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March 24, 2021

EPISODE 21: What’s Your Exit Strategy?

Sell Rank Win Episode 21: Setting Up Your Amazon Business For Acquisition

In This Episode

Want to sell your Amazon business for a 3, 4, 5, or even 10X multiple? Listen in as Tommy speaks with Jon Elder of Black Label Advisor and learn what you need to know to properly set up your Amazon business for growth and acquisition.


Tommy Beringer:

What's up you data-hungry Amazon sellers! This your host Tommy Berringer of the Sell. Rank. Win. podcast for MerchantWords and in this podcast we give you the answer to your most burning questions, and actionable insights that you can take away and implement into your business today. So, let's go ahead and dive right into today's episode. What do you say? Let's go!

What's going on everybody! Welcome to the Sell. Rank. Win. podcast from MerchantWords. I'm your host Tommy Berringer and in today's podcast we have a very special guest on with us today, as we always do. He went from working a construction job, then to dipping his toes into the Amazon FBA waters. He then turned that water into 10 million dollars and then from there he went to go ahead and sell his Amazon FBA business for a mid seven figures. Nice work! He is now helping other sellers achieve the same level of success at his company called Black Label Advisor. Without further ado, it’s my pleasure to introduce you to Jon Elder of Black Label Advisor.

Tommy Beringer:

How you doing today Jon?

Jon Elder:

I doing great Tommy, thanks for having me on.

Tommy Beringer:

Absolutely. Thank you so much for your help coming out and just blocking out time to come on with us today over here at the Sell. Rank. Win. podcast. Absolutely cool man, so let's go ahead and dive in what do you think? What do you say?

Jon Elder:

It's great to be here, you know my story’s, you know, a little, a little different. A lot of people go into the Amazon world full-time. I kind of did it while I was you know, still working at my construction career and it was just something that grew out of a passion for something, you know, I wanted to run for my family and have it on my terms...and so, you know, I was also very, very low risk. Also, so I started with five thousand dollars and grew from there and my first year was pretty modest, you know, I had a couple winners right out of the gate which is also, you know, that's always encouraging to have something that wins right out of the gate. I ended up doing a hundred percent private label for my business and did over 150 grand my first year -- and that's in revenue -- and then I did over 1.5 the next year. I grew a little faster than most because I just wasn't as scared about taking on some debt and money is cheap right now. And so I leverage some bank loans and used that capital to just really just grow my business extremely fast.

And so what helped too is just having a long-term vision because a lot of people you know, might have a goal like “I just want to make five thousand a month,” so my goal was a little different from day one. I had a vision board and on that board, I had an ideal number for exiting someday, and so I kind of thought it was going to be ten years but ended up exiting in under five years and it was a mid seven-figure number and I ended up hitting it and exiting in 2019.

Tommy Beringer:

That's awesome man! That vision board worked for you there; that's perfect.

Jon Elder:

Yeah, because it really helps to have a long-term vision because everything in your business, every decision you make can be filtered through that long-term vision. So, if it doesn't fit into you know, your story and where you want to go with your business, then you don't do that. And so for me, it was about reinvesting 100% of my profits and I actually didn't pull any money out of the business for over a year and just reinvested, reinvested ever since. I grew as fast as I could and you know did it sustainably and did launches properly, did all my math properly, and calculating that profit and all those things, and was able to grow the business quickly.

Tommy Beringer:

That's awesome. Perfect. And then going back to your vision board really quick, you know that does give you that long-term vision to like almost wake up every day, look at it so you can get realigned and refocused. So, if you do lose focus you always have something to look at. So I mean, I have my own types of vision boards that I use as well, just different. You know, one thing is always looking at Zillow when I was focused on a house where I want to you know, live later on in life. A big house on the beach and stuff like that so that's one of my things in my vision board. Awesome. yeah now it ie always good to realign yourself or make sure you stay focused.

Jon Elder:

Yeah absolutely.

Tommy Beringer:

Are you still selling on Amazon now?

Jon Elder:

Right now, no. I definitely did a pivot. So when I sold it, sold to a private buyer, and through that experience of training the buyer I just thought you know, I could be helping other people do this with their business. And it’s just there's so much bad information out there, and I've seen so many people get burned by gurus.

And these coaches that are just pushing people into just terrible things on Amazon and so I just kind of you know changed gears a little bit and now I'm consulting full time with Black Label Advisor.

Tommy Berringer:

So that's awesome. So over at Black Label Advisor are you just when to say for example I'm a brand new seller. I'm a seller that's just getting started, you know, and I come over to you. Are you gonna be aligning these goals for them to be set up for exit or just you know, kind of whatever they want to do? What is your main strategy as far as that goes?

Jon Elder:

Yeah, so my clients range from you you know, beginners, total beginners, to establish brands doing millions, so it's kind of a range of people that I work with. But someone who's brand new typically I'd say 90% of the time their goal is to exit someday. So I work with them and we kind of map out their five to ten-year forecast and we work through those different challenges in just you know, helping them optimize their business the right way from the beginning, you know, all the way down to the weeds like having proper liability insurance for your business. You know, setting up your LLC correctly, all those little things that matter long term. And then, just focusing on branding for them and not selling a bunch of random garbage products, but really focusing on high-quality branded products and telling you their story on Amazon.

And so I yeah, I definitely hope people stay focused on that long-term goal and it's been really fun.

Tommy Beringer:

Perfect, that's awesome man. I love it, so I wanted to talk to you about this a little bit and I know you're well versed in this area. So I mean as we're seeing more and more and more of you know, these investment banks and venture firms and private equity shops coming in to back, you know, these Amazon companies. I mean, they're just popping up.

It's crazy from one year ago. I was looking at some numbers, yeah like half have no money invested from you know, any of these companies in 2020 for the first quarter, and now 2021 first quarter they've done it, they've shown 1.4 billion dollars or so being dumped into these mom and pop brands on Amazon. This is insane. So we see where this global pandemic has shifted us, you know, all-digital, all digital and you know, I wanted to talk to you a little bit about that and then you know, we can go into...I wanted to see how you set up your clients, you know for the due diligence process for these investment banks, venture firms, and then these other companies like Perch and Thrasio to come in and acquire these companies.

Jon Elder:

Yeah, I mean it's something that so many people don't do correctly in their business all the way down to keeping clean financials, so one of the top things every seller needs to do is to maintain strong bookkeeping every single month and that means doing a P&L statement with their CPA for their business. And the other problem too is a lot of people have...they kind of break up their businesses, which is just a terrible idea, so the best strategy is actually to have one seller account and have multiple brands in that seller account. Keeps things really clean for buyers. And you know, buyers don't want to see high-risk stuff. So the other thing too is they hate seeing a brand that has one cornerstone product and then a bunch of garbage they like to see a nice even revenue spread across let's say ten products under a brand.

Maybe one, you know, you're all-star product maybe that is like let's say 20% and the rest is split, you know across the board, but they like to see nice even revenues and then everything's gonna be tied to your last 12 months, actually the last two years of tax returns. So, when they do these deals, depending on if it's a private buyer or an investment bank, the deal is gonna be different.

Obviously, if it's a private buyer they're gonna have to get lending through a local bank and or an SBA loan and they are going to you know, require those tax returns and everything's gonna be based on that so it's basically an asset sale. So they're buying everything related to your business minus your LLC corporation, so...that that's basically to separate any risk associated with the business you've done with your entity from your assets and so they would take over the seller account updates...they'll update information about the bank account and credit card info and then they would officially own your seller account.

Tommy Beringer:

Got it, so yeah that's a process there. So you know the other companies like Thrasio and Perch. Do you see your company like one of those so-called Amazon aggregators?

Jon Elder:

I'm assuming you are talking about Black Label Advisor?

Tommy Beringer:

Black Label Advisor, yes.

Jon Elder:, so mine, so I work one-on-one with FBA sellers, and then I actually hand them over to different brokers.

I typically don't actually recommend these private investment firms. And the reason why is the multiples are just not there. So I work with you know other, you know, large well-known brokers and go over to them. And they're just much more aggressive with their business in achieving those multiples and we're talking about 4x and above for multiples.

So you know Thrasio...they're closing deals faster but the multiples are lower so that it's kind of like a tradeoff and the crazy thing about this is that you know over time...this is just a theory I have...but I really believe that the vast majority of brands that you see on Amazon will eventually be owned by the 55 investment banks over time. And that's kind of a strange world that we're in right now.

Tommy Beringer:

Yeah, now I totally agree with you on that. I mean, it's going more and more that way, right? I mean all these investment banks that have venture firms are seeing how great an opportunity, you know, that these companies on Amazon are, what they're doing, and they just want a piece of it. I mean but what's crazy about it is it makes sense because the cash flows for Amazon businesses are outrageous, outrageous.

Jon Elder:

I mean, I don't know what other business you can be doing 30% now profit for the entire business and do that every single month, yeah. I mean, it's outrageous like how amazing it is to sell on Amazon. I mean Amazon is just it's just a ridiculous opportunity and it's one where you know these investment firms are definitely waking up to that and the gobbling up all these mom and pop shops, so it's kind of one of those. It's good for them too because the mom-and-pop shop wants to sell. You know, I'd say over 90% of people have an exit strategy, they don't want to run their business forever, right? So for them it's great and for the investment firm it's it's a good deal too, so...

Tommy Beringer:

Yeah no, absolutely, and then I want to just back up a bit so say for example if there's an Amazon brand that was not keeping that great of books could you bring them on and then say, you know go back and look in their accounting and trying to try to help them out to be acquired?

Jon Elder:

Yeah, I would, I would help them from a big, big picture role. That's something that I always just have a professional care for, so I'd recommend a CPA to them and then kind of focus on... I’d probably help them with their inventory forecasting and making sure that they're optimized on that side, but in terms of clean bookkeeping, that's where a CPA comes in...and they need to get up to speed quickly and make sure that their previous 12-month financials are clean, tidy, and wrapped up.

Tommy Beringer:

Got it. So, what are the top three metrics that these you know, these bigger companies are looking at when they're trying to acquire an Amazon business?

Jon Elder:

So the number one thing is cash flow, so you know, they want to see strong revenues for your business.

So, let's say...I don't know...let's say you're doing...I'll just take a million dollars for example. They're gonna want to see (and that's just a metric) they're gonna want to see between 200 and 300,000 cash flow and so that's you're…. Sorry, not cash flow, net profit. So between 20-30% net profit, you know showing on the books and as you scale and get bigger with your business that multiple is gonna go up because they have you know, they're placing a greater value in your business.

So just having strong revenue is something and you know, that's tied to your month a month growth. So if you're doing year over a year, a hundred percent or greater that's a great metric. And that's exactly what they're looking for and so any seller in Amazon should be able to do a hundred percent year over year.

Yeah, at least 50 percent year-over-year and so you know these guys want to see constant growth and they want to see that you're constantly launching new products. So brand expansion is probably put number two. They want to see strong consumers. You know repetitive purchase or repeat purchasers and they want to see strong brand awareness. Yeah, things like social media are extremely important because they want to take your business to the next level, but they want you to do all the work.

So they want you to have established Instagram accounts and Facebook and Twitter and all that stuff. So, they have teams that people that will come in and get it completely boosted. Because you're going from a mom and pop to an organization. So that's point number two....

Number three, it is probably analysis of your competitors. They don't like to see you know, hundreds of competitors in your product categories, they want to see you dominate in your category and so if you're not like top-five sellers that's're gonna're gonna take a hit on your multiples for that.

Tommy Beringer:

Got it, got it. And then also another thing I was wondering is do they take into account how long that a brand's been selling on long it's been rooted in that algorithm?

Jon Elder:

Yes, so that that's part of the...I guess you could say that's part of the due diligence so they do so, you know you provide all that data from the very beginning, and then that ties into your multiple that you get offered so you're gonna give them information on everything from you know, how long has this brand been running what is the, you know, they're asking questions like what's the riskiest product in that brand? Why is it risky? Tell me about your competition and basically, I always call this an “open kimono” you're basically showing everything and there's nothing to hide and you shouldn't hide anything. So if there's an issue with the competitor, you need to be honest about that’s because it's gonna come up, you know down the line as the due diligence gets more intense.

So just being honest from the very beginning saying, you know, this is part of our business. This is a struggle that we have but it's something that we think that you know, we and you guys will be able to overcome over time. And you know, they basically want to remove all risk from the sale of the business.

Tommy Beringer:

Absolutely. And have you ever seen a brand almost being acquired and then just for some little reason that just the deal did not work out?

Jon Elder:

Well, that was pretty much my story. So we got like, gosh it was four months into the deal, and everything was great and then in the very last minute after we had confirmed financing from the bank, the small business bank, the loan was just totally pulled from the deal.

And the deal was almost dead and then the buyer really wanted our business and so the buyer found another bank and ended up sourcing capital from a different bank and then going through with the sale. So, that can happen...a bank can get a little skittish or the buyer can simply see something in due diligence that they don't like and they let the broker know that the deal is done.

So it can be you know, a variety of things but if you're running a strong business that's most likely not gonna happen...because the buyer really wants your business they're already in negotiations with you, they're most of the time they're not gonna just pull out the deal.

Tommy Beringer:

Right right, and you know your stuff. So guys out there if you or interested in selling your Amazon business or even setting up your Amazon business for sale, John Elder is the guy to talk to. He really knows his stuff. Now John we always like to keep our episode short and sweet here.

Yeah, so we'll go ahead and wrap this up and I want to hear from you at least one tip or trick that our listeners can take away today and implement in their lives and their business. What are...what are some tips you can give them?

Jon Elder:

I'll give two tips. One tip is for Amazon specifically. I see this all the time. If you are a brand registered seller on Amazon don't use seller support, the general seller support.

So you should log into your brand registry account and open up seller support tickets through Brand Registry. You're gonna end up getting a higher-level seller support person to work with you and to solve your issue.

And so I always tell people that and their minds are blown, but that's the reality. So, you know, you've worked hard for that trademark and to get you know, higher-level staff. So that's kind of like an Amazon tip that a lot of people don't know about…

And then the other one is just, you know, reinvesting into your business. So a lot of people have this they believe this myth that you know, right out of the gate I'm gonna be making all this cash flow and it's gonna be so perfect when reality, you know, that's kind of fantasy land. And that's the fantasy land that's pushed by gurus everywhere.

It's just this perfect world where nothing goes wrong and you're gonna be making all this money on month one when in reality, you know, I was in the red for multiple months out of the gate...because you know, you have all this all these expenses. Right, so you have you know photography, and you're pumping PPC really hard, and you're trying to get the name of your brand out there, and so tip number two would just be don't worry that you're in the red and the very beginning it's actually extremely normal and so most businesses are not profitable.

I think until two years anyways, so just stay focused on the long term and just be patient getting those reviews for a new product launch.

Tommy Beringer:

It's a marathon baby. It’s a marathon.

Jon Elder:

Yes, it really is, it's not a fun thing to say. But I think if more people understand that reality, it'll help them psychologically in their business.

Tommy Beringer:

Absolutely yeah.

I learned that hit the hard way when I did get Brand Registry. You know initially, I kept reaching out to seller support and then I was like, okay I need to reach out through my Brand Registry account, so that is an awesome tip because yeah, I was kind of just spinning my wheels over there with seller central as we all know.

So yeah, all right. Well Jon, where can people find you? Do you have you know, Twitter, Facebook, LinkedIn, email? Where should they reach out to you if they want to get a hold of you?

Jon Elder:

Email. Yeah, yeah. Definitely. So that’s the easiest place and you can read a little more about my story and the services I offer on and then my email is [email protected]. And that's j-o-n and then I'm also on Twitter that's something that I've kind of launched recently so that's been a fun social media platform but that's @BL_Advisor and then I'm also on LinkedIn and Facebook. So yeah. Lots of different places you can find me.

Tommy Beringer:

Awesome. Thank you, sir. I appreciate it and I just want to say, you know, thank you so much for coming on with us today and taking the time out of your day to spend it with us here on the Sell. Rank. Win. podcast for MerchantWords. It was really appreciated.

Jon Elder:

Yeah, thanks Tommy thanks for having me on here, it’s an honor.

Tommy Beringer.

Alright Jon, thanks so much. Take care.

Jon Elder:

Alright, you too. Bye.

Tommy Beringer:

Alright. Thank you guys so much for listening and if you got any value out of this podcast at all please let us know at the place that you listen to it at. Whether it be iTunes, Stitcher, whatever it is, give us some love. Give us an awesome review and let us know maybe some things you want us to talk about on the next podcast.

Until next time guys. Stay awesome and be awesome. Bye.