Episode 95: Growing and Selling Drop Shipping Businesses with Andrew YouderianNovember 9, 2017 in Ecom-Crew-Podcast
“Part of the hard part of selling a business is not just all the mechanics behind the scene, but finding a good buyer who is honest, and who has money, and who isn’t pulling your chain and can actually close the deal. And is reasonable. Those are not inconsequential things to find in a buyer.”
-Andrew Youderian, eCommerceFuel founder
I have an exciting episode today as I am interviewing one of the most awesome people I know, not just in ecommerce but in life in general.
Andrew Youderian is the founder of eCommerceFuel, a vetted community of high 6 and 7 figure ecommerce store owners who help each other grow their ecommerce businesses. The community hosts the annual eCommerceFuel Live event where members get to meet each other in person and share tips and actionable advice on how to successfully run their businesses.
It’s one of the events I absolutely love attending and it seems I’m not the only one who shares this sentiment — event tickets sold out hours after the event was publicly announced.
Andrew launched and sold numerous successful drop shipping ecommerce stores over the years. In this episode we talk about two stores he sold — TrollingMotors.net and Right Channel Radios — and a behind-the-scenes conversation about possibly the most interesting ecommerce store sale he made.
Other things we talked about:
- What eCommerceFuel is and how it started
- A look back on Andrew’s successful drop shipping businesses
- What triggered him to sell his businesses
- His reverse auction sale of TrollingMotors.net
- Finding a good buyer
- Insights about the sale of Right Channel Radios and whether he regretted it or not
- Is it still possible to succeed in drop shipping today?
- SEO strategy tips
We hope you enjoy this episode. If you own a store with a minimum of $250K in annual revenue and want access to a treasure trove of information to help grow your business, apply for membership here!
Resources mentioned today:
You’ll notice we have a different podcast format — it’s just one of the changes we are adopting moving forward. We’ve committed to release two episodes per week, plus we will be bring you a weekly news roundup so you don’t miss anything important in ecommerce land.
Thanks for listening to Episode 95! Please leave us an honest review on iTunes; it will really help us out. You can also reach out to us at [email protected] for any comments or suggestions. Happy selling!
Full Audio Transcript
Mike: This is Mike and welcome to EcomCrew Podcast number 95. You’re going to notice a little bit different format here. We have a new intro, we have a new outro. We also have show notes for every episode put together. You can go to EcomCrew.com/95 for instance to get to this episode’s show notes, and that will be like that now moving forward, so EcomCrew.com/95.
I also want to give a quick personal shoutout to Abby back in our Philippines office. She is now putting together this podcast from start to finish, putting together all the audio, editing everything out, putting in the sponsors, doing the show notes, posting it to iTunes and everything. And I just want to thank her from the bottom of my heart for the work that she’s doing there. She’s doing an awesome job, and just shows what you can do with your team over there in the Philippines. It’s been absolutely awesome.
So let me get into what this episode is going to be about. Episode 95, only five episodes to episode 100, it’s kind of crazy. First thing you probably noticed is that we’re now doing two episodes per week. I am committed to that schedule through the end of the year, and we’ll see where it goes from there. But through the end of the year, check us out now Mondays and Thursdays. That’s Mondays and Thursdays on iTunes and on EcomCrew.com.
Now for this episode, it’s a long time coming. I got my really good friend Andrew Youderian on the show. Andrew is somebody that I just have learned to really respect and really love. It’s a bromance if you will. We both often say that to each other, but just one of the nicest guys you’ll ever meet anywhere in life. Not just in e-commerce, but just a super awesome guy. He’s got a great family. He’s definitely got his compass going in the right direction in life as they say, and just an all round awesome guy.
And we got an opportunity to finally get each other together on the podcast and do an interview, and that’s what this episode is all about. So without further ado, let me hop right into the show, and we’ll talk to you on the other side.
Andrew: Part of the hard part of selling a business is not just all the mechanics behind the scenes, but finding a good buyer who is honest and who has money, and who isn’t pulling your chain, and can actually close the deal, and is reasonable, right? Those are not inconsequential things to find in a buyer.
Mike: I have a very exciting episode coming up today. My good friend Andrew Youderian is going to be coming on the episode. He is the owner of EcommerceFuel. If you guys have ever listened to an episode of this podcast, you know I am a big fan boy of EcommerceFuel, and Andrew Youderian. And it’s kind of embarrassing, we’re getting close to episode 100, and he still hasn’t been on the podcast.
But he’s like such a good friend that like I knew the day that I ask him, he would never say no. So he was like you know what, like I kind of feel bad because like you ask most people and if they don’t want to do something, they’ll just tell you no. But Andrew and I are kind of the same thing. If I ask him for anything or vice versa, I know he’s going to say yes. I kind of feel bad, but at the end the day I’m like you know what, he’s going to do it, and he’ll give me a crap for it later. So without any further ado, I want to bring on Andrew Youderian. And welcome to the show my friend.
Andrew: Thanks, but I don’t know why you feel bad. You’ve got a mutual fan boy here coming back at you for what you’ve built dude. So I am glad you invited me on, thanks.
Mike: No it’s awesome and it’s kind of ironic because the first podcast I ever did was on your podcast. And I knew you took a break from that for a while, but you’re back doing it, and it’s one of the best ecommerce podcasts out there, probably the second best. There’s another podcast…
Andrew: I cannot disagree, like you certainly have a great podcast man. You’ve done a killer job with EcomCrew podcast. You and Dave and yeah, I think you’re probably right there man. It’s tremendous what you’ve done on the show, so good work.
Mike: Now that we’re done patting each other on the back, let’s talk a little bit for those that don’t know, let’s talk about EcommerceFuel for just a minute. That’s not obviously the main topic for today. But man, I’ve gotten so much out of EcommerceFuel mate. It’s a community just for ecommerce store owners. I mean they’re just like this instant camaraderie. Any time I ever meet anyone from that community, there’s a disproportionate number of like good people in the forums compared to the rest of the world.
It’s just like one of these things whenever I’m in a meet-up or any event that I run into an ECFer, it’s just awesome. So, if you could just take a minute and talk a little bit about what you’re doing over there, and then we’ll get kind of to the main topic today.
Andrew: Yeah, in a nutshell, so EcomerceFuel is a private community for high six and seven figure store owners. I’d say we’re required — you have to be doing at least a quarter million in sales to be a member. And the average member probably has a store in the one or two million dollar range. So it’s three big value adds are the private forum, the live events that we do, and then some private some proprietary software we’ve built to help store owners be able to pick and decide what software, what tools to use for their business.
So yeah, in terms of just the culture there, one of the big things we try to focus on, two things, just great people, and a high sense of reciprocity. So, people that aren’t just going to come in and ask and ask and ask and ask and ask. We really try to create and foster a community where people give and take a lot on that site. So yeah, I have been doing it for, oh man I guess close to four, almost about four years now, and it’s been wonderful to be able to get that kind of group of people together. And I’m a lucky guy to be able to hang out with all of them.
Mike: Yeah, and to give people an idea of the quality of product you have there in the event you do, it was a 250 or 200 people coming into it in January, is that – I don’t know the exact final headcount was, but…
Andrew: Oh, for ECF Live?
Andrew: Yeah, 150.
Mike: A hundred and fifty, and it sold out in three days, is that right? I mean it was like basically like there was like a waiting list within three days I think, right?
Andrew: Yeah, once we opened it up for public sale, I think it sold out in about five or six hours.
Mike: Oh hours. Sorry, six hours excuse me.
Mike: So I mean I just obviously there’s a reason for that. I mean it’s the number one event that I love going to every year. I mean it’s just — I was never in a fraternity. So it feels like I’m going back to see like a bunch of old fraternity brothers or something every year when I go to this thing. And just the love like I said just really great people, great conversation, there’s none of this, what do you sell? I’m not going to tell you what I sell kind of thing, because it’s just everyone there has respect for each other and knows that they’re not going to rip each other off, and everyone is adding value.
So I mean that’s I think that people in business are afraid to talk about what they sell or what they do when they’re scamming or doing something that has short term value, and isn’t going to be a long term viable business. That just isn’t what this community is about. So yeah, I mean definitely if you haven’t already signed up for EcommerceFuel, definitely go check it out. As he said, the minimum threshold is 250,000 a year which is what, about $21,000 a month.
So if you’re at a level where you’re doing at least $21,000 a month in sales, and you haven’t joined ECF yet, go do so now. Enough of that, we’ll move on to the main topic which is selling a business. And obviously the reason that Andrew got into ecommerce field to begin with is because he was an ecommerce business owner. And that’s kind of how the community kind of started out, that was a blog. So, very similar to Ecommerce Crew, EcomCrew.
I mean we kind of got into e-commerce, I love talking about this stuff. I obviously had no interest in running a community because I’ve done that stuff in the past, and it’s a pain in the butt. But I love the podcast, and we obviously launched some courses now and stuff like that. And so I mean, we kind of I think are two peas in a pod from that circumstance. But you’ve gone off and sold a few businesses. And I think that people love hearing this stuff.
So I want to kind of talk about the two businesses that you sold. And also we want to talk about drop shipping, because you’ve run some successful drop shipping companies. It’s something that I was never able to do. I think I always say that drop shipping is an awful business, but I think it’s because I feel like I’m jealous of people who are able to pull off and do it, and not to have all this inventory laying around and staff and everything to do it. So yeah, let’s start at the top. I mean what was the first ecommerce site that you sold?
Andrew: Yes, my first e-commerce site I sold was a company called trollingmotors.net. It was drop ship based, like you said. And trolling motors are — they are small electric fishing motors that go on a boat that help you maneuver in a fishing spot. So that was the first business I sold.
Mike: And that’s because you were like on the lake fishing one day in Montana, and was sick of using the oars, or how did that come about?
Andrew: No, so both of the businesses I’ve started them from the very top down like analytical approach. My kind of philosophy starting out was I’d much rather have a business that I was – that made money, and that was hopefully successful, versus one that I was really passionate about. If you can find that overlap like wonderful, but I think it’s a very hard thing to get those two Venn diagrams to overlap, where you have opportunity and get a personal passion. So for me I just — it was a kind of I wanted a list of attributes to pick both of the niches, Trolling Motors and CB Radios, which is the other type of store I started and sold.
Mike: Got you. So you mean you had Trolling Motors, you had started this business selling little boat motors for fishing boats I guess or whatever, and it obviously was doing well, I mean you built it up to I don’t know what the exact revenue you got to. But at some point you kind of had this thought in the back your head, I think I’m ready to sell this. So let’s kind of go through that thought process of, I’ve had enough of this business and I’m ready to get rid of it. What was the tripwire there?
Andrew: Yeah so at the time I was doing three things. I was doing EcommerceFuel, Right Channel Radios, the other CB business I had started, and Trolling Motors. And it was just a lot to do, like I mean, I don’t know, we were talking before we got on how you have so many things that you’re doing, and it blows me away how you’re able to juggle all the businesses and stuff that you do. And for me, I just — so the Trolling Motors, that was the one that was, definitely I felt like I had the least amount of opportunity.
And I actually I’m happy to talk all the numbers because the entire sale was totally public, totally open. And I think at the time I was doing a little over 600K in revenue. So not a tremendous, it will kind of small to midsize, so about 600K. And the margins on drop shipping, you can imagine a couple of successful drop shipping businesses, like it was when you looked at it from a financial standpoint margins were like 10 or 12%.
And so you’re making you know 67, 65ish K per year on it, which is – I mean 65K but relative to my other businesses, I felt like there was more opportunity to focus on those two other businesses. And so that was one of the reasons I decided to sell it. And the other reason was that I was hoping to potentially use the sale as a way to create content and almost use it like a marketing method for EcommerceFuel, and actually worked out really well.
I think when I posted it for sale; I was able to get a lot of traction for the blog post. I think it went — it hit the top Hacker News for a while, and kind of blew up. And so it worked as a great marketing strategy for the community as well.
Mike: Yeah, and that was actually one of the first posts that I read as a member of the community. I mean it must’ve been about two and a half, three years ago I guess when you sold that now or something like that?
Andrew: Yeah, coming up on, it was 2014. So coming from four years ago.
Mike: Yeah okay. So it’s been a while, and so I’ll definitely put a link to this post in the show notes for this. I mean it’s still great content. I’ve read the post years ago. The reason it’s great content is because you did something really unique. It was a reverse auction for the site. You can kind of talk through the numbers. I mean you said it was doing about 65K a year in profit. So you probably what I guess went up to I feel like a 3X multiplier. And so what was the actual first number that you threw up there?
Andrew: Yeah, so reverse auction. I think it started at 180, 190, I think $180,000. And the idea was, so every week it would drop by $10,000 until someone bid on it. So reverse auction, the first person to bid actually is the winner. And yes, so I started 180, and then I think I got a bid that first week. So the price never actually dropped. And I think the sale price ended up closing at about 170 due to a couple things during diligence that we negotiated. But yeah that was where it started out.
Mike: Excellent. It would have been interesting to see like at what point you were like really sweating if you didn’t get offers at the first few weeks.
Andrew: It is yeah I mean because like doing it you kind of put your neck on the line and you are like I think I can get this far. But you do something like that, you’ve got to be prepared for it to go one 120, 110. Maybe people aren’t interested in it; maybe the right buyer doesn’t come along, maybe…
Mike: In the fine print it’s like I will not pay you, so take this site out of my hands because like, too far.
Andrew: Or you know also like doing it totally public could spook some potential buyers too, because all the financials were public on the post. So it was yeah, it was — there’s definitely some stress that was relieved once I got that first bid that came in which was nice.
Mike: So you end up selling that site. Is there any other — anything else to kind of mention on this one? I don’t know if there was any other details I didn’t mention on the sale?
Andrew: No, I don’t think so. I think maybe the only thing to mention is I think I was very — I’m very thankful that the sale went through as fluidly as it did. The guy who bought it, he’s actually a community member now in the forum, a great guy. And he was about as good of a buyer as I ever could have asked for. You do something like this. Part of the hard part of selling a business is not just all the mechanics behind the scenes, but finding a good buyer who is honest and who has money, and who isn’t pulling your chain, and can actually close the deal, and is reasonable, right? Like that is — those are not inconsequential things to find in a buyer.
Andrew: And finding him out of the gates, building rapport, having him be all those things that worked out, it could have been a total disaster, and it wasn’t. So the other thing too is that I was in a place where I could pull it off kind of with having built a little bit of an audience. But yeah, I don’t necessarily think it’ll be the next wave of the future philosophy of businesses, but it was fun to do once.
Mike: The person who ended up buying it, were they a community member beforehand, or a podcast listener do you know, or they were just someone that heard it through the grapevine?
Andrew: I think he was — I know he was a blog reader, and I think he may have been a podcast listener as well. I’m not sure – his name is Clayton. So he was a part of the community and at least on the e-mail list.
Mike: Interesting, maybe I should start reverse auction for all of our stuff today and see what happens.
Andrew: You should. I think you should do it, and plus like you save on a broker.
Mike: Yeah, that’s true.
Andrew: There’s downsides too, but there are some upsides too in terms — I mean you have for example you could totally pull this off, because you’ve got an audience, people who trust you and they know that you’re a good guy. And that’s another part of finding good buyers is you’ve got the information a symmetry, right? Like there’s that trust factor trying best to, that’s what due diligence is. I mean and the large portion about is figuring out like is this guy screwing me, is this person or girl screwing me?
So, given that you have that trust with people, yeah you could, I mean you could totally do — pull something like that off easily I think.
Mike: I’m going to wait a couple of years. So definitely not ready yet. I’m still under way in what we’re doing, and we’re on this like great growth path. And I’m definitely not into selling businesses that are at this growth rate, and we haven’t maximized profits yet either. So these are all things we’re going to work on before we get to that point. But I’m going to definitely keep this in mind.
Andrew: Yeah you should do it, you should — I mean it would be worth considering.
Mike: Cool. Well let’s talk about Right Channel Radios which is the other drop ship business you did. It’s certainly how I identified you. I knew you by like when I first met you, and first started like following you. I think it was in your podcast, an introduction maybe, or it was a part of the marketing material for EcommerceFuel, because I don’t honestly remember how I stumbled upon EcommerceFuel to begin with. That was probably some Google search or through a friend of a friend kind of thing.
But I definitely remember thinking you’re the Right Channel Radios guy. That was kind of my identity to you, and also the ECF guy obviously. So that’s probably because it did more revenue. It was probably, it seemed like it was more of a passion project for you, and something you did for little bit longer. So I mean I imagine it had to be a little bit tougher to decide to sell this thing, versus Trolling Motors.
Andrew: Yeah it was significantly harder to sell. I mean like you said I had been doing it longer, it was a better business. I felt like it was more defensible. We put more time into the websites, the margins were significantly better. So it was, yeah it was my baby, the first thing I had run it for seven or eight years. So it was, yeah it was a lot harder.
Mike: So I mean but there was obviously was it – I guess it was the same circumstances. You and I known each other for a while, so I mean the community started becoming a bigger and bigger factor in what you were doing, and you wanted to invest more time into that. Were there any other factors I want to know, were you worried about just the drop ship industry as a whole, or this particular niche or Amazon is coming to eat your lunch or any other factors like that?
Andrew: Yeah, I think absolutely. I mean one of them was the drop shipping thing. I’ve only ever done drop shipping, and I was seeing – I kind of saw the writing on the wall in terms of Amazon moving in, and if you don’t have something proprietary, it’s getting increasingly harder if not impossible I think to sell on Amazon. And so that was a huge concern for me. That was something I kind of had a real pretty candid discussion with the buyer who was the guy that I worked with.
He worked for me really running the store, and managing the store for five plus years. But yeah that was a huge — it was something that definitely was weighed into that. And then probably between that and wanting to focus more on the community. And initially when I was making the decision thinking I wanted to move into something else – we were always talking, maybe this is before we started recording, but talking about how the grass is always greener, right?
Andrew: So you were talking about how you love the idea of the drop shipping and the lifestyle it can provide since you don’t have the inventory, all the stuff. And where I was I was thinking, I don’t have anything proprietary, I have nothing that is really defensible, and I did get into that market. So that was that way to do it too.
Mike: Yeah I mean to be fair we also did run a drop ship site with Treadmill.com for quite a while. And there were a lot of — but we were doing different types of items than Right Channel Radios. And if I could be in a drop shipping business that was more defensible like Right Channel Radios, I think I would be more into it. I mean the issues that we had with Treadmill.com were, first of all, the manufacturers were competing directly against us. I don’t think that’s an issue with CB Radios.
So anytime you’re competing directly against a manufacturer who can sell it at the same price or lower than you, it’s a big issue. We were selling items you can like walk in the Sports Authority and buy or Wal-Mart’s. You’re competing with these big box stores which was a huge hassle. The manufacturers are constantly dropping below MAP, or the competitors are dropping below MAP. They were big heavy items that were hard to ship. You’d go to ship them and they weren’t in stock.
All these things you could have problems with your drop shipping. But we could have overcome those issues I think with a business like Right Channel Radios. I mean these are items that are probably are readily available in stock. You don’t have your competitor — you don’t have the manufacturer competing against you. Things are going to ship on common carrier like UPS. You are going to get a tracking number within a few hours or certainly the next day. So I could definitely see a viable drop shipping business in those niches.
Andrew: Yeah, I think the big thing that I found out about drop shipping is I still think it’s getting much, much harder to do a drop shipping business. But if you are going to be able to swing it, I think you have to have two things. You have to have one, a massive informational advantage. You have to add value somehow through information and through — on the Right Channel site we did that through–the products were really complex. At times they had four, five, or six different components you had to pick from to assemble a proper setup together.
And then I think it has to be accessory heavy, or have a license for people to shop. If they’re shopping for like you said a trolling or a treadmill or in my case a trolling motor, people are much more price sensitive for one of those big items. And we wouldn’t make a ton of money off the radios. Where we would make money is on the four or five or six accessories people would buy.
And those are the places where maybe it’s only a $20, $30 accessory, but you mark it up 100, 150%. And you get four or five of those in an average order and those add up very nicely, and then also prevents people from shopping competitively, because who wants to shop a basket of five or six parts when they’re all like 25 or $30 a pop apart from the radio. No one really does.
Mike: That makes sense. So the accessories were like an antenna I guess, or maybe like a cord or a mounting bracket, those types of things?
Andrew: Yeah exactly, you got it.
Mike: Interesting, and I mean as far as the content part, because I’m a big content and SEO guy, what did you do there? I mean was it article based, or was it on the product page? I mean how did you approach SEO for that business?
Andrew: We kind of did — so early on the SEO approaching the end, it probably works today probably to a lesser extent though is we gave away a lot of product. We gave away — we pitched a lot of different forums and places on buyer’s guides for CB Radio. So, kind of just glorified guest posting, but with a very personal approach for everybody. That’s how we built a lot of our early domain authority and inbound links.
And then from there, kind of the second tier was really just trying to create a world class — like I can – I feel fairly confident saying that apart from maybe Firestick which is the manufacturer, has a killer resource, we probably have the best technical resources for CBs online, at least for kind of vehicle CBs. And we did that through putting together like an entire knowledge base of 30 in-depth articles, lots of troubleshooting guides, we did videos for — customized videos for our top 50 or 60 products, installation guides for the packages we had, all sorts of different ways to try to add informational content value.
Mike: Yeah, and I mean just kind of for the record here throw my own two cents to this. I do think that this still works today by a long shot. I mean if you have a niche and you can write articles that no one — like better than anybody else out there. It is obvious that it’s not just throwing up content, but better than anyone else. We’ve had really good luck with SEO in our ecommerce properties to the point where ColorIt which is the one that we started the longest ago is now getting a significant amount of traffic and income from SEO.
It’s very important because running these things like a year and a half ago, when we started two years ago, I knew this was something that was going to point to us. You’ve got to have the patience to write the content and don’t stop, which I think is what ends up happening for the vast majority of people who write one or two good articles, and just kind of give up and never touch it again, and just wonder why SEO doesn’t work for them. But yeah, I mean SEO is like a huge part of our business. I think that a lot of ecommerce owners don’t put enough weight into it in my opinion.
Andrew: Do you feel like everyone’s opinion on the death of SEO, do you feel like that’s overblown? Obviously it’s not as — it’s more competitive than it used to be, but obviously you’re still doing a lot–do you feel like people kind of have — are too negative and down on SEO these days?
Mike: I do. I think that especially for like longer tail searches, or how to type things or like you said just buyer’s guides and things like this, these are — you don’t want SEO for things that are going to convert. Like getting traffic from SEO It’s just something that gives you a good ego. You obviously want to generate sales. So like going after terms that are something like the best CB for a Ford truck, you know if someone reads that particular guide, they’re obviously looking to buy a CB right then and there. And that can definitely translate into a sale, versus how to dig your four wheeler out of the mud with a winch is probably not going to convert into a sale for you necessarily.
Mike: But I definitely think that done the right way that you can definitely still compete. We actually are able to beat Amazon in a lot of listings, a lot of searches I should say, especially in the IceWraps spot, because that site is really old. It’s a site that we had purchased before, and we’ve done some SEO with that. And yeah we’ve actually been able to surpass Amazon on some of these like really focused terms, because I mean at the end of the day like you have to look at what can you do that Amazon can’t, that these other guys can’t do.
I mean Amazon is not going to put this type of content out, because they can’t. They have hundreds of thousands, millions of products, whatever the heck it is. And if you are running a niche site like we are with coloring or like we are with our sports, like you were with radios, I mean you could put 30 pieces of content out that are better than anything else out there on the internet, and you should rank basically the bottom line.
Andrew: Yeah and you can’t build an entire store around — I mean even the ranking side you’ve done, think about the merchandising side of things. In Amazon maybe it’s just related products, but they have a whole site that caters a lot of what the value we added too is somebody would — they go to pick an antenna length. And through some user testing that we did, we realized a lot of people when they were like one of their big hesitations to adding the product to the cart was like, how long of an antenna do I need? Like I have no idea if I need a two foot or five foot or what are the differences, the implications.
And so when we redesigned, we put a little bubble next to that ad thing that said like not sure, like here’s the guide that will walk you through what you need. It was a pop up and it gave them that. It was almost a concierge service right at the add to cart moment. And there’s no way — I mean, well I’m making my words here, but that’s really difficult for Amazon to do across an entire catalog, because like you said there’s so many niches. That’s a huge competitive advantage you can have merchandising just on your own site.
Mike: Yeah, I completely agree. So I definitely think that if you’re listening to this podcast, you made it through 25 minutes of us rambling on. Definitely be thinking about an SEO strategy for your business that you can do month in and month out, and continuously move the needle slowly but surely. The growth with any SEO looks like a hockey stick. I mean basically like I always say, you’re writing to yourself. These are articles that no one reads but you for the first six to nine months. And then once you finally get some traction, you really get traction.
Alright, so let’s get back to CB Radios, Right Channel Radios. You kind of in your mind like man I am ready to sell. And obviously we know the end result because you kind of mentioned already. You got an actual employee to buy, which is really neat because I’m sure the transition process there is a lot easier. You don’t want to, well like training somebody. But how did that even come about? I mean was it – you just basically wanted to be honest with the guy and said, look I think I’m ready to sell, I just want to let you know I’m about to go put this thing up on the market, and he’s just like, no man, I want this thing. Is that how it worked or was it — did you have some other inclination?
Andrew: Yes, so I mean sometimes you can’t tell your team. It makes a lot of sense to keep things under wraps if you’re an owner selling. But from my perspective, Pat and I worked together for five years. We had a great rapport. I trusted him, he trusted me. And I wanted to give him a heads up on what was going on just to be transparent and candid with him, and I gave him probably a year’s heads that I was planning on doing it.
And I think the discussion at the time was, he said well I bet when the time comes can you — I’d love to talk about buying the business. I said, great I have to let you know I will probably approach a couple of our suppliers first, like if you — because I think with some of the cost savings, they could pay — ended up selling for about three X multiple. It would have been more like a four or four and a half X given some of their cost savings, and they were in the retail market as well.
And I said, if you want to bid at that and you’re willing to, hey you’re all going to have a shot at that, but I think it makes sense to approach them first. But if they’re not interested, then I’m happy to chat with you as well after that. And shockingly neither of the suppliers – one of the suppliers I ended up deciding I did not want to sell to because I was not confident they could get a deal done.
The other one amazingly was not even interested in looking at the prospectus which totally blew my mind, but that’s maybe a different story if you want to get down there. And so Pat and I started talking, and then he was very interested and it kind of went from there.
Mike: It’s interesting you had the same thing that we had with Treadmill.com, because when we went to sell it, we approached other manufacturers thinking that one of them would snap it up or even get in a bidding situation with another. We had like these illusions of grandeur, like he was like I’ll pay a million, I’ll pay $1.5 million, I’ll pay you know just like — and that never happened. They’re just like nope, we’re not interested. So this is similar.
Andrew: It’s crazy. But the crazy thing – I don’t know about yours, but like the one supplier I approached, they were in the — I was there in the market of course, but they sold retail. But all their listings SEO were always below ours. So like if they would’ve bought our company, not only would they have had a significant margin saving. So they get immediate profit boost because they get the margin savings of the retail side for everything that they’re selling. They prevent somebody else from – one of their competitors from taking all of that revenue, and potentially losing a good portion of wholesale sales. They get a huge SEO footprint.
Like all these things made perfect sense, and I put together like a custom ten page perspectives with like pro forma financials showing them how to pencil that. They didn’t even look at it, it was crazy. Brutal.
Mike: I didn’t put all that effort into it luckily.
Andrew: You’re the smart one.
Mike: I guess maybe. But the smart lazy one I guess and it worked out well for me in that situation. Yeah, so I mean, with the last couple minutes that we have left here, I’m really curious; you and I have talked about this before. There’s been other episodes that we’ve done on this podcast about selling a business. But you’re the one that’s most removed from doing that. So I’m definitely curious to hear your thoughts on if you could do it all over again, would you have sold Right Channel Radios, and why not? I already know the answer is not, but why not?
Andrew: Yeah I mean I can’t say definitively I wouldn’t, but I would give it a lot more thought I think for a couple reasons. One, I think I tend to be a worst case scenario kind of guy, like that’s one of my weaknesses. I’m probably more risk averse than I should be, and I think it cost me opportunities. And I think I overestimated the competition from Amazon and I underestimated what the resource that we had built at that on the business in terms of just the reputation, the SEO footprint, the website itself, all that kind of thing.
And so that was one thing. Secondly I think I miss like having something to — I miss having the sandbox to build or play with. We were talking before that I feel a little rusty on some parts of EcommerceFuel. I feel like in some senses I’m spending more time — I’ve become more knowledgeable in community management than e-commerce. And so I miss that aspect. And then also just like I think it’s easy to build up a business, and pain is something you forget I think over time, and hard work is something that’s easy to kind of fade away. And I think it’s easy to once you build something to take it a little bit for granted until it’s gone. I think that’s part of the human condition.
And so thinking from building something again that was like that, and plus it was great and fit beautifully in the kind of my life style of wanting to be location independent. And then finally on the investment side, you sell a business for 3X, which was at that time a pretty reasonable multiple. Maybe it was a little bit more in today’s market conditions, but where are you going to get any semblance of return on your money that’s similar to that? You’re not going to.
And so for all those reasons, I don’t have — it’s not something that I regret on a daily basis, but going back again I would probably think about it a little more seriously.
Mike: I hear Bank of America is paying three quarters of a percent interest.
Andrew: Yeah, that’s 3X multiple inverse. Yeah, it’s man it’s one of those.
Mike: Cool. Well, it’s been a pleasure having you on the show my friend. It was great talking to you. I think — I don’t know, I think it’s a great episode. I think people are going to get a lot out of it, just obviously talking about drop shipping here. We talked about selling a couple of different sites, like how you feel about selling it afterwards, obviously the community itself. If you guys haven’t already signed up over at EcommerceFuel, I highly recommend it. Again the threshold there is just $250,000 a year. There is great people over there.
And I think the biggest thing which you said Andrew was that you do a good job monitoring, not having people that do nothing but ask questions, and never give anything in return. Just the community for whatever reason just clicks that way, and people do everything they can to share their wins, their losses, and help other people, which when you’re an entrepreneur is really key. Because I mean we spend all day basically asking ourselves questions, and never getting any answers. And that’s when they get answers from someone that can actually talk back to you.
So if you guys haven’t checked it out, definitely do so. And thanks again Andrew, I really appreciate it.
Andrew: Thanks for the kind words, and thanks for having me on man. It’s good to talk with you as always.
Mike: Cool and we’ll see you in January at EcommerceFuel Live. That’s January 11th through 13th. It is sold out as I mentioned. But if there’s any listeners that are in the LA area and you want to get together for coffee or any late night beers, Andrew knows how that goes. It will be really late night sometimes, so definitely look us up. I’d be happy to catch up with you guys in the LA area during those dates. So have a great week everyone and we’ll see you on the next podcast.
And that’s a wrap. So I hope you guys enjoyed that interview, and episode number 95. If you have any comments or questions about anything that we talked about here, please go to EcomCrew.com/95. We want to make it easier for you guys moving forward to find all the show notes, including links that we talk about in the episode, but also comment. This stuff is really important. It helps with feedback, and it helps us make a better podcast. So please, EcomCrew.com/95.
You’ll also find a link there to EcommerceFuel.com. We talked about that quite a bit in the interview. But if you aren’t a member there, and you’re doing at least $250,000 a year in revenue, quite frankly I think you’re completely out of your mind. It’s one of the best resources. Actually let me rephrase that — is the best resource for us ecommerce entrepreneurs. It’s a great way to commiserate and talk war stories and bounce ideas off of etc, etc with other ecommerce store owners. Something that’s also very difficult to do in your day to day life when you’re just kind of living in your business.
So it’s also a great way to meet people at different locations. I happen to travel a lot. I was just back in DC to visit family, and there was a ECF meet-up there. And while I was there, I drove down to Charlotte to visit a friend and also go to the Charlotte meet-up. And then when I cut back there was a California meet-up. So I was in three meet-ups in just a week. An opportunity to meet 50 to 60 other ecommerce entrepreneurs that I had never met before, and talk about all kinds of things that made me start thinking about my business differently. And hopefully I was able to reciprocate with them.
So EcomCrew.com/95. Until Monday — again remember we’re going to be doing two episodes per week. So until Monday, happy selling and we will talk to you then.
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.