E242: Buying an Amazon Business: Tips for First TimersApril 22, 2019 in Ecom-Crew-Podcast
Cory Stout has already built a successful brand, Woodies Sunglasses. But like any keen ecommerce entrepreneur, he’s seen the potential of acquiring Amazon businesses to grow and improve on.
In this Under the Hood, Cory walks me through the process of his latest acquisition. Inspired by the episode with Shakil Prasla of Pro Click Ventures, he jumped on Empire Flippers and looked at his options. He eventually settled on a business selling a bird feeder called Nibbles and paid 30K for it.
Cory and I then discussed some low hanging fruit in terms of improving the product listing and marketing. These include:
- Replacing existing stock photos with high-quality images
- Improving the copy
- Adding infographics
- Investing in PPC
- Change up the packaging (but not too much)
We also discussed how tying in the product with some type of birdseed can be a great way to not only generate interest in Nibbles but also open up the possibility of introducing new product additions to complement this one SKU in the future.
If you’re interested to get onsite advice from Mike and have your business be featured, sign up for the EcomCrew Roadshow today!
Join this month’s giveaway and get the chance to win an annual Premium subscription for free.
Watch the final three pitches for Round 1 of the 5 Minute Pitch.
Finally, if you enjoyed listening and think this episode has been useful to you, please take a moment to leave us a review on iTunes.
If you have any questions or comments, feel free to leave them below. Happy selling!
Full Audio Transcript
Intro: This is Mike and welcome to episode number 242 of the EcomCrew Podcast, recording this today from sunny San Diego, California, just got back from about a three week road trip. I went to Las Vegas, Phoenix, Tucson, Big Ben National Park, Austin, Dallas, did a couple of EcomCrew roadshow episodes along the way with that, and a whole bunch of other business. It was a fun trip. If you’re interested in being on your own episode of the EcomCrew roadshow, head over to EcomCrew.com/roadshow to apply today. It’s basically a similar format to what I’m doing today with Cory, and Cory has applied to be on the road show. I think we’re going to visit him this summer. That’s kind of in the plans here.
But it’s a similar episode to what I have done with Cory here except that I’m only spending an hour with him on this call and the road show is two half days at a minimum that we’ll spend with you, helping you with your business and interviewing you. So if you have any interest in that, EcomCrew.com/roadshow will be kicking those back up again this summer, probably sometime in June. So again, head over to that, EcomCrew.com/roadshow. All right, today on the episode is Cory from a company called Woodies. And we’ve talked to him before, I don’t think actually on the podcast, but he is an EcomCrew Premium member, and talking to him quite a bit through that.
He was at our mastermind last year in Hong Kong. He’s coming back to that, super interesting dude. He has built a business from the ground up, multimillion dollar sunglasses business, wooden sunglasses business, and now he’s purchasing some Amazon businesses through brokerage companies. And that’s what we’re talking about today. Definitely something very interesting to be thinking about, something I’ve been thinking about more and more of potentially picking up some of these things and using them as case studies for EcomCrew, if nothing else. But there’s definitely an opportunity still to buy Amazon only businesses for low multiples and kind of roll the dice on it and see what happens. And that’s what Cory did here.
Really interesting episode again, you’ll see just how smart this guy is, super interesting guy. It’s interesting. He’s not only interesting in business, but he’s always got something interesting going on in his personal life. One of the things is that he loves collecting classic cars, although that seems to be coming to an end. But he’s just an interesting character and fun to be around and hang out with. So it was fun hanging out with him for this episode. I think you guys are going to really enjoy it. So without further ado, let’s go do Episode 242.
Mike: Cory, welcome to the EcomCrew Podcast.
Cory: Great. Thank you, Mike. Thanks for having me.
Mike: Of course, man. So we’ve known each other for a while, you’re also EcomCrew Premium member. I met you in person for the first time last year at our mastermind last year in Hong Kong. Are you coming on and doing that again or that was just like a one time thing for you out there?
Cory: Yeah, yeah, I’m coming out again, going to Hong Kong sometime next week. And yeah, we’ll definitely have our day doing the mastermind group.
Mike: Awesome, looking forward to it. It’s definitely awesome meeting you there, you have an awesome business. We’re not going to be talking that much about that business today because you bought a new business, which is the main thing we want to talk about. But just to give people some background, tell people about how you got into e-commerce and like what your main business was before getting into this whole thing that you just bought?
Cory: Okay. Yes, so I started e-commerce way back when maybe 2012, I had a Shopify site, had a watch company, I was selling on Groupon and had some success there, turned that into a wood sunglasses company, got rolling on Amazon. And that really brought the bulk of my success. And then now, I’m interested in buying other Amazon businesses. I feel like it’s the way forward, the dominant channel, I think it’s only going to grow.
And so I think FBA businesses, especially private label, little differentiated, are undervalued business types right now. So I actually got some good inspiration from your, one of your previous podcasts about the guy who was buying up all those businesses and different brands. So this is a small scale type of purchase, but it’s definitely something to get all my lessons in order before I make a bigger dip.
Mike: Yeah, make sense. Yeah. I mean, it’s interesting, I feel so like Jekyll and Hyde with this whole thing, because I agree, if you were to set out today in 2019, and start buying a bunch of Amazon FBA businesses in like the 2.5 multiple range, which is what a lot of them are going for if they’re just FBA, sometimes even less and make improvements. So a lot of people, they’ve done a great job obviously getting the business to where it is, but if you come at it with the background of having sold on Amazon since 2012, and knowing just what you know and maybe you’re better at marketing or better at some of the things that they weren’t necessarily good at, you can make a good argument, you can continue to grow it from there.
And then if you could roll them up and sell them two or three years from now to a private equity by doing multiple arbitrage, at 5x even or 7x or something, I mean, pretty amazing business model.
Cory: Yeah, I think that’s right. I didn’t really have the big idea of the private equity thing. I just wanted to collect a bunch of them and run them and let cash roll in.
Mike: Yeah, I mean, I guess on the other side, for me, it’s always been easier said than done. Just throwing myself under the bus here, which I often do on the podcast, it seems so easy. And we run four brands, and the reason we got into four is because we were doing one that was doing so well. And it seems like oh, we’ll just cookie cutter this across all these different brands, it’ll be no problem. But over time, it’s been really stressful. But like, we definitely end up paying attention to two of the brands more than the other two, because two of them are the breadwinners. And the other ones that kind of get the redheaded stepchild treatment and just staying focused on all these different brands and doing — crossing every T and dotting every I with every brand has been more difficult than I thought.
It actually — for me it’s been, my thought process was for every one that I added, it’ll be incrementally easier to add more businesses as a whole, like, we’ll be more efficient as a company. And it’s actually really turned out to be the exact opposite for me, at least. But maybe I’m not the right guy, maybe it takes someone that’s better organized, or has a better team in place or whatever other — we have a great team, definitely not knocking my team but there’s that, that aspect has been tough.
And then the other thing that I just worry about is, when I see, like, a whole bunch of institutional money running into something, I always start to worry is it starting to get near the end of the fruitful cycle, because like everything is cyclical, and most things are on a bell curve of some sort. And when you start seeing institutional money or a bunch of just outside money running towards something because it’s just so fruitful, a lot of times that’s the precursor to the beginning of the end. And it’s hard to say what that would be in this case, but it does make me a little bit nervous for sure which is actually one of the reasons why we just sold off one of our companies. So it’s interesting how things kind of transpire.
Cory: I think you could be right; this could be the beginning of the end. But I think it’s just the beginning of the end of really low hanging fruit. I think now, it’ll just be like simple, dependable, predictable businesses. And that’s, I think, why private equity companies are getting into it not because they think there’s going to be this explosive growth, but that it’s just pretty amazing how clockwork some of these Amazon businesses can be, how reliably they can continue to make sales and profits with little additional input.
Mike: Yeah and I agree. So like flipping back to the other side now that you mention that, I actually have this prediction of that these businesses are going to become more and more valuable because of that predictability and because it’s getting harder and harder to launch competing products on Amazon without doing a bunch of black hat stuff. And even then it’s not guaranteed. I mean, we have a few products that I know for sure that if we were trying to launch them today, we would never succeed, but because we launched them in 2015 and we’ve got that history, they’re successful and continue. And even though dozens of competitors are trying to launch the same product against us, it seems like our product is just resilient in some way. And I think that if that trend continues, these businesses will go up in value even more.
Cory: Yeah, especially aged ones. So you could look at someone’s business that’s a year and a half old, and they did a bunch of black hat stuff, and they’re trying to sell it and you just know to stay away from those. So this one we’ll get into, I had a really long sales history. And it was just one product so I knew I could manage the workload from it. So that’s why it was really attracted to me. But we’ll get into that in a second.
Mike: Yeah, man, I think that now is the time. Let’s talk about it. So I mean, you at some point, it sounds like you listened to one of our podcasts like you were saying the one with either RJ from 101 Commerce or Shakil. They’re doing roll ups, and that kind of inspired you to start looking. So let’s talk about that process. I mean, where did you look and how long did it take you to find something and what did you settle on?
Cory: Yeah, it was the one with Shakil that got me thinking about it. And I went to Empire Flippers, because I’ve met the guy that owns that and been familiar with their brand. And I like the way that they really verify that what they’re — I feel like they really care about their reputation, so that they only list businesses that are going to be what they’re advertised to be. So I looked on there and this was maybe the fifth business that I looked at. The other ones were either niches that I didn’t like or other marketplaces, UK or Germany or somewhere over there. And some of them, the reviews were bad, I just don’t want to be selling a two and a half star, a three star product, even if it is the best in its own vertical.
So, this one that I looked at had two big products on it. One of them looked really sketchy when I looked at the Keeper stats, and I could see just all kinds of price changes and weird rankings and stock outs and all this bad history. So, I somehow got them to remove that one from the sale price. So now it’s just the good product that’s left over. And I was able to look at the sales history for that, look at the listing; it’s a really good looking listing. It’s ranked for a bunch of keywords, and the sales history is really long and strong. So I made an offer on it that was below their asking and they came back a little bit and then we settled on a price.
Mike: Cool. So it’s like you just like basically literally bought one skew.
Cory: One skew, exactly.
Mike: Okay. And did you buy their Amazon account? Let’s talk about some other like the fine deal points that seem to always come up. I mean, was it…
Cory: Yeah. So that was a little weird, because they wanted to keep the Amazon account because it had the other product on it, but I insisted that I wanted the account too. So I ended up putting it under a company that I started for my mom. And so yeah, I was able to keep the account, and now we’re selling off their other inventory. And then I have to like pay them monthly for the amount of sales that they accrue from the inventory they already had in and then once that’s gone through, then we’ll be totally out of the arrangement domain, like free and clear.
Mike: Got you. Okay. And then, in terms of multiple, what did you pay for the business?
Cory: I think it was 29x or 30x, something like that.
Mike: Okay, so two and a half years, basically.
Mike: Okay, very cool. So all cash deal, you just wrote them a check on day of closing and then inventories on consignment, basically.
Cory: Yeah. So we did the wire for the whole business, and then took about two weeks to figure out what portion of inventory was still owed and then there had been a payment in between the wire and when we finally reconciled the inventory, so how much of it belonged to me. But yeah, it was a cash deal, just had the money on hand, so I made it really simple. Looking into SBA loans, I’ve seen how that process works. And those are great, and I plan on doing one in the future, but they do take a couple weeks to get finalized.
Mike: And I imagine this is a relatively small purchase. It’s just one skew, I mean, I don’t know the details of this or if you want to even share that. But I mean, I can’t imagine that a one skew business would sell for all that much.
Cory: Yeah. It’s not a big deal. So I think it makes about 1,200 dollars a month profit and I bought it for about $30,000. So just to, kind of, give you a rough idea of what the size is.
Mike: Okay. And obviously, $30,000 is a lot of money; I’m not trying to make that sound like it’s not a whole lot of money. But I think we all get jaded when you have these larger e-commerce businesses like you and I have built and you just get used to sending $30,000 to China, like it’s not even much of anything at a certain point. And I always tell people just like don’t compare your first step with our hundred number one and number two, e-commerce is just a math equation that over time you just keep adding zeros to, the math is always the same. You just get used to sending $30,000 payments, and eventually it’s $300,000 payments and as you get bigger $3 million payments. But the math remains the same.
Cory: They’re just poker chips, really.
Mike: Yeah exactly.
Cory: Its not even money at that point, just poker chips.
Mike: Yeah, and I mean, in terms of investments, I mean, that’s what I love about these FBA businesses, if it does pan out the way that you’re hoping, because I mean, where else are you going to get let’s say two and a half x returning or paying two and a half on multiple. I mean, you’re getting your money back in two and a half years, doubling your money basically in two and a half years, which is typically in a stock market is more like seven. So if things remain strong, it’s a great investment. I think that with this particular listing, that there’s still a lot of improvement that can be made. So I actually think you can do even better.
I mean, yeah, it’s a decent looking listing, but it looks a little dated in terms of how things are on Amazon. I know your business well enough, because again, you’re a premium member, and we go over your listings from time to time, and I think that you can make an even better listing with what they have now in terms of imagery, for sure.
Cory: Great! Yeah, let’s talk about that. I wanted to kind of get your opinion on this and kind of, share this with your readers. I feel like the way that I would kind of want to kind of do this for this and in the future is to find a product like this and then find one thing I can bundle with it. You know with Woodies I really under promise over deliver with the packaging. And so with this one, it’s a bird feeder, it’s a hanging bird feeder. And what it doesn’t come with, is an S hook to hang it from a tree or hang it from whatever. And so one of the most recommended products that goes along with this is like a $10 S hook.
And so when I messaged the supplier to make a follow up order to keep this thing going, I asked her about it, and she was able to source one for me. And so now we’re going to be including S hooks in every purchase. So I think that’ll be the beginning of people starting to see this product set apart from the competition.
Mike: Yeah I mean I love it. And that’s like one of those things where it’s a $10 perceived value, but you can probably buy that from China for 50 cents or something in that and it’s so — that was a very similar strategy that we had with our gel pens was like, why wouldn’t we include a set of refills in this box as we were designing? I was like it just kind of dawned on me at the last second because what’s the number one complaint going to be? It’s like, well, these things run out of ink really fast. And what’s the way to fix that? Just include more ink, and it costs us under $1 per package to throw that in there but it made the perceived value about $10 higher.
And yeah, I mean, if you can do that, that definitely is a good thing to do. I mean, the other option could be even potentially to include some seed. I don’t know if that makes sense or not, you’d have to kind of run the math on that. But I can’t imagine that that seed cost very much, but having one package of seed in the box that fills up this thing and that could be like a good second skew free to launch afterwards is the seed, and you got someone that’s using the seed from the original bird feeder, it’s kind of like giveaway the razor and sell the blades thing all of a sudden for this. And you can probably still make good money on this bird feeder but also have the opportunity to sell seed; it seems like a logical next step.
Cory: That’s what I was thinking and I always think about usable products right? So bird feeders last a long time but someone is ordering seed and I can get them on a subscribe and save possibly, that would be nice recurring business.
Mike: You could like print right on the package of the seed like which I would put in there as a separate package, not have it like already filled in the two for a couple reasons. I think it would keep it fresher number one. I mean, I think that the seed is going to be – one the seed has a shelf life so you can vacuum seal it and have it in a package. It would keep better. But also, you could print right on the bottle like this is a free sample of Cory’s bird seed, if you want more, go to this URL or whatever and get 10% off. And that would be a great way to launch your product on Amazon and just have a big Amazon coupon. You can use some tiny URL that makes it easy for people to type in. And still one of these is like long and has say Amazon email or URLs. And that could be a great way to start selling bird seed?
Cory: Yeah, I like that. I like that. Yeah, a bird seed is a good business. I mean, I’ve been surprised at the sales volume for all these bird products, they kind of blown me away.
Mike: I mean, I guess I’m just not surprised anymore because everything we throw on Amazon, you realize like, just how many people are searching for stuff and buying things on Amazon every day. The scale is like, just so hard to get your head around. But over time, I mean you’ve seen it with your sunglasses. I mean, how many sunglasses are you selling a month? It’s like the number is just astronomical. And you’re just one guy in a sea of other people selling sunglasses and same thing with the bird feeder. I mean, like I look at the amount of gel pens that we moved every month with for ColorIt, I mean, just basically a whole container, sea container full of that. And that’s just like one skew, one product. It’s kind of crazy, like just the scope of Amazon. It’s insane.
Cory: And it’s still only — what is e-commerce? About 16% of overall sales. I was reading something today that by 2025, it’s going to grow — e-commerce will go from 16 to 25%. And I was thinking to myself, it’s going to be way more than that.
Mike: Yeah, no, I mean, whatever it is, is going to continue to grow without a doubt. I mean, people aren’t going to be like, oh you know what, I want to go back to the mall because that was a more enjoyable experience. I guess I know I’m never going to say that, I can’t speak for women. I know that some women love going to the mall. But I’m definitely not a mall kind of person. And e-commerce has changed my life in terms of like how I shop. And I mean, it is so rare that I walk into a brick and mortar store to buy anything anymore. I’ve been trying to actually buy off at Amazon less just because of some of their practices and things that they’ve done. I’ve tried to go directly to websites more these days and help more mom and pop shops. But regardless, I’m still buying online.
Cory: Me too.
Mike: Cool. So I think we kind of have a good understanding of why you bought this business, what the business is, what you paid for it, all that good stuff. So what do you want to talk about in terms of other things on the call? Are you looking to buy more of these types of businesses or is it how to continue to improve this one?
Cory: This will be your framework. So let’s say you bought a business and now you want to go about systematically figuring out where to start analyzing it, and then improving it. So the first thing you do to try to figure out what your top 10 keywords are, like start — I mean, there’s no ad campaigns running, I don’t have any.
Mike: Oh, really? They have no ads? Well, it’s crazy. So in terms of – I mean this one is easy because it’s one skew, right? So it’s not like a whole brand, you’re not really even looking to make a brand. You’re just looking to buy smaller businesses like this with few skews and improve their sales and get your money back as quick as possible, basically. So I mean, first thing I see with this is absolutely the images. I mean, they have five images, instead of all seven or nine that you can have. Yeah, I would work on getting the trademark so I could eventually get it brand registered. I doubt they have a trademark because they don’t have — I don’t see Brand Registry content here.
So that unfortunately takes some time but I would apply for that immediately and just let the clock start ticking and get that as soon as possible. But the first thing you can definitely work on is the imagery. And I think that, again, these images to me, they look dated. Unfortunately, I’m really bad at explaining how to make imagery look better. But again, because I know you I would say make it look more like Cory’s Woodies stuff, and not this. I mean, your stuff is just super stylish and whoever is doing the design work like just gets it. And for me, I definitely need someone like that because I don’t just get it. When I see it, I get it, but I can’t make it look that way. It’s an unfortunate disadvantage that I have, because I’m just not graphically inclined.
But again, I just think that these images are the — first one is okay, the main images is okay. But the chart of the birds looks like something that was made in like 2000 or something, it’s kind of it looks a little dated. And then on top of it, it’s very wordy. So like, you can only read the main headlines. And so I can read how Sparrow Robin, but below that I can’t even like zoom it because it’s not even a high res image. So I have no idea what the hell that even says. So things like that, I would just make it look more modern. The other images below that, it looks like someone just like Photoshop and superimposed the main image, it’s already there over top of a forest or something.
Cory: Those are just stock images just kind of copied on top of each other.
Mike: Yeah, that’s kind of what it looks like. So I mean, I think that you can really crush this, you can go out and produce some — spend $1,000 or something, do a good photo shoot, get killer photography up there. I think that that would definitely take things the right direction. So that’d be the first thing I would work on because I think that to me, the photography is by far the number one thing. Add some more infographics. I could see the infographics being includes a free S hook, that’s the first thing you call out, then it’s holds a half liter of a bird seed, or whatever the unit is that people think about in terms of birds, because like, I mean, this thing isn’t a scale by any stretch of imagination. I mean, I don’t think it is at least.
I mean, these birds look teeny tiny compared to this bird feeder, and it’s in centimeters, like I’m looking at the listing here just real quickly, like on the fly on the phone with you. And it’s missing key pieces of data that are really important. So I think that you can go through and improve the copy, improve the bullet points and stuff like that. And include that on the infographics and then also point to high quality like unbreakable Plexiglas construction or whatever the real answer is, I’m just making stuff off the top of my head, but have the infographic point out the things that are really cool. And if you can leverage it to include the free thing of bird seed, then that would be another thing that you can talk about as well.
Yeah, I mean, I think that there’s definitely a lot of room for opportunity here then, then I would worry about the keywords. I mean, to me again, first things first, images, then it’s the keywords. And the thing that I’ve been settling on lately is trying not to overdo it and rank for everything, but focus on five to 10 at the most keywords. I think that my product has an actual chance of ranking for like ranking really high for trending become number one for. I’d rather ranked number one for gel pens for coloring than 20th for just gel pens or something like that, because it’s more likely that people are going to — that are coloring, and that’s a smaller niche on Amazon.
And even though it’s a highly searched phrase, I’d rather rank for that, because people that see that are going to be more likely to buy that which means my conversion rate will be higher, which means I’ll outrank everybody. And now would be thinking along the same terms or same thought process with the bird feeder.
Cory: Okay, so you try to identify a word that has the right combination of volume and rankability?
Mike: Exactly. Yeah, I mean, again, it’s people that are just typing in bird feeders as a for instance, they might not know what the hell they’re even looking for. So it might be a situation where there’s some other bird feeder for Robins or bird feeder for Cardinals or whatever. I don’t know anything about this niche. So large bird feeder, hanging bird feeder, whatever, like plastic bird feeder, whatever the extra term is there, a lot of times, it’s better to rank for that, because people that are typing that in know exactly what they’re looking for. And that’s actually a pretty important component.
Cory: That’s been interesting about going through this listing; I didn’t do that much research before I actually bought it. But yeah, figuring out how important it is to be squirrel proof, and how important it is to be easy to clean. So like scrolling through the question and answer session was really interesting, because that’s where I got the idea for the S hook. One of the questions was like, how do I attach this and the seller was like, you can buy an S hook over at Home Depot.
And that’s just a really good opportunity to see like, oh well, we provide the S hook, like why wouldn’t we, everyone is going to need one. And then going down to the reviews and looking at the negative ones and finding out what people still were unhappy about and trying to work with the supplier to fix those things. So it’s been cool to work on a new product as a little aspect of product design that I get to do here that I haven’t done with Woodies in a while.
Mike: Yeah, definitely I’m sure is refreshing and cool. I think it’s an entrepreneurial problem that we all get that squirrel syndrome and look at the next shiny object and I would just caution to don’t forget about the thing that’s working really well right now. It’s almost a little hypocritical because I have a hard time sticking with this myself. But often times, the thing that you have that’s working well is probably the best use of your time and not the shiny other thing that’s out there because there’s always ways to make money. There’s a sea of opportunity out there, but you can john yourself an opportunity is the problem.
Cory: Yeah okay.
Mike: So the next thing I would absolutely be looking at is PPC. I mean, the fact that they’re not doing any PPC is awesome in some ways. I would say the awesome aspects of it are your margins are way higher, because you’re not giving up margin to PPC. But the other awesome aspect is that you probably have more sales that you can capture and more sales is going to equal higher rankings and etc. And the fact that they weren’t doing that is just another opportunity for you to start investing in that and making your money back quicker.
Cory: Yeah, yeah. So I think I’ll connect Sellics and then I’ll kind of turn on their automated thing and set the ACOs where I’m comfortable with it, then yeah, let that start to build data, collect data, and then make adjustments.
Cory: Okay, so yeah, so get the pictures going, redo some bullet points, descriptions, and then set on PPC. What off Amazon traffic driving thing is your first approach? Like I guess, would Google AdWords be the first thing to kind of flip on?
Mike: I think I would actually recommend that you don’t do anything off Amazon. I think that with the business model that you laid out here that you’ve kind of explained to me what your goal is, what ends up happening is like that off Amazon stuff is a big hurdle to get over. It’s definitely lucrative once you do it. But it’s like way more work for less reward for a very long period of time until you can kind of get over the hump. And if you’re going to just like do Google AdWords and send it just to Amazon listing, you can’t track it. So there’s really no way to know exactly what’s going on there because if you sent — you can’t send Google AdWords traffic through an affiliate link and to do any sort of tracking.
You can send it to a landing page first but then you’re just going to lower your conversion rate and I’m not even sure that Google Shopping will let you do that. You can do it with ads but I don’t think you can do it with Google Shopping. And it doesn’t sound like you want to build a brand here. Like I mean, the idea is to buy some of these things — and again, in this two and a half x multiple range, but effectively pay more like one and a half by time you make improvements and get your money back in one and a half years.
And the goal would be to just get your money back as quickly as possible with the least amount of effort and you’re still taking care of those low hanging fruit opportunities and going out and building a whole social media profile and an email list and your own website and all the things that I would suggest for something like Woodies where you have a legitimate brand, and you’re trying to do off Amazon sales, I don’t know that that’s the reason you’re buying this business. So I think that you got to stick the square peg in the square hole and the round one in the round hole or whatever. It’s two different business models, just because one thing works well, for one brand and the thing that you’re doing doesn’t mean that you would want to apply the same principles to a different part of your business.
Cory: Okay. So you keep it simple. I like that.
Mike: Yeah. I mean, I really think you can — I think worst case scenario, make your money back in two years on this. And then so you’re getting a 50% return on your investment, which is insane. And trying to replicate that and keeping — if you’re going to be doing this at scale, if you’re going to buy another business and another business, it’s all about just your time and being able to effectively scale it. And those other things are going to just slow you down and also have lower returns. I mean, you if you start spending a bunch of money aimlessly on Google Shopping, or again, building a list and doing some bizarre things that we both have really a ton of success with.
And I still recommend doing for sure for people that are looking to build a brand, which is what I think that is smart to do long term for ecommerce businesses in general. But this is a different approach. Like now you’re just investing kind of thing. And the idea would be hopefully to roll up a bunch of these later and sow a roll up. The more complicated it is for you, is going to be more complicated for them, and it actually lowers the valuation of your business moving forward.
Cory: What sort of things do you look for? Have you looked at acquisition targets on those sites, Quiet Light Brokerage and Empire Flippers, kind of the ones that I think display the business opportunities the best, do you have a kind of a matrix for things that you evaluate?
Mike: Yes, I mean, we haven’t bought a business since 2015. We’ve been starting things from scratch. Now, I am a big advocate of buying an existing business, I’m actually pretty sure the next thing I do is going to be that just because I think that you get just so much data from it. It worked out really well for Ice Wraps. We bought that for $50,000, which included inventory. And Joe and I were going over the valuation of that. And I mean, it’s a low seven figure business now, which has been just a great return for us. So I mean, buying and then fixing and improving and scaling is a great way to go. And having that existing data is a big help.
The approach that I took with Ice Wraps that I would still be taking with something moving forward, I personally love the stressed businesses that I can identify one or two things that they’ve screwed up to basically destroy their business that’s in my wheelhouse. So in the case of Ice Wraps, it was SEO. The guy had been running a business for like seven years, and the SEO chart looked like a stock market chart like right before 2008 where just like going up, up, up, up, up, and then all sudden was like off of a cliff. And that made their business basically an asset sale, the thing was losing money when I bought it.
And my theory was if I buy this business, and put it on a new platform, because it was on like Yahoo Stores, and I thought that that was a part of the problem. So I stuck it on BigCommerce because that’s what I knew at the time. Now it’s on Shopify. And if I take all new photography, and write new descriptions, the site will come back, and that’s exactly what happened. I mean, it was like one of those things where my theory worked out great. And that was my approach. But this was in 2015; it was before like the Amazon era.
So now I think if I was looking I think that what you’re doing is pretty smart. I mean, like if you’re buying these simple businesses that are easy to evaluate, you’re getting them at low multiples, the risk is relatively low, I do think that there’s going to be valuation creep over the next couple of years. A lot of people agree that this two and a half multiple stuff isn’t going to stick around forever. It’s going to start being three, three and a half, five, whatever down the road. So you’re getting — and then if you can roll it up and sell it to a bigger company, that’s even more valuable.
But first of I’ll be looking for history, I wouldn’t buy anything, period that was less than two years, that’d be my absolute floor. I just want to see two full years of history, probably more like the more history, the better. Because like I think, again, there’s a pretty clear pattern here of old listings outperform newer ones and having that history is really important. And so that would be the first thing I’d be looking for is just, at least two years a minimum history on the thing, probably three or more, especially two peak seasons. So like in birding, I would imagine that’s summer. So having two seasons of data minimum to go by and again, three I think is better.
I’d be looking for the imperfect business. Like I think this one is a perfect example. Like I wouldn’t want to buy one that already had like amazing photography, and like all their ABC done and PPC is like humming along, because that leaves less room for improvement. So I mean, you want to buy one that — any business, I think that you’re looking to buy, you want the opportunity to apply your secret sauce, and to have the biggest impact possible. And so for me, I know Amazon PPC very well, and I know how important imagery is and keywords and copy and etc. So if I’m looking at a listing that’s subpar in all those departments, that’s the perfect opportunity for me to like swoop in and make improvements to that stuff and reap the benefits of that.
Cory: Yeah, that was what this seller was just, he moved on to a different opportunity. And he said he hadn’t logged into this account in a couple months. So he was really not taking care of it and it was kind of going by the wayside. It was even to the point that the amount of stock that he had was less than if I placed a reorder that it would sell out before I would even get the new stock in. So I think I’m going to use that to drive the actual sale price down because he didn’t want to reorder, and then he used to be out of the business. So finding a deal like that too with the sellers really ready to move on, I think it’s something good to look for.
Mike: I agree. And I think that stuff is perfect, it’s good leverage points, you have cash, you can close quickly, here’s why I’m offering you less and then just being willing to walk away, because there’s always going to be another opportunity. And then when you’re doing the first transaction like this, you’re more anxious because you just want to get the first one under your belt, but you’ll realize quickly that there’s only so much money, you only have so much cash and it’s just better to wait and get the best ones. And a lot of times waiting is you’re talking about weeks or a couple of months and not like it’s years.
There’s only so many times you can throw $30,000 at the wall before you start running out of cash. And in the meantime, you can be making improvements and making this listing better and positioning it for resale a year or two from now. I mean, there’s nothing wrong with that either. Because once you have one year of financials once this thing is humming, you could potentially sell it for maybe a half a million dollars or something.
Cory: Yeah, wouldn’t that be great? I’m really glad you did that podcast and got me thinking about buying businesses, because what I was buying instead was classic cars.
Mike: Yeah right. I see your pictures. Yeah, they’re cool.
Mike: And they’re cool but man, they cost money. They don’t put money in your pocket. They keep pulling it out. And so, there’s only a couple of great things in this world that I enjoy that put money in your pocket. One of them is a nice little Amazon business. I was actually thinking to try to be the greatest uncle of all time. I think I want to give this business to my nephews; they’re 10 years old and five years old.
Cory: So I want to like get them excited about entrepreneurship and self-reliance and solving problems. So I think if they take the profit from this each month and save it, it can be their — probably not their college fund, but like the other business to start your own business fund when you graduate high school or graduate college. So that’s kind of one of the things I’m thinking about doing with this.
Mike: Very cool.
Cory: Cool. Yeah, I think I got lucky with this listing, it had over 300 reviews, and it’s still a four and a half star ranking. So I feel like those are kind of rare compared to the other ones I’ve looked at on Empire Flippers.
Mike: Yeah, man, I think that’s just another one of those things to be picky and choosy about, that’s one thing I forgot to mention. But I know the product reviews, that’s another thing I would definitely be looking at. I mean, I would not buy a — I guess a four star would be like the very floor of what I’d be looking at. But when you hover over it, I wouldn’t be buying the 3.8 star version, I’d be looking for 4.2 star like four star products and looking through the reviews and seeing if there’s a consistency in the negative reviews that are coming in and if that’s something that you can fix.
So it’s like, okay, this thing is a 4.2 star thing now, but everyone is complaining there’s no S hook in the package. All I got to do is spend 50 cents to put an S hook in there. And I know that over six to 12 months, it will be a four and a half star product. And when it finally gets to four and a half stars, the conversion rate is going to be even better, my sales are going to be even better and that would be a part of my buying theory. But I wouldn’t be playing in a three and a half star playing field, there’s too much of a chance that it’s going to go down to three stars, or that there’s problems that just are too tough to fix.
And even if you went through the reviews, and it was obvious like what you can fix to make it better, the law of averages are against you, it’s going to be very difficult, because there’s probably a significant number of non-five star reviews that even over six months, you still might not be able to get at the four and a half stars and that would be my sweet spot.
Cory: Yeah, I have the same evaluation criteria.
Mike: I also think that not having a trademark is another positive because you can go out and do that and for just a few hundred bucks. And then once that comes in, then you have enhanced brand content, and you can potentially drive the needle even higher and then be looking to sell at that point once you’ve kind of completed everything, unless you’re looking to do the roll up. But I could definitely see a situation where you take this thing from $1200 a month in profit to $2500 a month in profit pretty easily. I mean, that seems pretty doable to me. And so that’s like selling it basically for 100k, so your 30k turns into 100k. And you do that — and in the meantime you’re keeping all the profit, so you’re tripling your investment, in the meantime, you’re keeping your profit, you’ve already made your money back.
You get a long term capital gain treatment when you do sell it, and you’re keeping all the profit in the meantime. I think that’s a pretty good little business. I mean, it’s just a matter of I would keep everything separate. So it’s very important, I would not start commingling this stuff together because the same reason that you wanted to keep the Amazon account. Anybody that buys something in the future, so just be careful about putting things together. Keep each business separate, which gets complicated along the way and be cognizant of the fact that — I mean it’s almost kind of funny because you said like this guy was selling this business, he hadn’t logged into it for a couple of months. He was busy doing something else.
It’s just don’t fall into that trap yourself. It’s again, we’re all — I preface this with saying I’m a hypocrite because I’ve done the same thing and I know what I’m trying to do better at it because like entrepreneurs do this by nature. But if you can be disciplined with it and do this over time, I definitely see a great opportunity here without a doubt.
Cory: Yeah, I think I’m going to keep going with this.
Mike: Yeah cool, anything else to go over? Are we going to talk about this next business, when you’re ready to buy in a couple months?
Cory: Maybe we could do an episode about evaluating some new opportunities. But I did have since with this one doesn’t have Brand Registry yet, I do have, like a low priced competitor who’s listing against my listing. They don’t have the buy box because they’re not Fulfillment by Amazon, but what options do I have as a non-brand registered product to kick them off?
Mike: So you’re still on a lot of self-counterfeit goods. So I would buy that low price competitor’s product, wait for it to arrive, verify that it isn’t your product, because it is possible that they got it — they have a few of them. I actually would — so the first thing I would do to take a look and just kind of see where things are at is see how many of them you are allowed to buy. So in terms of like defending yourself from this type of crap, what I would do, because I did notice this really, there’s one here like you’re selling yours for 18.99. It’s fulfilled by Amazon. And there’s one guy riding on your list and selling it for 5.99 arrives in like three to four weeks.
So first thing I would do is add it to cart, take a look and make sure that the thing is actually available, and then go into your cart, and change the quantity to like 100 of them. So I’m going to go here in the 10 plus, and then type in 100 and hit update and just see how many are available. And so he has it set to a limit of three per customer. So that means this guy is like relatively sophisticated in what he’s doing because he isn’t going to let you just buy 100 of them and screw him. But what I would do is buy one, and have it sent to you because this thing is relatively cheap. And just make sure that it isn’t the exact same product because again, sometimes people get a hold of like excess inventory or whatever.
It’s very unlikely that’s the case. But again, people aren’t allowed to sell counterfeit goods. So when the thing shows up, you can email him and just say, look, I bought your product, it’s not what I’m selling, I don’t want to get you in trouble with Amazon, but I have to defend my business. So I’m giving you seven days to just take this thing off my listing and we’ll call it even. Otherwise, if you don’t, I’m going to file an A to Z claim. Amazon is going to ban your account, they’re going to remove your listing and I don’t want you have to go through that, kind of looks like almost act like you’re being nice about it. Because the reality is that it’s better to give them a chance to do it than to go to the next level. And then if he doesn’t, then just start buying as many as you can over and over again and making his life miserable by filling A to Z claims nonstop. And typically, that will get people to go away.
Cory: Okay, I was about to do, so start with the test buy and make sure it’s not the same. And then maybe on my next order I need to like put a brand name or put a logo or start to differentiate it because it does seem to be a pretty generic looking bird feeder at this point.
Mike: Yeah, I mean, that’s really important. But I would definitely get your brand name. It’d be worth even opening a mold or something and getting your name like into the mold or something or you could certainly just print it on there. But I don’t know what the packaging looks like. I think that’s another important thing. If it’s just coming in a plain white box with no branding, I would definitely do that just again to protect yourself more than anything. Because it’s only a matter of time before more and more of this type of stuff happens. And if you’re going to go for Brand Registry anyway eventually, which I would file for today, you’re going to want that stuff done anyway. So I think it’s definitely the right move. I mean, what does the package look like? Is it just a plain white box?
Cory: No, it’s got some graphics on it. It says nimble as the brand name but plain text, there is not like a logo or anything.
Mike: Got you.
Cory: Definitely some work to do there. And I’m going to go out to China and meet this supplier when I go out there next week. So I’ll have some time to design a new one and start to make some personalization.
Mike: Okay, yeah, I think that it’s another thing we didn’t talk about that would definitely make sense to spend some timeline. I mean, it’s not really even additional money because you already — it sounds like you already have a full colored box with printing done anyway. And so before you order that next run, I would get a graphic designer to make that look better. And it’s just a better — it’s just an impression thing, it’s going to eventually lead to higher reviews and probably a little bit more repurchase rates and stuff like that the intangibles, and you can even put the packaging. If you make — we put our packaging in a lot of our listings now, because it just looks so good that it looks like it’s a professional retail product versus a lot of the crap that is sold on Amazon.
Cory: Okay, yeah, that’s sort of I like to do. I put a lot of thought into the Woodies stuff being a nice unboxing experience. So we’ll do the same here.
Mike: And it’s probably not quite as important with a product like this, but it’s still pretty damn important. It’s actually – there is a lot of studies and psychology around it. And with the fashion brand like Woodies where it’s like a high end — by the way, I broke my Woodies glasses. I sat on the other day and I broke the hinge. I was like, pretty upset.
Cory: Oh man, don’t leave me a one star review please.
Mike: I won’t, it wasn’t your fault. I said I’m not like, I’m not that guy. I don’t break it as my fault and blame somebody else for it. It was my fault. I just, I was in the RV and I sat on them and I broke the little hinge. It was a sad day. So I’m back to my backup pair, which they’re not as comfortable and I don’t look as cool. But anyway, a product like that, it’s super important. If you really want to have people just have that like visceral like, man, this is amazing reaction.
A lot of the packaging that you include with that people are keeping, right. I mean there’s just some extra goodies in there, stickers and there was like a guitar pick, I think in there. It came in like a poly bag but there was a nice case inside, the bulk of that they’re keeping. If you put a lot of effort into the packaging for this, all of it is going to get thrown away. So you just got to be thinking about in terms of that. So it’s important, but you don’t want to go overboard because they’re just going to take all that and throw in the trash can.
Cory: Okay, so S hook, some bird feed sample, maybe just a little card saying, here we’re happy you bought from us. Here’s the link for the new bird seed. That should be good enough.
Mike: I think so, yeah exactly. And then you’ll see where that gets you. And I think that it could easily double this listing. I mean, as we were talking, I was looking at the volume in this niche. And this is showing up the number one best seller and I think you can make a pretty decent run at this.
Cory: Yeah, I hope so.
Mike: Awesome, man. Well, it’s been great chatting with you. I look forward to seeing you in Hong Kong, and travel safe and we’ll talk soon.
Cory: All right. Thanks a lot, Mike. Thanks for the advice today. Thanks for keeping me on the path. Thanks for everything you do with EcomCrew, and then yeah, see you at Hong Kong.
Mike: Alright guys, that’s going to do it for this episode. Hope you guys enjoyed the 242nd installment of the EcomCrew Podcast. I want to thank Cory again for coming on and doing this. It’s a blast talking to other entrepreneurs about this stuff. If you want to be on your own episode of the Under the Hood series, you can go to EcomCrew.com/UndertheHood. Or if you’re interested in a more robust talk and if you get lucky enough to be selected, I’ll come out to you for free and help you in person for a couple of half days. That’s EcomCrew.com/roadshow. All right, guys, that’s going to do it for this episode. And until the next one, happy selling and we will talk to you soon.
Outro: Thanks for listening to the EcomCrew Podcast. Follow us on Facebook at Facebook.com/EcomCrew for weekly live recordings of the EcomCrew Podcast every Monday. And please, do us a favor, and leave an honest review on iTunes, it would really help us out. Again, thanks for listening, and until next week, happy selling.
Michael started his first business when he was 18 and is a serial entrepreneur. He got his start in the online world way back in 2004 as an affiliate marketer. From there he grew as an SEO expert and has transitioned into ecommerce, running several sites that bring in a total of 7-figures of revenue each year.