re doing over there? Mike: Yeah absolutely so in 2016 is when I … I started my business in 2015. 2016 I spent a lot of time with sponsored products and it was just a pain … it was great because we got a lot of visibility but it was frustrating because it just took forever to get it done. So basically, it’s my first experience working with a software … a SaaS business and it has been an amazing experience. Basically, what we did is we made sure that everything that we did to scale our business could be done in like a fraction of the amount of time. So, if you’re looking to get more exposure to your Amazon business, if you’re looking to spend less on ad spend, if you’re looking to optimize in a quick efficient way PPC Entourage can help you do that. Now we have bulk edit tools which allow you to look into campaigns … all of your campaigns all at once to see what those winners are. You can get more money and spend more money on those particular keywords and campaigns. And then also we have something called auto pile which is becoming much more intuitive. Basically, something that goes in every single night looks at your metrics looks at the settings that you place and make sure you calculated adjustments to your keywords so that you’re not spending a ton of money on ad spend. It makes adjustments every single night. So that’s one of the really cool, we also just launched Spotlight which is our headline search. Basically, our solution to headline search which allows you to create 27 different variations of headline search ads. Anyone who’s on seller central knows it’s one at a time. It’s a huge pain in the butt. It takes forever but this allows you to find the best products. It allows you to find the best images. It allows you to find the best headlines. We have a headline creator. It lets you find 27 different combinations and you can slowly send them off to Amazon over time and then optimize those ads. So that’s PPC Entourage and PPC Entourage spotlight and yeah, it’s a growing business and we’re so excited about where it can go. Mark: Awesome. Well thank you so much for coming on the podcast here and if anyone wants to reach you what’s the best way for them to contact you? Mike: Sure, you can go to PPCentourage.com or you can also go and email me at mike@ppcentourage.com. Mark: Awesome. I’ll include those links in the show notes. All of those will be at the bottom. Just scroll past the transcript and you’ll be able to see it. Thank you so much for coming on and let’s have you on again in the future. Mike: All right thanks. Take care Mark.   Links and Resources: PPC Entourage Email Mike