How To Build An Empire Flipping Businesses with Greg Elfrink

All right, welcome back to the show. This is Brad Costanzo, your host. Of course, you knew that my name is in the title. And today I've got a really great guest on about a topic that I've discussed many times in the past. And it is one of the most popular topics that we have here at Bacon Wrap Business, which is the concept of buying, acquiring businesses, doing deals and really leapfrogging your way up the ladder as opposed to just building a business. You know, there's a lot of entrepreneurs who listen to my show and a lot of very experienced ones, a lot of brand new ones. And one of the things a lot of us entrepreneurs are known for is building a business and getting it off the ground. It's actually one of the most exciting things to do is to start a brand new business. It's got tons and tons of potential.

To.

That we see. And it's exciting until we get it up off the ground and we hit that difficult and that lull and that oh crap moment like, oh man, I actually got to really grow this. And there's a lot of variables that I didn't know and.

It can be daunting, as we all know. And one of the statistics out there is similar to the like 90 or 95% of the new businesses fail in the first five years. I mean, the chances of failure in this business, regardless of what every Instagram guru and influencer tells you, entrepreneurship is fraught with failure. However, there is a different way to do it. And this is something I've got some experience with them always trying to grow my knowledge in this area, which is acquiring an existing business and bringing my ass, you know, my assets, my skillset, my resources to improving something that's already there. So for instance, when I want to go buy a, when I want shelter for a house, I don't go to Home Depot and buy bricks and boards and hammers and nails and then watch YouTube videos about how to or buy an info product about how to build a house. I go find somebody who's built a house that I want to live in. I arrange financing I.e. monthly payments are less than my, than my income and I move into the damn house and I got my shelter. I think business is very similar to that because we're in business to make money, to create cash flow, to create a living, make an impact and everything else. But ultimately it's a out to make money. As entrepreneurs, we do not have to build our cash flow from the ground floor. And that is one of the reasons that I Invited Greg Elfrink from Empireflippers.com to the site today. So now Empire Flippers, if you guys might be familiar with them. I'm a fan of their podcast. I pay attention to what they do, but they help buyers and sellers of primarily web based businesses meet and create really profitable win win deals for.

For their clients, both the buyers and sellers. And if this is an area that you're probably interested in as well, but you're not 100% sure how to do it and it seems super confusing. Well, our goal here is to shed some of that confusion and talk about what's working now, what Greg is seeing in the market, what's some of the mistakes that people are making. And I also want to let you guys know that, look, we're not going to go into the most basic reasons of why you should potentially look at buy a business or sell a business.

We'll touch on that. But I've got a lot of questions and I'm going to pick Greg's brain as much as possible. So I invite you to sit in, eavesdrop and listen as we kind of go deep on a topic that's near and dear to my heart. Greg, welcome to Bacon Wrap business.

Thanks man. I appreciate being here and looking forward to hopefully adding value to you with your questions and to your audience out there listening.

Fantastic. Okay, so question number one. How do we get rich quick and easy with no effort whatsoever? That's what we want to know.

It's so easy. So you just buy the next info product you see advertised on Facebook? Yes. It only works every time. That's right. If it didn't work for you, you're just not trying hard enough. Right, Right.

So Greg, tell me a little bit about or tell my audience a little bit more about Empire Flippers. Like I gave him a little bitty taste. But tell me, you know what, what is it you guys really do? What do you focus on? What is the biggest value you guys bring to the market? And then I want to kind of dive deep into some of the nitty gritty stuff.

Yeah. So Empire Flippers, we've been around for a while since like 2011, but we've really exploded over the last three years. We've been an Inc. 5000 company now every year in a row in the last three years. And I think we're going to be again this year. We've become the largest curated marketplace in the world when it comes to online businesses. And one of the things that we do when it comes to helping people buy and sell online businesses is that we really have segmented like a traditional brokerage. You'd have a broker that does every single aspect from vetting your business to selling it, to migrating it, the marketing of it. And what we've done is we've taken that and broken down that one role into several different departments and made kind of like a well oiled machine. Now some people love that, some people don't. They prefer the more high touch stuff. But in my personal bias is that I think it's far more efficient so I think it's actually better for buyers and sellers. But of course I work for the company so I'm a good bias. But yeah, that's some of what we do. We've sold over $80 million now of online businesses and it just keeps, the trend keeps going up.

We're excited to be leading that charge. And really not just selling and helping people buy these businesses, but also educating the market that like hey, look over here. This is something really cool you can do that you probably didn't think about.

Absolutely no. That's awesome. 80 million in sales so far. That's great. Do you know how big the. Or are you able to say how big the. Like the biggest exit somebody had was with you guys?

Yeah.

I won't say who, but I can tell you the actual sales price. So that's another thing that we do a little bit different. We're very big on transparency and I'm sure you know this, but if your audience is new to this industry, it can sometimes be hard to get clear answers. So we actually have a whole page dedicated to this where people can go to. Empireflippers.com Scoreboard has a lot of our different metrics, but if you go to our marketplace you can see our biggest listing sold which is a $2 million Amazon FBA business. But right now we do have a business that might beat that one at 4.4 million that's in pending sold right now.

Nice, nice. What's the nature of that bigger business? Like the other one was like an Amazon fba.

Yeah, this one's also an Amazon fba. So I think they are in possibly similar niches here as well. Yeah, the 4.41's in sports and home and then the 2 million dollar one is in health and fitness, which has some crossover. They're both very popular niches.

Very cool. Now you guys focus on online businesses, right?

Yeah, 100% online. We have a lot of businesses or.

Online businesses these days in general.

The definition of that has blurred significantly Even the last three years. Right. With the explosion of E commerce. But yeah, if you have like an offline component, like a retail store or something like that, typically if you want to use us, you have to separate those two entities out and just sell the online portion with us.

Exactly. So I'm thinking maybe one of the better ways for me to break down some of these questions is to think about it. I'll put myself in two perspectives because also my, I've been in both, but also my listeners are either in one or the other, which is potential buyers, people who are interested in getting into a business, or the potential sellers. Right, so let me go from the buy side questions first. So for all you folks out there who actually have a business right now, it's an online asset. Maybe you are considering. Considering selling, but not 100% sure what to do first, or you haven't really thought about it, but you might be open to it for the right price. And you're like, but I just don't know where to go and how I would do this because I'm busy running my business. We're going to get to you guys in a moment with some of my questions. But right now, Greg, if you don't mind, I kind of want to ask some questions from the buy side.

Sure, let's do it.

Cool. So. And some of these will cross over.

You mentioned a couple of the bigger ones being Amazon FBA businesses. How big? And I've heard a lot about those being very marketable resellable businesses. But at the same time, if it's a pure Amazon FBA play, that personally makes me a little more nervous because, you know, Amazon is, you know, has screwed a lot of people with some of the changes and some of the things that go on there. So it, to me, it makes it feel a little bit riskier. But that being said, I also love how you just tap into something that is relatively low tech on your side. As long as you're playing on the Amazon side. I bring that up, but I'm like, are you see, like, are you seeing a lot of the sales? Like, is there a good portion of the sales of your businesses that are Amazon fba? Like, are a lot of people out there trying to buy those? Is there a lot of demand for those businesses?

Yeah, there really is. And part of it is because of what you just said. So there's two different fronts on that. Depending on your skill level, whether you're just starting out or, you know, very much a veteran in the E commerce space, that fba gives you. So on the. On the newbie side, if you're just starting out, it's kind of like E Comm on training wheels where you don't really need to focus on the marketing as much now. You still do, obviously you still have to do some of the marketing, but Amazon really takes a lot of that heavy lifting out for you and also helps you on the backside of the logistics chain supply, once you get your products actually in their warehouse. So they're taking care of you in a lot of different ways. So that's nice if you're just starting out. On the other side, if you're the veteran, the thing that's awesome about it is that you can scale up because you can focus on just few different metrics and you can really scale that with the economies to scale. We see a lot of these buyers who are doing that site. They'll usually focus on one monetization, create a fund, though they're raising a bunch of money acquiring these FBA businesses and then now they can get lock in their suppliers at these awesome deals because they can order at scale. And you also see them mitigating that risk you talked about by creating eventually their own E Comm brands and stores outside of just Amazon. So Amazon is almost like a laboratory to see if it worked. Right? Yeah. And of course you get all the reviews, all the social proof, all that kind of stuff. So those are some of the attractive stuff. But what you brought up is very important. That is a critical point of failure in FBA businesses. This point of strength is. It's so supported by Amazon, but that is also one of its big weaknesses.

Yeah. Are there some things that a buyer should typically be aware of? If I'm looking at an Amazon FBA business for sale, I mean, obviously length of time in the market or whatever. But like, what are some of the bigger due diligence questions that somebody should really. I kind of want to say either the red flag, the big red flags or the big green flags that they should pay attention to.

Yeah. So that's a very nuanced question in the sense that someone's due diligence could be wildly different from someone else's. Right. I think maybe they want to see that they got hit by something where they fell out of the top position and another buyer doesn't want to see that. Right. But. And because they have different skill sets, so their due diligence criteria is different. But some of the questions we do see is stuff like, you know, how many SKUs does this business have you know, how many products are you selling? Because if I'm buying a million dollar business and you're selling one product, that just increased my risk quite significantly. Like what if this product is a fad? You know, when, if, you know, a competitor comes in and tanks me? All that kind of questions going around your brain. So you might start off with, how many SKUs are there and what amount of revenue do each of those SKUs make up? If one of them is making up 90% of them, then you still more or less have the same problem as if you're just selling one product. And now you're probably dealing with four SKUs that might have a lot of dead inventory too, which is inventory you're not being able to move very quickly with. So that might be some stuff to ask about. Now, as a buyer, if you're looking at a business like that, that say, is that five SKU business and say three of the five products are dead inventory, you as the buyer might be able to use that to your advantage to get those two profitable products and just buy those two products. And that way while the seller doesn't get exactly what they want, you get the profitable products and at least they get to recover a little bit from their mistakes of ordering this bad product.

Cool. So what about on Amazon businesses? You know, of the ones that you guys have worked with, what kind of a range on the multiple are you guys typically seeing on that? And number one, is that multiple based on revenue? Is it based on earnings and EBITDA or. And is it, I mean, is it typically like a 1 to 3 times range? Are you seeing a higher, lower what?

It's kind of, yeah. So we're a bit unique in that we price everything on a monthly multiple instead of like an annual ebitda. But more or less is the same concept. It's, you know, the net profit averaged over 12 months and then we give a monthly multiple. So I actually know that data because we just did. Our State of the Industry report is the first one where I analyzed 500 businesses that we sold over the last two years. And FBA was a big, big sector. So we were actually able to get some pretty good data there. And the average sales multiple for FBA businesses in 2017 was 21.25x. And that's again monthly, not annual. And then 2018, that went up slightly to 22.77x. And that, that sounds like a slight increase, but I mean that is still a 7% increase of the average sales multiple just within a year.

So so break that down for the folks. If it's a. Let's say, let's just use a 22 multiple, that is.

Yeah. How would you, how would you explain that for somebody?

Yeah, sorry, I thought you were going to keep going there. Yeah. So, like, if you.

You're doing $10,000 a month in sales.

Or earnings, if you're doing 10 grand net profit per month, you can just times that by the average sales multiple, which is more or less 23x for FBA businesses right now. And that would give you the rough valuation. Now that, of course, is a extreme rough valuation. If you want a little bit closer, you can use our valuation tool, which uses all of our sales data and that's fairly automated. And of course, if you actually want to sell, we will give you our vetting agents that will actually give you a real valuation.

Nice. Yeah. And so like that. It's like. If it's like 23 months, I mean, that's basically just short of two years.

Exactly.

Yeah. I mean, it's basic math, but I just, I don't. I know some of this stuff. If they're not used to dealing with.

This, it can kind of go, oh, no worries. I'm a. Creative. Math is like my worst enemy. So.

Yeah, you and me both.

You and me both.

I like math and it's got dollar signs. And those dollar signs are in my bank account.

Yeah, I'm like, math. What?

Cool. So, and obviously, oftentimes the size of the business, you're going to have a higher multiple. So if you've got that's just doing like $100,000 a year, you may have a lower multiple than if you got a company who's doing a million a year.

Yeah, absolutely. That's one of the things that can affect that multiple. But you can get a higher than normal multiple even on the lower end. So in my report, since we skew all of, you know, do all the businesses at once, there's a bit of skewing there because of multiple. Different businesses at different prices and also different quality. Right. So I put a disclaimer of businesses that beat that average. And so, for example, one of those businesses was an FBA business that was $54,000 as the actual sales price, and that was a 29x multiple. So same concept as before, but much higher than the average sales multiple just because that was a higher quality business by the very nature of what it was.

Yeah. There's a lot of different ways to increase the valuation, especially if you're the seller and. And Cause I mean, the nice part about evaluation in this entire thing is a business isn't worth anything. A business is worth what somebody will pay for it.

Right.

So build that. If you can make the argument that it's worth 29 or 49, like to enter the right buyer, it can be worth a lot more. Because if it's a strategic acquisition and it's a brand expansion of something else they got, they've need, they're like, oh, well, we know we'll make a lot more money on this because we've already got the resources in place.

Absolutely. People that are doing strategic acquisition, they'll often spend much higher amount because exactly what you just said. They're not buying the business in a vacuum. They're using the business to leverage other properties that they own. And that synergy makes it worth it to them to spend more. So strategic buyers are often the best type of buyers that a seller can run into.

Yeah. And this kind of flips over to the seller side is if you are looking for somebody to buy your business, if you can find somebody who's got a real reason for buying that, you can oftentimes get a lot more money out of them as opposed to just selling it to somebody who just wants the cash flow.

Right.

Because they're trying to get the most return for their current money. Right now, like if I put in $100,000, I'm trying to get as much of a, much of a return on that money as possible. And I hope maybe I can grow this business. But you know, and I mentioned this offline, I bought a business a little over a year ago for just the. It was a financial play for some passive income. But I didn't have any big desire to be in that business per se, any more than any other business. So therefore I spent a lot less money than I would have if I had already had a business in that space and wanted to pay more for it.

Yeah. I think what you just said there brings up an important point that I think sellers and even buyers, they forget about when they go to sell their business. So like, I'm sure you're familiar with this and your audience is familiar with it, but when you started with a business thinking about copywriting, right, like how to get into your customers heads, their wants, desires, needs, all that kind of stuff, because we all know as marketers, people buy things based off emotion and then they back it up with logic. Right. So you need to have that like reason why. But when someone goes to sell their business, they often forget their copywriter hat and they forget about the buyer's wants, desires and needs. And if they just put that copywriter hat back on, they can often sell it for much higher if they really dig down to why does the buyer want this outside of just the financials.

Yeah, exactly. Now, still on the buy side.

The thing that is probably the most important aspect of this entire process after you find a deal or whatever, is due diligence. Right. Because that's where the money is made or lost. If you miss something critical, you can lose a lot of money. But if you do the right due diligence, especially from the buy side, you can uncover a lot of opportunities to suppress valuation and get it to where you want it, et cetera. But it's, I think it's arguably the single most important aspect of the entire process. And because of that, it can be daunting if somebody doesn't have a whole lot of experience. I know when I started off and I bought my first business, I mean, I do come from a finance background and I've owned businesses and it's sold. So I've kind of been through the ringer on and I've got some experience there, so I kind of knew what to look for, but I didn't have any formal training in that. So from the buy side, number one, do you guys provide any specific resources for people besides just the seller deck, or do you suggest that they do certain things for due diligence to help alleviate the concern that they're gonna screw that up? Because I know, like, I've looked at some bigger deals and I've thought, man, I am over my head, I don't know what I'm doing, I'm gonna screw this up. And it's kind of kept me a little bit more trigger shy from the bigger deals because it was more complex. So what do you recommend for people who are a little intimidated by the due diligence process?

Yeah. So if that's you in the audience and you know, you're thinking like, God, this sounds cool, but it sounds so complicated, then I'd highly recommend you to avoid a private deal because that's where you'll probably get probably screwed. Right? Like just, just because you don't know what you're doing. Not necessarily.

And when you say a private deal, you mean a deal that's not listed with a broker, such as.

Exactly. And that sounds self serving. But the reason why I say that is because if you come to us and you have no experience, but you want to get into the game, what we do is we set you up on what's called a criteria call. And what that is, is you meet with one of our business analysts. Usually it's not terribly long. It's like 20 minutes to 40 minutes, depending on how the conversation goes. And we talk to you about your goals, your skill sets, your background, all that kind of stuff. And we really help you create first what you want to accomplish and then what does that look like? So we will actually help you create your due diligence framework that you can take that once you have that, you can go anywhere, right? You go private, broker, whatever. But that will allow you to eliminate a lot of the businesses that you feel uncomfortable with very quickly and let you to drill down deeper on the ones that look promising. So that gives you a little bit of skill set in the game, if you will.

Do you charge money for the criteria call?

No, no, that's totally free.

Oh, that's good. I was going to say that sounds like it's worth it.

You should. Yeah. You know, we have had a lot of people, you know, they do, they do them and then they do buy a deal outside of our marketplace. I mean, they have full intentions of coming back, hopefully buying a deal from us too. But yeah, they always say it's worth it. And I think it's a really good way to create your foundation as the buyer, to get your feet a little bit wet in the terminologies of the industry. Another thing I would suggest for a buyer is to read our definitive guide to deal structuring that I wrote. If you just type in on Google Definitive Guide to Deal Structure.

I've actually got that open up as a tab. I was like, because I was file paper. That looks like a really good little article.

Perfect. So I recommend a new buyer to check that out. That's a great resource to understand how creative financing works in our industry. And that's a really powerful advantage that the buyer has when it comes to acquiring deals. And the last resource I would give for someone is our web equity podcast. So we do seasons of that. Every season covers a different theme about buying and selling. And it's season two that covers everything from start to finish that a new buyer should know about and walks you through the entire process from finding the deal, due diligence, negotiations, what does a migration look like, all that kind of terminology. So if you do all that, you should have a pretty good base to start with.

Yeah. And I love that show. It's really good. I've listened to a lot of the episodes that's the one where Ace is on that one a lot, right?

Yeah, yeah. Ace is a good friend of ours.

Yeah, same here. Love Ace. He's been on the show as well and we talked a lot about this.

I'm going to have to hit him up, tell him I'm following his coattails.

Exactly.

What.

What would you say? And I don't know, I don't. So this is, this is one of those kind of honest but damaging admissions of like, all right, if you've got a hundred, like what percentage of this sites just list on Empire Flippers just don't sell. And it's not Empire Flippers thing. It's just like hey, let's be realistic. Like just because you have a site to sell doesn't mean you're probably gonna sell it. But are you able to give any statistics to say yeah, a third of them just don't move?

Yeah, so I can't get. I don't know the statistics. The only reason why I can't give it. I don't know it off the top of my head for the ones that don't move once they get onto our marketplace. What I can say though is that we're very. What's the word? Controlling on who we allow onto the marketplace. You have to go through a fairly rigorous vetting process before we allow you on. And for that I do know the statistic that two out of the three businesses, around 66% or so businesses that come to us we just simply reject. And a lot of them we reject within five minutes because the quality just doesn't match the standards that we're looking for. So there's that.

Can you give a, can you give us an overview of the at least the minimum level of quality you guys are looking for?

Yeah, so our minimum qualifications are actually pretty easy to meet. It's that will like help you get past that five minute check. So the minimum for a business, it has to be making a minimum of $1,000 average net per month. And you have over a 12 month period ideally, but sometimes we will do six months which I don't recommend for sellers by the way because you take a pretty big hit on the multiple if you do that. So I always recommend 12 months. And then the other thing that we need to see, unless it's like an FBA business or even weirder like a KDP business which we have sold a few of those, we like to see at least three months of analytics as well, like traffic analytics, either through Google Analytics or Clicky is another reputable One. So those are some basic stuff and that's all fairly easy to hit for most of these people. But then we start doing the actual process. And things that will get you hit are things like a bad P and L, which is quite common for E commerce entrepreneurs. And we'll help you build that P and L. So just because we say, oh, we can't list this yet, because your P and L doesn't mean you're dead in the water just yet. We help a lot of entrepreneurs build those P and ls, but that's just some examples that could happen.

Nice. And then, I mean for the, for the listener's sake, the way you guys make money, do you guys ever make money on the buy side or you just take a percentage of the price of the listing that when it sells?

Yeah. So like I was telling you, offline our fiduciary responsibilities to the seller. So we don't get paid until we sell that business as a success fee. Right. And that, that works in various tiers. So anything underneath a million, it's a flat 15%. 1 to 2 million we do 12%, 2 to 5, we do 10 and 5 million and up we do 8. So the buyer never has to pay us at all.

Comes out of seller proceeds.

It comes out of the seller proceeds. Right. But like I said to you, we don't believe this is a zero sum game. We don't believe that there has to be a winner and a loser. We think everyone should win. So we want the buyer to walk away thinking like, oh, damn, that was a great deal I just got. We want the seller to walk away like, damn, that's the perfect exit I wanted. That's what we're always shooting for.

Oh, that's great. On the.

I got so many questions here for you, Greg.

Hopefully I have enough answers.

And this is good because this is all like super useful stuff. While I think of one of these other questions here. Have you seen any, like, favorite deals? Like you don't have to mention the names of any of them, but just how, like I love stories about fun deals and big successes and whatnot. Is there anything that kind of stands out to you as that was a fun one.

There's a few of them actually in various levels of success. One of the craziest ones I saw.

Was even better than fun.

It was definitely fun for the buyer of this business. So he was able to negotiate the deal down and he bought the business, I think low six figures if I remember correctly. And he literally asked us during the migration. So that's the period when we're, we have an entire department like that handles transferring the asset over to the new owner to make sure everything is transferred like correctly. So it was during that process and he asked one of our sales guys like, hey, would any of the other interested depositors, were they like really like wanting this? I would sell it for like an extra like 20 grand or something like that. And like, well, we can ask. And so we did the other who.

Want a piece of this.

Sorry. So in order for someone to look at our business, they make a deposit. So we could have multiple buyers looking at a deal at the same time. And so whoever gets the business first is the person that gets their bank wire first and that of an accepted offer, of course. So he asked us, one of the other buyers doing due diligence really want this and we asked and he literally sold that six figure business for an extra 20 grand in like an hour before I'd even moved away from the seller's like original account, you know. So the seller got paid, the buyer got paid and there was another buyer like all within like a matter of hours is one of the weirdest things I've seen by far. Not normal.

That's amazing. I love that. What's the, how does the deposit work?

Yeah, so it's one of our other kind of unique things that we do. So a lot of other companies, what they'll do, they'll have you sign what is called a letter of intent or loi. And often what that means is you more or less have exclusive due diligence to various levels depending on how it's written. And while that's good for the buyer, it's not necessarily good for the seller because that slows down the seller because now there's only one person looking at it.

Exactly.

So what we do is to weed out like tire kickers and potential copycat marketers and stuff like that is we require a buyer to put down a deposit on the business or at least call our business analysts to show proof of funds and have a conversation first before we allow them to see the more intimate details of a business. So we'll give you like the, some of the best metrics on the actual marketplace. But we won't reveal the URL, the actual products, the true niche, because usually we do big parent niches, what you see on the marketplace. So a lot of the intimate details are hidden away until you make that deposit or until you get on a call with one of our business analysts and they approve you to let you.

See it And then the deposit, is that a fixed fee or is that a percentage of the potential sale price?

Yeah, so it used to be just like 5% of the sales price, but we started getting such bigger deals that became a big ask. Yeah, so like that was created back when we were selling like $5,000 size and now we have like, like I just said, one Impending sold for 4 million. So it was unreasonable to have someone put down that. So it's always refundable, by the way. It's always been 100% refundable. And even if you do buy the business, we actually still refund you that money because we can only accept bank wire. So yeah, that's how you get into the business. And the reason why that's good for the seller, like I mentioned, is this allows to create a pool of buyers all looking at the business at the same time. And that creates a bit of that scarcity, a little bit of heated competition, makes the seller able to bounce offers off of each other and all that kind of stuff, which really helps move the deal faster. So it's very much an advantage to the seller, not as much to the buyer, unfortunately.

Yeah, that makes sense.

And then is there a certain time period, like let's say I'm looking at a business and I put down the deposit, is that refundable within a certain time period? Like I've got a 14 day right to inspect or something of that nature. Is it time based?

Well, for the deposit it's no time. You can refund it whenever you want.

Okay, so I can look at it and after three days I go, yeah, I'm not interested, I get my money back. Or I might be looking at this thing for 30 days because we're maybe in negotiation and all this other stuff. Exactly that. Or maybe even 60 days, who knows how long it goes if for one reason it doesn't close, I get the money back.

That's correct. And like I said, do we refund the deposit even if you do buy the business? Just most people pay it with their credit card and all that kind of stuff. So that makes sense. But yeah, like, so the only thing we ask when you get your deposit refunded is the reason why that wasn't the right business for you. Because that's useful feedback for us. Because, you know, maybe it's just truly the wrong business or maybe it's a process thing of ours that we can improve, you know, so that's important feedback for us to get and that's the only requirement to get it Back Perfect.

A moment ago you mentioned proof of funds. So obviously you don't necessarily just even. I mean you don't want to be dealing with a bunch of broke people. When I was, I was a financial advisor years ago and we had a saying in the office because it was very easy to just, you know, you're cold calling a lot of times like little old lady, she's really nice to you on the phone. This actually happened to me. She was really nice and I think she had like $50,000 to invest. And I told my branch managers, I was like, ah, no, this is great. She's got like 50,000. And in the brokerage world and fee based advisory, that's, that's broke. Like he's.

We love broke people, just not during business hours.

It's funny, you use the old lady. I used to work at La Z Boy when I was, you know, younger in my, like I think I was 20 or something on commission base. And the best customers were the little old ladies because they just love. They didn't care how the Lazy Boy looked. They just wanted comfortability. So we always knew that they were a high chance of buying.

Yeah, this woman was, she was an easy sell for me. She was great. She wanted company. But I wasn't gonna make any money off of 50,000.

Right. Yeah, yeah.

That being said, that kind of goes along with this. But the real question is like proof of funds. So I do know. And this dovetails into another question perfectly, which is financing of businesses. Because some people do are sitting on a lot of cash, million dollar offer, half million dollar offer, and they can write a check and do an all cash deal. Some people are going to need to go arrange financing of one sort or the other. So I've got a few questions along this lines. Which is number one.

Well, number one of the deals that you guys do, how many of them are apparently like just listen, we'll write the check, cash deal, here you go. Versus them arranging financing one way or another on their own.

Yeah, so I don't have a hard percentage for you on that. That's actually something we want to do for the next State of the Industry report next year is to break that down further. Fortunately, we didn't have the time to do it this time. But what I can tell you is if a deal is underneath $200,000, it's almost always going to be all cash or pretty close to it. Now when earnouts or seller financing or other forms of financing start to come into play, where the seller might get like a You know, a large upfront amount and then they have to wait a certain period of time to get the rest of the money. That usually really begins in earnest. $500,000 and above. It can happen sooner. I mean, it can happen even at the sub 100k level. It's just far less common. And if you're a buyer looking in the sub 100k level, I'd be very careful with trying to do a seller finance deal, because at least if you're doing it with a broker like us, if you're doing a private deal, then you know, it could be a very advantageous thing for you to do. But if you do it with us, then there's a good chance that the seller will just hold out till he gets that all cash offer because we sell 700k so quickly. So if you're looking at our marketplace, that can actually put you at a disadvantage by doing the finance deal at 700K. But huge advantage at the higher levels, of course, 100%.

And then web based businesses can be notoriously hard to find financing for because there's oftentimes there's no hard assets and.

It'S a more volatile business than like a brick and mortar or something of that nature. What have you seen, like, are there any resources or tips or tricks for buyers to find financing outside of friends and family? Are there companies out there who are arranging this for people? Have you seen anything creative being done besides like creative financing and owner carrybacks, etc.

Yeah. So a lot of the creative financing is like what you just said with the seller financing. And you know, it's an interesting industry because like our multiples, I don't know this for sure, but I think this is true. Our multiples are somewhat lower than like a traditional offline business like your local laundromat or whatever. And the big reason, I think is because of the lack of financing. If you go into Wells Fargo, say, hey, I want to buy a $200,000Amazon affiliate site about dog food, they're going to be like, what are you talking about? Get out of my office. You're crazy.

But if you go to that same bank and like, hey, I want to buy a media company all about dogs and their food that's worth $20 million and it's more or less the same business model, they're like, okay, let's do it. Because once you get above the $10 million range in digital assets, financing does start actually becoming available. But most of us aren't playing at that level. So what we see Is obviously seller financing is a huge one. A buyer should always ask for that.

Barring my previous advice, if you're at the sub 100k level. But otherwise you should always ask it even if you have the full liquid, because the vast majority of the time the seller is going to give you some kind of earn out and they're going to give you a 0% interest. So it's more or less a 0% interest free loan. Now, there's other things you can do in that earn out too to help you get successful, which isn't necessarily financing, but there's things like milestones that we talk about and all sorts of different things. But outside of that raising funds, outside of like friends and family, there is a couple other things out there. One thing that's really come on the scene recently is Small Business Administration loans or SBA loans for your American listeners. If you're buying an American business and you're American, then there's a good chance you can apply to an SBA and get it. Now, SBA financing is pretty reasonable and they cover a lot of it. But they typically want collateral, often your house that you own. Sometimes they will forego that in very rare circumstances, but usually they need some kind of collateral. So that's another way, even though that is somewhat so rarity in our industry. Another thing you can do is if you do own your own house, and I would never tell you to do this if you're trying to save your life or something like that, or this cuts into your emergency fund, but another smart investment strategy I've seen people who are in a financially healthy position do is they will take out a HELOC on their home home equity line of credit, and that more or less works as revolving credit, similar to a credit card, and that does use your house as collateral as well. But that allows you to buy the business and often get, you know, gray ROI that you can pay that off that loan within, I don't know, a year, year and a half, often, often less, depending on, you know, how much of the loan you use. Because you don't need to use 100% of it. Right. I would never advise to do that either. So those are some ways. And if you want, if your audience wants more inspiration for creative financing, I would say, yeah, me too. This is something I'm actually kind of interested in as well because I find it kind of fascinating how people raise capital. But if you look at any of the real estate gurus or anyone who's done any kind of real estate deal and they are starting to get above that fourth property where they can't get that traditional mortgage anymore and all that kind of stuff. There's a lot of crazy creative financing strategies in real estate and a lot of those actually can apply pretty well to what we do. So that's another place if your audience.

Wants more, you're 100% right. Like, I have a real estate background and then I was the chief marketing strategist for two of the biggest real estate gurus out there. And I'm actually one of them right now is.

I do advisory work with realestateinvestor.com and the owner of that company is guy named Gary Boomershine. Is absolute. Is one of the absolute masters of creative financing strategies I've ever seen. I mean, it is, it is next level, blow you away. Awesome. In fact, one of the, one of the pieces of advice I gave Gary, I've given Gary and I was like, hey, we need to come out with this, which is an actual, like a real course on truly creative financing. There's some basic stuff out there, but like not the level of stuff that he's teaching. And yes, some of it is, some of it is specific to real estate, hard assets, et cetera. But really it's buyer psychology and really understanding the difference between price and terms. Like, you get to pick one, it's your price and my terms or my price and your terms.

That's a beautiful way to put it.

Right. And that's really the most powerful thing in any negotiation is just understanding that, yeah, I'll give you a billion dollars for your business. It's going to be dollar a year for 99 years and then $999 million in the last year. You can say you sold your business for a billion.

That's my terms. Yeah, that's funny. We say that to sellers a bit. Sometimes sellers are like, well, I want the full list price. And say it's like, I don't know, $1.3 million deal. Well, it depends. Do you want the full list price and a longer earn out to get that money or do you want more upfront money, cash in your pocket right now for a little bit less than that list price and they'll have a flexible range there. If they're a reasonable seller at least.

You're absolutely. A couple more questions here. What are some of the biggest reasons from a seller position that you see the seller wanting to cash out and sell their business? Because I know there's a plethora of reasons why somebody might sell their business from burnout to I just want to cash out or I want to go spend time on other stuff. And like, oftentimes there's a level. There's differing levels of distress. I know when I've sold the business before, I was just like, I am burned out not spending any time on this thing. And I'd rather. I wasn't desperate because I was making money elsewhere. I didn't need to sell it, but my other option was just letting it just continuously go down into the dirt and shutting it down, as opposed to getting a year's worth of earnings. And then there's other people who are just like, man, I'm desperate. I gotta get out of this, etc. Of that range. What would you say is some of the biggest reasons you see sellers decide to finally go, I'm out.

Yeah. So on the personal side, definitely the burnout thing. And, you know, it could be a real subtle thing. It could be like, like I was talking to you offline earlier. I know people with a business making, you know, not crazy amount of money, but decent amount of money, working on something that they only have to work on, like, every other month and maybe four or five hours during that month. Right. But the weird thing about it is it just like, takes up so much room in their brain. They're like, I just want to stop worrying about it. It's making money. But like, when next month it doesn't. And then I screwed myself because I could have sold it. So it's like those kind of weird doubts, like they're coming through their mind and makes them like, you know what? I just want to get rid of it. I have plenty of other stuff I'm doing now.

The more professional or business reasons, I guess that could be a myriad of reasons. One, like, one of the things I say, and this is one of the best reasons I see sellers to sell, in my opinion, and I say this to almost everyone that's starting, like an affiliate site or FBA business is you haven't really started your business or started your career in this business model until you sell your first one. And the reason why I say that is if you're, say, an SEO person and you create an Amazon affiliate site, you sell that affiliate site with us for, say, $120,000, $150,000. That is probably your biggest windfall of cash you've ever had in your life. Like, I'd be surprised if it wasn't. And that amount of cash is sitting in your pocket, plus all the earnings that you had saved up from, you know, at the time it was making money. Now you can just turbocharge your system. We have, we have sellers that sold, I think it was around $800,000 worth of Amazon affiliate sites with us over like a two and a half year period, maybe a little bit less than that. And every time they would just launch 20 new websites with their SOPs. The whole process is like this factory belt just pumping them out. And then they would sell off about eight or 10 of them throughout the year and keep like two or three of them and then use that capital to redeploy into making new ones. And they were able to level themselves up so much that they experimented with doing a SaaS product and then they also ended up creating very successful productized service.

That's an example of what a seller can do. And one of the reasons why they do sell is to go off and do bigger things, bigger projects or get that war chest to enter into a much more lucrative but more competitive space that they would never have been able to compete with unless they sold that site or sold that E commerce store.

Absolutely. That's one of the things that helped me too because I mean, you know there was, there's, there's a lot of people who just really, it blows me away when people are like, I don't understand, why would you sell, you've got a business, why would you ever sell it? Well because number one, things change, right? Things can change on a dime. Like you may not have a built in moat around your business where you're totally protected. And nobody, this is not like a buying a government bond. Nobody says you're gonna get money forever. And I kind of look at it like I'm not selling this for money, I'm selling this for time. Like if I sell it for two years earnings, two times years earnings somebody just gave me, especially if it's an all cash deal. Somebody just handed me two years of my life, now I'm going to go run out. Like I've got a two year head start because it would have taken me two years to make that kind of money in my profit. And the time value of money, money now is more valuable than money later. So I look at it like that when I'm ready to sell something. Yeah, you can't buy time, but you kind of can. And this is one of the ways you buy time.

Absolutely. What you said there reminded me of something I think about often. And you know, I go to a lot of conferences, right. And a lot of them are buyer Centric or seller Centric. They don't always tend to mix. But you know, I do get people more on the sell side. Like, why would I ever sell this? And like, and then you get the sellers who are like, what kind of buyers are these people? They must be really naive. Buying my business for two years that I built while living in Chiang Mai or something like that, you know, on the other end the buyer's like, man, who are these sellers? They're so naive, they have no idea what they have. I'm about to 10x this thing, you know.

Yeah, it's a really crazy market out there. Like people don't quite get it. Once you get it, it's like, oh damn, like now I see it. Like, and for instance, there are some sites where like, let's just say it's an info based business, right? Like, oh, you've got an ebook and this and that and the other and you're making.

$100,000 a year. We'll keep this real basic. Now granted, I might not pay you two or three hundred thousand dollars for that business because if I especially cash because realistically I could go out and duplicate assuming that it's a relatively general business. So like it's not necessarily based on a specific personality, but it's like I don't know, the keto diet system.

Whatever, right? It's like, well I, you know, for a couple hundred thousand dollars I could easily go hire the best writers in the world, spend a lot of money on ads and funnels and all this other crap and I could rebuild it for a lot less. But there's some things, well, number one, like if I've, you know, if I want to skip to the head of the line and especially if I can arrange financing or I know that there's something I can do with that business that these guys are, these guys don't even have any upsells, these guys don't have any higher end products. I'm just going to buy this thing for a couple hundred thousand, add a little bit of value and then watch it skyrocket because I know how to pull the profit levers. But there's a, it's a paradigm shift for both sellers and buyers. Like why would I ever sell this? Or why would somebody ever buy this and Absolutely. Or why would I buy it when I can build it? Yeah, because you can buy it instead of building it.

Yeah, like you know, people, you have, even if you're brand new, like if you're the, you know, the newbie in the audience Just like learning about this for the first time. I would say as long as you're in a financially good position, again, like you, you don't need a bootstrap. You have money that you're okay if you lose. Because it is a volatile industry, right. Things happen just out of our hands that we can't control. So as long as you are in a good position, then I would say the like, I would be more of a buyer than a seller. And the reason why is because even if you buy on the low end, like say $50,000, which is still a reasonable purchase, you are already getting so much time just from that 50k purchase because you don't have to explore different niches, different keywords. If it's a, you know, associate site, you already know it's making money and it already has traffic. So when you buy that site, you can instantly do something like conversion rate optimization where you make that visitor, the amount of visitors worth more. You couldn't do that if you were starting out because you have, you have no visitors, right? You have nothing to play with. It's just all like operating in a vacuum until you start getting that machine going, which can take 10, 12 months before you even see your first check. And often it's a depressing one. It's like a $50 check from Amazon. Like, oh my God, what did I just spend a year on doing? Because the real money doesn't come to like 18, 20 months in when you really start ranking in Google. So yeah, it's an amazing paradigm shift when you really start getting it. And we see a lot of sellers, once they get that windfall of capital, instead of supercharging themselves into that factory mindset like that other seller was talking about, they actually become buyers because they understand how it works.

Absolutely. It's, yeah, it is that big paradigm shift. And you know, another one, because I've given this advice to other people who are just kind of trying to get started in this stuff. And there may be like entry level entrepreneurs, they've dabbled, they've played around, etc. And this sounds great, but you know, they probably listen to this part and says, well, you know, I don't have a couple hundred thousand dollars to buy something. I'm not stacked with cash and I don't know where I'd go find that. You know, a great way to do that from a beginner's level is go find somebody who does have some capital and offer to run it for them with sweat equity. Say, look, give me 15, 20% of the business, let me even invest in, let me actually have ownership of it. If you can buy this, here's my plan to run it. Because I know for me, I'm not sitting on millions of dollars to go deploy like crazy, but I've got capital to invest, etc. The one thing I don't have is the right resources of hustlers and operators who would love the opportunity to go own something and run with it and have that pride of ownership. But I mean, that's a great way to buy a minority interest using other people's capital. Just tell them you're going to run it. And I think that's really overlooked because there's a lot of young hustle, full of energy, smart people. They're just don't. They're not sitting on a fat stack of cash. It doesn't mean you can't buy a business. In fact, one of my other podcast episodes which was really fun was with my, a former business partner of mine named Dale Hensel. And I'll link to the Dale's episode in the show notes here. And Dale said he switched up after he had sold a business and had some good success from business coaching. He goes, I was coaching all these entrepreneurs and these entrepreneurs. Usually when an entrepreneur seeks business coaching, like 80% of the time it's because something's broken and they're trying desperately to fix it. And he said, you know what I came across is a lot of recently failed entrepreneurs who, they've come off a failure. Like they started it up, they screwed some things up, the business didn't do what they wanted because that's the nature of business, as we know, like 90, 95% of them fail because it doesn't mean they're not smart. That doesn't mean they're not driven. So what he started to do because he had a lot of ideas and whatnot, is he would in essence partner with them. Say, look, I'll fund this. Let's either go buy this business or start this business or something else. And I'm going to pay you. I'm not going to pay you a lot of money, but I'm going to pay you a thing. You're going to be the CEO. You're going to be back in here, but you've got my resources and you're going to operate it and you're going to vet, you know, you're going to get, I can't remember exactly 20% equity in this, but it's going to vest over three years. So if you Bust your ass. I'm not only going to coach you, I'm going to fund you. We're going to run this thing, and then eventually we're going to sell it together and you're going to make money. So.

I just, I love just showing people that there are more opportunities out there than you realize. You don't have to have the money if you can access it. And if you can access the money, well, how do you influence somebody to, you know, work with you like that? Well, tell them, look, I'll run the whole thing, I'll operate it. I'll get skin in the game.

So one thing I like to add on that is on the, on the other, on the other side, the guy who's looking for this person with all the finances that they can tap into. You know, I think a lot of us, and, you know, me included, I'm sure you've felt this as well, you know, have that imposter syndrome, right? Like, like, oh, my God, you know, I built Amazon affiliate site that makes $1,000 a month. But what, Like, I'm nowhere near skilled enough for this guy to give me a million dollars to buy this other content site. But, like, here's the thing that I tell people, like, Internet marketing, if you're brand new to it, sounds complex, but it's not rocket science. And honestly, it's less complex than things like commercial real estate, in my opinion, which I know a fair bit about. I was raised by, you know, a real estate agent, owns his own real estate company. Like, it's far more complex than my opinion, than Internet marketing. So if you learned how to build something like making two, three grand a month, like those same skill sets applied to a much bigger business could make that business go wild with the amount of money that you can make. It's just that you are now looking for a financier that will allow you to open up those gates of scale. And that's the way you should look at it. You should really, you know, as this person looking for the financing, make sure you value your own time and what you're bringing to the table. Because while you don't have the money to buy the business, you do have the skill sets to give the financier the kind of the ROI that he's seeking. Right. So it is a powerful play. And you're right. That is a fantastic way to get your hands onto a business if you don't necessarily have the money, but you have at least some of the skill sets.

Bingo. And, you know, I've Also noticed that a lot of times people who are like myself, I don't, I don't, I don't have experience running like a, you know, 25, $50 million top line company as a CEO and doing all that. But I've, I've run much smaller companies and I think when you're running a smaller company, oftentimes you have to be more nimble and ninja and you know, figure stuff out. Because that's one of the things I've noticed because now I consult much bigger companies and it's like the stuff that I learned down in the trenches because I had to do it to make it happen. Because I couldn't just throw money at agencies and just throw money around. I became a lot smarter. And the stuff that worked, you know, that worked pretty well at the low end can move the needle big time at the high end.

It goes back to what I said earlier about that buying that 50k site. You have much more to play with. Right. Than you would before and that's why it operates so well at scale.

Yeah, I mean, and I was, we were talking offline. I said I bought it. I bought a business that it was a small business, it was a great deal, but it's so small that it doesn't turn off enough revenue to really dump back like to really move the needle and to put back into the business.

So sometimes buying a bigger business can be a lot easier and there's, there's ways to do it. There's no, there's no reason you can't buy a, you could have no experience in this. You could buy a $5 million business if you find the right seller, the right situation, it matches up with the right resources and maybe you have another person behind you who loves the deal and loves your hustle. I mean like for instance, right now I am currently looking this might for my audience out there, but if you know anybody too. Greg, like I am currently looking for a smart hungry E comm operator who can take a project run with it for.

You know, payment plus equity. Wants to own something but doesn't mind putting in some sweat equity and operate it because I've got a couple of projects I'm working on that I just don't have the bandwidth personally to do and I could hire agencies, etc. But I'm always looking for people like this. So for you listeners, you can always email me@askbradakenratbusiness.com and let me know if you heard this piece of the segment and you're interested. One or two more questions before we wrap up here. What's that?

I said, are you the unicorn? I'm looking for 100%.

I mean, people. That's the other thing, man. As I swear to God, there's so many people. I want to be an entrepreneur. I want to be my own boss. It's fucking overrated being your own boss. Overrated as hell. Like, I'm not a CEO. I've done it. I suck at it. There's a whole different set of skill sets that come as a CEO versus an owner, an investor. And I've been trying to take much more of an investor mindset in every single thing I do, because I know that, man, when it comes down to the General Business Administration stuff like. And running the business and keep. Like, that's a manager's responsibility. I'm not a manager. I'm a. I'm an opportune or I'm a hunter, you know, I am.

I hear you on that, man. I think delegation in general is one of like. Like, if. Again, if we're talking to the guy in your audience that's looking for the financing, if you're. If that listener is good at delegation and understands how to make that work, that is literally, like, the most valuable skill. You don't even need to know that much about Internet.

I'm trying to get better at it, dude.

I'm not.

My number one thing that I need to be better at, you know, and because I do know that once you're able to delegate, I'm pretty good at partnering. But then the delegation is a whole other thing. And anyway, once more, I've got a couple more questions before we wrap up. Much fun. I could keep you on all day, but the.

So we've talked a little bit about, like, E Comm and FBA businesses and stuff like that. And I know you guys sell some SaaS like SaaS, E Comm. And like, you know, there's E. Comm on Amazon, E Comm on, like, Shopify, etc. And then kind of a combination. Are there any other business types on here that really kind of do incredibly well that people should really be looking at? Whether it's because you can get a good valuation for it or because it's, you know, there's a lot of opportunity there. There's a lot of sellers. Like, I mean, SaaS is obviously one of them. Do you guys do a lot of SaaS sales?

So SaaS is still relatively new to us. We do do SaaS, and we're now actively seeking it out. But the big reason why we we haven't done that many SaaS businesses in the past is simply because we weren't focused on it. Now that we have such a good market with the E comm space, whether it's drop shipping, FBA or you know, a hybrid and also on the content side, we're definitely the leader of now we're starting to focus a lot more on SaaS as well. So it's just mainly that they just didn't know about us. And I think that's going to change significantly. Probably the Latter Half of 2020 is when you'll probably see that more on our marketplace. But as far as other business models that are out there for your audience to explore, I actually wrote a 13 blog post series about the most popular online business models and I basically this is a great place actually if your listeners out there are just getting their feet wet into Internet marketing because I basically describe how the model works, what are the advantages and the disadvantages of each and what a buyer should look out for when looking at it and what a seller should consider when they want to sell one of these kind of businesses. And they can get that either by just going to Empire Flippers blog popular online business model or now you can download it on the Kindle. But unfortunately I have to charge you if you do it on the Kindle because everything I saw that this is.

Really, really good, you know, this kind of plays into this is something I started to do a couple years ago and I hadn't finished it out. It looks like you've done a lot, actually a lot of good work on this. But I listed out all the various business model, entrepreneurial business models I can think of very similar to some of these. You've got some that I don't have on it, but you know, everything from, you know, consulting and publishing and offering services and agency work and affiliate and blogging, blah blah, blah. And I built a mind map and it was like, all right, this is the pros, this is the cons, these are the skills needed. This is the kind of like a SWOT analysis of each one. And the main reason I started to build that out was for myself. I was trying to take an inventory of what the hell I wanted to do next as I was reinventing because I've got some experience and really just about probably 90% of the business models I've either consulted or run myself. And I was just kind of trying to narrow it down. Process of elimination to go. Alright, well this is the direction I want to take. Ultimately, the direction I take is much more of a deal maker. Somebody who consults and puts together strategic deals and potentially acquisitions because it plays the best to my personal strengths. But I think that's important that you know what your strengths are before you try to go out and just buy a business.

Absolutely. And it can be tough to focus on one. It sounds like you might be a little bit like this, similar to me where like there's just so much opportunity out there. It's nuts. Painful. People always say like whenever there's a Google algorithm update or Amazon changes a policy, like, oh, it's dead, it's dead or whatever. And our drop shipping is dead. Like, well, we just sold like multiple millions of dollars worth of drop shipping businesses in 2018, you know, so drop shipping definitely isn't dead. And while there is more competition today than there has ever been and tomorrow there'll be more I think right now versus like five years ago or even like four years ago or three years ago, I think the opportunity right now is even better than it used to be because the barrier to entry is so much lower. There's people like you on this podcast. There's so much information out there now, whether it's our blog or someone else's blog. There's just the barrier to get started has never been better.

I love that. Hey, by the way, just off, still on topic, but I just heard about this company the other day and I'd never heard about them, but I think they're pretty big. They're based here in San Diego and I'm having lunch with the founder on Thursday. But have you heard of a company called captarget.com captarget.com I don't think so.

It's not, it's not ringing a bell.

At least they supposedly do. Like their, their sub line. I'm on their website right now. It says helping middle market private equity source acquisition opportunities. And they do it for flat fees. And I know for a fact that one of my buddies is.

Exploring. He's got a nice econ business which I'm happy to introduce you guys, but. Yeah, and he's, he's exploring the potential valuation for it, etc. And he found them. I think he just paid them a, a flat fee. I don't exactly remember what it was, but I know it was like it was less than $10,000 to do a full blown.

Not only like, you know, like a valuation of his firm, but even helping him source buyers. And they're only, they're doing this for flat fees. Supposedly they're trying to really reinvent the market. There's somebody to kind of pay close attention to. But it says Captarget helps private equity and similar buyers source both on and off market acquisition opportunities for a low monthly cost, eliminating the need for the buyers to pay finders fees.

Et cetera. But I think they work with a lot of private equity companies.

I don't know yet. I literally just got introduced and then we decided to set up lunch for Thursday.

But email me a follow up. I'd be interested to hear how their model works out. I've seen some interesting models that have tried to do something similar like that and really didn't end up too well. Like it starts off good and then like it becomes an issue later on typically. But who knows, maybe they'll be able to do something really cool.

Oh actually yeah. And if you go to their pricing page, this is the first time I've seen that. But you want a pitch book. It's like 5,000 deal marketing 750 and up. Let me see what else? Financial modeling and I think, yeah, as I said, I think it's designed for more like mid market PE firms, et cetera. But yeah, I'll let you know.

Above the 10 million range then?

Most likely.

By the way, do you guys ever have any buyers who are doing any types of roll ups in your business or.

No. By roll ups. Could you give me an example?

Yeah, like let's say I wanted to roll up. So I'm actually an advisor and I have equity in a company that. And you guys might even have somebody on your team on your listing who does this. So we're rolling up brands in the CB space. So what we're doing is we've acquired.

We'Ve acquired.

Some of the details are, you know, a minority interest but a sizable minority interest in various successful CBD supplement brands such as. I'm throwing general numbers out there, but let's say we acquire 40% of your business but we have the option where if you hit certain benchmarks at the end of the year that will acquire the rest of it. And for both cash and then a little bit of stock in the holding company that we have and then we've acquired one, we're in the final stages of due diligence to acquire our second and then our goal is to really acquire the controlling interest in at least 10 of them where the owners of the company still get like they're going to get cash but they're also getting stock in our parent company. Because the goal is then to sell to a private equity company where, like, if we have 10 companies each doing 2 million top line, 2 or 3 million top line, now we've got like a $30 million conglomerate, and it's a lot easier to sell that from much higher multiple to much bigger pocketed buyers down the road, and thus the rolling up, you know, similar businesses in a fragmented market.

Yeah, I got you now. So, yeah, so this is something we do see. It's not very common yet at our level, like the sub 10 million dollar level. I say our level, but I'm pretty sure if a $30 million business came to our marketplace, we have the resources now to sell that versus three years ago. We definitely didn't. But what we're seeing is something like that. So we're seeing a lot of these PE firms that normally would never dip underneath the $10 million level. Now they're starting to dip underneath that and acquire these brands and doing a similar thing as what you're discussing. And we're also sitting here on the flip side. People who are raising funds and capital, they are rolling these brands, these assets together and creating synergy. Exactly.

And that's the second one, is the one I'm talking about even more, because one of the. That's one of the opportunities is it's hard to get the attention of the PE firms unless you're doing 10 million.

Right. They won't roll out of bed for anything less. Right.

Yeah.

I read a great article from a guy named Jeremy. Do you know Jeremy Harbour?

That sounds super familiar to me.

He teaches a lot of this, like, really, really creative deal structuring, etc. But he wrote an article about it. You know, how to build a $10 million company in.

Six weeks with no capital.

At a high level, the devil's in the details on these things, right? High level, it's, you know, find five businesses in a similar industry, like, exact same industry. Maybe it's fragmented and maybe each one of them is doing $2 million a year in sales. And maybe each one of them is doing, to keep the math simple, 200,000 in net.

Right.

$2 million of the 10% profit margin. So if they go to sell, they're making 200,000 a year. If they go to sell their business, I mean, you know, better than anything, they're probably gonna get on average about just short of two years earnings, Right?

Mm.

So, but if they were doing $10 million, they might be able to get 4 or 5x multiple. Like, the multiple will be a lot Higher if they're bigger. So what he was suggesting, because he said he has done this, I forget, maybe it was in an IT services business, but he created a special purpose vehicle, like, let's just say it's called.

Brad Costanzo llc. And I go talk to you, Greg, and are you interested in selling your business? You're like, yeah, okay, well the market value for your business is just, let's say it's 400,000 because you're doing 200 net. 400,000. But if I'm able to buy this thing for 600,000, would you sell it for 600,000 net in the next six months or year or whatever? And that's a 50% over your current valuation. There's a good chance you'd be like, yeah, so it's kind of like taking an option on it. But what we did, what he does is he creates a, in essence it's a full blown purchase and sale agreement that, you know, just with a.

I guess, I don't know, maybe like a 12 month option period. And then he'll go, but his company, Brad Costanza LLC or whatever it is, will own, I own the rights to purchase that. And he'll go find five other people. Now each one of these people in return will Receive not quite 20%, but let's just say it's like 14% ownership of the LLC that I just put together. So that LLC doesn't own anything I haven't executed. All I've done is gotten into contracts with these five companies to buy for.

A substantial premium over what they could sell for today.

Right.

So now I create the consolidated balance sheets and P Ls for all of these companies. So it's in essence, Bragg Stanzo LLC has five companies each doing $2 million a year. I'm sorry, now it's $10 million a year with a $2 million or I'm sorry, a $1 million bottom line. And now I have a much more likely to take that out to a private equity company. So yeah. How would you like to gobble up five big players in this industry? Yeah, I'm going to want five or six times.

Ebitda.

Yeah, that reminds me a bit of an old real estate strategy. I forget the name for it, but same kind of concept, you get the deal in the contract and then you're able to sell it for much higher to someone else. Yeah, well, I've done your money down. Yeah, I've done that a lot.

That's just called wholesaling. Right?

That's the word.

I'm going to sell the paper. But in this case along the real estate lines, it's like, all right, I'm going to get five houses and under an option and then I'm going to give. That was one of the keys is you're letting the sellers really participate. What you're doing is you're giving them a smaller piece of a bigger pie.

Right.

And I've always kind of loved that. I'm sure it's a lot more complicated than that. Like I'm 100% sure. But the concept is alive and it's cool.

It's a super cool concept. Like I said, we're starting to see those kind of concepts now entering in our space at levels that the PE firms usually don't come into. So it's even happening at the smaller levels now and I think that will continue to happen. Yeah, it's super exciting times. Especially if you understand all of the more esoteric ways of financing a business. You can make a very significant amount of money. Of course there's significant amount of risk, but come the risk, comes the reward, right?

It's a very powerful strategy. Yeah.

I mean the nice part with the strategy like that is the risk is literally just the time and energy spent and money spent putting together consolidated P Ls like getting a good accounting firm to kind of give them a general like go in and do due diligence on them and get a good audit. Because then if you're going to take those a conglomeration to a much bigger PE company, they're going to want to go deep and make sure you're not some huckster. As I said, the devil's in the details, but it shows you kind of what's possible if you, you know, just.

Just one other thing about this, a little bit of a side thing, but you made me think of it. You know we were talking about content marketing earlier off the offline of the podcast. And one of the. One of the things that can make a business really powerful is when you have a mix monetization. So like we have an Amazon FBA business that's also powered by an Amazon affiliate site as just an example. And so you get a double dip on that affiliate, the affiliate margin or the affiliate money and your actual product margin. And just the same concept, you combine those two businesses together as a much more attractive business that they would have gotten by themselves. So the sums of their parts are actually greater than their parts in some aspects. But some of the biggest companies in the world have done this like they, they go and buy like a media publication. I think there's this, I forget the name of the company, they make like soldering boards or something like that. And they just went and bought all these websites all about soldering boards. Who knew that there was such a, it was a passion, such a passionate hobby. And now each of those sites, they're all self sustainable as businesses in their own right. But now the, that soldering company, they at any moment they can just have this addressable audience that beats out super bowl ads, you know, because they can just tap into all these different publications that they found as part of their strategic acquisition.

Well, and especially on those sites that are like the site that I told you that I bought in that I'm not going to talk about it right now offline. But in that niche it's a lot of passion. Bloggers and people who own a lot of the traffic, but they're very passionate about it and they didn't necessarily get into it for the financials, they just got into it because they love doing it. And one of the strategies that I haven't deployed yet, but I probably will, is starting to create some relationships with them and just see if they'd be willing off market to sell their business, whether it's an option on that business or to actually sell it. Because I'm like, well, I've got a substantial but a small player in this little market and I can piddle fart around with it or I can try to go big and just let's gobble up all of the eyeballs in that market one way or another and then.

You know, yeah man, it's a powerful strategy and it works well in almost every market. Like you can capture the audience. That's what it really comes down to is having that addressable audience in a lot of ways.

Yeah, the distribution is everything. So man, this has been awesome. Let me ask you this question. What's a nut you guys are trying to crack? Either you personally or Empire flippers. What's a nut you guys are trying to crack right now? With the exception of just, you know, the easy one which was, yeah, just get more buyers and sellers to come to our platform. Like are you guys looking to, like are you looking to raise money? Are you looking to meet a specific type of person? Are you looking to learn a skill or, or just whatever that nut is to where if it was cracked things would be rocking and rolling. What would that be? This is our chance to kind of get back to you.

Yeah, so I guess it would be buyer marketing. So sellers are somewhat easy for me to find or actually fairly easy because a lot of times the monetization model that the seller is in, there's usually like a guru or there's a bunch of passionate bloggers talking about that business model. So it's often very easy for me to target sellers, even of a specific kind of monetization, to get them across the board. And I think we do really well with that. And while we have a very good buyer pool, buyers in general are much more difficult to market to, mainly because they're much more varied. There's no like one common gathering source of them. Like there is to say, like the Amazon affiliate gurus or the FBA gurus. Like a lot of times the buyer is just someone in their 9 to 5 cubicle who walked into Barnes and Noble. Maybe they picked up rich dad, poor dad. Now they're like, oh, investing. And they start investing. Or like googling a bunch of different keywords and maybe they come up onto me. But it's unlikely because they're probably looking at other stuff because our industry is not very well known. So one thing that we're working on, and we have some ideas on how we're going to do it, is taking this whole concept of buying and selling online businesses much more mainstream.

What I've been saying lately is my true competition as the director of marketing for EF isn't the other brokers in the space, while they are truly my competitors as well. The what I look at my real competitors is the idea of investing into real estate and the idea of investing in the stock market. I want the idea of investing into digital assets to become just as much part of that nomenclature as those other people, as those other forms of investing.

Yeah, yeah. It's challenging, especially because you got to get over some of those initial beliefs or like you got to shift some paradigms and then get over those beliefs.

That exactly possible.

It's et cetera. You know that one in the intro I said something, I used a metaphor and actually that I realized when I said his name. But I got it from Ace Chapman, which was the house building episode. I remember when.

Ace all over it. You said something very similar on our podcast.

Yeah. And I just remember because I was already kind of in the space, but that really solidified it with me. Like if you can get that metaphor out there that grows like a weed in somebody's head and they can't stop fucking thinking about it. And I remember, remember a skate, the full blown metaphor really was like Listen, we're in the business to buy, you know, to have cash flow. Like, that's why we are in business. Because otherwise, if I'm making money, you know, Right, you're going to be out of business. And he goes, you want to buy a hat, you want shelter, you want a home? What do you do? You arrange financing and you buy it. You want transportation, you're not going to go find out how to build your own damn car. You're going to go. If you can't pay cash for it, maybe you go to the bank and you arrange financing. He's like, why is it, as entrepreneurs, we want to. We think we have to build our cash flow from scratch. When you can decide what you want, arrange financing for it, that makes sense for what you're trying to accomplish and then figure out a way to execute the deal. You just bought the vehicle, you just bought your cash flow. And it's. And I love that. And it's one of those things. It kind of like every time I think about building a new company or whatever, aces always rings in my ears.

Oh, go ahead. Sorry.

What was funny?

Like, on the web Equity podcast every episode. I know. I think you're familiar with it. We'll always do, like, a quote, like a cool quote that either Justin or Ace said. I just remember, like, having a beer with Justin. He's like, ace always beats me to the quote. He's so much better at it.

He's awesome with him, you know? And it's funny, I never finished doing this exercise, but I sat down, it started to get pretty freaking complicated. However, if this is something that helps you guys with your marketing, this might be an interesting content piece because think of it. You could do it as a hypothetical case study. So I just started thinking, okay, well, maybe my ideal criteria is I want to buy a business that makes X amount of money, and I don't want to be on the org chart. I want to own the business. I don't want to run the damn thing, right? So if that's. Let's say I started with that criteria, and let's just say to keep numbers, like, really simple, I want $10,000 a month coming into my account, right? That's my dividend or whatever coming in. That's what I want to make. That's the cash flow I want. So I started to think about this and really map it out in a journal going, well, what criteria would that business have to have such that it could churn out $10,000 a month realistically, to me and so now you just start to back it in. You're like, well, I mean, let's just say the company's got a 10% profit margin. Ideally you got a little higher, but 10% is, you know, that's. I don't even know if that's average. I think you look at all types of businesses, but 10% is standard. Okay, well if it's got 10% profit margin, well, what kind of that means it's probably got to be doing $100,000 a month in sales in order to pay for like other expenses and cost of goods sold and maybe even salary, et cetera. So I started to kind of trying to reverse engineer what a company might need to be and what it might cost. So if it's doing.

I'm sorry, it was a hundred thousand a month. So that, that makes it about 1.2 million a year in sales. And then I was like, all right, well if it's doing that, you know what, what might the company sell for? So let's just say it. And it ended up selling for like, I don't know, I'm just making this up, like $500,000 company or a million dollar company. And I started to just try to reverse engineer. And what if I didn't want to spend cash on it and I wanted to owner if I wanted to finance it, what kind of debt service would I have to have? And I just really back into it to make. I wanted to make it much more real to go, holy crap, all I have to do is find a company doing $3 million in revenue a year with a 10 or 15% profit margin that has this many people in place, somebody to manage it, who's making 10,000amonth, etc, etc. And I can afford to pay this for it. And I've got financing over here, like think if I saw that number. I don't know if you do guys do this for people like that. But that would be a really interesting hypothetical to start to go. Target certain companies based upon what is the bottom line profit that I want to make? Because in real estate people do that and it's called the cap rate, right? Like I need a 10% cap rate or I need a 6% cap rate on my money invested. What kind of building do I have to buy that's going to deliver that?

Yeah, absolutely. And this is one of the things we like, not as in detail, at least not always. It depends on the person we're talking to. But when we get on the phone and do these criteria calls, these are the kind of conversations we are having. You know, like we try to drill down to what is it that you want your cap rate or whatever you want to call it. And then we work backwards from there. Because it's a lot easier to work backwards once you know what you're aiming for.

Right, exactly. By the way, man. So I will absolutely sign up for one of those criteria calls. I'd love to have somebody help me pick some of the criteria more clearly out of my brain. Where would I and maybe other people go to sign up for one of those?

Yeah, so you can just go to empireflippers.com contact. I couldn't just shoot you a referral email to one of our business analysts. Yeah, do that. That's no problem. But for your audience, if they want to set up something like that, you can just go to empireflippers.com contact or just go to our main site. You can see our number there and you can schedule an appointment from there.

Yeah, I think that's super smart because, you know, ultimately you got to have a vision for where you want to be. And sometimes coming up with those criteria can be really confusing if you don't really have, you know, clarity on this stuff and you don't know what questions to ask. Like, I'm sure that your team has better questions they can ask somebody on that.

Yeah, exactly. And you know, the other thing too, like is even if you are a prolific buyer, you probably have bought maybe 10 businesses over a period of like years perhaps maybe more if you're like crazy or like really, really diving deep. But one of the cool benefits of having this call with us even if you have bought several businesses, is that we do this every day versus even a prolific buyer maybe does it once every year.

So that's one of the big benefits of calling us and you know, getting to pick our brain. We're happy to do it for free.

Bingo. I love it. I love it. So you have a free resource that you said on the little pre survey and you mentioned this in the call. You said you have a. What is it? A industry, A state of the industry report, right?

Ah, yeah, yeah. Though that is the thing I've been kind of referencing throughout the podcast. The biggest data analysis we did over two years of data. And like the coolest thing to this for me, I wrote it. It's like 84 pages, logs. It was definitely a burden of love. The coolest thing for me about this is it's the first report of its kind, at least as far as I'M aware of in our industry that doesn't just take scraped data, but actually gives you the real sales data and the actual average days on market. So, like other people, they tried to do these reports where they would, like, scrape these listings from various broker websites, but they don't take into account that a broker might just be enticing a seller with a very high multiple to get them signed on or something along those lines. Right. And so that inflates the average listing price that a lot of these reports are talking about. And they never actually tell you how long they're on the market because how could they? They don't own all the data. Right. They're just scraping versus our report. We own all the data end to end. It's all businesses that we've sold on, our marketplace and the analysis that we've done on. So it's the first time that those metrics are really revealed, and it's pretty exciting.

I just signed up.

Oh, perfect. I just got it here.

I'm looking forward to reading it. Hopefully others are as well. Well, man, this brings us to the end of our episode, but this has been a lot of fun and I love it when I can get on with people and just like, literally forget that I have an audience here and just ask the questions I want to ask and learn things for myself that are useful and tactical and.

Eye opening. And this is. Yeah, this has been great. I love this. And guys, listeners, if you enjoy this and you're not subscribed to the show, please do so. Subscribe. Send me an email. Ask bradakenratbusiness.com Let me know what you thought. Let me know if you have any questions. Let me know if you have any. If you need any help. Maybe you need help growing your business. Maybe you want to sell it, but you're not 100% sure how or you've hit a kind of a plateau and you'd like a second opinion on some of this stuff. I am happy to give it. This is what I do. And I enjoy helping entrepreneurs because the road is hard. The odds are stacked against you, as we discussed about it. I know how that feels. I am here to help. So, Greg, thank you very much. Man, it is, like, late as heck for you. I know you're over in Thailand, so hopefully you get a good night's sleep after this.

No worries, man. Yeah, it's 3:00am Here in Bangkok, but I travel all over the world, so I got nothing to complain about.

All right, guys, until the next episode. Greg, thanks for listening. And I will see you guys on the flip side.