The E-commerce Leader

[00:00:00] Jason: so depending on any given cycle in the business and where they’re at in terms of investments in their own efforts, it could look not profitable at all
[00:00:08]
[00:00:38]
[00:01:09] Michael: Jelly Spoons. Hello, there we are back with the eCommerce leader. Another deep dive into a topic for e-commerce leaders. So today, I suggested adjacent we should be talking about how you buy an e-commerce business, because some of my clients have been busy doing that recently, and I know that, Jason, you’ve done that in the past and it turns out you have a secret plan to teach people how to do this.
[00:01:27] Anyway, so I picked the right topic. So great topic.
[00:01:31] Jason: I like it a. Yeah, absolutely right. Me too. It’s top of mind for us because I’m working on a new, webinar training. It won’t be an ebook, I don’t think, or a book, but, who knows? It might get there. But I’m really fascinated by this topic personally involved in, purchasing brands and businesses, a lot.
[00:01:46] In fact, I was just on, we’re recording this on Tuesday. On Sunday, I was talking to some folks about buying a business and where they were at in the process of selling and all. So this is near and dear to my heart. Like it a lot.
[00:02:02] Michael: What the reason it’s come up for me is because one of the mastermind members recently, got approached, I think this is earlier in this sort of economic cycle than I was expecting, actually got approached by one of his competitors, and, former competitors who’s going outta business and, wanted to know if he would buy.
[00:02:16] Either the business or some assets in the business and he’s gone ahead and bought some assets. And that comes with its challenges as, as but also a great opportunity. And it just strikes me that’s only gonna become more of an opportunity for those of us who can stay in business and have enough surplus cash to be able to buy assets.
[00:02:30] Whether you try and integrate them to your own business is one question, and then whether you’re gonna have run them a separate businesses. But definitely I think an opportunity whose time has. Because of the economic situation. And one thing that struck me the other day is that really for a really strong business, now is actually a golden opportunity.
[00:02:47] It’s not a bad time. It’s a really great time. Perfect. But obviously you’ve gotta be in a position to do it and the first place. So tell me about the basics of this. You’ve done this multiple times. What is the first sort of even starting point for this?
[00:02:58] Jason: Yeah. I think the starting point is the idea of it.
[00:03:01] And once you get the idea, dominoes start to fall. Let me just take a minute and talk about rationale or sort of the use case for, or the, the case for, buying a Shopify or e-commerce business rather than starting one from scratch. Cuz I think that’s an important place to, to start mentally is just why would you do this?
[00:03:20] And, I think we could probably brainstorm together a a really solid list. I’ll mention two or three things. And, so that might be helpful in terms of getting people. Orientation toward this topic. So the first reason I would say it’s, a great opportunity to buy in existing business is because when you do that, you, leapfrog over the biggest question in business formation, which is do you have a sellable product?
[00:03:44] And when you can leapfrog over that question, you literally are short circuiting years of hard work. If you buy a business that’s got 10, 20, 30. Dollars a month in sales or who cares? It could even be less than that. It could be more than that. But what you’re buying is, a system.
[00:04:01] People like what that person has been selling. And, and that is the number one thing in my mind. Another reason why it’s super valuable to buy, an existing business is because, you can start, you can buy an existing business with seller financing frequently. And you can also buy an existing business with, loan products.
[00:04:21] But frequently the, the seller, especially if they’re in dire straits, they’re wanting to retire or they’re just exhausted. Maybe they have health issues, they just want out, they wanna be done. You have, as you present to them, the idea of buying their business a real solution for them.
[00:04:37] And I, I think this is where a lot of us might. Appreciate the circumstances sellers can be in where they’re desperate to see this baby that they created live on, past them, and frequently they’re scrambling and they’re more, most commonly it’s not Oh, I’ve got nine buyers who wanna buy my business.
[00:04:59] Most commonly it’s more I’m gonna find a, a buyer, or I’m gonna shutter this. And it’ll just go to zero. I’ll have no value from it. And those sellers are frequently very willing to pass the baton in a logical way, be a part of it for a while, let make payments to them.
[00:05:17] They’ll be generous with terms, those kinds of opportunities. Pretty amazing. And you don’t get that in the same way when you’re buying other assets. Go try to buy a bar of gold. Nobody’s gonna cut you that kind of deal. Go try to buy a piece of real estate. No one’s gonna cut you that deal. So the reason I like it is because, you do have flexible sellers, on the other side of the equation frequently.
[00:05:39] Not always, but frequently. And I’ll just make one, one third Observ. And that’s that, your opportunity to, scale up, is only gonna come in one of two ways. You either sell more of what you’re selling if you’re already in business, or you find something new to sell. And so if you have something already going, and this is the case for what Simon and I have done, we’ve purchased, 13 different brands.
[00:06:03] It’s either 13 or 14. I think I was doing my 14th deal and it didn’t happen, but 13. And, but that’s what our approach has been, is that we have something going, but we’re buying brands to bolt. And that gives us new access to products to sell. And it’s in, all in the same niche. So it’s to our existing community.
[00:06:20] So those are just three reasons. Michael, I don’t know what your thoughts are if you have other thoughts that pop in, but, I think that’s an important first consideration. It’s just like, why would you do this, yeah,
[00:06:28] Michael: very good question, because there’s always work and effort and risk in anything.
[00:06:32] Yeah. It’s gotta be worth it, I think. Yeah, those are fantastic reasons. Couple of things that spring to mind, augment your points if you like. First of all, there’s a book called Buy Then Build. Written by a book called Walker Dal. American guy who runs, Is, sorry, not run to, it’s part of Quiet Life brokerage.
[00:06:46] So they help a lot of businesses, business owners sell their businesses. And so he’s seen both sides, lots of sides of the equation. And yeah, he more or less says the same things that you do, that you’ve got a really made proven thesis for the product that people buy this stuff. Yes. Okay. So that’s been answered and that’s really critical.
[00:07:02] So it’s de-risking. And the point he makes, which is not a reason to do it so much as a way of looking at it, is you still need to have entrepreneurial skills. There’s almost this weird purism that I find amongs Amazon sellers that you have to. Build your own business and you have to be selling physical products or you’re not a real e-commerce entrepreneur, which is just silly, but it somehow is out there.
[00:07:22] So I just wanna burst that bubble and say that building an existing business still requires entrepreneurship as you cinnamon of doubtly. Yeah. That is discovered. One other person to mention, just in case it’s useful resource to people. Then I got a question for you about that. Reality question is exit financing does exist.
[00:07:38] Obviously, you’ve got lots of options. One person I spoke to recently that might be relevant to listeners is Steven Spear of eCommerce lending.com, and we’ll put the link to the interview I did with him in the show notes in case that’s of interest to somebody. But there are many deals available.
[00:07:51] The only thing I’d say before I ask you the question is really, The distress sellers thing, just to augment that as well. You can get some incredible deals. For example, I was speaking to. Under the Mastermind who’s going through, and I can’t speak about much for confidentiality reasons in detail, but he did say, Look, we are buying assets that I know the commercial value of is, it’s about $250,000 for about 25,000.
[00:08:11] It’s hard to do risk more than that. Because they’re the only people that were approached for this deal. And as you said, there isn’t a big pool of buyers. Buyers they’re competing with. And that’s not untypical if it’s very specialist equipment or specialist ability. , there is a very limited pool of people who’d be interested in that, for whom that has more than scrap value or, So a very good point.
[00:08:29] So really that bring me to the next question then Jason. So you’ve done this 13 times unlucky. 13 , maybe the 14th one fell out bed. Superstition aside, what are the realities of the challenges around doing that? Cuz I guess it sounds like a big complicated thing to. .
[00:08:45] Jason: There’s multiple layers of it I guess you could say.
[00:08:48] The challenges, What are the challenges? The challenges are, it’s a relational activity, so you have to have a irrational actor on the other side of the, table. You also have to be a rational actor, . And so sometimes your own idiocy gets in the way. But, that’s the main thing of it is it’s a negoti.
[00:09:05] And, it’s a conversation and, they’re gonna have desires and needs and wants on their side of the conversation. And you’re gonna have desires, needs, and wants, and you’ve gotta come to some middle ground. That seems super fair. The deal that you just described in your, In your mastermind where somebody has assets, they’re buying out of somebody else’s business, or the whole thing for, a 10 cents on the dollar basically is effectively the way to look at that.
[00:09:27] To your point, makes that a really low risk proposition. The, the thing that I would just say about it in general, You wanna have a circle of competency as, I guess Warren Buffet, describes, or whoever it might be. The gurus of old talked about the circle of competency and you wanna operate inside that circle and you want your acquisitions to be, from within that circle.
[00:09:51] You, to step outside of your area of understanding and expertise is the first classic, mistake. If you’ve never worked at a restaurant and you’ve never. Flip the hamburger, then, buying a, a local restaurant and thinking that would be fun to run is a recipe for massive disaster.
[00:10:07] You just wanna stick to your knitting, as they say. And so I think that’s a primary consideration, but there’s a whole checklist of, considerations as you think about what business, opportunities exist and whether it’s a good opportunity or not for you. That’s a whole different line of, thinking on this topic.
[00:10:23] But I think those are the main things. It’s relational and you really wanna stick to your core circle of competency, is some top of mind concerns. And then, it goes from there.
[00:10:35] Michael: Excellent. So you said there’s a checklist, I guess that kind of is attempting sounding thing, is this gonna be the sort of basis of your webinar that you mentioned since you mentioned a
[00:10:43] Jason: checklist?
[00:10:45] Yeah, I’m happy to talk through some of the ideas, but it’s just we, on this podcast, we don’t have time to really do deep dive like we can on a webinar share examples and stuff. But, the checklist, it, it includes things, related to, first of all, whether it’s, a viable business.
[00:10:59] Just is it a functional thing? The, and there’s, ways to determine that. The second thing is a good thing for you, are you the right. Steward of the, system. And then the third thing is what’s the appropriate valuation? And, the valuation piece is what most people just immediately glob onto.
[00:11:15] Like, how much is it, how much do you wanna. One for your business. That’s not really the first consideration, but it’s important. And a lot of people get hung up on this, both on the seller side and the buyer side because, sometimes these business have been run not for profitability.
[00:11:29] They’ve been run first, growth or scale. Sometimes they’ve been, What you might call run into unprofitable, strategies by their prior owner. If, and we all know this as business owners, there’s years where you can burn your profit down to zero if you’re investing in equipment or facilities or staffing.
[00:11:46] So depending on any given cycle in the business and where they’re at in terms of, investments in their own efforts, it could. look Not profitable at all, or negative profitability, like they’re losing money. That doesn’t mean. Not a business that doesn’t have, intrinsic value.
[00:12:01] And that’s a serious set of considerations is like, how do you value it? And the harmonious position is when you as a buyer are in the same ballpark. As a seller, you’ve gotta just be on, in general on, in the same ballpark, many eCommerce sites that are just up and running and, Amazon sellers, that kind of thing.
[00:12:20] I have a common valuation these days of two to four times, annualized. Net profit. And maybe one time sales is another way to think about it. Those are real, real back of the envelope, ideas. But they give you a flavor for what might be appropriate if you’re.
[00:12:34] Thinking about selling, but they don’t take into account, a lot of things. And so you’ve gotta work through the detail. So all that to say, those are three things to think about. Is it a going concern? Is it appropriate for you and what’s the appropriate, value that you would pay for it?
[00:12:48] Yeah.
[00:12:49] Michael: Yep. Those seems like excellent questions. And how do you, and cinema go around answering those questions? Have you used business brokers at all? Have you always just approached people directly? What’s the sort of practicalities of starting that process?
[00:13:04] Jason: Yeah. For us it’s been a couple different paths.
[00:13:07] We have done, a, business where we were contacted and somebody just said, Hey, I’ve got this thing, we’ve also done deals where we knew the businesses because in essence, we were partners with the people and so that’s been our more common path where we’re, we actually know the value of their products and, and the details of their business.
[00:13:25] And so it’s a low risk, proposition for us, and it’s an easier situation of value. The, the business and of course it was in our wheelhouse. So the, the there, but there are different ways, there are tons of websites you can peruse these days. To find businesses that are available for sale.
[00:13:42] I, I would say this though, that, that this is a really sloppy area of. Capitalism, this small business, selling, buying, situation because many sellers who are retirement age have built good businesses. Maybe they got into eCommerce 10 years ago and maybe it was never their main thing.
[00:14:00] Maybe they were just mainly wholesale or, they had their own local. Distribution or retailer, whatever. And they have good products, they have good customer base, but they don’t know how to market a business to sell it. They don’t know how to put it onto Empire Flippers or Flippa or one of the multitudes of marketplaces online where you can find businesses for sale.
[00:14:18] And so they just don’t know how to. They don’t know how to find the buyer for their business. So you know, you gotta scrounge your around. Looking on Craig’s List is one way to do it, but that’s so regional. You have to look at in the US you’d have to look at 400.
[00:14:32] Regionalized Craigslist marketplaces to try to find, businesses that are for sale. I was just looking yesterday for businesses for sale and saw a couple along our area and my first question was like, are these, reasonable, to buy for us? And the answer was no. But I saw them and it was on Craigslist.
[00:14:48] So anyway, that, that’s just back to the top of the topic. Another reason why this is such a valuable opportunity. It’s because there’s just this fractured, scattered away these people are trying to dispose of these businesses.
[00:15:02] Michael: Interesting. It reminds me more and more of something which is possibly more of familiar business model, if not experience.
[00:15:08] So people which is buying distressed, real estate, which , I guess has a bad reputation. It’s a different situation I think in that real estate has a fairly. Standardish market price, people can live in it, depending on what is it an office complex or whatever.
[00:15:20] Whereas, as you say, the very specialist nature of businesses means that there’s a less of a liquid market. It’s less obvious. But that does mean I think that you have more opportunity to find incredible value. And and I’ve seen. With the deals that across my path, as it were, not for me personally to buy them or they wouldn’t be surprised if somebody starts emailing me to about that cuz it’s the sort of thing that goes in waves.
[00:15:37] So we had massive waves of aggregators getting in touch every five weeks to buy businesses, and find them, with the recession. I think that there could be a lot of opportunity going on out there now.
[00:15:47] Jason: Yeah, I would just say if you’re thinking about this for the first time and you’re like, I know about real estate.
[00:15:51] I, I know how to buy and sell real estate, obviously. Componentry of businesses is that they can go to absolute. . And if you’re buying real estate and you’re like, this is, I’m buying it from a tax lie or some kind of, scheme of getting it really cheap. You’re like, there’s an intrinsic value to the dirt.
[00:16:08] Even if there’s nothing on top of that, the land and you’ve got a value for it. That’s like an absolute floor. That still some positive number. Whereas businesses can go to zero or. And so that’s the real risk of it is, you might have a business that’s making a hundred grand a year net profit.
[00:16:24] That doesn’t mean you can get a hundred grand a year net profit out of that business, or maybe you can get a million out of it. That’s the fun of it, is you do to your original point, have to have some entrepreneurial chops and, in thinking to, to bring to the party, let me try that
[00:16:38] Michael: again. Last question, which I guess is tip of an iceberg and a teaser because it can only, as you say, I can see why you’re doing a webinar in this topic. So a lot to unpack. What would you say are the main challenges that once you actually own the business, in integrating it into your own business, assuming let’s assume that you’re working on that basis and, one of the main sort of ways to start to solve.
[00:16:58] Jason: Yeah, I think the first thing is, understanding the assets under your management and ensuring that they’re all locked up for you. These businesses, e-commerce businesses or digital publishers or even, old old school businesses that have, kind of brick and mortar presence that have started to sell in online, they have a lot of fractured.
[00:17:15] Assets. You got intellectual property stuff like the brand itself, the trademarks. You’ve got email lists, you’ve got social media accounts, you’ve got the core, eCommerce site of Shopify or whatever. So you’ve got all these bits and bobs and pieces laying around and you just need to thoroughly, have a checklist to say, what am I buying?
[00:17:34] Is it in the purchase contract? And which is a whole different topic, but then how do I manage those? If you’ve never, for example, Domain name registered under one to one.com or name cheap or whatever, and you’re like, I don’t even know what that system is, but this is where their domain registrar exists.
[00:17:51] You have to navigate stuff like that. And I think that’s the most important thing is just to make sure that you get all the value, you don’t leave any assets behind in the transition. Oh, dang it, we never got that Instagram account that had 46,000 followers, or, whatever.
[00:18:05] And so those are the mechanics. The transition and then, beyond that, the question is do you have a use. Case, or I guess you said business strategy for how you’re gonna scale this thing going forward, scale it up and stabilize the sales and then grow them. And, that takes foresight and thinking and energy and so those are the components.
[00:18:23] I, If it’s a larger business, obviously you’ve got team members involved. And, we’ve done that where we’ve bought businesses, where we’re inheriting a team. And when you do that, you’ve got obviously all the social and team oriented dynamics of being a new team leader. For new people who don’t know, or trust you, and you have to build rapport and all that.
[00:18:43] You can tell again, while I’m doing a webinar on this should be a proper book as well. There’s so many components of it, that, it is a fun topic to dive into and, but there’s a whole universe of opportunity here that really is exciting. And I would just challenge people to dig into this is the opportunity of our lifetime, at least in the us.
[00:19:00] I don’t know how it is in Britain, but in the United States, the baby boomers are rapidly retir. And there are so many of them that were entrepreneurial, had good businesses. They, they’ve sold on to somebody or they’ve shuttered it or they have assets laying around. They still own it, but it’s wound down.
[00:19:20] There’s all states of condition these business exist in, and somebody is gonna be buying those businesses and running them going forward. And it certainly could be us. Yeah, I
[00:19:30] Michael: absolutely agree with that. I would say the other opportunity in the UK is we’ve got similar demographics. In fact, I guess people are retiring at probably greater rate overall than in the us But also, I think the recession’s already hitting harder and probably gonna hit harder here.
[00:19:44] Which is bad news for those who own existing businesses that aren’t well structured. But if you have a well structured business, I mean like the Mastermind member didn’t even do any work looking at Craigslist and has reached out to you by a former competitor because he knew, to your point, that they had such specialist assets that hardly any in the world can make use of them except this guy.
[00:20:02] And I, I think there will be many such deals available in the UK providing you can keep your own business afloat. And I think that’s the key. If you can survive the recession, then on the other side of it, the acquisition opportunities or even during it if it’s mindful and right for you are absolutely massive.
[00:20:17] So I’m really glad we’ve touched on this topic. I guess the obvious calls to action today is gonna be, how do people get hold of this webinar we’ve talked about? Cuz even I didn’t know about this. Sounds exciting.
[00:20:26] Jason: Yeah, we’re gonna be doing, it at the end of this month. It’s part of our Shopify boot camp.
[00:20:31] I will, the webinar name is, I will teach you to. An e-commerce website, and I’m doing another one that is, I will teach you to sell an e-commerce website, and those are two of the webinars. That’ll be a part of the Shopify Bootcamp. So we’re recording this in October, 2022, and it’ll be later in this month.
[00:20:48] So get on our newsletter list or follow [email protected]. That there or on like our socials and, you’ll hear about get on our list basically, and you’ll hear about it for sure. And, and then after, if you’re listening us in the future, just Google around for, I will teach you to buy a Shopify site, , or I will teach you to sell a Shopify site and I would assume, you’ll find it because.
[00:21:08] I’ve already looked and I’m the only one doing this topic and this content idea. So for now,
[00:21:13] Michael: okay, I will teach you to be, that sounds familiar. I’m not gonna name the person who I think is use that a lot. .
[00:21:19] Jason: I try to
[00:21:19] Michael: not name him in case his lawyers are scanning the internet.
[00:21:22] Jason: Sounds. I don’t think he can own.
[00:21:23] I will teach you, but maybe candid. I’ll find out. We’ll talk about it. Absolutely right. Yeah. Remember said he got in touch and here’s
[00:21:32] Michael: what he had to say. But anyway, assuming that doesn’t happen, this has been a great topping and a sort of, a little taster for what is a huge opportunity. And I honestly, I think this is not discussed enough, a lot of people obsessed with selling their businesses but yeah, buying businesses have had one conversation about it in, about seven years of podcasting. So it’s not enough. Yeah, banging that drum. And I will certainly be very interested to tuning myself as well. Look, great topic man. Thank you so much for sharing your insights, which are going, you’re gaining all the time for these deals.
[00:21:59] And, the only other thing to say is if you don’t check that out, if you find this helpful, then don’t forget to subscribe on Spotify or Apple to the eCommerce leader wherever you listen.
[00:22:08]