What To Know When Buying Amazon & Ecommerce Businesses with Justin Cooke

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Hey, welcome back to Bacon Wrap Business. This is Brad and today I've got Justin Cook on the show. Now Justin is the co founder and chief marketing officer of Empire Flippers and if you are a subscriber to the show, you might recognize the name Empire Flippers. Not too long ago we had Greg Elfrink on the show and we talked about buying businesses and Amazon FBA businesses and a lot of different types of deals that you can do as opposed to starting a business of your own. And I brought Justin on the call today or on the podcast, I should say today to go deeper into this. It's, you know, if you've been listening to Bacon Wrap Business, you'll know it's one of my favorite topics. And things change so much in this space that I wanted to tap into somebody who's doing this is helping others find and buy and flip and build businesses. And we're going to see where this goes today. I've got a lot of questions and I know Justin's got a wealth of information to share. Without any further ado, Justin, welcome to. I think it's your first episode on Bacon Wrapped Business.

Yeah, buddy, my first one. Thanks for having me, man. That's right.

I think this is also the. I've had other people come on twice, but this is the first time I've had two, two people from the same company on. So that's a first for me.

Nice. Well, it's a fun topic, man. Just pre show like we were already starting to get into it a little bit talking about deals and how to make them and it's fun.

Yeah, absolutely. Give the folks a quick overview of what Empire Flippers is. I know about it, I could introduce it, but I'd love to hear it from the horse's mouth so that they don't get confused. What is Empire Flippers? What do you guys primarily do?

Yeah, so Empire Flippers is a managed marketplace, the full service marketplace that allows people to buy and sell Internet and online businesses. So we can do anything from as small as like an Amazon affiliate site, you know, making, you know, 800 bucks, thousand bucks a month up to much larger e commerce businesses, you know, selling for 10, 15 million dollars.

Perfect. Let's talk about the state of the market right now as it applies to online business acquisition. And you know, so what kind of trends are you seeing? What kind of. And trend not only just in volume of like day deals are picking up, more people are buying, selling, et cetera, but also kind of the kinds of businesses that you guys are seeing and what kind of actions happening out there.

Yeah, so 2020 for industry was interesting. When Covid first hit, there was a lot of questions about kind of where the market was going to go. Right. And so I think in March and April we saw real pullback. Like the money just dried up. There was nothing there, Deals weren't getting done. And so I think in April we sat down with our team and said, hey guys, hold on to your hats, like buckle in because we're in for a bit of a ride. You know, we're going to see what we can do to keep the business afloat and let's do the best we can. And then it came roaring back the next month. May was our, at that point in 2020, our best month ever. So, you know, it really turned on us. You know, I think when everything kind of first went down, a lot of buyers were kind of scared to do deals. And the buyers that were buying were coming in saying, hey, you know, economies and tatters, give me your deals. I'm looking for sweetheart deals. I'm looking for people taking, slashing their price. And what we found was that Internet businesses were crushing it. Right. Internet businesses were doing just fine. So they were like, what? I'm not slashing my price, I want to sell for more because I'm profiting more every month. Right. And so there's this disconnect between buyers looking. A few buyers are out there looking for really good deals. And so I was like, no way, man. I'm selling for more. And so that resolved itself in May. And our industry has just been on a tear through the end of 2020 and into 2021. We've seen the size of deals go up. We've seen multiples go up by 30ish percent from 2020 to 2021. The size of deals has doubled from 2020 to 2021. So larger deals selling for more money at larger multiples. It's a seller's market for sure.

That's fantastic. What about the types? So you mentioned and like I know Amazon, FBA businesses, you know, E commerce, like Shopify style businesses, other like content based affiliate sites, et CETERA what would you say? What, you know, what's, what are some of the hotter ones right now? What's, what's working really well if you either want to buy both on the buy side and the sell side.

So we're really agnostic as to monetization type at Empire. It doesn't really matter to us. We'll sell any online business and so we kind of see trends pop up and kind of go away. Right now what's really hot is kind of the blended E commerce, particularly around fba. So Amazon FBA businesses are absolutely crushing it. Particularly like the mid six figure to mid to high seven figure range. They're flying off the shelves. People are buying them right and left. So that's a really hot industry right now. There's a ton of different types of buyers that are buying those businesses. Amazon Associates, there's less like Amazon Associates or display type AdSense type sites selling it maybe about the same, maybe a little bit less than we were in previous years, but as a percentage it's dropped. So it's not as hot. And a lot of that has to do with like Amazon Associate changes, commission changes and hits. People have taken on Google updates. It's not that people aren't building them, it's not, they're not profitable. We're still selling ones that are crushing it. But I think people have kind of like moved into other, you know, neighborhoods in terms of like entrepreneurship.

What about the buyers?

So I want to think about some of my audience, right? I've got, sometimes I'm really selfish and sometimes I'm not. So a lot of them are pro. Some of them probably own a E commerce business that might be ready to sell. So in those cases I would definitely say, you know, contact Empire Flippers, see what's even possible.

Because I know when I sold my first business, it wasn't even an E commerce business, it was an information product business. And I had no idea that there would actually be a market for this. And I just floated it out to a broker and he's like, yeah, I found a buyer for you quickly. And I sold it. So it was like, oh wow, this is super cool. But for the buyers out there, for the people who are either trying to reinvent themselves, get into something new, get into something they really like, maybe buy a business as opposed to start one, if they've been listening to the show at all, they know that I've said a million times that it can oftentimes be a great shortcut and easier to buy a business than to Start one from scratch. Let's talk about what's required. Back kind of to basics for the average buyer, somebody who's not coming in with a fat stack of hundreds of thousands or millions of dollars to acquire some of these businesses. What do they need to know? What do they have to, to come prepared with to really compete to buy a decent business that if they want to buy it and run it and cash flow it.

Yeah, I just spoke to, I was just answering a question from someone on Reddit the other day. They're mentioning, I don't understand, like, why would anyone pay $300,000, $800,000, $2.6 million for these businesses at Empire Flippers when you could just start the business from scratch and spend a lot less money to get started. And his point is, right, in that, you know, you can take probably $150 and buy domain name, get hosting, set yourself up a WordPress site, throw on some affiliate links, some content that you've created yourself, and build an affiliate site from scratch. Right. And so, you know, I think the reason people buy businesses is they're buying time. Right. It may take you two or three or four years to get that site traction, if at all. Right. A lot of people that start affiliate sites or any type of online business fail. They don't follow through. It never has product market fit and it never gets traction. The goog gods, like there are lots of reasons businesses fail. And so you're buying a business, you're buying time, two or three years of blood, sweat and tears put into a business and you're also buying that product market fit. You know, the fact that it already has traction, it's a lot easier to work with something that's already making money. So that's kind of the answer on like, why would you build versus buy now if you don't have the money? You know, like that's it. I mean, you're definitely be building from scratch and you're going to be kind of testing through stuff and hustling it up and you know, you can be successful that way. But like, if you've got the money and you have less time to kind of goof around for a couple of years, getting up and running, buying can oftentimes be the better option. Like I'm in a position where I'd much prefer to buy, but I've been in a position where I didn't have much money and I was broke and I'd have to build. Right.

Well, let's talk about that a little bit more because to a degree that's true if you don't have the money, but really it's if you don't have access to the money and there's a lot of people out there, I know who, um, you will buy, you know, businesses with, sometimes it's their own money, sometimes they'll arrange a loan, Sometimes it's an SBA loan.

Right.

That's access to money. Sometimes you'll find private investors. What are some of the buyers doing who are. Because I know like working in a marketplace and with brokers, et cetera, it makes it a little bit more challenging to get, do really creative deals and do like 100% owner financing and all this stuff. And oftentimes you're dealing with businesses who are highly motivated or desperate or something's wrong and they need to just do a quick sale. You know, they often aren't the ones who are going to marketplaces with businesses you want to buy. Right.

Those are turnarounds. Yeah. The businesses we're selling, I mean, you know, they've been vetted, verified, the earnings and traffic are legitimate. They've been doing this for a long time. In some cases many, many years. And so you're paying a premium with when you buy a business from us.

Yeah, exactly.

And that's not to say that you can't work interesting deals. And interesting deals happen for sure. Often dealing with seller financing, you'll have owner retained equity. We do deals like that. But you're not getting a zero money down deal. SBA loans often don't happen for the simple fact that another buyer is going to come and beat you to the punch. Particularly right now. I mean, if you're into like, oh man, dude, all assets are up. It's through the roof. I'm trying to buy a house right now in Texas and try to put offers in. I'm doing it remotely. I'm from, I'm living in Asia. Trying to like buy this house and this like investment property in Texas is just insane, like offering over list and. But you know, it's very similar in our space. So deals are going very, very quickly. You know, we're shopping them around and sometimes getting much over list. So yeah, trying to like work deals in today's market. As a buyer, it's really challenging. And if you do or if you are able to get like some really fat like seller financing, you're gonna probably, you probably have a lot of work on your hands with that fixer upper.

Yeah, exactly. So, so, and I wanted to get that out there because like I'm a huge fan and I've done this in the past where I've bought businesses for 00 down total owner financing or some real creative version. But it was a, there was a lot of elbow grease that had to go into that. The people though, how are you seeing people access if they're not, if they're not coming with a fat stack of cash on hand? Are you seeing any sources of financing that or things that they can do to access capital?

Yeah, so one of the things we're seeing are like the owner investor pairings or partnerships. So you're having, you know, the person with the elbow grease. Maybe they've got a track record of building affiliate sites and they're coming in and saying, look, you know, I've got an investor, I've got a couple investors. Sometimes it's friends and family or someone they know in their network and they're coming in saying, look, I want to take this to the next level. Instead of building a $150,000 affiliate site, I want to buy a $500,000 affiliate site and you know, double or triple it over the next couple of years. And so you'll see these kind of interesting partnerships and they're really good in the, I would say 2 to $300,000 up to the 1 $1.5 million range. And let me explain why. So anything under 200,000, you're going to get cashed up buyers for days, they can just buy those cash, no problem. They're going to go quickly and to one party. Usually you get like 4, 5, 6, $700,000. And in a lot of cases that's a bit too much cash for one buyer coming in and not all the time. They happen too. But you know, like in terms of like the pool of buyers, there's a smaller pool of buyers sitting on $700,000 than there are 150. So those are really good scenarios to partner up with investor. If you're an operator, partner up with an investor too and do the deal. You're also likely to get more favorable terms because those are too small for the roll up companies and the portfolio companies, which we can talk about later. But they're really looking for like million, 1.5 million or 2 million and above high branded, couple of SKUs and FBA or whatever. They're specifically looking for those if it's anything below that's too small. So you're too big for the small individual buyers and it's not big enough for the portfolio companies. So yeah, that 2,300,000 to 1. $1.5 million range is great for an operator investor pair.

No, I love that.

Actually reminds me of a, Of a story, you know, Roland Frazier, right?

Yeah.

Okay. So Roland told me a story about whenever he.

Whenever he bought his. I think it was his first business. And, and I've always loved this story where, you know, in essence, he found the operators, the people who would be to two friends of his or acquaintances that he knew had the skills to run it. And although he negotiated the purchase, he actually borrowed the money to get the business purchased at a. I think they were originally asking for $3 million. And he negotiated him down to 2 million. And then when he. He borrowed enough money to buy it for the down payment, et cetera. But then he immediately went and got these two others who were operator investors. So as opposed to owner investors, they were operator investors because they realized that if they came in and worked on this, they'd be able to grow it. But he just made sure that they, they invested money in order to take operate, like to be president and CMO of it. And he doubled the valuation on them. So he said, okay, yeah, you can invest in this business, but it's worth $4 million. Right. Because valuation is a very flexible thing. It's what you can convince somebody else to buy.

I've just always loved that. I did a version of that where I actually bought a web site business for this was for no money, down at one multiple. And then I had two of my friends invest in to buy two thirds of the business. But I increased the valuation not by double, but, but about one and a half. And it was kind of an interesting way. I bring this up because I love, I love creative deals and I like for my audience to know that there's typically more than one way to skin this cat. Like, you can get access to money in a lot of different ways. You don't just have to have a big bank account. You don't have to do. Create super creative deals with the sellers. Sometimes you can do super creative deals with other investors.

That's absolutely true. The money has to come from somewhere. So the money. Money's exchanged hands, but doesn't necessarily have to come from you. I mean, there are people that are really good, kind of just deal makers. Right. So there's a guy that we work with. I mean, he's public as a show. His name's Ace Chapman. And we've done some deals with him. Yeah, yeah. So we've done a whole bunch of deals with him. And he's done a whole bunch of creative deals. Sometimes he puts money in, sometimes he's just carving the deal out. He'll carve out a little piece for himself by kind of like you bringing some investors to the deal and then like setting the terms, getting the seller to get on board. Like he does some really creative deal making stuff. You, you can do it for sure. There is seller financing and if you can find the investors, it makes a lot of sense. We're actually. So we have a separate. We have a different problem. So what we found is, you know, over the last year, maybe year and a half, we've done something where, you know, if someone's looking to buy a business, we require a liquidity statement from them. So they can either connect their bank account up via plaid or can send us financial documents. Right. And that'll give us some sense on how much money they have on the sidelines. And we'll give them a price range on what they're going to be able to look at on the market. So over the year and a half in doing that, we've been stacking like the available funds. It's grown a ridiculous amount. So we have $3.5 billion and growing in verifiable funds kind of sitting on the sidelines.

From your, from the clients who verified.

With you, from actual people that verified their financials with us. And I think the largest one is somewhere around 40, 50 million. So there's just a ton of people with 2 million, 5 million, 3 million. And so we're realizing is like there's all this, there's this giant pool of money. And in a lot of cases these people don't have the skills or experience to run the business themselves. Like they want to get in the game, but they don't have the time or the ability to kind of put the skills and they need to get up to speed. And so we're like, this is a high quality problem for us to solve, right? All this money that wants to be, that wants to get placed without the skills, the time to do it. So we've been thinking through that. One of our things we came up with recently is our EF Capital program. It's really in its embassy, but basically the real value here are the operators with a track record and the skills and experience to run these businesses. That's where the real value is. And so because of the industry we're in, we happen to know a bunch of them, right? They've sold businesses with us, they bought businesses from us. And so we've Kind of put them together and created a marketplace for investment. So if you're, are you familiar with like fund that flip or realty shares or fundraiser, any of those companies?

Realty shares, yes, and fundrise, but not fund that flip.

Okay. So they're basically marketplaces for real estate deals. We've done something very similar. We've created a marketplace for operator investor pairings. And so as an accredited investor, you can go to the EF Capital marketplace, review deals and what they're looking to do and decide which deal you want to invest in. We did our first round, we had six go up initially we fully funded five for I think $7.5 million. And they're in the process right now of acquiring the businesses through our marketplace. So you know, this is, it's a pilot program, it's accredited investors only. But if we can, you know, if we can do three things, if we can prove that a, or number one, we can raise the money for the operators and we've done that, so we've passed that test. Second thing is can the operators find the right businesses to purchase for their kind of thesis and what they want to build? And we're figuring that out right now. That isn't totally solved. The third thing is can they deliver an ROI for their investors? Can they deliver them a return? That makes sense. And if we can get those three things solved, I mean, I think this will be off to the races because there's a ton of money that would love to be involved in something like this.

I love that. So that's actually one of my, one of my personal things as well. So I.

I told you this earlier that, you know, before we started recording, like I've said no more startups for me. And then I did a startup, right, which I'm currently involved in and I'm at that place where I love making the babies and I don't like raising the babies and I get that from my friend.

Tim Francis who always talks about.

This concept. And we are currently in the process of both validating and testing out the model, but also looking for people who can come in and start to run this. Whether they are very advanced people, we can pay a lot of money, or more apprentice style people who can come learn they've got a lot of hustle to manage it because although I've got the skills to run it, I don't have the desire to run the day to day thing and do everything that's necessary to keep an E commerce business, you know, rocking and rolling. So finding like you Said, I mean that is like one of the holy grails is finding the people who can come in and run the businesses that the investors purchase and do it in a way that makes sense for everybody is really one of the keys. Because I know I've passed over deals before because I looked at it, I was like, I don't know if I definitely don't have the bandwidth or the skills to run that. And I don't have people on tap that I can say, I'm going to buy this, you go run it.

We've got other people too, like SEO guys for example, that are investing in some of the deals and for them they just want to put some money in another space. So you know, I sold my last.

Business to our SEO guy, the guy we hired to do SEO. I sold the business to him.

Well, you know, they're so dependent on Google, right? They're like, look, I want some exposure to fba, right? So they're putting some money into some FBA deals, you know, just as a diversification move. And so they in some cases know the operators on those, those businesses. So yeah, I think, I think this is a really interesting tactic and we have to be very careful and thoughtful in like how we attract the operators. So we wanted to make sure that they had skin in the game. So every operator has put some money into the deal, but then we're leveraging them up, right? So they're putting in, don't quote me on the numbers, you know, 7ish percent and then they're getting 30% equity in the business. So some skin in the game I think is important. But they're also getting fat leverage. Also in terms of investor management, that's all done through our team at EF Capital. So they don't have to worry about raising the money, investor management or relationships, they don't have to deal with any of that. They're just running the business. And we found this because in talking to these operators, we were trying to solve their pain points. We're like, look, we recognize they're a valuable piece of the puzzle. Like how do we make it make sense for them, right? And make it a no brainer for these like quality operators to come on board. Because we don't want just anyone. We want people that have the skill sets, that have the track record and they have proven success.

Absolutely. So if I understand this correctly.

For these operators, these are people, they may be skilled in this stuff, but they don't have the capital to go buy something themselves. So, and correct me, If I'm wrong on any of this, I'm just trying to make sure I understand.

Yeah, yeah, yeah. So they come in, let's say they have $100,000 they're willing to put in. They're looking to raise, do a deal for 1.5 million. And let's say out of that 1.5, they're buying either one or two businesses. Either one $1.5 million business or two $750,000 businesses now themselves. They could have probably scrounged the cash up to do two $300,000 deal, but that's not nearly as interesting and they're not leveraging up nearly as much. Right. So if they double that business, it's not nearly as valuable would be a $1.5 million business. So they're coming in with experience in either running or managing an FBA business that's larger or even smaller deals and then trying to leverage up to do the larger deals, if that makes sense.

It does. And in fact, this is actually pretty brilliant the more I'm thinking about that too, because this is a way of them getting that financing, but they're not getting the financing from the seller. It's not like they're putting $100,000 down. And then.

Well, in some cases. Yeah, yeah. In some cases they get a business solar financing from the seller. But in addition to that they're also raising the money through the investors. That's kind of done for them by us. Yeah, yeah, well, exactly.

And then if you are an investor and you, you want to put in like you also want to buy a million dollar business, but you don't necessarily want to have to go through the process of hiring and managing and like, well, recruiting and then hiring and then managing and overseeing somebody who a doesn't have skin in the game because it's a, it's kind of a fairy tale to think I'm just going to hire somebody and they're going to be brilliant and they're going to manage without them having skin in the game just for salary or performance, they're going to manage this thing or care about this business as much as I do. But if you can find a skilled operator who's got significant money and skin in the game, like you said, like $100,000.

Yeah.

And they're operating that. That's actually pretty brilliant. So this marketplace, what's this marketplace calls Cost. Not cost.

Called.

Is this the Empire EF Capital. Cool. And I'm on your empire, Flippers.com capital. I assume that's the Place where you get some information on this. That's great. Yeah. I didn't know you guys had that.

Yeah, it's closed right now. We have a second round we're going to be opening probably in Q3, and the plan is Q3, but we're still like, they're still acquiring from the first round. The second round will be Q3, and the third round Q4, maybe we'll push to Q1.

But explain what you mean by so these rounds are closed.

So how does that work? So we're doing it in kind of like round format. So for the first round, we brought on six operators. Right. We went through, I don't know, 30 interviews or so. Okay. And whittled it down to the six that we thought would give us the best chance of success, had the best track record and the most chance to make this work, really. And we're lucky in that we have a wide pool of operators to choose from because of the business that we're in at Empire Flippers.

Right.

So we know, like, we know the financials of their business. So we vetted them. We've helped them buy businesses in some cases. So we know their businesses, we know how they operate. And so we put up six. We were able to raise the funds for five of the six. So one of them didn't raise the funds. And for that six person, all of the funds were returned to the investors. In some cases, they just put the money. In other deals, in some cases they just took the money back. We've got five operators whittled down to five, and they're currently on the market looking to buy businesses. Now, we gave them a timeline of only three months. They only had three months to spend the money or lose it. And it goes back to investors. And the reasoning there is we don't want investors. We don't want to tie up their cash so long. Right. I mean, that cash would be being used elsewhere. I mean, they'd be getting return on it. So tying up their cash for a long period of time wasn't of interest. And we're really testing this anyway. We don't want it to drag out that long. So we give them three months. So they're inside their three months. A couple of deals have been acquired so far. We need to get a couple more done. And I think there's about a month left or so to kind of get those deals done. And we're working on it. And then once they're all acquired, then, you know, it'll just take time to see what the return's like things like FBA businesses just to break it down a little bit. If you got an FBA business that's doing really well and it's growing really quickly, it means you're having to buy more and more product. Which means any successful Amazon FBA entrepreneur is broke, constantly broke. They're borrowing money, they're putting stuff on their credit cards, they are cash poor and they're doing this intentionally because their business is growing like gangbusters. They. So it's growing so quickly and so fast and getting so large that they're just dumping cash into it. But that can be tiring as an entrepreneur. So, you know, over time you're like, what am I going to see return on this money? And so, you know, that's, that's an interesting problem to solve when you're raising money from investors to build a business like that. You know what, how do you deal? There are no capital calls, so they can't reach out to the investors, the original investors, for more money. So they've got to operate it profitably. So they're have to grow a little slower. They're not gonna be able to just dump cash. They need to provide dividends to the investor. So that'll be interesting. You know, we have some other guys going after like the affiliate type sites and they'll be able to spit out cash a little bit better. But the fba, FBA ones will be interesting because you're balancing that cash flow and the dividends for investors versus growth. Right.

I gotta be honest, that's one of the things that's always, I'll say made me the word isn't spooked, but been trepidatious about that because I do understand that a lot of E Commerce businesses have operated razor thin margins by necessity because they have to get really good at inventory management and capital requirements for funding growth.

And be careful.

I guess, just listening to somebody's gross revenue on an E Commerce. We're doing 50 million. Yeah, but what are you, you know, what are you taking to the bottom line?

And, but so real quick on that point, it's interesting. So like you talked to Greg about this some while back and we're talking about this before the show briefly. Is that like, you know, I remember you were saying you were like, I don't know, tying your business in with like Amazon and like there's some concern around that. And honestly, you know, I had some of those concerns too. I was like, you know, you're tied to a third party. You know, we Know what Amazon has done to the associates program, you know, are they going to gut, you know, FBA side and you know that's been proven. You know, we'll see how it all plays out. But it looks very wrong today. I mean there are in the last couple of years billions of dollars raised by these private equity groups that are just swallowing E commerce businesses whole, swallowing FBA businesses whole. And they are on rapid run rates. Some of them are looking to go public, some of them are getting offers for hundreds of million dollars from the larger companies. It is a mad, mad world out down in that space. So FBA has absolutely taken off. And don't get it wrong, a lot of these roll ups and equity groups, that's smart money. So I mean they're hiring ex Amazon people, they have inside scoops, right? So they have some I think sense of the pulse of the market, particularly where Amazon's concerned. So one thing that's really interesting about the space is that a lot of the roll ups in the private equity groups are taking advantage of the fact that sellers are a little fearful about Amazon and FBA overall. So sellers are like, what if I lose my account? What if my account gets shut down? And so that's one of the reasons often that Amazon FBI entrepreneurs sell their businesses and these rollups with their information are swallowing them whole. And so they're to some, I'm not in a necessarily a bad way, but they're taking advantage of this fear that FBA entrepreneurs have about their business and they're kind of rolling them up into massive companies.

Yeah, that's brilliant. What about Walmart stores? I've seen that this is a big trend. A lot of people are starting to who are doing solely Amazon. FBA are starting to do the similar things with Walmart stores. Is this something you guys see as well?

We see it a little bit, but it's so like the revenue stream is so small comparatively it's like dwarfed by Amazon. You know, that's one of the other problems. I don't know, you call it a problem or a benefit, but it's one of the problems with just E commerce businesses in general. It's like people have their FBA business, they're like, you know what, let me get some sales off of Amazon, let me diversify a little bit. And they put in a ton of effort and work to get that kind of off Amazon traffic and sales. And it's like I spend a dollar and I make 10 cents, right? So it's like I spend a dollar on Amazon and I'm getting two bucks back. Like this is crazy. Like what am I, why am I chasing after these pennies? And so it just. Ecosystem really sucks you in. That's the problem.

It really does. That's where the, I mean that's where the traffic is.

What.

Out of personal curiosity, some decently run Amazon stores. What kind of bottom line numbers and profit margins are you typically seeing there? Because I haven't analyzed any of those Amazon FBA businesses or whatnot. So.

Is it 10% profit margin on those?

No, generally higher than that. 20 to 30% is not out of line. You can see 20 to 30% margins. One of the things you'll notice or what we notice, maybe you won't. But you know, a lot of times these businesses are just an absolute mess in terms of their financials. And so that's something we have to do a lot of work with sellers is kind of help them fill out their P and L. And so we have a profit and loss that anyone can view on any of the business we have that's just standardized. So this one looks the same as that one looks the same as that one. So it's really good for like an apples to apples comparison. But like it takes a lot of work sometimes depending on the seller. Some have their books in order, I'll give some credit. But like a lot of times it's super messy and so help them kind of dig through it and, and prepare for sale.

Yeah, going back to the EF capital.

And I'm just curious kind of the mechanics of that way that works. So if you're an investor and let's say you've got a million dollars to invest and you want, your ideal outcome is to put this into a business that has somebody who's got skin in the game and is running it. So that's. Thus they're working with your operators. So if I'm an investor, I put a million dollars in and it's basically what, like a search fund? I guess.

Yeah. So no, so that's, that's interesting. We may do something like that in the future where it's money into a fund right now it's money per deal and every deal is an individual operator. So if you're thinking of like objects on a whiteboard or whatever, you know, every single deal is its own operator. So you're basically investing in the jockey.

Right. So at what point does the money, does the money. If I'm in, if I'm the investor, I've got a million cash at what Point, do I put the money in? Is it after the deal has already been identified, or do I put the money in and say, listen, I've got the million dollars this is for if a deal comes up. Because you mentioned a lot of investors don't want to keep their money not working for very long. So how does that technically work?

Yeah, so you're going to know their strategy, right? So they're saying, look, I'm going to buy an FBA business. It's going to be in this range. It's going to. Here's kind of what I'm looking for. I'm looking. I have this unique advantage which I'm going to apply to the business. So it needs to kind of meet this criteria. And if you buy into their thesis or their strategy, you're going to back the jockey. Right. And so eventually, right now this is a test, but eventually we want to do it arounds where we may have 20, 30, 40 operators at one time. And you can go in there and they're at various levels of raising the funds. Some are 80% of the way there, some are just starting off at 20%. And you can kind of back the ones that tend to make sense for you. Like, you like their thesis, you like their interview, you like where they're coming from or maybe eventually over years, you like their track record because we're going to show that publicly. So you can see what they've done on previous deals and previous rounds and the success for their investors. And so the operators are doing better, are going to get more leverage. Right. So it might be a slightly worse deal for the investor, but you're going to have more surety in that you've got a track record of success with the operator. So yeah, it's not a search fund in that you're putting the money in. Kind of like on all of the deals, you as an independent investor are picking and choosing the operators that you want to back. So you might do 50,000 in this deal, you might do 100,000 in that deal, you know, 70,000 in that deal.

So you can spread it out. If I had $1 million, I could, you know, you've got five operators. I could give $200,000 to each operator if I like all that's right. Okay, cool. And then that doesn't get spent unless they find a deal. And is it typically the operators out there? Is the one who is searching for and negotiating the deal or is it the end user?

Yeah, the operator is searching for deal and is ultimately the one that chooses now they have to choose a business that matches their thesis. So that's one of the one requirements. Like Joe and I, for example, don't have any say over what particular business they do. We're not negotiating on their behalf. They're actually looking to buy businesses and Empire flippers. So we're not involved at all in terms of working with the operator or whatever to get the deal done. But we do have override, like a veto power or if they try and choose a business that's outside the parameters they've set. So for example, if an FBA person goes in there and buys some completely off the wall Kindle ebook business, we're like, no, no, no, no, no, that's not what the investor signed up for.

Yeah, because they don't have experience in that. And that's not what I got you. And I'm curious if it ever happens on the other side to where it's like the investor is interested in almost finding the deal, et cetera, and then having, then matching it to one of the operators to say, listen, I've kind of found this, this is the business I want to be in. Like let's say I wanted to be in an FBA business or whatnot. I got this money and I even want to find the deal and maybe even negotiate it and then bring the operator in as almost like the backup. Does that ever happen?

It hasn't because we're trying to standardize this to some degree. We've had a request for that. So we've had a request, a few requests. I'll just kind of like go through some of the things that we've been hearing. So on one side we've heard investors say, look, this is completely passive for the investors, by the way. Like, they're not, they don't have any say. They're not going to have a. There's reporting requirements. So they're going to get updates on kind of what's going on, what was worked on this last quarter, what's planned this next quarter. But they're not going to be able to call up the operator and say, hey, I was wondering why you made this move. And like there's none of that. We're separating the operator from the investors so they can do their work and then we can report to the investors.

Oh, I got you.

But, but there are some investors like, look, I've got deep knowledge in this space. I could probably help.

Why would you not? For some people. I understand that some people are just going to be ringing you up every day. But for some of the investors, they have real knowledge and help. Why would you not want their help? And I was like, well, that's a pretty good point. So in the future, in the future round, we're thinking about doing one or two deals to test it out where it's a much higher. Like we only required $10,000 as a minimum on this. Like it was 50,000 total, but 10,000 minimum per deal from the investor or from the, from the investor. So per deal. So the minimum was 10,000 per deal. So like, and that's pretty small. We were thinking about maybe raising that to 100 or 150,000. And then you actually have an advisory capacity where you're actually, you can do calls, you know, with the operator and kind of give them advice and guidance on ways to build it or make, you know, hook up connections, that kind of thing. So we're thinking about that. I don't know that's gonna work. Another, another option which I think is interesting is a seller coming in with the deal already. So seller comes in and says, look, you know, I want to be the operator. This is gonna be kind of the flagship business. I've got this, you know, affiliate site. I want to buy other affiliate sites that are similar to this, that I can grow in a similar way. So they're bringing in, let's say a four or five hundred thousand dollars business. So like, this is gonna be part of the, the investment pool. I want an additional million to buy bolt on affiliate sites that I can grow very similarly or even potentially sites that can work in conjunction with this one that'll be part of the portfolio.

I like it.

Yeah. So again, we haven't done that either. But these are the kind of, these are the ideas that are floating around that we want to test out eventually. I mean, here's the big picture, right, Brad? And we're just testing it out, whatever. But EF Capital, the big billion dollar idea with this is like, we want to make these online businesses a new asset class. I want you to log into Mint or Personal Capital and have one of the segments be my online business portfolio. We want to have a dashboard that you're able to log into at EF Capital and you're able to see over the long term how your investments are doing, how your investments are allocated and which kind of niches and which operators hold what and which ones are giving you return and which aren't. Like that's what we want to turn this thing into. But you know, we're many, many steps away from that. But we've got the kind of like first version out, which I think is really exciting.

I do too. Who in a case like that. So one deal may have multiple investors, Right? So one operator and they may have multiple investors. Is that correct?

Yeah.

Okay, cool. Who makes the ultimate call or is it voted upon for. Let's just say somebody wants to sell or it's time to sell this business. Is that a. Is it a democratic decision? Is that.

No. Yeah. No, that's the operator's call.

Okay.

So even though there is one that it's their call completely now there are some lockups so they're not able to sell within the first 12 months. We were telling all the investors that expect somewhere between the two to four year mark to sell that business. But it's operators discretion.

Okay.

And there's, you know, the investors can't get out of the deal. So there's no secondary market where they can sell off their piece to other people. There may be in the future, like I could see that where, you know, it's a bit more liquid. But right now it's illiquid investment, meaning they can't get out until the deal is completed and the deal sold.

Okay. What would happen if the.

You know, circumstances happen to people all the time? Right.

Let's say the hit by a bus. Yeah, hit.

Hit by a bus. Go through a massive depression. Doesn't feel like working on this stuff anymore. Something happens to their life and they're just. They're out of it. Right. What are the backstops for the investors in that case?

Yeah. So Empire Flippers has the right to step in and take over the business if or when we choose.

Okay.

So we have the possibility or optionality to do that. It's pretty far down the line. And there are a number of contingencies that need to be hit for us to be able to do that. But in the end we take it and give it to another capable operator.

Okay, that's good. So it's not just like all.

They'Re all out. No. I will say though that this is. And particularly these kind of like first rounds, this is a risky investment. I mean it is not.

Buying blue chip. Blue chip stocker. It's not quite like startup land. Right. You're not just, you know, early equity in a startup space, but you're not blue chips either. I'd say it's closer to startups than it is blue chips. But yeah, I mean the returns can be outsized as well. Right. So that's the real determinant can we get good returns for these? And so what we're hearing a lot is that there's lots, I mean, lots of search funds and lots of private equity, like access to a market like this. So I think the big money will come. We'd like to probably carve out a piece of it still for the smaller investors.

For marketing purposes, quite frankly. If we can get more investors involved and not just have the search fund suck up the bulk of the equity in these deals, that would be good for us. We get more people in the space and involved and that kind of thing.

I imagine if you're the.

Whether you're an investor or an operator from both, what do you think? What do you see as the best opportunity for each one? Like, we're going to talk to two different people out here. One person who's listening to this show is they're. They're a hustler, they're kind of an operator. And they may not have a fat stack, but they got hustle, they're eager, they want to make it. The other one is an investor. So right now, I mean, the fund is, you know, the EF Capital fund is closed. But what do you think is the best opportunity that people should really be focusing on if they've also decided. I'm not looking to just start up a new business on my own right now. So is there anything in particular you would give them advice on?

Yeah, for both sides. So let's start with the operator side. Right. So from an operator's perspective, look, if you've already had a track record, you've had some success in kind of growing business in a particular niche, you've got a skill set that many other people don't have, and you've got proven ability in that particular area. Maybe there's something you have that just other people don't have or you don't have the skills for in terms of like growing these businesses out. So what you're able to do through the operator program is you're able to leverage up so you're able to get. Sink your teeth into a larger deal than you would with your own cash. Right? So that leverage up gives you leveraged up returns. So if you can grow the business by 30%, then you're getting leverage gains. Same way people buy properties they appreciate and they get outsized returns on the property they purchase. This is a very similar situation. The other thing that's interesting from the operator perspective is that we want you to be able to stack it so you're not going to do one deal with us. You're going to do one deal, one round. You do the second round, you do the third round. So you're stacking deals, you're starting to put a team in place to kind of, you do the initial setup and then you hand that off to kind of a management team. So you're always the one in there kind of helping to pick the deals. And now you're building a team of people that are property managers for affiliate or online businesses. Right. And I think that will get you to fuck you money in a relatively short period of time. And so that's kind of the pitch of the operators on the investor side. Look, you're able to get access to deals that you wouldn't normally have because you're not going to put the time or effort or energy into kind of running these businesses. Look, if you want to buy a business from us and you have the skills to run it, then you can do that for sure. And then, you know, the benefits and the upside that you bring is all yours. You're not sharing it with an operator, you're not providing them leverage. But if you don't have that ability, this is an excellent way to get access to a market that is unavailable to you today.

Absolutely. I love that. Actually makes me think of a couple of people I know who definitely tell them, hey, if you're not listening to my show, listen to this thing.

I'm so bullish about this. Look, I mean, it's got to work, right? And so there's a whole lot of what ifs. And I'm being completely honest with you, like we don't know how it's going to go. Like that's why we're testing it out. But if we can make this work and if we can show a return to investors, then this is going to absolutely blow up. And by the way, this isn't like ours exclusively. It's not like other people can't be out doing this. So if you can be operators for us or if they have other ways to kind of raise the money or they have other ways to kind of put these deals together. It's interesting. I mean, this is going to work. I just don't know which iteration it's going to be. You know what I mean?

Makes perfect sense.

Do you personally own any of these in your portfolio? Do you have any.

Web based businesses that other people are operating, et cetera?

So Joe and I have an agreement. We're not able to buy, invest in or be involved in these deals or Any other deal that could potentially be sold or invested in. But if capital or Empire Flippers, which basically leaves us out to any type of online business. So what do you do now? Yeah, so the reason is, is that there's lots of conflict issues.

Sure.

Right. So, you know, I'm invest, let's just say I'm invested in a deal and they're going to sell at Empire Flippers. And now I'm contacting our team. Hey, you got to do this for them. You know, I'm like negotiating on one side of the deal on behalf of someone. We're like, that's a bit of a problem. Right. And if Joe and I maybe we have competing interests on that deal. So not only do are we not allowed to do that, our team's not allowed to do that either. So anyone working at or for Empire Flippers isn't allowed to invest or be a part of these deals either. Now there were some people years ago, they've been with us a long time that did were grandfathered in some of the business they had. But for the last couple of years, anyone hired is not allowed to have that type of side project or entrepreneurial endeavor. And it, you know, it kind of sucks. Like I.

Get the problem and concern with people coming on board and you know, as an entrepreneur, like, I get it. Like I want, dude, you see these deals all day and I want to be a part of that. Yeah. But like think about, you know, this way, so you have someone on the vetting side who's actually responsible for vetting the business and they're allowed to invest in deals, be a part of deals, and all of a sudden they reject a listing, but then talk to them on the side and hey, I'll invest in your deal. Or like, you know what I mean, there's lots of incentives that are just misaligned to where it's a real problem. So the other thing is we don't want anyone doing deals off market. So there are some people, some people in the industry where if a deal comes to them, they'll make an offer on the deal. If they like it, they'll kind of like vet it themselves and they'll make an offer. Sometimes they'll buy it, but if they don't sell it, they can't work out a deal, then they'll throw it up on their market. Sure, yeah, right. So you're getting the kind of like, you know, second look businesses and they're, they're either buying themselves first or they've got a private list that they give out to, like, you know, 10 friends and family or something, and then kind of pass it on to the market. And we've just taken a stand that we don't do that. So everything we list goes up at the same time. There's no private deals. We're not buying these deals privately. Any of the operators for EF Capital have to. They don't get any early access or any special views. They don't get any assistance in terms of us trying to help them buy the deal. It's on them.

Okay, so do you just out of personal curiosity, do you take your investment capital and put it elsewhere besides, like, you know, the general stock market, et cetera? Do you invest in other businesses outside of the Empire Flippers place?

I mean, that's. That's a rough one, man, because Joe and I, we've kind of teased each other like, dude, like, is this one allowed? No, that one allowed? Okay.

Oh, man.

So, you know, I mean, personally, I do real estate. I've got some stock. I've got crypto. Joe, he's got REITs. So he does kind of a real estate through REITs. Real estate trust.

And derivatives. He's got stock and then crypto as well.

Gotcha. Okay. Yeah, I could imagine that there's been a handful of deals. You're like, I would love to throw money into this one.

Yeah, for sure. I mean, like, some of them, you know, particularly, it was like, just of personal interest to me. I'm like, sure. Oh, man, I see how I know what we could do with that one. Right? That'd be interesting. One exception to that, though. And so Joe and I have been. We were looking at doing this in 2020 until all hell broke loose. But one of our thoughts was like, look, why don't we invest in businesses that could potentially provide deal flow? Like in our business on the brokerage side, deal flow is everything, right? We get the highest quality, the highest amount, and the highest quality deals, the buyers are going to come. In fact, I joke internally with our team, I was like, look, I want to be so good that even the potential buyers that don't really love us begrudgingly come to us because we just have the best deal. That's where we win. Right? And so the idea was like, what if we invest in businesses that are around us and that potentially have deal flow? So accounting firms, bookkeeping services, other like, SEO type agencies that could provide a significant amount of deal flow to us. What if we invest in those businesses around and also they could provide value to our Buyers after they purchase the business, or even sellers preparing the business for sale. And so that's something we're interested in. So Empire Flippers can invest or acquire businesses, and that's of some interest to us. We put it on the back burner in 2020. Things are so crazy, but I think we're going to revisit that.

No, I think that makes sense. I think that's fantastic.

You guys have a. Is it an apprentice program or you guys have something that you're doing where you're working with people to really understand how to.

Build out a group, not. It's a little bit beyond outsourcing.

Is that right? Yeah. It's funny, Brad. I know we were. Our marketing team. The Empire vs. Marketing team was like, no, we should talk about the apprenticeships and talk about the fact that we're hiring. But you and I just want to talk about deals and, like, shit going on, man. So whatever, man.

But I don't mind throwing your marketing team above.

Yeah. To their benefit. Greg, this is for you. No. We started off with an apprenticeship many, many years ago. And so, you know, we. It's a bit of backstory. Joe and I, we started this company from the Philippines. We had an outsourcing company, and so we were kind of working out of the Philippines. And then we started this adsense. Flippers became Empire Flippers. It's kind of a side gig for us. It was a side project. And we'd met some friends that we'd made recently out in the north of the Philippines, and they had. They had said they'd thrown this apprenticeship up, and they were going to fly someone halfway around the world, and they're going to pay for their apartment and give them some food and a little bit of spending money and have them work on their business from an island in the Philippines. And I was like, what kind of donkey would do that? Like, who would fly halfway around the world to take a job like that? And then we met this donkey, and he was the donkey. Super bright, young, motivated guy. We were like, wow, that's a thing, huh? So we realized that people are interested in kind of like, packing up and tossing the cubicle or the, you know, the open office and going on adventure. And so we started this kind of apprenticeship where we would, you know, bring people out to the Philippines and later to other countries and set them up an apartment, get them paid, and kind of get everything set up so when they hit the ground, they can just start working. And so we were, you know, they would be mentored by Us directly. Like, we would work with them very closely and they would have a seat at the table. This is the early days. And so that was a really great way to build our business. We were able to bring these people on that were super motivated that were taking this leap, that were willing to join this kind of crazy company culture. And we were able to grow the business really quickly with that team. Now, since then, we've moved it from apprenticeship to an employee situation. We've kept a lot of the fun stuff. So the job is still completely remote. We have teams of people that, outside of COVID we typically meet up twice a year at really fun locations. Like we're supposed to do Budapest last year. We've done Medellin, we've done Mexico City, we've done, you know, Phuket, Thailand. Rent villas there, you know, take out, you know, crazy boats for our trips. Like, we do some really fun stuff as a team. But then outside of that, you can work wherever the hell you want. So I don't care if you're on the beaches in Bali or, you know, you're in New York City or Prague. We have people all over the place. And so, you know, we were doing this kind of remote thing before it became a thing and it's been really, really valuable for us.

I love it. Do you have this? This is a personal question, a personal request, because one of the things I mentioned is that, you know, myself with a couple of partners recently launched a new e commerce business and marketplace and we are in the phase of starting to staff up and put people into place. One of the things I hate doing personally is, until later on is hiring piecemeal. Like, let's find this person, let's find this person. And you know, hiring is a full time role. Do you have, do you know any good agencies, like full service, decent e commerce agencies that can step in and manage a lot of the various aspects that are needed when trying to grow an E commerce business. Because this is one of the things we're looking for. So for any of my listeners, you can also contact me.

But yeah, no, I got a guy out here in Asia, Mads, I'll introduce you. Yeah, I'll give you a link after the show. Whatever you can put in there, whatever.

That'd be fantastic.

He runs a team of, I don't know, he's got 100 plus people in the Philippines and is very familiar with affiliate and e commerce. Works for some of his employees, work for companies that are in affiliate space and e commerce space. And he's Fantastic.

Oh, that'd be. Yeah, that'd be beautiful. Because trying to staff that part up so that I don't have to once more raise the babies.

Yeah, it's tough. I mean, getting a crew together and, like, managing that. And like, look, you know, we joke that, like, the perfect business is literally zero people and just raining down cash. Raining down cash, right. Like you're sweeping it up in buckets. The problem is that that's kind of unicorn hunting. You know what I mean? There's just like, that's not common. Most businesses that are successful and profitable and hugely, like, growing, they just require people. I mean, it's just typical that they require people. And so not all. Not all. Not all, but most. And so, yeah, you just get to that point where, like, you know, I. If I'm going to grow this business and get it to where I want to be, I'm going to have to add people, add staff, add process, you know. Not everyone does, though. I've got a really good friend of mine who has run. He sold his FBA business, but he ran FBA business and was like, I just don't want a team. Like, he had a couple of virtual assistants that helped customer service and stuff. But he was. I was like, dude, you could scale the shit. You got a great brand, you scale the shit out of this thing. He's like, I just. I literally don't want to. I was like, but you could do it. He's like, I don't care. I don't want to. I'm just not interested. And I was always trying to convince him and he was just not hearing it. And, you know, good for him, man. Good on him. He's done quite well the business. It's done well for him and he's very happy with it. It's just. I was just like, there's so much potential, man. You should grow it. And he's like, nah, nah, I get.

It, I get it. That's fantastic. Well, man, Justin, this has been a. This of fun conversation. I'm super glad that you came on the show today. Are there any other. Any other resources, requests or asks you've got of my audience right now? Like, this is usually where I ask my guests, are there any nuts that you're trying to crack in your business? Whether that's a challenge, a person you're trying to hire? Like, you mentioned you're hiring something you're kind of trying to figure out. This is where, I mean, we can.

Help just grow like crazy. If anyone in your audience you know, knows people that are smart, talented, you know, want to join a team, want to be bigger a part of something bigger than themselves. We're scaling up like crazy in 2021 and so we could really use the help. We've got a bunch of positions open. You can go to empireflippers.com careers take a look at what we currently have available this year. You'll find that page just to be consistently open. Obviously if you want to find out more information, you get empireflovers.com We've got a podcast, EF improvis podcast. We've got.

A couple other shows and a blog so you can take a look.

Fantastic. Well, thanks again for being a guest on the show for my listeners. I hope you enjoyed me continuing to talk about this topic. And I think it's, I think really acquiring businesses and understanding this is the evolution, it's really the evolution of most entrepreneurs who get tired of just operating and operating and they get to a point where they understand what needs to be done and there's typically.

Not always easier, but sometimes a shortcut to getting into a business that is profitable and has the ability to create life changing results for you. And oftentimes, you know, acquiring the business is the way to do it. It's not for everybody, but as I said, I always viewed this as the next evolution of, you know, building your entrepreneurial skills.

So, Brad, you're right about that and funny because a lot of sellers ultimately become buyers. Like they start off going, why would anyone buy a business? They're crazy. I'm going to sell this business. And then a couple of years later they do it again and then they go, oh, I get it now. I see these businesses for sale. I'm going to become a buyer. So you're right in terms of it being an evolution man, for sure.

Absolutely. Well, thank you very much for being on the show today, Justin. It is probably 1am your time over there in Vietnam right now, I'm guessing.

Yeah, buddy, I'm a night Indian. It's okay. I normally do the night calls but yeah, I'm wrapping up here.

Love it.

Same here.

Well, everybody else, make sure you are subscribed to the show and if you have any questions, comments or compliments for yours truly, you can either do that by emailing askbradakenraptedbusiness.com or leave a review on Apple podcasts. I read every single one of them and I appreciate them all. Stay tuned for the next episode. We've got one coming up real soon. And Justin Thanks a lot for being a guest on the show.

Thanks, Brad. Appreciate it.