Here’s a glimpse of what you’ll learn:
- Richard Jalichandra’s thoughts on the recent interest in FBA private label brands
- What Richard has learned about Amazon sellers and entrepreneurs in the past few years
- How FBA aggregators can leverage data science to determine what to build and what to buy
- Richard shares his criteria for evaluating companies to buy and his advice to brands looking to sell
- Based on what he knows now, what would Richard do differently when investing in FBA brands?
- Why the buying model that many aggregators use does not lead to long-term success
- Richard’s recommendations to large private label brands looking to make an exit
- What brands that only sell on Amazon need to know about joining other e-commerce platforms
In this episode…
In recent months, there has been an increasing amount of interest in the sale and purchase of private label Amazon brands. Because of this, many sellers, both mid-sized and large, have been selling and exiting their Amazon businesses—and getting good returns from the sales.
However, as this market continues to grow and more investors get involved, some private label Amazon sellers are struggling to effectively prepare for an exit. Their books may not be in order, or they may lack optimal growth opportunities—which could adversely affect their sale and lead to low returns. So, how can FBA brands better evaluate their options to ensure that they make a successful exit?
Richard Jalichandra, an investment banker and expert in selling and financing Amazon businesses, joins James Thomson in this episode of the Buy Box Experts podcast to share what he has learned from his years of experience acquiring FBA brands. Richard talks about how private label brands can prepare for a successful exit, what investors need to look out for when evaluating a business, and the essential steps to take after making a purchase. Stay tuned.
Resources Mentioned in this episode
- Buy Box Experts
- Controlling Your Brand in The Age of Amazon: The Brand Executive’s Playbook For Winning Online by James Thomson and Whitney Gibson
- Richard Jalichandra on LinkedIn
- Spiceworks Ziff Davis
- Incline Capital Investments LLC
- Disruptive Advertising
Sponsor for this episode…
Buy Box Experts applies decades of e-commerce experience to successfully manage their clients’ marketplace accounts. The Buy Box account managers specialize in combining an understanding of their clients’ business fundamentals and their in-depth expertise in the Amazon Marketplace.
The team works with marketplace technicians using a system of processes, proprietary software, and extensive channel experience to ensure your Amazon presence captures the opportunity in the marketplace–not only producing greater revenue and profits but also reducing or eliminating your business’ workload.
Buy Box Experts prides itself on being one of the few agencies with an SMB (small to medium-sized business) division and an Enterprise division. Buy Box does not commingle clients among divisions as each has unique needs and requirements for proper account management.
Learn more about Buy Box Experts at BuyBoxExperts.com.
Podcast Episode Transcripts:
Disclaimer: Transcripts were generated automatically and may contain inaccuracies and errors.
Welcome to the Buy Box Experts Podcast where we bring to light the unique opportunities brands face in today’s e-commerce world.
James Thomson 0:18
Hi, this is James Thomson from the Buy Box Experts Podcast. Today’s episode is part of a special series of interviews that we’ve done to dive deeper into the recent phenomenon of private equity companies and FBA aggregators investing in private label brands that are leveraging the Amazon sales channel. As part of this series, we interview a wide range of investors, brokers, consultants, and entrepreneurs that have recently sold their private label brands. We peel back the layers on what’s happening in this new investment space, and look at how private label brands are finding financial success through the building and eventual sale of their online businesses. For three weeks from mid February through early March, we will release a new episode every weekday on this topic. Sit back and enjoy today’s episode.
Hi, I’m James Thomson, one of the hosts of the Buy Box Experts Podcast. I’m a partner with Buy Box Experts and the former business head of selling on the Amazon team, as well as the first account manager for the Fulfillment by Amazon program. I’m also co-author of a couple of books on Amazon including the recent book Controlling Your Brand in the Age of Amazon. And today’s episode is brought to you by Buy Box Experts. Buy Box Experts takes ambitious brands and makes them unbeatable. When you hire Buy Box Experts, you receive the strategy optimization and marketing performance to succeed on Amazon. We also support investors with due diligence services. Go to buyboxexperts.com to learn more. Before I introduce our guests today, I’d like to send a big shout out to the team at Disruptive Advertising. For off Amazon advertising, Disruptive Advertising offers the highest level of service in the digital marketing industry, focusing on driving traffic, converting traffic and enterprise analytics. Disruptive helps their clients increase their bottom line month after month. Check out disruptiveadvertising.com to learn more. Our guest today is Richard Jalichandra, an investment banker specializing in selling and financing Amazon businesses, as well as a consultant for multiple institutional investors investing in Amazon businesses. Between 2017 and 2019, Richard was the founder and CEO of 101 Commerce, a firm that publicly announced that it would acquire 101 FBA brands. While Richard and his team didn’t end up acquiring a full 101 firms, he continues to advise Amazon investors and FBA sellers today. His perspective on how investors can build portfolios of FBA brands is why I am so pleased to have Richard joining us today. Richard, welcome. And thank you for joining us today on the Buy Box Experts Podcast.
Richard Jalichandra 2:53
Thank you, James. It’s great to be here.
James Thomson 2:55
In 2017, when 101 Commerce started looking at brands, you evaluated hundreds of brands a quarter. But today, the deal flow for FBA businesses as much larger as FBA private label businesses is finally a hot commodity. In your view, what happened to generate this recent interest in such businesses that have been around since the beginning of the Amazon Marketplace? Yeah,
Richard Jalichandra 3:19
there’s a couple of ways I can answer that. But I think it’s actually good. We kind of go back in time. And and frankly, you’re giving your experience you actually may want to chime in on some of this. But as somebody who is kind of an outsider, I think I’ve known about FBA since probably started 2005 2006, somewhere in there. But something seemed to happen with Amazon around 2014, which is kind of when the great golden age of FBA seemed to explode. And I think you know, the way I can you may know, this chimed in, I’d love to hear it. But something seemed to happen inside of Amazon, where I think they probably looked at their AWS business and saw how successful that was. And then looked at these other three letters and said, Wait a second, FBA could literally be you know, AWS for retail, and let’s serve gasoline on that. And if you look at kind of like the percentage of gmv that was generated by first party versus third party, it’s around 2014-2015 that just takes off. And then you know, simultaneously outside the company, you’ve got this macro trend, digital solopreneurs and, you know, wandering around the world trying to make money and figuring out side hustles and they’re starting to launch their own, you know, private label brands and things and it just exploded, and the crazy thing for me was, and I’ve told this story in a few places, but I’ll tell it again in a little more detail that you know, in 2016 hours writing a half billion dollar e-commerce business bodybuilding.com we sold vitamins, supplements and And, you know, I was kind of brought in there to kind of say that and turn it around. And I was looking at the data. And you know, of course, it was really obvious that it was Amazon that was creating the cracks and the downs. But the first thing I thought was that it was literally our wholesale partners that were just migrating over to Amazon. And yes, of course, they were starting to sell more on Amazon. But it wasn’t, that wasn’t the tidal wave that was developing. The tidal wave was all these mom and pop sellers that nobody had ever heard of selling vitamins and supplements and protein powder, where it was dead by 1000. paper cuts, right? I don’t when I like to start going, wait a second. This is really an interesting phenomenon. Ultimately, I didn’t think the company could be, you know, turned around, and we parted ways and all that and that I became obsessed with researching FBA sellers. And the other thing that I noticed was, you know, if the Golden Age started in 2014 2015, there also was very, there was almost no secondary market for selling these things. Right, right. 2016. And then all of a sudden, I think that there’s a friend of mine in this ecosystem that tracks the sales of these things. All sudden, in 2017 274, FBA businesses are known to be sold. So you go from zero to 274. And all sudden, the light bulb has gone off in my head, right? talking to these people. And I started joining some of these communities of solopreneurs. And just talking to people, I ended up in 2017, probably talking to 700, sellers. And I did you know, hundreds of hours of research, probably 1000 hours of research, and I just was enamored, I was actually trying to retire. But I was enamored with all these people running $1 million businesses that were netting 25-30% earnings, and I was like, Wait a second, if you bought $101 million businesses that would be 30%. Net, you’d have the most profitable ecommerce company ever done. Yeah. And that was that was the genesis, of course, we had to add one and make it catchy. So it was 101 Commerce. And that was the thesis. But that was kind of my take on like how this thing exploded. And now, that same friend who tracks you know, the sales of these things stopped tracking because he can’t count on me.
James Thomson 7:26
So what do you think’s going to happen in the next couple years as more money flows into space? Some of these investors know what they’re doing? Some don’t. And there’s an awful lot of in between? How do you see both the market for potential sales developing as well as people jumping into the business of becoming third party private label sellers, because they think there might be an interesting exit.
Richard Jalichandra 7:53
Let’s go backwards to three years again, talk about kind of awareness. The first time I went and talked to an investor about, you know, trying to buy FBA businesses that you know, they looked at me like I’m crazy, and, like, What are you talking about? And what is FBA and all that? And certainly, we made a little splash. And as I like to say, we were in early, and we were out early. And as you see, in many technology markets, usually the first first entry usually doesn’t do well. It’s usually the second or third. And of course, Thrasio is probably the one that’s created the biggest waves and we can talk about the ratio or you know, your as well. But that also now, like, you know, I went from 2017 having to explain what FBA is and literally having to take two hours to explain to an institutional investor what FBA is up to now, you know, your phone’s ringing off the hook, my phone’s ringing off the hook, I probably, you know, talk to 50 or 60, different hedge funds, VC private equity funds last year. And again, the phone continues, you know, everybody’s interested in how because now there’s an awareness. And the other thing about the ecosystem that most institutional investors I talked to three years ago had a problem getting their arms around how big the whole ecosystem is. And you know, you’ve probably gotten this question a bunch of times, and some of the diligence calls you do it’s like, every, like, Look, the pressure on like, is it already done if you know, is the mean they’re running away with it. I’m like, yeah, mice, my pet answer is there’s room for 50 ratios. That’s how big the ecosystem is. Yeah. Yeah. That’s a long winded way of kind of like telling you that, and we can get into more of it. But this is
James Thomson 9:42
far from over. So, you start learning about Amazon sellers, you start talking to them a couple years back. What were some of the things that you learned about the entrepreneurs themselves? that surprised you the most? This is not the same kind of an entrepreneur that you you probably have read To outside of outside of Amazon,
Richard Jalichandra 10:05
we should break it into the entrepreneurs and I met in 2017. You know that we’re doing it. And then the ones that you see doing it now, this is a very you know, there’s me an interesting cast of characters in 2017. And I swear to God, I heard this story at least 100 times when something approximately like this, it was like, you know, I was working in cube Ville, my life looked like office space. I made $42,000 a year, and I was trying to find a side muscle where I can make like another 5, 10 K a year. So I tried it. The next thing I know, six months later, I’m doing $100,000 of sales. And a year later, I quit my job, say, if you didn’t, then I’m out of here. Yeah. And next thing, you know, I’m a multimillionaire. Now that that’s the ones that had escaped velocity, but you kept meeting these people that were doing this. And then of course, you were meeting these people who were digital nomads to like, Oh, I’m running a $5 million business out of Chiang Mai Thailand.
James Thomson 11:12
Richard Jalichandra 11:14
Well, no, I haven’t slept in the same, you know, place for more than a week in the last three years. They’ve just been traveling around the world, and running this business. And there’s a little bit of, you know, the dream of the four hour workweek in some of these early pioneers that you would meet. A lot of them that was their big motivation was to have a location independent lifestyle. And then next thing, you know, they’re running, you know, a legitimate business. The one thing I want to point out, though, is like you started seeing people who, okay, there’s a certain cohort that runs a $300,000 business is a certain cohort and skill level and experience that can run out happening and then a million that attended. And one thing I kept seeing with the people who ran million dollar plus businesses was they kind of like, they talk like financial traders. They were kind of quants, everybody who got in millions of dollars of sales, you realize that they were all good at math. And really good at just intuitively kind of having a sense of like, this is a good trade. This is a bad trip. So I saw a lot of analogues to financial traders and what I call the super ninjas, people who get over $2 million in sales.
James Thomson 12:31
And yet some of those same companies have problems doing basic accounting of their businesses. Absolutely.
Richard Jalichandra 12:36
I can’t tell you how many that couldn’t forecast their inventory. Or I can’t tell you how many $3 million businesses I met that were basically insolvent because they didn’t manage their working capital. But at the same time, you would meet these, you know, unbelievable entrepreneurs here, you’re just like, wait, one of the first Super businesses I met this is like 2017 was a couple running a $37 million a year top line 14 and a half million dollar bottom line. A couple husband and wife. Yeah. Mike, where can you find that kind of business outside? Yeah. Awesome.
James Thomson 13:17
So you’ve got all this enthusiasm, people wanting to live the American dream, start their own business on Amazon FBA looks like a great place to go. And there’s easy access to manufacturing capability or capacity in all sorts of industries. How do FBA aggregators? How do they leverage that enthusiasm? Not necessarily just buying companies but also potentially getting into that kind of mentality of let’s go figure out what to build and what to buy?
Richard Jalichandra 13:48
Yeah, so everything’s changed since we started. You know, it’s, it’s totally changed. And I think just the FBA ecosystem has changed a lot. And I don’t think you can, you know, like five years ago, or four years ago, you could kind of like, no, go get a trademark, and I’ll find a manufacturer, right? Get in there. And, you know, next thing, you know, you’re selling $3 million a year, those days, or I think are gone. You have to be pretty serious about it now. And the same with the aggregators, when we started with one on one, you know, our Buying Criteria was definitely customized for Amazon. You know, we’d all done a bunch of m&a and before, but we had to completely customize that. But I think it was really elementary based on what I know now. Whereas some of these aggregators now are using a lot of data science to analyze deals. And this is one of the predictions I made even at the prosper conference, I think, but my last prediction was that I think, you know, the most sophisticated aggregators will start algorithmically targeting new businesses to buy they won’t be, you know, talking to brokers and bankers. Don’t literally be finding the hot deals that are up and coming based on algorithmic data science.
James Thomson 15:05
We’re already seeing some of that where companies that don’t realize they’re in play, get calls from two or three different investors saying, we want to buy you. By the way, I’m willing to pay you millions. Yeah, by the way, you don’t have to stick around for more than 30 days. Oh, okay, I guess we’re selling our business, this is great. Not to say that’s the right time to sell. But to your point, data science is already starting to happen, I’m seeing it with some of the firm’s we’ve already been talking to. But data science is one of those things where it’s a continuum, and you can only get more sophisticated, there’s millions of sellers out there. There’s an awful lot of data to churn through to find that the needles in the rough, so to speak.
Richard Jalichandra 15:45
So the other thing about the data science, the the second part of your question of like, what do you build are these aggregating building the thing, the same data science tells you what to, you know, build and launch products, you know, get rid of the market or where there’s, you know, places to optimize, it already exists and things like that. So, I mean, it’s literally the same algorithms that kind of produce the same data, the thing where it’s going to be an unfair fight is the amount of data that you have to crunch, to come up with those insights at scale is really expensive. So you need, you know, significant working capital to be able to churn the amount of data that Amazon spits out in the cloud. I know, a friend of mine is playing a lot with the data. And he basically said that to do the data crunching that he wants to do to be able to execute the vision that I was talking about, you know, it’s minimum, like 100 grand a month of cloud cloud computing. And, you know, startups can’t do that.
James Thomson 16:57
Richard Jalichandra 16:58
$100 million, can afford $100,000 a month to optimize the business, whether it’s targeting or building.
James Thomson 17:05
So a couple years ago, you talked about some of these selection criteria that you were using at the time to look at companies’ healthy, gross, net margin, solid review structure, compelling business narrative. And that’s what you knew two, three years ago, where are we going now with regards to sophisticated evaluation criteria for companies? Well,
Richard Jalichandra 17:29
let’s talk about those three things. First, those are still gross margin, net margin, review structure, specifically, net margins are important, simply because you know, you’re an e-commerce, you’re always gonna have competition, Amazon, you’re gonna have way more competition. So net margin is kind of your margin for error. And so the way we always look at a business is if it could have a 25, or 30%. net margin, we expected competition, either from higher ad spend, or having the pricing pressure could take that down by anywhere from five, five to 10 points, okay. On the back end notes scale, an aggregator is going to optimize supply chain inventory management and all that. So you could probably gain another five or eight points back on the supply chain side of the equation. So then you end up with something, let’s say you bought it at, you know, 30% net, and you lose five points, because of competition, you gained 5%. And if you even have further competition, you’re down to 25%, that’s still really good net margin,
James Thomson 18:36
then you put an extra million dollars of growth capital into it. And you’ll get all the benefits from that to that, too.
Richard Jalichandra 18:42
Yeah, there’s other organic opportunities. So that’s net margin, of course, you know, Amazon review structure is super important. But it used to be, you know, you know, the review mode of having just a boatload of views. And as you know, running and optimizing these things, the algorithm isn’t that simplistic anymore. There’s all about, you know, velocity, and, you know, the quality reviews and things like that I work in an algorithm where, you know, I’ve had experience where we launched a product that hadn’t zero reviews and got to page one, so it because it had the right velocity in the launch cycle. That’s a rarity. But you can definitely do something, you know, with 30 reviews competing with something with 3000 reviews because of the velocity and recency of the reviews. So those are important. But now to get to the real meat of your question. You know what’s important? You know, what we discovered when we bought our first cohort of deals at one was we had some blind spots that were largely around sales velocity, ad rates, things like that down to the asen level. And again, when we when we went out bought our first COVID deals, we were looking at the totality of a business
James Thomson 20:00
Not individually since Yeah. Now to hero products that is the business, not all the other junk in their catalogue.
Richard Jalichandra 20:06
Exactly, exactly. And if I was buying a business now I would literally be looking at every single asen as its own diligence, you know, project and now data science exists where you literally can kind of figure out the net contribution margin, and the health of a single asen. based on performance, especially, we can pull back historicals, which is where you start getting those massive cloud computing things, like pulling a year’s worth of data and then analyzing that. So, again, this is gonna be really interesting to watch some of these aggregators. You know, I know that you know, somebody with Thrasio just announced another massive, you know, round of fundraising, you know, they’re certainly going to be going down this path. And some of the other aggregators we’ve talked to are definitely thinking this, they may have even gotten the idea for me, because they’ve all called me at some point and said, What do you think this is? where this is going? And all that?
James Thomson 21:05
Right? So we’ve talked about criteria to evaluate companies you buy, but there’s also understanding, how do you look into the future and say, I can buy this company for x, but I see a clear path to five x growth, with with either the catalog This company has or the manufacturing capabilities they have, albeit different types of products, how do you look at companies and evaluate going forward? Or rather, what would you tell a brand today that’s thinking of selling? What would you tell them to do in order to help demonstrate the future? The future, not just a we were going to forecast some made up numbers, but there is a path towards us becoming a much bigger company down the road?
Richard Jalichandra 21:52
Well, let’s, let’s use a starting point. Let’s assume it’s a million dollar revenue brand. Okay. You know, somebody who’s, you know, a million dollars is probably they may be an e-commerce, they may have an e-commerce background, but again, remember all those fbas I talked about meeting back in 2017? Yes, ecommerce people. They figured it out along the way. But generally, somebody who’s a million dollars probably does their own everything by themselves. And to be successful on Amazon, I think you got to be good, at least a half dozen things. Yep. Do you’re gonna scale? So that’s kind of like self awareness. And you can point out to an aggregator, you know, here were my weak spots. You know, I was not good at PPC, but it was good, you know, cultivating reviews or, you know, I was great at product design, and you know, that kind of thing. But then the real obvious areas are going to be supply chains of like, understanding. If I had my current mo Q’s, you know, this is my net contribution margin. But if I can expand the volume up to here, the breakpoints, my supplier, yep. Where you can tell that to somebody, they can build that into their financial model, you know, that’s a really good thing. You’re basically giving somebody the blueprint to grow your business. And you know, the other thing with a million dollar business, they’re probably not skew optimized. You know, they probably are the one of the first examples, like, when I first looked at started looking at these businesses, I found a compression sock business that came in to a grand selection of two colors, black and blue. And I’m like, sports, compression, you know, you want all kinds of colors, but they just did another working capital to do it. So if you’re, again, you’re presenting plans like that of like, your, here’s my product roadmap, and particularly easy layups like child’s views. But even a parent’s view where you’ve done the data analysis already and said, there’s a pathway for this to be launched, if it had this much working capital, those are things that you bring that to the party with the buyer, you’re going to be pretty attractive.
James Thomson 24:03
Let’s flip things around. I’ve also seen a lot of these companies that have a decent size 50 – 60 SKUs, they threw a bunch of stuff at the wall, some of it worked, but they didn’t get rid of too much. And so they’re still playing in 40 SKUs they shouldn’t be in. And so having that discipline to be able to say we need to trim back your catalog and take that capital and reapply it to other things. That’s a difficult discussion to have with an owner founder, who every one of those products was a baby that he or she launched.
Richard Jalichandra 24:38
Well, every founder thinks all their children are beautiful. And the reality is they’re not. Yet we go back to algorithmic targeting. You know, I think you’re also going to see this is something I’ve always posited is that, you know, maybe you don’t need to buy the business. Maybe you just Just want to buy the essence that you want. And so you got 100 aces, we only want these seven. Yeah. And we’ll pay you and we don’t want your seller central account, we’ll figure out how to migrate them into our Seller Central account. But we really don’t care to keep all this other stuff. Yep, yep, we have it.
James Thomson 25:18
That’s truly an asset based
Richard Jalichandra 25:22
thing, you can do it, you can do it. You can do it because of the data science available and the asen unit economics.
James Thomson 25:32
So let’s let’s talk about some of the things you’re seeing with the investors out there today that have started heavily acquiring firms. There’s Thrasio, the great big performer. And then there’s a whole bunch of other companies, many of whom have raised 100 100, and $50 million. They have a lot of capital, they’ve got to put to work, and were put to work fairly quickly. Some of these teams have operating teams, some of these teams are just investors, if you knew what you knew, if you if you take what you know now, and you could apply it to your life back at 101 Commerce, three and a half years ago, what would you do differently?
Richard Jalichandra 26:16
Oh, that’s a long conversation. So first off, you know, the world is very different now. You know, in the last six months, I’ve had, you know, three, you know, financial institutions basically come to me with a pack and say, Here’s $150 million, you’re gonna do it again. Yep. I haven’t been on one of those yet. But, you know, those conversations didn’t exist when I was trying it, like, the first person to raise institutional money. You know, there wasn’t like this a family office or something like that was, you know, a legitimate series A, in that, I mean, there may have been one, but I don’t know of one. And just starting with the way we financed the company, I would do something completely different. I think the profile of the investor I would have selected would be completely different. I think one of the things that Thrasio did, right, was they right out of the gate, were able to find a debt part partner, which for us was really hard to find a depth of depth would help us scale. And so we were a little too dependent on equity, you know, to get off the ground. And now, you know, I won’t give you exact numbers. But now, let’s say you raise $10, somebody will give you $40 of debt. Yep. Yep. You know, because the math is so well known by all these investors these days. So, very, very different things. But that was one of the key things right out of the gate was our financing offer options. Were not as good.
James Thomson 27:56
Okay. So let’s talk about some of the things you’re seeing different aggregators do today, you say, Yep, that’s the right kind of thing to be doing. You’ve got the money. That looks like a good move to, you know, one of the things that I’m running into a lot is, many of these aggregators are going to the same brokers to look at the same deals. And so there’s a mad rush, Hey, I got to go to this channel to find the deals. And then I’ve got to put an elbow on the table very, very quickly. That model doesn’t strike me as one that’s going to last much longer, especially in light of what you talked about with some of the more sophisticated firms having data scientists who can go and find the deals before the brands. No, they’re up for sale.
Richard Jalichandra 28:41
So this also goes back to the other part of the other question, of what kinds of people are you seeing back in these things, and doing the aggregators and I mean, there’s probably a dozen that have raised nine figures or close to nine figures that I can think of, yep, some of them are taking a very sophisticated data oriented approach and others are taking more of a private equity approach that’s just like oh, we’re doing multiple arbitrage and we’re just going to consolidate all these things. And I don’t think those are going to be successful you know somebody because it’s as simple as it is to think about you know, I think it was so attractive so many people jumping in FBA is Oh, it’s a simple one person can run a seven figure business the end of the day though, there’s still not that simple. You just have so many levers to pull and when you start trying to put you know dozens of brands together and you know even like one of the first nightmares we I don’t want one was you know, we bought eight companies right out of the gate. Next thing you know, we had 26 Seller Central accounts, selling to 31 countries and all sudden you’re like Crap, how do we? Yeah. And so you know, then you really learn quickly that you’re one of what kind of team you need to build. And so the aggregators I’ve talked to half of them get the kind of team you need to build and have done. And it’s kind of shocking to me, there’s so much money is being committed when people don’t really understand the type of team and what I call platform as ation of a company, you need to build on top of Amazon FBA to be able to run you know, 100, micro brands, dozens of Seller Central accounts and manage 10s of 1000s of SKUs. If you’re building what I call them, when I say platform realisation, it’s a made up verb or whatever, but it’s a combination of people, processes, and software that are necessary. And they’ll all get there, because they’re all gonna, you know, you’ll get your ass kicked to the point where you’ll be forced to put in people processes and software. But some of the aggregators have clearly listened, and are getting ahead of that curve. Very early, even before they get going.
James Thomson 31:21
Let me ask you that you talked early on about these different tiers of brands, depending on how big they are. But one of the interesting developments I’m seeing is there are a lot of 2530 $40 million a year brands guys that are doing that. They’re clearing 1215 $20 million in profit a year for them to sell. They’re expensive. They’re so expensive that even if you’ve raised 100 100, and $50 million, you can’t afford to buy one of these companies. And so now you’re looking at potentially having a different type of investor be interested in those types of firms or something has to change. What would be your recommendation to some of these very large private label brands that have built big, sophisticated firms? And are looking to exit? Where do they go looking to be able to participate in all this excitement?
Richard Jalichandra 32:18
Well, this is where the whole little ecosystem is starting to outgrow itself. Yep. I give you one of, you know, somebody I’m talking to you right now, who’s gonna do 45 50 million? I don’t know. Close the books in 2020. But let’s say between 45 and 50. Sure. top line. And let’s say between 15 and 20. On the bottom line, you can’t go to a business broker and sell that business, you’re not. Now you’re talking for business like that. And by the way, its growth rate. And it also has a brand that probably deserves a full omni channel opportunity. Wow. There’s only one way to go. And it was two weeks ago, you find a strategy in that space, who wants to go build a billion dollar brand out of that, or you have to take private equity, you know, growth or private equity, that do that. And that and getting those kinds of deals is very different than what a standard business broker offers.
James Thomson 33:20
And now I’m stuck having to stay on board for two years. Oh, yeah. Oh, yeah. Lots of stuff.
Richard Jalichandra 33:26
Yeah. But that’s gonna be, you know, in this entrepreneur’s case, you know, he could be, he could get rich twice, you’ll have life changing wealth, just by taking some money off the table. But then you could literally become a billionaire. Yeah. Yeah. By partnering with somebody that can build a team around them and provide all the additional, you know, capital, acquisition and working capital, or whatever it is expansion capital.
James Thomson 33:54
So let’s go back to the brand itself. I am a brand I’m looking to, potentially one day sell my business, given what you’ve seen as an investor. And as somebody who’s looked at far too many deals. What suggestions would you have to a midsize brand, someone who’s doing two to 5 million in sales? How do you get yourself ready to do the right kind of exit?
Richard Jalichandra 34:21
Well, most importantly, to get your books in order. I mean, that standard and every broker and consultant tells you that you have to get your books in order to make it easy for people. Again, if it’s a very sophisticated buyer, though, they’re going to ignore all that they’ll figure out what your net contribution margin is down to a base level and you know, they’re not going to pay attention to your books anyway. Because they won’t matter to them. But for the average person going out and selling through a broker, you know, the better packaging you have, the better you’re going to market yourself. I mean, it’s just standard sales salesmanship where you package up your private label product. Yep.
James Thomson 35:03
Let me ask you, too many of these companies are all in on Amazon. These brands only sell on Amazon, you talked earlier about the omni channel. Is there a play here for some of these brands before they sell them to actually get serious about expanding into other channels,
Richard Jalichandra 35:21
I would say probably four out of five, if not nine out of 10 brands that would be in the two to $5 million revenue range have probably already experimented with Shopify, Walmart, Etsy, you know, where. And what you find is there’s two types of brands and they fall into, you know, one or two camps. And the second camp is a very small cohort, and the vast majority, you should just probably stay native to Amazon. And there’s a term you know, digital native, well, there’s a native brand, that literally that should probably be there, their whole life is on Amazon. certain brands, though, like the one I was referring to absolutely have a multi channel channel opportunity. And they should experiment with others. But again, when you start moving into omni channels, your operating costs go up dramatically. And all sudden, now you don’t get Amazon’s 250 million consumers, you know, right there at your doorstep.
James Thomson 36:25
Or on traffic.
Richard Jalichandra 36:26
Right, right. That your own ad platform because it’s not built into the Amazon PPC thing, customer service is built right into the sandbox. All that stuff. So you really do have to think, you know, as a solopreneur, or running a small business with a small team, you have to actually think what can you actually do well, and if you’re not good at, you know, supply chain, and you’re not good at internet marketing, and you know, whatever, stay stayed native to Amazon, let somebody else take it off Amazon for you. And
James Thomson 37:03
I want to wrap up our conversation today by asking you, when you look at the types of investors who are out there today, and the tools and the capital they have available to them. What recommendations do you have? If you could be the traffic cop that people listen to? Sounds like some of the I’ve heard you already? If you could be the traffic cop, you know, what, where would you push more of these investors in certain directions?
Richard Jalichandra 37:29
First and foremost is to talk to people like you and I. And we’re not the only ones there. There’s a lot of people who run these businesses, but also have experienced yet with the way institutional investors think. But, you know, they’re I mean, I’m sad to say, James, there is some dumb money coming into this now, because it’s kind of a gold rush. And, you know, as we were talking about before, yesterday, I talked to somebody who I was literally like, Oh my God, please don’t write a check. You will lose that money, like so fast. You really need to stop and get educated. But you know, again, most institutional investors really do their homework, and they talk to a lot of experts. They try to find operators before they write a check.
James Thomson 38:21
Richard, I want to thank you for joining us today on the Buy Box Experts Podcast. To learn more about Richard and his firm Incline Capital, please visit inclinecapital.net.
Thanks for listening to the Buy Box Experts Podcast, be sure to click subscribe, check us out on the web, and we’ll see you next time.