Trends and Concerns in Amazon Mastermind Groups
July 20, 2021
Steve Simonson is a lifetime entrepreneur who has founded, purchased, and sold numerous companies over the past 30 years. Currently, he is the Founder of the Catalyst88 MasterMind and the Managing Director of SYMO Global, a consultation practice with a team of experienced marketing and operational executives. Steve also runs the Awesomers.com podcast and website for entrepreneurs.
Here’s a glimpse of what you’ll learn:
- Steve Simonson discusses the Catalyst88 MasterMind and how it differs from other Amazon mastermind groups
- Steve’s take on the recent interest in investing in private label brands
- The biggest questions and concerns among large sellers looking to exit
- How to start standardizing and documenting your operating procedures before a sale
- Steve’s tips for determining when to exit your business
- The rise of microbrands on Amazon
- Steve talks about finding the right exit strategy for your brand and shares his predictions for the future of investors
In this episode…
Within mastermind groups, it’s easy for the conversation to solely focus on the small stuff — the hacks and tactics that come from years of experience in entrepreneurship. Lifetime entrepreneur Steve Simonson, on the other hand, would rather focus on the big picture: how to build a substantial business.
With Steve’s Catalyst88 MasterMind, his mission is to help Amazon brand owners master the full process of running a business. He helps them perfect their strategies, improve their systems, and scale their brands to success. Now, with the recent interest in investing in private label brands, Steve also shares his expertise on creating an effective exit strategy. So, what is his advice for Amazon entrepreneurs looking to sell their brands?
In this episode of the Buy Box Experts podcast, James Thomson is joined by the Catalyst88 MasterMind Founder Steve Simonson to talk about his members’ thoughts on the recent changes in the FBA space. Steve discusses the rising interest in investing in private label brands, the top concerns among Amazon entrepreneurs, and his tips for crafting an effective exit strategy for your business. 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
- James Thomson on LinkedIn
- Steve Simonson
- Steve Simonson on LinkedIn
- Catalyst88 MasterMind
- SYMO Global
- Product Savants
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 we bring to light the unique opportunities brands face in today’s e commerce world.
James Thomson 0:18
A couple months ago, we did a special series of podcast episodes, featuring FBA aggregators, investors, brokers, bankers and some sellers that had recently sold their businesses to these investors. It was one of the most successful podcast series we’ve ever done at Buy Box Experts. And now we’re adding a new sequence. We’re going to be talking to a number of mastermind leaders, talking to them about what their members are saying what they’re thinking about, as they look at all this investment money now flowing into the space. Hope you enjoy our series over the coming weeks. I want to thank the folks that GETIDA, our sponsor for this series. GETIDA is a global leader in Amazon FBA auditing reimbursements, analyzing Amazon data and reconciling FBA inventory, filing claims for reimbursement on the behalf of sellers, check out getida.com to learn more, enjoy our series. 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 the selling on Amazon team at Amazon, as well as the FBA account manager. I am the coauthor of a couple of books in Amazon, including the recent book Controlling Your Brand in the Age of Amazon. 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 help investors with due diligence services go to BuyBoxExperts.com to learn more. Before I introduce our guest today, I want to send a big shout out to the team at GETIDA. A global leader in Amazon FBA auditing and reimbursements, GETIDA analyzes your Amazon data reconciles your FBA inventory and files claims for reimbursements on your behalf. To learn more, check out getida.com. Our guest today is Steve Simonson, founder of the Catalyst88 MasterMind group of large private label sellers that leverage the Amazon channel. Steve is also the co-founder of Product Savants, an organization that helps private label sellers identify and source the best products for Amazon sales. Steve is managing director of SYMO Global, a consultation practice comprised of experienced internet marketing, and operational executives that have partnered up to help other companies reach their goals. Steve runs Awesomers.com, a podcast that shares entrepreneurs’ insights on how to be successful while streamlining. Steve, welcome. And thank you for joining us today on the Buy Box Experts podcast.
Steve Simonson 2:57
Hey, James, certainly a pleasure to be here. And in my spare time. I also will braid hair. So anybody who needs hair braiding, hit me up on the DM that’s what they call it. That’s what the kids say,
James Thomson 3:07
For all of the folks that have not gotten a haircut in the last year. There may be some hair to braid. So
Steve Simonson 3:14
yeah, nice for demand.
James Thomson 3:17
Let me start by asking you, Steve with Catalyst88. Your mastermind a private label sellers leveraging the Amazon channel. I’d love to hear more about your group and how it differentiates itself from other masterminds of Amazon sellers.
Steve Simonson 3:32
Yeah, so the interesting thing is, you know, we started out back in 2016, or 2017, kind of just a group of us that had been to other masterminds. And, and there was generally a call for how do we do it just a little bit differently? How can we, we take a different tact and that that difference was instead of just sitting there only talking about tactics and and hacks, which is kind of right, right? That’s the, what I call the sugary treat of a mastermind. But the vegetables, that’s the part that I like to bring, and those the vegetables are the least enjoyable part. But that’s actually what it takes to run a business. So we we like to say that we mix in kind of the the full concepts of running a business and we start with strategy, we move to systems. And then we talk about how you scale from there. The difference being instead of us just being kind of a hack, hack hackathon, kind of you know, a couple days we really do try to get into how you run a business. How do you build something that’s substantial.
James Thomson 4:39
When I was initially working on the FBA team, helping brands get into FBA. I remember thinking to myself, Amazon’s made it so easy for sellers to try the try their hand at selling stuff. And yet the conversations I was having with so many of these sellers, I realized that they actually need their hands held to do the really basic stuff, you’ve got some very large sellers in your mastermind. And so I’m hoping they’ve figured out how to do a lot of the basic stuff, and now they’re looking for advanced materials.
Steve Simonson 5:10
Yeah, I definitely think that’s true. In fact, we generally say that, you know, if you haven’t achieved a certain level of sales, let’s say, at least a million dollars a year in sales, then you really haven’t yet started to run what I call a real business.
James Thomson 5:23
Right? Right. I
Steve Simonson 5:24
put that in quotes because it you know, you’re doing, whether it’s 100,000 or 500,000 a year that’s not insubstantial. And it doesn’t mean it doesn’t have value, it just means that you have different kind of problems. And what I like to focus on are the problems not of going from zero to one, but from one to five, from five to 50. Those are attorneys that I’ve been on, and the the differences and the the way you approach those differences, you actually have to break what got you to the dance in the first place. And that part is for as an entrepreneur has been through more than one time myself, breaking yourself and breaking your own bad habits that got you to this success is wildly counterintuitive.
James Thomson 6:05
So let’s talk about bad habits. You’ve got all these new investors jumping in looking to buy Amazon private label brands. And for a number of these brands, they see a pot of gold at the other end of the rainbow. And they say this is exciting. But quite frankly, when they start doing their own internal due diligence, figuring out is my company ready for sale, I imagine these bad habits become rather apparent as people start poking around asking questions. I’d love to get your your high level view of what has happened among your members in the last year or so. As it’s become more apparent that there is this whole class of investors excited to be looking at buying and acquiring and potentially growing further, these private label brands that I’m sure your mastermind members are participating in?
Steve Simonson 6:55
Well, the conversation has been ongoing. In fact, when we started in 2000, whatever it was 17, 16 I don’t really remember, we we set out with the idea of what what what’s the point of this right, we like to think of the outcome as part of the the origin story. So right, several of our members over the course of the last several years have gone through different exits. And and some have been wildly positive, and some have been less so because of some of these bad habits, let’s call so the the original conversations were just kind of like how do I pump up the sales as fast as I possibly can? Hit the eject button and move out? That’s that’s kind of the we’ll call it prevailing wisdom, right? If you’ve tracked the Facebook groups, everybody’s like, just it doesn’t matter about profit it does about just wrap your sails. And then people said, Oh, well, it’s a bit of valuations. Now, let’s just wrap the profit. None of them really, in my view, focus enough on what’s the underlying mechanics of the business that produce those results? And can you make them scalable and replicable, and so forth? So we have focused on that, and I think many of our members have have realized that those basic blocking and tackling things that are not sexy, are what actually deliver the highest value. And the the aggressive nature of the we’ll call them the aggregators and those who are driving the Yes, the buyouts in the space. It’s our I think confirming that better practices, not focusing on hacks, not faking your reviews, not doing all those little black hat tactics that, you know, it’s like, sometimes sellers will just hold their nose and do what it’s sometimes they would do it in secret, right? And as long as it got a result, they’re like, well, you’re stupid if you don’t do it. And I say you’re stupid if you do it, because eventually you’ll be caught. Whether it’s by a seller, or a buyer that that thinks of it, and due diligence or finds that later or Amazon that shuts you down, and then you lose the whole thing.
James Thomson 8:59
Our firm has been doing a bunch of due diligence for some of these investors. And when we look at these companies, and you start asking some of the hard questions around, how did you go from 100 pieces of product 100 pieces of seller feedback to you know, 1002 months how to do that? Oh, our products? Very, very good. And the Oh, yeah. Really? Come on, guys. So no, I hear what you’re saying in terms of cutting corners. You know, it doesn’t it doesn’t pay dividends when you’ve got professional investors looking and asking really tough questions, and looking for documentation on how are you actually doing these things so that they can replicate and continue to scale that?
Steve Simonson 9:36
Well, the things that I think sellers don’t fully understand this is one of the things that I tried to bring to the table with myself but some of my experienced colleagues, we’ve been through deals right we’ve we’ve done over $100 million worth of deals for our on our old paper, right buying our own stuff, and so we know what to look for. We also know that when we’re selling, we make things called reps and warranties write representations of warranties. So the sellers, I think, again Are they see the the FOMO on the Instagram and the, you know other things, you know, I just sold, I got a million dollars, I got half a million, I got 10 million, whatever it is. And they’re like, all you got to do is get somebody to sign and wire me the money, right? If I can fake my way through the whole thing, I’ll be fine. And the reality is a year later, two years later, those reps and warranties can be called back. And in many cases, there’s personal pull through, right? A lot of people think, Oh, it’s just an LLC, I’m protected. But reps and warranties can have personal liability, essentially. And that’s, that’s a part where it’s, it makes it absolutely ineffective and unreasonable to to take any of these shortcuts because they will come back on you. And it’ll it can be painful.
James Thomson 10:51
So let me get your take on. Why do you think all of this activity recently started around investing in private label brands, when private label brands have been around for 20 years on Amazon? What what’s happened to make things exciting? In the last year, year and a half? And I’m actually talking pre COVID? You know, there was there was already things starting to heat up. But what’s your take on this?
Steve Simonson 11:16
Well, for sure. So back again, around 2015, I pitched a VC firm that I’ve done some stuff with, and I’m like, Hey, you know what you got to do? You got to come in, and let’s grab these things up for 2, 3, 4 times that are growing, they have the right trend lines that have a good moat, right, which is typically reviews and longevity and so forth. And and the the instance, that we do it where it’s already, you know, 15x 20x earnings, because if you do a kind of a mezzanine or middle play, and then go IPO, you’re gonna go out at 20 to 50 times. Yeah. And so it’s, it’s a classic arbitrage move. They’re just doing it with businesses instead of products. And this is, I’ve actually seen this in a number of different industries. I’m surprised it took this long to achieve its level. But in every industry consolidation is inevitable. And this industry is, is seeing that consolidation now.
James Thomson 12:17
So what happens in the next two years, as more investors come in, as sellers become ever apparent that, yes, an exit needs to be part of my business strategy. What do you think’s gonna happen to a lot of these larger sellers that you interact with?
Steve Simonson 12:30
Well, it’s interesting, I see three kind of vectors that people are taking one vector is, Hey, I’m doing okay. And I love what I’m doing, I’m going to actually aggregate some of these little fellas myself and try to, to grow it to make my EBITDA out, right, because what people don’t realize is, you know, below a million EBIT, is it let’s just call it valuation x is from one to five is valuation y and five to 10 is is z, and then it’s z squared as you go higher and higher. And so as you move up the food chain, you get a little bit more of the taste of the end game. And so that one vector is, hey, maybe I’ll do a little of this part time aggregation myself, if they feel like they have the systems in the structure to do it. The other vector that people are taking, is they they say, yeah, I’m getting out as soon as is practicable, right? And they, they look at their financials, they look at their operating conditions, maybe they look at their own stresses of capital, and they say, yeah, I’m gonna go out. And so they exit. But the third thing, and maybe it’s a subset of these, half of these investment companies will fail. Half of them will fail, I think more than half if you don’t know the truth, but I’m saying it right now. At the same time, Walmart bought jet, I said, there’s no way that’s gonna last, there’s no way that’s gonna work. And this is, I’m just gonna say it publicly. There are some great investors and operators, and most of them are not great. It doesn’t mean they’re not great investors, it just means they’re not great operators. And running these businesses is not easy. I’ve watched a Berkshire Hathaway, you know, company get rolled up. And they failed on that, because operationally, it was difficult. So I’ve seen this in a number of industries. And this again, the subset of that failure is for some, it gets harder to compete, then that means you know, independence, it will be harder and harder for them to compete. And then for the the reality is if if you are going to stay independent, you’re going to have to have some sort of affiliation or Association, because otherwise you’re going to get left behind.
James Thomson 14:48
So let’s talk about some of the types of conversations that are evolving among your mastermind members. Talk to me first about high level what are some of the new questions that are being asked that A year, two years ago, you were not typically having to deal with?
Steve Simonson 15:04
Well, certainly the pace of the questions as increased, you know, we, we have, I think, happily seen some of these trends coming. And so one of the one of the things that that our members have increased the pace of conversation is, what, what’s the proper exit methodology? Okay, just because somebody calls you and says I want to buy your company doesn’t mean that’s the deal, that’s going to get you the best offer. And so we talked about when you are entering the market, there are different ways seller should consider their exit strategy. One might be the, you know, selling directly to an aggregator, another might be hiring a middle market, kind of broker, we’ll call it a main street type of broker. Their FBA is full of these kind of ecosystem type brokers. But another might be to go to a boutique type of firm and and find a strategic exit if your company is large enough. And so depending on the type of offering that you have, as your company, the size, the sophistication, then you have to decide which trajectory you’re going to go. And those are quite different experiences, time, headache, stress, etc.
James Thomson 16:17
So what are the biggest concerns you see right now, among your larger brand members? Where are they having to spend time where a year ago they weren’t spending time worrying about certain things?
Steve Simonson 16:30
Well, one is they they have a concern about their their own listing management. Right. Okay, how many practices have they done in the past that could be under scrutiny today, if not by Amazon, then by an acquire, and some of these are lessons internally that they have had to learn, you know, from other experiences, either within the the group or outside of the group? where it’s like, Hey, this is a mistake, you know, just because we got away with something. Yeah, you know, listing something and nobody ever enforced, it doesn’t mean it was the right thing to do. And it also doesn’t mean that we could stand on that. So there are, I would say, some cleanup on aisle three conversations go. Yeah, that’s, that’s in the industry clean up on aisle three.
James Thomson 17:16
I’ve seen all sorts of crazy stuff, just basic stuff, like your upcs aren’t actually registered to you. Or as you say, your feedback was sourced in inappropriate ways. That may be ways that were appropriate four years ago, but is it a house of cards that your listings a feedback is built on? Or is it something that you’ve now adapted appropriately, and you’re able to keep going with an appropriate process?
Steve Simonson 17:39
Well, and this is the thing is, you’ve got to be able to disclose that stuff, you know, in a transparent way. And if you disclose it, 100% truthfully, yep, hey, we did this, maybe it was against Terms of Service, maybe it was the wrong thing to do. But if you are upfront about it, then your legal liability on the backside of the transaction, people need to understand just because you close the deal and have the money in your account doesn’t make you safe, right? If you lie, cheat or steal your way, there, you still got trouble.
James Thomson 18:09
What countries can we not extradite from?
Steve Simonson 18:11
Tell me again, we’ve got a list. That’s mastermind exclusive James mastermind exclusive.
James Thomson 18:17
So tell me a little bit about the take on brands, brand brand owners asking the question around, how long is the so called Gold Rush going to last? Are we going to continue to see this level of excitement with investors? Are we going to continue to see a brand owner saying I don’t have to rush to sale in the next six months? Because I have things I want to do with my business over the next 18 months? And then I’ll evaluate whether I’m ready for sale? How do you think about those types of questions? And how are your members asking questions?
Steve Simonson 18:47
Gosh, that is a really good question. Again, I’ve seen this. This same cycle happened in the past in different industries from the .com, to housing to, you know, on up and down the line. One thing I know for sure is it won’t last forever. And not this same frenzy. We saw a similar .com bubble back in the 2000s. But a similar thing happened in the UK in the mid 2000s. Where there are just crazy valuations for comms. What I would say is in the next two to three years, that as some of these big players flame out and by the way, I’m not saying which ones I’m not saying all of them, I’m saying half or more will fail. And again, what do I know, you know, I could be wrong. But as that happens, that consolidation efforts will will stymie a little bit, which means the demand the deal, demand will go down, which means valuations will go down. So there will be kind of a big run up on a bell curve for valuations. And there people are paying more than they should right now, in my opinion. That’s that irrational exuberance. And then at some point, as operational performance matters to these companies. They will fail. Yeah, and therefore now there’s less bidders. In the market, which makes, obviously the valuations come down, it’s it is pure supply demand. So I think in two to three years, the curve will start coming down, if it hasn’t already, doesn’t mean it’s gonna crash, all good operators will be able to have a good business forever. That’s what we tell them. And that’s what we believe. But there will be this consolidation, where it makes it harder. You know, when you have a large company that has hundreds of employees that can do advertising better new freight forwarding better than, you know, operational excellence, they can hire the best, they have the best systems, that that becomes harder as an independent to compete with. And that is a reality that I have much more concern about in the future, then valuations decline, which is inevitable.
James Thomson 20:46
So let’s get really tactical here, I want to talk through some of the specific changes the brand owners are having to make now that there is this opportunity potentially, to sell their business. Take me through what you’re seeing around operating procedures, including just documenting operating procedures, what what are you seeing around how the sellers are thinking about the whole process of standardizing and documenting operating procedures?
Steve Simonson 21:11
Well, everybody thinks about it, a lot of people talk about it, but very few actually do anything about it, because they don’t even have a system for systems. Right? And that’s fundamentally what’s missing. So, you know, in our conversations, we talk about things like, you know, where are you going to put your slps? Where do they live? And then are they actually being used, you have workflows that measure and track these things. And most of the time, they’re like, well, we made this, you know, wiki page, or we made this word document with a bunch of chatter. And it’s like, having something that gathers dust is not an operational form of excellence. So we first focus on kind of what are the operational pieces of the puzzle that need to be dealt with, and that includes personality code supply chain, it includes, you know, kind of Amazon listing management and things like that. And obviously, there may be other things, but those are the three focus areas. And then the next one is financials. How are you tracking and reporting this stuff? And is there a way to make that stuff work together? We’re big believers, I have always said this publicly, that, you know, my secret going from five to 50 million and beyond, you know, past 100 billion more than one time, is that we use the RP systems, we use enterprise resource planning systems, which by the way, every single one of the aggregators uses Yep. Right. But all of the small guys came up with, you know, basically scotch tape and maybe QuickBooks thrown in there. Sure hand, and they think that that’s enough, and that enough, is the wrong word. Is it sufficient to get a deal done and exit with some level of equity? Yes, it probably is. But will it maximize your? Well, it definitely won’t. And will you feel as comfortable when it comes time for do due diligence, you definitely want. So having a system that literally you can put diligence into that you can track everything, everything is double entry accounting systems, that people everything work together, that is a real critical link in the operational chain. For me, for my experience,
James Thomson 23:18
as I think about operating procedures, that firms are having to now prepare to hand off to the next company. Just the whole process of building a data room. And realizing I don’t have a method of compiling information to put in this data room, Oh, my gosh, this is so much work. Whereas if you actually are using operating procedures, you’re standardizing you documented them, they’re ready to go. Your books are in good order, the process of having to download, put in a data room download, put in a data room, that’s not as complicated as it could be for people who are not organized that way. I get to see data rooms a lot. And I look at them. And I’m thinking honestly, oh, my goodness, I can see this person is clearly struggling and just trying to say, Well, here’s something for what you’ve asked. And yet, this is stuff that brands should have access to. Much like you need to keep your own personal books in order, you got to keep your business books in order. So let me change gears here a little bit and ask you how is the conversation changing around this concept of I need to develop in my head a timeframe of when I should expect to be able to sell my business? When am I ready enough to be able to go to market?
Steve Simonson 24:35
Yeah, it’s it has changed somewhat. So the pace of these conversations, as I mentioned is quick and even in the last 30 days, let’s call the spring of 2021. The number of inquiries that come directly to me like hey, you know, Who should we talk to and you know, what kind of deals we look for. And again, those are custom conversations built on the Scott size scope, but some people are like, you know what, I am killing it. I am slaying dragons over here, when I sell in a month or 12 months or 36 months, or never, I’m happy, I like what is what I’m doing. And that’s fine. I don’t see any problem with that because they’ve they’ve made a choice. This is kind of their own their own lifestyle. There are other people who are like, you know, I’m of a certain age or a certain temperament that I’m just stressing me out. And there are actually, so there are full exits, right. So there’s somebody who might hang on to their business, there’s somebody might exit their business, those are the two extremes. There are deals that are happening right now for growth capital, where, where certain people come in and just go, you know what, we’ll just buy a cut of this thing, give you a little capital, maybe you recap, take some money off the table. And that’s kind of a down the middle deal. I’ve seen those deals work out, you know, for better or worse. Well, I’ve seen both of them. I’ve seen him succeed and fail. But those deals can help an entrepreneur, get a little peace of mind yet stay in the game. I don’t know that the that the nature of the conversation has changed as much as the the anxiety level has increased, right? Because people don’t want to be wrong, right? They’re like, well, I don’t want to wait too long, right? I don’t want to I quote often I don’t know, if it’s from a movie or whatever. But the the, you know, pigs get fat hogs get slaughtered, right? There’s no point in trying to get that extra million or 5 million or whatever it is, if if you could have exited before the market crashes or before the business crashes? Or who knows, you know, risk on Amazon remain very, very high. For all the reasons you already know.
James Thomson 26:42
So So let me ask you this, the the conversation that I’ve had with some of the larger private label brands is they’re having to explain what their brand represents. And so now we’re talking fundamentally, I have built a brand on Amazon. What does this mean a brand on Amazon, because I think of no academic branding one on one, I look at what it means to be a brand on Amazon, that the minimum requirements, you need to have to be able to say, yeah, this is a brand that can stand on its own. This is a brand that the next guy who manages it is going to be able to have it’s going to start with something already. How do you help your members think about branding? What’s branding? One on one? What’s branding tool, one when it comes to Amazon?
Steve Simonson 27:24
Well, we do think that this The so called Rise of the micro brands, right? This this idea that you can create something tiny that has its own level of significance. But I tell people regularly that there is no you know, Coca Cola being created here, right? This is not the next Nike, this is just a micro brand. And it may or may not have value to the aggregators in fairness. But if you build the best brand moat, that includes reviews, that includes actually good quality products, very few people skip some of those steps, like actually making something that’s noteworthy. So people do talk about it. We want them to focus on those fundamentals. As it turns out, the boring, fundamental, blocking tackling stuff is actually what creates the most value, not the whiz bang, I got an Instagram follower the million people to tweet my whatever it is, I don’t know what they do, right? None of that you can never take tweets to the bank. Instagram posts are not the positive. All right, all you can do is build a brand that actually executes well has good quality quality products, has a team that gives a crap. And then the customers will come to you. Whether it’s on Amazon or elsewhere. That’s that’s really what how a micro brand has to begin. And it can go on to greater things, but that’s where it begins in the beginning.
James Thomson 28:50
So I am a private label seller, I think I’ve got my act together ready to go to market. I’ve got a lot of choices in front of me. I can go direct to an aggregator. I can go to a broker, I can go to an AI banker. How do you help your members think through these types of questions when there’s obviously major trade offs with each option.
Steve Simonson 29:10
So we look at it pretty agnostically like we are our vision is so that entrepreneurs have the best possible outcomes, right? And so we don’t have an equity in the game. So we’re pretty agnostic when it comes to our opinion. And the opinion essentially is if you’re below a million, and it’s operationally good business, then go to some sort of middle market type of broker. These tend to be FBA type specialists. And they trade in a narrow world of FBA types of transactions. If it’s poorly run, and as you know, below a million, then just pump it out to whoever will give you the most money, right and that could be an IRA or it could be a broker. But I would start in that case with aggregators. Because they’re fast exits, low paperwork, fast exits, no headaches, brokers more more kind of upfront work, but if the deal is sufficient, but we tend to go to a specialty, non FBA centric, boutique firms, if it’s above a million EBITDA, especially if it’s above 10 or 10 or 20 EBITDA, because we add 10 or 20 million EBITDA. Right, then we think a strategic exit is a better viable prospect to at least have as a driver of the market bid. You can create a market for your business in the same way you create an auction for something else, if you have enough bidders. And the only thing other bidders need are other vendors, right? You have one single bidder, you’re only worth what that guy’s willing to pay or gal. But if you have multiples, then you start to look at the merits of each offer. And we see some boutique offers that are going to well, you know, let’s just say they will blow the lid off of the typical FBA valuations.
James Thomson 31:03
minis aggregators, if you’ve raised $150 million, it sounds like a lot of money. But if you’re looking to buy a company that’s got 20 million EBITDA, six, seven multiple on that, that’s all the money you’ve raised. So if you’re gonna have to find a different class of investor to make an exit, if you’re in fact, that big a brand. And some of the big brands, the biggest brands like that, that I’ve talked to, you know, they want to be able to take the money off the table and walk away in 90 days. These are big, sophisticated operations, these are not going to be, you know, a baton handoff Goodbye, Have a nice life. How do you think about this, this whole concept of what to expect as part of the transition? How long do I have to stick around, I got my money, but I don’t really want to have to coach the new owner.
Steve Simonson 31:51
Well, again, that part of that math goes into the front end, right? If they say to themselves, that they don’t want to have a big hand holding period, and they want to fast, close and simplicity. There, there are pieces of this part, pie or or graph that you have to chart out. Because if they’re really heavy into that, then you have to move towards those sophisticated aggregators who are just in and out, nobody gets hurt, but you get a lower valuation well. Whereas if you move, by the way, we should focus on the deal element, because the deal elements for some of these things will be vastly different. The higher you you push a deal valuation, the more you might have a two year consultation period, or the more you might have additional reps and warranties or earnouts, that have to be a component of the deal. All of that is not unreasonable, by the way, that I hear a ton of entrepreneurs who, like they just put their foot down, I would just want cash, I don’t want to talk about any other nonsense. And then I tell them a story of a buddy of mine who’s like, well, I got, you know, one of our friends in UK, they took money off the table at closing that that was above their original expectations. And they had deal. You know, still money in the deal. And when the guy almost kind of forgot about the company, and his two year went away. And four years later, he gets a call, hey, where should we wire your money? And he’s like, oh, what happened? You guys sold? Like, yeah, we sold and he got twice as much on the backside of that transaction as he got on the front end. So there are lots of now I can tell you other horror stories, where do they got nothing. And, you know, there was a clawback on the original payout. The point being, that how you structure the deal will have a big impact potentially on valuation and your own sanity. So the more plain vanilla, the lower the valuation, the faster the lower the valuation. Yeah, but the more let’s say, interesting, the the deal becomes the maybe the stress goes up, maybe there’s more risk, but the upside also follows that.
James Thomson 34:00
Let’s talk about for your members who have successfully sold their businesses, what kinds of learnings have come back to your mastermind group where they’ve been able to build on the shoulders of others?
Steve Simonson 34:13
Well, one is that, you know, kind of confirming some of our prior bias right? is one of the things is there. There’s a couple of these let’s say FBA centric firms that I don’t think are seller friendly. Right. So we don’t we don’t discuss it publicly. But there are definitely some firms in the FBA space that are well I just they’re just deal cookers, they just want the next deal cross the finish line connect the commission, they don’t care about the seller, were my only cares about the seller. You know, I want that sell or to have the best outcome they possibly can. So that some of those learnings have come down that hey, not all these people are good people. And so you really have to be careful of that because if they’re just transaction watcher and just trying to collect their commission. They’re off the hook downstream. Right? All those reps and warranties are for you, not them. So that’s that’s been some learning, also reinforcing some of those bad behaviors, you know, anything that was kind of even gray hat can come back on Yeah. So that that’s fed back into the group to go, you know what, maybe this isn’t worth it, even if it this accelerates my sales by 3x, you know, a year earlier, if it comes back on you, you know, two years later, and it doesn’t help. So it’s that that part is, you know, been annoying and troubling. But that’s life. So what have
James Thomson 35:41
you as a manager of a mastermind? What have you had to do to adjust the way that you deliver value to your members, given there’s all this new investment activity?
Steve Simonson 35:52
We don’t, we haven’t changed a great deal from that perspective, because we start with that exit in mind, right? I’m a big believer in What do you want? Right? What’s the point of this? We’re not doing this for a social experiment? What do you want? Why are we doing this. And so for our biggest really, I don’t know, change has come from, you know, partially the pandemic, but also the, the, what I call the treadmill of masterminds. So we used to be quarterly, and it would just be just kind of a treadmill of, you know, we’re always going, we’re always going, and we move that to just meeting various places in the world, you know, two to three times a year instead of four times and so forth. But with the pandemic, it’s made it much harder. So we’ve just started meeting again, smaller groups in mostly Mexico at this stage. But our our mission as trying to help these entrepreneurs, is how do we get them in contact with aggregators, a week trust or boutique firms that we vetted and we believe in and and, and things that are outside of the FBA aquarium, right? When you are an FBA, it just looks like there’s just this big ocean, but it’s really just one aquarium. And the whole world is much, much bigger than that. And so you know, maybe it’s like those fish from Finding Nemo. Right? until they got to the ocean, they had no idea. And there are really a lot of possibilities with brands, these even micro brands. And and that’s really our mission is to figure out how how they can add value to their business without killing themselves operationally, and make make it make it a life worth living along the way.
James Thomson 37:32
I want to wrap up our discussion today by asking you, as an outsider looking in on these investors, how do you see these investors getting the kind of value out of the acquisitions they’re buying? If you’re paying six, seven, multiple, that’s six or seven years worth of continued sales, you’re expecting to get plus plus growth? That’s, that’s a hard equation to make work when often Amazon private label brands last 18, 24 months max. So how do you see these investors being able to do well for themselves in the long run?
Steve Simonson 38:11
Well, first, most of the the survivors of these aggregators will be leveraged players, right? They will look at opportunities and not just go, is this an FBA business? is it doing sufficient, you know, level of revenue or profit or whatever, they will look and go, where can we add value? Right? When I go acquire businesses, I instantly say, you know, if we apply our pay per click, or we apply our SEO, or we apply our supply chain, what what growth can we get, and the leverage with these brands is almost always going to be plus 50, plus 100, plus 200%, immediately. So the the downside risk for a good operator is quite low. The flip side of that is for operators who actually don’t have operational expertise, who actually don’t know what they’re doing. Will will have all of the learning curves that we have all had faced for the last 10 or 20 years, how long are they doing it? And that’s one of the guys at AWS, I forget his name, it might have been Andy Andy Jaffe, but he said something like, there’s no compression algorithm for experience. You just can’t speed up experience. And that reality is something that anybody that maybe as you get older, you have to last year to this experience a little bit more, but you just can’t duplicate experience. And so, learning how to do all of those key levers of running a business will take time, and that’s where a lot of people will fail. But the better players will find absolute leverage and again, then going to an IPO will give them market funds at eBay does at multiples that are significantly higher. You know, I we pitched a company in the UK again. And we were like hey, you just have to pay us 18 times earnings, you got 45 times earnings on your your publicly traded The next day, you’ve more than doubled your your net worth. So this is a slam dunk. That’s why you should pay us 18 that, you know for eight or 12 or whatever. And so this the math really does work if you’re a good operator and that’s that’s the same thing that I tell sellers if you’re a good operator, you got nothing but upside.
James Thomson 40:25
Steve, I want to thank you today for joining us on the Buy Box Experts podcast. For those of you interested in learning more about the Catalyst88 MasterMind group, please visit catalyst88.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 GETIDA analyzes your Amazon data and reconciles your FBA inventory and files 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 G-E-T-I-D-A.com.
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