How To Sell Your Amazon Business For A BIG Payday
Kris Gramlich and Dustin Kane chat with Ryan Gnesin from Elevate Brands about how to sell your Amazon Business and get a big payday.
Thinking about potentially selling and exiting your Amazon business? Find out what kind of Amazon businesses they buy and what categories they stay away from right now.
Is it possible to sell your Amazon business for a multi-million dollar payout? When is the right time to sell your Amazon business?
Ryan is passionate about building new-age consumer product brands. At Elevate Brands, they acquire Amazon 3rd party FBA businesses from successful entrepreneurs that are ready to pass the baton and let us grow their business into a category leader!
At Elevate Brands, acquisitions are focused on products that lead their category and have strong review moats. Elevate is a friendly and highly collaborative company, with firm principles and proud culture of professionalism and treating all stakeholders fairly.
Ryan has 2 decades of experience in commodities trading, management, business development, and startups. Prior to founding Elevate, he was Managing Director of Glencore South East Asia’s $500MM p.a commodities trading desk.
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How To Sell Your Amazon Business For A BIG Payday
– Hello everyone, and welcome to episode 115 of Two Amazon Sellers on a Microphone, brought to you by Sellozo. Today, Kris and I have Ryan Gnesin on with us, from Elevate Brands, and we’re gonna be talking all about how to exit your Amazon business, which is a topic Kris and I are fascinated by right now. So Ryan, you came on at the right time. In fact, we just did a five-part series that was like every step of the Amazon process of building a business. And this is the last step, is exiting out of your business and then maybe doing an errand. So Ryan, welcome to the show. Thanks for coming on with us.
– Yeah, thanks very much. Great to be with you guys. Thanks for having me.
– Oh yeah, we’re excited. This is just a topic that we knew nothing about when we started our businesses in 2014 around there. I mean, it just didn’t, everyone was starting side hustle businesses. It wasn’t even a thought process that this could be something that people would wanna buy. But now it’s really, I mean, it’s coming of age, so that’s exciting to be a part of this. But before we jump into all that, why don’t you tell everyone who’s listening, give us a little bit about you. How did you get involved in this space, and what you’re doing with Elevate Brands right now?
– Yeah, sure thing. So how did I get involved in the space? My previous life was commodities trading. I worked with a company called Glencore, which is a Swiss space, physical commodities trading company. And so, I was based out of there for a while and based out of Indonesia for eight years, and middle of 2016, I decided I’d had enough of living on an airplane and buying commodities from Asia and selling it to the rest of the world, and I decided I’m gonna move to the US and I had a few friends living in New York, figured it would be exciting. I had no idea it was blank canvas, no idea what I was gonna do. But what I was looking for was a business to buy or a business to start in like there were a handful of industries that I liked, E-commerce was one of them because I liked the kind of life, like the stage of the lifecycle of the E-commerce industry. It wasn’t right at the beginning, it wasn’t mature, there was no sign that the growth was gonna slow down or decline. So there was a bunch of good reasons to get into E-commerce, plus there was the element of trading physical products, which I was kind of, which I liked and sort of drew, just, I had an affinity for that obviously with my previous background. And so, for whatever reason, I like the E-commerce space. And the other thing for me that consolidated, in particularly Amazon, was when I moved to the US I’d never bought anything on Amazon until 2016, because I grew up in South Africa, there’s no Amazon. Then I lived in Australia for 10 years, at the time when I left Australia in 2007, there was no Amazon yet. There is now, it’s growing. And anyway, Indonesia and Switzerland didn’t have Amazon. So, I came to the US and I bought something and two days later it arrived then I thought that was the coolest thing I’d ever seen, and the selection. So, whereas you guys got to, Amazon seasoned you over a couple of decades, for me, it was, wow, this is awesome. And so it occurred to me that that was something exciting, and I couldn’t see how there was any way that trend was gonna slow down. It was so obvious to me that that was a better behind experience than getting in the car, driving 50 minutes to a store, picking it out, driving home, just, it was such a better experience. So, I went to a couple of Amazon conferences, and I went to several other conferences, I bet other industries, but I went to a couple of these Amazon conferences and I met certain sellers in the industry and I went to a couple of like masterminds and a couple of like training courses and stuff, and I met all these people, and I found like there were some amazing little businesses here. There were people doing $5 and $10 and $20 million in revenue, and they were running it by themselves with three other people in the Philippines. And that occurred to me that there’s something really like exciting here in this unreal business opportunity here. And yet I never met anyone who was like an ex investment banker or a venture capital guy, or a private equity guy. There was just there, it wasn’t that kind of sophisticated capital in though. This is in the 2016, there wasn’t that kind of sophisticated capital. So, I told some of my buddies, I’m gonna set up an Amazon business. And my buddies, the unanimous feedback was you’re absolutely nuts. I ran a $500 million trading desk, now you gonna go start up a little side hustle, like are you, and I said, “You know what? I think there is something here, I think this industry will mature. I don’t know when it will mature, but it’s gonna happen.” And they say sometimes you’ve got to do what you feel strongly about and wait for the wave to catch you. And the wave have certainly caught us all in 2020 with the pandemic, but it didn’t catch us for a few years really. But what did happen was I just decided to experiment and test, and the initial thesis for me was to go and start acquiring some of these small Amazon sellers. I always liked the idea of buying a business instead of starting a business. I always liked that idea because the risk reward profile is in your favor. The statistics for starting a business is dramatically, like for starting a business and being successful is like pretty low. I mean, we can talk about the numbers, but it’s like, in two years, it’s like 50% of them succeed, and within 10 years it’s only like 4% or something. But the statistics of buying a business that’s already running and succeeding, and already has product market fit, and then jumping into the policy and then having a little heck of a period, and then hopefully growing that business, like the odds are more in your favor doing that as long as you can raise some capital. So anyway, the initial thesis was, let’s go buy a few of these Amazon businesses, but we learned pretty quickly, Amazon in those days wouldn’t let you own multiple Amazon accounts, And you could get special approvals in certain cases, but there were all these horror stories that your account could get shut down, and there was no recourse against Amazon. And so, it occurred to me like to go raise money and pumping into a bunch of businesses in an industry that I don’t know anything about yet in 2016, was very risky, and so I said, “Okay, well, let’s start somewhere else.” So, there was the retail arbitrage model and the online arbitrage model. And then there was the wholesale model, and so I tested all of them and I launched some of my own private label products, all within 2017. I tested everything and some worked better than others. I mean, like the private label stuff was slow to get going. I could see there was good potential there, but our wholesale and arbitrage business just took off like a rocket. We were buying Adidas and Reebok and New Balance and Nike’s, and we’d put it up for sale on Amazon. And just like with the stuff, average inventory turnover in the first kind of three months, that we tested this with like, like average turnover was done in like 30 days, making sort of 45% ROI on each purchase. So, we looked at that and said, “Okay, well, let’s go raise a little,” when I say we, it was myself in the early days, then I partnered with the guy, James Stein, who’s co-founder today and COO, but I basically ran my business for a year without him. He had just then started his own Amazon business and we decided to pair together at the end of 2017, and raise a little bit of capital. And for the first two years, that was what we really focused on. We built a $15 million reselling business, buying wholesale, closed out inventory from Adidas and Reebok and New Balance, and that business model is still alive and well and you can absolutely go and do that. Go get your hands on some closed ads, Adidas, Ultraboosts, at 70% off retail, sell it on Amazon at 20% below retail, you can make a fantastic margin there. And so, we took a very analytical data-based approach there. So we’d get these lists of hundreds of thousands of skews, and we would mind that list using a combination of software as well as manual analysis. So, I would spend hours and hours and hours because software would filter the list. And then I would spend hours and hours just analyzing skew by skew, size by size, color by color, because the men’s black size 11, sales far better than a men’s blue size 13. So, I mean like, not just which style you pick, but which color in which size variations you put. We use a bunch of data, you look at, and the great thing about Amazon is all this rich data that they provide to you of course. And so, we’ve built a great little business , and I guess, because their business was going so well, we kind of forgot to go back to the reselling, I’m sorry, to the roll-up aggregation play. Not that we forgot, we knew it was there, but we were focused, and we were always trying to balance this business principle of focusing on what’s in front of you and avoid the shiny penny that will distrust you because a lot of businesses died because the founders, they see a summer success and they think, “Okay, well, great, well now let’s go try 25 different things.” And then you end up just kind of not doing anything and executing on anything well. So, we decided to just focus really in and grow that businesses. And then we find some great people, one guy in particular, , who came on as I head by, and he really took enormous amount of time off my plate. So, he would then, rather than me sitting and analyzing skew by skew, would do that. And so that then freed up my bandwidth to start looking at other opportunities within the Amazon landscape. And of course we came back to the original idea, which is acquiring some of these Amazon businesses and was just kind of serendipitous at the same time as that. We met Jeremy Bell, who today is our VP of M&A, and he was interested in this idea as well. And we then partnered up and a long story short, we essentially, in 2019, we decided to start buying Amazon businesses. Now, this was still before the frenzy where a lot of other new guys had come in. So, we bought our first business in the fourth quarter of 2019. That was a success, then we launched a brand in May of 2020, which took several months, obviously leading up to the launch and that was an enormous success, just launching a Greenfield brand. And then strictly half of 2020, we raised a bunch of more capital, started getting momentum, and then 2021 really is when our business has taken off and bought 20 brands, raised a bunch of money, brought on a fantastic team, and now our sole focus is really acquiring Amazon businesses and then optimizing and growing them, and ensuring that we could really leverage some of the operational skills that we’ve built up over time. So, I’ll leave it there for the time being, but that’s the story in a nutshell.
– I mean, it’s a really fascinating story. I like, there’s a lot to that we would like to dig into on this as well, because I mean, isn’t it you started as a commodities trader and then, I mean, moved into this, I mean, a lot of products or commodities on Amazon, you’re trading them, but yeah, just all that institutional money that is involved in that, and then you were a force, like he had the site to see what was coming up in the Amazon next, because you were ahead of the curve on this thinking about buying brands or buying companies that were selling on Amazon was not something that people were talking about, especially in 2016, like you’re talking about with that. And it’s neat to see that you were thinking about that ahead of time, and then going through all the motions of actually launching your own private label brand, wholesale model, I love that. And those you are still running right now, but you were on something.
– Yeah, absolutely. I’m a big believer in testing, iterating and doubling down on your success. And just testing and experimenting with a bunch of different things. And I guess my commodities days made me very, I guess, adaptable to a changing environment, because one second the market’s bullish and now you need to be buying product, and then that’s bearish and now you need to be selling. And so like, you’re constantly trying to pay attention to the macro picture, and then potentially changing strategy and being opportunistic based on the macro picture there. And so, I guess that was to some extent good training for Amazon, because it is such a dynamic space and it’s moving so quickly. And so, my view has been to try something, if that doesn’t work, try something else, if that doesn’t work, try something else. And like, if you keep experimenting and you keep doubling down on your successes, in my mind, it’s a recipe to do very well. And at the moment what we’re doing now, is working very nicely. And so, we’re doubling down, tripling down at the moment. And we’ll just see how this whole space unfolds. It’s a very exciting time. If you’re thinking about what business to start, I mean, I’ve got friends of mine who have also left Glen Corp and other places, and they asked me what do I suggest they do? And my answer to everybody at the moment is go start an Amazon business, because people say, “Well, it’s too competitive now, when it used to the glory days, we’re in 2016.” And reality is, I actually think now’s a better time than ever, because of all this interest that’s coming to the space. It’s a really good time to be getting into the Amazon game.
– What are some things that you’re seeing now that are different back in 2019 when you first started? What’s different about the landscape, about acquiring businesses than there were back early 2019 or late 2018?
– Well, I mean, well, first of all, nobody was doing it in 2018, there was one of them pretty, there was pretty much the rest, and maybe a couple of smaller other guys out there, same thing, 2019, no one was really doing this, it was only 2020 that guys really started paying the attention, which was a product obviously off the pandemic, the billion dollar raise within two years, the fastest ever, and then Encore, I think, the consumer electronics company, the I’ve got in China close to $10 billion. And so, a lot of people who used to say you can’t build a real brand on Amazon, suddenly had to re-look at that theory. All of those three things had a big impact, I think on people coming into the space. So, I think in terms of what’s different, one is there, just the number of people coming into the space, two is the amount of capital obviously coming in. Amazon is always dynamic and changing things, and I think their advertising platform is becoming more sophisticated too. I think Amazon is starting to realize there are a search engine as much as they are an E-commerce store, and that I imagine will continue to be the case. So, yeah, there’s a few changes, I mean, things are very exciting, it’s a good time.
– When looking to acquire a brand, what’s your wheelhouse, what’s your sweet spot? What does a brand need to be doing for you to be interested in acquiring them?
– So, we look for brands, I mean, first of all, there’s a size threshold. So, I mean, we’ll look at businesses that are half a million dollars of EBITDA or SDE as we call it in the Amazon world, the Seller’s Discretionary Earnings. So like 500K is probably the low end, and nowadays we’ll look up to anything that’s $7, $8, $9 million of EBITDA, and we haven’t yet bought a business on the top end of that. But we plan to, hopefully soon. So yeah, in terms of size, that’s what we’re looking at. And yeah, and then, we’re looking for businesses that ideally have very, very strong reviews. I mean, like if it’s got 4.7, 4.8, 4.9 slides, that’s attractive to us. If it’s got 3.9 stars, not as interesting to us as an example. The number of reviews obviously is important and obviously that’s relative to the industry and particularly relative to the category and the particular glitch that it’s into. So, we want it to ideally have the most amount of reviews in the particular category or be at the top of the page. So, that’s something that we’re interested in, because that creates some type of moat and some type of barrier for other guys to potentially compete. We look for businesses that are easier to digest. So, we prefer a business that has five skews versus one that has 500 skews. That’s a, that’s a strong preference for us. Some people prefer businesses that have more skews because it’s more diversification. For us the diversification sits within our portfolio because we have many different businesses. So, we prefer each one to be a little simpler to manage, or have fewer suppliers. If a business has one supplier versus 20, we prefer the one that has the one supplier. So, those are some of the things, I mean, those are some of the core things that we look for. Obviously, we prefer to see businesses that are growing instead of declining. We wanna see a business that hasn’t gained reviews or use black hat to do any of that kind of stuff. Yeah, those are some of the key metrics we leave for.
– What about like the growth opportunities for a company? So, let’s say you had a company A, that was already in every marketplace on Amazon or at least in the main ones, Europe and America, and versus somebody who wasn’t yet, but you guys maybe could take them to that level. And that would be where there could be growth. Which one of those is a better scenario for you as a buyer?
– Yeah, it’s a great question. I would say today, we still prefer businesses that have not pulled every growth lever. And I can tell you very few businesses we’ve looked at have pulled every growth lever, even if they are selling in multiple marketplaces, and they’ve taken it to Europe and taken it to Mexico and Canada, as an example. Oftentimes, the entrepreneur selling it is really talented and skilled, but doesn’t have a huge team. So, it’s difficult for them to be world-class at branding, and creative, and PPC, and customer service, and supply chain, and multichannel, on Amazon off channel, off Amazon driving traffic from DSPs and things. It’s difficult for someone to be really world-class and all of those things, although you do see people who are really, really talented in some of those areas. So yeah, for us, it’s a preference to, for there to be some growth upside, where we can pull a few levers to grow it. And because we have such a strong team in all of those areas, we’ve always, I mean, in every one of our businesses, to date, we’ve been able to pull some levers to generate some growth. So, it’s not that we wouldn’t look at a business that’s already highly optimized, we certainly would, and we certainly would want to buy that. But if you’re asking me my preference, obviously if you can grow your business more easily and there’s more upside, like that’s something, all other things being equal, price being equal and all else being equal, that’s probably a preference.
– You mentioned some of those growth levers. What are some of the easiest ones that sellers can do to increase their EBITDA? If a seller is doing 400K, well, how can they get to that next level of 500 or 750 to be more entertaining?
– So, the low hanging fruit, I would say, number one is supply chain, believe it or not. It’s the unsexy stuff that is, a seller who’s been out of stock a lot is leaving a lot on the table. Because it hurts your sales, it hurts your ranking, it hurts your momentum, and hurts the flywheel. So, I mean, if there’s a seller who’s having stock end issues and that could be for a number of reasons, it could be their operations, it could be their systems, it could be capital, could be a number of reasons. So, if you can solve that issue, you can get some quick wins. And there’s several companies today that you can go to and get some funding for your Amazon businesses. There’s a bunch of them out there and doing great work. Some of the other levers that we’ve seen great uplift on is, is really spending time and money on the creative. And not necessarily letting your best friend tell you whether it’s a good or a bad video or a good, or a bad image, like actually AB test that in the marketplace. And there are a bunch of tools out there that you can use to do that, but you really wanna thoroughly test that, because the difference between a really highly optimized hero image and a non-optimized hero image, it could be 50% in a year, it could be 50% difference in sales. It’s not always gonna have that kind of impact, but it certainly could. So, a highly optimized hero image in gallery is obviously important, it’s such a visual platform. Now, people don’t really want to read, I don’t think. A lot of people just aren’t sitting there reading your description and titles and wanna see all the information they want to see in your gallery. A really beautiful video, I think it’s important. A-plus content. So, that stuff is very important. And then I would say the last piece where we’ve seen a lot of money left on the table from guys is PPC. Just being really, really efficient with your ad spend, your keyword, your negative keywords. I mean, there’s a bunch of stuff that we come across where a couple of very quick fixes would have optimized someone’s tech costs from 15% to 4%. And not that a low tech cost is necessarily the thing you’re striving for. Sometimes you wanna increase, sometimes you buy a business and the tech cost is 3%. And you could generate out-sized returns by increasing that to 7%, because you’re getting so much more of long tail kind of keyword. So, all of those things are important. And that’s kind of the thing about our industry, is like there’s no one single bullet. It’s just doing a lot of things really well. You know what I mean? Because every business is different. Some businesses you look at and optimizing the video, it gets you 20% growth, and the other one, that’s supply chain, the other one’s PPC. So now there’s a combination, sometimes it’s adding new skews, sometimes it’s rebranding it, somehow, the packaging, it’s often a combination of those things and it’s always something a little different than each, each business has a special little snowflake and unique in its own little way, right?
– Yeah. I like all the stuff you’re talking about. And it like you mentioned earlier, it’s the landscape’s constantly changing and testing so important. I mean Kris and I, we talk to sellers all the time, every day, and they’re always, “What would you do in this situation?” And the answer is usually, “You test it.” Figure out what, if that image works better than the other image, and there’s a lot to it. But I really liked the point you brought up about, Kris and I are perfect examples of one man shows. These businesses, we wear a lot of hats in our individual businesses, we do probably some of them really well, and we do some of them probably really poor. We probably leave a lot of opportunities at the table, and at some point, we are scaling outside of ourselves, and that’s when selling the business becomes really attractive. I mean, what do you think is the right time for somebody to sell their business?
– Yeah, it’s a very good question. And it’s a very personal thing, that’s right. So there’s no right answer, because it’s very subjective and depends on the person. It seems to me a good time to sell your business is A, when it’s got to a point where you don’t feel like you can grow it easily anymore. So like, maybe it’s because in order to grow it, you now have to hire a bunch more people and you don’t feel like hiring, you don’t like managing people. Some people just don’t like managing people, so you’ve grown the business and it’s doing whatever it is. Couple of million dollars in revenue, and you have three people on your team and you know you need to hire another three or four to grow it and you don’t wanna do that. So like, that might be a good time to sell. Or you need to go put in some additional systems where, you need systems and processes because now you have a bigger team and you don’t particularly like handling the process and the systems, and you don’t wanna do that. And you can hire someone to manage that for you, but you don’t wanna manage that person either, let’s say. Another good time to potentially exit the business. Sometimes you just have someone who’s just exhausted. They’ve done it, they’ve they’ve grinded it. Maybe they got black hat attacked and the listing went backwards and they finally got it back to where it was, like, where it needs to be. And they’re just like worn out and exhausted and they wanna come and do something else. That’s another good reason to sell your business. The other time, it’s kind of opportunistic where you say, “You know what? My business is trading at four, I can get four and a half times EBITDA front for my business. Let’s say, or five times or whatever it is for my business. I’m in a good position, like that represents more money than I ever thought I would have. It seems like a great time to take some chips off the table and maybe go and start another Amazon business, who knows? I mean, we know what can happen in Amazon. I mean, we have a portfolio of all these different brands, and if one of them gets black hat attack and goes down, not the end of the world for us, we’ll fix it eventually. But if this is your entire life at 90, 8% of your life savings are tied up into this business. You’re taking a big risk every day that you’re not selling it. You know what I’m saying? I mean, of course, you’re giving up upside if you sell it too soon, but at the same time we’ve seen, we’ve had our account shut down three times. We’ve been like had attacked, we’ve seen market changes, whether it’s a niche that changed and demand fell off a cliff, whether it’s a pandemic, whatever it may be, the future is never certain. And so, if someone’s looking at it saying, “Yeah, wouldn’t mind taking a few chips off the table here and I could live a pretty good life and start another Amazon business.” Oftentimes we see that as a good reason why someone’s looking to exit their business. We just bought a business from someone a couple of months ago, it was their fifth exit. So, they get it to a point, they grow the business, they get it to point, co-manager for a couple of years, exit, start the next one, manage there for 18 months, two years, exit, start the next one. And that was a $10 million acquisition we made from those guys. It was their biggest yet. So, each one we’ve got bigger and bigger progressively, and they got better and better each time. And now they’re playing with the house’s money, so to speak. And so the next one they can afford to go for the fences and they can afford to go very aggressively at PPC and create and make sure that they have the absolute best listing with the best PPC, and they can use that element of kind of brute force to break their way into the next one, because they’ve been successful, they’re not, it’s interesting when a founder of a business has all their eggs in a basket. Some people that tends to make them a little more conservative. And sometimes that’s the right approach, and sometimes that’s the wrong approach. So, it really depends. And there’s a strong argument for it. Yep.
– Fifth exit, that’s talented, no emotion at all. Everything’s a widget.
– Yeah, that’s the model that would be the most attractive to me by far. And I think Kris, I mean, I’m gonna speak for you, but you’re fairly similar. We love the product research, the finding the new niches to go after. We love the early stages of branding and launching PPC campaigns, all of that. But at some point, the business starts to own you, there’s no doubt about it. I mean, it gets to a point that’s where it gets difficult, that’s attractive to me, and I think you’re right about getting smarter every time. And this is what I wanna touch on next, because the second business, once you’ve exited and you start a new one, you know what you need to know ahead of time, you know what you guy are looking for. So, when someone comes to you, what are things that are deal breakers? Like if they’re structured improperly or if they don’t have their financials in order, or if it’s just a mess, what things are deal breakers or things that you have to really work hard to overcome to buy.
– Yeah, so typically if there are too many skews, I mean, if there’s just hundreds of skews and it’s complex to manage a business like that, that might be not so attractive, unless they have 80% of their sales coming from, if it’s the 80, 20, 80% that says this is good, then maybe we can rationalize because maybe you don’t need to manage when you buy the business. Maybe you’ve have you doubled down on the ones that are working, you don’t necessarily focus on the ones that aren’t working. So, there’s caveats to everything, right?
– So, for every answer I give you this, there’s a caveat. So for example, someone might come to and their business is declining, and that’s never a good sign, because when we buy a business, the thing we’re looking for is sustainability of earnings. When we buy a business if you’re paying based on the last 12 months, but that businesses is driving, it’s falling into a ditch, well, you don’t wanna catch the falling knife. Maybe the reason that it was declining was because who knows. It might’ve been they had some supply chain issues with the, and the stock is now coming in, there could be a reason for that, a legitimate and good reason for that. And you’ve got to get your head around whether it makes sense to kind of take that risk. If we know for sure that there’s a lot of black hat that’s being used because that’s risky now. We take over the business, Amazon potentially shuts their business down. I’ve got to now then go explain to my shareholders how we just paid multimillion dollars for a business that just got shut down for doing black hat. That’s not a fun conversation to have. Thank God we haven’t had to have that conversation. So, that’s another thing. Those are some of the kind of main reasons that you would get nervous about, and for us this high thing, if it’s too big, if it’s doing $150 million of revenue, like it’s probably a little out of our reach today, potentially. And if it’s doing under a million or $800,000 in revenue, like is probably a little too small for us that I just given where we are, but there are plenty of other guys by the way that would look at those businesses. So, that’s just how we look at it today.
– You proved, you mentioned four and a half, five times multiplier. Is that where you’re currently seeing the market go from here on out?
– Not really, I mean, it depends. I mean, we’ve bought businesses recently at three times EBITDA, and we’ve had some that have traded, a fairway higher than that. It depends on the business, it depends on the size, it depends on the characteristics, it depends on the growth profile. One thing is for sure, is that the multiples have increased a little bit. Maybe it’s half the turn and the last kind of four months or so. So, there has been a nice step up, but as a result of that, we are seeing more sellers coming into the market, looking to exit their business for the reasons that we discussed earlier, and it’s just very interesting to wait and see how the multiple trend continues, or if it continues, because in theory, there should be a lot of people today leaving their jobs and starting an Amazon business. Like when you look at how attractive it is, and how quickly you can build a multi-million dollar business, I would expect a lot of people should be leaving their jobs and coming to start on Amazon business. And I mean, there’s already kind of a million people a year or something, that come into the industry, and we know the numbers, 68,000, are doing more than a million dollars in revenue. So every year, how many do more than a million dollars in revenue is it 10,000 people or something. So there’s a lot of new sellers coming into the space. And I would expect that that flywheel would continue to spin faster and faster. So, as you have more sort of capital coming into the space and the multiples go up, well, then you should have more sellers, and more sellers brings more businesses to the market. We should then keep a cap on those multiples. So, I don’t know how much further it can go from here. Of course anything’s possible. It could go up further. It could also go down further, if some of those people who acquire those businesses, maybe you came about four or five of and if you’re not wanting to grow that business, and if you’re paying, because what’s the cost of capital use to buy these businesses? If you’re borrowing high-interest debt in the teens and you’re paying five times for a business and you cannot grow that business, and you have that portfolio, that’s not an attractive business model for an investor. So, you have to be sure that you can, or they have to have much, much lower cost of capital, or you have to be sure that you can really significantly grow the business. And those two factors there dictate to some extent what price someone can pay for a business.
– Has there ever been a time when you acquire an Amazon account, and it just tanks, like after you’ve gotten it, either black hat happens or the product goes out of stock and you can’t get it back in, or just a instance where you bought something and you’re like, “Dang, I wish we didn’t do that.”
– Yeah, well, we have a couple of interesting stories. One of the businesses that I love the most, which is fine, because it was one of the very first that we acquired was quite a small business that was selling, it was selling a beauty product. And we bought the business and then I myself actually went and tweaked some stuff with the SEO, the title and various SEO stuff, I went and tweaked it myself because I wanted to experiment. And that was bad idea because the changes that I made, actually, I don’t know if the algorithm is as sensitive anymore, but the changes I made like really sent the business backwards, like 60%. Okay?
– And it took us, and that was one of our first acquisitions. And it took us like two months to get that business back to breakeven. Now the business is up, kind of 150% from where we bought it. So it’s a huge success, but at the time there was a, we sweat for a couple of months there trying to fix that, and it just shows you how careful you have to be with Amazon and how future, because in general, experimenting is a good thing and testing, but you just gonna be careful with what you test with and how you test.
– What are some of the things you did? Like how did you get it back to going good like it was?
– We pulled all the levels. So we fixed the SEO, we got new images made and we optimized PPC. We added a new color variation to the product. So, we did a bunch of stuff there. We just kind of pulled all those levers to be able to get it to move, and we’ve added not just a new color variation, we’ve actually added new skews now, which are now starting to take off as well. So we should, that position to continue to grow, and hopefully by the end of this year, that thing will be up 300 from where we acquired it, early 2020, so yeah, is it good?
– I wanted to ask that as well, is to me seems like one of the biggest opportunities when you acquire a brand, is your ability to launch new products under that brand name that’s already established. So that seems like that is one of the avenues that you guys take to improve.
– Yeah, that is true. One of the things we’ve done really successfully is launched new skews. So, we’re confident in our ability to do that and by the way, if the price of the assets continues to increase you realize like that’s another thing you can do to just mitigate So yeah, there is something of a formula to it. I mean, if you’ve done it a few times, there is kind of a formula, which is why each time you launch a skew, you just get better and better at it. So that, I think it is a really great way to make money on Amazon, is just launching new skews.
– Has there ever been a time where just getting another Amazon seller central account outweighs the brain you’re trying to purchase?
– No. In the early days, when we were doing arbitrage. Yes, that was the case, because like, for example, if I wanted to buy some hookers, and my account was restricted for hookers, but some other guy’s account was, he was allowed to sell hooker, well, if I bought his account, I could place this order and sell it to his account. We looked at that a bunch of times, we never ended up doing it. We eventually just got like approved for all the various different brands over time that happened, but that would be the reason to do it. Like today, we have many, many different Amazon guys who’re like, “We certainly wouldn’t do that today, but in the early days that was more to that .
– What about you guys selling a brand that you acquired at one point, is that a place where you see this space going, where these accounts get traded around and there’s hoarding groups essentially for brands?
– We have no intention of selling any of our brands today, but I would never say never, it could happen for example, then we decide that we wanna become specialists in health and beauty, as an example, I’m just picking a random example. And we decided, you know what? We’re gonna double down in health and beauty and we’re gonna sell off and divest all of our other acquisitions that don’t fall within that category. And then we’re just gonna double down in that one category. So, like that’s a possible strategy where we may consider, we’re not there yet today, and we may consider that in the future. But beyond doing that, I don’t have a reason to, the idea is to buy them, grow them, build a portfolio and really optimize them. So, that’s the strategy today.
– When you buy a brand, what’s the first thing you do when you get it? When it’s a new possession, what’s the next thing you do?
– Well, we have an integration process. So, they’re kind of, you’ve got, of course, getting it in your position there’s a process. A lot of switching our bank accounts and the LLCs and sort of putting it under our ownership. And then from there, it goes through, the brands typically have already been audited by us, but like, we’ll go through an additional, like an additional marketing branding audit in order to just confirm the plan, because until it’s locked in, it’s not locked in. So, kind of confirm the plan, and then you set a 30 day, 60 day, 90 day, optimization plan. And again, what that plan is really depends on a case by case what the business is.
– From the perspective of a seller, what can they expect from this process? So, if somebody reaches out to you and they’re looking to sell, or you reach out to them vice versa, from that point until a decision is made on the sale, what is that timeframe like? And what is that process like for them?
– Yeah, again, it’s a case by case. In general, if someone came to us with a great business that we liked a lot and they asked us to bid on that business tomorrow, we could do that. We could LOI the business within a few hours if we needed to. Oftentimes a seller will say, “Hey, like here’s the business, I’m looking at it. I’m talking to a couple of people, send me a bid next week.” So, it took to a large degree, it depends on the seller’s timeline versus our timeline. You know what I mean? And so, but like once we submit a bid, again it depends on the seller. If they talking to three other people and they’re kind of in negotiate, well, then the process may take a bit longer. If they come back to us and say, “Yep, I love your bid, I love you guys, it’s great.” Well then, their process can happen in, you can sign an LOI within 24 hours. It really is a large to large degree dictated by the seller. We move very quickly. I mean, that’s something we can do really well, and we’ve got a really M&T. And just nice guys, they actually make, we try our best to make the process pleasant. And the feedback we get from sellers is, “Yeah, you guys know what’s up, you ask the right questions and you’re good to deal with, and you’re kind of pleasant, and we don’t do high pressure sales tactics, or any of that kind of nonsense.” You know what I mean? Trying to build a long-term, business year in long-term relationships. And so, we make the process enjoyable. So, then once you’ve, so essentially once you’ve signed the LOI, which is basically us putting in a price that we’re gonna bid for the business and the structure with which we wanna buy it, the underwriting process begins, and it depends on the complexity of the business, but usually you can compete underwriting within 30 days. If it’s got 150 skews, it may take a bit longer. And if it’s got one skew, it should take far shorter than that. So it just, also it depends on the complexity, but let’s call it average 30 or 35 days to do the underwriting process. And that’s it, pretty seamless, you have the legal documents drawn up concurrently at the same time and when everything checks out and, all we’re doing with underwriting is to make sure that what you’ve told us is correct. So, say your cost of inventory is $2 a year, okay, cool, well, let’s just double check with the invoices and make sure that they sticks out with the bank accounts, and make sure that everything just kind of stacks up and that’s the story. So, I mean, it can happen very quickly, and we’re very efficient at it now. We’ve done a bunch of these things and our team is very experienced, and we’ve got to kind of down to a finite now I would say. All right?
– Are there certain categories that you stay away from?
– We have avoided supplements today. We haven’t yet done anything in supplements. And there are a number of reasons for that. One is we’re concerned about regulation changes, there’s a drug called NAC, which was recently banned from Amazon. And so, any supplement that had NAC in that nuggets, it taken down to this. We’re just cautious that a regulatory change could hurt that business. And so, we haven’t dove head first into that category yet. It may happen at some point, we have got some pet supplements businesses, just not human supplements. But beyond that, we’re fairly open to, we’re pretty agnostic and pretty flexible with which categories will you focus on?
– Well, I gotta tell you, I think the most important part, it was for someone like me, I mean, you really love your personal business and it’s like selling a kid or something. I mean, you’re like selling something you’ve worked really hard on to somebody. So, making sure that the handoff is with the team that you really like, you feel will continue what you’ve started, that obviously the price has to be right, but that is important, really important. Is that, do you sense that from a lot of people that assign their business?
– Oh yeah, it’s a deeply emotional milestone and event in someone’s life and that’s not lost on us, which is why we try to trade carefully and nicely and friendly. We put in our best bid that we can, and we try and be, we just try and make it an enjoyable process. The price of course is important, but oftentimes these deals are structured with an earn-out component, where a portion of the sales price gets paid out over, let’s say 12 or 18 months, and the seller will benefit if we’re able to grow the business, it kind of in-lines everyone’s incentives. And so, what we found is because we’ve been doing this longer than others, and because we have a really good track record for growing these businesses, that earn-out, I guess has less risk for some sellers than if they were to sell to someone else who doesn’t have the same kind of track record and the same experience in the space. So like, it’s a question mark, whether they’re gonna get the earn out, whether for us, it’s not so much, I mean, it’s not certain, but you can be pretty confident when we’ve done it so many times, and we have such a strong performance across the portfolio. You’re pretty confident that we will be able to achieve that. So, the upfront price is important. So, is the earn-out component important. And we get that feedback all the time that like, we met a lot of different guys. You guys bid the same price as everyone else, but we’re going with you because we think you guys are great, we like you, you’re experienced. We can see that your values as a company aligned with kind of us as people, and you’re good guys and those, and we were going with you. And nothing gives us a greater joy than to have a feedback from our sellers to say like, “Yeah, we’re really happy with you, three months, six months, could we stay in touch with all of our sellers? Nothing gives us greater joy. Or to say like, “Guys, I’m really excited about what you’ve done, the way you’ve optimized the supply chain, the way you’ve done rebranded the business. Like I’m super proud and super happy and thanks very much.” It’s one thing to make money in business, but it’s another thing to build relationships, and to a large extent, we’re changing people’s lives here when they’re setting their business. You give someone a multi-million dollar payout, it’s a life changing event. And for us, that’s just super exciting and super cool.
– Well, for anybody who’s out there listening right now, and this is something they’re considering, and they want to get in touch with you and your team, how do they do that? What’s the best way to get in touch with you and to get this process started.
– Yep. You can email me, firstname.lastname@example.org or Jeremy’s our chief of M&A, and he’s email@example.com, or just find me on LinkedIn, Ryan Gnesin, on LinkedIn, and I’m pretty good at getting back to people, not necessarily on the same day, within a couple of days, I’m pretty good at getting back to people on LinkedIn as well.
– Fantastic. Well, I encourage anybody who’s listening right now, who is thinking about potentially selling and exiting to definitely get in touch with you. And Ryan also, thank you so much for coming on. This has been, it’s a fascinating topic. You really broke a lot of this stuff down for us, I think is really valuable for everyone who’s listening. I know it’s valuable for us as sellers ourselves. So, thanks so much for coming on. We’ll have to get you back on sometime in the future, maybe because it’s like you said, the landscape changes. So, we’ve got to have this conversation every six months to see where things are, maybe more changes occur, but we’re good.
– Now, it’s sounds good. The next time I’ll come in, I’ll make sure my background looks a little more like yours, a little more character, a little more personality in there.
– You’re doing way better than when we started this podcast ourselves. We had nothing and our cameras were crappy and our microphone. So, we had to up our game slowly. So yeah, we’ll look forward to that cool background, but thanks for coming on. Thanks everybody for tuning in and listening. If you love content like this, make sure you’re subscribing to the podcast or subscribing to our Facebook page, or the YouTube channel where you can see the live streams of these, turn on notifications, so you’re notified of when great people like Ryan are gonna be joining us. We go live almost every single day, and of course, if you’re struggling with your advertising, if you’re growing your business or you just started off and you need help advertising on Amazon, or it’s overwhelming, Sellozo can help you. You can go to sellozo.com. You can book a demo with Kris or myself. We’ll walk you through the platform. We can talk anything Amazon that you want. We’d love to help out, but we can also show you how Sellozo could help optimize your ads for you. So, please do that. That’s what you need. Otherwise, make sure you’re listening to this content and subscribing to everything. Ryan, thanks for joining us. Everyone, we’ll see you next time.