Brian Strini 3:16
Yet, the operation side of it, and and all that all of our jumping here as well is that and coming from a background in private equity, when you’re acquiring something in private equity, you while you may majority owned that business, you’re really hands off, it’s more of a laissez faire approach to let’s let the company run let’s let the company do its thing. Let’s let the management thing management team do its thing versus us when we acquire brands. We are instilling Razor Group people to raise their employees into those brands to run those operations. And Oliver, if you want to add on that a little bit, please feel free.
Oliver Dlugosch 3:54
exactly exactly the right point. So when we look at those brands, we already think with the operations in mind with the growth in mind with a product in mind, right? So the m&a piece is only one to the puzzle. And then there is this long term aspect of understanding the market, understanding the product, understanding the customer, and having a clear vision, where this is where this is heading for future growth.
James Thomson 4:22
I’ve had the opportunity to work with Amazon centric entrepreneurs for nearly 15 years and they’re an odd bunch. I would love to get your take on all your experiences so far in terms of what’s drawing you to this, this particular segment, this particular industry, and what are some of the types of people you’re meeting and unusual or unexpected events around meeting these people?
Oliver Dlugosch 4:49
I mean, I find it really really fascinating, how deep the love for the brands is and for the product with the sellers, right? You can, you can tell that there’s so much passion going into those brands. And that translates into a very impressive speed at which these brands really master and dominate and niches, right, sometimes just small categories, and really become leaders in those areas. And then, you know, on the other side, what surprises me then is that some of the growth that would be available to those entrepreneurs, is not captured right away. So sometimes we even see that entrepreneurs are not as you know, as brave as going forward, as entrepreneurial, as they could be with a very great product that obviously meets the demands of the customers.
James Thomson 5:53
Brian, you’re talking to folks, early days when they’re looking at potentially selling? What are you seeing in terms of odd perspectives or different types of enthusiasm?
Brian Strini 6:06
Yeah, so I think, you know, one thing I always enjoy having conversation with sellers about is over the last, for example, 50 years, in the direct to consumer business, you have big companies like a Walmart or Target, right, that have taken away that market share from the small mom and pops, we’ve seen that throughout the United States, right over the last 50 years. Well, what the e-commerce industry has done, and especially what COVID accelerated, was the redistribution of that market share, if you will, back to those mom and pops, right. I mean, they’re, they’re gaining market share, away from the Walmart’s and targets. And that’s, you know, while a seller may not think about it that way, when you have that conversation with them, you see the light bulb go off, right? And they’re like, wow, that’s, that’s really cool. I’m excited that I can play alongside someone like a Walmart or Target, right. And, you see the enthusiasm also comes from when they introduce a product. And all of a sudden now it has 5000 reviews, and it has four and a half five stars. Right? And that excitement of Wait a second, I did this, you know, and so that’s, that’s really I think what you’re seeing is the, these just normal people becoming, you know, these great entrepreneurs almost unexpectedly, you know, it’s like, they found something within them they didn’t know was there, you know, and so it’s, it’s really fascinating talk to a lot of these people, you know, you hear some great stories, again, and everybody’s like, okay, I kind of started this as a side project. Right? Right. And then all of a sudden, you know, I had to take an Amazon training course, to understand how to sell on Amazon. But then all of a sudden, it just blew up. And, you know, I can’t, I can’t just control anymore, because their sales are so great. And I’m having to think about, okay, well, if I want to sell in Europe, I have to deal with VAT issues, right? You know, now we have to think about, okay is my three PL the exact three PL I should be using, you know, and they’re in a whole new world. And so it’s just really interesting to see that maturation, if you will, of a person into a full fledged entrepreneur business owner.
James Thomson 8:16
If I go back, let’s say 10 years ago, somebody could literally go on Alibaba, find some product, white label and put it on Amazon, if they knew how to do listings, that they could start to get some sales, the world has changed and continues to evolve, and it’s more competitive around getting your products launched. And yet, companies, husbands and wives stand alone, you know, a school teacher with the side gig is, as you said, you know, maybe starting this million dollar a year business, and that the Amazon platform gives them that possibility of being able to sell a lot. But a lot of these folks aren’t necessarily versed in what it takes to build a brand. And what it takes to build something that’s going to be meaningful enough that it’s not just a transaction on some kind of widget. And so as you think about how do you grab that enthusiasm that’s there among these emerging entrepreneurs, as they find manufacturing partners, as they find the opportunity to try stuff out and see if consumers are excited about their products? How do you look at all these different potential brands coming your way? How do you figure out how to evaluate them in a way where you say there really is something long term long term viable here?
Brian Strini 9:33
Yeah, I’ll let Oliver take that. And since he’s, he’s primarily responsible for long term viability here. Sure.
Oliver Dlugosch 9:43
What we really, really foster and we put a lot of emphasis on is that we partner with these sellers, right? It’s not that there is just a single transaction where we acquire a brand and you know, after that, it’s it’s bye bye But during the entire process of, of discussion and understanding the brand, we work very, very closely with them to actually, you know, adopt and understand this passion and all this, this thinking that had that has gone into the brand. And then going forward, taking that energy and taking, you know, the roots of the brand, which is always a good a great product, right, and then applying the function of the functional expertise to take it to further growth to take it to further levels.
James Thomson 10:37
When I look at the many, many dozens of aggregators who are out there, some of them are getting a lot of press because they’re raising a lot of money. And certainly your company has continued to raise large enough amounts of money that the press gets excited. How do you think about this process of finding brands to evaluate, and figuring out where you’re going to source your deals? If I look back to August, July last year, the broker world was a very, very active space. But we’re now at a point where literally every broker deal gets picked over by dozens of potential investors. What do you think about the world of finding the next great brand to buy?
Brian Strini 11:16
Yeah, great question. We’ve been very, very fortunate, our head of technology, Shrestha Chaudhary is an amazing, intelligent, incredibly smart person. And she’s, she’s created this proprietary software tool that we use in order to scrape the entire universe of Amazon sellers. Yep. And, you know, by our last count this measures in the several 100 1000s of unique sellers on Amazon. And of that, we really only focus on about 5% of those sellers. And of course, we’re looking at things like customer ratings, reviews, categories that they’re in, what is potential revenue per asen that we’re looking at. So all these filtered factors, if you will, that really helped us narrow our search. And we rely almost, I’d say 99% on either an outbound approach to that is we’re reaching out to the seller proactively once we filtered and found that, or we’re also starting to see some networking effects. Now we’re getting some good referrals into our business. The broker Avenue is something that we’ve looked at. But it’s definitely not our go to Avenue, we definitely find, in our opinion, great quality assets at great value through our organic process.
James Thomson 12:41
But we have some FBA brands on our podcast recently, and many of them had been targeted by investors they weren’t looking to sell. And lo and behold, they got this random call from some random investor saying you have an amazing business, and I’m very interested in buying it. Let’s have a conversation, that’s a little bit disarming for an FBA owner for a brand owner who’s busy running his or her business. Brian, you’re probably involved in some of those calls. I’d love to get your perspective on it. How do you break through the initial surprise that somebody who’s off Manning their own little business, gets some random call from some some, you know, Daddy warbucks with a big checkbook? Yes. How does that work?
Brian Strini 13:26
And I can completely agree that that would be very disarming. We don’t do cold calling, per se, a lot of our outreach is via email. Right? So it gives the business owner time to process, obviously, what we’re trying to communicate, and really puts the impetus on them to come back to us. Right. And so I’ve never, I’ve never been a fan of cold calling. We are 100% empathetic, that these business owners are wearing many hats, right? You have to be an accountant, you have to be a supply chain expert, a pricing expert, you have to be an Amazon expert. Right. And so you’re scaring me,
James Thomson 14:07
You’re scaring me, do I really need to do all that? I think it’s time for me to sell my brand.
Brian Strini 14:11
Right. Exactly. Exactly. So, so that’s, you know, we really try we put a lot of emphasis, and I’ve been, you know, very involved here in the US as far as saying, Okay, let’s look at the exact communication we’re putting into those emails, and putting into our outreach program, if you will, to make sure that, you know, obviously, it is a little bit of a numbers game and we want to reach a lot of people. But at the same time, we do need to be cognizant of their time. And what we’re proposing because there’s also the, the human aspect is a cliched term, but what I’m trying to get at is someone who’s raised basically a baby here, right? It’s their baby, it’s their brand, you know, and so for them to all of a sudden think oh wait a second, I should be selling divesting of this. That is that it is potentially alive. changing moment, especially with some of the dollars that we’ve seen in the multiples we’ve seen in the marketplace lately. So yeah, so it’s, it’s something, you know, we want to be, again, communicative, but at the same time, respectful of the demands that are being placed on them as a business owner.
James Thomson 15:17
So you buy the brand, now everyone gets involved all over us. And all of ours apparently is the guy that’s going to take over my baby and run with it. So how does that conversation go all over? And how do you get people comfortable with the idea that you’re actually better equipped with more tools than they might otherwise be equipped with today?
Oliver Dlugosch 15:40
Very good question. Very good question. And that’s, you know, where the entire operations team comes into play, the process of picking up the conversation with a seller or with a business owner starts very early in the process. And in some cases, where there might be particular questions about what we intend to do and what growth numbers we want to put. And then we also have our functional experts speak to those sellers, about these topics, right, that might be a PPC expert, that might be a logistics expert. So we’re very flexible at discussing these topics with the sellers. And, you know, making them understand what our plan is, and that we do have in house these experts, that will, that were, you know, bring the additional value to the table. So it is a flexible process. If, if, if the business owner wants it to be, and I can only refer to my team, you know, to really look at each individual aspect of that business. And as Brian said, you have to be an expert in a specific field. And we do have these experts who have been doing this for years or decades, and can really employ these gold standards to any aspect of the business, be advertising, be in logistics, be at customer support.
James Thomson 17:11
So we didn’t spend so much time at the beginning of the discussion, talking about Razor Group and just how big the company is. But I’d love to hear a little bit more about when you’re buying US brands, what is the process typically look like in terms of the initial operational discussions versus when you’re buying a European brand? How might the conversation initially diverge from the US brand? All of your thoughts on that?
Oliver Dlugosch 17:38
Actually, maybe Brian, you take first the aspect of the acquisition, and then I can take over on the alterations. Because they in the outset, it is a bit more more similar with a
Brian Strini 17:49
Yeah, the conversation in the US really revolves around a few pillars that we have when we’re talking to a seller about acquiring their brand. The first and foremost, obviously, is international expansion. As I mentioned earlier in the call, a lot of sellers in the US have not had the capacity or the resources to really think about all the VAT and the country regulations you need to satisfy in order to sell on the other side of the Atlantic, we obviously have a huge operation staff that are very talented that have already solved all those. And so it’s very easy for us to take their products to Europe, and every seller is interested in that. And I think, as part of you know why we say the seller journey, right? What sellers when you talk to real entrepreneurs, right? The real entrepreneurs, yes, they want to sell their company, they want to have a nice payday. But really what I think what really motivates people is to have a global brand, to say wait a second, I created that, I can see that, whether it be online or on shelves around the world, and Razor Group’s able to give them or to fulfill that dream, if you will, by doing that international expansion. You know, and I think one of the other things, at least here in the US that we really and we do this in Europe as well, is that what we really think about is okay, while we target brands that are predominately selling on Amazon right now, ultimately, we’re platform agnostic. Once we acquire a brand, we want to sell a brand on the different e-commerce marketplaces both domestically and internationally. We want to sell that brand to brick and mortar stores. Right. And again, we’re developing those funk that functional expertise and Oliver’s group. We have channel experts, if you will. And we already have contracts with certain brick and mortar players here in the US and so it’s very easy for us again to expand their product to places that ultimately they may not have been able to get to, at least not have been able to optimize where that sales channel is.
James Thomson 19:50
So Oliver, you’ve convinced me I’ve sold you my brand. I’m a US brand. How does that conversation differ from I’m a European brand
Oliver Dlugosch 20:01
To be honest, it doesn’t it doesn’t differ too much. Because in the center of that discussion, there is, of course, the product, right. And then there’s understanding how the business is run up until now. And yes. You know, in a European setup, there are all these different countries and all these different regulations that you have to adhere to, I think in the US, this is less pronounced. This is less of a topic in those discussions. But I would say that, in general, it’s similar, it’s a similar idea of, you know, how is this brand going to further grow? And what are the actual topics that you will tackle going forward? So I think it’s quite similar.
Brian Strini 20:50
Yeah. And let me add to that, real quick, is that, you know, I touched upon taking us products to Europe. Well, in effect, we’re creating a transatlantic bridge, right, because we’re now taking European products to the US. And so that conversation is just reversed in Europe. But we’re already having several conversations. I just had one this morning, with our 3PL and our tax experts. Okay, let’s make sure we do this properly, as far as taking European goods and selling them in the US, how do we get those abroad? I get those in short. How do we make sure we’re, we’re accounting for those correctly. So it’s really a bridge that we’re building in to become this global, you know, e-commerce provider, if you will.
James Thomson 21:35
So I want to shift gears here and talk about brands that you have now acquired, and you start getting your hands dirty, managing those businesses all over. I’d like your thoughts on what you wish those brands had done differently? to better prepare for the inevitable sale? And then handoff to another operational team?
Oliver Dlugosch 21:56
Very good question. Very good question. So I think in general, it’s best practice to run a business, that’s what we really love to see, when we acquire business, right? We have seen at all actually, the entire range from all of the processes just being in the head of the entrepreneur and qualified nowhere, all the way down to every single standard operating procedure. Clearly product life, with many systems working together with almost no, you know, interference of the seller at any point of time, really, really nice clockwork if you will, and we are seeing both ends of that spectrum. So whenever we have an asset that is nicely prepared in that sense, it’s really, really easy to then onboard and grow further. Of course, one very particular topic that is highly relevant right now is the topic of inventory, right? Because whenever we acquire a brand, we immediately go into growth mode, we want to further expand the brand. And that’s something that you could think of very early on in the process. Can I prepare that kind of a transaction, if you want, by having enough products in my 3PL or at Amazon, so that an acquirer can immediately go into that mode?
James Thomson 23:23
How do you do that when half the world is waiting for boats to come from China.
Oliver Dlugosch 23:29
At least in Europe, we have the advantage of other modes that we can leverage, for example, rail or even track. So that’s an alternative that you can pick here.
Brian Strini 23:40
And the other one, one other, I think, is a very important point that I want to mention when uh, when you’re thinking about selling your Amazon business, make sure that the financials are in order. And what I mean by that, is we’re typically looking for at least the past 24 months of a profit and loss statement. Yep. And it’s, again, going back to we obviously know sellers are wearing a lot of hats. Maybe accounting or finances is not the most important topic at the time for them to understand completely, but it makes the process much easier, quicker, smoother, when you know, we just have a great P&L statement if you miss it. Yes. So
James Thomson 24:24
the question has come up. I don’t know how many times from brands that I’ve talked to around, is this a gold rush? Is it going to and should I sell my business now? What do I need to do to hold off six months? You know, how do I think through when is the right time for me as a brand owner to take that call when Brian calls or emails me and says I’m interested? Okay, sure. Let’s have that discussion. What do you think is the right time versus some time in the future?
Brian Strini 24:56
Yeah, again, great question. It’s a conversation I have multiple times A day with sellers and I really tried to provide them both sides of the coin, if you will, right. And so I’ll do that here, on the side of the coin that says, it’s probably not the right time to sell. If you’re launching several new products, and you feel extremely confident that you’re going to double revenue, double earnings in the next six months or a year, it’s very hard for someone like Razor Group or any of our competitors to give you full value right now for that. The irony of that, though, is you’ll be shocked to hear James say that I’ve never talked to one seller who thinks their business is not doubling, right?
James Thomson 25:38
It’s not, of course. Right. I mean, actually, it’s going downhill. And I need to dump this as fast as I possibly can.
Brian Strini 25:44
Yeah, shockingly, we’ve never had we’ve never heard the hundreds and hundreds of calls that we’ve had. Right? Yeah. So but here’s the thing for us that are a little older, that had been around a couple business cycles, we do know that sales growth, at least, will decline. If not, perhaps sales themselves will decline. And we’re already starting to see this. And I think this is a very important point. And I’m flipping over the other side of the coin now that there was a COVID spike, we all know this in sales, right? We see it in almost every business we look at. How does the industry Razor Group and our competitors as well value your business? Right? We look at a trailing 12 month basis, right, basically on earnings. Now COVID started in March, April, if you will, in 2020. So now that we’re in June already of 2021, those first months of COVID, March, April, May of 2020 are starting to roll off that trailing 12 month equation, right? So now what we’re seeing is that equation is getting smaller every month. If that equation is declining, that means we’re likely to pay a lower multiple. And so you have to think to yourself, okay, my sales may be still growing. But on that trailing basis, if they’re declining, maybe now is a good time. Did we already see the 52 week high of the stock, if you will? And now Are we on the downtrend? Right. And something to think about, I think the other couple of global issues that we really want to think about is that I’ll give you one issue here in the States. And I’ll give you a global issue. The one here in the states is Walmart and Target. These people are not stupid. They’re very, very smart. They know they’ve lost a ton of market share over the past year and a half, right? Well, they’re going to get it back. Well, how are they going to do that? I predict there’s going to be a huge amount of sales over the next six months in the stores. Why would they do that? Because they want the foot traffic back. And they have the financial wherewithal to sell products at a loss at a losing margin just to get that foot traffic back in order to cover their fixed overhead. Right? Yes. So I think we all need to be aware of that, that Walmart and Target are not playing around, they’re going to come back, they’re going to come back very, very strong. And so that’s the domestic issue here in the States, the global issue. And we’re seeing this all over the place is inflation, right? Everything from metals to commodities, pulp resin, everything, I don’t care if your products made of plastic made of metal, you’re going to have inflationary pressures, that’s going to hurt your margins, that is going to have someone like raise our even our competitors take, I can’t give you as high multiple on your business as you want. Because your margins are under pressure. So again, these are conversations we’re having every single day. And it’s really important for sellers to think about these things when you think about timing.
James Thomson 28:40
So let’s spend a minute and I want to talk more about Razor Group. When I, as a seller, hear the word Razor Group, what should I be thinking about that company versus any other company that’s in the same space looking to buy and aggregate Amazon businesses?
Brian Strini 29:00
Yeah. You want to start off? I’ll follow you on this one. Yeah, sure.
Oliver Dlugosch 29:06
So first off, I think every seller should think well, this is actually a global, a global firm. And this is a firm, a company that is at heart on the channel. And as Brian put it, platform agnostic. So we do think as we come from that place, across marketplaces, across geographies, not only, you know, limited to Europe or the US, but actually thinking globally, in terms of the distribution of, of the goods, and then also, you know, from a platform perspective, similarly, that we are not limited to Amazon, but we’ll go already go go beyond that.
Brian Strini 29:50
And let me just say no, and I’ll add to that is that we really pride ourselves on creating an ecosystem with our sellers. If you were looking to form partnerships, we’re looking to also acquire knowledge. So when we start talking to a seller, we take them through that journey of potentially divesting or selling their business. There they’re involved every step of the way. They’re giving their insight, their knowledge, their strategy for growing their brand. And we’re looking to acquire all that, you know, we’re definitely not a company that says, okay, Sal is your brand go away. And that’s an okay business model. For some people, that’s not a business model that we embrace, we embrace them, we want you to be part of raising our family in some form, or fashion going forward, even if that’s, hey, we just catch up once a quarter every six months. And because we’re also seeing these entrepreneurs, they want to sell their current business, they want to start a next one. Right? Right. Right. And so we offer them the chance to leverage our knowledge and our expertise. Once they’ve sold a business to us to help them grow their second business, right, we want to develop that long term partnership with them. We want to feel like they can give you knowledge about myself or Oliver, whomever an email or call and say, Hey, I’m thinking about this issue, or I’ve got this question about PPC, or I’ve got this question about the three PL, can you guys help me out? on sort? Of course we can.
James Thomson 31:19
What do you think about owners sticking around? I mean, do you have long or no periods? Or do you keep some of the owners around for a while too?
Brian Strini 31:28
Yeah, so we’re, you know, from a financial incentive, we’re pretty standard with the industry. And again, I think it’s no secret that most of the industry’s about a two year 24 month financial incentive, or profit share, if you will, we also try to be flexible in the sense of during due diligence, we really think about with the owner, okay, does it make sense to have some sort of, again, is it is it a consulting agreement, or an informal contract for them to help advise us on long term growth of that brand? Right, right. You know, I think, again, during, it’s tough to always, you know, understand that, and have an arrangement that works for both parties right at the beginning, once we get into due diligence, and we really understand the nuts and bolts of the business, if you will, it’s easier to to understand, you know, the desires of each party. But at the same time, you know, the word I always use, and I always continue is we’re flexible. We want, you know, we want them to feel great about the partnership, we want to feel great about it. So whatever we can do to foster that we will,
Oliver Dlugosch 32:37
yes, and no matter what you know, shape, that kind of collaboration or future cooperation comes, we always see great benefit in it, right? We always see that, even if it’s just one, once a quarter that we connect, there are some very interesting and helpful tips from the entrepreneur from the seller that we can then also leverage in day to day operations of the business. So it’s definitely always good to keep in touch.
James Thomson 33:06
I want to wrap up our conversation today by asking you, how do you see investors getting their money out of the investments they’re buying, we’re seeing high multiples. And at the same time, we’re seeing a lot of these private label brands, they normally have an 18 to 24 month timeframe of being able to actually exist in that state on Amazon. And so as an investor, you’ve got to be doing something to be able to get, you know, be able to pay out more than a multiple, if the brand is otherwise only going to stick around for two years. What do you think about this dichotomy of we want to buy it, and we see value in it, but at the same time? How do we make sure we’re not overpaying, and we’ve got a clear path for growth that will help us recover our investment.
Brian Strini 33:52
Yeah, and I’ll start with the front end of that, of that, and I’ll let Oliver follow up with the back end of that is, and you said it specifically James, you don’t want you can’t overpay and you have to be disciplined in your investment approach. With these brands, we are seeing some crazy multiples out there. Now and again. rehash on him with his COVID effect, you have to be very careful. If you’re buying something out of 3x today, that you’re even does not getting cut in half next year. And now it’s obviously a 6x. Right? That just doesn’t work. And so we have to be very careful on the multiples we pay. We have to look at the finer details of the income statement. As far as what are the margins, what’s the marketing expense? What does the supply chain look like in the business and all those factors go into paying a fair but appropriate price for the business right. And then of course, we do several things on the operation side and I’ll let Oliver get into that as far as what we do to maintain the cash that we bought but then also grow
Oliver Dlugosch 35:01
Exactly. And the point is, you know, when you acquire a good brand and a winning brand, there is something to it to the product that makes it so successful. And what we do is, you know, we take it, we take it further and and further, you know, emphasize that aspect taking it to other channels, taking them to other geographies. So, I don’t think that you know, a lifetime of a great product is just 18 months or 24 months, but actually, it goes way beyond that if you do not stop, you know, investing in your product, developing new iterations, new innovations, because I think when you’re when you actually bring it to those other geographies, platforms, invest into marketing and brand building into you know, customer communication, then you can actually elevate that further.
James Thomson 35:50
Oliver and Brian, thank you for joining us today on the Buy Box Experts Podcast. For those of you interested in learning more about Razor Group, please visit razor-group.com. Join us again next time on the Buy Box Experts Podcast. Today’s episode is brought to you by GETIDA. GETIDA is a global leader in Amazon FBA auditing and reimbursements to analyze your Amazon data, reconcile your FBA inventory and file claims reimbursements on your behalf. No obligations, no hidden fees, just GETIDA recovering your money. GETIDA helps you get your money back into your pockets so you can focus on investing in more inventory and growing your business. To learn more, check out getida.com. That’s getida.com.
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