Everybody Wants to Sell Their Amazon Business, but Are You Actually Ready? – 241
E-commerce can mean a great deal of sales and quick cash for online sellers. Still, if you’ve been paying attention to the news, it’s probably a good idea to orient your perspective a little farther down the line. Because, as many Amazon sellers know, the biggest payday comes when you’re able to sell your Amazon business.
Recent headlines have highlighted stories of companies buying up brands, and in some cases, individual SKUs. That’s why today on the AM/PM Podcast, Tim Jordan is speaking with Chris Shipferling. Chris is a Managing Partner at Global Wired Advisors, a leading Digital Investment Bank focused on optimizing the business sale process. Their approach combines decades of merger and acquisition experience with online and e-commerce expertise to increase the transactional value of e-commerce sellers’ greatest assets.
As he tells in the podcast, in some ways Chris has come full circle with this appearance. He began his e-commerce apprenticeship by listening to the AM/PM Podcast with its first host, Manny Coats. Now, he’s back to talk to Tim about the subject that’s in the front of many Amazon sellers’ minds, accepting an offer for their online business.
Want to know how to be ready?
In episode 241 of the AM/PM Podcast, Tim and Chris discuss:
- 02:00 – A Different Way of Approaching Amazon Brand Aggregation
- 03:30 – Manny Coats and Kevin King Were His E-Com Flag Bearers
- 06:30 – Anticipating a Market Shift
- 09:30 – Big Changes on the Amazon Brand Investing Front
- 12:00 – It’s Becoming a Sellers’ Market
- 16:00 – What’s the Difference Between Brokers and Aggregators?
- 18:30 – There Are a Lot of Ways to Win
- 20:00 – We Buy Amazon Brands Fast!
- 24:30 – Looking at Businesses with a Trained Eye
- 31:45 – Biggest Amazon Brand Mistakes
- 32:00 – Pay Attention to Your Margin
- 35:00 – Does Diversification Matter?
- 38:15 – How to Contact Chris
- 40:30 – Read the Book, “How Will You Measure Your Life?”
Enjoy this episode? Be sure to check out our previous episodes for even more content to propel you to Amazon FBA Seller success! And don’t forget to “Like” our Facebook page and subscribe to the podcast on iTunes, Google Play or wherever you listen to our podcast.
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- Get the Ultimate Resource Guide from Tim Jordan for tools and services that he uses every day to dominate on Amazon!
- New to Selling on Amazon? Freedom Ticket offers the best tips, tricks, and strategies for beginners just starting out! Sign up for Freedom Ticket.
- Trying to Find a New Product? Get the most powerful Amazon product research tool in Black Box, available only at Helium 10! Start researching with Black Box.
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- The Ultimate Software Tool Suite for Amazon Sellers! Get more Helium 10 tools that can help you to optimize your listings and increase sales for a low price! Sign up today!
- Protect Your Amazon Brand with a Trademark! Protecting your brand from hijackers is vital. SellerTradmarks.com provides a streamlined process for obtaining a trademark for your business and shielding your products from fraud!
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Tim Jordan: When we start building an e-commerce business, sometimes we’re thinking about the now and not the later. And we should be thinking about the later, because despite all of your sales and the quick cash that e-commerce can bring us, the real value in the real asset is being able to sell your business. Today, we have a guest, Chris Shipferling, who is an expert in this we’ll say, but he’s an expert in a little different way than a lot of the experts in the content you see out there, we’re going to explain, what he does, how he does it differently. And he’s going to give us some really good, actionable advice for how to handle a potential business sale, all the way to how we set up our business in the very beginning. Stay tuned. It’s going to be a great episode.`
Tim Jordan: Hi. I’m Tim Jordan, and in every corner of the world, entrepreneurship is growing. So, join me as I explore the stories of successes and failures. Listen in as I chat with the risk-takers, the adventurous and the entrepreneurial veterans. We all have a dream of living a life, fulfilling our passions, and we want a business that doesn’t make us punch a time clock, but instead runs around the clock in the AM and the PM. So get motivated, get inspired. You’re listening to the AM/PM Podcast.
Tim Jordan: Hey everybody. Welcome again to the AM/PM Podcast. Today, we have a guest Chris Shipferling who– he’s going to talk about his story in just a second, but he’s a little bit of an outlier in what a lot of us think is like a very similar industry, which is the folks that buy and sell businesses. Right? And the reason that I brought Chris in is because we’re seeing a lot of headlines recently about, we call them aggregators or roll-ups. They are the companies that are basically buying businesses or even sometimes buying individual SKUs. And there’s a lot of them and they’ve made big headlines all the way up to Wall Street recently for different valuations they’re bringing in. And they are, I would almost venture to say, flooding the market with marketing. And they’re calling every Amazon seller trying to buy this stuff. I actually have an Amazon account that I’ve never sold anything through. I just use it for user permissions. And in the past week, I’ve gotten two emails from an aggregator saying, we love your product. We love your sales. We’d love to talk about buying your business. I’m like, dude, I haven’t sold anything. So I know that’s been a hot topic lately and it does beg the question, like, what am I building here? How much is my business worth? Is it sellable? How do I go about selling it? Who’s looking out for me? And I think that where I became interested in Chris’s content and the relationship I have with him is because he does things very differently. And I think he does it in a way that allows, especially the brand owners to have a higher degree of, of success, a bigger win. Right. So welcome to the podcast, Chris.
Chris: Thanks man. Appreciate you having me on.
Tim Jordan: So I know there’s a lot of people that have come from different backgrounds in e-commerce and I know you have a big background and banking and stuff you can talk about, but you also starting in about 2015, were an Amazon seller, correct?
Chris: Yeah, I was. I was an executive general manager for a company based out of Barcelona, Spain, and I had about a half a million dollars of inventory that was between collections and retailers didn’t want it. And I had to find a way to get rid of it. And that was during the FBA gold rush back in 14, 15, 16. And so, as I’ve joked with you before, there was no executive class from Princeton or Harvard or Kellogg to learn Amazon. And so it was just a school of hard knocks and lots of Manny Coats and Kevin King on a podcast. Learning how to optimize listings, understand advertising and really just trial and error.
Tim Jordan: I always thought it was interesting when you said that one of the first pieces of content you started kind of digesting was the AM/PM Podcast back when Manny was hosting it.
Chris: And it’s all circuitous.
Tim Jordan: Here we are on the AM/PM Podcast, right. Ando so you kind of started selling on Amazon because you kind of needed an escape valve. Like you needed a way to get rid of this inventory. And obviously based on what you’re doing now, that really changed your life because now you’re a hundred percent focused on e-commerce where you weren’t before. So give us kind of a quick history from starting to learn, to sell on Amazon, to what global wired advisors is now, where you’re the managing director. And for those of you listening to that, the reason that I love getting this background is when you understand the background of the experts that we bring on, you understand why their opinion matters and maybe how they gain their wisdom. So you take it seriously. So under that context, Chris, if you would just give us like the quick story of, Hey, I can sell this stuff on Amazon to global wired advisors.
Chris: Yeah. And I mean quickly, very, very quickly, prior to that, I worked as a sales and marketing executive and in real B2B type companies ranging from 22 million up to half a billion in baby– and baby products and toy was a very antiquated industry and still unfortunately continues to be slightly antiquated. So I always worked with vendor central. I remember working with Wayfair when they were CSN stores, by the way, that’s a real throwback.
Tim Jordan: I’ve never even heard of that.
Chris: Yeah. They were CSN stores. I remember getting a phone call from, I think it was employee number like five. He was actually a local Charlotte guy that became a buyer like the main buyer for CSN. And I think it was like back in 2008 maybe, like seven or eight. So maybe were earlier, but anyway, so always had that experience, a real operating trade marketing, product development, working within lots of different functions, a larger business. And then, yeah, so I told you about Amazon. That was a real, I’d say kind of turning point for my career. And then from there, I actually went on to become a consultant for a couple of years, helping enterprises, and small to medium sized businesses formulate digital strategy because really, I didn’t learn just Amazon central. I went, I took it a step further and I learned digital marketing. Right. I learned and put my head down and really became a student of digital marketing. A lot of it was derived from, I was just kind of tired of buyer’s opinions when it comes to deciding what goes on the shelf and I wanted that direct conversation and handshake with the consumer. So, I won’t go through all the details on how I met my partners, but we’re all here in Charlotte and through happenstance and mutual connections, I actually met my three partners. They already had a firm that was focused on traditional businesses called Providian advisors. And, they, we all met and realized that there was a strong opportunity. We anticipated that the market was going to shift in the next decade. And we had lots of really strong conversations about the why. And really, and then we developed a thesis and the thesis was this sector, e-commerce concentrated businesses in terms of choices when it comes to selling their business and going to market, the process and the ability was very weak from traditional business brokers. That’s not just in this space, it’s also in the traditional business space as well. Traditional business brokers have always had a very different type of process than an institutional investment bank that runs M and A, a completely different way.
Chris: And so our thesis was, Hey, you know, let’s bring wall street to main street, right. And let’s bring the process. Let’s bring that ability in that acumen. And let’s give sellers a real, a fully optimized choice when it comes to– frankly speaking, selling your largest asset, you’re probably ever going to own at least one of the largest liquidity events, a milestone for everyone. Right. And so, let’s optimize that process. And so, yeah, we started global wired advisors. My three businesses, my three partners all came from the bulge bracket, investment banks. They worked at Wells and bank of America and Citi and Bayview asset management and various credit hedge funds and private equity firms. And so coming with that really strong operating and understanding Amazon, understanding digital marketing. And then also with that really strong financial engineering background, we started global, just over three years ago. And yeah, it’s been a great ride. The sector now, as you alluded, is seeing lots of newly minted capital flowing. And we’ve got lots of good views and opinions on that too.
Tim Jordan: Well, I think it’s interesting where you came from, because when I think of most of the brokers and the aggregators and the– even a year ago, if I wanted to sell my business, I would have gone to people that didn’t really have any experience in finance or that haven’t experienced in brokerage or asset management. They were Amazon sellers that grew and network, and they’re like, Hey, I know some guys that might want to buy your business. Right. So it’s very interesting when you’re thinking about coming from asset management and wealth management and true investment banking, which is really what we should be thinking about when we go to sell our business, because the people that are buying it are buying it as an investment. Right. And a lot of times from the bottom looking up, we don’t see that. So I think, for those of you listening, you’re starting to understand maybe why I have Chris in here is he comes from a little different perspective, but he also is an e-commerce seller who knows digital marketing. So it’s a very, very unique perspective. So knowing what you know, Chris, let’s talk for a second about the state of the union when it comes to selling your business, because everybody, right now, everybody’s talking about sell your business, sell your business. But just in broad terms, talk about what’s happened over the past six months in this field and kind of give us a lay of the land.
Chris: Yeah. Past six months, you’ve seen just a complete inflow of venture backed capital, mostly debt funding that has created a lot of funds and private investment vehicles to acquire FBA businesses and run them through what they would consider a strong operating team, to then grow that brand. There are now I believe 75 of them, and they’re not slowing down. We actually spoke to a source that has been part of the debt funding just the other day. And he gave zero signal on the telephone that there was any slowdown at all. So it’s going to keep growing. They are poaching, every single seller, they can get their hands on. They won’t say this. It’s just reality. It all started as an arbitrage opportunity, right? It all started as, Hey, I can come in here. I can discount. And I can de-value these businesses because three years ago, no one cared about them. And lots of these businesses have just kind of gone under the radar. They’ve built up, have real staying power. They built up some level of brand and they were also cash flow positive, but they went highly under the radar from large, call it sophisticated capital because the Amazon platform risks sophisticated capital funded through private equity funded sponsors. It’s still a very real thing. And so, which I’ll get to actually in just a moment, because we have a view on where it’s going, but so, some of these large aggregators and they came into the space and they said, this is an arbitrage opportunity. We can de-value and discount the multiple. We can make these sellers retain as much risk as possible and purchase their companies. And the minute they purchased them on their balance sheets, they bought it at a three and it went to a 16 almost immediately, because that was in effect the valuation of the fund based on the most current raise that that fund may have done. Right? So while they say, no, we’re not in the arbitrage game, the reality is that they were now, I think things are changing with competition. I think that they’re forced now to think through some more strategies. I do believe that sellers are getting a lot smarter because they’re getting poached now by 15, 20, 25, you got two more to come and sellers are looking at going, okay, this is more than just one guy asking to buy my business that has a fund and can close quickly.
Chris: That was a year and a half ago. We all know who I’m talking about. Now, it’s 75 of them that I could “sell to”. And I think that, at this point, I think we’re at a good intersection now with sellers who have a really strong business and a very healthy business, we can get into those tenants. And just a moment having representation now is more important than it’s ever been. Someone who can be the Jungle Scout and the Sherpa to take you out there and make sure that you’re going down the right path and you’re getting put in front of the right buyers. But then we also have another stronger view, which we can get into in just a second. And I’ll preview it. If you look at a geological, if you look at all the geological areas at the Grand Canyon, right, have you ever been to the Grand Canyon? And you see all the different rock areas, the geological areas, these funds represent about that much in the history of M and A, and there’s going to be a lot more capital that’s about to pour into the space for more traditional funded sponsors. It’s about to get even more exciting for sellers.
Tim Jordan: That’s interesting. So you’ve been talking about aggregators and it’s a term that I used in the intro. And basically just to step back for a second, aggregators are essentially companies that have one operations team and try to roll up all of their resources to create a higher degree of efficiency, where they can buy brands, they can buy businesses, operate them centrally and make them more profitable. Is that a very good basic description?
Chris: Yeah, absolutely. And the way sometimes we interpret things here in the office and trade it in trading terms and trader terms. And we talk about things in terms of alpha and beta, right? It’s the thing that they’re leading, they’re really leading on and the brands, products, ASINs, whatever it is they’re purchasing is really the beta at that point. And so really what I’m saying is I’m complementing what you just said. And I agree with you that they’re putting, and even the funds that are being raised, the venture debt, and even the man, even some of the more traditional funded sponsors like advent international, when it came to THRASS and the investment they made of $200 million, they’re putting almost all of the chips in the operating team. That’s really what they’re doing. That aggregator in particular went from, you know, zero employees two years ago to over 700 and growing, right? So they’re putting a lot of alpha in that operation, whereas to contrast a private equity firm puts all the alpha in the actual company that they’ve purchased, because they have a clear path in three to five years to sell that they’re not holding any company, they’re bringing it in pouring in, and you’re injecting growth capital, they’re injecting lots of working capital to go and purchase more inventory. And then they’re effectively scaling the business by putting a strong management team within that company, within that portfolio company. And then they’re looking to flip it to some middle market, private equity for more strategic three to five years from now. That’s the difference.
Tim Jordan: Okay. So let’s talk about brokers because these aggregators, they didn’t exist more than a year and a half ago, right. At least not on a large public scale. So I remember I have bought and sold websites on Flippa. I know that Quiet Light brokerage has been out there for a while. So explain the difference in very, very basic terms between a broker and like an aggregator.
Chris: Yeah. I mean, look, kind of going direct, there’s two distinct differences. I mean, one, if you use a traditional business broker, that process is going to be very passive. It’s not a very– they don’t take much of an active role throughout the entire process. Part of it is they haven’t been classically trained on how to really run an optimized M and A process. And so really, it’s all very quick, right? Engagement letter signed three days to put together some marketing materials and a template and businesses out to market typically through an email list. Right. And also through a website, they’ll say, Hey, we take it to some of our connections. Reality is that’s just really good talking points. So that’s kind of a broker process. It’s going to be very passive. Once you’ve identified, you’re going to be talking on the phone to a lot of the buyers. And in essence, really selling your own business in most cases. You’re also going to be quarterbacking most of the due diligence and closing your broker might be there to help once in a while. But for the most part, it’s all passive. They’re not quarterbacking that process again, because they haven’t been classically trained to really go and run an optimized, sophisticated M and A process. And so that’s using a broker. And I mean, one of the advantages though with all the aggregators is if you choose to use a broker, at least you are signaling to the aggregators that you care about this process going direct to an aggregator. All you’re really saying is my business is going to you or 74 other funds, or really anybody else. I’ll get the same thing everywhere I go, because I think my business is a commodity. That’s what I believe. I’m no better than corn futures or steel in the public market. Right. And so going direct then to an aggregator, you’re just going to have a less than, you’re going to have a less than sub-optimal exit process. And you’re going to absolutely, I can say this confidently, you’re going to lead chips on the table.
Tim Jordan: So, let me slow down just for a second and set a little bit of stage. I know you feel strongly about this. And I agree with what you’re saying. We also know that there are a lot of companies. I have friends, personal brands. We have past guests on this podcast that have recently sold their businesses to aggregators. So if you have recently sold a business in aggregator, you heard what Chris just said, you’re panicking going, Oh man, I screwed up. Remember, there’s a lot of ways to win. I think what Chris is saying is there are definitely better options to win more. Right? So if– and another thing that’s interesting, this is just my opinion about aggregators, because there are so many aggregators, and they have a quota to fill. Like they have money that they have to spend, like they have to buy stuff. So with so many of them out there, they’re starting to bid a little bit higher and a little bit higher and a little bit higher. And I have seen even recently, some aggregators folks that frankly do not know what the heck they’re doing. They’re purchasing businesses that they should not be purchasing. They’re buying businesses that are complete train wrecks. So there is an opportunity guys, if you have a business, that’s a train wreck and you just need to dump it as the thing is falling apart. Maybe there’s a great opportunity for aggregators because they just have to buy businesses. And the market is shrinking because there’s so much competition. So there is a time and a place for these. But if you have a legitimate business, I think there definitely is something to say about going direct to somebody whose profitability is largely going to, as a company will depend on paying you less for your business. Right. So think about, every time I pull out a Lowe’s or Home Depot parking lot, I see those signs on the side of the road, sell your house for cash.
Chris: Yeah, that’s right. Yeah.
Tim Jordan: Right. Those guys, they’re not going to give you top dollar for your business because they’re in money to make– their business and make money too. They’re not going to do your favor. So I’m going to sell my house. I’m going to hire a real estate agent. And this real estate agent is going to get three or 6% depending on how the deal operates, but that person’s going to come in. They’re going to advise me on my house. They’re going to say no. If you were listing it for a quarter million, you need to list it for 290. Because here’s the cops. If you paint these walls and change carpet, you’re going to get a little bit more value out of this. Like they work as an advisor and what I have seen at least in the real estate market. So the asset brokerage market, which is essentially very similar to this is when you have someone that’s professional, that’s looking at it. They could advise you on how to get top dollar and frequently their fee that they’re going to charge you is a wash, or it’s even less than the additional money that you make by having them. So when we think about aggregators, I don’t mean to sound so cheesy, but think of them as like we pay cash for your house, right? And sometimes if your house sucks or if you need money right now, or if you just don’t want to go through the hassle. Fine. But if you want to get really top dollar, you need representation that knows they’re doing and has a vested interest in getting you a higher valuation for your asset because they get a percentage, right. Which is all negotiating the deal. So I hope we’ve set a good stage for those of you listening. Like, Oh my gosh, what’s going on here? What are we talking about? All I know is I hear about these aggregators and everyone’s making money and yada, yada, and then I think there’s a second step to this, Chris. I’d like for you to talk about just a tiny bit, which is, and frankly, this is why I wanted you on the podcast is I was so impressed and I’d never seen this before, but so impressed with the way that you and global wired advisors handle this. You’re talking about your flippers and your brokerages, Hey, we’ll list your things on our website or email list. Three days, we’ll plug some numbers and yada yada. But what I’ve seen you doing out there in the, in the world of e-commerce sites, kind of quietly, right? Fly under the radar if you’re talking to businesses and you’ll even straight up say, Hey, you’re not ready to sell right now, because if you’re worth X amount right now, if you do these six things, come back to me in nine months and you’ll be worth 80% more. So you’re actually advising them on how to grow, not just trying to make a quick buck, which I think is very interesting. Is that different, do you think in the world of brokerage and normal and does that like tactic that mentality that attempt. Does that come from your world of like true investment banking where, if you spend a little bit more time, you can increase that asset value?
Chris: I’d say all of the above. Look, here are some very, at least in this space, and it’s also the same in traditional business brokerages. A lot of guys become business brokers because they owned an HVAC business. And then they really liked the broker that they worked with. And since it’s a 10.99 gig anyways, no one’s hiring anybody per se. They become a broker, right? This is all this nothing’s new under the sun. This is the way it’s always been done and Transworld and Sunbelt and some of these larger business brokerages. And so it’s very similar in this space except folks owned an e-com business. Right. And then they’re qualified and they do give advice. And I’ve heard some of the advice that they’ve given vicariously through some of our clients. And it’s good advice. I think the difference, the massive difference is, look, our operating experience comes from a place where I worked in companies where you just, you had to be highly competent in what you did from a sales and marketing perspective. Right. I worked around folks who were executives at P&G and were executives at some of the largest CPG brands in the world. And one guy I actually worked closely with is now running, or excuse me, the COO of Airstream. It’s like, these were the types of interactions that I had on a daily basis. And so, having to analyze and assimilate companies, I just, I come from a more trained eye of looking at things in a more strategic sense, right. That’s just kind of the operating side. And that also bleeds into my three partners who look at everything from a very strong, financially strategic sense. And it’s more than just, Hmm, let me give you five subjective things. I think you should do it. Hey, let us get our hands around your data. Let us digest that data, really understand where the company is today. Let’s talk about your goals for the business and let’s figure out, let’s figure out what the capital markets are going to say about your business right now, and how that aligns with your goals. Right? And so we’re really thinking from a perspective of the buy side, that’s really important. We’re thinking about, Hey, if I put this in front of XYZ, a private equity firm, and so-and-so who I just spoke to last week that said XYZ, private equity firm. And I heard all the tenants and criteria and things they really like about this other business and how they broke down the company and where they really assign value to this particular business over here.
Chris: I’m able now to use it as a proxy, because we’ve done this literally, I mean, hundreds of times I can take all of this information and I’ll apply it to your business on a customized view of where are you now and what are your goals and what do we need to do to get there? So the advice is to get specific. It might be, look, you are very weak when it comes to a specific strategy around your advertising. And you’ve been trying to do this on your own for two or three years. It’s not working. Here’s why those metrics don’t line up. Here are the metrics that the buy-side is going to be very critical of. And here are some resources for you to speak to and implement almost immediately. And then we start to get better. Then we start to get into quantitative analysis. Look, if you improve your TACoS by 3%, that improvement of tacos by 3% is actually going to result in this much more top line revenue, which will be represented now in your EBITDA online. And Oh, by the way, this is what it would look like. This is how much more cash from a quantifying, right? This is how much more cash you’re probably going to get from the table, but that’s just one exercise amongst many.
Tim Jordan: So those of you listening, this is not meant to be like a huge sales pitch of global wired, right? That’s not the objective here, but Chris exactly said and stated what I wanted you to hear, which is their entire business model is based on helping you improve the valuation of your business and it helps their top line. So I think that’s important to state because the next things that I’m going to ask Chris, I think are very, very unbiased. And they’re very, very much based on, right? Like this is what they do day in and day out, is help people increase the value of the business. So moving forward, Chris, we know that, Hey, we all want to sell this asset. We all want to have an exit. We all want to make a ton of money here, but you see a lot of mistakes too. You see a lot of boneheaded stuff and you see a lot of stuff that might’ve seemed like a good idea and who would have ever thought. So quickly kind of run through a list. You don’t have to go too deep into any of them, but talk about some of the biggest mistakes you see people making in the way they operate or run their business that either causes them to not be able to sell it, or it decreases their value.
Chris: Yeah. I mean, I think pure and simple, gosh, and the way I’m about to package and present, this is going to sound very, it’s going to lean a bit more basic than say specific because every business has some type of a specific detail that just matters. Everything’s customized. So trying to kind of elevate it and go about 30, or 40,000 feet. Look, one of the things that we see and, and, and it’s, it’s, it’s a bit mind blowing. It’s, it’s hard to do through the pandemic, but they’ve actually never visited their Chinese supplier. I mean, if you read anything about Chinese culture, having a relationship with your supplier is the most important thing you can ever stink and do, and it will drastically help the health of your business everywhere, literally everywhere. Right? So, never hopping on a plane and only doing zoom meetings while as a westerner, you think, Oh man, that’s good. We’re okay with that. The reality is nothing will be, especially in Chinese culture, face-to-face meetings and regular visits with the factory. Period. Now you may make your product in America, same principle, face-to-face working very closely with your supplier. It’s going to help tremendously because what does the supplier, what will that help? Right. So kind of naming the specific things. Well, one cogs, that’s the easy one. A lot of these factories, what you’re not aware of is they’ve got unbelievable amounts of people as teams from engineers to product development, to designers, industrial designers, they’ve got these giant teams as part of the factory. And when you build that relationship, you’re able to really tap into a lot of those resources and for a small business, that’s a big deal, right? So being able to tap into those resources, adjusting cogs, getting some cogs relief, and then also too, it’s just pure unadulterated capacity. When you’ve got a relationship with a factory and you’re really in need of more inventory and more product, you can work with them when it comes to say trade terms and trade credit, that’s always helpful for your balance sheet and also just for your cash flow, but then also too, you actually can get product over other people getting product. It’s just that pure and simple. So a lot, that’s probably I’d say kind of public enemy number one. Well, they just don’t have a great relationship with their supplier
Tim Jordan: And that does change valuation because if you’re going to buy or someone’s going to buy that company, man, if the supply chain falls apart, that business is dead, right? So they need to know that there is some congruence, some strength and branding when it comes to prioritization with that factory. That’s huge.
Chris: I can give you an example, a very specific example. We had a trade about two years ago. It was a direct to consumer stroller business. It had an incredible product roadmap. The owner of the business was an executive within the baby product space, a former CEO of a very large factory in China. President, vice president– executive vice president sales for even flow for Greco for just very large businesses. And so it was 80% Shopify, 20% Amazon, it had a lot of really good tenants to it. But one of the things that drove valuation up genuinely was the relationship with the supplier and the factory relationship that the business owner had, and that the new ownership was able to gain because of what the business owner, what he brought with the deal and that particular deal all received. And this was two years ago sold to private equity, most to an eight multiple on that business, because, Hey, it had a lot of things that, Hey, private equity loved anyways, it had a real product roadmap. It had strong growth over the past three years prior, ownership was willing to roll equity and stay in the business. That’s a big deal. But then when you started getting into the minutia, one of the things that truly affected valuation was the relationship with a supplier. It’s so stinking.
Tim Jordan: What are some of the other mistakes you see people making?
Chris: Not paying attention to their gross margin in the beginning, right. Kind of coming to an exit. And you look at their gross margin that bleeds into their net margin. And you’re sitting at 11, 12, nine, 8%. That’s not great. That’s not a strong business. So that’s another mistake, just not paying attention. And I think that actually bleeds into financial disorganization. That’s a huge one that we see. Now the good news is we can clean that stuff up. We have an internal team of associates and analysts who do that day in day out. And we also have external resources if it requires what we call a quality of earnings, but still, gosh, it really slows down a deal. It doesn’t give you the right picture of where your business is financially. So it just slows everything down. We’ve got to really get our hands on it and truly understand what that EBITDA level is. And also too, this is the biggest place and due diligence, when you’re actually going towards close, that gets scrutinized is knowing your cogs, actually knowing what your cogs are. That’s the one thing that when you’re really going through a strong due diligence enclose, that’s the one place a lot of acquirers will spend a lot of time on.
Tim Jordan: Got it. One thing that I see all the time, and some of the stuff you’re talking about right now is usually thought about afterwards, like people, especially in the e-commerce space, a lot of times, it’s not intentional. Like you accidentally find yourself as an e-commerce seller, right. And I’ve done this myself, it’s I go, Oh, man, that thing actually went better than I thought it would. And I think to myself, I wish I had set this up or structured it, or been more diligent about this in the beginning. Is there really a high importance on how things are in the beginning or if someone’s had the business for two years is like the last six months matter the most or people screwing up by not setting this thing up correctly from the very beginning,
Chris: I mean, look, the best, most disciplined approach is setting it all up the right way in the beginning, right? That’s the best, most disciplined approach. And when I say setting it up the right way, really doing your own due diligence on how you should formulate the business, good research being done to understand which product categories you should get involved in. Just doing the right things from the start. But yeah, I mean, look, if you get to six months before a close and you’re talking to us, I mean, we’re going to be able to identify very quickly what the bumps in the road are going to be. And then we can assign a time value on, Hey, look, this is going to take a year and a half to fix. It may haircut your valuation by a half a turn. Are you okay with that? Or are you not okay with that? No, I’m not okay with that. Okay, great. Well, here’s some resources. Here’s your homework. Here are the things that need to be fixed on that specific problem that the buy-side is going to see. So yeah, that’s so there could be some call it grace involved prior to exit, six months prior to exit or 12 months or whatever, but look, man, the sooner you identify any of these bumps in the road, and you talk to a professional about it, someone who can give a really good advisement, the better off you’re going to be.
Tim Jordan: How important is diversification, because I know that there’s a lot of people out there saying, Hey, we’ll buy your Amazon business, Amazon business, Amazon business. That’s great. But we also talked about the risk, because what if Amazon changes tomorrow? What if they re-index the way that you’re showing up for certain keywords? What if your PPC doubles tomorrow? Right. So from a buyer’s perspective, it’s got to be a little bit risky. So how important is diversifying onto different marketplaces and then also starting to build your own audience through your own website, traffic and things like that. Does that really make that big of a difference when it comes to valuation?
Chris: Yes, it does. Depending on how long you’ve been doing it. And also depends on the type of acquire or that you’re putting your business in front of. So, if you’re only putting the business in front of say aggregators, well then clearly having a direct to consumer effort doesn’t necessarily matter because they’re only looking for 80% Amazon concentration. So, it doesn’t matter, but they’re going, but they’re devaluing those businesses and they’re discounting them. So you have a buyer base, but they don’t care about diversification where diversification really creates stronger, better value is when you’ve got enough history to show that A, it’s actually very material to your EBITDA and to your top line. So it’s showing real, like real numbers, but then what the waterfall from there is. Okay. Yeah. I’ve been able to prove that I can rotate away from Amazon and sell site direct to the consumer through my website, but then what’s important about that is the data that you’re able to take from those purchases, right? You just have a– look, you no matter where you sell, you’re never in control because you’re always selling through someone else. You’re either advertising through Facebook ad manager. You’re either advertising through Google, you’re selling through Shopify. I mean, very, very little people and no one really has full control over their business. So there’s always a risk analysis around everything. But yeah, you’re right. There is a real view of Amazon platform risk. And a lot of it is just because of how sensitive Amazon can be when it comes to suspension. But I’ll tell you this because of the pandemic, a lot of capital now is starting to get a bit more liberal when it comes to the Amazon platform. That’s a good sign. That’s good news.
Tim Jordan: Yeah. And that is good news. And another cool thing is there’s a lot more information coming out about how to run your business, how to set it up correctly, how to diversify, where you should, and not necessarily where you shouldn’t, because frankly, we’ve got this like situation where as the market’s becoming flooded for buyers, they have to advertise through content. So there are a lot of great resources to go and track this information down for all of you that want to potentially build a business to sell. I love the book Built to Sell. Love it. It’s one of the most influential books I’ve ever read, because even if you don’t want to necessarily sell your business, it gets you in the mindset of having a business that you could sell. Meaning you’re not in the weeds, right. You can actually go take a vacation. You can take a day off. Right. But it goes deeply into helping understand what a buyer would want, which is to be able to just take it and to keep running and making the money. And maybe they can even make it better, but they don’t want that thing falling apart when you step out. Right. So Chris, speaking of content, and speaking of more information, I suspect you have some work and people go to get some free advice.
Chris: Yeah, man. So for the majority of people, they can go right to Google and put in global wired advisors. For the 1% that uses Yahoo, you can still do the same thing and we rank, so that’s good news. Globalwiredadvisors.com. That’s our website. You can easily fill out, say our evaluation tool. So we have a pretty sophisticated tool that constantly gets with market information. It’s an 80,000 foot guide. Call us, give us your data. We’ll give you a much stronger, better view. Yeah, and we have a consultation form on there as well, to your point about the sales pitch, you nailed it. Look, we’re very, very, very altruistic. And we’re very helpful. I mean, of course, we’re not this isn’t a charity business. We’re not a 401 z, but at the same time, we love having lots of conversations with sellers and we love being very helpful and we love providing resources. And I think, you know us now pretty well, Tim and I think, you could probably vouch for that. When a seller comes to us, it’s not about throwing an engagement letter in front of their face. It’s about where are you? And let’s meet you where you’re at and let’s figure out what your goal is. And then let’s provide a ton of good resources to help you hit that goal.
Tim Jordan: Well, I’m very careful about who I bring on here. I don’t want anybody to get bad advice and I don’t want to openly pitch businesses, and frankly, Chris, the reason you’re on here is from what I’ve seen you doing in the space, you have actually told more people, Hey, you’re not quite ready to sell. Here’s what I would go and do. Here’s the connections that I will connect with. Like you have given more free coaching to people than you have. Hey, let’s sign an engagement letter. So I think that means a lot.
Chris: Oh yeah. Awesome. Well, thanks for having me on, man. I really appreciate it.
Tim Jordan: Well, you can’t escape yet. I have one last question. This is the question I’ve been asking the last several episodes for those of you long time listeners, Chris, you come from the banking world, so to speak. You’ve taught yourself digital marketing. You’ve taught yourself how to sell on Amazon and gotten into e-commerce and that doesn’t happen by accident. You had to learn, and I love reading business books. So if you went to your bookshelf right now and you had to pull one off the shelf to recommend to everybody who listened, that made the biggest impact in your life when it comes to this business, what would that book be?
Chris: Oh my gosh, man.
Tim Jordan: No pressure, but everybody I asked instantly spits one out. So if you spend too long thinking about it, we’re going to think you’re trying to curate the answer. But if the answer is Dr. Seuss just spit it out.
Chris: My stupid mind, it’s having what I call a brain fart. So give me one second, man. How Will You Measure Your Life? That’s it. It’s the most recent one I read. I’m in a mastermind and we’re going through several books. So that’s why I’m having that brain fart. We’re actually on the third book of the past month, but How To Measure Your Life by Clay Christiansen, an unbelievable business book. And it’s all about this guy is– he’s a Harvard graduate school professor, for many, many years had a really remarkable career. And so he really talks about how do you define success, both in your business, how you define success at home. And I know that you’re also a husband. You’re also a father. And so, look, man, that’s probably the toughest hat. Those are two of the toughest hats that I wear. And I’ve got all these things that are buying for my attention and time. And having an 11 and eight year old while they’re going through those most critical, crucial growth years, it’s all about taking intentional time to make sure that you have real success at home while you’re also trying to have real success in business, phenomenal book, Probably, it’ll be on my list to read every year. The other one that was coming to mind was Good to Great. It was one of my first books that I read actually in business was Good to Great. And then also the E-Myth revisited by Michael Gerber. That’s a great book. So I’ve got several man. The brain was jumbled.
Tim Jordan: Yeah, the E-Myth I see it over there on my shelf. I’ve got shelves all over the place. It’s amazing how many books I have and it’s embarrassing how many I haven’t read. My to-do list is big.
Chris: The one that I actually learned from one of the biggest and best distributors in Canada back in the day, he introduced me to a book called The Goal. If you ever really want to understand true production and how to be efficient in the supply chain, read The Goal. It’s amazing.
Tim Jordan: All right. Well, you’ve given us four book recommendations. I appreciate that.
Chris: That was the brain fart, man.
Tim Jordan: That’s it. So much. Hey, we’d rather have more options than not enough. Well, thank you, Chris, for being on. Those of you that are listening globalwiredadvisors.com. And if you like this episode, make sure to give us a shout out, share it on social media, give us a review on whatever podcast platform you’re listening to and like it thumbs up it, and leave a comment if you’re watching this on YouTube. Thank you Chris, for being here. Thank you all for listening and we’ll see you on the next episode.