Ben was one pf Thrasio's first European buys and he's now supporting brands looking to exit.
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In this episode we discuss:
[0:00:01] George Reid: Welcome to us, Always day One. My name is George Reid, a former Amazonian turned amazon consultant. Each week on the podcast you're going to hear industry experts, brand owners and amazon employees share their answers to the basic yet fundamental questions you should be asking yourself bang your amazon business now, let's jump in. Hello ladies and gentlemen, welcome back to another episode of It's always Day one Rock. I keep saying that at the moment, we today we've got Ben Leonard joining us from econ brokers, we're gonna be speaking a little bit about how you can exit your business. Ben, you wanna give us your, your 12th intro path.
[0:00:38] Ben Leonard: Yeah, cool. Hey George, thanks for having me. Um yeah, I built, scaled and sold a seven figure e commerce business and the experience of that taught me quite a lot about getting a business ready to sell and so I found a Nikon brokers with my accountant. The two of us put our heads together and felt like we could do a better job of being a broker and here we are.
[0:00:58] George Reid: I like what you're doing because there's a lot of noise right now. And particularly the last three episode, I've talked a lot about with the guests around the ever growing market of amazon aggregators who are rolling up these amazon brands. I like how you're sitting in this middleman position going, sure there's loads of experts on the buy side. But most people probably have got no idea about selling the business. Like what was that experience like for you? Because you were involved with the ratio to get your sale right?
[0:01:30] Ben Leonard: Yeah, that's right. So for anyone wondering, I'm allowed to talk about this stuff. It's public domain. They ratio is the organization that bought my first brand and they used me in a lot of their P. R. So it's it's all public domain that I built a brand of fitness equipment called Beast gear and sold it to three ratio. It was their first or second european acquisitions. My experience was different to what a lot of people experience now because so much has changed in such a relatively short time. I made the decision that I wanted to explore an exit In early 2019 And I sold the business in late 2019. So it was Halloween 2019 that I did the deal. And so uh even in that short, you know year and year and a half year and nine months or whatever. Since then so much has changed. Um For a start there are dozens and dozens of three ratio copycats if you like. You know aggregated in this space. Whereas ratio formed in september 2000 and 18 they made me their initial offer in september 2018. So, a year after they formed, I hadn't heard of them many, many people hadn't heard of them. Um the whole idea of buying and selling a purely e commerce business was only just beginning to become, you know, mainstream and it's still not really mainstream. Um you know, for a long, long time, despite, you know, the internet existing for for decades now and e commerce existing for an awfully long time. Now, the idea of buying or selling an e commerce business was bonkers too many, You know, if it didn't have a door, you know, we just wasn't gonna happen. Um and so an awful lot has changed in my experience is quite different. Um, I went through a broker and that was that was okay. They introduced me to the buyer, which, you know, I'm grateful for, but that broker um didn't do a great deal in terms of actually getting the business ready to sell. They pulled some reports from my amazon account and my, my Shopify site and slap the value on the business more or less based on uh, the market average. And actually a great deal of the work to get the business really ready to sell was my accountant. And I, and actually we picked up on a major number crunching error by the broker, which was allowed me to actually negotiate down the commission. Yeah, they undervalued the business by about 30%. Um, so then, yeah, yeah, exactly. Well, that was one of the main things that made us say what we could do a better job of this, you know, apart from anything else. Alison, my co founder, she has 20 plus years experience in mergers and acquisitions. Um and so, you know, that experience led us to feel like we could a offer more to the seller be make the buyer's experience more smooth because the seller is gonna be so much better prepped for the sale and see the seller is going to maximize the value of their business rather than just sort of generically pull down some reports, slap it on our website on the Ebay of businesses that flip the business. Um That's not what we're what we do
[0:04:36] George Reid: and if you see a lot of that at the moment then of ill prepared people going up and I just selling their business ill prepared or brokers just doing this shitty job of flipping businesses and some capacity
[0:04:52] Ben Leonard: both. Um So the worst thing you could do is wake up and say I want to sell my business. The best thing you can do is wake up and say I want to prepare to sell my business, because if you did wake up and say I'm gonna sell my business, you absolutely can. Um But you won't get what it's worth or what it could be worth, because either you'll end up dealing directly with a buyer and that's, you know, that's their dream dealing with you directly. No competition, no experts representing, you know, proper calculation of the valuation of your business, which is something we could dig into if you want, and they're gonna take your business off your hands for peanuts or b you're going to end up going to one of these kind of generic uh flipping brokers who we'll do the bare minimum because they're they're operating at a on a vast scale, listing your site for sale, telling everyone in their database that is for sale. And you know, you don't get the best possible deal for your business. Whereas if you plan to sell your business
[0:05:56] George Reid: and work
[0:05:56] Ben Leonard: with experts to help you get your business ready for sale. And I'm not saying when I say plan people, that doesn't mean this needs to be an extremely long process. We work with people who are more or less ready to sell now, but we just need to do a bit of work on the the positioning rather than just immediately saying the businesses for sale. I have a target to sell, whether that's a time based target or or a financial based target and then we work with them might be over a period of many months to get them in the right spot to sell. But you know, the moral of the story is plan and work with an expert.
[0:06:27] George Reid: What would some of those core things look like a planning perspective? already kind of basic Top five points. Top three points are planning side of things.
[0:06:37] Ben Leonard: Sure, Well, actually just before we come to that, there was something you touched him before that. I didn't properly answer actually was The reason you need to plan to sell is 8 to maximize the value of your business. But be this is and this is a problem with so many commerce businesses right now is um, Especially those run by one person or a very small team. The business looks fantastic. The listings are great. The ratings are wonderful. Really good products, branding, spot on websites really slick. You open up the box and look inside and it's a mess. Google sheets here. Ever know over there, Excel on your random hard drive stuff in the owner's mind. And so when it comes to trying to sell that, it's a complete mess. And when the potential buyers during their doing their due diligence, either they're going to look at this and say we're not touching that or they're going to have so many opportunities to negotiate down based on how messy it all is that you're not going to get the right value for your business. So that's that's important than just in terms of the planning, the best place to start is. And this is true even for people who are listening thinking but I don't want to sell my business, well that's fine, you don't have to sell your business. Although I almost can guarantee that one day you're going to want to because you're not gonna do this forever. But it's very very useful to get a reference point as to where you are now. And that means get your business valued now so that you know where you are. Otherwise you're trekking through the jungle without a map. And then what you can do is you can say, you know, let's say you have your business value that's worth X. Or let's pick a number, let's say it's worth half a million. Could be half million. Could be a 50 grand, could be five million. Does't matter. And you you might think yourself wonderful, I want to sell it for that or you might think to yourself, I don't want to sell it for less than a million. Great now, you know where you are, you know you want to get to and it's a case of reverse engineering that and stacking up the dominoes if you like of the things that are going to get you there and then knock them down. You can do that on your own or you can work with the right organization to do that.
[0:08:48] George Reid: So point number one is I really like just actually going back to a maximize value B open the box and it's a shit show inside. And I imagine particularly with amazon because so much responsibility fools on one
[0:09:06] Ben Leonard: individual
[0:09:08] George Reid: more often than not to begin with. You know, for the first three years I've had lots of these conversations where they're doing everything strings to their bow. Um, and with that comes their own system of how things work. You know, I can open up my forwarders and I'll know exactly where everything is because I've got my special little way of doing things even though someone else will open up and be like, I couldn't run this. If you were in hospital for a week, the whole thing would go go tits up.
[0:09:41] Ben Leonard: Yeah,
[0:09:42] George Reid: that's part of it. I'm guessing where you go. If I get another person to look at my business isn't some value in that just going, someone else have a look at my business. Like have conversations with the people and be going, is this making sense from doing or are you saying when you open up the box you want it to be super clear because there's not one person um in charge of everything and the owners isn't on one person,
[0:10:08] Ben Leonard: it's absolutely fine. If there's one person it would become and the reason is fine is because it would be um it wouldn't be realistic for us to expect that not to be the case. It's better if you know so many small e commerce businesses. Mine included Started with one person. Well we're time we all know we need to be working on the business and not in the business and we need to outsource tasks and automate tasks so that we can focus on the more important big ticket items on scaling the business. However, that said there are plenty of a bit of businesses, e commerce businesses where it is still all done by one person for one reason or another, rightly or wrongly and that's not going to change. We need to be realistic about that. So if that is you and you're listening and you know, you're not gonna start outsourcing and what not, that's okay, but what you need to have, it's clear systems, standard operating procedures in place that you can hand over to a potential buyer. And the most important thing is that everything is neat and tidy. So for example you have excellent record keeping and that goes into everything whether that's your purchase orders, your financial statements, your tax returns, your filings, your intellectual property, um contracts with manufacturers and third party logistics companies. You know, every, you know, everyone listening to this will know all the sorts of different admin behind the scenes of their business and that just needs to be extremely neat and tidy. Such that when somebody else comes to look at it, it might not be organized in quite the way they would do it, but it makes sense. And for that reason I would encourage, yes, just as you said, have somebody else audit the state of your business now. And you know, that's something that actually we do eat on brokers. We do something called pre sales Pre sale Assessment, which is basically in order of your business on everything from the e commerce side, that's, you know, that's me in the financial side, that's my co founder Allison. And we basically, what you then get is a report on the state of your business and a checklist of stuff to go and do, and that can be extremely easy, low hanging fruit or can be more complex stuff. And that advice can be just things that make your business more sellable, but also things that make your business scale so that you can achieve that you might have in mind. And that way, suddenly when you do come to sell that due diligence process, which is pretty intense, rightly as it should be, becomes a hell of a lot smoother, both for you, the seller and for the buyer
[0:12:43] George Reid: and from flipping this around and think about it from a biased perspective from your initial conversations, um are they having a more enjoyable experience because they're dealing with brokers as well? And the whole thing is kind of greased up a little bit, it's a little bit smoother for them. Typically it's going to be much more obvious the value of this business while on the flip side, the buyers thinking I'm not gonna be able to get away with a very cheeky offer now. So it's kind of part and parcel, right?
[0:13:15] Ben Leonard: Yeah, it is. And so there's a there's a combination of those two things and there's a, there's a balancing point. So the buyer ultimately, you know, it's about the bottom line and the buyers like to go direct because they can they can corner you the the business owner of the business that they want in a non competitive environment, hopefully without any other potential buyers and they're gonna say, come to us direct and avoid the broker fee. But what that really means is please don't work with anyone competent who's going to properly calculate your seller's discretion, the earnings and the value of your business and your ad bax. I'm going to properly represent you to get a deal structure. That is fair now, you know, I speak to aggregators and buyers every day and they're all great people. I'm not, this isn't a slur,
[0:14:06] George Reid: but
[0:14:07] Ben Leonard: this is business and they wish to take your business off your hands for the least amount of money possible. That's just a
[0:14:14] George Reid: fact obviously ever wants cheaper prices from your manufacturer, right?
[0:14:18] Ben Leonard: It's the same. It's exactly the same. Now, having said that, they also recognized the benefit in working with a broker like us who has done the work to find an excellent business, get it really well prepared to sell so that their onboarding process as a hell of a lot easier. Their due diligence processes a hell of a lot easier. We've saved them the headache of actually having to figure out is this something we ought to be buying because we're only bringing it to them and we only take specific businesses to the right buyers, right? We don't I wouldn't dream of taking a business that specializes in something in category aid to a to a buyer that has no experience in that category. So they know that this is going to be an excellent fit for them. So the amount of work they then have to do is minimized and they recognize they're going to have to pay a bit more because we're not, we're gonna we're representing the seller and we're going to get them what their business is really worth. But actually, they were, you know, when they're doing these direct deals, they're getting such a ridiculous discount on what the business is really worth it. They can well afford to pay a fair price. And so we're not ripping off the buyers, they're not going to get ripped off because they just won't pay too much. But when, when, when they get a fair price with us, that's fine. Of course they can pay afford to pay a fair price because it's a fair price. It's unfair price.
[0:15:37] George Reid: Yeah. Yeah, I think, I think that's a good way of looking at it because you're always going to get those things in the grass or looking to corner people like you said. Um but you do act on both both sides of the friends, I guess. You could say they're stripping it back a little bit and thinking about motivation. So for those listing at this point in time, brand owner, brand owners, whatever it happens to be going, amazon is going well at the moment, there's lots of headaches and there are lots of headaches of amazon and that would be one thing motivating them towards that exit plan because I was planning for an exit as opposed to desperate for an exit. What were some of the other things you're seeing quite frequently from buyers that are making them lean into that kind of ex model
[0:16:29] Ben Leonard: from sellers. You mean
[0:16:31] George Reid: sell it sorry from sellers yeah from sellers wanting to exit
[0:16:35] Ben Leonard: combination of things. Some people are simply fed up. They've been working on their business for you know plenty of time. Thank you very much. They're fed up of especially if the majority of the revenue or even just a significant proportion of the revenues coming through amazon. They're fed up of all the the the constant changes the black hat the random stuff that happens on their listings. This recent inventory issue with the I. P. I. Changes absolutely bonkers you know crying down the phone to seller support at three am. Um, dealing with idiots who haven't, you know, I used to laugh when I I'm still a seller. Um, I would say that oftentimes, I would say if I had a problem Amazon seller support was the absolute last resort and it's getting better over the years. You know, I started selling in 2016 over the years. They are getting more competent. But there are some people who are just Fed up. There are some people who still love their their business and their brand, but they recognize that they don't have the resources or the capacity or the will power to take it forward and they know they're on an upward trajectory. They haven't maxed out the growth. So they know there's still some meat on the bone, like a car on the stick for the potential buyer and there is a good spot because their business is growing and it's an attractive proposition for potential buyer to, to acquire that and, and realize that growth. And they're thinking, well, you know, I'm paying myself, you know, whatever it is per year out of this business, that's fine. But there's so much risk tied up in this model, particularly when, you know, the big red button amazon could get pressed or whatever might happen. And if I take, I can take so much money off the table now with an exit. And it would take me years to keep working on this business to actually earn that amount of money. And there's just a more of a recognition, uh, in the, in the e commerce community that there needs to be some sort of an end game and that doesn't have to be immediate. But you need to recognize that it's quite likely that at some point you're going to want to or need to get out of this and an exit is the way to do that. And you need to understand what your business is worth and what you might want to sell it for so that you, you can take the steps to to get, you know prepared for that.
[0:18:51] George Reid: I like a couple of points, particularly three am seller support peace. Certainly one of the reasons why I spoke about something earlier on, less eager about starting to sell amazon myself despite my position is inverted commerce expert because from my point of view and it is a mixed opinion given my, my my job title. Um, and then roll in this world, I'm not looking to sell on amazon in the immediate future because some of the risks, even I think are too high and there's other opportunities out there. Um, but I like that thought process behind, you know, even some, some good friends of mine who are thinking about selling because they know another competitors come on board and it's immediately gobbling up some market share. And that competitor could be owned by by an aggregator themselves, which then poses another conversation of another competitor comes on board, owned by an aggregator does aggregated and make you an offer to take up the whole market, um, which we can get into after, which would be interested to hear your opinions on it. But yeah, I like the idea. I've just been pouring the money back into the business and maybe continue my full time job. Maybe the lower risk option of selling out, Getting that cash in Reducing the risk down to zero is much more enticing. Um, but I guess it's weighing up of how long do I want to be planning my exit for, because as it becomes increasingly competitive as a business starts to become less profitable potentially because advertising costs are going up, or new competitive coming on board. It's kind of that way up of, if I wait another six months, I'm in a better position cell, but I also might not be in a better position to sell because how the market's changed, right?
[0:20:50] Ben Leonard: Yeah. Because of everything that might happen, but within the next six months. Yeah. And unfortunately, um, it is a fact that it's a, it's a difficult situation. It's a balancing of uh, of risks and, and probabilities of what is happening now and what you, what you think may or may not happen in the future, which makes it all the more important then to beef, to be prepared. That you could actually, if you, if you wished, you could pull the trigger now, right, you're ready and you might say I'm ready and I'm planning, I'm forecasting that we're gonna do this, this, this and this over the next six months to achieve our target of whatever. But actually you might, there might come a day in 3.5 months where you say I've had enough.
[0:21:39] George Reid: Yeah, fuck
[0:21:39] Ben Leonard: that balance has tipped more in the, in the favor of, let's just get this done and then you can get it. If you're then ready to go and working with, with, with, with a competent broker accountant, um, then you are in a great spot because as soon as you pull the trigger, these things can be done extremely quickly. Now if it depends on who you're selling to, because we don't just deal with aggregators. We, we sell to, uh, competitors, We sell to bricks and mortar organizations who are now wishing to get into e commerce, particularly amazon. We sell to private equity organizations who are not your stereotypical, um, FDA aggregators, right? However, that said more often not, it is an aggregator and these aggregators can turn things around very quickly, especially when they have a relationship. If you're going direct, then they don't know who you are. You just fill the form on the website. But if if when they've got relationship with us and we say, hey, you know, we've got George's business here and everything is set up and good to go, take a look. They take a look, Then they then they say, well within 24 hours they're interested in. They'll sign are non disclosure will give them, you know, the details actually tells them more about your business because you know, the first step is it's anonymous Again within 24 hours. They know if they're serious, we can set up the calls. The offer can come in very quickly and then after that, you know, whether it's an asset sale or an entity sale. The due diligence process is, you know, pretty speedy and you can have the business off your hands within weeks.
[0:23:18] George Reid: Yeah, it's pretty insane, isn't it? And then just digging into that point there, what we'll finish on this. I mean what options are available to those thinking about getting out? You've touched a couple but to dig into the middle of a bit more to make people more aware of the useful.
[0:23:33] Ben Leonard: Sure. So there are there are several ways to get out. One is uh, to work directly with a buyer, Right? And sometimes the buyers will come to you direct and it's very flattering when they do. They have a big list of e commerce businesses and everyone listening your businesses on their list whether or not they actually want to buy it and you'll get an email and you'll be really excited, wow. All this work I've done on my e commerce business, selling my spatula is um, somebody wants to buy it. Um, they want to take your business off your hands, give you terrible terms and pray that you won't bring any other buyers to the table and you won't work with a competent broker. The other way to do this is to deal with, you're kind of flipper brokers who basically list your business for sale on the website, kind of like the Ebay of businesses. And they will pull reports from your selling account on your website and place a value on your business. And then that's it. They're basically middle middle men and their fees are extremely high. They don't really do anything to maximize the value of your business and positioning properly marketed properly to the right buyer. In response to that. It's kind of like as a knee jerk response to the poor, uh, quality of the work from those kind of brokers and their high fees, a new model has emerged of these consultants And um, it's a too good to be true story. So these consultants have very low fees, you know, four or 5%,, so low that it would be impossible for professional broker to actually do any work on your deal for that kind of money. And what they do is they basically just paying off an email to a list of buyers saying, hey, I've got George's business for sale here and then this is the shady bit. They take four or 5% from you, the seller and they take a referral fee from the buyer in the region of 25 50 grand. And I, I don't think that's ethical.
[0:25:22] George Reid: Um,
[0:25:23] Ben Leonard: the other way to do this. And again, sorry, just on those guys, the consultants, you know, no proper calculation of your sellers, discretionary earnings, no proper calculation of your ad backs. Um, no competition, poor deal structure, no help with your accounts. If you've got cash account instead of a cruel accounts. And the other way to do this is to work with a brokerage like us, eco brokers who have got the experience on all sides. So I've got the experience of building, selling, scaling my own e commerce business and I'm doing, I'm still doing it now, so I still live and breathe being an e commerce business owner. Alison has got 20 years experience in mergers and acquisitions and is an e commerce accountant. So with us we can properly analyze your business, position it correctly, give you the advice on whether you should sell now. We're not interested in just making a quick buck or working with you over a period of time to get you to where you want to be with, with the right guidance on both the e commerce side and the numbers side, get your business properly. You know, I like to say that we get it built to sell, which is actually the name of a great book on selling by the way, built to sell it and, and that's what we do. We'll get your business in the right spot to sell it for the right price and get the right deal structure with the right buyer, um, you know, with,
[0:26:36] George Reid: with regard to that structure, so it to jump in. But with regard to the structure, obviously, there's a number of different ways you can sell because I know a lot of aggregators in the UK based nano Samaha be when he was chatting from old SAM on the podcast today was obviously that bloody good read. Um, an aggregator owner, he was saying largely in the UK, it's proven to be much simpler
[0:27:01] Ben Leonard: to
[0:27:02] George Reid: acquire the whole business.
[0:27:04] Ben Leonard: Uh, but
[0:27:05] George Reid: what Yeah, that is obviously the simple option. But is that the only option if there is a, is there another possibility for UK businesses and then obviously abroad is completely different playing field?
[0:27:17] Ben Leonard: So in my opinion, SAM's right. The best option for all parties is the actual sale of the entity apart from anything else seller can then realize entrepreneurs relief, which is really important. Having said that there may be reasons the seller only wishes to sell the assets. For example, it could be that the seller has a company. And for whatever reason that company owns multiple brands and the reason that company might own multiple brands is that they might be in the same vertical. And for whatever reason, we're dealing with the situation a little bit like this in a minute. Um, you might be selling off maybe just one or two of those brands, right, in which case we wouldn't be looking at, the whole company, would be looking at asset sale of those those brands and maybe those aren't going to an aggregator. Maybe they're going to a competitor or an organization, uh, you know, high street, uh, bricks and mortar company who wants to get into that space online and they just want to purchase those brands. So that would be an asset sale, which is often much, much faster in terms of the due diligence, because the buyer is not taking on the risk of the the entity, the limited company. Having said that U. S. Buyers are getting more familiar with buying UK and european entities. Um, certainly, you know, I sold my UK entity to a US. buyer in late 2019, it was quite new to them, we got there in the end, um, but now, you know, they're much, much more familiar with that, and many of them actually have UK attorneys working with them to help them do that. So I I wouldn't nobody listening to this should be concerned that it's going to be um, a problem for them to sell their UK or european entity to an american buyer, for example.
[0:28:59] George Reid: Okay, that's yeah, that's really interesting to see the few different options. I'm sure many listeners will have that range of brands and go, you know, it's an option to sell off one, but depends on your current situation, then it's been a pleasure natural away for 29, if you finest minutes. I've definitely got a lot from that and I'm sure that a lot of other people will as well, what's the best way people can get in touch with you? I'll obviously include a link, but
[0:29:25] Ben Leonard: let people know. Yeah, sure. So if you head over to econ brokers dot co dot UK, um it's a UK domain, but we're working globally. Um, if you want to find out what your business is worth, click on the big yellow, sell your business button, which doesn't tie you into selling your business. Um, if you want to email me Bennett econ brokers dot co dot UK, happy to chat, get me on linkedin um, or even e commerce co dot UK slash e book for a free e book, All about how to prepare your business for sale.
[0:29:55] George Reid: Champion. Ben, you've been a champion again. I'm saying champion multiple times. But yeah, good speaking and I'll speak to you very soon,
[0:30:03] Ben Leonard: brilliant cheers. Take care.
[0:30:04] George Reid: Hey guys, just a quick one. If you are enjoying the podcast, I either have some actionable next steps or new ideas I'd really appreciate If you could one subscribe to the show and leave us review. These are really, really important to us, as you probably know, being in the amazon world and two. If you're looking for additional support with your brand, head over to the website, It's always day one dot co dot UK where we've got links to other resources. As often our guys speak soon.
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