The Quiet Light Podcast

Combined, Mark and I have reviewed thousands of profit and loss statements over the years. What we’ve seen and learned in that time, is that certain key financial metrics can make or break the value of a business. In today’s podcast we cover all of these metrics, including one that could cost a seller hundreds of thousands in value, and give a buyer huge instant equity. If you think the financial metrics and details are boring, wake up! You work night and day and risk everything to build your business, and it is more than likely that your business is your most valuable asset. Having deep financial details will bring more you more value, peace of mind, and maybe someday help you create a “lifetime event” sale and an exit that will change your life, and the lives of your descendants for generations to come. Episode Highlights: [:10] How long does it take to do a valuation? [2:35] What are “clean financials”? [4:02] YOY trends tend to be the most important financial factor. [6:12} We always look at a monthly view of the financials. Not just quarterly or annually. [9:15} Revenue by Channel show a deeper view of overall revenue trends (and reveal gold, or roadblocks). [14:40] Any channel that has you “own” the customer brings more value. {15:20] After total revenues, Mark views gross profit margins next, as do many buyers. [17:20] COGs should not include 3rd party fees! [18:41] Gross profit margins below 20% make Mark nervous. [20:10] Joe loves to see advertising expenses by revenue channel (this does not have to be in the P&L). [23:14] When you “get” the metrics right a business value can instantly jump by hundreds of thousands of dollars. [25:31] Trust offsets risk. The lower the risk is the more value your business will bring. [27:03] Don’t hide negative trends…if you’ve recovered. A recovery shows how resilient the business is. [28:23] Drilling down to specific expenses and their trends tell a fuller story of the business condition. [30:19] QLB brokers Advertising, Saas, eCommerce and other business models. [31:01] Certain metrics are key with SaaS and Subscription based businesses. [33:49] Discretionary earnings equals net income, plus add backs. [34:06] Discretionary Earnings as a percent of total revenue “comfort levels” vary depending on the niche. [38:01] Revenue by SKU can show huge built-in growth if some were launched in the trailing 12 months. [39:55] Joe & Mark get into the weeds. Go there with them and learn how to increase the value of your business by hundreds of thousands of dollars, or buy one and get instant equity. Transcription: Mark: All right Joe you probably know this from your experience here at Quiet Light Brokerage but how long does it take you … when you’re talking to a client for the first time or somebody who’s requesting a value of the business, how long on average do you think it really takes you to be able to get an estimate of the size of the business and the value of their business? Joe: Yeah there’s really no short answer to that. I feel like you want me to tell you five minutes but the answer is it’s at least an initial call you get a ballpark range. And then you got to look at the financials and look at the trends, know your trends and look at the details of the financials. It’s so much of that answer and the time frame around it depends upon how good their documentation is and how much they know about their own books. Mark: Sure and just you know I want you to answer whatever you want to answer. I’m not going to feed you answers; answer the truth. Yeah, well I think that’s true. We’ve been looking at businesses for a while. We’ve looked at a lot of businesses in the roles that we have. And so I thought it would be good for us to have a discussion today to talk about some of the things that we look at in a business’s financials to really be able to determine its value pretty quickly. What are some of the things that you with your expert eye from all the deals that you’ve done, what do you look at when you look at a company’s financials? Now I know every buyer out there listening to this you probably have the reports that you look at. We have the advantage of working with lots of different buyers. We see the different approaches that different buyers have made. And I know that over the last 10 years I’ve expanded and changed what I look at and probably look at more things and things maybe that wouldn’t concern me as much directly but I’m looking at to try and anticipate what buyers would want to see. Joe: So what is … what’s the number one thing you look at first? You’re always looking at this one thing what is it? Mark: By the way, if anyone is wondering no we don’t have a guest so you have to live with Joe and I for the rest of this episode. But we’ll try to make it entertaining. Okay, so what do I look at first and foremost? I have gotten very addicted to looking at trends. Trends to me to it’s one of the most important thing with somebody’s financials … outside of whether or not they’re clean of course right? They’ve got to be clean if I’m going to … if we’re going to be able to make any real valuation. Joe: Can we define clean? What do you mean by that? Mark: That’s a good question actually. Joe: Somebody in the audience was just asking it they just [inaudible 00:03:03.7] through to my head. Mark: You’re anticipating what people are going to be asking weeks from now; I love it. What are clean financials? So clean would be separated from other businesses. And that doesn’t mean that you have to have completely separate tax IDs. That’s ideal … you know separate tax IDs and separate books. I would love it if that’s what you had but at least within QuickBooks or Xero or whatever you’re using, some way of identifying this is for this business. This expense goes for this business and that expense goes for another business if you have multiple businesses running. Also actually having that tracked clearly and so that you’re not just taking estimates on things and finally not mixing in a lot of personal expenses into it. In the episode that I recorded with Brian we talked about some of the warning signs. We saw in financials … and that episode is aired by now so go back and take a listen to that, but one of the warning signs that we often see are round numbers. Joe: Oh yeah. Mark: Round numbers are … yeah, these are not clean financials; these are estimates. Joe: Unless it’s payroll but if you’ve got expenses of advertising of $1500 a month or your phone bills … you know $2300 a month yeah the round numbers are always challenging. But clean financials are so important because it allows us to look at things from an analytical eye and from the buyer’s eye. And you yourself you say you look at trends, which trend specifically do you hone in on? Mark: Well the number one trend I like to look at would be year over year trends. So there’s … when we’re looking at trends just as in general for a business there’s two main approaches that people take. One would be a month over month so are we doing better this month than we did the month before and was that month better than the month before that and how does that look. And maybe you spread that out and do like a quarter over quarter analysis. I like to take a look at businesses more from the year over year analysis. So if I’m taking a look at July of 2018 I want to compare that against July of 2017. Or if I’m going to do it on it like a quarterly basis I might take a look at quarter two of this year and compare it to quarter two of the year before and of the year before that. And the reason that I do this is I think people have seasonal businesses without knowing that they have a seasonal business. Obviously like Halloween … you know I’ve sold a number of Halloween sites in the past, that’s an obvious seasonal business, Christmas obviously a seasonal business. Gardening and supply store a little less obvious but when you think about yeah it’s a seasonal business. I think those aren’t too far off stretches. But when you take a look at a company like Quiet Light Brokerage we also have seasons. We have our busy seasons, we have our a little bit less busy seasons. Summer, it tends to slow down a little bit. It’s not appreciable. It’s not like one of those things where you can look at and say it’s going to be absolutely dead. And I wouldn’t call us having a seasonal business but in the books, it does get reflected that way. So I like the year over year financial analysis because it controls all of those variables and also some of the variables for having a few extra days in a month or a few less days in a month. Joe: Yeah I think you’ve got to specifically look at that month over month analysis because of the seasonality. You know some will say well is there the best time to sell my business and it’s really the time that’s right for that particular individual. But when you’re comparing December of 2018 to December of 2017 that is what is most relevant. It’s not necessarily all of 2018 against all of 2017 because if you just look at the annual numbers of ’17 versus ’18 it’s only going to paint a partial picture. We’re always looking for monthly trends beyond that. We can … we look at that bigger picture and that’s what we can talk about, that big picture in the teaser where people are going to see the listing for the first time. You know 60% year over year growth or whatever the number might be. But you’ve got to drill down into that month over month. How does December … I guess it’s year over year December of ’18 looked to December of ’17. Because you could have had a great first three quarters and then in the fourth quarter of 2018 it could have fallen off a cliff. It still may look like 60% growth year over year but the most recent quarter could be down dramatically. And that dramatically reduces the value of the business because of the risk going forward. Mark: And the other thing that I found and I wrote a blog post on this a several years ago, we’ll link to it in the show notes and if you and I were professional podcasters I would have done like actual show prop and been able to have this example at my fingertips. But I did this blog post years ago on how to perform a year over year financial analysis. And then I put together some dummy data and this actually kind of randomly happened when I put it together. Where at from a month over month standpoint the business looked like it was growing and growing at a good clip. But when you took a look at it at a year over year financial analysis what you’re able to see is that the growth was slowing dramatically on the business. And that was extremely valuable in that and again it’s a pretend scenario to be able to see the actual trend. What is … where is the direction of this business going? The other thing that I want to point out about this and I don’t want to spend [inaudible 00:08:10.9] of time on this specific topic of year over year financial analysis but I think the one thing that we need to kind of pull back on with online businesses is we tend to really take a microscopic view of the financials. We’ll often take a look at just the past couple of months and consider that to be a trend. Starting to broaden out our timeframes I think is a good thing to do especially from a buying stand point and understanding what is the context of the earnings of this business. When I started Quiet Light Brokerage in 2006, 2007 well most companies were just a few years old. Now we’re seeing businesses that are 20, 25 years old on the long end and so we have more history to work with. And I just think year over year is a better solution for that. So that’s my number one thing that I look for. Joe: I agree and I’m going to drill down beyond that and the next thing that I would look at but you know not being professional podcasters shows that we’re human which is exactly what we are. Okay, that’s too much ego there, sorry folks. What I do when you talk about a particular blog and we’re not prepared for it, all you’re going to do is Google Quiet Light Brokerage and year over year analysis and boom there it is. So for the record, you’ve done a great job on the last decade. Beyond the year over year comparison, month over month comparison what I drill down into next is revenue by channel. Because a buyer is going to look at it and see what’s happening in the most recent three months compared to the same three months last year or year to date things of that nature. And so that shows the trends of the business and which way it’s going. Beyond that what I like to drill down to and this goes to documentation is revenue by channel. So is it … let’s say it’s in a physical products business am I getting 60% of my revenue from Amazon, 25% B2B, and 15% from a new Shopify store. And then beyond that what are the trends within those channels? For instance, I had a listing awhile back where it was it was 100% Amazon and they like most started out on Amazon.com and then expanded to Germany, UK, Canada, Japan, Italy, and those countries took off and were really growing at the same time the US started to trend down. So they put all of their efforts into the new countries and stopped putting efforts into the country that was generating the most revenue. Overall if you look at month over month numbers as a whole we were still up, year over year we were still up, but there was a concerning trend within all of it and that was that the biggest revenue generator was dropping and then it was being replaced with other channels. So overall I guess if you just look at the broad picture it was okay but when you … you want to drill down into those things to get a really clearer picture of it. And that goes for Shopify channels [inaudible 00:11:11.5] or Shopify whatever it might be and then the B2B side too. These are if you’re selling physical products. Same goes for content sites or SaaS sites, whatever they might be; advertising sites or SaaS sites. If you’ve got different methods of advertising and revenues whether it’s straight up sales from your website or affiliate revenue you want to break that out in your financials so that you can see them. So you can see what you’re doing right and what you’re doing wrong but also so that your broker, advisor, exit planner, and your buyer can see it as well. Because you have some great things in there … you know if you started a Shopify store nine months ago and it’s already at 15% of your total revenue it’s only nine months out of the trailing 12 so you’ve got built in growth there and that is a really exciting thing for buyers. Mark: Yeah I dealt with a client recently where we were having a little bit of trouble moving his business because it was not on a decline. And he had a lot of revenue but there was a couple of problems with the business where it was sick in a few ways. And what I found is out of our buyers … and we had lots of inquiries on this business because we put it up at a pretty low multiple, most buyers backed out right away when they saw the trends they just kind of backed out and said “No I’m not really all that interested in this business. I don’t want to turn around but I have you.” And the buyers that we’ve grown to know over the years that they’re really successful at what they’re doing they took a little bit more time and the first thing that they started to do is exactly what you’re talking about. They started to take those financials and some of those summation numbers that we see in financials and they started to break them apart. They started to really dig into those numbers and see okay what makes up this revenue. And when we started to break these apart what can we find in here; what’s sick and what’s healthy? And is what’s healthy sustainable and is what’s sick is that fixable or is it something that we can just get rid of? And so they started looking at that on a per channel basis but they also started looking at it on a per SKU basis as well in running an analysis. And one of the things that we found with this is that you could actually lighten up the workload of this business and actually increase profitability significantly by removing a large number of the SKUs because they were not all that profitable. But again the front is still the multi-channel analysis that you’re talking about. But I think this general principle of when you’re looking at revenue especially with an e-commerce business that can have multiple channels of revenue don’t just take the summation number, start to break it apart. And from the sell side, if you’re selling don’t be afraid of reporting those numbers either. There’s opportunity in those numbers that you can show potential buyers and I think a little dose of humility for all of this goes a long way. Sometimes somebody is going to come and take a look at your business and be able to have an observation that maybe we’ve been missing for a while. And from a selling standpoint that’s your opportunity if a buyer comes in and notices something that you missed. And so give them that data, give them that opportunity to make that sort of observation. And I think that’s a good thing for people to look for. Is there any channel in your opinion that you like better than others or that you look at and you would weight as more valuable than others? Joe: Oh yeah I mean any channel you own the customer. If it’s just your own website where you are owning the customer completely and you can remarket to them and upsell them and reach out to them socially via email, whatever method you can. But absolutely owning the customer brings more value than … you know in Amazon platform for instance. Amazon is growing like crazy so don’t discount it if you’re selling physical products. You have to be there in my opinion. You’re missing out on a tremendous amount of revenue if you’re not there. But owning the customer is the most important thing in terms of overall value. One of the things I want to jump to Mark is … it’s on our list here to talk about in terms of the year over year analysis and drilling down and getting below that total revenue line to either gross profit as a percentage of total revenue or discretionary earnings as a percentage to total revenue. Which one do you look at first? Mark: I look at gross profit first if it’s an e-commerce business and just because it’s a simpler number to digest. Now there’s only really one thing that’s getting thrown into that gross profit number you’ve got your revenue, you’ve got your landed cost of goods sold and that’s pretty much it that’s going into the gross profit number. So it’s an easier thing to really understand and really at the core of an e-commerce business is that you know what is the cost of your product, and what are people willing to pay for it right now, and how is that trending. And I think with e-commerce businesses specifically because price competition is a real thing with e-commerce businesses and most niches you have to really pay attention to how is the profitability of this industry holding up over time. Is it becoming more competitive? Is the competition happening on a price front? Or are suppliers becoming more aggressive in their pricing as well? So that’s one of the first things that I look at when I start to really dig into those financials. I want to see how is that gross profit margin holding up over time, is it getting more expensive to do this business or is it holding up? Joe: You know it’s funny I think I agree with you that what you should have in your expenses above the gross profit line are your cost of goods sold, your landed cost of goods sold. But I often see them in from bookkeepers and they include in some cases fees associated with third party platforms. I don’t know if there’s a right way or a wrong way but you got to dissect to that a little bit when doing the analysis. Is there a particular percentage of profit that you look at and you’re like no, your cost of goods sold are just simply too high, the margins are too tight, this is going to be really hard one to sell. Do you ever run across any of those? Mark: I do and I’ll get to that in just a second I’m going to chide all the book keepers out there that are including fees in there as cost of goods sold. The technical definition for a cost of goods sold has to be … be involved in the actual production and sourcing of the product itself; the transactional cost. So if you’re keeping your books that way it’s a minor issue and a crawling issue that I won’t fight too hard but it’s supposed to go on the regular operational expenses instead. Joe: I fell asleep in accounting class. I just focus on what I focus on. I told you this story before. We work with Scott of Catching Clouds, Matt of CapForge, Fully Accountable is a recent one that’s come across my desk and all three seem to do a really solid job. And having a great bookkeeper brings a windfall of cash when you go to list your business for sale. Mark: Absolutely and one of those guys might disagree with me and then we can whip out our pocket protectors and have a pen fight over that. Joe: All right yeah … let’s keep the people awake. We don’t want to talk about that. Mark: All right, move on. So percentages absolutely, you want to see a healthy gross profit percentage. I talked to one buyer and I won’t say her name because I don’t know if she wants me saying this but she told me that she wouldn’t look at a business that had less than 50% gross profit margins. I wouldn’t go that far. In my opinion, when I’m looking at the business from a broker standpoint I start to get nervous when gross profit margins dip below 20% is when I get nervous, 25% and lower I’m a little uncomfortable with that but you know I think that’s doable. I think the average that I’d see would be right around 35%; 30-35% would be the average. Obviously the higher you can have it the better. There are certain industries, electronics being one of them that tend to just have really low gross profit margins and you know the problem with that and just thinking about it I have basic basis if you’re … say you have a 10% gross margin which for a lot of electronics that’s where you’re at, you’re looking at having a million dollars in revenue to be able to generate $100,000 in just gross profit. That’s a lot of money that you have to generate in order to get some gross profit. So my rule is about 20%. Joe: It doesn’t count your advertising; it doesn’t count your payroll or anything like that so. Mark: Or your transactional fees [inaudible 00:19:26.7] marketplace. Joe: Exactly as it should be down below that gross profit line. So that’s going down that P&L you know you’ve got total revenue you’ve got gross profit and then you’ve got all these expenses in there. One of the things that I always look pretty closely at if I have the detail up above is the advertising channel. Do you ever get to see advertising expenses by channel in a P&L? Mark: By channel … I’m trying to think if I’ve seen it. With Amazon, you’ll see it. Sometimes you’ll see Amazon advertising expenses broken out separate from- Joe: Wouldn’t it be amazing to see it there? Just for those bookkeepers out there and those people that are doing it themselves. Mark: Oh my gosh. Joe: If you’ve got revenue by channel up above the total revenue line why not have advertising by channel down below? It … you can do it in QuickBooks and Xero you just got to have a subset of it. In the exported P&L it may say just total advertising but you can show that separately. And the reason I love to look at that is because it can show too heavy of a weight in one particular channel again in the advertising dollars. This is airing in August of 2018, as many people listening know there was an algorithm update in Facebook in April. And a lot of people got hurt by that and if they were overspending on Facebook advertising and they might have found themselves too heavily weighted on one channel and that advertising didn’t work as well anymore and their revenues might have dropped. Or they had to pick up the ball somewhere else and it took a while. So it goes to that detail. The more detail we can see the more we’ll understand those trends and a buyer can make a more informed decision. If somebody’s stroking a check for 100,000, 500,000, a million whatever the number is, they worked hard for that money, they saved it, they’re smart, they’re intelligent, they’re going to get through those numbers eventually and it’s better to do it upfront in advance so that once you’re under a lot of intent you get all the way through the closing. So I’m always trying to drill down into those details. I would love advertising by channel. I don’t always get it but it’s a question that I’m always asking and is that spending by channel going up or down. I think if you can again diversify by channel and if it’s Facebook, if it’s Instagram, if it’s AdWords, if it’s inside your sponsored account or whatever it might be, if you’re selling SaaS products, affiliate whatever you might be doing; having that level of detail is truly ideal and I’m always looking for it if I can get it. I can often get it out of just a P&L but generally, there’s enough detail in the back end for the client … the person owning the business to be able to share that. Mark: Yeah I’ve used an analogy some time … and by the way, real quick just kind of a public service announcement here if anybody is listening to this in your car it’s late at night you’ve been driving for a while put this on pause go put on like a really exciting song for a little bit and then come back and finish it. Joe: Come on. Mark: No just … all right so I- Joe: This is huge. This is all huge that just- Mark: It should be exciting. Joe: You and I do this all the time and it’s exciting for a client when we go through these numbers and we find something and all of a sudden they realize that if we do this right their business … they don’t have to generate any more revenue but their business when properly presented is worth a quarter of a million dollars more. So that’s pretty exciting you don’t have to generate more revenue. Mark: Well absolutely. So I’m actually going to bring this to Botany of all things. I think its Botany or probably not but the study of trees and tree rings … you’re looking at me like I’m crazy. Joe: I am. Well, you are. Okay. Mark: Yeah well I am a little bit crazy but one of the cool things that I learned years ago about the tree rings, you know when you slice a tree and you can see all the rings and stuff like that. Scientists are able to tell all sorts of information from those rings. They’re able to tell if there is a fire a certain time in that area, or if it was a drought year or if it was heavy rains that year, and the average temperature as well. You can find all sorts of information like and the reason I bring this up … there is a point here besides me just talking about the fun things I learned on the side outside of work, is that financially I’d look at financials in sort of the same way. It’s the record of the business and its quantified what’s happening to your business in other ways. Facebook’s algorithm change is an actual change in your customer acquisition strategy and it shows up on those books. There’s very little that happens in your business that’s not going to show up somewhere in your financial records. And so when you keep detailed financial records what you’re doing is you’re keeping a story of your business in a quantified way. And for buyers who are trying to evaluate a business, you know buyers look at this from all sorts of different ways; especially experienced buyers. They’re going to look at your business from an ROI standpoint. They want to understand can I make money from this? But they’re also going to look at it from the story of the business and try and get in the head you as a business owner and what it’s been like to run it for the past number of X years. And so your point about keeping more beautiful records and breaking advertising down into channels AdWords or Facebook, we’ve messed around with Pinterest for a while if you’ve done some Quora advertising or have you. That’s part of the story of your business that you can tell when you really start to break down financials historically. Joe: Yeah and I think it’s important to understand that all of those details are important to be able to share. Somebody listening that’s planning on selling their business they may want to say I don’t want to share those negative trends, I don’t want to talk about that fire that I had back in June of 2017. It’s going to come out so you might as well get those details out there and ready and available for your buyers because trust … when you lay it all out there it builds trust. And trust is important because it offsets risk a little bit. And again when you offset that risk a buyer is willing to pay more for your business. And it’s all important … it goes into your social media accounts too you know. I’ve had … and I’m going to tangent but … and I won’t name names but I had clients that are selling their business and I pop into their social media account and their profile picture is them on the beach topless with a beer on their hand and chugging whatever. Those are men topless by the way. And I’m like it’s great but just put a shirt on for a little while, just change your profile picture because we’re trying to build trust and respect in who you are. Buyers want to buy from client sellers that they like and that they trust more than anything else. So that’s why you want to share all those rings of the tree and tell the full story because they’ll look at the mistakes that you’ve made and the expertise that they have that you don’t and go opportunity. I have capital to not run out of inventory and you did, I’m smarter than you are, or I have more money than you are. That’s really really critical stuff to have. Anyway- Mark: With the negative trends in the past by the way I just want to say one quick thing. It’s not a bad thing if you have a negative trend in the past. In fact, I like it when I see a business that has had a decline and recovered. I can go to a buyer and say look how resilient this business is. Joe: Exactly. Mark: They ran out of product for two months and they’re still chugging along great; it didn’t kill them. Joe: That’s right. I actually had a situation where a client had a patent infringement claim filed against them. And not just against that particular client but against everybody that was selling a similar product. And it turns out that everyone else stopped selling that product period. My client hired an attorney, fought the infringement, won, and ended up being one of the only sellers of that particular product anymore and that just … the revenues shot up, gained more market share. And it’s an ugly thing … a patent infringement; you don’t want to talk about that right? No, you absolutely do because odds of it happening again incredibly low and in this situation, it turned out to be very positive as well. So I say expose all the rings of the tree in your analogy in botany. Let us know if botany is not … I think it is the right phrase but- Mark: I think it’s like the big family. I think there is probably a more narrow specialty. Somebody- Joe: We are sitting in front of computers; you want to drill down a little further? We’ve talked about advertising by channel what would you look at next in a let’s say a financial presentation or a profit and loss statement? Mark: Well you know I’m going to start getting into these specific expenses and I want to take a look at what the individual average … or what not advertising, the individual expenses are to see are any trending higher. Basically, is this business getting more difficult to run, is it getting more expensive to run? And the other thing that you can see from just kind of an expense profile would be attempts at growth. You often see expenses ramp up when people expect growth so you can get the sense for where the business is arcing from taking a look at individual expenses. So I would look at staffing costs, they really ramped up. Are you seeing a lot of professional legal fees ramp up? That will be something that you wanted to begin to and try and get a little bit of explanation into. But really trying to get in … again some of those individual expenses and see spikes and anomalies. You know things that kind of stand out because those again are going to be the big stories that you want to get into later on. So we move a little bit away from trend analysis when we start looking at that … when we start getting into just kind of that anomaly analysis of a financial statement to see what questions do we need to be asking on this particular business. Joe: Yeah and it’s not just anomalies where there’s spikes in revenue but sometimes expenses disappear. And when they disappear for the last two or three months of the trailing 12 and now they want to sell their business they’re just … either they made a mistake or just forgot to put it in. But they’re just cutting costs to increase their discretionary earnings. So we always … we drill down into all of that, every buyer will and we do it for them, ask those questions and get it exposed so that it’s a good investment for a buyer and the selling achieves their goals as well. Mark: Something I want to ask you about Joe, you know we get talked a lot … Quiet Light, in general, is pegged a lot as kind of like the e-commerce broker like that’s what we do but we actually sell a lot of SaaS businesses. Joe: And content or advertising business. If you look at the revenue on close transactions here to date it’s an awful lot of SaaS an awful lot of content in there as well. Mark: Right and I explain to people it’s actually not a majority of e-commerce it’s a plurality for us as we’re less than 50% of our deals are e-commerce it’s more around 40, 45% percent. I want to get into subscription based revenue and how do you look at that when you’re evaluating business. What are you … you’ve done a number of SaaS businesses or a certain number of SaaS businesses, how do you evaluate subscription based revenue? Joe: Yeah anytime someone’s looking at the subscription based businesses to buy you know the eye that I look at it with is what does it cost to acquire that customer and what is the lifetime value of that customer? Could they have different terminologies for it churn rate and so on and so forth … you know how [inaudible 00:30:20.7]  if you get 100 new customers how many are churning every month, meaning how many go away? You want to keep that very low. Well I was looking at that churn rate but the simple way to look at it is … from a buyer’s perspective is if you’ve … you know I just closed a transaction it was a software as a service business, it’s been around for 14 years and it was created originally as a solution to a developer’s problem. The developer created it and then it just sort of grew organically. And 14 years later he had a very successful business but he didn’t have any data. He was only spending about literally like $300 a month on advertising. I’m like okay well what is the cost to acquire that customer with your advertising and then how long does that customer stick around? What is their lifetime value? So that a buyer wants to look at it and go okay it costs you $100 to acquire a customer but the lifetime value of that customer is $400. My margins are really strong that means okay I can spend more money on advertising dollars and I can double the revenue of this company. They’re always looking at that aspect of it from a subscription based business. And that could be physical products or software as a service. That churn rate is really really important, lifetime value, and repeat customer. Once you’ve gained a customer and if you’ve got the ability to offer them additional products and upsells that’s something that I’m always looking for if you’ve got that model where you can add to it. The percentage of repeat customers that monthly recurring revenue; always looking at those numbers. I mean just saying that there’s a monthly recurring revenue of $60,000 right away you just do the math on that that’s $360,000 of revenue that you’re not putting advertising dollars to because it’s already recurring and there’s a fixed margin there. That stuff is really exciting and if you’re an owner of software as a service business or a subscription based model box business you’ve got to have those numbers because that’s what buyers are going to look for. They’re going to want to know how much does it cost because I’m bringing a whole lot of working capital I’m going to blow this thing up and they want to know the cost to acquire that customer and lifetime value; two most important things in my opinion. Mark: [inaudible 00:08:10.9] things? Joe: We got a couple more. Mark: We have a couple more? Joe: Yeah drill down to the bottom discretionary earnings we know … hopefully, everybody knows discretionary earnings is your net income plus your add backs. Net income of the bottom of a profit and loss [inaudible 00:32:44.9] statement add back to the personal expenses you run through the business that are your own benefits and one-time expenses. So you get net income plus add backs equals seller’s discretionary earnings. Where do you feel most comfortable, where do you see buyers feel most comfortable in terms of that discretionary earnings as a percentage of your total revenue? Mark: Boy that’s a great question and I think it depends a little bit on the business itself. So SaaS companies tend to have higher SDE to revenue percentages. Content sites can have … depending on how they’re set up can also have a higher percentage. E-commerce tends to have a little bit lower percentages relative to revenue. So I’m not sure if I’ve looked at this in terms of percentages as far as SDE to a percentage … I would assume since you asked the question that you have. Joe: I have and you know 10% percent you could have at least I think. I can tell you what I don’t want and I’ve turned away businesses I just simply won’t list them because they’re not going to sell are those that have 1 or 2%. You know look I’m not talking they’re doing three million in discretionary earnings off of 30 million in revenue. That’s a sellable business no question about it. But when you’re doing 1 or 2% of your total margins you’re spending a lot of money on advertising dollars, you’re carrying a lot of working capital and inventory, you make a mistake a half a percent one way or the other and your profit drops dramatically. And any time I’ve looked at those, anytime we’ve listed things that have a smaller percentage margin there in discretionary earnings buyers get really nervous and they look at it from that point of view. So you’ve really got to do that math and not go oh yeah it’s 200,000 in discretionary earnings. You’ve got to go okay it’s 200,000 and what percentage is that of my total revenue, and how do I improve that? And then you drill down into those expenses. Dave Bryant who’s part of the e-commerce podcast … EcomCrew Michael Jackness, he was our client and a year before we sold his business he did that. He looked at that bottom line sellers discretionary earning as a percentage of the total revenue and then drilled down into certain SKUs and looked at the profit margin of those and either renegotiated the ones that were not profitable enough or got rid of a few and added about 40,000 of discretionary earnings to his business and about $120,000 to the list price of the business. So I … you want to get at I’d say shoot for 10%, 5% gets a little you know depending upon the business and how large total revenues are but it’s always a case by case basis. [inaudible 00:35:18.2]  get down to that 2, 3% range I get really really nervous as do buyers. Mark: I do think that part of it is revenue dependent. I’ve found with businesses that have kind of eye popping revenue numbers that even if the discretionary earnings is a very small percentage as you point out … if the business is doing 30 million dollars in revenue per year and it has really low percentage of discretionary earnings it’s still a sellable business because you got 30 million dollars of revenue per year to be able to play with. It’s when you get in those territories of say you have $500,000 of revenue and your discretionary earnings is just 10% of that so it’s $50,000 that’s not a lot of room for error before you’re at negative territory and you don’t have a lot of extra room in capital to be able to really pull into the growth of that business. So I think that’s a good thing to be able to look at. I think a lot of it depends on the size of the business. Joe: Yeah I completely agree. Look we didn’t start … we didn’t time this podcast, we have no idea how long we’ve been chatting for but I want to touch on one more thing that is really important I think for buyers to look at in terms of opportunity and for sellers to track in terms of again opportunity to get more value for your business. Buyers in terms of if they’re not detailing it and you can figure that out you’ll see built in growth and that is revenue by SKU. And that is whether it’s a physical products business or a subscription business; again, box or software as a service. Because sometimes software as a service they offer different packages and what not. If you’ve launched a SKU, a new product in the last 12 months and I’ve seen this before and let’s say you’ve got a dozen SKUs and six of them are only … they’re under nine months old and staggered within there, you’ve got built in growth. And so what I like to drill down to if I can get it is revenue by SKU for the trailing 12 months. Because if a SKU was launched six months ago but it’s already up to 18% of the total revenue that’s huge because you’ve got six more months and it’s growing. It’s absolute built in growth and it brings more value for a buyer. You can push the value of the business a little bit higher and if you can share that detail with the buyers they’re going to get it. They’re going to look at it and go yes I get it I understand it. Classic example of that is Kent Renner. We had him on here on the podcast early on back in December right? 300% year over year growth and he only owned the business for six months. The business had a total of 16 SKUs when he bought it. Nine of them had been launched within the trailing 12 months and represented about 40% of the total revenues. So it’s absolute built in growth and Kent’s took that business and it was doing a million in revenue when he bought it to three million in total revenue inside of it … a total of 12 months. And that was because that revenue by SKU detail that Evan the seller was able to provide and sort of built in past to growth for it for Kent to take over. Mark: Yes so I’m going to make a point here in this but beginning way to into the weeds on this topic here but I’m going to just venture in there anyways and just as an advanced tactic for buyers to look at I think what you’re saying there is absolute gold. And again I’ve seen some of our top buyers do just that. They really get into the SKUs and these are particular get it. So let’s get into a situational analysis here and say you have an e-commerce business that recently launched some SKUs within the past year or two years and … now I’m saying this because I have this case with a client, they’re keeping their books on a cash basis. From a buying opportunity, in my opinion, this is like absolute gold because their costs relative to the revenue is going to be very very high. They’re building up inventory in a product that is growing in sales but it isn’t really there yet and so you have super depressed or understated gross profit which is going to pop very soon. This is like one of those signals that you’re like buy. Like if you know what you’re looking at buy this thing because it’s going to pop in the next year and you’re going to see that massive growth. You get maybe too much of the weeds there. Joe: Yeah getting into cash versus accrual accounting with cost of goods sold way into the weeds but I’m telling you right now as a buying opportunity if you’re looking at other brokerage firms … which hopefully you’re looking at everybody. Any experienced broker is going to take a listing and go yeah okay there’s the discretionary we’ll do a few add backs and here’s the multiple on that discretionary earnings. An experienced broker is going to take that same profit and loss statement, a physical products business and make sure that the cost of goods sold is presented on accrual basis. That discretionary earnings number … most often with the business, it’s growing rapidly where you’re taking excess working capital and putting it back in the inventory that discretionary earnings is going to pop. And I’ve seen a quarter of a million dollar increase in the value of the business because of it. Let’s see if I can do some simple math. Imagine you have in the trailing twelve months a cost of goods sold of a million dollars on a cash basis. It’s a big number but I’m trying to do round numbers. And let’s say that on a cash basis you’re over inflated by 5%. If you flipped it to accrual instead of having 35% cost of goods sold your real cost of goods sold is only 30% but because your cash your 5% higher. 5% times that million dollars that you’ve got there on the books is $50,000. If your business is worth three times that’s $150,000 added onto the list price of the business. Or if you’re a buyer and it’s not presented that way it’s $150,000 of instant equity when you’re buying that business. Mark: Right so for those of you listening you know need to fact check out some of the not … botany is the right field of science and also if Joe’s math is correct on that because I don’t know if it is. But we’ll go with it and the point is there. I think the general rule of thumb that we follow here is a growing business that’s kept on a cash basis is going to understate their discretionary earnings and their gross profit generally speaking. And a business in decline that is on cash basis generally overstates their discretionary earnings if they’re not putting money back in the inventory at that point. So those are the basic rules of thumb. Keep in your mind there’s exceptions; there are always. I think this is been a long podcast right now. We have not been timing it. We’re probably around the 45 minute mark. Joe: Hopefully you guys are still awake. If there’s any questions that came up during the podcast shoot us an email inquiries@quietlightbrokerage, mark@quietlightbrokerage, joe@quietlightbrokerage, anybody’s first name for the most part @quietlightbrokerage.com. Mark: That’s right and this format of an episode … normally, of course, we’d like to bring on guests and the friends of Quiet Light Brokerage onto the show and we have more of those coming up here in the near future. We’ve got some pretty good guests coming up. But we wanted to start spring cleaning some of these episodes where it’s just Joe and I talking or maybe we’ll talk with somebody else within the company not to really give a background on them but to give insights or some of the ways that we attack some of the issues that come up when buying or selling an online business. Give us feedback on this, please. We’d love to hear it. You can send an email like Joe said to mark@quietlightbrokerage or joe@quietlightbrokerage or if you don’t want us to know and you just want to complain about us send it over to jason@quietlightbrokerage.com and he’s god at keeping secrets so you can complain to him. Joe: Sounds good. Thanks, Mark I appreciate your time.   Links: Learn the Value of your Business www.quietlightbrokerage.com inquiries@quietlightbrokerage.com joe@quietlightbrokerage.com mark@quietlightbrokerage.com

Today we welcome Bryan O’Neil, one of our very own, to discuss owning and running a brokerage firm and being a top advisor to buyers and sellers. Based in the United Kingdom, Bryan is joining us today from Costa Rica, where he is living the true traveling entrepreneur lifestyle. His career has had him in the mix for over 10 years and he has seen a lot from the many angles of the acquisition process. Before joining Quiet Light, Bryan was one of the original co-founders and a director of Flipping Enterprises, as well as a co-founder and the concept creator of Centurica – the world’s first website due diligence agency. He was also a consultant at Flippa.com and was responsible for the launch of their brokerage service, Deal Flow. Today we tap into his wealth of experience as an entrepreneur and pioneer in the internet brokerage industry. Episode Highlights: What Bryan finds exciting when starting with a client and the signals that he looks for right away in a potential transaction. The importance of paying attention to the soft side of a deal and the personalities brokers are working with. We discuss the burnout rate for the online business broker. How brokers develop a sixth sense for what is going to be a smooth deal and how hard or easy it will be to work with a seller or buyer. How the relationship between the owner and the prospective buyer is one of the most important aspects of a transaction. The broker’s valuation is merely the prediction based on the marketplace. Which niches that Bryan gravitates towards in his work. What red flags brokers look for in transactions. One thing that buyers don’t look at enough in the valuation process. Why buyers also need to look beyond the transaction. Something buyers focus on that is sometimes an impediment to the transaction progress. Transcription: Joe: So Mark, I understand you had a conversation with one of our very own who probably has more experience than most of us combined in terms of owning brokerage firms and being a top advisor as well. Mark: Yeah within Quiet Light Brokerage I am obviously the most experienced broker since I’ve started the company. I’ve been doing this for ten and a half years now but Bryan and I started off our conversation just kind of reminiscing on his career arc. When you take a look at our little industry that we have here within this kind of online business brokerage [inaudible 00:01:27.0] when you take a look at the companies that have sprung up and really kind of made their mark on the industry you typically see that Bryan has been somewhere right in the mix of all of those companies in that startup phase. So he’s been at this just as long as I have. He’s been doing this for about ten years now and his resume is impressive. Joe: It really is and he’s been the easiest to work with because he really doesn’t need any help which is pretty great given the level of skill and experience he has. But it’s funny with Bryan it seems like every time we talk to him he’s in a different country. You know he lives over in the UK but I think the last call we had he was actually in Cuba and working really literally from anywhere in the world like the true lifestyle entrepreneur. Did he get into specifics about the companies that he’s started that are well known in this industry? Mark: He did. Yeah absolutely and people that listen to this you guys are [inaudible 00:02:22.7] of companies we talked about the companies. I’ll save it for that. And by the way he was in Costa Rica now when we actually did this interview. So he was doing it from his hotel room and asked me in advance “Do I need to shave, is this going to be video?” I said “Yeah Bryan you should shave it and you know comb that hair and all that.” So he did and the audio … because it’s a hotel room the audio is a little bit echoey. I’ll apologize for that but … and then if you’re like me I can’t listen to accents very well. We make fun of Bryan for his British accent all the time. But what he has and his observations in the industry and he’s seen a lot from a lot of different angles. And so in this one of the things that I want to tease for you guys to listen to, we talked about the things that he finds exciting when he’s dealing with a client. You know that up front call and Joe you and I know about this, when we have somebody calling to us that they are starting to explore that possibility of selling you develop a really quick sense for what’s going to be a good opportunity and what’s not. So I wanted to see if I could kind of haul that out of him, what are some of the signals that he looks for right away that makes him go yes this is going to be a really nice client to work with. Joe: So the signals are being not just the client but the business itself that buyers are going to be excited about is what you’re talking about. Mark: Well we talked about both and I will reveal this one thing, we talked about this so often the theme just came up again which is we also have to look at those soft sides, the personality; are you reasonable to work with. Those sort of things just naturally come up. Whenever you talk to anybody who’s experienced this industry that part comes up. Joe: Let’s get right to it we don’t to give too much away. Mark: Awesome let’s go. Mark: Bryan how are you? Bryan: Hi Mark, doing good thanks. How are you? Mark: Good, thanks for agreeing. I know you’re in Costa Rica right now right? Bryan: Oh I am indeed. So I’m going to be here for a couple weeks and I’m actually traveling a little bit right now so yeah I’m seeing a few new places. Mark: We have a game here at Quiet Light Brokerage which is try and guess where Bryan is in the world at any given moment and if you can get it down to the quadrant of the globe that’s usually pretty good. So [inaudible 00:04:25.1] world traveler. You are our European representation for the company because you live over in England correct? Bryan: Yeah I’m mostly based in England and [inaudible 00:04:35.5] but yeah because I’m kind of traveling quite a lot but yeah I’m keeping a base there. Mark: I got to ask you a question completely unrelated to any of this but it seems as if British people travel a lot more than pretty much any other culture I know. It seems like just popping out to the States for a quick visit is no big deal for most British people. Is this true or am I just completely stereotyping? Bryan: Oh I should [inaudible 00:05:04.2] of your place to Europeans in general. I mean it’s probably true but the fact that we’ve kind of grown up that way. Because you know living in Europe … it’s never really a big deal to travel to a different country because from pretty much any place in Europe … any other place in Europe you can get in a matter of hours. So like from Helsinki to Milan you would have a two and a half hour flight. So I’ve kind of started the traveling from quite young. Same with everybody who’s grown up in Europe and then I suppose that kind of sets the mindset for later. Mark: Right. I find that fascinating. I mean if we plan a trip to Europe, its multi month ordeal to try and plan. For you, I just find out like oh I decided to come over to the States next week or I’ll be over in the States the most. I was amazed so … good to have you on this side of the globe though. Of course, even though you’re down in Costa Rica I know you’ll be up here in the States real soon as well so … cool. So out of the Quiet Light Brokerage team … for those listening, Bryan you’ve been with Quiet Light now for over a year now. A little bit more than … I think about two years now, I think- Bryan: Yeah yeah. Mark: A couple of years, so for those of you that are keeping track which I don’t anticipate as too many but we have a number of people here with Quiet Light and the assumption is typically that Joe is the most senior, most veteran broker on the team. The reality is out of experience outside of myself, you have by far the most experience. And in some ways, you have more experience than I do at the Quiet Light team. What I’d love to do is just kind of go over your background real quick as to how you get started in this industry. Bryan: Yeah sure. So I think we have to go like back to 2007, 2008 something like that so I think 2007 actually. So I suppose my sort of segue into this was when I first started building some fairly simple Google ads and sites and stuff like that. I think that was about … yeah even earlier actually so that must be like 12, 13 years ago. And you know I was also doing that so I had a few sites and then at one point I wanted to sell one of those sites. And it was back then there weren’t really too many options because there weren’t pretty much any growth [inaudible 00:07:26.7] facing an online businesses that Quiet Light started that just after that time. Most of the others started at quite a lot after this. There was, however, Flippa or what later became Flippa that kind of started emerging so it was- Mark: It was the same platforms at the time right? Bryan: Yeah it was like an Australian developed web forum and they started a little section that was there for people to buy and sell websites and that’s what later turned into Flippa. So I found that I sold them my site and then it said hey you know there’s quite a lot happening over that. And then that’s got my interest and I started buying some sites. And then what I started doing this essentially back then the content of flipping sites was quite bare and profitable. So pretty much before I knew it what I started doing was I started picking up sites that could do with some quick improvements and I would do that, so I would improve those sites and I would sell them off anywhere from a couple of months later to a couple of years later. And that basically got me to a place where other people at one point started reaching out to me asking hey you know you’re doing a really good [inaudible 00:08:45.5] you’ve got a lot of fair above listings and then you’re getting good prices can you help me sell my site? Can you draft the listing copy sort of guide me through the process and so forth? I thought hey you know why not. So yeah I charged a small percentage and helped these people and that … this was myself and my business partner back then and we kind of started doing that to the extent that these at one point became the main thing. So we kind of for a long time we never really formally became website brokers, but then at one point think it must’ve been a year or so we did, we said hey that’s a business so we better turn it into business and that’s when we started a company that was then called Flipping Enterprises. Now they’re called FE International. And so that was kind of the start. Mark: Right and just to be clear so Flipping Enterprises was the original version, they’ve reincorporated and changed significantly since then but that was back in 2009 I would say. Bryan: That’s 2009 yeah. Mark: Yup, okay so yeah and Quiet Light started in October 2007 if I remember right. So that was a few years later; fascinating. Okay, then you moved on from Flipping Enterprises to … which one was it? You were … I don’t know you’re a co-founder of Centurica and then you’re also part of Flippa, which one came first? Bryan: Centurica first. So yeah a couple years in I think that must have been 2011 or 2012 I kind of cited that I’ve had enough of that part of the industry for a while anyway. And at the same time I saw a need at … for sort of buyer education and due diligence services in the industry. So obviously back then the industry wasn’t arguably still ease. The journey has been very very young and there aren’t really many resources available and the one issue that I run into quite a lot in speaking to buyers is that they didn’t have any professional to turn to when evaluating a web business to purchase. So yeah that’s when myself and my two other business partners Justin Gilchrist and Kaspars Peksens started Centurica. And yeah that took of quite quickly and was really really well. I think with regard in the industry and so we built that up over the course of couple of years and at that point, I exited from Centurica first and then about I think six months later the whole company have sold to the guys who [inaudible 00:11:26.5]. Mark: Right that would be a [inaudible 00:11:28.3] over with Rhodium as well. I remember when you started Centurica, I was at Affiliate Summit East with Jason Yellowitz who was speaking at that conference. I ran into Chris Kite who was a friend of ours and he had mentioned what you guys were doing and I had heard about you before as well with Centurica. And I remember telling Chris I said these guys are absolutely insane. I would never want to do by side do due diligence for anybody due to liability issues. But I … one of the many times I’ve been proven wrong over the years and the companies well over the years have been a very good resource. I know that those that listen to a lot of our podcast so that we refer or recommend them a decent amount. I think [inaudible 00:12:15.5] does a really good job and is a good person. But I remember hearing about you guys at first and thinking you guys are crazy, who would actually want to be in that position of liability, but it’s a good resource. And Justin Gilchrist, that’s a name I remember. When he first reached out to me and I was thinking oh man just another person trying to get into the space and it turned out to be a giant in the industry. Justin if you’re listening we miss you in this space, feel free to come back anytime you want. So you left there and you went on to another company within the space. Bryan: Yeah. So from there, it came my sort of a company idea with Flippa. So I guess I got into a discussion with the guys of Flippa who back then wanted to sort of break through into the brokerage industry but with very little success thus far. So what we ended up doing was … I essentially ending up quote unquote consulting them for what was supposed to be a year, it turned out to be two and a half years. And I went there to build out their brokerage platform called Leadflow. So yeah close and short this put it that [inaudible 00:13:29.9] nicely and by now that part of the company is actually separated from Flippa. And my good friend Jamie whom I basically hired as the main guy there and the main senior broker has now taken over running Leadflow and managing it. So they’ve kind of spun off from Flippa but yeah that was another interesting two year career. Mark: Yeah I get asked sometimes how large is the industry that we operate in. And I try to explain to people it’s pretty small but there’s good money in it. When I look at your career arc your fingerprints have been over pretty much every major ebb and flow of the industry that we’re in. You’ve definitely been around and seen a lot of different changes and influenced a lot of the changes. I know when Flippa was starting their deal flow a lot of the brokers just out there were paying close attention because Flippa had such a large audience or has such a large audience still. And so there was a real … and so a little bit concern but also just kind of curiosity. How are they going to change from a marketplace into a brokerage? And it’s fascinating to watch the changes occur over the years. And then you joined … you left the brokerage industry, I tell people when they want to come on as brokers I tell them that burnout in this space is real, it’s not easy. I probably … I think the average years or the average about time before somebody is just completely frazzled was probably around five years if you’re really really good. So you took a break for a while. Bryan: Yeah I kind of. So well … not so, not really for very long but I think that at the time that I had between Leadflow and when I joined you guys was probably about half a year maybe, maybe first a two year. So there I kind of needed to … knew the break from [inaudible 00:15:24.8] to concentrate on the other stuff that I was doing … I’m then doing. This is stuff like I think that entrepreneur syndrome anting up here that I can never sit still and do one thing. So yeah that’s the kind of break but yeah I thought that we would give up and get off in this industry. And it is very much a real thing and very few people can last for a long time and at the same time remain sane so yeah. Mark: I took time off so I mean I wouldn’t say I was brokering solid without any break for about eight years and then I took over a year off before I took on another client. But there’s something weird about this space where it kind of becomes an addiction even after you leave- Bryan: Yeah if you say those I can- Mark: Yeah it is there’s something just super fun about it when you actually do start doing deals and are able to help people. But then once you get into it a lot you do get burned out and Joe and I comment sometimes that you know that you’re reaching that burnout stage when somebody comes to you with a fantastic business and you feel like it’s a burden. Like oh please you know that makes more money and you’re ah I felt that I don’t want to deal with this right now. Bryan: I think we’ve all been there. The highs are really high and the lows are super low once they’ve set. It’s kind of like … but it’s nice because it’s a … I think it sort of evens out because I can be really burned out at some times but at the same time when I then do a deal where everything goes nice and smoothly and I worked with people who are good to work with and you know I can see that we’re helping the seller, we’re helping the buyer, everybody’s happy with everything then that’s the kind of feeling that sort of very nicely balances out the few negative experiences. Mark: Absolutely. So I want to talk about … I want to get into that here and hopefully, this will be the real value part for people listening. You know with your or my experience combined that’s 20 years of doing this and it’d be interesting for us some time to see if we could estimate what our total closed amount is between the two of us. I bet it’d be a pretty big figure there. But what I want to talk to you about you know when you’re in this space of brokering and you’re advising people every day it doesn’t take very long before you develop a sixth sense for what’s going to be a good deal and what’s going to be a really difficult deal. So I want to see if we can kind of break out some of those things and I’m going to ask you this and see if you and I kind of agree on some of these points here. But I want to start with the positives, so somebody calls you out of the blue or you got a valuation requests coming through the website and you are in charge of it, you got on the phone with them, what are some things that you look for or if you hear immediately you know those signals start going off this is a great deal, this thing is going to … people are going to love this thing; what are some of those key figures or key indicators? Bryan: Well I think sort of objective stuff aside such as you know what that business is and what their numbers are and so forth. I would say that I get really excited when I talk to a seller who’s clearly easy to work with and on the same page with us. And I think I can’t really quantify this to a large extent but it’s just sort of the gut feeling if you will that you and I … I’m sure that you as well kind of just get even after a couple minutes into meeting somebody. And I can kind of tell that having probably spoken to over I think two, three hundred sellers in the last 10 years I’ve sort of developed like I said a sixth sense of being able to tell whether somebody is going to be easy to work with or difficult to work with later on in the process. And when I say that I don’t really mean so much the future relationship between the owner of the business and me the broker but also that often translates into the relationship between the owner of the business and the eventual buyer of the business. And that’s a super important thing because as you know Mark relationship quality if you will between the buyer and the seller is the one thing that can very easily make or break a deal and that’s probably the most important thing when it comes to [inaudible 00:19:45.4] any transaction. Mark: Yeah you know I think that that sort of intangible comes down to … at least for me, it comes down to the reasonableness that I see from somebody. And it’s when we have a discussion and I want to explain where I see value in the business and maybe where I see some problems in the business you know are they absorbing that information or are they fighting me with that … with that information right? So if you say oh you know the trends on the business are kind of negative and we want to make sure that the trends are going in the right direction. If they come back immediately and say well you’re not looking at the right aspects of my business in order to value it. At that point, I’m almost hearing that they’re not listening to what we’re saying there and just trying to fight us and trying to convince us into a higher valuation. And you know the reality is the marketplace is brutally honest. You know I could say whatever you want me to say it’s not going to change that the reality of the marketplace at the end of the day. So that’s sort of are they there to listen, are they there to absorb, and of course, I’m there to listen and absorb and learn the business as well. But I think it’s that touch of unreasonableness that’s one of the soft signals right? Bryan: Yeah and I think this is actually the one thing that’s, unfortunately, a lot of people speak to us and get wrong but we’re not the people that they need to convince regarding the legend of their business because we’re not paying them the money. It’s our job to take the business to the market and I just set them up basically, to be honest. And contrary to the belief that some people have what we say or in what words we describe a particular business is not going to influence the valuation of the business because the vast majority acquires at far more sophisticated than that and they look beyond the [inaudible 00:21:31.9] if you will. So there is really very little we can do to influence the value of the business all we can do is reflect what the market at least came to be. Mark: The one thing I try to explain to people is that our valuation and the valuation approach is a predictive value. And that said I had a conversation with a buyer this is probably a few months ago where they took a look at a business I was representing and looked at the valuation approach and he came back to me and said well you know I was looking at this valuation book and I think we should really be using this approach to place a valuation on the business. And of course, you know being a buyer he wanted the price lower, understandably so. And so his valuation approach significantly discounted the business and I had reply that was said that I don’t care what sort of formula you use or approach you use, you can use whatever formula or approach you want, end of day we’re just trying to predict the marketplace and what one buyer in that marketplace is going to be able to do or be willing to do for that business. The same thing with that on the sell side is just that. What sort of niches do you tend to like when repping a business? Bryan: That’s a really interesting question I think that’s changed over the years quite significantly. And interestingly enough I think if we would to go back about five years then ironically I hated e-commerce. I really and truly hated e-commerce because it was difficult. There were always issues with stuff like transferring over tangible inventory etcetera etcetera. But that has actually changed 180 degrees and nowadays I would say that I actually have grown to like e-commerce. And if we took all of my closed deals then I think e-commerce has actually easily been the majority. And that kind of adds up with what Quiet Light is doing as well because if you look at the industry in general then you can kind of see certain soft specializations and for Quiet Light that specialization is quite easily e-commerce even though we obviously represent businesses across pretty much all business models and niches. But yeah I think e-commerce nowadays is where our collective expertise and most of my expertise lies in over the last four, five years. Mark: That’s fascinating. I know our numbers break down and just under 50% of what we do is e-commerce so that’ll be a plurality, SAS comes in second; probably behind that. And then we get into the different types of sites that can really break out from there; completely unintentional. You know I didn’t set out and say I’ll then become have this soft specialty in e-commerce but by any means. That’s fascinating. Well, let’s talk a little bit about some of the things that when you’re doing an initial valuation call are a kind of those warning signals or kind of those oh man this thing is going to have difficulties selling. I know for me I’m super focused on trends. Trends are probably the number one thing I would look for but I’d be interested to hear what you look at and what some of the big red flags you look out for would be. Bryan: No absolutely I can feel them, trends are a big thing. And I think that the most common sort of warning signs that something might be off would probably be either a significant drop in revenue as of late. So if we see the business being just stable growing for a year or two years and then over the last three months you have a sudden drop in revenue then that certainly indicates that something is very likely off there. Or in the same bane if I see continuous decline over a longer period of time even if it’s a slight decline then that also indicates that something might be wrong and there may be some sustainability issues with buying that particular business or the industry that the business operates in or something along those lines. And I think apart from this another thing that is a little controversial because it often results in false positivities if business books are really messy then that can be a warning sign. But also that’s when we come in because it’s a … that first stage is for us to determine whether that’s a true warning sign or if it’s just somebody who has never really paid attention to keeping clean books and running that part of the business properly. Which happens quite often because in our industry we often see businesses that have grown essentially out of hand for the owner of the business, they just started a really really small business not worrying about stuff like proper accounting and things like that. And before they knew it the business grown tenfold or a hundredfold and that part of the business has been neglected. But you know in those situations we always try to figure out what’s actually going on behind the scenes and whether those things can be fixed and if it’s just a case of some negligence or if it’s a case that the seller is in fact trying to hide something and got to the books which we do come across I mean on the end as well. Mark: Yeah the books obviously would … are something that we focus on first and foremost. And I think for me it’s … messy books don’t scare me as much. It’s the overly simplified books that scare me. When I get a P&L that’s only in Excel and it’s a total of 15 grand lines in there I’m thinking something is not right with this. Bryan: Yeah this happens often as well. I kind of put the two in the same bucket, maybe I shouldn’t but yeah they sort of go in the same bucket because if someone has taken an hour to put down some numbers in an Excel spreadsheet and it doesn’t really have anything firm up there and that can definitely issue. I actually saw a P&L just a few months ago where I noticed that for some reason all the revenue numbers were round numbers. I’m like that’s not right, that it cannot be, I mean I’m listing up one client and there are you know two clients and you charge them $7,000 a month each then that just can’t be the case. And then it came out that yeah I was just taking some approximates because I don’t really track the actual figures so based on what I know how the month was I kind of put that down. No that doesn’t really work like that. So if you want to sell your business then you have to have the exact figures and know exactly what the business has been doing. Because even if a broker exists who is happy to list the business having something like this then you came be a 100% in that you’re going to run into issues the moment you have a buyer or actually before that. Mark: Yeah round numbers and P&Ls are always a warning sign. I’ve never had round numbers or very very rarely. All right, I’m going to put you on the spot; I didn’t prepare you for this question. But what is one thing that you think buyers need to pay more attention to that they currently don’t pay attention to? Or maybe let’s put it this way, out of the reports that a business could offer what do you think is one report or one thing that the buyers really don’t look at that might provide more insight into the businesses that they’re evaluating? Bryan: That’s a really good question I think in terms of reports I’m not sure if there is anything major about that. But I would say that I’ve noticed quite alarmingly that a lot of buyers don’t really look beyond the actual business that they are evaluating. And when I say that what I mean is that they don’t look at the industry as a whole. They don’t kind of pay enough attention to the competition, to where the industry is actually going; whether the industry itself is likely going to be growing for the next five or ten years or the kind and sort of the external stuff like this. And I, myself included actually when I started buying businesses years ago then I later on noticed that I was guilty of the same thing. I was just concentrating on that particular business and the trends and the books of that business that I completely started ignoring everything else, everything that was around it. And I got burned a few times so I learned. I wish I learned before getting burned. Mark: Yeah I think that’s fantastic advice, looking beyond seeing if there’s room for growth within the industry itself. I had a conversation with Jeff Hunt and asked him a similar question and he said knowing where your customers are coming from which I thought was fantastic advice. You know understanding that the process of you’re looking at a business, to acquire a business and you see that it has customers, understanding fully how are these customers being acquired. So I think those two bits of information might be quite useful. Okay, so we’ll bookend this and I’ll have this as the last question here for our conversation. What would you say is the one bit of information you see buyers frequently look at and you think is probably not as important as they think it is? Bryan: That’s a good and very difficult question. I’d say that it doesn’t happen very often but I think the reason why I say this is because over the last few days I’ve actually had two separate conversations in the thing where I’ve been asked for things like the company’s liabilities financial and balance sheets and things like this. I think that’s due with a little bit of misinformation. So you know exactly what I mean but just so all the listeners know, the vast majority of the deals that we do in this industry are asset purposes. Which means that what you’re buying is the website, any trademarks, any Amazon accounts you name it but you’re not buying the [inaudible 00:31:27.9] which means that you’re not buying any liabilities, you’re not buying any entities themselves, any contracts, etcetera unless they’re transferred over. Which if I close because it makes things simpler and … a lot simpler to both buyers and the sellers and this often means that in terms of the information required in such due diligence as a buyer you don’t have to spend your time and money making sure that corporate entity itself is in good order because that’s never going to be your concern or your liability. So that’s something that I’ve come across a few times just recently. Apart from that, I don’t really think there are a lot of things that happened too often. Maybe at times getting a little bit too granular with old stuff is something that I would rather not spend that much time on. Obviously looking at … you know spot checking certain months or certain periods is something that can easily be very beneficial because if there’s anything funny then the stakes will come up this way. But I wouldn’t necessarily go back to 2015 or 2016 and start asking questions about why it was there a small bit in revenue in March 2016 because [inaudible 00:32:49.8] seller doesn’t even remember it or if they do and if they can find out then that information is really quite irrelevant right now. Mark: Absolutely getting to that granular detail years ago could be an absolute pit fall for buyers. And I think there’s obviously buyers who wanted to protect them against risk as much as possible as do we. We want to make sure buyers are protected from risk but you can spend all your time looking for what’s going to get you and then end up losing out on the big picture sometimes as well. So that part is a balanced net. Cool. Hey, this has been fun. With our team being spread out all over the country literally all over the world we don’t get a whole lot of opportunities for a face to face. So this podcast and the video portion of this is an opportunity for you and I to have a face to face conversation which is always fun. And whoever is listening can either I guess benefit or suffer through that conversation. So all right any last parting words of wisdom for the listeners? Bryan: Well not really but I think if there’s anything then I’d actually like to go back with … go back to where we started off which is if I had one piece of advice over to the buyer and sellers is be a nice person, be good to work with and that’s something that is always going to pay off. If you’re making yourself difficult then any eventual deal is likely going to be difficult as well. But if you keep an open mind and remain realistic then likely you’re going to enjoy the whole process working with us, working with the other part of the transaction and everything is going to go nice and smoothly. Mark: Absolutely I think our listeners have heard this from us before. You know these are financial transactions but they’re also human transactions. Bryan: Exactly. Mark: And you’ve got to get all parts right, cool. Bryan thank you so much for joining and yeah we’ll be talking and I’m sure. Everyone that wants to reach out to Bryan you know how to contact him you can find his contact information on the site. He’s got a ton of experience. So I’ll offer what I offer for myself personally and that is if anybody has questions or want to run something by Bryan just reach out and it works as well. We’re here to help and more than happy to talk to anybody who wants to ask us a few questions. Thanks, Bryan. Bryan: Absolutely, my pleasure Mark. Links and Resources: Bryan’s Website QuietLightProfile

Once upon a time I (Joe) had an AdWords PPC budget that hit $45,000 a month. Over 5 years I learned AdWords on my own, had no training, a half dozen campaigns and a handful of ad groups. I thought I was pretty savvy and successful. This was about 10 years ago and to be frank, I’m older, wiser, more seasoned and would tell my 10-year younger self that I was a novice and wasting a TON of money. Don’t be like me. Since 2010 I have heard dozens of entrepreneurs tell me they outsourced their paid advertising unsuccessfully. So when Jason Yelowitz introduced me to Strike Social Founder I was a little skeptical. But success and growth speak for themselves. Patrick McKenna boot strapped Strike Social from his kitchen table in a rented home in LA about 5 years ago. In 2016 Strike Social was named on the Inc. 500 List for the fastest growing companies. Their rank? Number 17! Strike Social helps brands improve their paid advertising campaigns, dramatically. One example Patrick gives is an ecommerce company that had their CPA go from $80 dollars to $16. This created great problems for the client. The first was rapid growth and much better margins. The second was access (or lack thereof) to monies for inventory. As you likely know – running out of inventory is an issue. Rapidly growing brands lack access to capital, run out of inventory and lose ground on the path to growth. Strike Social does a free analysis of a client’s paid ad campaigns, a free test, and when the client comes on board and grows so fast they don’t have funds for enough inventory, Strike will provide working capital for inventory. If it weren’t for the rank of number 17 on the Inc. 500 list and the fact that you don’t get there without proving yourself, I’d say it all seems too good to be true. After chatting with Patrick on today’s Podcast, I say try them out get a free review. At the very least you’ll learn what you are doing right and wrong in your own paid advertising campaigns. Episode Highlights: Instagram’s paid advertising platform is the next Facebook. It’s working. In Google AdWords you should have 1,000+ campaigns, not 6. Facebook is content driven and ads need constant testing. Video ads in Facebook can be as short as 3-4 seconds. YouTube is great, but not for direct conversations and CPAs. Strike Social developed technology recognized by Techcrunch.com that helped propel them to #17 on the Inc. 500 list. Strike Social will provide working capital to clients so they can ramp up inventory to match growth. Transcription: Mark: So one of the things that I find most difficult and frustrating about running a business in today’s internet world is this idea of having these coordinated campaigns across multiple channels and multiple platforms, and the degree to sophistication which you need to run each campaign across each platform. For example with Facebook and Google, it’s not so much to do just [inaudible 00:01:25.5] a couple of key words and hoping everything works for Facebook bring up a couple of ads and hoping it works. You really have to delve in and get super detailed. I understand Joe that you talked to somebody today that’s doing this for a living. And they started a company and not only have they just started and are doing well but they’re ranked really high in the Inc. 500 list specializing in running these cross-platform campaigns that are really highly refined. Joe: Yeah. It’s Patrick McKenna from Strike Social and about five years ago he bootstrapped a company, he was literally working from the kitchen table in a rented house in Los Angeles. And he developed software that would analyze paid advertising campaigns and then go way beyond what you normally do in an excel file and so on and so forth. Standard stuff right? Well, that’s what I thought when he was introduced to me by our very own Jason Yellowitz, they’re neighbors. Patrick’s company Strike Social in 2016 was ranked number 16 … no number 17 on the Inc. 500 list. And I think you and I have talked about this that that’s impressive, number 17 on Inc. 500 list, you don’t get there by accident. You don’t get there without being really really good at what you do. Over the years, the last six years that I’ve been doing what I’m doing I talked to dozens and dozens and I might want to say hundreds that [inaudible 00:02:49.9] of people that started their own Google Ad Account and developed it as their business grew and managed it themselves and then got to a point where they said you know what I should outsource this. And they found somebody online and they outsourced it and what happened? It failed. That cost for acquisition went up, the budget went up and they had to bring it back in-house. Dozens of times I talked to these folks. So when I first connected with Patrick I was skeptical but then we talked, went into detail and he gave me some success stories that are really truly just incredible Mark to the point where I need you to listen to this podcast and consider talking with him about Quiet Light Advertising. They do testing for free. They do an analysis with their software and they’ll do a test for free as well. And then they prove themselves and then like every other agency they get paid on a percentage of spend. But here’s the kicker they’ve taken some clients and grown their businesses so dramatically that clients run out of inventory. That’s the number one thing we tell folks is don’t run out of inventory. It seems so simple but when people bootstrap the company and they grow they don’t have enough working capital. And I’ve listened to other podcast, you know the EcommCrew Mike Jackness podcast where they talk about trying to find sources of working capital for inventory. Well, Strike Social will be that source for their very own clients. Because they’ve run into it so many times where it was so successful the client ran out of funds to buy more inventory. So they became that working capital source. So really impressive story, I would encourage everyone to listen all the way through to the 31 minute mark where he starts to talk about the working capital aspect of it. But there’s a lot of good stuff here. He talks about some basic things that everyone should do. A quick story and then I’ll stop talking. But when I ran my own Google AdWords campaign for the company that you brokered for me back in 2010, the most I ever spent was $45,000 in one month on paid advertising. I worked my way up that, up up from that in 2005 to 2010. Of course, after the crash, it was much lower but at the max … at the peak, I had a total of 10 campaigns set up in Google AdWords. And I had it all done with my keywords and I used all the software at the time to find those keywords and develop them; 10 campaigns. So in talking with Patrick, he talks about that their clients have an average of 1,000 to 6,000 campaigns and that’s for one product, Mark. And that just makes me think about … again, yet again how much money I lost in two ways, really on wasted advertising spending and on not making it so good that my cost for acquisition came down dramatically. And I just want to encourage everyone that’s listening to think about it and listen to what they’re saying and have a conversation with them because odds are you’re not doing it as well as you could be if you’re doing it yourself. Just like what we talked about with book keeping, Excel is not accounting software. The basic pieces that you pull together for managing your campaigns across multiple platforms is not as good as what these guys have either. And it’s worth to listen to him, worth a test I think in my opinion and experience. Mark: Yeah and I really have to agree with the fact that if you’re doing it in-house and look I’m running some campaigns in-house right now for both companies that I own. That for a variety of reasons … but you have to understand if you’re going to run it in-house, if you’re not going to have a specialist, chances are you’re not going to be doing it as well as it could be done. Because AdWords is an environment that really takes specialization. Facebook is an environment that really takes specialization. Frankly, I’m saying up a good automation sequence falls in the same category as well. So I’ll be interested to listen to this. I definitely will be listening to this. I’m always looking to pick up on some information. Joe: Yeah and look Instagram is also in there as well. It’s something we talked about. You know when AdWords was it that was the player Facebook came along and started to become the second option. Well, Instagram is now that option to Facebook and it’s really starting to work. So those that have not expanded to those channels, listen, take a look, learn. And the other thing look this wasn’t a pitch for this guy’s services. This was helping people understand what they may or may not be doing right or wrong in their campaigns. And he talks about three things that you can do and focus on. And at the end Mark, I didn’t ask him for a contact information like at all. It’s in the show notes of course but for those that only listen the company is Strike Social. It’s strikesocial.com and you can email them at hello@strikesocial.com that’s hello@strikesocial.com it’s a … we didn’t talk about it at the end so I want to throw it in now. Mark: Awesome well let’s get to it. Joe: Hey folks its Joe Valley of Quiet Light Brokerage and today I’ve got Patrick McKenna with us from Strike Social. How are you, Patrick? Patrick: I’m good. How are you, Joe? Joe: I’m fantastic. Folks, anybody that knows Jason Yellowitz here at Quiet Light, you should, he’s been around for I think longer than everybody except for Mark Daoust the founder of Quiet Light. Jason was my broker when I sold back in 2010 and he happens to live across the street from you right? Patrick: That’s right we live in Reno, he’s right across the street. Kids are always running in my house. Joe: Jason is a good man and I wouldn’t mind having him as a neighbor. I often poke fun at Jason and his Bathrobe Millionaire book but it’s a heck of a success story and I still don’t have a piece of the bathrobe. Have you ever seen it laying around his house? Did he save it? Seriously is it like behind like a glass case hanging on the wall? Patrick: It’s on the mantle sitting up there. He’s very proud of that. Joe: Next time you’re in I want you to take a selfie in front of it and send it to me okay? Patrick: [inaudible 00:08:47.7] Joe: Look in all seriousness Jason is top notch. He’s my mentor. He’s mentored to many. He’s a terrific guy. And he introduced you to us. And as I mentioned before we started recording we do not do fancy introductions here at Quiet Light on the Quiet Light Podcast so I know it’s going to be hard for you but I want you to brag about yourself a little bit because you have a heck of a success story. Tell us about Strike Social and what you do, what the background is and all that good stuff for us. Patrick: Sure, yeah we … you know Jason and I are sort of kindred spirits. We’ve been through the battle, it sounds like you have too … I mean a business is incredibly challenging. We did it like anyone else does it. We take the plunge, you bootstrap on a kitchen table out of our rental house in LA. And we started that process in March of 2013 and then we launched some technology and we got recognized in TechCrunch for this advertising technology, this analytics platform. By November after that article came out we’re selling like crazy and that was some different challenges. You think initially that wow this is great and that my products rate and the market loves it. And then you start to realize that you’re putting yourself out of business because you’re trying to fund invoices and all those types of things that come up when you’re running a business. So we went through all that stuff, raised a little money in 2014, raised a little bit more in 2015 and it’s standed globally and by 2016 we’re recognized in Forbes Fast 500 fastest growing companies in the US. Joe: What number were you? Patrick: Number 17. Joe: 17 out of 500? Patrick: Yeah. Joe: That’s incredible. Patrick: Pretty amazing. That was up 2016 revenue numbers and we’re excited to see where we land this year for Fortune List. It will be the 2018 release that will be 2017 numbers so- Joe: Got you. Patrick: It’s that it so. Joe: It sounds exciting and painful all the same time. You’ve literally started on a kitchen table at a rental in LA. and then grew the business, bootstrapped it from there. Probably like many of the listeners who are you know the listeners that are sellers and entrepreneurs and listeners that are hoping to step into the entrepreneurial role that you’re playing now. That’s pretty incredible. Tell us about what Strike Social does and who your typical customers are. Patrick: Right. So initially we went out to the largest agencies in the world and we sold execution services around advertising. So initially we started with YouTube now we’re across all the social platforms and search as well. But we would basically like take on and execute buys for their largest customers. So our customers will be X-box in PNG and pick any Fortune 100 brand, the big guys. And then we started doing that here in the US then we went to Asia and then went to Europe and I don’t know if you know who the holding companies are but you know WPP [inaudible 00:12:17.3], the big guys that I mostly don’t talk to a smaller company. So it was really nice to have that reign for us to go sell in to and it was a really profitable situation for us. And we kept building technology and investing in technology and people and locations. We have a location here in Chicago where we’re headquartered. And then we have a location in Poland and a location in Manila. We’ve got about a hundred people here now and we’ve got boots on the ground from Japan, and Korea, and Australia, obviously the US, Singapore, Europe. So it’s been a really really fun ride and yes you go through all of the emotional ups and downs of running a business when you’re buying one. Joe: Yeah. Good problems with that kind of growth, really good problems. Talk to me about the technology that you developed that originally got you recognized in I think you said TechCrunch and you said analytics platform. Can you talk about the actual service and why someone would use … like why these B2B advertising agencies would use yours versus having an expert in-house do it. What does it do and what’s different about it that made you the 17th fastest growing company in 2016? Patrick: Yeah I think when video first came out I think it was really challenging for companies to understand, it is kind of a new medium, how do I be successful here? So our analytics platform so they showed them how to be successful. But what we did is we executed the media guys. So we look like a typical agency, we don’t really like that word because we built software solution to help us with that. And then overtime what we’ve done is we built this incredible artificial intelligence box that allows us to go across platform, plan and execute strategies. And so it’s all … it’s a human and technology solution combined. And like I talked about advertising now it’s a complicated orchestra. And what you need at the end of that is execution so … and we can talk about that more but it’s very challenging to stay up to date on these platforms and you need a partner and a technology solution to really execute and do well. Joe: Okay. And you started out with YouTube, so at that time there were not a lot of experts in the field of buying advertising, buying that advertising space on YouTube. Patrick: That’s right. Joe: You know when I … when Jason sold my business back in 2010 I was spending a boatload of money on Google AdWords and I learned it from the ground up. I did it myself starting in 2005 and I … at one point I never had any training so I can’t imagine how much money I wasted over the years. I mean it was a point where I topped out at spending $45,000 a month. I mean Jason loves to tell the story of how I got mad at American Express because I went above my average so I cut my advertising in half and it’s the stupidest thing I’ve ever done. But I did it because I got mad. It is a ton of money; I blew a ton of money by not being the expert. But you guys learned that expertise in terms of buying ad space on YouTube and then you expanded to the other social media platforms. So are you now doing paid ads on Google AdWords, on Facebook, Instagram, Snapchat, things of that nature? Patrick: Absolutely DBM, Amazon, all the ones- Joe: What would DBM mean? You got me right there. Patrick: Sorry … Doubleclick Bid Manager is Google’s DSP solution to get the rest of the web that’s not … that you can’t do in AdWords. Joe: And what’s DSP stand for? Patrick: Digital Supply-side Platform, so that’s how Google goes and buys display advertising on say the [inaudible 00:16:36.9] within New York Times. Joe: Okay. Patrick: Yeah. So it’s another Google product. It’s part of their Google Suite and actually it’s interesting that you bring that up that’s … that they had a tagging solution there that … and we find this a lot in companies that are running small businesses on just AdWords that you can get really good multi variant testing on that platform rebuilt technology to allow you to expand that. I don’t know how extensive you got with your test. But one campaign maybe you have 40 different variables, maybe you’re really good and you get up to a hundred. We’ll do like 6,000 with their technology. Joe: Wow. Patrick: So yeah we’re testing age, demo, interest, topic, keywords- Joe: Let’s get really down to it. People that are listening, their ears might be perking up and this is why we’re talking because you don’t get to be number 17 on the Forbes fastest growing companies by screwing up. Patrick: Yeah. Joe: Because you wouldn’t have the clients that would be referring and helping you grow your business further. Patrick: That’s right. Joe: So my initial thought as I said on our first call was more often than not I do valuations and exe-planning for people and see that they were doing fine on their own advertising. Managing it themselves and then outsourced it and it totally blew it up as in bang and their cost for acquisition went up. And usually, in my experience, it’s not a great thing. Your success in having people use your services changes my mind. So let’s talk about specifically we’ve got folks that are … was their physical product owners and of course there’s content as well but I think you said you don’t really do a whole lot of content stuff. Correct me if I’m wrong but let’s say we’ve got physical product owners that are mostly because of the crazy growth on Amazon doing Amazon sponsored ads our advice is always go well beyond Amazon grow your business so it’s not one revenue channel. Your value is going to be higher but they are challenged with how to do that. So do you do an analysis on a business and you’re looking at Facebook advertising for that physical products, do you take over the Amazon, sponsored ads, do you do Instagram all of these things? Patrick: Yes, all of them. And you know what before we start with any business we start with an audit to get to a genuine conversation. You’d say okay here in the platforms you’re on tell us about your objectives, lets pull your data into a dashboard that you’ll own and take possession of. And more so you … where we see some quick wins and easy gaps and then we’ll go take you know what if you like what we’re saying we’ll go run a test for free to see if we can improve what you’re doing. Joe: How much is the cost of the audit that you do? Patrick: It doesn’t cost anything. Joe: Okay the audit is free and the test is free. Patrick: The audit is free, the test is free. That’s right and we just rolled out this … the reason I’m talking to you and I’m just talking to Jason about this is you know we just rolled out this Strike Marketing Partnership. You know we have a very large e-commerce company under our belt right now and we are able to take that business and improve their cost per lead from $80 to $16 and it really grow their business. They were able to- Joe: Were they profitable at $80? Patrick: Yes. Yeah, they were. Joe: Okay. Patrick: Dramatically improved their numbers and now they’re on a path to being a billion dollar company. Joe: And so you took it from $80 cost per lead … was it cost for lead or cost for acquisition or both? I guess it doesn’t matter but you took it from 80 to 16 and then where they able to use the same budget or I mean- Patrick: They were able to increase it. Yeah you see that’s the key and I think the one point I want to make Joe is that we are entrepreneurs here and we’re in the advertising marketing space and like one of the guys that’s on our staff started panatea until he started the March Air Movement and sold it to a very large Japanese company because he doesn’t need to work. But he’s passionate about entrepreneurs, entrepreneurship and he’s an expert in building that brand. And when you said content you know content is critical in … when you start talking about AdWords and multi variant testing you can’t apply that same learning over to Facebook. It’s a completely different platform. Everything is grouped together. You have to be a little bit patient and let Facebook find that first customer for you. And then it starts to learn who your customer is and it’s started in and it’s off to the races. But if you’re open at that platform and if you’re doing it the same way you’re doing it on AdWords whether it’s YouTube or just AdWords so you’re not going to perform there, you’re just … you’re not doing it right. Joe: Okay. Patrick: So- Joe: What are in that Amazon Seller account? Do you guys handle the sponsor ads as well? Patrick: That’s right yeah and we have a seat on Amazon so we have a partnership with them. Seat means that we get a seat. Joe: You know I was going to ask that. Patrick: Yeah sorry. I can see it on your face, what’s a seat? Joe: Okay. Patrick: And seat that means that we’re in their partner program and we can log into their technology and buy inventory at stale. Joe: Sure. Patrick: So … yeah and that means we also have a rep, and that’s the other thing to is that these platforms change all the time. And one of the recent ones was GDPR it’s made a … GDPR oh. Joe: Come on now GDPR what’s that? This is going to be the acronym show. What is it? Patrick: Yeah the acronym … I’m sorry, I spend a lot of time in advertising so you know neither all … there are all things … GDPR is a … it’s a European Union situation where the user is in control of their own data. Joe: Okay. Patrick: And the platforms, you have to basically ask permission or I think you’ve probably seen on sites you go to now. They’re saying a. so do you like content, you need to accept my cookie. And if you’re in someone’s database right now and you have a European client in your database you needed to e-mail them and say hey by the way I need you to okay the fact that you’re in my database. Initially, don’t do that, I mean don’t be that; you can get fined significantly. Joe: Most of our … the people in the audience, the people that are listening I shouldn’t say most I mean it’s anywhere from somebody doing a hundred thousand a year in revenue to you know 40 to 50 million in revenue. So it’s all over the map there a little bit. Let’s give some stuff away for free here that I don’t want this to be obviously you do the evaluation and you do the test for free. And then let me just answer that; let’s answer the quick question because people are going to say well what happens after that? Do you get paid on a commission basis part of the advertising how does it … part of the advertise you spent? Patrick: Yeah I think that’s why we fall in that advertising agent bucket because we get a percentage of the media. Joe: I did the same back in my Media Mind days when I used to buy time on radio; percentage of what you’re spending. Patrick: There you go. Joe: And about the job you do on that cost for acquisition the more you’re able to spend because the budget goes up. So it is the right- Patrick: Portion. Joe: Way to do it. Yeah. All right so let’s talk about that aside do you have any sort of hot tips? What can someone do just on their own looking at their own advertising budget in whatever platform you want to talk about? Patrick: Sure. Joe: Give away some tips or what can somebody do that’s using … let’s start with Google AdWords. What’s the biggest mistake people make and how can they fix it? Patrick: Yeah I think that one of the biggest mistakes, I mean you can kind of take this across all platforms is trying to figure out the audience and the actual attribution and then finding the adjacent audience. So I’ll give you an example, and our artificial intelligence does this. The idea is that you need to expand your audience. So you find an audience that gives you a high lifetime value and you recognize that in keywords or interest in Google AdWords. For example, you might be targeting 18 to 54 year olds in AdWords. You need to break each one of those segments up and realize that 18 to 24 year olds aren’t interested in the same thing as a 45 and through 54 right? So if you’re trying … if you’re targeting people who are interested in the NFL, the 18 year olds that also have that same interest are interested in the UFC. And so you have to find those adjacent audiences to lower your cost of acquisition. Does that make sense? Joe: Yeah. Patrick: You expand the reach of the audience size and that’s something that our technology does and our big people are doing that. Joe: Okay so it’s finding out their like audiences. I always hear something on the Facebook algorithm in the paid advertising part of that similar audience or look alike audience, is that what we’re talking about? Patrick: Kind of, on Facebook it’s different. So AdWords is a multi-variant test platform. You’re basically setting up … hopefully, you’re setting up somewhere between 10 and 150 different campaigns. We’re going to set up about 1,000 to 6,000. Joe: I think I had five or six and I had multiple things underneath there. So you’re talking about 1,000 to 6,000 campaigns? Patrick: What was what was your target audience age range? Joe: From the women 25, 54 but I honestly can’t recall if I even know. No, not much. I don’t want to talk about that because I lost a whole lot of money the more we talk about it. Patrick: Oh my gosh. Joe: Wasted money. But you’re doing a thousand campaigns inside of Google Ad Words? Patrick: You can [inaudible 00:17:10.1]. That’s the only way, get out to get that. No, no, no, that’s my product. That’s the only way to get down to how am I going to expand this audience? What does this audience …. what is this audience also interested in? So it … what you basically said, what you told the platform was I want women 18 to 54 is that what you said, 18 to 54? Joe: 25, 54 but- Patrick: 25 and 54 and you basically said they all have the same interest and they don’t. Joe: No they don’t. Patrick: And they’re not even on the same device. So you’ve got to break it out by device; tablet, mobile, desktop. And you’ve got to break it out by each age group. You’ve got to break it out by each interest. And you got to break it out by each keyword. Because if you don’t get that data in there you’re science is [inaudible 00:28:04.6] value is. Joe: Okay so someone doing this on their own in an Excel spreadsheet doing … think they’re doing fairly well odds are that they could be doing a whole lot better. Patrick: Basically. Joe: Right. Another … okay so the tip there was I keep, I want to call it look alike audiences but it’s not. Patrick: Just call it multi-variant testing. In AdWords, you’ve got to multi-variant test, and you’ve got to get as granular as possible to get the learnings out of that, out of that platform. Joe: Multi-variant testing, okay. Patrick: Yes. Joe: Second so the tip, the next thing you’ll sit down and tell somebody to look at? Patrick: So on Facebook, it’s completely different. You can’t, you have to bucket everyone together and then as soon as Facebook finds you that acquisition and that’s you know obviously Facebook and Instagram then it starts to learn okay now I know who you’re looking for and it starts to find all the people that look alike. That’s where the look alike part comes in. Facebook’s AdWord is working in the background to figure that out. When we first set out it might be looking at your return and saying oh my gosh I’m doing way better on AdWords. You have to stick with it. And one of the things that we see as well is that you have a longer sign up or click to buy solution in your platform. What you’ll see is people will start that buy on Facebook and they’ll get to your form and realize that they don’t have enough time for this and they need to go sign up on the desktop. And they’ll go to Google search, look up your brand and you have to be able to do that. And that’s where that DCM code comes in to play; from double click. Joe: Okay. Patrick: It actually digi up and see the assist on Facebook to AdWords, give the credit to Facebook that was the person who … that’s where they saw the ad. They’ll just go in to the desktop to finish filling it out Joe: Okay. Patrick: That makes sense? Joe: I did evaluation maybe three weeks ago for someone that back in the first quarter they reduced tremendous volume in their business by Facebook advertising. And then the algorithm update hit in I think April, you know by May. And they went from let’s say a half a million a month in revenue to 40,000 a month in revenue. Patrick: Yeah. Joe: Incredibly painful. Patrick: Yeah. Joe: They then jumped to Google AdWords and made adjustments on Facebook. But that type of algorithm update how do you and how does your agency … [inaudible 00:30:34.3] agency, how does your service address that, fix that, take care of that, and make sure that your clients are not going to be suffering from that major algorithm update that Facebook seems to be doing on a regular basis? Patrick: Yeah, it’s a good point Joe I mean we’re all sort of at the mercy of the changes that happen. That update may have been Facebook’s response to Cambridge Analytics which was kind of like on the back end of that GDPR stuff I was talking about. So they have made changes and all these platforms change all the time. What we had is like when I was talking about Amazon with the seat, we’re in Facebook’s Ad Manager; we have a Facebook rep so we … those changes come to us before. Hey look here’s how you’re going to have to set these campaigns up in the future to be successful. Be prepared for this, this is going to be our algorithmic change and they’ll never tell you what’s in the science behind it. But you bring up a valid point about Facebook; it is a very content rich platform. You have to be testing instead of multi variant testing, different light items of campaigns. What you’re really doing there is your multi-variant testing creative. So you have to look at an audience and you have to understand is the audience tired of my ad? They’re seeing the same ad over and over again. Are they tired of that ad or is the audience exhausted with my product? They don’t want it anymore and I have to go somewhere else. But typically what we’re doing in Facebook is a lot of creatives popping. So well create a slot, 15 different pieces of creative image a week period [inaudible 00:32:19.0]. Joe: So with AdWords the campaigns you could have a thousand plus potentially. Patrick: Yeah. Joe: Maybe at least 6,000 with Facebook it’s more about the creative and fifteen different creatives over a two week period. Patrick: Yeah that’s right. Joe: And then you’ll continue to test that and swap it out to just continually monitoring the click rate and conversion rate. Patrick: That’s right. Joe: What about video on Facebook is that something you’re doing and recommend? Patrick: Yeah you know [inaudible 00:32:46.1] there are working really well, there’s video component in there. But yeah we’re seeing great conversion off of short video. And you know you … on that creative side you have to have high quality images and the videos don’t have to be very long; two, three … three to six seconds perfectly in there. Joe: I think the quality I think the audience gets because that’s the number one thing in terms of their own website and the Amazon seller accounts is top quality photos that should be the first thing. All right so we talked about Google AdWords, we talked about Facebook, any other thoughts in terms of you sitting down with somebody having a drink and what they should look at if they’re running an e-commerce paid advertising campaign? Patrick: Yeah I mean actually on the paid advertising side I … you just have to keep exploring the platform’s interest, is that really good … if you know how to use that platform it’s becoming a very good conversion platform. And it’s interesting when you start to see these new platforms come out typically because they’re new there’s not a lot of complex decision there so if you can … it’s kind of a land grab. It’s kind of like what Facebook did to Google. Facebook was a new platform, they finally got their Ads Manager to work properly and Power Editor is what they call it. And people have done really really well. Same thing is happening with Pinterest now. They’ve got their advertising technology and algorithm is starting to do really well in the backend of collecting data and saying oh this person who bought this is also buying this and they look alike kind of thing. Pinterest is becoming a CPA platform. Joe: Okay, so AdWords, Facebook, Pinterest … and when we say AdWords when we say that we are talking about Google content searches plus I assume were talking about YouTube looped in there as well. Patrick: Yeah YouTube is very tough in terms of direct conversing. What you have to do on YouTube is you use YouTube as a mid-funnel driver to your branded keyboard search. So I know that that sounds challenging but your creating an awareness campaign but you’re looking at how that’s driving cheap CPA in AdWords because it’s your brand and that costs less than say some generic term that like clubs or something like that; whatever you’re selling. Joe: Okay. So when you work with a client do you work on … obviously, you’ve got a budget that you work on, goal setting with either cost per lead or cost per acquisition things of that nature. People … my point is that I know that when I was in the audience is just listening thinking about hiring someone that I was worried that they’re going to blow up my budget on it. Patrick: Oh yeah. Joe: Do you work with them on all those goals as well? Patrick: Oh absolutely and everybody is logged in. We’re typically buying on your account so nothing’s getting taken out of there. And again like everything starts with that audit. But back to your point about I think what entrepreneurs do is they need that margin or store ad to be really high to afford the inventory. And what we go about with Dave and some of the other entrepreneurs here is we want to help you with that. So we’ll [inaudible 00:36:19.8] with you so that you can take a little bit more risk on the advertising side. And we talked about this a little bit before the show and it’s what I talked to Jason about- Joe: Yeah let me just jump in and get to the point so people understand. Patrick: Yeah. Joe: Part of the biggest problem that a bootstrapped physical products company has is amazing growth and lack of capital to buy more inventory; they’re growing at 100% month over month, year over year. And they’re taking all of that working capital and putting it right back in inventory and just trying to keep up. And what I do or anybody at Quiet Light does evaluation for that business we talk about planning. One of the simplest things to be more profitable is just don’t run out of inventory. But it’s kind of hard because they run out of money and can’t keep up with that growth. So what you’re talking about is as an agency, as a firm, as a partner- Patrick: As a partner. Joe: You’re willing to work with them and lend them money to buy that inventory. Patrick: That’s right. When we went from $80 to $16 CPL, we broke our partner’s logistics. That … I can sum up what you’re talking about in just amazing growth; we have the same problem. So you don’t have enough capital, no bank is going to give you a decent loan, your business is too young in the first three years and so we recognize that. We’re able to look at your advertising and we’ll tell you what we can do on the execution side. But we have to make sure that you have the logistics down in the inventory to go take those risks. And we want to take those risks with you. So overall it’s to grow your business as big as you possibly can. So that’s the goal. That’s how we make money. Joe: It’s [inaudible 00:38:11.9] it’s not all that different from Quiet Light, we’re here to help. We have that … sometimes that stigma of oh you’re a broker and that was the hardest thing for me going from entrepreneur owning my own business to entrepreneur that’s a broker advisor is that those entrepreneurs they say you know I never want to sell my business. I don’t want to talk to you. I don’t want you to talk me into something. But we are here to help and help you grow your business and build that relationship so that when you plan to sell you’ll exit and you’ll exit well. Patrick: That’s right. Joe: And what you’re doing is the same thing is you’re helping more than anything else. Of course, you’re a business trying to make a living too and obviously doing it very well. But you’re going to do the audit for free, you’re going to do the test for free. Patrick: Yeah. Joe: And then you’re going to dramatically reduce that cost for acquisition or cost for lead whatever the case might be in what the parameters are that you set with the client. Patrick: That’s right. Joe: And they’re going to have a problem which is dramatic growth and they’re not going to be able to keep up with the inventory. They probably already can’t keep up with the inventory purchasing and you’re going to be there to help fund the inventory purchases and keep this growing which allows you to spend more money on their behalf and a great cost really a great cost for acquisition and make more money for yourself along the way as well. Patrick: Yeah. When we started our company we did it on American Express and Google AdWords buy in YouTube. It [inaudible 00:39:37.5] credit card every $700, so you know I feel your pain that you were feeling and we get it and it’s real. Growth is tough to manage; very tough to manage. So for me, I like to consider myself sort of a scaling expert whether that embodies locations and sales. I’m good at that. I mean there are people here that will just do that … building a brand from scratch and selling it for hundreds of millions of dollars. Joe: That’s amazing that you get that kind of talent that is choosing to work with you. It’s kind of a great working environment for these folks. Patrick: Yeah. Joe: Ok look I never have to work again for the rest of my life but you’re making it fun and we’re changing people’s lives so let’s go ahead. Patrick: Yeah and think about Joe, I meant it’s exciting. I mean you’re in this business because you get to meet really interesting other entrepreneurs. And they all bring something interesting to the table. When they take a nap on we’ve all been in that battle together and this is a new sort of idea like why are you doing this so- Joe: It’s great. Patrick: Yeah it’s got to be a part where we’re really excited about it and happy to bring it to the market. Joe: Yeah listen, I want to end it here simply because people should be reaching out to you. It’s a very least they’re going to learn something in the review process. They’re going to learn at the very least what they’re screwing up on, what they’re doing wrong, and what they can do. Choose to do it themselves or- Patrick: Anything works, that’s right. Joe: Have you test it and prove that you can do it better than they can. And then they can free themselves up for other things as well like additional product development and clean documentation on their financials. So I say that in every podcast episode hire a good [inaudible 00:41:23.0]. Patrick: That’s right. Joe: And one priest, they’ve heard me preach before. Patrick listen thanks for being on the show. Thanks for taking time out of your day I know you’re very busy. We’ll go ahead and get this produced get it out to folks and share it with you as well so you can share it with your team. Patrick: Joe thanks for having me. Joe: It’s great man, thank you. We’ll talk to you soon. Patrick: All right man, take care. Thanks for listening to another episode of the Quiet Light Podcast for more resources from this episode head over to quietlightbrokerage.com. If you’re enjoying the show please leave a rating and review on iTunes. This helps share the messages from the show with more business owners like you.   Links: Free review and test: hello@strikesocial.com Inc. 500 Ranking Strike Social

For decades, Harvard’s MBA program has been primarily focused on the traditional model of entrepreneurship. In the past 6 years an elective course on the acquisition of established businesses has been attracting as many as 30% of the program’s candidates. We had the pleasure of sitting down with Royce Yudkoff, who teaches the course “Entrepreneurship For Acquisition” at Harvard Business School’s MBA program. Here at Quiet Light we’ve also had the honor of collaborating on the course for the past 5 years. Today, we delve into the details of how Harvard is sending experienced professionals out into the business acquisition marketplace with hands-on experience that is invaluable to their success. The trend toward real-life marketplace experience as a replacement for textbooks has taken hold in Harvard’s MBA program. These case-study and field guide learning modules are teaching candidates the key ways to enter and be successful in the acquisition arena. The course Royce teaches alongside Professor Richard Ruback is focused on how to screen potential acquisition targets, do the financing, negotiate the typical deal terms, and do due diligence when buying a small business. Episode Highlights: Harvard MBAs are on average 28-35 years old so all they come into the program with professional experience. The course works with real life companies and case studies so students learn about how companies succeed in buying existing businesses. The course follows the entire arc of buying a small business from the search, to the financing, through due diligence, and up to the transition of ownership. The participants are learning how weaving good business practices from the very start of the process leads to better chances of ROI and growth. Royce explains how the candidates are taught the best financial practices for buying for a business, whether through traditional bank or private equity investment. The course follows students through the program and beyond by performing surveys and gathering statistics on success rates for those who go on to acquire companies. Royce shares the single most common contributor to the success and non-success in the search and acquisition process and what he advises all buyers to look for in a potentially successful business. Transcription: Mark: Joe did you know that a dream of mine that has gone unfulfilled in my life was to attend the Harvard Business School? Joe: I didn’t know that knowing that your nickname was slacker in college I would think that’d be the last dream you could ever have. Mark: Well, we technically changed my name my last year mainly because I had a t-shirt that said slacker on it. And it made a terrible first impression when you walked in the class the first day the professor sees that. You get targeted pretty quickly. Joe: You know we did a tour of Stanford last summer because I have teenage boys. We happen to be there, my kids probably won’t get in; I understand 3% do. And when I graduated from college, I went to Northeastern University in Boston, when I was done I was done. I never wanted to go back to college. Touring a campus like Stanford or I imagine Harvard just at any age would make you want to go back. Mark: Yeah it’s a fantastic school. I love their MBA Program there because they do things a little bit different. It’s not textbook based, it’s case study based. So a Harvard MBA student, when they attend that school first of all the school pretty much requires that you have real world experience. Not 100% but it’s really hard to get in if you don’t have any real world experience. They want people who have been out there in the field doing stuff. And the entire class structure itself is also based around case studies. So you end up with a group of people that you do these case studies with and you study real life, real business scenarios and go about how … figure out how to address those real world scenarios. It’s a way of trying to replicate some of the things that they’re going to actually experience when they leave Harvard Business School. So yeah a few years after I graduated college and had a job and I thought well it would be a lot of fun to attend that. I really liked the idea of it but life got in the way. Bad grades got in the way and it never was something that I actually was able to pursue. I went so far as taking a GMAT but I never actually applied. But I bring this up because for as you know for the past five years we’ve been working with Harvard at Quiet Light Brokerage. They have done what a lot of people that listen to this podcast know, they have really started to turn their focus towards entrepreneurship acquisition or acquisitions and entrepreneurship and the combination. And they have a whole course that they teach on it; how to build … sorry how to buy a small business and lead an entrepreneurial life through acquisitions. And for those five years, we’ve actually been working with them, they approached us to see if we could support their class with some supportive materials and me being the closet Harvard fan boy that I am was like absolutely that sounds really cool. Joe: Excellent, excellent. Well, I’m excited to listen to this podcast. I know that they did some studies that show the people that go through this course and the success rate that they have. And it’s really more about buying versus building which is a little follow up from almost with the podcast with Walker that you had so I’m excited hear it. Mark: Yeah absolutely so there are some statistics in here, people ask us this all the time you know what percentage of buyers are successful. Well, Harvard is actually tracking that. They’re taking a look at the kids who go through the courses … and I shouldn’t say kids these guys are 30 years old with tons of experience. But they’re looking at people who go through the courses doing acquisition and they’re tracking to see how they’re successful. Also in this episode, we talk about what they’re teaching on the course, what they’re guiding their students as far as how large of acquisitions they should be making, how to do the financing on these large acquisitions. So it’s really a chock full of a lot of information that’s been taught at the highest levels at one of the leading institutions in the world. Joe: And all of it hopefully and an awful lot of it can be applied to the businesses that we’re listing. Because I’m going to just throw some numbers out there for those that haven’t been to the website recently, we’ve got listings of really all shapes and sizes. But we’ve got a couple up there in that I think minus under LOI just under nine million dollars. Brian’s got one at twice that amount. And then, of course, anything from a couple hundred thousand dollars up to that 80 million dollar range. So these larger listings that take more funding from Venture Cap money or from a larger SBA loan are really becoming more prevalent. So I think everything that these guys talk about and the book that they published as well can be very helpful to the audience here today. Mark: Absolutely let’s get on to it. Mark: All right Royce, how are you? Royce: I’m great it’s a pleasure to be with you today Mark. Thank you for organizing this. Mark: Oh my pleasure. I’m so glad to be able to actually finally talk to you and see you in person as well. We’ve been working together I guess sort of indirectly now for what four or five years? Royce: Exactly and you’ve been a big help to our course in Harvard Business School so we’re very appreciative. I should start with a big thank you. Mark: Well it was always my dream when I was in college and then shortly after college to get my MBA at Harvard. I started looking at the GMAT and I took PEP courses for that and then life happened. And I never got around to actually doing it. I actually talked to a Harvard recruiter at one point, sat down with them and was going through that but then it never did happen. So the fact that I actually get to participate in you guys program is kind of like a dream of mine come true that I get to actually work with you guys at least indirectly if not directly as well now. All right so the Harvard Program, how long have you guys had this Entrepreneurship Through Acquisition Program? Royce: That program is now in its 6th year Mark, and for decades Harvard has had a large program teaching people about traditional entrepreneurship; what I refer to as rubbing two sticks together and make fire, meeting … going into startups. But about half a dozen years ago we started teaching about the idea of buying an established profitable company usually from a retiring founder and the idea has really created a lot of excitement at Harvard. About 30% of all of our MBA students take these courses to try if this is a potential career and learn about it; which makes us probably the largest elective course on campus. Mark: Wow, that’s fantastic. Now you do this and one other professor Richard … is it Ruback? Royce: Yes Richard Ruback. So Rick and I created a course and we co-teach it and it’s really become our … the center of our professional activity. Including following our students closely who go down this path. We stay very connected to them after they graduate from the program. Mark: Yeah I know that’s great. So I want to make just one point about Harvard’s MBA Program and again I know this because I looked at potentially participating in this program but you guys are a little bit different than other MBA programs in the way that you set up your courses right? That it’s a lot of this case study sort of approach to everything is that right? Royce: I think the two differences in our programs from what most people think of as MBA is this first exactly what you said which is we do not lecture, we do not have textbooks. The whole two year program is set up around cases which are sort of short nonfiction business stories. And the discussion the faculty elicits about the decisions they require to be made. And the second difference is our students typically come to us at about age 28 and graduate at age 30. So they have six or seven years of mid-level, junior level, executive experience before coming into the classroom. So they’re not kids; they’re young professionals by the time they leave. Those are the two distinctions I highlight about HBS. Mark: Yeah and one of the things I love about that … so one of the knocks against university especially among the entrepreneurial community is that a lot of entrepreneurs see university degrees and MBA degrees as being almost wasted money right? Because a lot of them have become successful. But what I love about you guys program is the fact that you do require that experience is not textbook learning, its actual looking case studies. Delving in deep into these actual cases and amplifying a real world experience in the classroom setting. Royce: Yeah you’re exactly right. That’s the purpose of the case studies. In addition, the faculty is routinely engaged in a commercial world too and thus expecting to bring that into the classroom. And we also utilize experts like yourself Mark, and bring in work done by experts or even experts as guests into the classroom. So we try to stay very engaged with the practical commercial world. Mark: That’s great. That’s absolutely great. I absolutely love that. Now you guys have also … you and Rick have also put together a book. And for those watching at YouTube at … this is the book here, HBR Guide to Buying a Small Business. And you put this out two years ago is that right? Royce: Yes we’d put it out two years ago and it’s been very satisfying. Our goal was to produce a very practical handbook that walks people through each step in buying a smaller firm and to try and reach beyond campus to the thousands of people who are thinking about it or wanting to do it and give them something that’s just immensely practical and we’ve been very gratified. I think almost everyone who goes down this path ends up reading this book and we get lots of comments that it’s been helpful. Mark: That’s a really good book. I mean I’ve thumbed through it before and you know I’ve learned a lot in this industry by doing and that has its learning curve. Frankly, a book like this to start out would have been really really useful in shortening that learning curve. So it was a really good book and I assume that you can get this on the HBR website correct? Royce: The HBR website and even more conveniently on Amazon, so it’s just an easy thing to buy and a kind of quick easy read as well. Mark: It is a quick easy read. There’s large margins in there as well so that people can take notes alongside it; which is super super helpful. So all of you out there that are readers and soak up as much information add this one to your list; for sure it’s definitely one to add. You’re getting some good information here. All right so let’s do this, let’s get into some of the material that you guys actually teach in the Entrepreneurship Through Acquisition Course. What is the format and what is the structure or maybe what is the syllabus that you would look at for a typical is it on a semester basis or is it a full year? Royce: Yes it’s a full year course and we start with an overview of the small firms market. Sort of what are some of the management issues in running a small firm, how do you buy small firms. And we let people sort of figure out whether this is of interest to them generally. And then the course gets really really practical. We kind of follow each step in a small firm acquisition beginning with how do you source opportunities, how do you evaluate them, how do you do due diligence, how do you finance them, and how do you negotiate the legal documents and then we move them to sort of a transition because almost always after a firm is sold the seller stays on for a while at least part time teaching the new owner the ropes. And that is somewhere between three months and 12 months part time for the seller but it’s a key part of making these purchases successful. So that’s how we [inaudible 00:11:59.1] we like to say we’re following the arc of the small firm acquisition. Mark: Now the arc is something that our listeners are probably very familiar with. It’s something that we have laid out on our site as well. I want to ask a broader question with the popularity of your course. When people think about Harvard Business School I think a lot of them think about graduates going into large financial firms you know working in Boston, working in New York, and really kind of working with a Fortune 500’s out there. Do you see a lot of your students now pursuing this more entrepreneurial path? Royce: Yes I do and it’s a great comment you made because I do think Harvard is viewed that way. And one of the reasons this program is important is it’s highlighting the fact that the business school makes a difference in ways that help ordinary Americans. In other words we send our well trained, smart, energetic graduates into cities all across the country and they create jobs for regular people that make their lives better. I’ll give you a quick example, one of our students … and this is very representative is a woman named Jennifer Rouse. She spent about five or six years as an engineer at a couple of leading manufacturing companies in the Midwest. Came to HBS to be trained as a general manager. Fell in love with the idea of running her own company. Instead of getting a job out of HBS she searched and bought a revenue cycle management company in the Pacific Northwest that essentially handles the billing for municipal ambulance services to insurance companies; very specialized complicated set of procedures. And she’s grown the business from about 40 employees to 70 employees over the three years she’s owned it. So it’s been an enormously gratifying experience for her and profitable one. It allowed an entrepreneur who wanted to retire to get his just reward and take cash out of the company. But it’s also created a lot of good paying jobs in that mid-sized city. So kind of all the way around it’s exactly what our business school ought to be doing, we think. And that’s what we’re trying to do in this program. Mark: You know one thing I think that people don’t understand about our industry and when I talk to them for the first time, they often ask “Who buys an online business?” And one thing I’ve found is the synergy that exists between the bootstrappers and the startups, these guys that are really really good at the hustle and they can create something amazing out of practically nothing. And then they grow up to a certain size where it now needs management and now needs … it kind of enters into that phase two and a lot of these entrepreneurs don’t want to do that because they don’t want to be managers. They don’t want to do that additional growth step of now managing lots of people. Royce: Yeah and I think that’s exactly right. These businesses reach transition point where once they needed someone who is not only energetic and smart but knew service they were providing incredibly well and 15 or 20 years later it’s more about a trained manager who’s got a certain managerial skills. I’ll also add to your comment that there’s a life cycle to entrepreneurship. You know the 60 year old entrepreneur who’s made a lot of money in their smaller firm quite likely might not want to work as hard as they did when they’re 30 years old. And that’s a very sensible decision that the business may have a lot more potential in it in the hands of a 30 or 35 year old who’s willing to put in those 60 and 70 hour weeks. And that’s another transition that makes sense for everybody. Mark: Sure. I remember one client that I worked with. He had … he was selling … well just say durable goods, I won’t go into exactly what he was selling, but he was sourcing all the inventory putting it in to a secondary garage and fulfilling all the orders on his own. I mean he was working 45 hours a week and have really maxed out and I asked him I said “Why are you selling them?” because business is growing, it’s growing rapidly. Why not hire on some people and kind of expand to an actual warehouse. And his answer was probably the simplest most logical answer I’ve ever heard it was because I don’t want to. Yeah, I don’t want to manage people. I like doing this on my own but that’s the obvious next step. Royce: Yes. Yeah, exactly and it’s a very human thing and the right answer is to put the business in the hands of someone who’s going maximize it. I think conversely from the perspective of a young entrepreneur through acquisition, I see this opportunity as so much lower risk than starting a company from scratch. Because you’re buying an established proven profitable business with a business model that really works and an owner who will sort of do an orderly transition with you. So it’s a way to express entrepreneurial desire without taking the enormous risks of a startup or having to have some idea. Mark: Right you’re absolutely … and I think this is something we talked about in a recent podcast and that is the difference between buying versus building a business and how you can get that leg up and get that initial startup so much faster. There’s much less friction in working with something that’s already established like that. So let’s do this, let’s follow the arc of the deal that you had talked about a little bit earlier and let’s give the listeners here and the few viewers just a little flavor as to what this arc looks like. And maybe some of the things that you guys teach in the course as well. Let’s start with this how do you source your deals? This is a problem for so many buyers out there. I’ve talked to some buyers that are looking for a year and a half, two years for a good business. And the good ones frankly I know from experience when we put something out that’s good we’re going to get a lot of intent on that within four or five days and so it can be really tough. So what do you guys teach as far as sourcing deals and some of the tips that you would offer there? Royce: You’re exactly right. You know sourcing is immensely difficult in a small firm space. First of all, there are two paths people go down. One, which we certainly recommend is dealing with the intermediary professionals in the small firm space. As you know there are hundreds and hundreds of these across North America. And you’re required to just do an enormous amount of outreach because unlike say with real estate where there are multiple listing services, confidentiality is extremely important to these owners of smaller firms. And so you only get to see these firms by establishing relationships with reputable intermediaries. So it’s a great deal of work to establish that kind of dialogue. And then on top of that, once you have done that, the majority of businesses that are for sale are not high quality businesses. They’re average at best and a few of them are really good businesses. So it’s an enormous outreach and sourcing process that frankly takes from the time someone starts sourcing to the time they close the average time is about 18 months to find a good quality business negotiate diligence it and close that. So … and that’s 18 months of full time work. Probably the question I get asked most often by aspiring entrepreneurs through acquisition is “Is this something I can do part time?” because it would be so great to do it part time right? You could keep a full time job, earn income, and you imagine you might be able to do it next on weekends like rebuilding an old car or refinishing a basement. But the truth is I’ve never seen anyone do this part time. It is for everyone who goes down this road it is a demanding full time job to source, evaluate, diligence, negotiate and it takes an average of 18 months. So it’s hard. Mark: What are some ways in your opinion that people can speed that up if they’re really anxious to get going? Like their working a corporate job right now and they want to get out of that corporate job. Do you have any tips on how they can speed that up? Royce: Yes we see that a lot of people that have worked in a corporate job they just find it unsatisfying and they want the professional independence that comes with this kind of entrepreneurship. You know it’s hard to make this go faster. I’ve seen people close quickly because we’ve seen scores and scores of people do this, I’ve seen people buy businesses in as little as five or six months. But I have to say my conclusion after years of doing this is that those are just flukes; that in the same way that the person struggles on for two years is a fluke. That you get some outliers but it’s just really hard to make the process go faster. And one reason for that is out of those 18 months probably the last four months are spent in that deal you’ll close on. You know doing that signing the LOI, diligence, financing, closing. So really you’re talking about a little over a year of searching before you finally get to that deal that makes. I wish I could hurry up this process. But it’s one of the reasons that I suppose this space hasn’t been beat up or overcrowded is that someone has to really want this. Mark: Sure and I think that’s really good advice. You’re right there’s some luck of the draw right? There’s just some pure luck on the draw. I talked to one person years ago I was … when we first tried to do the podcast and it didn’t really work, but I talked to one buyer who said that he was ready for that sort of 18 month time period and within two months something just spread across his desk and it was perfect. But he didn’t have a financing lined up for it and so he had to let it go. But it was that luck of the draw. It came to him perfectly; right away if he was ready he would have been able to move on it. That actually leads well to my next question which is financing. What are you guys advising your students and what are you seeing them actually do in terms of financing some of these deals? Royce: Yeah so the typical acquisition is financed with about two thirds debt and one third equity. And let me deal with each of those. On the debt side in the small firms marketplace, it is almost universal for the sellers to take back some amount of seller paper usually 20 to 25% of the purchase price is taken back in what’s on average at four, five year subordinated note. There are few exceptions to this but it’s a very large percentage of the transactions. And about 45% on average of the transaction is funded by a senior bank loan. And this comes in two flavors; one, is just a regular way, a commercial bank loan will typically finance a little under half of the deal and it will be repaid over five to seven years usually from a local or regional bank. The first candidate being a bank the company has an existing relationship with. The second path is the Small Business Administration has a terrific program called the 7(a) Program. I’m sure you’re familiar with this. It’s administered through banks. Most of the banks that lend commercial loans also will do a 7(a) guaranteed loan. It is a wonderful loan product because they will lend against businesses that have no tangible assets; service businesses that just have cash flow. They lend up to 80% of the business. They lend over 10 years. There are no covenants. It’s a very very attractive loan with a single exception that you are required to sign a personal guarantee on it. So it’s something for very thoughtful consideration by the entrepreneur. But those are the two sources of debt. And as I said with the salary debt they cover the two thirds of the purchase price. One third is usually raised from friends and family. And most common is that these prospective entrepreneurs will go around and raise money in $100,000 here or $200,000 here from anywhere from six to 15 individuals and they will cut a deal to divide the prospective profits between their investor group and themselves. Because this typical small business that we see … when we talk about a small business we’re talking about a company with one to two million dollars of EBITDA that might sell for five times EBITDA or 10 million dollars of which three million dollars might be equity. And so it’s not that difficult to raise that amount of equity by passing the hat. Mark: I think one thing that a lot of our buyers that come into us feel is that they can’t reach that level of a transaction right? They can’t reach that 10 million dollar acquisition and so they start out a lot with these $200,000 or $300,000 businesses and then they find that they’ve effectively buying that job. So it seems like you guys are really pushing a lot of your students to think a little bit bigger than that and do … in buying a business as well. Royce: Yeah I think that’s exactly right. You know I think they are … when you get to a very small business and you are the entrepreneur you’re showing up every day to process out that day’s work and that’s that $200,000 EBIDTA business. You know when the business gets to be a million dollars you usually have some department heads who report up to you and you’re coming in thinking about the week’s objectives or maybe the month’s objectives. And then when you get up to a business with say two million dollars in EBIDTA, you’re really managing a little further it than that. So the jobs are very different along the way and so with that we tend to point our potential entrepreneurs towards the larger end of that spectrum. But entrepreneurship can surely be expressed anywhere along the spectrum. Mark: Yeah, I think a big phrase that we hear all the time in our space is work on your business rather than in your business. And it’s a transition point for a lot of people. But it seems like you guys are really pushing people to start with a business that you would work on because some of that infrastructure is going to exist already. Royce: Yes I think that’s right. That is our goal. We recognize that people have different resources including experience in managing and opportunity to access capital. Mark: Right. Do you have any tips for people that might be considering reaching out to friends and family? How do you get over some of the discomfort maybe with asking friends or family for investments? Royce: Yeah I get that question a lot so I do have some recommendations. I think the first recommendation is just a psychological one which is when you go to someone to ask them for an investment you really have to make yourself feel that you’re not asking for a favor. It’s not like you’re asking for personal loan, your presenting an opportunity to that person. And it’s one you believe in so sincerely that you’re going to dedicate the next five or seven or eight years of your life to it. So it’s very important to really be in that psychological headspace. My second recommendation is to actually start with the people who know you best. Because they’re going to be really inclined if they respect you and like you to line up behind you and then it’s going to make it easier to go to people who know you less well. My third recommendation is the time to approach people for investing is when you start your search; it’s not when you find your company. Because what you want to do is collect a group of people who might be interested in investing and update them across the year or year and a half that you’re searching. Because when you do this, it allows them to get to know you better. It shows them that you have lots of energy, it shows them your street smarts, you talk to them of that deals you looked at but ended up rejecting which gives them a sense of your high quality standards. So when you finally approach them with a deal in hand they’ve been expecting this and now you’re making one sale, not two. You’ve sort of sold them on the idea that you’re a hardworking and street smart entrepreneur who is being highly selective and now you’re simply selling them on the merits of the business. So for that reason, it’s tremendously important to approach them early and get them to follow you. It’s also a much more comfortable discussion than showing up with a deal in hand because you’re able to say look if you’re sincerely interested in this I’ll make the investment and inform you about my journey and you’ll have plenty of time to decide. It takes a lot of pressure out of that discussion. When you approach the types of people I see are entrepreneurs approaching … and here you should think about people who are partners in law firms, entrepreneurs have their own small businesses, these people don’t have … while they are wealthy people by normal standards they don’t have the resources to invest in private equity funds. They can’t just throw up a check for two million dollars or five million dollars that private equity fund would expect. So when you come to them with the opportunity to participate they would essentially as a private equity investment; it’s very additive to them. It’s not an opportunity they see every day to make the kind of returns you can make buying a private business. Mark: Yeah and I think … tons of really good information in there. You’re right as far as that relationship is concerned when you’re asking somebody for money, building that relationship over time makes that discussion a little bit easier and also gives you the flexibility. That example I brought up of the guy who started his search and didn’t have his funding lined up in advance, he actually gave me that exact same point. He said had I been having these conversations with friends and family in advance I would have been able to do this deal very very quickly. But it was just way too much for him to try and call in together an investment group within a few weeks. These things don’t happen in a week, they happen over months and even a year. Royce: Absolutely and as you know from your own professional experience in those last eight weeks before closing the entrepreneur is sort of fighting on multiple directions. He’s dealing with a lender, he’s dealing with lawyers on a purchase agreement, he’s finishing his due diligence, he’s dealing with investors; you just don’t have time to sort of raise investment capital from scratch. Mark: That’s great. All right let’s talk a little bit about the transition stuff and then we’re going to be rounding out as far as our time here is concerned. Now there’s some stuff obviously that happens in between, we’ve talked about ways to search for a company and source those deals. It can take about 18 months on average depending on a little bit of the luck of the draw, talked a little bit about the finances and some of the vehicles there. So let’s assume now that you find that business, you find a good opportunity, you’ve gone through negotiation. And I know there’s a lot that we could talk about just through the negotiation stage but I want to talk a little bit about the transition period and plan. How important do you think it is to keep previous employees, previous key people, previous owners on staff and what other elements do you think are really really kind of you should almost always take these steps in a transition? Royce: The advice I give entrepreneurs through acquisition is twofold. First, the first and most important advice I give them is in your first six months don’t make any important changes. You’ll have lots and lots of decisions to make but if an important change is one that is expensive or hard to reverse hold off on that. Because you will be a different person at the end of six months than you are on the day you walk into that company. And if it’s the kind of enduring profitable business we hope people will buy, it certainly can wait on these decisions. I also find that transition periods can be relatively short. Three to six months is usually all you need in a transition period with some occasional access to the seller after that. By the way, this is another reason why having a seller subordinated loan is important because you want the seller to be financially on side with you after the purchase. That that seller is going to introduce you to his or her important clients. They’re going to make an endorsement of you as the person they’re entrusting the business to. They’re going to answer a lot of process and historical questions that in a small company aren’t written down in any textbook. But for most of these businesses that transition can take place well over three to six months. And after all, you want to buy a business that is not so centered on the selling entrepreneur that transferring it isn’t easy. In other words, if that transfer is really really really hard that might not be a business that you want to buy. So I think that’s a consideration you want to have before you step in and commit to the business. But a three to six months transition I’ve seen works pretty well. By the way, it might be helpful as long as we’re sort of at this point in the arc of buying a small business if I shared a little data we collected over the years of that success in this path. Mark: That was my next question, so perfect timing. Royce: Okay. Mark: Yes let’s go there. Royce: Well we’ve had the chance to survey a fairly large number of entrepreneurs through acquisition and what we’ve found over that six years that we’ve been doing this is of the people who embark on a full time search to buy a company about 70 to 80% of them end up acquiring a company and closing on it and about 20 to 25% try it, give up, and go back and get jobs that are pretty much like the jobs that they had before they embarked on this path. Of course, they’ve spent a year or to a year and a half doing this and that hasn’t been a profitable use of time except in terms of experience but they go back and get a job that tends to look like what they had three quarters of them end up closing on a company. And then we turn to the question of is this successful? It’s harder to get that data because these are all private companies but over the years Rick and I have had the benefit of actually getting some very active investors in these type of small firms to share with us their financial history of all their investments. And we’ve collected about 60 different transactions made by a handful of professional investors and what we found is that approximately 80% of those are profitable and about 20% are unprofitable; which is a really high rate of investment success. I mean if you think of that investing in the stock market and do you get four out of five investments profitable, I mean that would be a tremendous bar of success to have. And of the investments that are made both winners and losers the average rate of return to the investors has been about 22% annually; which is also a very high return consistent with what you would expect in private equity investments. Very importantly these results don’t tell any specific individual what their results are going to be. I mean you could find a company or not to find a company, you could be successful or not successful. But I think it suggests that the area is a reasonably fruitful area to try and achieve success in. That’s what I take away from the data. Mark: That’s really good and I get these questions all the time so I actually now have something to go back to people with. This is great. I am curious on the 20% that are not successful; do you guys have any data as to what’s leaned to do at not being profitable? Royce: Yeah. Well, of course, there’s always a huge element of chance as you and I have talked about earlier in this. But yes I think that there is a single most common contributor to success and non-success in the search. And that is when an entrepreneur through acquisition start searching on their very first day looking at their very first prospective deal they quite rightly set their standards unbelievably high. In other words, nothing would get them to buy the first company they see because they want to learn what’s available in the market. And as they see more and more companies they gradually bring down their standards into what normal market is for a small company. In other words, they start to say okay I’m going to raise the price I offer into the range that companies transact that. I’m not going to require that this company be absolutely perfect. It’s okay that it has some flaws like every company. And their quality standard gradually moves to market. How quickly they were able to learn what a small company really looks like determines how successful they’re going to be. Some people never get there. Some people it takes a year to get there. Some people can do it in 60 to 90 days and they have a much better chance of buying a company in the time period. By the way Mark just as in the side the same thing is going on with sellers as I’m sure you’d recognize that person who owned a business for 30 years enters the market with a price expectation. It is well above market and as they get feedback from the market they’re gradually bringing their expectations down to market or they’re leaving the market. What you’re looking for is the collision between those two forces entering the zone at the same time but that speed of learning is the difference between being highly likely to succeed entrepreneur through acquisition and not. Mark: A lot of the work that we do at Quiet Light Brokerage with sellers is that sphere of expectations in trying to bring them to that place. Or more importantly I guess advising them to only enter into the marketplace when their expectations have moved because it’s got to happen, right? Royce: Exactly. And it’s a delicate conversation as I’m sure you’ve experienced many times. Mark: It is you know we try to be very just blunt with people. My personal background is before I started Quiet Light Brokerage I got really good advice from an intermediary who told me to wait but then when I actually went to market with them they actually blew my expectations up higher and when I got those first offers and it’s how people at the marketplace is brutally honest. You know I might be nice the marketplace isn’t, they’d just be honest and blunt. And when I got those first few offers it was like a punch in the gut. Like wow okay I’m not even in the same neighborhood of what you guys are talking about. I want to leave with this question, if you were to be talking to a potential buyer and you were to give them one or two just solid pieces of advice and that’s all you had time to be able give them because that’s also all the time we have left, what would you tell them? Royce: I would tell them to look for an established, slow growing, slow changing company because for a first time entrepreneur having an enduringly profitable business is the most important thing. It will allow them to make the kind of mistakes a first time CEO makes and still be successful. Sometimes people are enamored by fast growth but fast growth means change, competition, new customers. So something that’s established and slowing growing and proven is what they want to look for. And it’s okay that it is in a quote boring type business, you’ll find plenty of excitement as being a CEO. That would be my number one piece of advice to a potential buyer. Mark: Well I wish I had talked to you before I did my first acquisition. I think that would have been helpful. Royce: Yeah. Mark: Royce, thank you so much for coming on here. Again I’ve been completely enamored working with Harvard Business School over the past several years. I hope that we can continue to work with you guys and someday maybe if it works out for your guys you’d be able to come out there as well and I’ll meet you guys in person so thank you so much. Royce: Thank you and we’re very grateful for your participation. Links and Resources: Harvard MBA Program Entrepreneurship through Acquisition Course Royce’s Book

Similar to outsourcing fulfillment, today’s podcast guest says for many entrepreneurs, it may be best to outsource the collection, management and disbursement of sales taxes with the new Economic Nexus ruling by the Supreme Court. In this podcast, first we cover what the decision means to online entrepreneurs, and how it will impact the average business. For some no action needs to be taken. For others a lot of action must be taken. And ignoring the details is not really an option. Sometimes the least interesting subjects and work as an entrepreneur bring the most value. Well-managed financials are one such thing. Held within the broad “financials” umbrella is now sales taxes. While the answer to the questions, “should I collect” used to be grey. Everything is fairly black and white now. And the subject is never going away. Episode Highlights: Don’t geek out on Sales Taxes. Outsource it. See SALT experts below. If you have Nexus it means you have an obligation to potentially register and collect sales taxes or income taxes in a given state. Physical Nexus is where you are, where your business is, where you are storing inventory or where Amazon is storing it. Economic Nexus is the change with the Supreme Court decision. The states could define other ways to define Nexus. For instance either $100,000 in sales or 200 transaction in the last 12 months – and you could be required to collect sales taxes on those revenues that occured within their state…regardless of Physical Nexus. Economic Nexus takes effect immediately for the 24 states that already have them on the books. (Links below will lead to finding the 24 states) Notice and Reporting are other ways to determine Nexus. It’s really confusing! You MUST register to collect sales taxes. If you collect and do not remit, it is CRIMINAL. Hire an expert to register to collect sales taxes. There are 45 states that require it. Only register where you have to if you are a small seller. But if you are doing 10-20 million in revenue, “suck it up” and register everywhere. SALT experts can handle almost everything for you. See notes and links below. SALT is an acronym for Sales and Local Tax Experts Use www.WhereStock.com to determine where Amazon is holding your inventory. Seel link below. Taxjar is a good option if you wish to take on managing this yourself. Scott & his outsourced accounting team at Catching Clouds use Taxify (but recommend both options) The Supreme Court Decision may not increase a buyer’s liability in an asset sale. Transcription: Joe: So Mark Jason got an e-mail this week and he had a question and it was “What makes Quiet Light different?” And Jason gave it an interesting answer and I want your feedback on it. It says “Well the formal answer is that we’re all entrepreneurs but that’s not really it. The difference is that Mark … you Mark Daoust is one of the best human beings on earth and that permeates everything we do. As a result, he attracts good people that are always doing good work with the best interest of others even if it’s painful for the broker we ignore our own incentive to do what’s right.” Did you pay him to say that? Mark: Yeah … well, I’m not going to say exactly how much but he got paid for that. I think it’s a little over the top. I mean really. Joe: But he didn’t write that down. He said it to someone and someone wrote it down and shared it with me. And I … look I shared this to put you on the spot. You look by the way very much like an internet entrepreneur today. You’ve got a t-shirt with some ducks on it, a little duck, duck going on there. Mark: Duck, duck, gray duck. I’m from Minnesota and I [inaudible 00:01:53.2] I’m going to put this out there, it’s a more sophisticated game. All you parents out there stop this duck, duck, goose crap. It’s all duck, duck, gray duck; that’s what we’re doing here. Joe: Don’t know if we have time to go into what the heck you’re talking about with duck, duck, gray duck. Well just … I thought you were going into hockey or something like that. I wanted to touch on one more thing you know Jason talks about that and you and the environment that you’ve created here and the caliber of entrepreneurs and advisors that you brought on. I listened to a podcast last night with Chuck Mullets and for those that are the buyers in the audience today, if you have not listened to the 27 tools for due diligence I think it was, listen to it. Because some of the tools in there were just amazing and I’ve been doing this for a long time and I haven’t heard of any of them. I have to take my hat off to Chuck and give him some compliments for the job that he did there. I was really really impressed. He’s a … I’ll say it, he’s a lot smarter than I thought he was. Mark: Ah, you know the bar was pretty low, to begin with. Joe: But I want to just raise myself up a little bit and show you something. Mark: What’s that? Joe: I have on- Mark: Oh you have on Chuck’s shirt that he made for you. Joe: I have my Quiet Light logo shirt on. So there you go. Mark: While I’m wearing ducks. Joe: Oh I didn’t shade you there. Okay, listen this podcast is about something that’s really important. It’s about the Supreme Court decision to change the way that sales taxes are to be collected. Let’s not get into details, let me just tell you that we had Scott Scharf on again. We specifically talked about the problem and the solution. What does this mean to e-commerce entrepreneurs and how do you solve it? I can tell you right now when you get three quarters of the way through the solution is … if you are up for it just like you outsource your fulfillment to a 3PL you can outsource your sales tax collection and distribution and management. And if it were me that would be my recommendation but it’s absolutely there and you don’t have to deal with all that little detail and there’s a lot of it. Mark: Yeah and I like to say a word to people that share a person holiday with me, and when I read and hear about some of these red tape sort of restrictions that are coming down, I have a tendency to plug my years and go la-la-la-la I don’t want to hear it. Joe: Right. Mark: I like the days of the free open web when it was just easy to do things. But the fact of the matter remains this is the direction we’re going. Joe: Right. Mark: Restrictions, regulations are going to come into play more and more frequently and these aren’t necessarily bad things we just needed to understand how to navigate them. And so an episode like this is timely, I’m glad that you got Scott on the line to do this episode because this is the [inaudible 00:04:34.0] time the episode given that this decision just came down a few weeks ago. Joe: Yeah some of the things that we talk about here on the Quiet Light Podcast are painful as entrepreneurs. Particularly those that don’t love this detail, they love the excitement of driving revenue and the marketing aspect of it. These painful things when you pay attention to them will make your business more valuable if and when you ever decide to sell. So again listen to the whole thing. Get through it, he talks about it in detail point by point. But I try to keep him on track so it’s not … he doesn’t geek out too much. Scott loves this stuff. Mark: Scott? Never. Joe: He calls it geeking out himself. So we try to get on track to … okay how do … how does a guy like me, how does a guy like Mark, like an entrepreneur listening, how do they overcome this giant massive ball of red tape? And really, I think the answer is, outsource it. And we’re going to give all of the ability to do that down there in the show notes. Mark: Sounds great. Joe: Let’s go to it. Joe: Hey folks it’s Joe from Quiet Light Brokerage and today I’ve got Scott Scharf on the line with me from Catching Clouds. And we’re going to talk about the Supreme Court decision that’s come down regards to sales taxes, define what the problem is, and then give you a solution to it in the second half of the podcast. Scott welcome … welcome back actually right? Scott: Yeah it’s great to be back. Joe: All right so you know we don’t do fancy introductions. Tell these folks who you are and what you do at Catching Clouds so they understand what level of expert you are here. Scott: Yeah at Catching Clouds we’re e-commerce accountants who are really experts in the accounting e-commerce businesses and of course sales tax management; which is why we can talk about this topic. We’ve been doing this for the last seven years and we love solving problems for e-commerce, sellers, anybody that we interact with it. And this Quill decision is definitely one of those things. Joe: Quill decision, that it that’s the name of it? Q-U-I-L-L. Scott: Well, yeah so Quill was a decision from what 26 years ago that the Supreme Court overturned their own finding that really delimited what states could do to go collect sales tax from small businesses that are selling across state lines. Joe: Good. Okay, so they overturned it. So, folks, you heard Scott say that they’re e-commerce accountants and I just want to reiterate … and you know my little soapbox here. E-commerce accounting, accounting, good financials, clean documentations, it’s one of the four pillars to get maximum value for your business. So if you’re using anything other than Xero or QuickBooks seriously consider talking to Scott if you want to get maximum value for your business. Because Excel spreadsheets for a 20 million dollar company or if you’re doing a half a million in revenue doesn’t matter, you’re going to lose value in the sale of your business if and when some day you decide to sell. So there’s my little pitch, definitely- Scott: [inaudible 00:07:24.7] Joe: these services. Okay so if I understand this correctly this is no longer physical nexus which I think everybody that’s listening knows the definition of it; what it means. Is economic nexus, can you tell us what the heck that means for these folks? Scott: Yeah so actually physical nexus still applies so it’s not that they got rid of physical nexus it’s just not the only consideration deciding if you have [inaudible 00:07:52.0] of fancy. Joe: So let’s say what physical nexus is anyway then, go ahead. Scott: Okay. Well, physical nexus … well, first nexus is if you cross a threshold and you have nexus based on some parameters means you have an obligation to potentially register and collect sales tax or income tax or other things in a given state. So if you don’t have nexus you don’t have to do these things. Okay, that’s the first part. So there are different types of nexus, the first one is physical. It’s been around for quite a while. It’s where you are, your business is, your business is founded, you have employees, you have property. Okay for an e-commerce business, it’s wherever you’re storing your inventory. If it’s at a 3PL on either coast you have a nexus where you’re storing your inventory. If you’re an Amazon FBA seller, when you send inventory to three or five warehouses they’ll move it to up to 26 states that’s your inventory and it creates nexus. There are a few other ones out there but from a physical perspective … I’ve been around for a while, there’s like affiliates and other things. But the main thing it’s where you are and your property is. Joe: Physical nexus, okay. And now we’ve got economic nexus, what is that? Scott: So economic nexus what states have determined and the brakes were taken off with the Supreme Court decision that they could define other ways to determine nexus to basically either require your business to do reporting and other function or register and collect sales tax in those states. So what they’ve done is said hey if you’re doing over typically in the standard is based on the Supreme Court decision $100,000 in sales or actually more importantly 200 transactions either in the last calendar year or in the prior 12 months and that would mean that they’re expecting you if you’re a larger business to register and collect sales tax from there … of any consumers buying products you’re shipping to into that state. Joe: How many transactions do you say? It was 200? Scott: 200. Joe: So if it’s a $20 sale it’s only what 1,000? Scott: $1,000. So $100,000 people see the $100,000 and think that oh God there’s no way I didn’t know you’d do $100,000 in any states last year, but it’s totally based on your average. So if you take your average sale price and multiply it times 200, if you’ve done more than that revenue in any states that have these laws you’re over that threshold. Joe: Okay so economic nexus passed by the Supreme Court, when does it take effect is it immediate or is there-? Scott: It’s immediate for the roughly 23, 24 states that already had these laws on the books. And the only thing that was holding them back were these court cases that were just … was decided a week and a half ago. Joe: Okay so there’s 24 states, not all 45 that collects sales taxes but that is 24 of them. And for folks listening, we will add a list of those 24 states but there’ll be a lot of resources in the show notes that we’ll give you that through their software as well. Scott: Well and it’s not just economic nexus, you have to remember there’s now notice in reporting states that aren’t doing economic nexuses but have set thresholds for doing notice and reporting. They’re basically two different new ways of determining nexus and they’re both in effect now and there are other states that have them starting later this year and more. So it’s multiple ways of nexus that might impact your business. Joe: Okay so I’m just going to say a few years ago I did a presentation at Rhodium Weekend all about e-commerce selling and part of it was sales tax collection accounting. So I wanted to say to Yana if you’re listening I was right. She came after me after that now that’s never going to happen. It’s right. So really just don’t even worry about the 24 states I think physical nexus, economic … basically get prepared to collect and remit sales taxes everywhere and use a special service that can allow you to do that. First though … and we’ll get to that but first do you have to register to collect sales taxes? Scott: Yes. You have to if you are not registered you don’t have a license and a number from the state, it’s criminal to collect sales tax and not remit it and not have a license. It’s also criminal to collect sales … have a license to collect sales tax and not give it to those state. Those two things have additional penalties and they’ll come after the business owner’s criminally. So you need to have a license before you start collecting sales tax and then once you start collecting sales tax you have to give it back to the state either monthly, quarterly or annually; whatever they say. Joe: Okay just to clarify, you used the word criminally three times. That’s a little scary. Scott: Well it’s … but unfortunately both Amazon and Shopify and these other sites, I mean literally there’s a button in Shopify that you can click that says collect sales tax in all states. And it’s easy to start collecting sales tax in the 45 states that have sales tax. So technically it’s very easy to hit these buttons and not realize and you just want to be careful. And in difference between criminal is there’s additional by jail. Everything else related to sales tax is expense and cost which is more likely to happen but maybe not as painful but can be pretty painful based on penalties and interest and other things. Joe: Right. Okay, so first and foremost let’s just define and answer this simple basic question that some folks have been asking, does this mean … and I know the answer to this thus do you, does this mean quote unquote I have to start collecting sales taxes? The answer is yes. The answer is you should have been collecting them before, you had to before. Correctly? Scott: Well correct, if you have physical nexus that goes back in time. Okay, most of these economic nexus laws are new. And the way they’re currently written is if you pass the threshold then the expectation is you register and start collecting sales tax going forward. So there’s going to be nuances and changes but in general, if you exceed most of these thresholds for economic nexus or notice in reporting basically the expectation is you go out, you register now, and you start collecting forward. And there’s no … depending on the state but for most states, there’s no real risk of you owing money or have not done whatever in the past, you can go forward. But when you have physical nexus because of Amazon FBA or a 3PL then you need to consider if you register and collect going forward where you still have a risk of any previous outstanding liability which I know within a sale you’re very aware of to make sure you know both the seller and the buyer are aware of any business liabilities or do you go back in time and pay anything that you didn’t collect in the past; which isn’t fun. Collecting sales tax or paying in sales tax you didn’t collect from the consumer on each individual sale. Joe: Yeah because that’s directly coming out of your profits now instead of collecting and just passing it through. Scott: Yup. Joe: Okay, so let’s jump to making this easy for people that are listening. The bottom line is that they need to start collecting sales taxes and remitting them. Obviously, get registered to collect sales taxes. There’re software out there that does this right? Because you’re talking about you need to do this, you need to do that, and for me as a former physical products e-commerce seller, my eyes would roll into the back of my head, I would [inaudible 00:15:15.0] more and I’d never wake up again. Can’t … Can I just pay somebody to do this for me and if yes what are the options and how much would it cost me annually or monthly? Scott: Well the first part, so you don’t pull out your own hair, is there are multiple services out there that will help you with the registrations and register you in multiple states because it will drive you crazy. Every state is a little bit different. On average I’ll pay about $100 per registration plus $20 to $50 in registration fee for some states, that’s the first piece. So if you’ve decided to register in two, five, ten, whatever number of states you need to get registered first and I suggest … it’ll just drive you crazy, is would be to get registered and there are a number of services out there that can do that for you. Joe: Okay and we’ll put those in the show notes but why Scott only five or ten whatever you decide to get registered? And why wouldn’t you register for every state that requires you to collect sales taxes? I guess maybe because you never sell any … somebody in the state of- Scott: So one it’s just that overhead in the cost of doing business. So the first thing there are 45 states that have a sales tax and we are all heading sometime … I would have said three to five plus years that we’re going to collect sales tax on every e-commerce sale, it’s now probably two to four years or two to three years. It’s going to happen a lot faster but there is a cost even on the low cost tool or outsourcing it … and I’ll talk about some of those numbers in a minute, but you really only at this point want to register for sales tax where you have to. You shouldn’t have to if … now if you’re already a 20 or 30 million dollars e-commerce business just suck it up and go to all 45. Joe: Right. Scott: Anybody else below there, you’re paying more money for compliance and tools and registrations. And in some of these states when you register for sales tax nexus you are in some ways volunteering to pay income tax. Potentially depending on the state and the situation; minimum franchise tax like in California which is $800 a year, and then additional fees, and not only the sales tax cost but paying a CPA to file and deal with franchise tax returns and income tax returns. So you want to as a small business or even a medium sized business minimize that overhead and only do this in the states you need to but you definitely want to start the big states where the population are. California, Florida, Texas, and those other bigger ones is the basics to get that going but you would want an easier way in. So figure it out for the first batch that you’re doing and then do another batch and another batch. So you just can’t stop your whole business to do sales tax and you just have to balance those things out. But at the same time, you don’t want to show this huge [inaudible 00:17:52.3] selling and talking to Quiet Light. This huge compliance overhead and its overkill and it’s going impact your own profitability and the money you’re taking out of the business. So just want to find a balanced approach as you get there. Joe: How do you determine that? Is there a tool or process inside of Shopify or if you’re an Amazon Seller that tells you that you know what sales you have by state? Scott: Yeah so there are two … for sales price there’s a couple of ways to do it. So the first if you’re an Amazon FBA seller there’s a great tool called wherestock.com you pay him $30 and they’ll log in … we’ll get you the link, and they’ll connect your Amazon site and they’ll … it’ll take them about a day and they’ll give you a report showing you all the warehouses where you have inventory and when it started. How far back in time if you had inventory in the Michigan warehouse and if you go through that list and you don’t see North Carolina or some states because of the type of your products it’ll tell you, you might have had or five of these main states that you’ve never had inventory in and you don’t have nexus there; which is great news. The next piece is really a matter of downloading all of your orders out of Shopify for the previous 12 months or the last year and then just pivoting the data or doing a total if you know how in Excel to show you your sales; both the number of sales in each state and the total dollar volume in each state. So you want to know your own numbers and any that you’re over $100,000 in sales or unfortunately $10,000 in Washington State, Pennsylvania, and Oklahoma starting on Sunday I think. I think it just started Sunday. I think it was July first and it’s happened right before it. Those are $10,000 in sales which is really low, everybody else is 100,000. So that’ll … you’ll go through those states and add up the ones that you have, look at the ones that you have the most amount of sales and income in and start with those. You want to know your own numbers and work through your own list. The other option is and I can provide a link to our tax calculator that we have in there … bunch of other people putting them out there that basically take your average sale amount enter it and it will total all those things up. But those are the two things; one, all of your income across all of your sales and then this Amazon wherestock report to let you know what’s going on in FBA and that’ll be in your information and then you just build a list and you work your way through your own priorities on how many you want to do; all at once or a few at a time. Joe: Okay so just to dumb it down a little bit. If you’re doing 20, 30 million dollars just suck it up and do all 45 states. But if you’re doing maybe just a million dollars in revenue, which is fantastic, do this report because you don’t want to have to register in 23 states that instead of all 45 if you don’t have to. Scott: Right. Joe: Someone else talked about it in this way. I mean that registration alone is going to cost you $100 to $150 so maybe $3,000 or so for 23 states that you don’t have to register in. But if you’re only doing $1,000, $2,000, $3,000 in revenue in the state of Montana it doesn’t make any sense to register because a. you’re not going to hit that threshold and b. realistically Scott is if someone in the state of Montana that works in- Scott: Montana is a bad example they’re not on sales tax. Joe: Okay. Scott: So pick one of the few states that doesn’t have one but Nevada or however else- Joe: How about Maine? Scott: So it’s always a risk man, your question is so should you or not you … are you going to, can you fly under the radar- Joe: Yeah. Scott: Are they going to find you tomorrow and what’s going on? So it’s a risk management decision between the cost of compliance to your business versus the overhead and the cost of compliance and then the chance of being caught. There are four million Amazon sellers, there’s between five and ten million businesses doing e-commerce these days. The states just had their handcuffs taken off and they’re all going to go woohoo let’s go get this money from out of state sellers. It’s going to take them a while to ramp up and the chances of getting caught are very very low and they have been low and they’re still very very low okay? But there isn’t really no ambiguity now; there’s no more well, maybe, or there’s this court case, or whatever else. Joe: Right. Scott: So until now and whenever possibly the Congress does something or more lawsuits happen which take time this is the way things are today and you just have to make that decision of a risk management. So you never want to mess around with the IRS when it comes to payroll taxes or W-9s and contractors but for sales tax, you’re going to have to balance those out. But the chance of being audited or being notified by the state is significantly higher than it’s ever been in the past. Joe: Okay let’s talk about the services that are out there; as in the software or services that you recommend for listeners just … you can do your download calculator that I’m going to provide in the show notes to determine the revenue by state and things of that nature to decide where they want to register. But what softwares or service programs do you recommend that folks check out that you have seen people use consistently that make this a whole lot easier? Scott: Yeah for people doing it themselves I would start with TaxJar it’s by far the easiest to use most straightforward they … not only do they pull in all the data but they process the filing for sales tax and the payments in all 50 states. It’s both the easiest and I, from what I’ve seen the lowest cost. They’re a great tool. They have a great blog and a ton of information and support and it’s the best way to do it yourself. The next one that’s a little more powerful- Joe: Hold on a second. Scott: Yeah? Joe: In terms of a TaxJar thorough cost ballpark if someone’s to put in all the states what would the overall cost be to … and do they do registration or just compliance? Scott: Okay so TaxJar does not do registrations. Joe: Okay. Scott: It’s only the sales tax data aggregation to pull it all together from channels. Pull everything together. One note is if you have sales that are outside of Amazon, Shopify, or BigCommerce you have to import that data into TaxJar so that you have the complete thing. From all the sales so your filings are accurate. But in general, you’re going to pay a monthly fee between I think 29 and up to 500 depending on the number of sales. Whether it’s a thousand per month, 5,000 you know … in larger apps you’re going to pay a base monthly fee no matter what; totally reasonable wherever your SaaS thing. And then you’re going to pay a per-filing transaction. So if you’re paying filing quarterly you’re going to pay four times somewhere between $21 and $30 per filing. I don’t have their pricing memorized. Joe: Sure. Scott: So if you’re filing quarterly your costs are going to be lower. If you’re filing annually it’s going to be these monthly fees. So if you’re a smaller seller the pricing can work out to be fairly affordable. They also have kind of an unlimited filing piece so if you get over a certain level … and I haven’t done the math whether it’s 20 states or 30 states but there’s a certain point where you can pay it for kind of an unlimited plan and get to a max price. I think that’s in the 4 to $6,000 for the year kind of total. But you can using that tool max that out and really lock that compliance cost in. Not counting your time making sure it’s being done right. Importing data, dealing with notices, and just making … keeping an eye on it, it’s not a set and forget process. Joe: So, on the high side it sounds like maybe $500 a month and your maxing out the services there, on the low side $29 a month so it all depends upon the size of the seller and how much you do. Okay, you are about to mention another- Scott: So the next one I would say is Taxify and that’s what we use because we’re doing hundreds and hundreds and hundreds of returns every month. It’s a little more powerful in certain ways. They have integrations. It can handle a wider range of different businesses and there’s … it’s just they’re really kind of head to head but for DIY most people go with TaxJar just because it’s easier to use. TaxJar is more powerful if you have a more complex business. You might want to consider it or compare the two. Pricing is pretty similar between those two and- Joe: Those using TaxJar you said TaxJar, not Taxify. Scott: No we’re using Taxify. We are using Taxify. Our accounting practice for us to file we use Taxify but I’ve known the TaxJar guys for six years now and they really do have a great solution. And any of our stuff we talk about those two is really the primary ones to consider third one is- Joe: Hold on I want to just interrupt again sorry. On this option, you’re saying you already use it which means that with your accounting services for sellers of a certain size I assume, the collection, the management, and remittance of the sales taxes are part of your services as well. Scott: Correct. Joe: So I don’t have to learn the software, I can hire you guys to do it. Scott: Correct. Joe: Okay. Scott: Well and I’ll talk about some other … outsourcing is absolutely a viable, just like you outsource fulfillment to a 3PL or to Amazon FBA, sales tax is something you don’t want to geek out on. I’ve done it for the last six years, it drives me crazy but I geek out on it. It just … it will distract you from listing products and buying products and designing new products and all the front end stuff to generate more income. That is absolutely something you want to … you might like that we look at here’s how you do it yourself and you should understand anything you outsource but we do that. We offer the service but we also do notice management. The states send all kinds of notices. Even if you pay on time they’ll send you a notice but if you don’t respond to the notice they’ll fine you for not responding to the notice. So there’s more to it than just a set and forget tools. These tools are phenomenal as they deal with the complexity. Because every return is different, they have 50 different fields. They really aggregate the data and reduce the complexity of filing and paying which is awesome which is why we use automation. But then there’s there is more to it. Joe: Okay, you’re about to mention a third option for folks. Scott: Yeah third option is Avalara TrustFile. Now if you really are already a 20 or 30 … so Avalara has two products, they have a smaller and a lower end one which I don’t think is as powerful as TaxJar or Taxify called TrustFile which you can use. They’ve cleaned up their pricing but it’s still a little confusing but they’re a viable tool. If you’re already let’s say five or really 10 million and you’re doing more than just e-commerce you can consider Avalara AvaTax which is their higher end tool which will give you more control automated. If you have an accounting department it is definitely a tool you would consider. Quite a few CPA’s and accountants use AvaTax as well to do more complex larger sales tax across multiple businesses. So those are really the key players, there are other smaller players out there but those are really the key players that are really focused and understand what’s going on out there. Joe: Okay. I was listening to your better half Patti on your YouTube channel. She does a great job, by the way, great Q and A’s there. I think she mentioned SALT experts and what they do and what not. Can you define what a SALT expert is and why someone listening might want to consult with one of them? Scott: Absolutely so a SALT; Sales And Local Tax expert, these are people that will do one, they can do a nexus study which tells you where you have nexus and it’ll tell you whether your products are taxable or not, are they a food, are they a candy, do they have flour in them, are they clothing or … they can go look at all that. You can all interpret what the states say but these are people that do it all the time and will contact the state anonymously or you. The next thing they will do is what’s called a voluntary disclosure agreement. If you owe a state tens of thousands of dollars of back tax and you want to come clean because you want to clear out your liability to sell your business and just make sure everything’s done right, they’ll go to the states anonymously and say I have this seller and they’ll represent you. And in some cases get penalties, sometimes interests, and can potentially get a payment plan if you’re cleaning up historical sales tax. And you want that person representing you a SALT expert, not your CPA. Unless they’ve done it multiple times in their own state you really want to talk to someone that’s an expert. They’re the people you want to call if you’re audited to represent you and help you get through an audit. So those are the unique things we haven’t talked about but the main thing is you can outsource your sales tax compliance to them. They will do the registrations and most in almost every case they will set things up. Most of them are very technical … in our case we at Catching Clouds we’re really great at setting up Shopify to collect sales tax right and Amazon and eBay and in the more technical configurations. So we’re very technical accountancy but they will help advise you on those things. They’re all over it. They talk to me about the technical stuff, we’re really good friends. It’s a great community. I’ll try to just solve this for sellers but then you can pay them a monthly fee or a per-state fee to take care of the data collection which you have to give them. The filing, the payments, notices, and kind of provide a complete service to outsource your sales tax. You can go to one person, pay them to take care all of your sales tax that’s going on and advise you and then they’re the ones that are keeping tabs on all the changes that happen every week; every month if that’s the route you want to go. Which is a good way to go, in general, I’ll give you a safe number, you really want to budget at least $50 per state per month. So you’re looking at between $600 and $1,000 per year for this to not be an issue to worry about but you need to budget the right amount. Plus you want to have that same space because everyone’s … Arizona’s awful that they’ll come back the second year and hit you with hundreds of dollars additional fees per county and everything else that you didn’t count on and you can’t get around and they’ll deal with these random issues. Joe: Okay, great. I have a list of those from your website for those listening again in the show notes SALT experts will be available. Sounds like a one stop shopping place to go and just outsource all of this. Of course, some people that want to do the work themselves will have those calculators that you talked about there as well Scott and the links to the Taxify and TaxJar and Avalara. A couple of quick questions before we wrap this up, and maybe they’re not quick questions but historically when someone sells their website … their physical e-commerce business in this case, the question of liability for past sales taxes that should have collected is really really gray, right? Scott: Yeah it is. Joe: And only once for those listening how do you solve that problem as a buyer? In most cases, most buyers don’t worry about it. They really never have and these are people that are a lot smarter than you and I combined. They don’t worry about it; pretty high level folks. In one case I had and think about this as a seller, I had someone that it was … the business sale total value was around $758,000 but they did the math and they said look in the 24 months that you’ve been around you should have collected X amount of sales taxes and let’s call it $50,000 in that purchase price, in that $750,000 in the asset purchase agreement $50,000 was set aside in Escrow for potential sales tax liability purposes. And when the buyer went out to register to get their sales tax in the state of California, Texas, whatever if that state said yes, of course, we’ll register you but we know that you owe us from this brand, you didn’t own the company but from this brand you owe us $17,000 then that money would have come out of that 50,000. For the record, the buyer was able to register in all the states that he wanted to register and not a single state said okay great but you owe us money hence all 50,000 was released. How does this Supreme Court decision in economic nexus change that liability moving forward for the buyers of these businesses? Scott: I don’t think it … I think it only increases the chance of the state contacting you and having to either answer the questions or go through an audit and all of these things are moot until you’re actually audited. And you’re at that point where you’re dealing with an auditor and then then they ask for historical records and financials and everything else. Up until then, it’s not really an issue. Unfortunately, though it’s the decision of that state; are they going to hold the new business and whoever bought that Amazon seller account? They want to attach the liability to the Amazon account where it was being sold that you buy a continuing Amazon account which is what most people do or is it tied to the prior business and the business owner? The people selling you need to be concerned when you get that big chat to set some of this money aside if the states come after you historically because if you’ve spent it all, it really … in most cases tends to tie to the original business owner of the business. So I would say that there’s … it’s really if you’re buying [inaudible 00:34:44.4] sale you have to be worried about it more than anything else. If it’s an asset sale you’re buying this asset, starting a new business, you’ve got to register fresh and move forward. There’s a small risk but only after you’ve been audited. So it’s just a couple of nuances there. Joe: So very very small risk and only after you’re audited and the odds of being audited again, incredibly small. Scott: Correct. Joe: Okay. Let’s talk about those out there that are wholesaling. They’re buying products and wholesaling them, they don’t have to collect these sales taxes is that correct? Scott: They don’t but you have to follow the rules. The first is and what really does this finding really change is instead of collecting tax exemptions certificates; so for every B2B sale you have to get a tax exemption certificate and it’s not just a picture of the sales tax license on the wall of someone’s cell phone. You have to have something that has your business name on the top that other companies who you sold it to their tax licenses whether it’s one state or multiple states. And it doesn’t matter which states they are and an owner or a business manager an approved person of that company signing at the bottom saying they’re responsible for the sales tax. Okay? Joe: Is it on a form? Is it an official form that they would fill out? Scott: There’s a form per state and there’s a great multi-state form. I can get you all of the links and if you want to have a process that you have them and keep in mind that they pretty … a lot of them expire every year. So you want to have all of these forms from your five or 10 or 50 or 500 B2B customers on file. And if you get audited by any given state then you need … then you have these to say hey I didn’t have to collect sales tax but if you don’t have the forms or they’re expired or you’re missing them that … then they can say all of that was taxable and you owe the sales tax. Even if the other company sold it and collected sales tax they can double dip and come after the information. What this decision really changed was two things related to B2B sellers. But first, as most people tend to collect tax exemption certificates for their own states where they’re filing where they would expect their own business to get audited. Now that it’s kind of every state can look at all this information, B2B sellers should start collecting tax exemption certificates on every sale. And if you have your top five or ten B2B customers, go back and get them from those ones and … to make sure you’ve got this filed. And then just set it aside in case you’re audited. The second big impact of this for B2B sellers is now your B2B sales, number of transactions, and dollars volume count towards these economic nexus thresholds. It’s all of your sales. It’s your B2C sales and B2B. And even if you’re 100% B2B and you have no tax you’re still going to cross this threshold. And the states are still going to expect you to file a return. And it is going to cost you the same amount in compliance for you as it does. Even if you give them no money like every number is zero. Joe: That’s really important for people that are doing both B2C and B2B. I was thinking just wholesale B2B but we have a lot of clients that they’ll sell to let’s say for instance chewy.com they’re selling their own website but they wholesale to Chewy. They need to pay attention to this stuff as well. That’s great information. Scott: It’s all of their sales. It combines both and it’s looking at all of your sales. Because what the really the states are doing and all these laws are meant to do is to get to the point where every transaction is taxed and they get a sales tax from every sale. That’s what they’re trying to do so pretty much most of the pain goes away if you register and collect in a state. You don’t have to worry about different fines and fees or other unknowns, you can start defining your cost of compliance but that’s really where we’re going. Joe: Okay. Do you think this Supreme Court decision is good or bad? Overall for the individual states that are going to be applied this collect and collect is what I’m saying. Scott: I think it’s bad for e-commerce sellers. I really do. The compliance costs just went from an unknown maybe I can avoid them to … and we’re heading that way so I think it’s bad for e-commerce sellers. Of course, it is great for the state bureaucracies that are going to go out and collect a bunch of money from other states until something else changes to back it down. I think it’s going to increase the risk for smaller sellers and even mid-range sellers of having more unknown’s that could impact your business. From us, as consumers, we’re really getting to the point as a company … a country since we’re so consumer based, it’s all about products and services and things along those lines that we’re really heading to the point where we’re going to pay a sales tax on everything. It’s just that the cost and the complexity and potential risks to all small businesses, not just e-commerce businesses, anybody that has a product and ships it out of state or does anything else now has to be concerned about that much more in running a business that you know e-commerce businesses are 24/7, running really fast, the rules are constantly changing, you just didn’t need this additional in my opinion large overhead of cost of doing business to really impact them. Joe: Right at the end of the day hopefully it would be great for states and the roads and highways and schools in the state in which you live. But for now, it’s a major complexity that you as an e-commerce owner have to deal with. Scott, as always you’re fantastic. These details are great … for me personally they’re overwhelming many times but that’s the point of the show notes and simplifying it and really … perhaps hiring that SALT expert to do the vast majority of this work for those listening that choose to go that route. Scott before we depart any last thoughts or recommendations for people that are listening; both buyers and sellers? Scott: Yeah. Just take a deep breath plan out time once a month or a quarter to focus in on this. Add up your numbers, decide your risk tolerance, and then move on. And then don’t worry about it for that month or quarter. And then when you decide to do it, think about what it is you’re doing and make a decision and move on. You don’t have to stop all your business or sales or everything else. Just take a practical approach. This is one more thing that has to be on your regular process; like checking your insurance or other things that you’re validating. And just keep moving; keep selling and growing. Balance the risk and then just move on. Joe: That’s great thanks, Scott. As always appreciate it look forward to seeing you at the next event and hopefully lots of folks will reach out to you here. And be at peace of mind here with what you’ve shared. Thanks so much, Scott. Scott: Well, thank you. Links: Catching Clouds eCommerce Accounting Patti’s Q&A about Sales Taxes and the new SCOTUS Ruling Catching Clouds Academy Fox News Supreme Court sales tax ruling: The winners and losers MSNBC Supreme Court Rules States Can Require Shoppers To Pay Online Sales Tax Internet Sales Tax | What Online Retailers Need to Know Sales Tax Nexus Threshold Calculator Sales Tax Permitting with SalesPermitted.com Get your FBA stock locations summarized and delivered to your inbox. Sales and Local Tax (SALT) Experts – Outsource Everything Cathie Stanton and Lauren Stinson, Cherry Bekaert ► http://cherrybekaertsalestax.com/ Michael Fleming ► www.salestaxandmore.com ► https://www.salestaxandmore.com/chart… Diane Yetter ► www.salestaxinstitute.com ► https://www.salestaxinstitute.com/res… SaaS Sales Tax Apps: TaxJar ► https://www.taxjar.com/ Taxify ► https://taxify.co/ Avalara ► https://www.avalara.com/us/en/index.html

Chris got fired from his last job, thankfully! He was speaking with co-workers about his affiliate revenues he was making on the side and his boss found out and fired him! Fast forward almost 10 years and Chris is the host of the UpFuel Podcast and an expert in the Amazon Affiliate space. He is the owner of several businesses in the Amazon space, including affiliate, SaaS and physical product businesses. His opinions and recommendations are not theories…they are from real life experiences. Chris is humble…you’ll get that in the Podcast. He didn’t sell or pitch anything. He just shared his experiences being an Amazon Affiliate entrepreneur. One thing he said over and over when it came to being successful within the Amazon Affiliate space is to “differentiate” your site. Make sure that whatever product line you choose to pursue, that you differentiate your site from others…there needs to be a strong reason why the end user would review products on your site versus the competition. Episode Highlights: Chris has been self-employed for just under 10 years. His Amazon Affiliate income replaced his “job” income…before he was fired. He owns wordpress plugins, saas, affiliate and physical product businesses. Each niche has its strengths. Choose a niche that is of interest if you are starting out. If you are building a portfolio of Amazon Affiliate sites, then a system and process takes precedence over passion. Price point matters GREATLY within the affiliate space. Develop a product review site, not an information site to help buyers make decisions. Content is still critical, and Chris outsources much of it these days. Amazon’s cookie length is 24 hours, allowing you to make money off products you are not reviewing. A long term approach is the key to long term success. Building links can accelerate ranking, but is no replacement for good quality content. When buying…beware of PBNs! Transcription: Mark: Joe how are you? Joe: I’m doing fantastic Mr. Daoust, how about you? Mark: Good. I’d understand you talked to a friend of Quiet Light and a friend of Brad one of our brokers here, Chris Guthrie. Joe: Yeah Chris is from UpFuel.com and AmaSuite and I mentioned those upfront because we didn’t talk about it at all during the podcast. He’s an entrepreneur, have been self-employed for about 10 years, went off on his own after he got fired. He was actually talking to his coworkers and bragging about how much money he was making doing affiliate marketing and his boss found out and fired him; probably the best thing that ever happened to him because he’d been doing very well ever since. And the subject of the podcast is really specifically focused on the Amazon Affiliate Space. Meaning you build the site doing product reviews on say vacuum cleaners and people look at those reviews click on one that they like and it takes them to Amazon, somebody buys it on Amazon and you get paid. And it’s really Chris's … one of his areas of expertise and I mentioned Up Fuel which is his podcast and his blog that he talks about this on so I would recommend people tune in. But also AmaSuite which is a software service that he’s built that helps people sort of narrow the path in terms of what they want to find, what products, how to … what niche, what category and he didn’t talk about it at all. He didn’t pitch. He didn’t promote so I’m doing a little bit for him because what I was trying to get was a clear path for people that want to either build one from scratch or buy one and grow it or things of that nature. And I think that he was hesitant to talk about his own product because he’s such a nice guy. He really … listen Mark I’m going to, don’t let this go to your head but he reminded me of you a little bit which is he just wants to have conversations and help people. And when he helps people it comes back around. And it was a great great great show and I think it’ll help a lot of people in terms of the Amazon Affiliate Space. Mark: He reminded you of me huh? Joe: Yeah just the better looking, a lot better looking. Mark: The poor fellow. Joe: All right well let’s get to it … I mean if you … it’s got to be good so let’s get to it then. Mark: All right here we go. Joe: Hey folks it’s Joe Valley from Quiet Light Brokerage and today I’ve got Chris Guthrie on the line with me. Hey Chris how are you doing? Chris: I’m doing well thank you for having me. Joe: Chris you’re like a … you’re a little bit of famous in my world you know. You are. You’re like a star. I know you from your podcast and we’ve run in the same circles for years but didn’t get a chance to meet each other until last October right? It’s Rhodium Event Weekend out in Vegas. It turns out you’re very good friends with one of our brokers here, Brad Wayland. You guys are in the same neck of the woods I think right? Chris: Yeah well actually he’s an up and a little bit south to Seattle; he’s over several states but- Joe: Okay so in the internet world I guess you’re in the same neck of the woods because you’re- Chris: That’s right. Joe: You should like candies; you guys don’t even if grocery’s on. Chris: Yeah. Joe: But you talk to each other often? Chris: Definitely, yup. Joe: Well he speaks very highly of you. And I … as I said pre intro here we don’t do fancy intros. I don’t have your bio in front of me. I know about you. I know what you do a little bit. But I think folks want to hear it directly from you. So why don’t you give us a little bit of background on how you got started in the internet space and what you do for a living these days. Chris: Definitely. Yeah so probably the reason why I try and put myself out in the first place is just because it leads to conversations and other different types of opportunities. That’s kind of some eyesight a long time ago when I was digging into this online space that I wanted to blog about it and talk about it because it would lead to relationships and friendships that I count people out and they count me out. And that’s sort of why when you said the famous thing I think … I don’t really think that but it’s more just that’s kind of why I went with that direction. But yeah I pretty much just have been doing various online businesses now for about 8 ½ years full time. On the Amazon Affiliate Side of things that’s actually how I was able to first leave my day job. I was just fired but I left ahead that job and was able to just keep doing online stuff because my Amazon Affiliate income had replaced my day job income. And so I just basically got to work the next day working on building more sites and growing the main primary site I had at the time. But yes so other than Amazon Affiliate thing I also run WordPress plugins, a SaaS company, physical product company, and other different types of Amazon Affiliate or well regular affiliate websites as well. So a bunch of different things along the way but yeah I’ve been here right for quite a while. Joe: So what’s your favorite in terms of running the business? Do you like the physical product space which takes working capital and things of that nature or the Amazon Affiliate Space? Chris: It’s tough to say because each one has its benefit. With the affiliate side of things, you don’t have any … you don’t have to deal with any capital it’s just other than your initial capital to invest in the content creation and building a site out. There isn’t going to be as many costs associated with that especially once you get up in ranks and start making money. And then there is … in many cases there’s less ongoing expenses. But on the physical product side you’re constantly putting in more cash and then a lot of cases it’s just a matter of trying to lay the damage to yourself for as long as possible so you can continue to grow that business. I mean everyone has a different goal in terms of what they want to do with any business type but in the physical profit side you’ve got to do … you’ve got to re-invest so much more. So I can’t really answer I guess one way or the other I think it really comes down to what people are most interested in. For me, I like both and so that’s kind of why I still kind of have my feet in both areas; both on the physical product side and if the affiliate side and then also selling software and things like that. Joe: Got you. Well as we talked a little bit before we started recording, I’ve sold a number of affiliate spaces, businesses where they’re selling Amazon Affiliate products and making money through Amazon Affiliates. And it’s becoming more and more prevalent in some of the event groups like Rhodium Weekend, a lot of folks getting very interested in that. I’ve always been in the physical products space, I had a couple of content sites and my physical products site was actually write good quality content and Google will reward me was my methodology. And it happened but I sold physical products. But the affiliate space is fascinating for me and I think more and more people are wanting to learn more about it. So that’s obviously why we’re chatting today and want to really get your expertise on how do you get started in this space? How do you focus on growth? Can you ramp it up? Can you do pay per click? Do you do social media? Do you do the tricks and tactics that they do with physical products on Amazon, or what’s the approach? And then maybe keep in mind that we have both buyers and sellers that listen to the podcast. So tell me from a starting point how do you begin in the Amazon Affiliate Space? Do you just simply research a product, pick one, and go with it? Do something you love? What would you recommend to those listening? Chris: Yeah definitely. So for the way I like to do things is I like to look into … it’s more of a just general niche research. And that’s of course … you said that where there’s a lot of baggage because there’s a whole different bunch of different ways you can do this. You can use various tools to help with the research process. You can just go out to Google based on things you’re interested in and do research in that way. On the Amazon Affiliate side, that’s what I’d spent more of my time doing was focusing more on areas that I was most interested in personally. So I had a site that was focused on like smaller computers and that was something that I was interested in personally. So that’s kind of how I decided. I was looking at the various niches online and what people were ranking for and how they’re making money. And it just seemed like a lot of the content they are creating wasn’t really … in many cases at least for the niche that I was in before I sold that site, they weren’t even actually reviewing the products that they’re talking about. They are just basically writing articles and using CNET [inaudible 00:08:34.7] large conglomerates, larger websites to come up with the information they could write about. So what I did and so I was … you know contacted these companies and got them to send me products for free and I sent it back and do things like that. So with any site that I do whether it’s Amazon Affiliate or anything else it’s … for me, it’s mainly about finding a way to differentiate. So looking at any niche is just okay what can I do to be better or to better serve the audience than the existing niches that are out there? So I usually- Joe: Okay. I would think it would matter that it’s something you’re interested in because with an Amazon Affiliate Space you’re reviewing the products. You’re writing content about it. You’re sharing your voice and your opinion. It seems like it’ll be important that is something that you like. Chris: Yeah definitely I mean that’s … for me that was the approach. I mean I think that if the goal and this isn’t something that I’ve done personally but if the goal is to really systemize and launch dozens of sites or something like that then you would need to just … you could really do just things your interested in because you can’t potentially run out of those. But you’d be looking at different types of criteria just like what’s the average sign price of a product, that’s one of the things that you focus on as well is if you’re focusing on a niche where the price is much higher then you can make more money in Amazon’s Affiliate program because of the way they have the structure; their affiliate payouts. But that’s something to consider as well is just the price of the items that are going to be sold. Joe: Okay so focus a little bit on something that you like but also look at the math behind it in terms of the Amazon Affiliate Payouts and the different categories that they have and the price points. Because you’re going to get a paid … you get paid a percentage of the close transaction I assume; is that right? Can you touch on that a little bit, how you make money as an affiliate? Start from scratch and assume that people are tired of physical products or tired of SaaS products and they want to maybe buy one of these. How do you make money doing it? Go right into that a little bit. Chris: Yes, so the way that it’s done pretty much is just focusing on … actually to see and try to pull up the actual charts that I have memorized it off the side of my head but each category will have different types of payouts. And pretty much the way you can … I would say and try and pull it really quick but I have it in front of me … yeah, so the way that I would that is find- Joe: So somebody reviews a product and let’s say they’re reviewing vacuum cleaners. And someone sells vacuum cleaners on Amazon; obviously, they do. And I’m talking about the reviews on those physical products and someone clicks on the link and goes to buy it on Amazon, I get paid a percentage of that but I never have to own the physical product that’s the upside of this right? I get a percentage of the sale but never have to purchase the inventory, correct? Chris: Exactly yup and in pretty much the … and I was trying to find the category here, so every category is different and they’ll show you which … what the fees are like I’d give you one example, so if it’s outdoor tools for instance that’s 5.5% as a percentage that you’ll get. And the great thing too is any time that you send someone to Amazon you’ll get a commission on any product that they buy while they’re on Amazon. So even if you’re referring people to vacuum cleaners then you can get sales on other types of these accessories as well within a 24 hour window. That’s the cookie blank for Amazon. Joe: Excellent. So I know that with physical products you can get to the top fairly fast. There’s different processes and categories and not just on Amazon but if you’re selling a physical product all that you need to do is pay some PPC ads for instance with Google Ad Words. It’s not a winning formula oddly … obviously all the time but with affiliate how are you getting traction? How are you getting up to page one of the search engines and is it a short term game or is it a long term game? Chris: Yes, definitely more of a long term game. With any website that I’m trying to build out and rank it’s more of kind of like we say you’re creating content or someone is creating content for you. Looking at what’s ranking there and listing okay what can I do that’s better than that? And then having someone or doing it yourself. Creating out that content and creating something better. Things that you can do to accelerate the process of trying to rank would be building links and doing things like that. For me most of the time it’s more of an emphasis on the content creation side aspect but like in the case of the examples I was referring to before that I sold, I would do things like trying to … because mine was in the tactical category, I try to do things like breaking news within that niche. And I would contact larger sites to say hey this product is available on Amazon now. And like in gadget and other types of sites like that, I had a link back to my site because of doing that. So it’s like another way to try and help with getting more link authority from external sites that would help with the content that I was creating for that site. But that’s kind of the process that … and I would never do anything like pay advertising for affiliate sites. It’s … and I’m not sure if any of Amazon affiliate person out there that’s doing that. For me I just … it never [inaudible 00:13:30.0] just because I know that the margins you’re getting from the sales of the products you’re referring rather. Joe: Yeah. Chris: There’s not really enough money actually if I’d like to drive then paid traffic to try and convert that paid traffic. Joe: Right. Chris: Years and years ago people would do just racked paid advertising straight to Amazon’s website and you could do that before they banned it but that was like years and years ago. Joe: Got you. Well, they get smarter every year and fix the problems and make it tougher. And the people that are doing it right, I think survive in the long run and knows that cheating to get to the top end up getting kicked to the curb hopefully anyway. Chris: Yeah. Joe: So with an Amazon affiliate site, some people have the impression that if you’ve got a physical product site that you’re constantly managing customer service, constantly managing inventory and that it’s a grind, you get to constantly churn out new skews to stay on top of the competition and then, of course, grow beyond Amazon.com to the different countries. It sounds like and some people get the impression that it sounds like, seems like Amazon Affiliate would be build it and let it grow slowly and it’s a lot less work. But from what you just said which is breaking news and staying on top of things you’re putting in the same kind of effort on a daily basis I would assume with an affiliate business as you are with that physical products business or is that not the case? Chris: It’s not necessarily the case. I think it really depends on the niche that you’re in because you know it like before we hit recording you mentioned another mutual friend that does Amazon Affiliate things as well. Joe: Yuan Fitzner let’s just say his name out loud. So Fitzner it’s you and he’s a great guy. For anybody who doesn’t know him, find him through Rhodium Weekend; he’s fantastic. Chris: Yeah so he’s probably a good person at all as well but he doesn’t do any link building, right? He focuses more on just creating the content and that’s similar to the strategy that I do as well. But in the case of the niche that I was in specifically before I sold that site doing that as a strategy was … I knew there was a benefit there. Because I think one time Engadget linked to the site and they didn’t change the affiliate link. I think it was like several thousand dollar affiliate fees that they … but in that case, it was more just like here is something that fits- Joe: You didn’t point that mistake to the under laying and good backing. Chris: None of it, it’s just like tip line and you just say hey here’s this product that’s out now and people are probably excited about it and it’s available on Amazon now. And yes that was a nice little bonus but … so now it was more of like niche specific. I definitely think that … I’m probably more often than not actually. You’re building out affiliate sites because I had other sites as well. I have other sites that it’s not like that. Where we’re not trying to break news or do things like that. It’s just more niche specific. Even people in the technical space they don’t want to do that approach and they don’t have to. I mean that’s just kind of the style that we chose for that site. Joe: Okay so good quality content, SEO friendly over the long run and theoretically you’ll get rewarded. Is that the basic simplified dumbed down approach? Chris: Yeah I mean it does simplify it but that’s really kind of the core. And I think I really emphasize just the differentiation aspect. Like any site that I build it’s always like okay I don’t really want to enter this area unless I’m willing to do something multiple times better than what’s already there. So that’s the approach I take for really building any site. Joe: What are some of the mistakes that you’ve made then in terms of doing these affiliate sites? I mean what did you learn the hard way? Chris: Yeah. So of the some of the mistakes I made was … at least for me personally, I do better having fewer sites and just focusing on doing really well with those sites as opposed to having many sites. Like another [inaudible 00:17:09.7] can find that was Spencer he … years and years ago he used to do like hundreds of niche websites and make money from Google AdSense. For me I never … she was interested in doing that type of approach and systemizing in that way. But for me at least it was just a matter of trying to focus on two small niches and so I can … I think I had one that was on HDMI cable reviews. Which was a fail because that was … HDMI cables are inexpensive and then it’s also it’s just kind of a small niche and … well, not necessarily a small niche but it was kind of a … it was hard to do well with that one then than some of the other niches I went after. Joe: That could seem like it would change a whole lot over the years either. Chris: Yeah I mean it was … well, that’s the change in standards in terms like new for kay, signals and things like that. But yeah it was just like if you can go with higher price items that’s helpful right? With the part that I was doing is computers and so it’d be you know … or small laptops rather that would be more of a payout each time. Joe: Okay, I had an example given to me maybe at December, January you know someone that was passionate about … I think it was salt water fishing and writing a blog about salt water fishing and within that doing the affiliate links on the different tackle and lures that you can get with salt water fishing. Would that be an approach that someone could take? You know if I have a passion like that whether it’s salt water fishing or basket weaving if you will, to build a site based upon that passion and then just go with that approach? And then the follow up question is all right great how do I learn about SEO as you have over the years? What resources do you have? Because it seems again really simplified to say just build a site that you really are passionate about, find great products, review them, and off you go. But you’re still got to build an SEO from this site and write good content that that the … your Google is gonna love, right? Chris: Yeah so going back to the example, I think if you’re building out just a site that you’re passionate about and then trying to then add Amazon Affiliate as like a monetization … kind of like an add-on, I think it’s harder to make Amazon a larger portion of the revenue for that site. If the goal isn’t from the start like hey we’re going to build out like a more of a review type site as opposed to here’s something that we’re interested at about just general information and then here is while reading this article happened to may be interested in this specific lure or whatever the example is you gave. Joe: Salt water fishing. Chris: Yeah, so that just from what I’ve been looking at sites in the past it just seems like that’s more challenging. What usually ends up happening in those types of cases, the website owner usually ends up making a larger portion of their money just from banner ads or other types of ad platforms like that and then Amazon is more of a supplemental as opposed to the sites that I build. It’d be more … really focused around the review side of things. And so it’ll just be like people that are coming to this content are interested in reviews about this product and so then that traffic is more likely to buy something than people that are just interested in general information come to my site and then they may or may not be in a buying state. Joe: So a clear differentiate is a content site that’s just giving information about products in general versus a review site when you’re comparing a variety of different products. And when you choose one of those products it’s going to Amazon and you get a percentage of that revenue. That’d be, right? Chris: Yeah and I don’t think it’s a bad thing to do … really your example where you’re building out because it’s great to generate revenue from ads and just have a lot of traffic as well just from various articles you’re writing and all about salt water fishing and then also be able to make money from Amazon with the Affiliate Program. It’s just there’s two different ways that you might see sites if you’re on the buying or building or selling side of things. Joe: Well on those three sides which do you like … do you think, let’s just talk about two; building or buying. We had Walker Deibel on the show a couple of weeks ago talking about build versus buy or buy versus build. It’s actually in a book. He’s coming on the Quiet Light team as an advisor in July. Do you personally in terms of specifically the affiliate space, Amazon Affiliate Space do you think it’s better to build or to buy? Chris: Well I’ve done all of them. Build, buy, sell, every aspect on the Amazon Affiliate Side. I prefer now at least … I’ve been doing this for a lot longer to … or that depends right? Because it depends on for me at least where my capital might be tied up; either I just recently bought something or I’m doing other investments that are outside the online space and I want it just free of capital. And so I’m not actively looking to buy something or I’m just trying to focus on okay now that I’ve got that other thing going on but I can try and focus on scaling up all my things and as well. I prefer, if I had to pick one I’d say I prefer building and then being able to sell after that because for me at least I’d like to be able to invest less of my own personal cash. I know you mentioned [inaudible 00:22:18.3] before, [inaudible 00:22:19.4], a lot of the buyers there they don’t have access to capital that I don’t have access to through … you know people have consider with more money that they can then use as investing partners. And so I suppose if I … given the opportunity I had more capital then I would probably be doing more buying. So I guess it’s tough to say. If you don’t have cash and you want to just get started then building would make the most sense and maybe you can sell once you get to a certain point. That gives you some capital to either reinvest and build more sites or maybe build or buy other things. But if you have access to capital from … for any reason then buying would be great because you’re able to just start with something existing. Joe: How long has it been for you from that build to sell? Do you typically hold something for 12, 24, 36 months? What have you seen? What do you try to set as a goal for yourself when you’re building something? I think okay I’m going to build this to eventually sell it if that’s your goal, how long do you like to hold it for? Or does it just depend? Chris: Well, a lot of the times it’s more just a … it really does depend. Because half the time I do this site … well most of the time actually when I do these sites it’s more a matter of I’m building something up, I like the cash flow and that’s kind of the main goals is just building our monthly cash flow from various websites, businesses, etcetera. So that’s kind of more of what I’m after is just getting more cash flow and then rather than just trying to pull out my capital right away and just to sell. So for me, it’s all about the cash flow and I am not always interested in exactly trying to sell. Joe: How many how many balls do you have in the inner; Amazon affiliate wise, how many sites are you juggling now? Chris: If I were to add up all the different sites it’d probably be … I had to look- Joe: You know it’s more than a dozen or so when you have to look. Chris: Well, no it’s more I was trying to get a specific number. I’ll say it’s less than a dozen but I also include in that other affiliate sites that just make money from other CPA type offers opposed to Amazon. Joe: Got you. Chris: Because kind of once … for me, Amazon was a starting point. That was kind of how I got into the whole space was building out this Amazon Affiliate Site, I was doing it on the side outside of my working hours in a completely unrelated job and just trying to find a way to earn enough money to do this full time. And then once I started making enough money from Amazon it opened up all these different opportunities to try and do other things as well. And that’s one is going to software, creating tools for Amazon Affiliate Sellers or well affiliates rather and doing things like that. Joe: How long has it been since you were thankfully fired from the last day job you had? Chris: Yeah, I was looking it up. Actually, I have it on my calendar October 13th is the day and it was … it will be nine years this year, later this year rather. And then I’ll be 10 years the next year but that will be sort of, that’ll be what 2000 … I’m trying to think now what the year it is, 2018 so it’s 2009 I believe. Joe: 2009. Chris: Yeah. Joe: It’s a long time to be self-employed; it’s impressive that you pulled that off. Chris: Yeah. And now for me at least it’s more of a matter of just further building out multiple different income streams and revenue streams from a variety of different businesses. There’s … well, that’s a whole other discussion right whether you should focus on just one thing or kind of spread it out. For me, it was more like build something out that starts making cash. And it’s like well I don’t know if I can really sell this for enough to make it worth selling. It’s not going to change my life in any meaningful way so I’ll keep it and have someone help me out to run it. Well, that’s kind of the approach I’m working with. Joe: So if someone is listening to this and they were in your shoes, you know where you were 10 years ago and they had a day job and they want to do what you’ve done which is building Amazon Affiliate Sites and make some income on the side what should they expect? Should they … if they pick a category they like, they do a review site, they sign up, they get involved should they … would your expectations that they’re going to hit 1 out of 10 on sites that they do, 2 out of 10, 5 out of 10. What would you give them in terms of a ratio so that they can understand and of course these are all ballpark numbers and what kind of money can they really make? I mean we’re talking about on the small side a few thousand bucks a month and the people that are big and really experienced at this you know what kind of money are they making? Chris: Yeah you know that’s a tough … it’s tough I think with the ballpark it’s a challenge to give an answer to that because the experiences that people have may lend themselves to be able to be successful more easily. Joe: All right, well look everybody listens to me all right. And they’re like Joe you’re an idiot but I like you and you know would … I have people tell me like they feel like we’re old friends from this nude podcast. But you know me through Brad, we chatted, if I was to do this … let’s be specific. You could say … be honest say, Joe, you’re going to do 1 out of 10. Just face it, Joe, you’re not going to do well. I mean you’re the expert what would you guess if people are going to do this with some these in experience on a thing that they love and they’re smart and they’re going to do research online, they’re gonna go to your podcast, they’re going to go read everything about Chris Guthrie and figure how you do it. What are they going to do, 1 out of 10, 1 out of 5, what do you think? Chris: Ah if they’re learning from me it’s going to be 100% right. Joe: You’re a humble guy every time okay. Chris: Yeah and though I’d say probably it’s … with a lot of things, you get into it and sometimes they’ll hit and they’ll do well. So for me, the best site that I have was doing over 10k a month. Joe: Okay. Chris: Worst site would be like $300 a month. And that’s where I’ll be some of the weaker ones and then some are them between where I have a few thousand or so. Hit rate would be more like maybe 25-50% with sites that would be doing pretty well. But it … yeah, it’s just really tough to answer that question for me. Joe: You improved that hit rate I would assume with the research that you do upfront. Is that right? I mean just like a physical products business on the web, on Amazon or Shopify whatever it is if you do your research up front; what are the competition price points, how are you going to sell it, things of that nature- Chris: Yeah. Joe: And you’re doing the same thing with Amazon Affiliate; you need to pick a product with a great margin, something that you can write about, something that has been up searches online. What tools do you use to help … even if you have a passion for something whether it’s worth it on … whether it’s worth creating an Amazon Affiliate Business? So are there certain tools that you use to help that hit rate go up? Chris: So well tools for like the research side of things? Joe: Yeah to help ensure that the path that you’re going down is going to be as successful as possible. Chris: Yes, I use a lot of SEMrush actually. So I use that tool quite a bit because I just like to pull up a site, see what stuff is ranking well, where they’re getting their traffic from and- Joe: Do you have the paid subscription for that or do you just use the free version? Chris: So I fluctuate off and on. So from the process of building or going back to yeah I’d more than all do the paid subscription, and then if it’s okay we’ve got enough stuff on our plate let’s just focus on what we have and not create anything new then it’s like well I don’t really need to pay extra subscription right now. So I fluctuate in and out. Ahrefs is another tool I use as well although that was another one that I just was okay I got a good sense of where our competitors are in their links, where they’re getting traffic, and okay I cancel out as well. So it’s like- Joe: I always get that one wrong, it’s A-H-refs is that right? We did a giveaway when we launched the podcast on an account on a subscription for that but it was Mark’s area of expertise. Can you spell it out for me? Chris: Yeah, it’s A-H-R-E-F-S.com and I’m not even sure how you’re supposed to pronounce that either. Joe: Okay. Chris: So I mean I met someone that works for the company at that conference as well. I didn’t bring that up but yeah- Joe: Mumble what they said that’ll generally work. If you actually … the way my 16 year old does, he just speaks confidently and I believe him when he’s comp … no idea what he’s talking about but he speaks confidently. I think that’s the trick. Chris: Yeah. Joe: All right so Ahrefs- Chris: Yup. Joe: You went through it and that one is more of what links the sites have right? Is that what you’re looking at? Chris: Yeah, so it’d be more like looking at both viewers and the lengths for me. I was merely just trying to see where my key rankings were and so I was kind of more just tracking how it is we’re doing. For SEMrush that’s why I would use just the tool for research. And the thing is that here’s what … the thing with tools and especially the two tools I just mentioned they’ve been around for years and years and years so they have so many different things that I probably didn’t even know. Like I probably didn’t even need one or the other it’s just like when you get comfortable using one tool for one thing you’d use it for just that one thing. And then you might use this tool for the other thing. But that’s kind of what the approach I would do. Joe: Okay. So do that research upfront and what you’re looking for is traffic, competition, links, things of that nature before you go down the path to increase success rate, any other recommendations that you’d give somebody just starting off? Chris: Just the main thing I would say is well … I mean if you’re looking at what … just looking at larger sites that are doing well. Seeing … I try to reverse engineer a lot. So when you’re looking at starting from now that you’re doing your research process and seeing what sites are getting in the traffic beyond just like figuring out why are they getting this traffic. Is it because they have a bunch of links pointing at them? Is it because their content is much much better? That’s … I guess I keep coming back to this like but it’s always for me differentiation. What is it that they’re doing that’s really doing that is working really well for them and then how can I do better than that? And so in the process of doing that research and looking at that then you’re going to see okay it looks like they’re using AdThrive or something for their ad platform and then they’re using Amazon’s Affiliate Program and maybe they’re using LinkShare so you link to Walmart and things like that. Joe: From a buyer’s side if somebody came to you and said “Hey look I’m looking at buying this site can you give me your opinion on it?” What things should buyers look for that maybe somebody in the Amazon Affiliate Space has done this sort of cheat and it’s not going to last, is there anything that stands out that people should be aware of or look for? Chris: It’s not because … you want to look at where they … if they are building links you want look at where they’re doing it because there’s you know PBNs or things like that are definitely more gray area. Joe: If I were … go ahead and say what PBN stands for, please. Chris: Yeah, Private Blog Networks, that’s where people build out like huge networks of blogs and then they use links on those blogs and point them at the site. And then those blogs are getting traffic or links part of them as well. So that looks like you’re getting links from higher quality sites when in fact they’re just sites people would construct pretty much solely for the purpose of pointing links at properties they own or properties their clients own. And I can’t remember exactly how long ago it was but Google cracked down and quite a bit. From what I’ve seen people kind of just got it underground and so it’s kind of the [inaudible 00:33:26.3] a lot but … so looking at that is helpful in terms of how a buyer can protect themselves from that. Usually, you’re able to use some of these third party tools to help check that out. There’s also things where if you’re signing an agreement that’s saying I haven’t used a PBN and then you find out that they are because maybe you’re ranking stopped or go down because they’ve stopped in turning to run that PBN and point the links at you then that’s something that you could have legal recourse to go after them. But that might be something out of buying side that included- Joe: Yeah, that’s what you definitely don’t want to have to do is to go after them after the fact. Chris: Yeah. Joe: Because you’re chasing them for money that you gave them which is never a good position to be in. Chris: Yeah. Joe: But certainly doing the research to see where those … where the traffic’s coming from and see if there is a PBN and trying to avoid it as much as possible. I think a lot of the times Chris getting to know the person, trusting a broker that’s involved if there is one involved, really getting to know the seller in a positive manner. I always recommend whether it’s a $35,000 site and it could apply to 3,500 as well, or a 3.5 million dollar site, if you’re buying it, it’s your money, you worked hard for it, get on a plane, spend an extra thousand dollars stay in a Holiday Inn whatever and meet the person face to face. Do a Zoom or Skype conference call so you can see them and talk to them but meet them face to face before you close the transaction. You can go under LOI in advance but I just don’t think there’s a better substitute for a handshake, having a lunch or dinner or beer and getting a better feel for them. Of course, you’ve got to do that due diligence and that research and hire experts like yourself or [inaudible 00:35:14.5] whoever might do the research if you don’t have it to protect your money. It’s something you worked hard for and I can tell you right now that when you make an investment and you blow it, it’s really really hard to pull the trigger again. I know a lot of people that have done that. I know more people that have been incredibly successful and then unsuccessful. But those that thought they knew everything and thought that everybody was kind and trustworthy like they were and they pulled the trigger and something changed in the world, there was a shift with an algorithm update or whatnot and things just fall apart. They can fall apart very quickly. So lots of research meet somebody face to face, use the tools that you’re talking about, the Ahrefs and SEMrush, check for PBN things of that nature. You know most people are good but it’s the few bad ones that you just want to avoid in my opinion, in my experience. As far as up the top line revenue you think you know if somebody that can do this maybe they’re making $10,000 a month that they do really well, how many hours a week are we talking about that is going to take to operate a business of this nature? Chris: It’s definitely if … so for I guess it depends. For me, I’ll give … I can really only speak to my own experiences. So for that site that like my bigger site that I had before I sold it, it was probably 15 hours a week or so and then the rest of my time was on other projects. So it wasn’t like a full time thing because I was doing it outside my day job in the first place and then I only added a little bit more time because then I thought okay well I’ve got this new time. I don’t want to have all my eggs in one basket because now I have no job and just one primary site and then other sites that are also helpful but wouldn’t be enough for me to cover my bills and for … at the time I was like okay I just want to make sure I could … I don’t have to go back and get a job. Joe: [inaudible 00:37:01.3] Chris: And so that’s kind of the approach that I took and it worked for that site. It really depends on me and a lot of times too with Amazon Affiliate Sites especially, you’re able to hire out for a lot of aspects of the process of building; either building, maintaining, any aspect to that because it’s just content creation and there are a lot of writers that you can find. They can cover that part. And so if you’re not doing it yourself and you’re finding ways to get yourself out of that process then it can be much further reduced. Now I try and just … for me it was I try to only come up with ideas and then work with people that can help implement a lot of these or to … it’s more just about trying to really limit the amount of time I spend on actually like creating content for instance. I might like to write about something on a blog personally but if I can have someone else do it then it wouldn’t make sense for you to do that. Joe: Yeah, content creation can take an awful lot of time. Chris, we’re running out of time. Can you share any last minute thoughts or recommendations for those that are listening that are either building, buying, or selling Amazon Affiliate Sites; any last minute advice that you would give them? Chris: Yeah, I would just say that … well, actually I’d say if anyone is curious or has other questions feel free to … I would like to say feel free to email me. Joe: You know without a doubt I want to … let’s talk about how they reach you. We’ll put it in the show notes as well but you know throw out whatever email address, phone number, blog sites, anything you want to share right now I’d be happy to do that. But we’ll also put it in the show notes so everybody can find it in writing and get a link there too. Chris: Yeah so to answer your question I’d say decide on what you want to do right? If you’re trying to … and everyone probably has a different expertise or where they’re at with their life, what they want to do. If you’re limited by a capital and you have a lot of money to invest then it may make sense to just simply build something so you can build it up and then come to your brokers like you guys of course and then sell it and that can give you cash that would … you could then use to reinvest and do those things. And that might be something you would do while you’re still at your day job. If you’re already on a site where you have access to more money then buying something would make sense. And being able to then take where you’re at and growing it from there. I’d really just say that decide which focus you want to go with. Make sure you find ways to differentiate. I mean I kind of bring out that this whole time but for me, everything that I’ve done with any business is always been for me differentiation and finding ways to do much better than the competition. Joe: That seems to be the good … best key word here is just be different. You don’t want to be like everybody else; differentiate yourself. Still do all the things right, still build something that people want to come to and trust but differentiate yourself in whatever way that you can. Excellent. Chris, how do people reach you? How do they find you? Share any information you can now so that they can get in touch with you and talk about this. Chris: Yeah, so best place would probably just be UpFuel.com which is my site. We didn’t talk about it much but I sell the WordPress plugin that helps people with Amazon Affiliate things as well and that’s EasyAzon.com. Joe: EasyAzon.com? Chris: Yeah so if it’s … if you’re running WordPress and you know a lot of people do of course then that’s a software you can use to help with creating links and earning more money from those links as well. Joe: Excellent. I will make sure that link is in the show notes as well. So UpFuel.com, EasyAzon.com anywhere else that you are in the world? Chris: Twitter @chrisguthrie and yeah so that’s probably the main ones but I’m happy to … if any … if you’re on the buying side and you’re just looking for second opinion, I try and I’ve just done well with trying to provide value and people with no expectation, no return and then things work out so- Joe: I agree. Just help people have good conversations and it comes back around. All right man listen I appreciate it Chris thanks so much for your time. Hopefully, folks that are either building buying or selling Amazon affiliate sites will get some good resources here. Thanks for your time today I appreciate it. Chris: Thanks.   Links: Upfuel.com: An up to date article with respect to the Amazon affiliate niche. Easyazon.com: The plugin that a lot of WordPress users install as well (they have over 10,000 installs). AMASuite.com: Discover products and how to differentiate and source them inexpensively.

Rochelle Friedman was a corporate lawyer representing some of the top products and brands in the world. A few years ago she jumped ship and started the Walk Law Firm. Now more than 50% of her business is representing both buyers and sellers in transactions that involved the transfer of an Amazon Seller Account. Because of her specialty and expertise, I wanted to have her on the Podcast to share her approach, and what she sees other brokerage firms in the industry doing. In today’s Podcast she covers the risks and pitfalls of transferring an account through an asset sale, and talks about the different types of transactions she sees occur. Rochell also delves into the two big “stomach ache” clauses in a typical asset purchase agreement, and how to address them up front so the due diligence and negotiation process is successful. As you’ve heard us often say…”don’t decide to sell, plan to sell”. The same holds true with legal matters. Make sure you are properly incorporated, that your trademarks and copyrights are up to date and transferrable. All of these are part of the assets of your business, and hiring a firm like Walk Law Firm to review them in advance of a sale is advisable. Episode Highlights: Learn Rochell’s approach to transferring an Amazon account. Hint…it is the same as ours. Transferring non-US accounts is the same process. Both buyers and sellers need to be happy at closing, or a deal falls apart. Having a qualified contract attorney truly matters. The same attorney will fight differently if their client is the seller vs. the buyer. There are TWO MAJOR stomach clauses in every APA. Address them early on in negotiations. Transcription: Mark: Joe how are you? Joe: I’m doing good Mark. How are you doing today? Mark: You know ever since you got back from Italy you are kicking my butt again when it comes to the number of interviews you’re doing for the podcast. I think like three to one, four to one as far as the ratio is concerned and I’m sure our listeners are ecstatic. Joe: I don’t know. I actually have the easy part. I just do the interviews you do all of the stuff in the background so thank you and I appreciate it. I just do the interview. And this time for this show I don’t … falsely, folks, I talked to an attorney and it was actually a really good call and here’s why I had; her name is Rochelle Friedman, she’s from Walk Law Firm and you know look with physical products businesses and the transfer of an Amazon Seller Account everybody has questions about how to go about doing it, whether it’s a US based account or one that’s international. And I came across Rochelle through some other folks that I worked with and I had a call with her. And I just picked up the phone and I called her and chatted with her. Look she does close transactions for Quiet Light Brokerage, for Empire Flippers, for Website Closers and you guys know who they are so it’s okay to mention them right? And I know she does that so I wanted to confirm with her what processes, what she does and shockingly Mark it’s the same way that we do it believe it or not. And she goes into detail about it, and she goes into great detail about it. Not only that she talks about contracts in general, she represents both buyers and sellers. She’s a contract attorney that came from the corporate world representing businesses, every day household businesses, she was their attorney a very good one in the corporate world last went out on her own and now represents both buyers and sellers in transactions. And I think it’s worth listening to. I think it’s really really important as you and I have talked about how important planning is. Don’t wake up and decide to sell but plan to sell, same thing should be said for an attorney; talk to one. Get your ducks in a row and make sure that you’re doing the right thing as you go into your transactions you can do it with confidence. Mark: I’m gonna put you on the spot because you said we’re going to address in this podcast episode how do you transfer an Amazon business and how are people doing it pretty much across the board. But for anyone that already knows how to do that or has done that what else do we cover in this episode? Joe: She covers the two big stomach ache clauses in contract negotiations. That being the non-compete and the indemnification clause. I think the indemnification clause is the bigger of the two because we do a pretty good job up front addressing the non-compete. And so if you do that work up front in the client interview and work with the seller on that to make sure they understand what a non-compete is and make sure there aren’t going to be any issue is never really a problem. The hard one to wrap your brain around, your hands around is the indemnification clause and what that is from a seller’s standpoint. You sell your business you think you’re done, you get 100,000 200,000 a million dollars in your bank account and you move on about your merry way. You sleep really well at night because you got a bunch of money in your account. Well, your buyer’s attorney is going to have something in there that is going to have them reach back into your bank account and take some money out if you lied or cheated or stole or did anything fraudulent in anyway. Now you should sleep well if everything was done right but if there’s anything that wasn’t they’re going to put that in there. And they’re gonna put that in there anyway and the big question is how long is that grace period for? Is it six months or 12 months or 18, and then how much is it for? And Rochelle you know towards the end of the podcast she laughs and she chuckles and she talks about how … well she has one standard when she’s representing the buyer and she has a completely other standard when she’s representing the seller so it’s good to hear from both sides for sure. But the stomach ache clauses are really important in there as well. Mark: That’s fantastic. And those are easily interest almost guaranteed at it every time we send out a purchase agreement on those two clauses. Joe: Guaranteed. Mark: You always see stuff. All right let’s get in to see what she has to say about all of this including in the indemnification stuff. Let’s get to it. Joe: Hey folks it’s Joe from Quiet Light Brokerage and today I’ve got Rochelle Walk from Walk Law Firm on the line with me today. How are you doing Rochelle? Rochelle:     I’m doing great Joe, how are you today? Joe: I’m doing well. I have a sister in law name Richelle so if I mispronounce your name during the podcast at all today that’s the reason why. I’m apologizing in advance. Rochelle:     Not a problem at all. Joe: As we talked about a little bit before recording we don’t do fancy introductions so if you could just give the audience a little bit of background on yourself. Tell them about who you are and the work you do that’d be great. Rochelle:     Sure. Thanks, Joe. First off all thanks for having me on, I appreciate the opportunity. My background is actually a little bit complicated because I have been practicing law for 33 years but unlike a lot of other lawyers, most of my practice has been as a general counsel or as the chief administrative officer of very large public companies. So most of my time spent as a lawyer has actually been as a business person. And I like to explain myself as a business person who happens to also be a good lawyer. Joe: Excellent. Rochelle:     And when I started this firm I was at the point where I was leaving a major public company, decided I wanted to do something different, and decided I wanted to use the same skills I garnered as a business person and lawyer for really large public companies and turn it into something that would work well for small to mid-size companies. So during my years in my big company world, I worked heavily in consumer products. I was head of license brands for Sherwin-Williams, brands like Martha Stewart, Ralph Lauren, I worked with Dutch Boy, I worked with Thompson-Minwax, Krylon, very famous brands. And then I left there and I was at a company called Oglebay Norton it was mining and minerals. We had clients and customers like Home Depot but we also had heavy industry as clients and lots of engineers. And then ultimately I went to a company called Anchor Glass and it was consumer glass, some of your favorite beverages, as a matter of fact, would be bottled in the glass containers whether you know beer, wine, Maker’s Mark you know some famous brands. So my career has always been around famous brands and lots of retail. So when I looked at what I could do seven years ago when I started this practice, I thought about it and said I can really understand consumer brands. I really understand branding. I really understand intellectual property but it’s a new world and we need to be able to do it online. And I dove into e-commerce understanding how Amazon works, how eBay works, how Jet works, of course, some of those came later, how Walmart.com as a marketplace work … Walmart used to be my customer at Sherwin-Williams and now here at Walmart.com it’s a completely different animal and I dove into that. My practice has always been heavily mergers and acquisitions so about 50% of our practice is the mergers and acquisitions of businesses. And seven years later that has become a huge footprint of Amazon sellers, online sellers, e-commerce businesses that are seeking to flip. Entrepreneurs who have created … you know they have created great brands but in order to take them, to exploit them to the next level they need a lot more bandwidth. And it’s, therefore, their time to move out of that business. Having spent a lot of years buying and selling Mom & Pop tank stores for Sherwin-Williams and Mom & Pop paint brands and Sundry brands it’s no different, it’s just now we’re doing it through e-commerce instead of bricks and mortar. Joe: Okay. So about 50% of your business is the M & A side, the other side is what; working with people on intellectual property, branding, things of that nature? Rochelle:     We’re like their outsourced general counsel. It can be everything from intellectual property and branding to possibly contracts, employee issues, independent contractor issues, tax issues- Joe: Okay. Rochelle:     Really almost anything they need. Leases, fire agreements, everything you might imagine a general counsel doing. Joe: I got you. So for folks listening, the reason I have Rochelle on the line today is because a lot of you have asked during the buy or sell process if Quiet Light can recommend an attorney. We have several that we work with; Shawn Hussain at the Ecom Law Group is terrific. We work with him often and Rochelle knows him and came across Rochelle and we were talking about the transfer process of an Amazon business. And I know now that you’ve worked with all of the website business broker firms that are at a high level like Quiet Light and you’ve been on both sides of the transaction. Rochelle:     Right. Joe: Do you prefer or do you most often work with the buyer of a business, representing the buyer in contract negotiations or do you find yourself on the seller’s side more often? Rochelle:     It’s really about equal and we don’t really have a preference. We’re perfectly prepared to work with both buyers and sellers. Buyers and sellers have different needs and one of the things that I think we’re pretty good at and just so you know we’re a firm of three full time lawyers. We are about to affiliate with a bigger national firm who also does quite a bit in e-commerce and emerging business and we can … I’m not prepared to tell you who and the details of that but that’s coming down the pike so we’ll have a lot more bandwidth. But what’s important about us as we understand the difference between what a buyer needs, what a seller needs, financing it; if both you’re a buyer and a seller how it’s being financed matters, and understanding how this Amazon accounts transfer. Sometimes transferring the account actually isn’t in your best interest or the buyer, sometimes it’s the only solution for the buyer and- Joe: Let’s talk about that- Rochelle:     You have to assess that. Joe: You know that the listener’s ears just perked up because we’re talking about the transfer of an Amazon account. Rochelle:     Yeah. Joe: You and I both know as does everyone who has an Amazon account that the Terms of Service says that the Amazon account is not transferrable and that- Rochelle:     Generally. Joe: Right there’s a bracket in there that says generally. To me logically it never made sense that you could build an amazing brand on Amazon and never be able to sell that. And I’ve had experience direct with Amazon and they’ve proven that they do in fact allow the transfer of accounts but- Rochelle:     Of course. Joe: Tell us, tell the audience, tell me how have you seen an Amazon account most often transferred with the different transactions that you’ve done with the top websites and business brokerage firms. Rochelle:     Sure you know a lot of times it’s very much behind the scenes. If you are actually selling the ownership interest in the business you’re not really transferring the Amazon account. Although Amazon may disagree with that but you’re really not transferring the Amazon account, you’re transferring the ownership interest in your business. And the only thing you’re doing with the Amazon account is actually maybe changing an EIN if … depending on what you’re buying and if you’re getting the EIN of the new business and probably changing where you want the banking to go. I’ve even had situations where we haven’t had to change the banking at all. If you’re buying the assets however and you’re leaving the ownership interest of the business behind by getting all of the assets of the business you’re going to need to go in and possibly change the name of the owner of the account, change the … certainly, the EIN or the Employer ID Number, change the bank account number, and there may be some other things you’re going to change as well. But there are some things that we recommend sellers do and frankly, it’s better for buyers to help ease the pain of that process. First of all, we’ve never had Amazon stand in the way. As a matter of fact, if you text Amazon they’ll even tell you how to go on and do it. So as much as they say it’s generally not transferrable they actually don’t get in the way as long as what you’re doing is not disruptive. So where will they get in the way? If the IP address of the person making the change is different than the IP address of the person who has been running the account Amazon is going to have a big flag for fraud and they will get in the way and they may shut down the account. What they usually will do is let the sales continue. However, you can’t access your account until somebody verifies that it was an intentional change. And they use to give you a couple of weeks to do that verification although my clients are typically through that verification process within a couple of hours. It may take Amazon a few hours to flag you but watch for the flag it’s usually going to come to the seller. One of the great ways to avoid any of those issues, if you’re using a VPN to access your account in the first place then you transfer the account with the VPN it has all locked in. You’re not changing the IP address and that way when you do this transition there is no issue of the buyer or the seller plugging in the information as long as they’re all going through the same VPN. Similarly, let the seller make the changes. Generally, the seller makes the changes. If it’s a big enough account Amazon may flag it for fraud anyway but within a couple of hours the seller will get that email or will get contact from his or her account rep and that pain will be immediately fixed. We do it all the time and we haven’t had an issue. Joe: So do you end up having to have a contact yourself with Amazon if there’s an issue or is it just something that the seller contacts them and it’s resolved eventually? Rochelle:     So my rule of thumb, leave your lawyers out of Amazon at all times. We may be in the background helping draft the e-mails, helping respond to the emails, they always come from our client who has the most contact with their Amazon rep. Joe: That’s the sellers. Rochelle:     We want- Joe: That’s the owner of the seller account. Rochelle:     Exactly. We want the least amount of disruption in the communications. Amazon really doesn’t need to hear from your lawyers. You just need to work directly with Amazon and frankly, it’s a fraud detection problem. Amazon doesn’t want to be caught where somebody somehow hacked into your system changed your accounts and you later come back and accuse Amazon of having changed your accounts or having diverted your money. So you can’t blame Amazon for what they’re doing. You just have to be able to work with them and be prepared for maybe a day or two of disruption. But typically we haven’t seen it disrupt sales. Joe: Okay. Rochelle:     We’ve seen product takedowns disrupt sales but we have not seen that transfer of the account disrupt sales. Joe: Excellent. Okay. Well let’s take a few things, we talked about you’re seeing the most method text and then we talked about the VPN and then you talked about … well, I want to talk about different Amazon countries so- Rochelle:     Okay. Joe: What I’ve seen in the transfer process is the same. You know we wrote the 10 steps to transfer an Amazon account in 2016 I think and the process that we see is actual phone calls to seller central saying “Hey look I’m transferring the business, one of the assets of my business to the Amazon Seller Account. How do I transfer control to the new owner?” and they do the same thing you just talked about in Texas- Rochelle:     Right. Joe: They give you written instructions and they’d sent it via email. Rochelle:     Exactly. Joe: Our clients tell us that sometimes they get lucky; in the 1st call it works and sometimes it takes 10 calls. Rochelle:     Right. Joe: At 1st hold on you can’t do that and then on 10th oh yeah exactly I know what you’re talking about, they do it. I’ve had some chats with Amazon chats do the same thing but you said text. Now do you mean email, do you mean the chats, what do you mean by text? Rochelle:     I mean the chats. Joe: You mean the chats, okay. Rochelle:     And it’s usually the Seller Central chat system and we even have videos and screenshots of the chats that some of our clients have had. Joe: Okay. Rochelle:     Remember with Amazon Seller Central you are dealing with … I’ll describe this way my husband describes pizza. It’s only as good as the 16 year old making it; when you order a pizza from a pizza parlor the quality control is a little bit lax. Well with Amazon it’s not a quality control problem but the experience of a customer service rep is only what that person has had as experience. And depending on how specific you are, on how clear you are on what you’re trying to ask them will depend on how good they are at getting it to the Amazon separate instructions and pulling back and telling you what to do. The more experienced reps are very good at telling you exactly how to go into Seller Central and make the changes. Joe: I like that. I wonder if on the chats that the more experienced reps answer the chats versus the phone calls. DO you know if there’s any data behind that or is that just an assumption? Rochelle:     No, I have no idea. Joe: Okay. Rochelle:     I have not seen that and I really don’t know and remember the chats are being answered by people all over the world. Joe: Okay same as phone call side too. Rochelle:     Exactly. Joe: Okay, good. So just to back up a little bit of what you are saying I’ve had many many Amazon … Quiet Light Brokerage has many Amazon transactions transfer just that very same way. I personally have a situation for folks listening who or had an Amazon account that had a gold status, I don’t know if that exists anymore but it was called a gold status and that meant that. It was old enough and large enough where they had an Amazon representative assigned to their account. So they had somebody they could always reach out to and during that process, they reached out to that person and said “Hey look transfer selling the business one of the assets of the business is my account how do we take care of this?” And that individual went to Amazon legal and said hey look this is what we’re doing and Amazon Legal provided a form- Rochelle:     Right. Joe: And all they wanted to know was the name of the buyer. And it’s always been a theory that Amazon wants to make sure that those that have been banned are permanently banned so they wanted to know the name of the buyer so to do that search to see if they’ve been banned. That’s all they did was check the name of the buyer and the transfer went through with no problem at all. So just backing up what you said there. The VPN, I had Norman Farrar on the podcast, Norm is an expert in SOP’s and marketing Amazon. He guested on many many podcasts. Norm recommended the same thing and for those that are listening that do a lot of traveling to different events and whatnot, you’re all at mastermind groups and you’re getting advice if everyone is using the local VPN and there’s a hundred people that get it sitting in listen to an expert and they get a great idea they’ll all log on to their Amazon account using that IP address in the local wireless, local hotel, or whatever it might be- Rochelle:     Right. Joe: The Amazon bots are gonna go crazy and you’re all going to get shut down. Rochelle:     Exactly. Joe: So Norm does that. Norm recommends VPNs. Rob Green who does the same thing, high level seller, a lot of podcasts, a lot of speaking all that events. He’s got three or four different seller accounts, different VPN for each one so he goes even to a further level. Rochelle:     All of my biggest clients are using VPNs. It is the smoothest, simplest way … as you said it’s not just a matter of selling your business and having the VPN set up, it’s actually an operational benefit. Because what it also means as you get bigger it’s not just one person who needs to get into that account. You may have a team of people who have to go in and do different things at different times. They could be all over the world. But everybody coming in through the same VPN there’s no confusion to Amazon bot. And frankly, it’s a lot more secure. Joe: I agree. And it’s you $10, $15 a month. Rochelle:     Right. Joe: You should be doing- Rochelle:     Absolutely. Joe: Okay. Let’s talk countries, you haven’t talked about countries yet. Rochelle:     Right. Joe: You haven’t said Amazon.com eu whatever it might be. Rochelle:     Right. Joe: Are you finding the same transfer process to be successful for Amazon.com, UK, Germany, France, Italy, etcetera or are you doing something a little different depending upon the country? Rochelle:     So generally we are using the same transfer process. Now one thing that I have to pull out when you are dealing with other countries you may have a V-A-T or VAT or Ad Valorem tax issue and generally that is not transferable. So you are going to need … the new company is going to need to set up their own tax ID in those countries. And there may be a change that has to be made and it may lag a little bit. Typically we use the same process. Most of our clients are driving their business through Amazon.com in the United States. It’s a much smaller amount of traffic and a much smaller amount of sales going through the other countries. Although it’s starting to pick up, it’s starting to get a lot bigger. But we haven’t focused as much on those international accounts but we haven’t any trouble transferring them either. We just use the same process. There’s been no disruption except for making sure that we have the Ad Valorem tax information necessary for those businesses. Joe: Got you. Rochelle:     And it’s been pretty seamless. Joe: Got you. Okay, we’ve experienced the same thing. In regards to the value added taxes for people listening we did a podcast with Alex Lyon- Rochelle:     Excellent. Joe: From AVASK Tax Advisors three weeks ago depending from when this is launched is it. Rochelle:     Right. Joe: Let’s put it this way, it launched 1st of June or so. Great detail on how to set it up, what the pitfalls are in trying to do it on your own and the cost associated with it. And we also addressed the transfer of a seller account when to set that up and what comes first. Rochelle:     Right. Joe: And she sort of detangled everything and it’s not all that complicated. Rochelle:     Perfect. Joe: Have you had a situation where the seller wanted to keep their seller account but transfer the brand out to a new owner and if yes tell us about it, please? Rochelle:     We have. Actually, we’ve had it both ways where the seller wanted to keep their account because maybe their seller account had multiple brands, multiple A Sense and they were only selling one set of their product lines, maybe one brand. And if that happens it has to be up front at the beginning of the deal. Everyone needs to understand at the beginning of the deal whether or not the account is going to transfer. And the buyer needs to appreciate that they may not be getting the seller account and frankly sometimes it’s not the worst thing. For instance if the buyer is already an active Amazon Seller, the buyer may be very happy to have its current Amazon account just take over the A sense and that is a very smooth transition and it’s literally a relisting of the A sense moved over and then the seller account just delist those; takes them off their registry. Joe: The only challenge with it, you know it just piped it’s … is the inventory. The inventory in the FBA account, Amazon will not transfer it from one FBA account to another. So you’ve got to time it so that new inventory is coming into that new seller account. You might leave the older account open, it still sells through that inventory but the new owner gets the revenue or the profit. Rochelle:     And the seller, if they sell through the existing inventory, may do it for the benefit of the buyer. Joe: Yeah. Rochelle:     So that the money still transfers and all of that inventory and we just do an accounting. Joe: Exactly. Rochelle:     You’re exactly right Joe that is what happens. Let me give you another scenario and I actually have this scenario right now. I have a seller I represent who has multiple seller accounts and he … they have multiple brands in their seller account and they’re about to sell that business. That particular seller account is poorly rated. It has had lots of negatives for a whole variety of reasons part of it’s because it’s very old and part of it is because of mistakes that were made early on. But the nature of that particular business, the products they sell makes a lot of money but the seller account itself is not great. And the buyer is actually going through the process right now and determining if they would be better off just starting a brand new seller account and not taking that history because again, you’re picking up the history of something that isn’t really great. Joe: Yeah I guess it’s better to have no history if the old history is very poor. But the challenge is let’s back up and start with for those listening buyers or sellers if you have multiple brands in one seller account think about that transfer process. Someday you may wake up and say you know what I’m tired. I want to just unload something and put some money in the bank, set something aside so I can see something for the worth that I’ve done. The best way to do that is to have a clean transaction; you know separate LLC, clean documents, clean financials, and a separate seller account. Rochelle:     Separate VPN. Joe: Separate VPN, exactly. You can have multiple seller accounts, I’ve talked to people that have six seven different seller accounts. You just have to get permission from Amazon and they will grant it again like Rochelle said at the beginning you just have to talk to the right person at Amazon. Rochelle:     Or … and you have to do it right, you have to keep those businesses as separate businesses with separate seller accounts. They’re not going to let one business have multiple seller accounts. Joe: Okay that’s good information and it’s hard for people when they bootstrap things and they test and certain things take off and they think this is great. Selling a business is more of a challenge and you got to have those things as separate as possible. I can tell you right now if you’re going to spend a thousand dollars setting up a separate LLC and an extra thousand a year doing the accounting for it; you know $600 a year for separate Quick Books account you will get that money back tenfold in the sale [inaudible 00:28:26.9] your account so it’s absolutely worth it to do it. So in terms of transferring the brand out of an account here’s the drawbacks is that your buyer has to have another Amazon account with good or better ratings than the one that you have. Otherwise, your buyer pull is going to shrink and when your buyer pull shrinks the potential value for business shrinks as well. Rochelle:     That’s right. Joe: I’ve talked to many experts and I’ve named a few whom here that I have talked to about the transfer of a brand into a brand new Seller Account and they all think that’s crazy. If it’s got … if a good brand is in a good Seller Account you’re transferring that to a brand new Seller Account they don’t know anything about it- Rochelle:     It makes no sense. Joe: And it’s just risky. Rochelle:     Exactly. Joe: I have a transaction that’s going on now where the buyer had just purchased an Amazon Seller Account, it happens to be in a different country than the US and has got a great seller rating and they’re going to buy another brand and move it into that same seller account into that same country versus taking over their Seller Account. Because the seller feels that there’s a risk there that he doesn’t want to take on. Rochelle:     Right. Joe: So there’s a lot of different ways to do these transactions and I hope that people can hear Rochelle through your communications that you’re an attorney that actually thinks a little bit outside the box and understands that there’s always two parties that are coming to the table and both have to be happy and satisfied in order to close a transaction. And you agree? Rochelle:     I absolutely agree and you know Joe one of the things that I’d like to talk to people about is, remember it is the Seller Account you’re selling and very often that’s what’s driving the value. But also keep in mind there may be other things you’re selling such as techniques or technology that you’ve invented to support your Seller Account that helps to drive the business to that account. Or possibly even your own know how and they may need you as part of the transition team. There may be issues with a non-compete especially if you’re running multiple brands and you’re selling one channel or one brand. So as you’re getting ready to sell your business you really have to think about what it is you’re selling. It’s the Seller Account, it’s the brand, what else is being sold and can you really sell the things that the buyer wants? Joe: Yeah all of that should be done up front. What … the worst thing to do folks is to wake up and go okay I’m tired I want to sell my business so I’m going to call a broker. Rochelle:     Right. Joe: That’s the worst thing that … the best thing to do is to do what Rochelle is talking about and plan it in advance. Think … okay, maybe someday I’m going to sell my business let me just sort of get my ducks in a row. Rochelle:     Right. Joe: Maybe I never will and maybe I’ll pass it on to my kids but in the event, I get tired and want to move on I want to be prepared. And you want to think about all those things in advance and have those sort of all those ducks in a row. Rochelle:     Right. Joe: In any contract negotiation let’s touch on this briefly, both buyers and sellers you see both sides of the transactions all the time. What other stomach ache clauses that you see in an asset purchase agreement and how do you rectify them? Give me a couple of examples. Rochelle:     So I can tell you the top two are always the non-compete and the indemnification provisions. Those are always numbers one and two sometimes you know in whichever order you want to put them in. But those are the two things that are almost always the most concerning. So the non-compete; the non-compete sounds easy. I agree I’m going to sell my business that sells paint brushes and I promise not to compete in paint brushes. Well, the buyer may be looking at it a little differently. The buyer may say, I don’t want you to compete in anything that has anything to do with paint or anything that has anything to do with art or possibly anything that has anything to do with home or other kinds of activities. Very often they’re going to look at Amazon categories and they’re going to say I don’t want you to compete in the category in which the product you sold is in. I’ve even had a buyer say I don’t want you to be a … will compete in any category on Amazon or in any category in which I, the buyer may be in now or in the future. Joe: Definitely nuts because I would tell them they’re nuts. Rochelle:     Well, of course, we say as politely as we can. We don’t like to queer deals but those are always fight issues. And my suggestion although I know people don’t like to deal with difficult issues up front when you’re in the dating period but my suggestion is that you understand the non-compete from the start of the transaction and the LOI point. Joe: Absolutely. We put all of that in our client interviews in depth, we ask about the non-compete, we talk to our sellers in detail about it because that is an important part of it from the seller’s side. Look if this … the person selling the business is selling class fishing poles and they want to sell that business but still sell fishing poles it’s too close and I’ll tell them right up front as will any broker at Quiet Light Brokerage it’s not going to work. Buyers are going to have a problem with that. I’ve never had a situation though I got to tell you, Rochelle, where a buyer has made an offer and said that we don’t want you to sell anything on Amazon. That’s simply too [inaudible 00:34:05.0]. I’ve never had anybody narrow it down to the category either because if you think about Home and Garden it’s just too broad. It’s usually been specific to the product and sometimes you know a little bit around that product. Let’s say that if it’s pick one that is not an actual- Rochelle:     We can talk about your fishing poles. Joe: Sure. Rochelle:     Some people will say nothing in marine so does that mean I can’t sell a boat? A boat is really different than a fishing pole. Does that mean we can’t sell a [inaudible 00:34:38.9]? Joe: Fishing tackle or things of that nature. I would say that it’s … you can you can dance beyond that specific product a little bit but you can’t go okay fishing pole and maybe lures but you can’t go to boats, right? Rochelle:     Right. And the reason I bring it up is I have had and I will tell you where it is the … a lot of the buyers today are private equity firms. Joe: True. Rochelle:     And they’re doing roll ups, and those private equity firms feel like they’re buying the expertise of the person, not just the product and they are all over the idea that the expertise of the person could be used to teach or develop somebody else to sell against them. And as these private equity firms are rolling up multiple brands, multiple areas and their diversifying they have gotten very aggressive on this non-compete language. So we actually have seen … this may affect, I saw a language that was so broad that I said we absolutely can’t have our client sign it because she couldn’t even work at the makeup counter in Macy’s. Because Macy’s has an online site and even though she’d be working at the store it would be technically a violation. Joe: Right. Rochelle:     And the private equity guy said to me well we didn’t mean that. I said well that’s your language says though. And he said I see where you’re coming from. We were able to bring it back and this is really where the skills of your lawyer and your broker come in. Because the combination of the two helps bring people back to reality but it’s important that conversation happens up front. Joe: I couldn’t agree more. I find the vast majority of deals go off the rails at some point and the difference between a good lawyer and a good broker and a great lawyer and a great broker is pulling that back on the rails. I think the ability to have open communications and occasionally you know maybe I’m wrong I don’t mean to throw you in a category here but- Rochelle:     Yeah. Joe: You know I think attorneys when they respond to an asset purchase agreement and do edits and send it directly via email and make comments. It’s vastly different than if they actually get- Rochelle:     Get on a phone. Joe: When they get on a phone and speak to the other attorney, it’s- Rochelle:     Absolutely. Joe: You guys are brutal in emails and comments but then when you get on the phone you can generally work things out. Rochelle:     So one of the challenges Joe is that really it’s more than there was but today there are very few lawyers who have experience in this kind of business. Joe: Yup. Rochelle:     And the typical document we’re seeing has all sorts of stuff in it that makes no sense for an Amazon business. It’s got loads of employee representations on employee benefit plans, it has loads of pages on environmental reps and warranties because they’ve taken the standard ABA form or the standard form they always use and they send it and say this is our asset purchase agreement. Joe: Right. Rochelle:     And people like … and I’ll use Shawn Hussain as a great example I do a lot of deals with them, people like us look at that and we just simply white out all those pages. So we start off with 75 pages when we’re done it’s about 35 and 40 of them were just garbage. Joe: Let’s jump to the indemnification clause. Rochelle:     Yes. Joe: Stomach ache clause number two, tell us about that one. Rochelle:     So indemnification, for people who don’t understand what it is, it’s the clause that says if something goes wrong after the sale here’s when and how I might be able not I the buyer may be entitled to get some money back. Or get some protection get some defense. So understood anything that happened in your business prior to the sale of the business is certainly the seller’s responsibility. Anything that happens in the business after the sale of the business is the buyer’s responsibility. But then there’s the foggy world; what about product that was produced by the seller but not sold until the buyer owns that inventory? What about claims made on the websites, claims made in the marketing materials, claims of natural or organic that the buyer is relying on that the seller created, or what about simple … the business didn’t do very well? You told me this business is a million dollar a month business but when the buyer takes it over the think tanks, the lightning deals go away. There’s all sorts of speculation, the supplier doesn’t supply quite as well to the buyer as the seller, and then the buyer comes in and says how do I get money back for this it’s not what I expected. It’s really really important that going into the deal you understand what the caps and limits are, what’s the maximum amount of money a buyer can get back and under what circumstances, and is there a deductible. So for instance fraud; okay everyone understands that if the seller committed fraud, the buyer is going to expect their money back and probably all of their money. At the same time let’s just assume that what really happened is that the seller had representation, some warranties and in it it said that the financial statements that are attached are true and correct and it turns out one line has one number transposed, it doesn’t change the business, it doesn’t change the quality of the business, it is an immaterial mistake, should the buyer get money back? Should they get all their money back for that? Should they get any money back for that? And so that’s what I would call a typical representation warranty. Let’s assume there was as a result of that mistake there really was a little bit of a material implication. Well, it will … let’s say turned into a $10,000 problem, so what should the buyer get for that $10,000 problem? The language and the representation warranties are very important. What we recommend is that going into the deal there be a very clear conversation about the difference between fraud which might mean you get your purchase price back or maybe even the right to unwind the transaction versus an unintentional misrepresentation or mistake or something hiccups that you didn’t anticipate. And we recommend that you have a clear cap, what’s the maximum amount that the buyer can get back in the event of those issues and it might be we … generally, we see somewhere between ten on the low side and 30% on the high side as the range; that’s today’s market, as the range for those kinds of indemnifications. We might see a basket, so we might see something that says but if it’s all under $25,000 or under $50,000 depending on the size of the deal the buyer gets nothing back. It’s just a small de minimus issue whereas if it’s hundreds of thousands of dollars of issue there might be a cap on it. There are fundamental representations such as title to the assets and if it turns out the seller sells you something it didn’t have title to it, of course, the buyer is going to expect to be completely reimbursed for that. There are questions about whether or not you’ll pay for the attorneys. These are provisions that both your broker understands and your attorneys understand. I strongly recommend that you line up an attorney at the beginning of the deal at the LOI for the base of this and you also line up an accountant who and as a seller. Joe: Well in advance. Rochelle:     Well in advance. Joe: Yeah for sure. I hope you have one already for those listening that are sellers you know the four pillars that Mark and I talked about; the risk, the growth, the transferability, and the documentation are all critical. And you can’t have that documentation in place without having a good a. bookkeeper and b. CPA to figure out what’s going to be and left with after the sale. That’s why I don’t want you to wake up and go okay I’m ready to sell, list my business, please. Rochelle:     Right. Joe: You want to think about those things in advance. I did a podcast with Dave Bryant from EcomCrew way back on importing from China and Dave talks about how he planned in advance selling his business and renegotiated the cost of goods sold on certain skews over a 12 month period. Saved himself about $40,000 and got that back in a multiple of three when he sold the business so all of these things are really important. As you talk about the indemnification, and as you talk about the non-compete for those listening you know I’m sure some of you nodded off right? Just like you did when I talked about the doing the valuation in cash versus accrual accounting. You can make so much more money in the sale of your business someday if you ever decide to sell or your heirs do when you take care of these things in advance when you plan when you have proper documentation. Now all of that will make these stomach ache clauses like the indemnification, not an issue. Proper documentation in advance of the sale you’ll know that you did the right thing with your customers, you know that you don’t have any cash and potential liabilities; you know that your financials are correct. That transposing of the number you know is it material, is it immaterial? Rochelle:     Right. Joe: I’ve never had it happen pretty small if it’s immaterial to material. I always go back to things can be worked out for the most part with math and logic. Emotion is the wild card, a good attorney a good a broker will help keep those emotions in check and on track to closing. And I think one of the reasons why I wanted you on the podcast Rochelle is because you seem to apply that math and logic into the conversations that we’ve had and you realize really really strongly that both buyers and sellers need to be happy. Rochelle:     Right. Joe: Otherwise that transaction is not gonna close. There’s no point. A one sided deal is never going to close folks. So if you have an attorney that is fighting tooth and nail for indemnification clause it’s going to have the seller not cover anything, not cover any risk for the buyer, it’s not going to close. It has to be comfortable for both parties. I always tell a story, I’m not going to tell the full story but it boils down to I will not take on a clients that is married to an attorney that has an attorney’s her mother father sister brother that’s going to do their contract negotiations because they fight like rabid dogs for things that you know there’s one tenth of 1% of it happening but they fight like crazy to make sure that their client, their relative is fully protected. Because they’re gonna have to have drinks to that relative at the next 4th of July barbecue. Deals fall apart for those clauses that we’ve talked about more the indemnification in my experience than the non-compete because again a good broker will handle that upfront and take care of it upfront and it should be both buyer and seller free LOI. Now one last thing on the LOI face in terms of when to hire the attorney Rochelle, our experience is the letter of intent is non-binding and fully contingent on the asset purchase agreements on due diligence and the further detail of asset purchase agreement so we don’t recommend that clients hire an attorney for the language in the letter of intent. Because it says right in there is non-binding and contingent on those things. I think as long as some of these points or all of these points are worked out in advance you know particularly the non-compete that it’s in there that 9.5 times out of 10 it’s not an issue. Occasionally we have a little further negotiation in the asset purchase agreement, would you agree though that you should be hired once the LOI is signed and for the asset purchase agreement negotiations? Rochelle:     Let me frame this a little differently. Joe: Okay. Rochelle:     If you’re getting ready to sell your business you should have a lawyer lined up who’s taking a look at your business to make sure your ducks are in a row. Make sure if you have supply agreements that they are written signed enforceable supply agreements because if you’re planning on selling those supply agreements then they have to have assignable supply agreements. So what I always suggest is just like you have your accountant in your back pocket you ought to have an attorney that you work with that’s helped you think through your business. So I actually believe that you need to have a good business attorney lined up early on. Now having said that, 90% of my clients don’t even though that is my advice and I wish we would be there. Joe is exactly right we are very often hired after LOI or right as the LOI is being prepared. And the only catch we have with LOI is if you have an LOI that doesn’t address indemnification, it doesn’t have a cap in it, when we go to do the asset purchase agreement the attorney on the other side will say the letter of intent didn’t have a cap, the letter of intent said purchase price because it didn’t say anything else. So when you’re silent on those terms in the LOI you might have uphill battle. What you could do to protect yourself is to say a … indemnification with cap and basket to be agreed upon in the definitive document. So then you’ve at least left open the possibility that there’s a negotiation to still be had on that topic whereas if you simply leave it silent the buyer is going to say that … I know I’d say when I’m a buyer I’m going to say no no no no no there were it said indemnification there were no caps, there were no baskets. Joe: Yeah, you’re going to say different things as the attorney for the buyer than you are for the seller. Rochelle:     Absolutely I’m very good at switching hat, as a matter of fact, I have represented clients who have been both buyers and sellers and they laugh about the fact that my tone changes and the way I look at the document changes. But we do what we have to do for our clients. Joe: Yeah for those listening look like many of you had … you don’t want to contact a broker to talk about the valuation of the business or what it might be worth and I’ve had people tell me that because they don’t want to feel like they’re committing. You’ve got to do the same thing with the attorney, I think you should have a call with a broker a year two years in advance just to understand the valuation process and how to gauge what your discretionary earnings are on a monthly basis, quarterly basis, so you get an idea for the value instead of just listening to podcast, instead of just listening to people in mastermind groups and their experiences because the full story is never told. Instead of just looking at listings and oh that’s a 2.5 multiple, that’s a three multiple, it’s a four multiple, you don’t get the full story. You can’t do it that way. You should have a conversation and have it directly applied to your business and your business only because every business has its own unique qualities. The same applies I think as you’re saying Rochelle to having a conversation with an attorney in advance because if there’s a problem with the way that you set up your LLC or the trademark or a design or anything like that- Rochelle:     Right. Joe: You should have those things addressed in advance. Well worth it. Do you do any … do you have an hourly charge for that first call? Do you have a free consultation? Do you just talk about business what it … how does it work if somebody wants to reach out to you and have that conversation? Rochelle:     Well we offer a 20 minute free consultation to all new clients. So we do it telephonically, most of our clients are not located. We’re based in Tampa Florida which is a lovely place to live and do business. Most of our clients are all over the world. So we do it telephonically or through Skype or some other online method and we offer … we say 20 minutes and sometimes it goes a little longer depending on how in-depth we get. And in that call, we can then talk to you about what you need and how to price what you need. So sometimes what you need immediately is really just a few hours of our time and consultation and we’ll bill it that way. Sometimes what you need is for us to dive in … as a firm we will do flat fees, we will do structured fees meaning that a certain price to cover the LOI and other price to cover due diligence a 3rd price to cover the asset purchase agreement and actually do it in phases. We will do capped fees, it all depends on the nature of your transaction and on how well we can get our arms around what you’re asking us to do. So for instance, if we’re doing it capped fee or a flat fee we’re going to be very specific about the services you’re getting from us and things that are outside those services might be in addition. If we’re doing an hourly rate, of course, we’ll have some sort of retainer up front and we will be specific about what’s included in those services but you’ll be billed by the hour. We try very hard to be transparent and easy for our clients to understand what they’re being billed for and how they’re being billed. Joe: Excellent. Rochelle listen we’re going to wrap it up here, appreciate your time today. Can you tell those listening how to reach you, how do they find you either online or via phone call? Rochelle:     Absolutely so by phone, our number is 813 999 0199 and I am in extension 115 if you press 0 when you call that number ask for Layla and she will set you up with me or one of our attorneys for an additional counsel. And by e-mail I am rochelle@walklawfirm.com And we have a policy of responding to people within 24 at the most 48 eight hours but we’re usually pretty good about popping right back to you and getting something set up. Joe: Terrific we’ll make sure that that phone number the e-mail address and the website address are in the show notes as well. Rochelle:     Thank you. Joe: Rochelle any last thoughts for those listening that may be either buyers or sellers that you want to share? Rochelle:     I just think in closing that when you think about buying or selling a business due diligence is the most important thing you can do. So even if you’re an experienced Amazon seller whether you’re a buyer or a seller you need to know who you’re doing business with. Get some … if you’re the buyer certainly understand the brand you’re buying and understand what you’re trying to accomplish by buying those brands, what services you need and frankly if you’re the seller and you might be taking back seller paper which is a promissory note a seller promissory note you’re going to want to know who the buyer is. Make sure you understand are they equipped to run a business like this and if they’re not what kind of transition services do you need to provide them so they can hit the ground running. Know what kind of people there are, check them out. If you’re dealing with people who are squirrelly get out of the deal in the … before you even sign the LOI. But if you’re dealing with good people try and figure out how to make them successful because your success as a seller especially if you’re taking back a seller’s promissory note or consulting agreement your success is going to be very much related to their success. Joe: I love your approach you know if you’re … if you ever decide to leave the law business give us a call. You may be a very very very successful advisor here at Quiet Light Brokerage. Rochelle:     Thank you, Joe, I appreciate that and look forward to working with you again on some transactions. Joe: All right. Well, thanks for being a guest I appreciate it. We’ll talk to you soon. Rochelle:     Thanks, Joe.   Links: www.walklawfirm.com Walk Law Firm, PA The Wells Fargo Building 100 S. Ashley Dr., Ste. 620 Tamp. FL 33602 Phone: 813-999-0199 Fax: 813-839-4896 LinkedIn

For those of you that don’t already know Mike Jackness, he runs an ecommerce business approaching 10m a year in revenue, and is the co-host of the EcomCrew Podcast. On the Podcast Mike shares his direct experience with listeners to help them grow their ecommerce businesses. If you’ve tuned in to our Podcast regularly, you’ve heard Mark and I talk about how multiple revenue streams increase the overall value of your business (by de-risking it). So…if you want a more valuable business why not expand it to include email? But email marketing is dead right? All junk mail and spam. If that’s true why does Mike get an open rate of 30% on his emails…and generate over 52% of his revenue for ColorIt from email? Because it works…and he does it in a “helpful”, customer friendly way. On today’s Quiet Light Podcast Mike shares his process with email marketing using Klaviyo, and talks about how their Facebook synchronization feature enhances his customer reach and overall return on investment. The Facebook ads produce a whopping 1500% return on investment! You can learn about Klaviyo through their online training feature, and listen in to the EcomCrew Podcast and pick up additional tips and strategies. Mike and Dave also offer specific training such as importing from China, Launching on Amazon and finding your product niche. Episode Highlights: Using Klaviyo email marketing software to produce over 50% of revenues Add on the Facebook Synchronization piece and boost your ROI (1500% in Mike’s case) Email marketing should be “helpful”. Treat the customers the way you want to be treated. The “trifecta” as a marketer includes an email address, a facebook messenger list and have the customer pixel’d. Google, Yahoo, AOL etc. look for a high open rate. Remove customers who don’t open emails after 13 weeks. There are no “secret 10 step plans” that work for every model. Know your business variables and apply them to increase your success. EcomCrew Podcast has produced over 150 Podcasts. And yes..the best episode is #88. Knowing the value of your business and planning for an exit – is the smart thing to do. Transcription: Mark: Oh welcome back from Italy. Joe: Thanks man, it’s good to be back. Mark: Ah is it really? Joe: Yeah that’s a good question, I don’t know. Mark: Well welcome back all the same. I’m sure everybody’s glad to hear you instead of me for a change. Joe: I’m a little tanner and a little fuzzy. I haven’t shaved in a couple weeks. Mark: Yeah. Joe: Haven’t trimmed it a couple of weeks I should say. Mark: Haven’t trimmed … are you missing the espresso and the- Joe: Oh man café, ginseng, the views of the ocean. We were at the coast for most of the times as you now we’re in Rome as well but up in the north and coast of Italy is absolutely gorgeous. Mark: Hey I got a business idea for you. I think you and I need to start a podcast about traveling to Italy and of course, you would have to go onsite for that. Joe: I think it’s a great idea. Let’s do it. Mark: All right you guys we’re going to shut down Quiet Light Brokerage and move on to a new business, new venture; a podcast about Italy but stay tuned for that. But in the meantime, we do actually have something related to Quiet Light Brokerage and that is … and to buying and selling online businesses; you talked to a mutual friend of ours, somebody who’s been a friend of Quiet Light Brokerage for a while Michael Jackness. Joe: Mr. Mike Jackness from EcomCrew. Mike and I go back to him at e-commerce shield presentation he did on email marketing and a Klaviyo on what he does within his ColorIt Company, the adult coloring book company. And you would think email marketing is dead but this guy generates 52% of his revenue from email marketing. Has like a 30% open rate and just nails it, hammers it down and produces a ton of revenue that way and does Facebook synchronization. He talks about it all, on his Facebook synchronization that’s part of Klaviyo, don’t want to get too technical but he gets a 1500% return on investment. You and I have talked about this all the time, diversification of revenue streams does what to a business other than add more revenue; it’s more valuable, right? Mark: It absolutely reduces the risk, increases stability, yeah. Joe: That’s right. So we talked about that. We talked about the ability to expand beyond your typical just one source of revenue e-commerce business whether it be your Shopify store or your Amazon FBA site using tools like Klaviyo and Facebook Messenger, things of that nature. And then we talked a little bit about EcomCrew what they do there. EcomCrew is yes a podcast Mike and Dave have been doing it for almost three years now and they just simply help people. They’ve got a … my favorite subject is the under the hood section where they actually talk to an e-commerce owner about the problems within their business and try to help them right there right on the podcast sharing a lot of detailed information for people to help themselves. Mark: That is pretty cool. He has a ton of knowledge absolutely. The podcast they have is fantastic. I think the topic itself is really fantastic especially as people are trying to build up more integrated marketing systems. You know this idea of having their email coincide with a live Facebook audience and the marketing that you’re doing there. Really really kind of advanced stuff but really good stuff and those numbers are staggering; 1500% ROI on Facebook. Joe: Yeah, huge. Mark: Incredible. Joe: Huge and he started small. He started testing little things just like everyone else. It’s not like he had all this knowledge, he figured it out along the way. And just to put some numbers behind Mike and his expertise he’s hoping that 2018 will be the year when his business overall hits the 10 million dollar revenue mark. So he’s not a small player, he’s doing a great job. Somebody that is now traveling around the world doing presentations and speaking on E-commerce Group Podcast subject and on email marketing and e-commerce in general, so definitely somebody worth listening to. Mark: You know one thing I do want to say before we jump into the episode, when people are listening to these numbers and hearing things like 1500% ROI, 10 million dollars breaking this year, I think it can be really intimidating for some people that are maybe at the beginning stages to hear this and to see all the opportunity and see so many advanced stuff these people are doing. We did an episode with Dan from Science of Skill who pulled about two million dollars of revenue from an email list of about 11 or 12,000 people. We’ve talked to Bjork Ostrom from Food Blogger Pro who is completely dominating that world. And I think the one thing just to keep in mind if you’re hearing these episodes and seeing what some of these people are doing don’t be overwhelmed by it and understand something that you alluded to Joe; he’s done this over time. Focus on this continual improvement every day, small little group improvements and you can work yourself up. These guys didn’t jump up to this in one month they did this over time. Joe: Yeah and on the podcast EcomCrew, he’ll talk to and work with people that are doing 50,000 dollars a year in revenue and that’s what they do under the hood and they help that. He’ll also do it for folks that are doing half a million in revenue or five million in revenue but you know at all stages there’s different tools and resources that can be used to help people grow their business. And bottom line is Mike’s just a really nice guy. He’s an expert in the arena. He’s sharing the information. He’s not afraid of competition. He says if I share information about my business and competition comes up and bites me in the heels it’s because I didn’t do a good enough job in promoting my own products. Mark: That’s awesome. All right let’s get to it. Joe: Hey folks it’s Joe from Quiet Light Brokerage and today I’ve got Mike Jackness on the line with me. Hey Mike how’s it going? Mike: Good man, it’s good to be here. It’s good to see you, I wish it was in person but it’s … at least we’re actually … we’re in the same room. Joe: I agree. Good to see you as well and I know you’ve been traveling the world, good to be back in San Diego I hear right? Mike: It is man, like I can live anywhere in the world I want. At least we could at the time when we moved here I was like we had a virtual business but it’s we’re kind of anchored down here now but I want to be here and I feel sad whenever I had to go somewhere because it’s San Diego, it’s a pretty awesome spot. Joe: Well you got good problems. You’re kind of a big shot now; you’re travelling the world [crosstalk 00:06:51.0] all over the place. For those folks listening that don’t know you why don’t you, as you know we don’t do formal introductions here at Quiet Light. Why don’t you share a little bit of background on yourself? So what your history is, what you’re doing now so that they understand who we’re talking to today. Mike: Yeah no problem it’s always [inaudible 00:07:07.3] to talk about yourself but I’ll give it a shot. I’ve been doing this online marketing stuff for … this dates me for about 15 years. I actually quit my job back in 2004 and I’ve been doing this stuff ever since. Like some I retired in between a couple businesses that we were doing for a couple years and RVed around the country and got bored of being retired so we got sucked back into the business again and it was an e-commerce this time and we started doing that a few years ago. It’s been almost five years now and are on the road to build an eight figure business this year. We’ll get to crack eight figures this year or next year and along the way we’ve been documenting all that on EcomCrew. So it’s been a much different environment than what I was doing before which was affiliate marketing where everybody was really guarded; you never talked about anything you did because everyone was kind of a competitor and going after the same traffic. But in e-commerce, it’s like this multi-trillion dollar industry and you’re never going to be the one selling all the things in your niche. And one of the things that we do is coloring for adults and I always say like I’m never going to select all the gel pens in the world. So talking about what we do and being open about it I think has been cool and yeah it might create some competitors but if they can catch me I feel like it’s my fault. It’s kind of been my philosophy plus I’m just more secure about everything I do now that I’m a little bit older. And I look at the things that come out of it positively, which is getting to meet people like you which would never happen if it wasn’t for EcomCrew and speaking and all these things. So and for the most part like 99% of what we do; helping other people doesn’t adversely affect us and for the one [inaudible 00:08:41.9] that does you know so be it whatever. Joe: Well you just touched on it what you do believe and I’m … for people listening EcomCrew is just that. It’s what we do at Quiet Light, it’s helping other people. Help them first then things come back to you. And I’ve seen you do presentations on the adult coloring books and the email marketing behind it. I’ve listened to the EcomCrew podcast; I worked with Dave as you know as well. So I want to talk about both but let’s just answer the simple question first about email marketing; you know I’m an old school direct marketer, I’ve been self-employed since 1997 believe it or not. Mike: Nice. Joe: It was radio direct marketing back then and then the next evolution at that point was email right? As old isn’t email marketing dead, are you making any money with it? Mike: Yeah and it’s a trick question right, or it’s a blue question, it’s a softball question. You know when I first got into doing email marketing for e-commerce I felt the same way and I had drug my feet forever and it’s probably one of my bigger regrets in this business for a couple reasons. Number one, I think its human nature to approach stuff in life and in business the way that you think about it yourself. So for me, I flipping hate email. It’s my biggest nemesis. I cannot get to Inbox 0 no matter how hard I try. It … I’m unsubscribing for more things than I’m subscribing to just to try to get email under control and I just viscerally have this negative hatred in reaction towards email. So you know I didn’t want to get into emailing people because I … you know how I am I like to treat others like I like to be treated. So for me, that was the conflict more than anything. It’s like I’m going to start emailing people and I wouldn’t want to even receive these emails myself. So that was the basis for the whole thing to start with so I was slow at doing it. But listening to other people talk and going to other you know a lot of these conferences and you still hear email as a prevalent thing and it’s important; you should be doing email etcetera etcetera. So eventually I started dipping my toes into it and what I realize now many years later first of all email is 52% of our revenue. I was just looking before doing this podcast; it’s 52% of our revenue for ColorIt. So it’s a massive amount of our business. But our open rates- Joe: That’s 52% of nearly an eight figure business. Mike: So just to … yeah [inaudible 00:11:07.1] that’s just on ColorIt.com so we also sell on Amazon and Amazon is two thirds of our business so … but it’s two thirds of a million dollar business because ColorIt.com does about a million dollars a year. And as a business overall ColorIt is bigger than that because you add in the Amazon component. But yeah what we do on ColorIt.com like when it’s our own website and we control all of our own destiny; email marketing is a mass sort of part of that and it has a massive halo effect that you can’t directly determine. But it has a massive halo effect on our Amazon business as well. Because people are reading these emails and they eventually go buy on Amazon. We have a lot of data on this but you can’t … it’s not empirical, you can’t tell definitively like exactly what’s going on there. But I mean totally you can look at the numbers and say okay by doing these things over here that it’s affecting the stuff over here. So it definitely makes a big difference. Joe: Yeah for sure and then we’re going to talk about open rates there in the email before I interrupt. Mike: Yeah. So our open rates are close to 30% so they hover somewhere 28 to 32% depending on what stage we are on scrubbing or list. So one of the things that we work really hard on is email deliverability; making sure things end up in the primary inbox, not in spam; that we are providing value to people so they want to open our emails. So that’s been a really big angle for us so we kind of use the 80-20 rule here where at least 80% of our emails are helpful and they’re not hitchy in any way of what we’re trying to sell you something. And it’s really more like 90-10. The vast majority of what we send out is helpful tips and tricks or things you want to know. So for instance in the coloring space; how to blend your shade with colored pencils, how to blend with markers or something like that, how to sharpen your pencils. Here’s a time lapse video of how to draw this particular drawing and here’s a free copy of it. Here’s some stuff from our community other people submitted you might want to like it out as well. We’re doing a giveaway this month or fan of the month contest. All these types of things that add value and every now and then once every six weeks or so or eight weeks we’re releasing a new product and that will be a part of the sequence. Or maybe there’s a Mother’s Day sale or the month it’s going to be come up soon it’d be a 4th of July sale. But very few of our emails are in that realm and most of them are in here are some helpful tips and tricks. So let’s apply that to something besides coloring let’s like it like tactical.com, your emails will be 10 things to bring on your next hiking adventure, how to prepare for an emergency, things to put in your bug out bag, what to do when the lights go out; whatever the types of things that we’re doing in tactical world. Things that are like truly helpful for people especially I mean right now we’re getting into hurricane season so we’re going to be releasing a lot of content about that. And you know the fact of the matter is that most people just aren’t prepared. Like a hurricane comes or an earthquake, a tornado comes whatever and you have no food and water or a flashlight that are is or all dead whatever it might be. It’s actually quite helpful to people to bring us the forefront of their mind even if you just think about it for a second you can actually help save someone’s life in this case. So these are the types of things we’ll provide and every now in that cycle he check out on your products this might help you as well. So the vast majority we do is trying to train people to want to open our emails, to kind of like … you know and humans are very habit forming creatures. It only takes a few times of doing something to make it a habit. So we try to make this a habit for them and that’s our approach. Joe: Yeah it seems to have worked with your open rate which is pretty phenomenal. Let’s back up a step, what email software are you using; what do you prefer? Mike: So we’re using Klaviyo for almost everything at least in the e-commerce space. You know Klaviyo is just heads and tails above everything else when it comes to e-commerce. It has a direct integration with Shopify, you can build segments within Klaviyo, people that have done particular things and then generate emails based off of that. And probably the feature that it has that’s most valuable is the ability to then take those segments and synchronize those segments with a Facebook audience and then you can … it can currently run Facebook Ads to that group of people which is highly effective. And the thing that really got me going with this was actually a really funny story because I had just got done presenting at E-commerce Fuel; I think you might have actually been there. I was talking about email marketing and I was like- Joe: That was Savannah? Mike: Yeah. I think it was in Savannah. And I was like gloating about email marketing and all these cool things that we’re doing and at the time that I was really … all I really focused on was mostly email marketing. And what I had said there was at the time our open rates where between 20 and 25% which is still double industry average and we’ve since improved that. But I was really proud of that fact and someone came up to me after the show. A good friend of mine, Kevin Stucco and he was like well what about the 75% of people that aren’t opening your email? And I was just like … it was an instant like aha moment. It kind of knocked me down a peg because I was like all … kind of like in that gloating mindset but it was actually a really good point. Even … you know I was looking at it from one perspective of we’re double or more than double the industry average on open rates on email. But what he made me think about was what about all these people that aren’t opening email. And one of the things that Klaviyo at the same time was coming out with was that synchronization feature. So we started getting really heavy into Facebook Ads. And what you can do is if for instance there’s like someone … let’s say your average order frequency is 80 days so what we do as a win back sequence at 90 days we offer them a coupon; the comeback as an email. Well, why not run an ad to them, a Facebook Ad at the same time and Klaviyo makes that really easy. So yeah there’s going to be basically three things that can happen; either they’re going to open your email, they’re going to see your Facebook Ad, or they’ll do both. Some people going to see both of your email and your Facebook Ad. But either way, throwing the Facebook stuff into it is a much more effective approach. So it’s been really successful for us and now we have these Facebook Ads that run 100 or 1500 to 2000% return on Ad Spend. Joe: Wow. Mike: But the most effective ads that we run are- Joe: It’s incredible. Mike: Yeah. Because if you think about it I mean it’s a super small audience, we’re putting a really small budget together and these are like highly primed people. These are someone that’s already bought from us. They kind of maybe forgot about us, you send and ad to them 10% off of course they’re much more likely to convert than someone that’s called traffic. It’s way … this is what people forget about in e-commerce; it’s way easier to sell someone something the second time than the first time. But the problem is that we all get our high off of getting new customers so that’s what we always focus on is those angles. But what really brings the profitability to e-commerce is nurturing the existing customer. Joe: Lifetime value of a customer. Mike: Yeah. Joe: Repeat customer acquisition all that good stuff. So Klaviyo is the software of choice. Your emails separate yourself out from the mass emails that we get just by being as helpful as possible. So you don’t wind up in the unsubscribe section and then combine and sync with Facebook which is great to go back out to those folks. On the emails themselves, how many are you sending on a day or week or things of that nature, and do you have any concerns about people opting out and do you make it easy enough for them to unsubscribe? Mike: Yeah. So we were sending millions of emails a month now literally; the number is actually crazy. We were just looking at our Klaviyo account the other day and it shows you the number of emails you’ve sent out. And in this particular account we’re looking at it was actually just yesterday and it was 200,000 emails we had sent out and we were just like four days into the billing cycle. And I was like uh-oh like oh excuse me something might be wrong with … I think they were sending like … maybe people are getting two emails of the same thing or something. We kind of dug into it for a few minutes and realized just like the actual frequency, the number of emails we’re sending is like in the millions a month now and it’s actually accurate. And that’s what we want to be happening it’s just that we didn’t quite have our … even have our heads around it. Joe: At the millions a month, how many is one individual getting? Mike: It really depends. It depends on how they came in to our system and what part of the sequences that they’re in. There are some situations where someone might get an email from us literally every single day. So if they are coming in to one of this new lead magnet flows that we have which is basically I call this this the trifecta; this might be like a little bit of a version of what we’re talking about today because we’re talking about email but just as a real quick side note the trifecta to me as a marketer is getting them on a Facebook Messenger list, getting them Pixeled so I can also have their Pixel data, and getting their email address. So to me like- Joe: What’s the Pixel part? Mike: So the Pixel part is just it when someone visits your website that’s a piece of code that you have on your website that the Facebook Pixel or the Google Pixel and by having this script on your website you now know that someone has visited you and you know that they visit a particular pages or that they took particular actions. You don’t know individually who they are like I don’t know that Joe Valley visited my website today but I … you are in a bucket that I can say like I want to know all the people that did X, Y, and Z and you’ll be in the bucket and I can then advertise to you in a particular way by being in that bucket. So what we do for Facebook campaigns or most of our campaigns is this whole … again the provide value first angle. So we’ll offer people something for free whether it’s free downloadable content, free drawings, a lead magnet whatever might be or offer them a free plus shipping off or maybe … so we start with these really compelling low friction offers and then send them to a Facebook Messenger flow. Which is basically are you definitely interested in this; yes or no. If they say yes we give them a link to a page and when they get to that page they’re now Pixeled. So we have them on our Facebook Messenger list I can market to them that way. I have them Pixeled so I can remarket to them that way. And then that landing page will have a spot to give us their email address and I can market to them that way. And when they come through one of these flows for free downloads let’s say we don’t just give them all the free downloads in one day. We give them an email every single day for 30 to 45 days. It’s actually a very long sequence where … so it’s a 20 free download program or promotion I would say. And so we’re giving them a download every other day and in between that we’re giving them some other value. So and we tell them we’re going to send you 20 free downloads, you’re going to get one every other day. We don’t tell them they are going to get another email every other day in between but they still open those as well. Joe: Yeah. Mike: And those other emails are still value, it’s the how to blend or shade kind of emails or things like that, here are some stuff from our community and in it dispersed within there is here’s a coupon for the book that you were just downloading these drawings from and things like that. So in that circumstance, their getting emailed incredibly frequently but the baseline minimum that people are getting email from our company is six times a month. That’s the absolute minimum, someone, what would get. Joe: And that’s fine. I’ve seen people … I’ve seen your presentation and I’ve heard people say man that’s a lot of emails but if they don’t want then they opt out. Mike: Yeah so- Joe: And your open rates- Mike: Exactly let me let me hit on that just real quick because it’s a really important point. Again treating people like I’d like to be treated; I don’t … if I don’t want the email like I want to be able to number one at least [inaudible 00:22:39.8] easily unsubscribe so we make that easy for people. And I want them to be able to easily unsubscribe. What people … the shady email marketers don’t get is you’re actually hurting yourself more by trying to jam it down their throat because you want the open rates to be high. And Google and Hotmail and Yahoo all the different email platforms look at your stats of your open rates just like Google is looking at click to rates in inorganic search. And if your open rates are high, way higher than average; they’re gonna say though this is content that people probably want we’re going to put this in the main inbox. If you dip below a certain point you’ll end up in the in the promotions tab, if you dip below even a certain point from that you’ll end up in spam. And there’s like no way to get yourself out of there. So we want to keep our open rates as high as possible probably for our own best interest right? So it’s- Joe: Yeah. Mike: We make it easy to unsubscribe and if you don’t open one of our emails for 13 weeks we unsubscribe you for yourself. So we figure after 13 weeks you know which is going to be probably something that range of 20 emails that we’ve sent out if you haven’t opened one of those emails in that longer a time period you’re probably just done with us and we’ll just stop emailing you. And in that way … that’s one of the reasons why our open rates continue to be as high as they are and we keep on adding our net gain every month is way higher than our unsubscribes or people we’re removing. We’ve got something like 60,000 active emails on ColorIt where you know some people might look at that list and they would say it’s 200,000 or something because we’re not constantly scrubbing it. Our emails are active; these are 60,000 people that are actively open … we have 60,000 people that have opened at least one of our emails in the last quarter which is a much better stat in my mind than looking at the total number of people we’ve ever signed up. Joe: I totally agree. We’re constantly asking that question in our client interviews and trying to drill down into the relative usefulness of those total emails. Yeah for those that are listening can you touch on, I mean it’s probably overwhelming for both buyers and sellers that are listening in terms of if they’ve never done email marketing if they don’t know how to do any Facebook marketing. I want to ask a question; let me first touch on the fact that for those that are not doing these now, for those that are getting revenue from one channel your business is going to be 20 to 30% less valuable than one from multiple channels and you also … and that’s because of the risk. You’re at a greater risk of a catastrophe if you’re 100% Amazon business or 100% email marketing business, or 100% Facebook. You want to spread out and do all of them and have more sort of legs on the stool to balance out the business. Buyers will love that. They’ll pay more for it. Mike: Yeah. Joe: And figure how to do it so what kind of training would you recommend for anybody looking to learn Klaviyo, anybody learning Facebook marketing? Mike: I mean we obviously do ourselves some I mean that’s a kind of a loaded question but- Joe: It’s funny, wasn’t actually for people listening it wasn’t a loaded question because I didn’t know that. I know that you’re doing … I know I’ve listened to EcomCrew you know I know Dave well, I know you well know and I love your Under the Hood sessions and I didn’t really hear that you’re actually doing the training sessions on Klaviyo and email marketing so let’s … on Facebook so let’s move to that. Let’s talk- Mike: So we have a new thing called the EcomCrew Premium and what we were doing is like releasing a course every couple of months and charging 500 to 1,000 dollars per course depending on what the course was on. We did one on importing from China. Then we did another one on how to launch products on Amazon the white hat way without doing any black hat tactics. And as we kept on releasing courses we were getting emails of people just like this is getting expensive. It’s like our core fans are like they’re just buying everything we do, it was getting expensive and I also felt like starting to feel like a kind of a used car salesman in some respect because you’re just constantly trying to sell them something different every couple of months. So we just said you know what like … because you know how Dave and I are like and we just we’re not like that so- Joe: [inaudible 00:26:36.0] Mike: Well, thank you. Thank you very much. Joe: [inaudible 00:26:38.4] Mike: Okay well that makes more sense though he is Canadian so like by default he’s just like already 40% nicer. Joe: It’s it. Mike: Yes so we came up with this subscription model which is you just pay once a month, then you get access to everything that we’ve already done; everything that we’re going to do in the future. And it includes webinars twice a month and the training we’re about to release depending on this podcast will be released. The next one we’re doing is on Facebook Messenger and we actually have a webinar later today as recording this on that topic as well. So we give those webinars to our EcomCrew Premium members as well. So we’re constantly talking about this stuff and whatever’s going on more current. The Klaviyo we don’t actually have a course on yet I mean that was something that I learned on my own. I’m not really sure if there’s one out there. We are going to be doing one on that but as a part of our subscription model, you also get access to us to ask questions so you can just email questions if you’re having a hard time with Klaviyo as if for instance we would just help you with that as well. It’s any type of e-commerce stuff we would help with. But Klaviyo is simple and it’s complicated at the same time. Like I can understand why it would be overwhelming. I’m kind of a tech guy so I naturally kind of gravitate towards the stuff and figure it out. When I realize when it’s complicated is when we hire a new employee and I had to explain to them how to do it and I see their eyes kind of glaze over. It’s like I’m trying to explain the difference between a segment and a list or a flow and a campaign or how to synchronize something to Facebook and they’re just like … you’ve been kind of giving that look and I … and then I understand that some things come harder to certain people. It’d be the same look I would give somebody if you asked me to do rock climbing or something. I’d be like yeah that’s not going to happen. I’m not going to be able to do that. So yeah I don’t know besides just Klaviyo’s own website for that like what the best way to go about that is. Joe: So yeah you sell a very visual product you know with ColorIt and the tactical gear stuff you know common sense makes sense, between your connections with the EcomCrew and the Under the Hood Segments what’s the strangest … I don’t want to say, I don’t want to call somebody’s product or service strange but the thing that you would think would not necessarily work via email marketing that or Facebook that they get a shot and actually made a difference in their business. Mike: Yeah I mean let me start by saying give you like a whole another kind of answer to this real quick. What I always say when I when I speak at events or do these podcasts, whenever wherever I’m talking about and this comes up, one of the things that drives me crazy I mean you’re in the same industry I’m in there is a lot of people out there that are like follow my secret 10 step plan, do these exact things and sprinkle this special dust in your business and you’ll be a millionaire overnight. Those ads are on our Facebook feed like nonstop. We also go to events where some of these people speak and it drives me nuts. So I’m always cautious and tell people look like you have to use … you know your business better than anyone else and there’s like all these variables that kind of go into it. You have a different margin than I might have or maybe there’s a Facebook audience site that directly matches up with what you’re doing. Maybe you have the ability to get user generated content really easily or you can make a lead magnet or a free plus shipping offer. If you have a lot of repeat business opportunity maybe you don’t like I mean … so I try to talk about all these different types of businesses that we’ve been involved in and how we’ve approached it. And the thing that’s cool about us now is we have four brands. We’re doing things in coloring and hot and cold therapy we have a baby brand and we have a tactical brand. I’m gonna start talking a lot more about like our different approach for each brand but what your … the question you’re asking is and I think that the answer to it really is that every business is unique. You have to follow maybe a basic outline of what people … like I’m doing with email marketing, here is like the different approaches we’ve taken with our different niches but you know it’s hard to just say like do these exact 10 things. I mean there’s a couple of things you want to do by default with email. You want to definitely have like an abandoned card sequence; that applies to everybody. You want to have a win back campaign; that applies to everybody. But what doesn’t apply to everybody is 20 free downloadable coloring pages. That doesn’t make sense for anybody else except for us. Joe: Right. Mike: Or like here’s how to prepare for an emergency that probably doesn’t apply to most businesses. You have to think out of the box and more importantly than anything is try a bunch of different concepts and don’t be afraid to fail. This is where I think people get hung up like the human nature which I’m different in this regard for whatever reason. I’m wired differently. I just don’t care about embarrassing myself or doing something that doesn’t work. So you know I’ll try 10 or 20 different things until I find the one that resonates and gives some traction where you know somebody else might try something once or twice and just give up. You have to keep on trying different concepts until you find the one that really seems to resonate and then with something in the world of Facebook when you find the thing that resonates or in email marketing it really seems to work. You’ll get stats that are completely different than what you’ve done to that point. I mean 10 times better, 20 times better and you’ll kind of hit that thing that kind of … that really works and I’m hoping that kind of answers the question. I mean I’m always reluctant to talk about other people’s business specifically that we’ve run into at EcomCrew because I’m always pretty protective of the things that they’re doing. Joe: Yeah. Mike: I never want to break anyone’s confidence but I think that that is probably the best approach. And one last thing that I’ll mention is when we got started in e-commerce with treadmill.com and I always talk about this. So it’s like that’s the most different thing that we’ve done compared to the other things that we’re doing now. The approach there would be way different than selling something like a coloring book because you’re only going to sell someone one treadmill. You’ve got no chance at a second sale. In fact, you just hope that they don’t return it because it turns out to be like the most expensive clothes rack they ever bought right? Joe: Exactly. That’s right. Mike: So I mean you have to take a different approach with that. And it’s a much longer term sale cycle that you’re not going to spontaneously sell somebody a 2,000 dollar treadmill. This is sort of like well long thought out, multi-year struggle with weight or whatever it might be that drives them to buying this treadmill, much different way to approach it so you’ve got to take a different approach there than selling somebody a sort of coloring pens or something. Because like yeah you can put an ad up, they’re 30 bucks. Someone won’t think twice about buying that and it can be a very spontaneous purchase versus the other way around. So you got the like … it’s kind of like what you do, I mean people … like it’s a very long sell cycle when you are trying to get someone to sell their business or purchase a business. That doesn’t spontaneously just happen. So you’re having to take a different approach with your email and your marketing than someone else that’s actually selling widgets that are something that people just want to buy like that so- Joe: And it’s interesting; it’s the exact same approach you take in email marketing which is help as many people as you can. Be [inaudible 00:33:45.2] as you can and it generally is it’s the right way to do it number one. But it generally works. You build relationships with either customers or clients like you sell from whatnot that they come around and work well. Mike: [inaudible 00:33:57.3] that works pretty well in life too by the way. Joe: That is [inaudible 00:34:00.6] life lessons from Mike Jackness. Mike: Yeah. Joe: We’re running short on time but I want to talk about just EcomCrew briefly. I want people to now how to listen in because if you’re in the e-commerce world you got to listen to Mike and Dave on EcomCrew because all they do is help people. Talk about that for just a minute; when did you start it, how do they download, listen to it, that kind of thing. Mike: We started it I guess it’s been three years ago, three or four years ago. It’s kind of hard to … I lose track of time. And we’re out at Episode 150 something on the podcast as of recording this. My favorite episode we ever did was Episode 88 though, which was the Joe Valley EcomCrew podcast so- Joe: [inaudible 00:34:37.6] we talked today. Mike: I did. I just I was just looking on this great. But it’s been a weekly podcast and we’ve now gone to twice a week. So twice a week we are talking about e-commerce stuff because between Dave and I we have plenty of things to talk about. We might even go to three times a week I just don’t know if I have the time to do it. But as you’re growing a business with the speed that we are there’s plenty of talk about and I love talking about it because it produces a lot of cool stuff. I mean like I said it helps me meet people like you know but it also … it’s really embarrassing to have to get on a podcast and start like you were … because I talk about my goals and the things that we’re like looking to do. When you have to get on the podcast and say like I didn’t get this done it’s like there’s nothing better than peer review and peer pressure. So I keep on pushing it till I get stuff done. So it’s been very helpful for me as well. So yeah there’s the podcast component so on iTunes E-C-O-M-C-R-E-W but we also have a blog which Dave does almost all of that content, EcomCrew.com all of that stuff is free. We even have actually a free … three free courses under the My Ecom Career Area none of that requires giving us a penny. It’s just kind of us giving back. And you know I hope our long term strategy just like you is if we help people in they get an affinity towards the things that we’re telling them and teaching that eventually they would want to become a premium member. But even if they don’t like you were pretty financially secure and happy with what we’re doing and all the other stuff is free. So definitely come check us out. Joe: It’s awesome. Thanks Mike. I appreciate it. Anybody listening I would highly highly recommend you go to EcomCrew and check it out, download, listen to the podcast; definitely Episode number 88. Mike: Best episode ever. Joe: Ever. Mike: It actually was one of our best or highly rated episodes. And people are always interested in buying and selling their business. I mean it’s something you should always be thinking about it’s just I think people often wait too long to be thinking about these things and- Joe: Nine times out of 10. Mike: Yeah. Joe: Planning in advance should be probably number five. Mark doesn’t like it but plan in advance you’re going to understand the valuations and you do things like we talked about today which is [inaudible 00:36:41.1] email marketing and you’ll [inaudible 00:36:43.6] business and get high value profit so [inaudible 00:36:46.6]. I appreciate your time today Mike I know you’re a busy guy. Mike: No problem, thanks. Links: Ecomcrew.com EcomCrew Premium Episode 88 Klaviyo.com Klaviyo Facebook Snyc

We welcome Walker Deibel as the latest member of the Quiet Light Brokerage team. He’s joining us today to talk about startup failures and how what he calls “acquisition entrepreneurship” can help buyers learn to grow value in their business after they buy it. Walker has acquired 7 companies in the past 10 years, both on and offline. By his third acquisition, he found that he was looking for businesses that had the right infrastructure and management already in place. Walker is here giving his insights into buying versus building your next business. From a stint in digital printing at the dawn of the digital age, a film production “hobby” that has him listed on IMDb, to a failed startup that seemed to have every ingredient for success, right up to his current successes buying established businesses, Walker truly has experience in every aspect of the business building and acquisition spectrum. Perhaps there is no right or wrong way to come into business, but there are advantages and disadvantages to each approach. Episode Highlights: Not every business should be bought. If you have an idea that you think can fly go out and by all means get that VC to get it started. You can have the best idea, the best team, and all the hallmarks for success yet still fail if you miss the mark on one key aspect. Take an existing infrastructure, finance the purchase, and from there go to work. If you succeed you have a great chance for high ROI. Buyers need to find the right business for them based on their strength and weaknesses. Acquiring an established business means you are free to focus on the particular parts of the business that most need attention, aiding the growth of the enterprise as a whole. Walker discusses what he calls the 4 Models of Building Value once you buy. Owners can get themselves out of the operation side and really work as an investor. A lot more can be accomplished by working on your business rather than in your business. Everything in business up until now has been about hitting the home run. Sometimes growing businesses should just aim to hit some doubles and triples. The buyer and seller relationship is a key element in the acquisition process. There are good buyers and there are bad buyers. The relationship is beyond just the transaction. Try to communicate with to seller why you are the perfect fit for that business. Transcription: Mark: All right Hey Joe How are you? Oh you’re not Joe; Walker. Walker, how are you? Walker: I’m great Mark how are you? Mark: Good, good. For anyone watching or anyone listening obviously we do not have Joe this week. Joe is off exploring the eternal city of Rome and I am sitting here just a pile of jealousy wishing that I could be there. So … but good for Joe he definitely deserves the break. He works really hard. I will never say this publicly with him on the podcast but I will say it here and trust that he’s not going to listen to it so his head doesn’t get too big. But I do have somebody here, Walker Deibel right? Walker: Deibel. Mark: Deibel, I’ve been pronouncing it Deibel for a while. Walker and I know each other from a past transaction he bought a listing from me, a business from me a few years ago but Walker is also going to be joining the Quiet Light Brokerage team here in about a month. Maybe less by the time that this episode airs and so he is somebody to get to know as well. From that regard we’re going to have a good conversation today mainly because your background Walker is super extensive. Like a lot of the people that work with Quiet Light Brokerage, you have that direct experience in buying, building your own online businesses. So let’s do this, let’s go back and have you introduce yourself a little bit a little bit of your background. Walker: Sure. Gosh where to start, I guess I think I’ve started a few companies and all of them tend not to do very well. And that’s not something that I’m prideful about but I think that it’s a common theme that you hear from entrepreneurs which is you know fail. Fail often; I’ve done that plenty and statistically that’s what startups do. Conversely I’ve had tremendous success in actually buying existing companies and growing them and over the past 10 years I’ve been able to acquire seven companies in all. Some of them offline some of them online as you’ve discussed and I just want to take one moment and say that having looked at hundreds of offering memorandums I became a very early fan of Quiet Light Brokerage. I just think that what you’ve been able to build at Quiet Light is very special. You work with sellers, you list them at the right time, and you think about it in the same way that buyers would. So whenever I look at a listing from Quiet Light I’m just absolutely thrilled with the package and excited to be on with you now because of that. Mark: And if anyone’s wondering I do pay by the compliment so [inaudible 00:03:37.5]. So your background is in buying and you bought a number of companies you said … how many was it, 10? Walker: Seven, I bought seven over 10 years yeah. Mark: Okay over 10 years, I thought it was seven. And not everything has been online you own a couple of different offline businesses as well. Walker: Sure. Mark: And you’re back and before that was publishing right? Walker: It was printing so yeah we … I, my first company I bought pretty much because when I was in graduate school, when I took in my MBA our startup failed [inaudible 00:04:07.2] something we called Avatar, it came out with the real 3D and we had that real 3D technology in point of purchase advertising and had a great team and had some real interest and it all just kind of got hung up in legal. I guess the people in the technology decided that they would rather build Avatar after that startup kind of washed up and I actually went and bought a book printing company. And it was a time when print is dead was a common headline. You know Amazon was sort of moving in, the Kindle was coming out, the iPad was coming out, and bookstores are going out of business left and right. And what I saw Mark was opportunity, it was one of these things where the industry was fragmented there was a lot of players, a lot of let’s just say legacy teams doing the wrong things in the industry at that time. And so I bought a book printing company, all of our customers were publishers and you know they too were fighting the same things that we were seeing. And so although the offset book printing industry was declining, the digital book printing industry was climbing at a rate of about 28 [inaudible 00:05:17.8] was pretty clear when it happened. But yeah trying to get that business online and produce those short run digital products for authors and companies trying to manage their inventory levels was the challenge ahead. Mark: Awesome, lots of experience there. And then you also have a little bit of experience in movie making and documentary and production right? Walker: That’s right. Yeah I consider that more of a hobby than a profession. But yeah I’ve probably been involved with about 10 films over the last five years and most of them were lucky enough to premiere at Sundance, South Buy, Toronto’s from the biggest festivals out there. Print the Legend was … we thought was going be the first Netflix Original it turned out to be the 2nd and now we just released Bill Nye: Science Guy as a documentary. Mark: That’s you? Walker: Yeah I was involved. Mark: That’s right you told me about that I forgot about that I’ve seen that pop up on Netflix right? Walker: Yeah yeah yeah yeah. Mark: That’s fantastic. And you know that I can’t let this go but you are IMDB listed and I always joke about how you are just three handshakes away from Kevin Bacon. You know as you come on board with the Quiet Light team and head up to conferences[inaudible 00:06:32.6] you could be 4th in line to kind of- Walker: [Laughter] Mark: There is that and there’s also a couple movies that you’re in which if anybody wants to have a good time go ahead and read the reviews. Walker: That right there is a great example of why you should buy instead of build from scratch okay. In other words when I get involved with movie production, I look for teams that are already assembled that really have all the variables that are critical to success. And what we did early on was basically pull together a bunch of people who wanted to be filmmakers. Very analogous to people who want to be running a successful company and what came out was let’s just say that we got it, we got an exit, we got a … we sold the film but it was pennies on the dollar in terms of the budget. And all you need to do is read the reviews to figure out the outcome of that recipe. So a lot of what I do is look for teams with directors who have the … they’ve got the right resume to elevate to the next level. Someone on the team usually has an Academy Award and I come in and pull some money together either from myself or from other people and help finance the whole thing. So it’s very similar to business acquisition. Mark: So a lot of times we link to resources in the show notes. I will spare you linking to the IMDB movie reviews and have listeners look that up and if they really want to read it they can read it and do the work. All right let’s actually get into the topic though. Walker: Let’s go. Mark: Buying versus building because this is an ongoing discussion, obviously everybody who has bought from us in the past understands the value of buying a business. But I think there is often a question in a buyer’s head especially when they’re looking at an opportunity. So they come across a business that we have for sale and they see it and like this wouldn’t be that hard to build versus buying it. So I want to explore that a little bit and go into your experience on both because you’ve had startups. You’ve had startups that have failed and you’re also successful with buying some businesses as well. What are some of the key benefits of both in your opinion, and what is from the drawbacks of both, and why at the end of the day and this is a big question so I’m going to just logoff from much of the talk in the next half hour; why in the end of the day does buying in your opinion win out over building? Walker: Okay great. So okay let’s start just by saying that in my opinion not every business should be bought. And I don’t mean that to say like the businesses aren’t sellable, what I mean is just the opposite. If you’ve got an idea that you want to start up I think that most times it makes sense to buy an existing infrastructure and go from there as opposed to starting from scratch. But there are some ideas out there that absolutely that’s not the path okay. And so if you have an idea that’s right at the beginning of an adolescent market you shouldn’t be buying. You need to go get VC capital and go. And have a very clear understanding that 75% VC back startups actually fail okay. So it’s still not … you know you might be getting 40 million dollars but Jason Yelowitz I think was a perfect example of that; it then happened with him. Mark: It did, yeah. So anyone that wants to read his book Bathrobe Millionaire he talks about how … he bad, he was worth lots of money on paper and it disappeared. Walker: Right and so that’s actually more common than the opposite which is the Uber and Facebook story that we all love. That buying businesses in most cases is a better avenue to start. Now let me just give you a quick example; we had a company that we fully funded okay. We had a majority investor was a former CEO of a Fortune 500 Company, and we had a proven dev team that was already building mobile software for the military and special forces. Proven we had it was a … it was a Share Point, A Mobile Share Point application. We had recruited and secured the head of Microsoft Share Point Services as our CEO. We had the CTO of another Fortune 500 Company working with us. We went through on the top 10 accelerator programs in the country. We had beta programs that big corporations right, like all the hallmarks and less than 12 months later we were out of cash. We had no paying customers and it basically we were able to sell it for again pennies on the dollar to a company that I think is going to do really well with it. But it’s a perfect example of when everything’s right you still got to get that product market fit before the time runs out. After that I had worked with a broker who was about 3 ½ hours away from me and he called and said hey how’s that startup going? And I said actually it’s a little rocky and he said good because I’ve got such a great business out here that I really want you to come take a look at. And I went out there and I looked at it and long story short I end up working with a partner on this project and we looked at it and what we saw was a true opportunity to take the customer base and basically upgrade the entire experience to an online ordering system. And so I bought the company, we used the cash flow of the business to create a proprietary e-commerce storefront and we then rolled it out to almost 20,000 users. So the company is doing from the minute we walk in the door it’s doing seven figures in revenue which by the wae coin at Verne Harnish it’s scale up is 4% of companies United States are selling seven figures in revenue. So you already are walking in the door and one of the most successful companies in United States all right. Funding does not take 24 months and running around and selling stock; you go to the bank. They finance the majority of the purchase and you come in with your own investment and go to work. Everything that we achieved by buying this company in sort of a second tier market in Missouri was everything that we were trying to do at this well-funded start up with an all-star cast. So it’s just a perfect example of sometimes you seem to think differently about what it is you’re trying to achieve and take the short cuts to get there. Isn’t that what entrepreneurship is all about? Mark: Absolutely. Well, I loved what you said about the offline businesses, Ryan Tanzim and I did a podcast episode several weeks ago and he talked about that. He talked about somebody that he knows locally, I think they were doing air conditioning and they are really bringing online but what they are doing is they’re using online … they are using the SEO tactics and SEM tactics that you would usually apply to an online business and he’s applying it locally. So he actually bought this air conditioning repair company with the idea that they were just going to actually crush it online. They’re doing super super well; I think there’s a ton of opportunities for buyers in that space. Walker: Can I jump in right here like so- Mark: Yeah, please. Walker: So one of one of the things that I do, I’ve got kind of a model that I have put together to help people find the right business for them. And what you just said is a perfect example of that because the first question I get is do I have the right what it takes, do I have the right attitude to actually be an entrepreneur? I don’t think that the listeners of this podcast need that, I mean that’s not where they are. The next one is what are your strengths and weaknesses? What are the actions that you want to be doing every single day? And it sounds like this is an individual who says look I know online marketing, I know how to apply it and you look at the vast number of companies that are coming online to sell and actually not online businesses at all. You’ve got all the baby boomers retiring at 9,000 a day and they own more companies in any generation ever in history. And they haven’t done much since the internet came out. So Internet marketing has clearly passed the point of adaption. I mean it’s the way now but not everyone has caught up and you’ve got a huge amount of opportunity to do exactly this. Move and buy an offline business and basically apply online skills to grow it in a whole new way. Mark: Let’s talk a little bit about this because I know that you are in the process of writing a book on buying businesses. What was the book about specifically? Walker: Yeah basically everything I’ve been talking about. It’s called Buy Then Build, why entrepreneurs should buy existing companies rather than starting from scratch. And it’s really everything that we’ve just been talking about. So the argument is that not only is buying businesses a better way to start, despite the popularity of entrepreneurship we haven’t engineered a better way to make startups succeed. And I think that the answer to that question is to buy existing companies with existing cash flow. And if you look at buying a small business compared to just as an investment pretend you’re not an entrepreneur that’s going to move in and use your skill set to grow it [inaudible 00:15:31.2] buy it like a real estate investment or anything else. The returns that you can generate on something like that, the ROI is not really comparable to anything that I’ve seen. Especially if you want to maximize the ROI and use a lot of leverage that opportunity is there. I mean the SBA is lending … I don’t want to over speak so I’m not sure an online business as without you know but you can quote as little as 10% out in these kind of instances. So I mean you can be up and running and off to the races very very quick. Are you seeing that in online businesses as well Mark? Mark: I’ve seen what specifically? Walker: Like 90% leverage on some of these deals. Mark: It would … currently yes. I mean historically that’s higher than what we’ve seen in the past and that’s the rule change as of 2018 so- Walker: Okay. Mark: So in the past it was 80% though which is still … yeah 80 to 75% which is still crazy amounts of leverage. Walker: Right we’re right and you know 90% leverage. What I am saying is that if they choose to do that and if it succeeds they’re going to have a great ROI. Mark: Right. Walker: Pretty much incomparable to anywhere else. But there’s obviously inherent risk in doing something like that. So just understanding the model and being careful. However the odds of success are ridiculous compared to a startup of the same caliber. Mark: So your book is called Buy Then Build which you know often when we think about build then sell obviously. But obviously a big part of what you’re talking about here is also that act of building on top and I think in an area where a lot of buyers, especially first time buyers struggle is identifying how do I build on this; what do I look for? And so when I talk to buyers, especially first time buyers that are looking to get into this for the first time they start thinking about well I want something that already has a history of growth. Or maybe they’re looking at the opposite side I want something that has a history of not [inaudible 00:17:21.7] you know because I don’t want to lose on the business. How should in your opinion and maybe you specifically how have you attacked that build portion of the equation? You’ve obviously bought and I know it did the one business you’re talking about you saw a way to be able to look the entire customer experience up. What are different ways that you think buyers can look at building after they buy? Walker: Yeah. I’ve been calling this acquisition entrepreneurship. I mean it seems to make sense and so basically I think that there’s four models of building value in a company after you buy it. Some people will say … I mean the market will very quickly jump to exactly the opposite and say like oh no I want a company that’s a complete disaster. Like I want something that I can go in and put in lean operations and fix it up because then I can buy a cheap, create immediate value by improving all of the internal systems and then exit or run it or whatever. So that’s the sort of turnaround kind of mentality and those are great in my opinion if you know what you’re doing. I mean if you already are an operation … great at operational excellence that’s going to be something that’s good. Others will look at you know you get these sort of like there are these two models the guys over at Harvard wrote a book on how to buy a business and they buy what I believe they call internally profitable businesses. This is a bad example here but it’s one that I always think of which is I always think of like snowplows or something like that. Like something where there’s no obvious technological innovation that’s going to get rid of the need for snow plows. And so it’s going to be a slow growth but you know something you can hang your hat on. And I think that the way that they grow … they build value is really for the owner in that instance and just through equity build up. And so you’re putting you know say 10% down and then over 10 years building up the rest of that value that way. The other model which I’m getting to the point sorry but the other model that scares me a little bit as you look at these high growth companies like the ones you’re talking about and what maximizes a sale price are things like growth, revenue, earnings. I mean these are the things that people want. I mean it’s a very marketable company but by doing that it’s almost the opposite of the turnaround. The risk is a little separate like it needs to continue growing as fast in order to make sure you’re getting the right deal. So that’s something that in my opinion you have to know what you’re doing to navigate that properly. Then you’ve got this sort of Platform Company and a platform is something where you take your skill set and apply it to the existing business in order to take it to the next level. Now it might be accelerating what’s already happening or it could be simply diversifying. So in other words the first online business … so I bought a company from Quiet Light Brokerage and when I looked at it I really liked it because it was taking this sort of like old economy product and it had a kind of innovative twist to it. And so it was still on known in the US market and so as that awareness grows the company continues to grow. However what I acquired in this business was not only the cash flow, it was the infrastructure. It was all the people. I had an entire customer service team. I had a reliable PPC guy. I had SEO you know I’ve got … now I’ve got all the tools and all the things that I need to do this. And so what I’ve done is I’ve started building other sites as well. And so I’m not quite to the point where I’ve built a seven figure site from scratch that you can list for me. But I’m hoping to do that and I’m doing it the actual infrastructure that I acquired through Quiet Light. Mark: That’s fantastic. Of course you’d be able to sell that business on your own when that day comes. Because you’d be working with us and you’ll just put it up for sale and it all will be like oh this is great, Walker owns this, I trust him completely. Walker: Absolutely. Mark: Well you know what you’ve done though recently in anticipation of coming on board I know that you have been working your way out of your companies as an operator and really working as an investor. And I know this you know talking to buyers one of our most popular episodes was with Shakil Prasla who has bought eight companies in two years and he does this all the time. He does not work in his businesses. What was that process like for you or what has it been like to get yourself out of the operations of the business, and how did you go about doing that? Walker: Yeah it was kind of a slow evolution. Like in other words the first company that I bought I had a key man, woman actually that I worked alongside with very closely and she did … all of my time was spent on marketing sales and really strategy like taking the company to the next level. And you can do a lot more what do they say work on your business and serve in your business. And so I fell in love very quickly with the freedom that comes with having other people you can rely on in your company. As a result as I continue to move forward I always look for business opportunities and people that I know whose skill set matches up with the growth opportunity for that business. And so the 2nd company I bought it was more of a partnership and I learned the hard way that … how do I say this without being, I was messing the company up. It’s one of these where he had his hands on everything that was going on, I would show up, you know I would drop in I was there about a day a week. I had relationships with major customers and walk in and just kind of I’d see something that I thought was wrong and I would fix it or give instruction or whatever else. No matter how minor it was it was still the left hand didn’t know what the right hand was doing. The employees didn’t know who was in charge. And so it was one of these I’ve got to remove him or remove me kind of situations. And so I’ve tried to put the emphasis where the skill is. And the other thing that comes out of that is by not operating in the business you can actually scale the number of businesses that you own. And that’s what your other guest was doing if I recall correctly. He was actually interviewing and hiring managers. I typically do it with people that I know already so it’s not … you know I network and find the people and then I wait for the opportunity as opposed to kind of trying to scale up that rapidly. It got to the point where the 3rdbusiness I acquired I was buying specifically because I had a manager to grow it. And it’s working now because that’s at a point where I think last year we grew 38% year over year so that’s working. And I think the hard decision comes from entrepreneurs at every step of growth where they say okay I’m the one doing this and if I actually pay someone to do that then I make less money so I’m not sure I want to do it. But then the second they hire it out they have all this other money that you know whatever the difference is that’s coming to them for essentially doing nothing or essentially moving to that four hour work week model. But if you have a four hour work week kind of company you can go buy 10 companies. Mark: I do. How do you get over the ego part though? You know for example I am in my opinion the best content marketer in the world. Walker: You are. Mark: I’m not. I mean this is the reality but when I’m dealing one on one with people, when I’m dealing one on one with somebody who I’ve hired to do that I micromanage. I get too involved in what they’re doing. How do you get the ego portion out of this so that when you go and visits … do you visit that company anymore? Do you do- Walker: Absolutely. Oh, absolutely. No I’m very involved in everything. I think that … well I should speak carefully there, what I’m trying to say is just I’m not involved in the day to day. The truth is I’m probably more of like a chairman but I don’t have enough gray hair so I don’t call myself that. I have a baby face so … but it’s you know I work more on a strategic level and looking at metrics and talking to the managers every week if not more often if something comes up. So the ego, I think Mark what I would say to that is there’s certain things that okay it’s twofold. There’s certain things that you’re not going to be able to let go of. And you feel like they have to be a very very precise thing. Those are not the things that you want to let go of. Especially to use your example like content marketing; content marketing is something that makes Quiet Light exceptional. It’s something … you know Quiet Light both stands in with the best of the best but then they stand out by doing exceptional work. And that content marketing piece is so critical to what makes Quiet Light Quiet Light that that might be a driver that can’t be outsourced. It’s something that has to be precise. It’s something that has to come from your mind or your advisors’ minds and that piece might not be there. That said here’s the answer your question, you’re not going to like it, and I have a good answer for this. But here’s the thing I have three children, they’re seven, five, and three and they make mistakes. They made the same mistakes that I made when I was seven five and three and you have to stand there and watch them do it. And often with my managers I wanted to go over their mistake and then I realize it worked it just wasn’t the way that I was going to do it. It’s not a mistake at all. Or it’s the other way and you’ve just got to end up paying for that mistake and so it’s just that you’ve got to get that balance right. Partnerships are a good answer for it. Partnerships are like marriages and you just have to figure out how you work and how you communicate. And if there’s something that you fear isn’t going to work because it’s not being rolled out the way you want to do it, I think that what I do is I just make that clear at the beginning and then we put metrics in place to make sure to watch it and measure it and then kill it if you know feel quick. If there’s anything I have learned it’s if you’re going to fail do it really quickly because you save money. Mark: Right. Walker: So I think that’s the way to do it. Mark: Right fire quickly, hire slowly. Walker: That’s right. Mark: Yeah Chuck recently was talking to me about that so and the need to be able to do that. Awesome well you’ve covered a lot of ground in this and I really like this discussion of should you buy, should you build, what’s better and I think you’re right. Absolutely a lot depends on the type of company that you do have and what are you trying to build. Some companies did not lend themselves to being bought or to going that route but if you’re looking for that cash flow, if you’re looking to get into entrepreneurship a faster way to return investment is going to be that buy-in route. It’s a lot faster and a lot more sure than the VC route. I think I was talking to a VC, this was four or five years ago now and he was really coming around to this idea of buying online businesses. And one thing that he told me he said you know with my angel investing with the VC investing that I’m doing everything is about hitting the homerun, it’s like … and with that we’re hit … we’re striking out a lot. We’re taking big swings, we’re not hitting the home run but when we do hit the home run it’s really really good. He said but I’m starting to wonder now maybe if we should just aim to hit some singles and some doubles and some triples instead and just play station to station. And I think that’s a huge difference here like if you have the money to be able to go in there and swing for the fences and go for it, sure okay you know what go ahead. If you have the time, the resources, the desire, or an idea that you think really can take off absolutely. If you’re looking to hit a single or a double you know that … it’s a risk profile; what is a risk profile look like in buying for as risky as buying an online business can be and people should be aware of that. It’s certainly a lot more safer than trying to build something from scratch. Walker: So in an early version of my book and I think I just cut it out actually it’s … we’re trying to get it done this summer but I actually call that entremetrics. Which is stop swinging for the fences and just get on base, based on that savermetrics, you know money ball right? Mark: Yeah. Walker: And that resonates with me completely. That’s exactly the point. I think that you know VC again if it was a Harvard Business Review really sort of 75% of these companies are like going to zero. So being able to fast forward, you ask earlier hey I’ve got … I’m a potential buyer, I’m looking at this company I can build this. Like this isn’t that hard, fine go build it. But like looking at it as an investor you’ve got that cash flow tomorrow. I mean it’s you know and what’s your time worth and what’s the … what’s it going to cost to build and you’ve got to put all those pieces together and yeah go build it and then bring it back to Quiet Light and we’ll sell it because these are good investments. So yeah I think it’s a simple way to get to the goal faster and to your point you’re getting on base. You’re engineering success right from the beginning so that you can move to second base on your own. Mark: Yeah, awesome. So your book is coming out sometime this summer maybe in the early- Walker: Hoping for late August. Mark: Late August all right. And at that point you will hopefully be a part of our team fully and we will be able [crosstalk 00:30:13.1]- Walker: I hope so. Mark: The book so when we do pay attention that. I’m sure it’s going to be just one step above that Harvard Business Review which I actually have that up my shelf. They sent me a copy and a good stuff; it’s seriously good stuff though. And right now eventually people be able to reach out to Walker at a Quiet Light Brokerage email address. In the meantime if you want to reach out to Walker contact me mark@quietlightbrokerage.com and open to have contact with him. He’s got a ton of real world experience both in as you said some failures but a lot of successes as well and always a good person to talk to. Any final parting thoughts? Walker: You know there … one thing forgive me but there is one thing that I thought we would talk about and it just didn’t come up and that’s normal but I spent two and a half years trying to buy an acquisition target when I was at Corley. And we looked at 27 companies in depth talking with them. And what I learned along that path is that there are good buyers in there are bad buyers. And I just mean that from the perspective of the seller, and when you’re trying to sell a business, how do I say this, the buyers it’s almost like the first thing you want to do when you’re just starting out is you want the seller to like come in with a slide deck like a startup and pitch you. Like here’s what you’re going to get and here’s why you should buy my company and that’s just not the mentality at all okay. I guess that somebody’s built something and it’s usually like yeah the timing is right I’m considering it but it’s not like I’m trying to sell you something you don’t need and so trying to go … I try to go out of my way to understand the business, understand the drivers, and really communicate to the seller why I would be the right buyer for that business. Because trying to get that emotional connection established at the beginning is so critically important. It’s very emotional and everyone starts second guessing everything they’re doing at one point or another and trying to build that bond at the beginning and getting on the same side of the table to acquire a common goal is just critical in the whole process. So it’s something that I did learn that we can talk about I want to share. Mark: Well I’m glad you brought that up because I’ve used you as an example in countless presentations, I think at this podcast as well. Walker: That’s right. Mark: Many of you have heard me use this example before about a buyer who after we submitted an LOI, you submitted the LOI and we had our very first call in due diligence and you stopped. And at the very end you said I want to take a moment and thank you for agreeing to sell me your business. And I tell this story because it was … it had a seismic shift on the way that entire transaction went and it established this common working goal and understanding that I think a broker definitely needs to have. I think a buyer should have as well. The sellers work for years to build something valuable, something that you want to acquire and take in. Showing some basic appreciation for that and yes they’re getting well compensated through money, there’s appreciation in that as well. But showing that verbal communication of hey I really appreciate and respect what you’ve done up till now, even if it’s a distressed sale but that makes a big difference at the end of the day. And it really helps get through some of the tough spots that will come up doing due diligence. Walker: And they have a choice. As a seller they have a choice especially at Quiet Light. Quiet Light moves a lot of inventory really fast and I think we ended up closing on the 3rd deal I looked at and so there was a couple of deals that went to other sellers and I just didn’t went out for whatever reason and they’ve got a choice. I agree, it’s important. Mark: Yeah Walker thanks so much for coming on, I really really appreciate it. Walker: No, thank you Mark. I’m really looking forward to the next chapter. Mark: Well, we’re looking forward to have you on. So again if anyone wants to reach out to Walker feel free to contact me mark@quietlightbrokerage.com if you guys have ideas for guests please let me know. I’m always looking for new guests. So we’ll talk to you next week. Links and Resources: Contact Walker Buy Then Build – Why Entrepreneurs Should Buy Existing Companies Rather Than Starting from Scratch. Walker’s book is coming out this summer!

I had a buyer recently tell me: “I don’t trust SEO traffic. You can’t change it. I only trust paid acquisition channels.” Times certainly have changed since just a few years ago. A lot of buyers look at natural SEO traffic as untrustworthy ever since the major index updates of Panda, penguin, and hummingbird. Others see SEO as a much more difficult (and possibly more expensive) avenue towards traffic. And some buyers think that the relevance of SEO will be discounted with new voice-enabled searches and paid advertising pushing natural search rankings down Google’s SERPs. In this conversation with Corey Northcutt, we discuss the future of SEO, whether there is a good opportunity for buyers to exploit SEO opportunities, and what he would look out for on the SEO front before buying any online business. Episode Highlights Can we trust SEO long-term? Where is it going, and can you build a business on SEO traffic? What key SEO factors should you look at before buying an online business Google’s primary goal, and why it is good for business owners Why SEO traffic will always beat paid traffic Why the major Google updates (Panda, Penguin, etc) were a good thing (and still are a good thing) Will paid ads continue to push organic rankings out of SERPs? Are voice-based search devices going to destroy SEO? Click through rates for top rankings in organic listings vs. paid listings Transcription Joe: Hey Mark, how are you doing today? Mark: Doing great. Joe: I understand you recorded a podcast with Corey Northcutt and it was all about SEO. Mark: That’s right so Corey and I know each other through Young Entrepreneurs Council which is a great collection of entrepreneurs, some of the best resources that you can find online for anybody that is an entrepreneur out there and is looking for good networking opportunities. You do have to meet certain thresholds in order to join and Corey obviously hits those. I’ve used his services for another business of mine and was really really impressed with what he had to offer. Brad who works with us is actually the one who first recommended him to me. This guy has been working in the online world and SEO capacity forever. I mean he’s a dinosaur in the SEO world, knows a ton about SEO. And one of the questions I posed for him and I really wanted to drill down on this podcast was whether or not there is value at all in SEO anymore from a buy in standpoint; in other words can it be trusted? I had a buyer tell me just a few weeks ago we were talking on the phone about one of the businesses I was representing and he wanted to know where our customers are coming from on the websites and I said well he’s got good rankings and then he also does paid. And he came back and he told me and said I don’t really care about the organic rankings because I can’t control that at all. In fact all I care about is a paid acquisition channel. I think we hear that more and more from people that they trust that paid acquisition channel more than the organic channel. But I think it’s almost an overreaction and there’s a lot of opportunity being lost because everyone focuses just on the paid and just use the organic just has a sort of bonus to everything else. The couple of the topics that we addressed in this podcast is whether or not the future of SEO is going to be strong. You know we have more and more devices being added for voice-based search. We have the paid creep that’s been happening on organic rankings where organic listings are being pushed down the page. And so this is really kind of a step back to look at your online business and say should I be focusing on SEO, what’s the opportunity here with SEO as well. Joe: Okay so I’m not going to say whether I think you know you should be focused on it or not. What I can say is that a business with multiple traffics of multiple channels of revenue is worth a lot more money and from my experience a long time ago SEO was a long term game. I survived the Penguin updates, Panda update … actually I sold before the Penguin Update but it didn’t matter because I didn’t know anything about link building anyway. All I did was good quality content over a long period of time and I was rewarded. It’s a lot more complicated than that I think. So I’m really excited to see what Corey has to say. Let’s go ahead listen. Mark: Well one second, I’m going to give away a bit of a teaser on this and that is something that you said; I think what you said is perfect because it is the sense that a lot- Joe: Did you say that what I said was perfect just now? Mark: Dude, don’t let it get to your head. Yeah it was actually perfect because a lot of people think that SEO is more complex. They think it’s complicated. They think that it’s a nut that’s very difficult to crack. And a lot of us, especially those who have been around through the panda, penguin, hummingbird, you know all these sort of updates; animal updates that happened look at a SEO and like my goodness you can’t trust this. Look what happened back then it got completely destroyed. One of the big takeaways from this and Corey gets into this is that SEO now is more predictable than it’s ever been. Google’s gotten better at what they’re doing so they don’t need to shake things up as much anymore. Now is a little bit harder to rank; sure because Google has done a better job of putting good information in front of people. But rankings are more stable now than they’ve ever been before. And so you need big takeaway is that while it’s somewhat complex there’s a huge opportunity because people like you and I have kind of looked at SEO as that thing as a bonus out there. Joe: From a buyer’s point of view what you just said might be very valuable. You know it takes … it’s harder to rank now and so if we’re listening to business and there’s good organic rankings, that in itself could have more value to a buyer. Because most everybody else just cheats to get to the top and you can’t actually do that anymore but if you’re at the top on page one that’s really strong strong value. And I think hopefully in the long run for any business will add more diverse revenue channels which brings its a valuable. Mark: All right can we listen to Corey now? Joe: Absolutely, let’s go. Mark: All right Corey, thank you for joining me on this quick episode here on SEO. Corey: Absolutely, thanks for having me. Mark: So yeah I know you’ve listened to a couple of the episodes before so you know that we like to have our guests introduce themselves. So why don’t we provide everyone listening here with a background on yourself. Corey: Yeah I’d love to. So I’ve been doing SEO for going on 17 years. I’ve been … I guess running business of different shapes and forms for about as long. I came from web hosting and doing different IT brands and now I run an SEO agency called Northcutt. Mark: That’s awesome. Yeah and I’ve actually … just full disclosure I have user services in the past but with a lot of the guests that we have here on the Quiet Light Podcast, the people that we’ve use in one cast in another their services so we trust the services, we trust you as far as your … the quality work that you do. And I also know Brad who works with Quiet Light Brokerage; he has used your services quite a bit in the past as well which is how I was referred to you. It was actually through Brad. So that that’s pretty cool. Now you have a past in we posting as well is that right? Corey: That’s true. Yeah I started at a provider called Ubiquity that was eventually acquired by LeaseWeb but not before I actually exited the company and sold it back to my business partners. Mark: That’s pretty cool, so my background is actually web hosting as well. My first job out of college was with a company called Alabanza Corporation and they were the first ones to create the people know like web hosting manager or cPanel. They were the first ones to actually come out with a cPanel and cPanel’s a competition to Alabanza. And I remember when we developed that the CEO talking about competition told me he’s like I’m not worried about competition, it take … took us years to be able to create our I think he called it the account management [inaudible 00:07:01.2] stupid like that. And of course the temple was already out there so it didn’t take them years to replicate what we were doing and it done quite well; so cautionary tale there. But the first business I sold under Quiet Light Brokerage was a web hosting company, so very familiar with the space. So you sold that, how many businesses have you bought and sold over the years? Corey: So I like to call myself a three time founder in all my bios. It’s tough to say though because I have partners and in that I’ve had a lot of failed ventures too. A lot of projects that I’ve spun up or that maybe sold for cheap so it’s been all over the map. I did web hosting. We spun off a data center services brand from that. We had Ventrilo provider called DarkStar Communications which was the largest provider of Ventrilo for quite a while. Most people I think don’t even know what that is anymore. Mark: Yeah I’ve never heard of it. Corey: It was a big bank for a while. And it wasn’t even my world but it was kids play World of Warcraft, they would need voice chat for that and it sounds insane today we’ve got Zoom and Skype and all these tools that are free but they would pay for it. So you’d have 50 or 100 people on one voice server and you needed tools to manage it. So a lot of different businesses; I kind of created a framework for how I like to build and market them but all in completely different spaces. Mark: You know I like to segment Internet entrepreneurs as to those that were started before the panda, penguin days and those that have come into it after because the world is so much different. You know people like you and I that have been in the online world for I’m going on 20 years here since I’ve built my first website. And you know back then and actually back when I started Quiet Light Brokerage, when I decided to start Quiet Light Brokerage what did I do? I went out and I built a website from scratch and then I custom coded an affiliate program in there and that was kind of how I launched everything was me going out coding, designing, launching, doing the SEO; everything top to bottom. And today I mean if you want to start a new site you can still do that but boy it’s so much different today you don’t … you really wouldn’t want to take that approach as much. It’s gotten a lot more complex. Corey: It’s true. Mark: Yeah. And you seem to come from that sort of past entrepreneur pay and this is a good idea let me see if I can just build this out real quick. Corey: Yeah and yet it’s changed so much. Yeah and I have … on one hand I love how quickly you can spend things up like you’ve got Shopify, you see people with stores in 10 minutes; it’s completely insane. On the other hand I feel like a lot of people don’t go as deep with their businesses now. You’ve got projects I can start a company and it might make 500 dollars a month and that’s fine and it … I’ll do 10 of those this week. The mindset has changed. Mark: Yeah I know definitely it’s changed quite a bit. So I wanted to have you on to talk about SEO and I’ll tell you kind of the question that spurred this on for me and I think it would be a good start for our discussion here. I was talking to a buyer the other day about one of my clients and he’s Amazon and Magento mixed so he’s got his own websites but you know a good portion of his business comes through Amazon. But we’re looking at the websites because they’re doing really well. Amazon is struggling but the websites are good; really really well. And we’re looking at the host and this buyer was asking where does the client … where did the clients come from, are they coming from organic rankings or they’re coming from paid service or good mature search campaign out there. So I told him well it’s a mix you know there’s really good SEO on the site, there’s room to improve that as well but they also have a paid campaign that they will get. And this buyer almost seemed to dismiss the SEO side and said well I can’t control the SEO world at all, I’m interested in the paid acquisition. And I see this more and more and I think this is kind of the people waking up from the hangover of the panda, penguin which is almost quick as far of be coming up on seven years or something like that; is that right? Seven years is that pretty close? Corey: Well- Mark: [crosstalk 00:11:06.9] try to also work. It’s been a while since this happened and I think people have really adjusted their mindset to not trusting SEO at all. So my question to you and to ask in behalf of everyone that out there looking to buy an online business, can you trust SEO and can you build or grow a business on the back of SEO and have it be sustainable? Corey: Oh my God Yes. So there is one question that has been around since I feel like SEO began which is where this is going, it … can I trust it long term, and I think Google’s actually been very transparent about what they want to accomplish. As much as we’ve had different updates like Panda, and Penguin, Hummingbird, chip things up to there’s been quite a few but Google’s always been forthcoming. And I feel like most of the media out there sensationalizes what’s happening and it does a disservice to business owners. Because … and what does Google really care about? They want to reward an experience that is naturally relevant, popular, and enjoyable; that’s it. And they’ve been working towards this goal for all of this time and I don’t think it goes away. There is never going to be a point to where a better experience is paid advertising for what they deliver. If they ever reach that point I think all bets are off. I think somebody disrupts them; being or somebody else overtakes them. There’s no way people want that. It is a better experience when it’s not simply rented. So that doesn’t go away it’s just they keep it iterating towards getting better at what they set out to do. Like we talk about that pre-panda, pre-penguin world, I think it did a lot of good. I look back at how I did SEO back then and you know it was a little gray. It was hard to … like that was the conversation we were having with people. It’s like I think we should be as white hat as possible. At that time I feel like that that was a source of a lot of that grand fish can spam. At the time he was not getting very much respect from professional SEO’s and he was saying no, completely white hat, don’t mess with anything, no schemes, no link real pyramid tetrahedron. Yeah like I’m sure you’ve seen all the different diagrams and wacky ideas that people were coming up with back then and that panda made him correct that just overnight everything shifted and it was like well yeah they finally got better and they really are rewarding people that aren’t going against Google like do you want to work with them. Mark: Let me play devil’s advocate a little bit here and argue against SEO. Now this is not my personal position. I actually agree with you. I think there’s a ton of opportunity in SEO and I actually think the world is a … the SEO world is a lot more stable today than it was back in the pre updates of pre-panda, penguin, hummingbird updates mainly because the results are better and Google is still having a better experience and before it was very easy to came, the search engines. You were doing grey hat, I was doing grey hat, everybody was doing grey hat back then. But anyways let me play devil’s advocate. Two changes that people look at and they see it as encroaching on the organic SEO. One would be the number of paid listings that show up above the fold on Google and where organic rankings start to be pushed down. And two voice enabled search. Let’s start with the first one here the placement of organic rankings. I have another business that I own and I absolutely absolutely hate bidding on my brand keyword. Because it’s my brand keyword, I show up number one, I show up number two, I show up number three, but if I don’t bid on it I I’ve got four other people bidding on my brand and they’re above me. So from that standpoint has SEO become less valuable for business owners or is that a trend that you think is going to continue where paid listings push out the organic rankings? Corey: I don’t and in fact I … you know I saw the same trends. And by the way if somebody just for the benefit of listeners, if somebody is pushing you out that way on your branded searches if they mention you by name you can file a trademark request with Google and get them shut down. It … they’re still able to use your brand name as a keyword but it can water down their messaging if somebody is getting too aggressive with that. So I don’t see it going too much further and yeah that was a big story each time Google has experimented with expanding the ad block but there’s data on quick relates that’s out there. Rand Fishkin actually threw his new startup SparkToro all those Jumpshot’s analysis on this and it’s incredible how many people still click on organic overpaid. The overwhelming majority still click on organic across the board even in the most extreme like biased examples I’ve seen. I actually just sent out our quarterly here a few weeks ago that looked at this AAReps had their own click through rate data of tons of searches that they’ve scraped and in their example they said the maximum went up to 46% with click on ads. Up to is the operative word there I think that’s the most extreme example. It’s 46% where you know it’s a branded, your brand is number one; obviously, that’s what they wanted. We’re going to click that sure but the Jumpshot data said 3% was their average. So somewhere between 3% and 46% are clicking on paid ads. It’s still the minority and I don’t see that ever changing. Mark: 3% to 46% is pretty broad. Corey: It is pretty broad. The average is three. Mark: Okay. Corey: But yeah. Mark: That’s amazing. Yeah and in the example I have we have a lot of brand confusion in our space and my main competitor has been very very good at causing brand confusion. So it’s a personal annoyance for me right now, my personal mission to get them out of that number one spot even though I’m losing money on it. Corey: Not this. Mark: Yeah. So that’s interesting. I would have tend to agree that there’s only so much real estate that they’re going to give to the ad spot, to those ad blocks because it’s … they have been focused from day one on that user experience. So they want users especially brand searches to be able to find the brand that they’re looking for. What about voice enabled search? I know for myself and if I want to find out some quick data or whatever I’ve got a Google Pixel Phone I just give a little squeeze and Google’s system comes up and I just ask it the question and more and more it’s becoming intelligent in giving the response. More and more it’s taking those responses of course from other websites and so they aren’t getting any of the traffic to that. This wouldn’t be so much a concern for e-commerce sites but for content sites I mean is this something to be looking out for and maybe something that’s going to encroach on their opportunities in the future? Corey: Yeah there is definitely demographics that are going to be hit by this. You and I talked about famous quotations here a week ago in how that is an industry that got hit pretty hard by Panda. I think the nuance is any short simple information is going to have a hard time. Like just the example from last month, Google actually started returning no results searches and people asked for the time of day. And there was a website that was timeanddate.com it ranked number one for all of these and I’m sure they were raking in a lot of AdSense doing it, not probably great ads for those people but still it was working for them in the moment. So there are really nuanced types of businesses that I think buyers should probably be a little wary of. If it doesn’t give deep information it can’t be [inaudible 00:19:11.5] by a simple answer from Google. But if it does go deeper I think it goes outside the scope of what Google can accomplish with voice search because it’s going to be complex. There’s going to be value in multiple results then so that’s [inaudible 00:19:26.1]. Mark: Okay well you know I think that’s a fair answer. I think when you ask Google a question, if it’s a quick answer like time and date that makes sense. But if you’re asking how to replace a sprinkler head, Google might give you a short response but you’re not looking for a three step process for that. You’re probably looking for pictures or video or more in depth you know of your in-depth guide. And so getting that response is actually a good thing, getting that being that featured response at Google will probably be a good thing because more people are going to click through to your page right? Corey: Yup and there’s also still value being lost right now from what they call no click searches. Where maybe you appear within the knowledge card, like the top of the results; people see your brand, they see that it’s from you; they don’t click through and see your analytics. But at some point who cares, if they still saw your brand you still helped them, and they still see then you may have accomplished what you set out to you anyway. It’s just not going to be attributed as well. Mark: Right; of course. I get it the top of funnels sort of just brand awareness and awareness to your brand, what’s better to vouch for you than Google right? Corey: Right. Mark: If Google’s going to feature you on their search result page that’s a pretty good thing and if people don’t know what I’m talking about here do you have an example that you know off the top your head where a knowledge card will show up. Corey: Recipes are a big one now. I don’t know any exactly at the top of my head but- Mark: Well didn’t … wasn’t there that one for a while which was why are fire engines red; do you remember seeing that? Corey: I think that so, it sounds familiar. Mark: Yeah if people haven’t looked at this, do a search for why are fire engines red and take a look at what the response is. They may have updated it since I last did it but it was just somebody had the game of the knowledge card and it was kind of a crazy response. Corey: Yeah, but it’s still not that hard to do. Mark: So I … okay so if I already had, you can’t leave with that not go into it. Corey: Well we know what their data sources are so yeah you can … what Google is not good at is understanding what you’re telling it, and that’s what they’re working on back checking right? Being able to actually understand is this good and not are these words here and phrase didn’t maybe kind of mean something. And that’s what I think they’ll improve that maybe next. I think it’ll take a while because they’re still behind what a lot of the articles give them credit for now if you like but we do know which way they’re going. There’s an analogy. I love Aj Kohn as an SEO blogger; his company is called The Blind Five Year Old because that’s how he perceives Google still. Kind of hyperactively bouncing out of your sight not really knowing what it’s doing but they are still moving in a direction that makes sense. And with the knowledge cards there’s different sources of data where I mean you can literally just put it in and hope that Google crawls it. So you can update Wikidata at wikidata.org put in some bunk information and sure they might index it. They might see that it’s not that hard to fool it. Mark: That’s funny. All right well I got some pressing question to get to here. Even though this is fascinating and would be fun to explore all the idiosyncrasies of the world of Google but let’s talk about, let’s put ourselves in a position of a buyer looking to acquire a business and I want to have more opportunities for SEO and how to uncover some of those and where some of the mistakes are. But before we do that let’s talk about due diligence side of things. So he’s looking to buy a business, it receives a good amount of traffic from natural organic rankings. What are some of the things that people should be looking out for when doing due diligence? For example private blog networks, are these still something to look out for or are there other things that you may want to caution people on inspecting before they do an acquisition? Corey: Right so without a doubt I would never buy any website without looking at its backlink portfolio. There are basically two arms of SEO right, you’ve got what happens on the website and off of it. I’m not so concerned about what’s happening on the website. I know just based on my background I can probably make it a lot better. But I know that it’s not a danger zone, the links are. So first are they trending upwards that’s a good sign; bad links tend to get moderated. It makes sense, if somebody spams a whole bunch of forums or blogs they use a piece of software, it’s going to get turned away and their Google patents that talk about this as a signal. Like if somebody blasts 100,000 links and all of a sudden they disappear I immediately know something’s wrong. And even if something’s not wrong if they had a good reason for that to happen, I still haven’t really seen one, but if they did it … that pattern looks really bad. So that’s the first thing, okay I guess I start to dig into it and I start to look for schemes like you mentioned; are there link wheels, are there … you mentioned that you and I are pre-Panda people a little bit here. I’ve … I know the schemes because I’ve used the schemes. I’ve tried the schemes and I know what all of them look like. There’s any of maybe a dozen which might go beyond our time right now but- Mark: So with some of these schemes how would somebody identify these? Obviously link patterns so seeing declining back wings would be an example of things being moderated away from low quality sites or even high quality sites where it’s been spammed to a public place. But for like a Link Wheel or a PBN, are there tools that you would recommend somebody use for this or is it really just something where you need to hire somebody like you to be able to help identify these schemes? Corey: Sure. Well I won’t go so far as to say someone has to hire me but I do have a lot of skepticism in the tools only because we see them throw a lot of false positives. They do good things too but I’ve got a team that’s used every backlink auto link tool I think at this point and they’re flawed certainly. Especially when you pair them with the activity of disavowing links which is usually the natural next step. When you find bad links people tend to use the disavow form in Google Search Console and that’s irreversible so it’s really really dangerous. We’ve very frequently been approached by people that ran an automated link audit, got a lot of terrible advice, disavowed a lot of good links, their rankings went away, and they need help and all we can say is well now you’ve just got to rebuild like you shouldn’t have done this. That was a bad idea. So I think it’s just about recognizing the schemes and the most overarching witness test in my mind is does this double as good marketing. Sometimes it’s just a completely automated site like you see a lot of these like statistics websites, and he ways websites, those big automated plays. I would usually say if a site links to every site on the internet which you can usually see, like is it linking to every domain alphabetically; you see that a lot on the backlink tools. I don’t worry about those. I don’t think you should disavow those because that’s not a scheme. That’s not a pattern that you want out and will and that’s a flaw in every auditing tool I’ve used. So I wouldn’t worry about those. I also wouldn’t worry about anything that is editorially relevant. Like is it editorial, a guest post, a press release, a mention of any kind really that happened from a human but if it didn’t and you can usually tell by this kind of thumbing through the side a little bit that usually means that your link is appearing besides other schemes. And if a link is really easy to get that by definition kind of makes it a bad link which is counterintuitive right? You’ve got all these SEO services that are offering fast easy links for everybody. That’s flawed because if it’s really for anybody that means that you’re link appears besides porn sites you know fill affiliates like all sorts of really kind of sketchy looking stuff. It shouldn’t be easy for everybody and that’s really the way to tell it I think. Mark: So something that we see with Quiet Light Brokerage in our backlink profile is we’ll get a piece published informs or entrepreneur or in [inaudible 00:27:36.5 a good piece and obviously we love those backlinks. But then sure enough there is these really low quality sites that will take that article that blog post and they’ll republish it and you know it’s just a complete spammy site. You can tell that there’s never a human that has touched that site other than initially [inaudible 00:27:55.7]. Are those backlinks, if somebody is doing a backlink analysis on the site and they see some good high quality backlinks but then they see a whole bunch of copycats stuff is that anything to worry about in your opinion? Corey: It depends a little bit on the site. If they’re purely just scraping forbes, I’d say well today link back because if they do it reminds me a little bit of press indication which is perfectly natural and it’s a signal that I think any grown up brand is going to have. Like you’ve got basically every publicly traded companies running out regular press releases so if I put on my … like if I’m Google Ad that actually looks okay. But if it’s a really low quality site you might see them also doing other shady stuff so you might have to look at their backlink portfolio and kind of pick apart what they’re doing. Mark: Okay fair enough that is good advice. And if anybody is listening to this and you’re completely lost as far as what Corey is talking about here I’m sure you could reach out to him and get a little bit more insight into some of these things. The world of SEO is kind of this big old rabbit hole, you can understand on a very basic level or you can get into [inaudible 00:29:02.3] sort of the more nuanced stuff. In which case you’re talking about link wheels and different types of shapes as far as linking patterns which I’ve thrown most of that out the window years ago when I started seeing a lot of the updates come through. So and I want to talk about that you know we talked a lot about backlinks and backlink profiles, it’s been my perception and please correct me you are the expert in this not me, it’s my perception that backlinks haven’t been so much devalued as might have been surpassed or might have … might be having other ranking indicators kind of come up alongside backlinks as being important. And one of the ones I’ve seen has been topic coverage, topical coverage on a page. So an example of that would be we have a blog post on I want the Seller’s Discretionary Earnings well we also want to cover not only what a Seller’s Discretionary Earnings but what does it mean for an Accrual Basis versus Cash Basis Accounting and you know what is Net Income, what is Gross Revenue because these are related topics to the one thing so having all that content now is a good signal to Google. In my correct or incorrect or off based when I say that the backlinks while still important are playing alongside some of these other newer ranking factors? Corey: Yeah I mean you’d be correct in saying On Page matters more and in more nuanced ways. It’s tough to weigh like do links matter less because links are infinite really. On page is still finite so I think in that math equation links can never matter less because you can always do more with links. You can’t always do more with your site so that makes that equation interesting. But yeah since the Hilltop Algorithm which I believe was written by Krishna Bharat, he published a paper that it’s actually really old but it was pre-Panda by a lot and it broke down I think what they’ve been building upon for a really long time which for the first time defined what they call topical experts. And if you really dig into the paper it appears to be talking about domains as experts and they played but there’s a little bit you know you had authorship of Google+ I think was one sort of riff on that idea of trying to figure out who really knows about a topic. And around that time SEO’s like crazy with the concept of relevance. People are saying well you only want links from relevant sites. I think that’s bunk because well do I not want to link from CNN they don’t … they’re not an SEO website, obviously I do, obviously that’s still a good link. But there’s more value if I get somebody from within my space on average. So it’s just one more metric, it’s a little bump I feel like in their favor if they’re relevant or if you’re relevant. They’re looking at the themes throughout your site definitely. So to your point yeah that exact same idea, the more you cover a topic the more I think your ratio of expertise is strengthened there. And for the same reason Mike & Mitch E-commerce Shop should absolutely be able to outrank Amazon. They’re generic, they don’t have that focus and we see that a lot. Mark: That seems to be a recurring theme of this podcast here; how to be Amazon at their own game. And I’ve talked to so many e-commerce business owners who get frustrated by … when they put their own listings up on Amazon and all of a sudden Amazon’s outranking their niche store. But I think your point of if you have good topical coverage on your site, if you’re doing … if you’re making sure the on page is right you should be able to outrank Amazon because it is a specialized site. And that actually said was a really nice link into the final section I want to cover and that is opportunities for pretty much any buyer when you’re looking to acquire an online business opportunities in SEO. I see huge opportunities with most of the stuff I look at and working on the on page SEO, what are a few areas in your opinion that people should look at when they’re looking to grow the SEO presence of either an e-commerce shop or a SAS business or a content business but really kind of looking at that a SEO portion, what are a few areas that are common pieces of low hanging fruit that you see? Corey: Sure. Well since Panda there are a lot more diamonds in the rough I feel like that just have broken on page SEO and the poster case study going all the way back was Danny Webb right? Everyone was talking about Danny Web which was one of the biggest tech forms, they lost easily all their rankings when Panda first hit and they managed to recover by removing what people later called thin content. Which were just pages that might have fifty words on the page, it was all the different individual profiles that people had, there were millions of them. Most of them were a bad search engine experience. So when I see a site that has a lot of pages that don’t offer value to Google but don’t carry the no index tag, the media tag, and the source code [inaudible 00:33:56.5] but code in the source that says keep us out of Google’s index. I know well hey I can do that and overnight strengthen the stuff I want to keep and cut out the stuff that’s just never going to be of any value and that’s going to help a lot. I also look for sites that don’t have a keyword strategy, sites that for whatever reason have never had any links but still enjoyed some organic success. There’s a lot of ways to play this. In total there’s I think a couple hundred ranking factors. I basically just look for a couple that have been 100% neglected because I feel like that’s where people leave the most money on the table basically where I can see a quick one. Mark: Yeah, I think again coming back to round out this discussion, I think since the updates and after the updates everybody was scared of organic traffic and understandably so. I mean it was very difficult for a lot of people because they owned a business overnight an update happened and the rankings are gone, revenue is gone. A lot of businesses were built on this kind of shaky SEO and Google’s done a good job of cleaning that up. But people now see the benefit of relying on paid acquisitions. As a result though I think there’s a huge opportunity for buyers to take a look at pretty much any property that is not on Amazon. So any web-based property content sites etcetera etcetera and be able to really grow that business through good SEO practices. As you said looking at keyword strategies are, is there any keyword strategy there, or do they have good topical coverage, are they doing the basics to be able to rank well, and because no one is really doing that or very few people are really doing that on page SEO anymore it’s kind of amazing how quickly it’s fallen out of favor. Yeah so let me ask you if anybody wants to talk to you what’s the best way to reach you? Corey: Sure. Well they can pop on our website which is just northcutt.com drop me an email it’s just corey@northcutt.comor follow me on Twitter corey_northcutt to be my first name, any of those work. Mark: All right good. We’ll all link to those in the podcast page the show notes so everyone can take a look at that. And you know again we don’t get kickbacks from guests or anything like that but we do refer people that we’ve used in the past successfully and the services of yours is definitely a service that I’ve gotten good value out of. I know you did some work for me, I think it was back in October your group did some work for me and those pages are doing quite well now so thank you for that. I never gave you an update on that; they’re doing pretty well. Corey: Yeah, sure. Mark: Yeah so thanks so much for coming on. I think this is an interesting topic and maybe one that we need to explore again in the future. Corey: Oh I’d like that. Mark: All right, thanks Corey. Corey: Thanks Mark.