Coran Woodmass is the Founder and Managing Partner of The FBA Broker, a business brokerage that exclusively works with Amazon eCommerce businesses looking to sell their company for 7 or 8 figures.
The FBA Broker uses a hybrid approach to marketing businesses to both strategic and eCommerce buyers to help their clients ensure the maximum value and best deal terms when selling their business.
Over the past four years, Coran and his team have become the worldwide market leader in Amazon FBA business sales data through researching and reporting on the entire market of Amazon FBA business sales.
What you will learn
- What products are selling well during the pandemic.
- Why building a brand on Amazon is vital to eCommerce success.
- Why testing your online business on Amazon is a great idea.
- What product categories you shouldn’t launch on Amazon.
- How to build the business around a hero product and then add a suite of products.
- What the capital value ceiling for an Amazon store is.
- Why knowing your target market works well.
- The big Amazon trends that are the difference between winning and losing.
- The importance of controlling and owning your own eCommerce store.
- The power of a monthly subscription online store.
- The secrets of an online business that sold for $1 Billion.
- Which products sell well online during a recession.
- What percentage of businesses are saleable on Amazon.
- The 3 stages of building an Amazon online store.
- The difference between “Cash Flow” and “Cash Pile” and why it matters.
- How and why smart entrepreneurs reduce risk.
Jeff Bullas: Before we leap in and chat to Coran from “The FBABroker.com, (FBA, by the way, means “Fulfillment by Amazon”). So acronyms are something that catches a lot of us unaware. So essentially, this is very much a chat to Coran about what's happening in the whole Amazon space and the e-commerce space. Because at the moment, this is a fascinating time because everyone's favorite store at the moment, because they can't go to any other one has become Amazon. So welcome to show Coran. It's great to have you here.
Coran Woodmass: Yeah, thanks Jeff.
Jeff Bullas: And he has a strange accent. He's from Australia as well. But he's from Northern Australia. We call it Queensland occasionally here in Sydney, Australia. So welcome to the show Coran, it's really, really cool. So you're in a very interesting space at the moment. Can you talk a little bit about what got you into becoming an Amazon exit specialist I suppose because you basically help businesses sell their Amazon stores. So how did you end up doing this? This is really quite an interesting area.
Coran Woodmass: Yeah, for sure. So, brief background. My wife and I left Australia seven years ago now, and we just had our seven year travelversary, which is cool. We've decided to try the digital nomad thing. Well, not at the beginning, we just went on a gap year and thought, let's try living abroad, see if we liked it. We did a trip to Vietnam and then the plan was to move to the UK. My wife had a work visa, so she was going to go do some work and try living abroad and I was going to do some online stuff eventually. And within two weeks of being on the holiday in Vietnam, which was supposed to be a month long, two weeks in, I was researching different business models and things because I knew I wanted to keep traveling. I didn't want to go back to the corporate life that we'd left behind. So that quickly morphed into researching businesses for sale because that's, in my opinion, that's one of the fastest ways to get started.
Coran Woodmass: So we were building an e-commerce business from scratch but we were also buying, building and selling other online businesses, including e-commerce. E-commerce was where I had the most success as an operator or a business owner. And about the same time I met a lot of business brokers and other investors in the space through our travels. And one of the brokers I spoke to, I said to him, "Why do you broker these deals? Why don't you just buy all the good deals that you see?" And he was saying, "Deal flow." He said, "Once you get into deal flow, you'll see more opportunities, you'll meet more interesting people." And I thought about that for quite some time. And I realized that I liked the deal part, making the deal happen and finding the deal as opposed to once you've caught the deal and operating it, it wasn't as exciting or interesting to me.
Coran Woodmass: So I started working with the brokerage through the network and I saw a trend from the buy side of buyers looking for e-commerce businesses as opposed to other online businesses, because my interaction with a lot of these investors, whether they were real world business people that were looking for businesses that could be location independent was actually the reason that we're looking at these deals. And because they were selling real products, physical products that you could order, they felt more like it was a real business as opposed to, say, a website that was generating AdSense or ad revenue or something like that. It just didn't seem real, you couldn't hold it and touch it. I saw the trend there and I was talking to a few friends in the space. And we'd also built a supplement brand that we were selling primarily through Amazon. So I understood the ecosystem from the demand side and also from the investor side, and I saw the opportunity, we launched the FBA Broker.
Coran Woodmass: And at the time, I was trying to figure out what these businesses were worth. Because it was a really new thing. When we first launched four and a half, five years ago now, people were asking in all the seller groups, "Can you even sell these businesses?" There was a misconception that these couldn't be sold. So we went down that path and figured it all out, started doing deals. And at the same time, there was more and more brokers online marketplaces, selling these businesses. So we started aggregating and monitoring the entire market and reporting on it. And over time, we've seen a massive increase in business transactions around this space.
Coran Woodmass: So I think it was good timing, also having some insider knowledge, but also really good timing, just as that wave was coming. And as you mentioned, Jeff, right now, everyone's favorite store is Amazon. So you can't really go to the regular store right now. And even once we can do that, again, I think the consumer behavior has changed quite significantly in the last three to four months here worldwide, which has been really good. Most of our clients have actually seen an increase. A few, depending on the category obviously, have not seen an increase. There's a few categories that you just don't need right now. So, I read online that Walmart apparently is selling more shirts and less pants right now. So that's a sign of the times, right?
Jeff Bullas: I think I'm wearing pants. Yes, I am. Yeah, we don't need to dress up as much and I think there's a lot of unused clothes sitting in the cupboard. So we're in the middle of this e-commerce renaissance. So you've mentioned something interesting about what is actually happening in the space right now. So Walmart's selling more shirts rather than pants. What are some of the main trends? I have heard that Amazon and they put up signs saying that they've really doubled down on fulfilling more things like food and essentials instead of other things.
Jeff Bullas: Could tell us a bit about what you're seeing happening with online e-commerce and Amazon with what sort of products are working, what aren't? Can you tell me a little bit more about that?
Coran Woodmass: Yeah, so this is something that's evolving pretty quickly over time. As a whole for I think the last five plus years, e-commerce as a category is one of the only industries that's been growing at double digit growth year over year for at least five years now before all this stuff happened. So there is still a lot of retail activity outside of e-commerce and Amazon and I'm actually in Austin, in Texas right now and in The States, at least, Amazon's market share of the online portion of sales is disproportionate. They are definitely the dominant player, I think about 80% of online sales here are through Amazon, which is pretty substantial. As far as categories that are really interesting, there's a ton. It's almost infinite shelf space, right? So you've got a typical store, you have a certain amount of square meters, square feet to work with. With Amazon, it's infinite. So you can literally jump on there and sell whatever you like, what's in demand and what's selling well? There's a lot of research tools out there that you can use to find these niches. What we're actually seeing as the biggest opportunity right now with Amazon as a platform is a launch pad to develop real brands.
Coran Woodmass: A few years back, you could just look at what was selling, go source it on Alibaba, throw it up, get it ranking and sold and hey presto, you've got a business. Well, that's not really the case anymore. It's more about building a brand that people actually want to buy and searching for and Amazon gives you the perfect platform to do product research, market research to figure out how to make a better product than everyone else and position your brand appropriately, and use that as a launch pad to go outside of Amazon and build a real brand, a real business in the real world. So that I think is the biggest opportunity we're seeing right now, in the clients that we work with. Like you mentioned at the outset, the clients we work with are typically doing seven or eight figures in revenue.
Coran Woodmass: We're actively chasing our first nine figure revenue business. There's a couple of them out there that we're chasing down. So the space is growing exponentially, as well.
Jeff Bullas: Yeah, so you're saying that essentially Amazon's a good way to test a market almost, and then say, okay, try a new product, put it on Amazon because they can do the fulfillment for you. Your cost of startup, barrier to entry, I suppose, is quite low. So then you can test it, build it, and you can either decide you really want to scale it or you can say, "I want to flip it," which is what you're helping a lot of people do. So you started a little bit of an Amazon business yourself, and what area was that in? Because obviously, you knew enough about Amazon-
Coran Woodmass: Supplements.
Jeff Bullas: So that was in the area of supplements?
Coran Woodmass: Yes, yeah. So health supplements was the niche that we were in, specifically focused on female health. So that was our niche. Yeah, we found through research and seeing the demand, it was quite easy back then. This was quite a long time ago now in Amazon years. The supplement space is actually one of the most competitive environments now. I wouldn't go and launch that again today with what I know now. But I would, however, use a lot more of a strategic approach and go for a way into a niche. So I think that's probably something that's missed by a lot of people is that the companies that we're seeing valued the highest that have the most buyer demand when they go to sell is they find the first hero product, so to speak, something that sells that solves a problem that they can make good margin on, and then building out a suite of products around that customer. So he's buying that product, what else do they need before, during and after that product? That's the type of brands that we're seeing more demand for in the market and I could actually give you a really recent example of that, if that makes sense.
Jeff Bullas: Yeah, that would be great.
Coran Woodmass: Yeah, sure. So late last year, we were marketing a deal that was in the gaming space, and this product, the suite of products and the brand appealed to larger toy companies. So when we actually took that to market, we included some of the largest toy companies on earth to see this deal and the way we promote a deal is with the time window and no list price. We ask the market to tell us what they think the business is worth, what the deal structure looks like etc. Following a more investment bank M&A advisor model of promoting a business. What we found with with that business, even though it was predominantly on Amazon, which there is definitely...
Coran Woodmass: And market research confirms this, with an Amazon based business, there is a ceiling as far as what the business could be worth, even if it is a larger business. But what we found when we were marketing this deal, because we could approach the strategic toy companies, we found that the toy multiple is actually different and larger than the average e-commerce so Amazon multiple and this brand, because it was a tight, focused brand and trending in the toy space, a lot of those toy companies were bidding on this business and interested in the business. So that's really a recent example in the last six months of that actually resulting in a much higher multiple than the market is typically seeing.
Jeff Bullas: So this was a niche that was trending. Was that so? The timing was right. So you're saying there's a certain ceiling at the moment to an Amazon store. So that's really interesting, that sense that you've got this store. Now, typically, I suppose the original entrepreneurs that start the store, the ones that actually go and source the products, don't they? So that's one of the biggest challenges for Amazon store, isn't it? Finding a product they can put, I suppose a premium on that at a good margin because you don't be selling something and only making one or two cents or 10 cents. I spoke to Sophie Howard recently, who is one of the exponents of starting and selling Amazon businesses and I interviewed her. She said she broke all the rules. What she did was she was told to go and buy products from China, she said, "No, I won't." She went and bought a product from Nepal. Created as a premium product and I think it cost her to $2 and she sold it for $30.
Jeff Bullas: So it's really interesting in that, you know, the prevailing wisdom is, like you said, you wouldn't get into supplements now because it's just too crowded, too competitive. It seems to be that you need to be zigging but everyone else is zagging and basically go, okay, so how can I stand out? How can I actually create a store that provides good margins and is not highly competitive. Also getting your timing right is important, isn't it?
Coran Woodmass: Also knowing the target market. So the clients we see that have the biggest wins are actually the target market or their wife or their family or in the target market before they even launch. So they have industry insight and knowledge. And that plays beyond just figuring out what's selling and what has demand. Right? That's kind of the old way of doing it, understanding the marketplace, actually caring about the end user. That's what really matters and that's what helps you stand out because you can get through those initial humps.
Coran Woodmass: Seth Godin calls it the dip. I don't know if you've read that book, but it's all about every business has this dip and just not every business has the fortitude or the need to go through that dip. Often people will give up in the dip. So you need to be able to survive many dips along the way. And part of that what I've seen, at least, with our most successful clients is they actually care about the space and they have a personal connection to the target market, and they can push through and even sell to them directly, which actually has the highest value. Amazon's a great breeding ground and cash flow generator, but then if you can actually sell direct to the customer, that actually is harder to do and that's more valuable on the other side when you go to sell.
Jeff Bullas: Right. So almost you're saying that the people that are the most successful, those that are passionate about the area they're getting into and because of that they have intimate knowledge, I suppose, of the pain points and pleasure points for their potential customer. So that's really interesting that they're not doing just... Yes, they want to make money, but they're actually intrinsically interested and passionate about that area. So where are we... With Amazon at the moment you mentioned some of the trends. Can you tell me a bit more about what's unfolding in front of us because it's happening so quickly? What are some of the most interesting things you've seen happen in the last two to three months because the pandemic, the Coronavirus has been on the rampage around the world and it's changing customer behavior, human behavior. What are some of the interesting things you've seen happening at the moment?
Coran Woodmass: Well, in our space specifically, there's hundreds of millions of dollars being raised and invested right now in Amazon brands. So it's a great time to be an Amazon based business because there's a lot of interest on the buy side. At the same time, there's a lot of groups that are using a portfolio approach. So they're just trying to buy as many brands as they can, not really to grow them or anything. Just to stack cash flow and then sell the entire business for a higher multiple because it's a larger business. That's one strategy that a lot of groups are taking. But I'm actually seeing the the opposite, like you said, zagging when everyone else is zigging. The brand approach is actually more interesting from a founder entrepreneur perspective. Because if you've spent time, money, energy, blood, sweat and tears, sleepless nights, trying to figure out how to get your brand going, and then you actually see some success, why not take it just a step further to have a much better exit when you sell and a lot of our clients, we are selling large businesses, they're unlocking generational wealth, when they sell that business.
Coran Woodmass: Depends on where you live, how much that generational wealth actually, is what that target is, but we're actually seeing that with our clients, they're unlocking serious wealth that could have been created in just two to three years. And there's not many industries that you can go into and have that type of success once you really understand the ecosystem, but there is just that little dial extra that you can do to optimize the business for a sale. And that is to create more of a real business, a real brand. That's always going to be worth more than just a single channel dependent business, like if you're just selling on Amazon.
Jeff Bullas: Right. So when you're saying unlocking generational wealth, can you explain what you mean by that?
Coran Woodmass: Yeah, so my version of generational wealth, or I think even an actual dictionary might say, wealth, an amount of cash that wouldn't deplete in your lifetime and maybe wouldn't deplete in future generations' lifetimes. Depending on where you live, that might be a million dollars, or it might be $100 million. If you're living in the CBD of Sydney, you need quite a few million just for a nice place, right? Yeah, it's all relative to what that need is for you and some people want private jets, like myself, other people might just want to have a big shack and they're happy with that, you know, and more power to them.
Jeff Bullas: Right, okay. So when you mention generational wealth, in other words, to build enough in a few years that you could basically go, "I'm going to retire now, I'm going to sit on a beach, and I'm going to read books and I'm going to swim and take a holiday." So that's what you mean by generational wealth. Because I was sort of thinking generational wealth is more like, okay, I inherited from the other generation and the next generation is going to spend it. So okay, I just want to delve a little bit into that. So we're seeing these different strategies, people buying or I suppose aggregating different Amazon businesses, those who are just leaping in and some are adding value. So where do you think this is going? Where's the future for Amazon and e-commerce? Because I actually worked for a digital agency. We built e-commerce stores and I did that starting about 10 or 11 years ago for four years,
Jeff Bullas: And I was in sales and business development, running workshops with people who want to start online stores. And one of the stores we designed and built was Temple and Webster, which has become quite a big success in Australia, selling homewares and furniture, and they sort of went and copied Gumtree, which has been quite a big success as well in Australia. So where do you think Amazon, the trend within Amazon and e-commerce is going? What do you see the future looking like?
Coran Woodmass: Yeah, well, I think in the short term, Amazon's really trying to position themself... They started more of a marketplace, like a premium eBay where anyone could sell anything and I think there is a trend, specifically in the States. I think this translates internationally as well. But specifically here, a trend towards brands. So people still want to get behind a brand and have a brand they know, like and trust and that has some meaning behind it. So I think that's starting to be translated more. You're seeing video ads being available now. So it's becoming more of an experience, shopping on Amazon, as opposed to just, I just need these things. So I think in certain categories, it's more about quality, and the brand. In other categories, it's more of a commodity type product, and there's high volume. So phone cases, for example, if you've got a mobile phone case, or a cell phone case, that's a commoditized product. It's really hard to stand out in that category, but somewhere where quality matters, and, you know, if you're an athlete, you're not going to take an Amazon branded product to the gym, right? You're just not going to do that. So those products where quality matters.
Coran Woodmass: The actual quality as well, talking about sporting goods. If it's something like boxing gloves for example, and you're constantly training, you want them to stand up over time. You don't want them to fall apart in a couple weeks. That's just pointless. So where quality matters and the brand matters, I think, that's only going to escalate and price, it's really been a price based marketplace, but I'm seeing in certain categories, quality and price being less of a concern and more about the brand and then having a following behind that brand, which could be scaled outside. In general, I think they're just going to keep eating the world as a company, I'd love a secondary or third competitor to pop up but I do have a pretty substantial lead on the rest of the competition. So I think they're going to keep moving forward and keep being an option. There's there's other websites like Chewy.com that found a really interesting niche in the pet supplies space outside of what Amazon was doing.
Coran Woodmass: So I think there might be some other niche type sites that pop up that can serve more of a specific need. But Amazon as a whole, I mean, I wouldn't bet against them right now. They're pretty strong and pretty profitable at what they're doing.
Jeff Bullas: Yeah, I read a report recently, which sort of suggested that Jeff Bezos might be the world's first trillionaire and the way he's heading and the way Amazon's growing, it would not be surprising to see that happen. So what about, you mentioned competition, you mentioned that Amazon's basically eating the world in terms of what it does because they've built incredible infrastructure, haven't they, in terms of distribution, so fulfillment centers... I noticed I think there was a news item recently and they said that Amazon had added another 150,000 workers in the space of a few weeks. Was that number correct?
Coran Woodmass: I believe so. Yeah, that the initial was 100 and then that was another hiring round. So yeah, it was probably around 150,000. That's no mean feat to pull off in a pandemic, right? So to bring in that many people into your company, that's pretty insane.
Jeff Bullas: Yeah, it is. So we've got Amazon in the sort of generic brand. What you're saying about Amazon, too, is that it was just in the commodity marketplace. In other words, cheap and nasty. A lot of brands weren't going on there, were they? Because they go, "Well, we're a premium product and Amazon..." I won't go to the gym with a non-branded product, but you're seeing a trend more into premium brands or building premium brands on it. That's fascinating.
Coran Woodmass: Yes.
Jeff Bullas: So there was another article as well I read recently which talked about, some of the big online e-commerce platforms are seeing an opportunity as well. So they said that Shopify, for example, is starting to really try and work out how we can pivot a little bit and grow. What do you see as the role of the Shopifies of this world? And BigCommerce, which is an Australian based company, which plays in this space, which is providing a platform for people to actually start e-commerce businesses, how do you see Shopify and BigCommerce playing in the e-commerce space, because that's where you play?
Coran Woodmass: Absolutely. So I think that's critical to build the presence that that plays into the direct to consumer angle. That's where they're really good, is building your own e-commerce platform. There's some work to be done, because a lot of our clients will choose to send that traffic, their organic traffic through to Amazon because it converts higher than their own store. So that's something that I think would need to be improved over time and it takes more of an investment to build your own channel directly. Shopify, what they're doing, I think that could change the game a little bit with brands that are trying to get exposure and sell directly to the consumer.
Coran Woodmass: And if you look at it on the surface, you'd say that Amazon has the best way to build a large amount of sales quickly and that could be the case in most categories. But what we're actually seeing consistently across all the businesses we work with, is on average, the business owner is actually paying Amazon about 30% of their revenue in total, with all the fees, all the advertising, all the fulfillment costs. They do a lot for you, don't get me wrong, but they take a huge chunk of your revenue and the businesses that we've seen sold over the last 12 months worldwide have a close to 30% net margin. So a lot of them are below that and a few are above that, but Amazon's taking 30% as well. So you actually need pretty substantial margins, but also if you're doing, say, 10 million in revenue and you're giving up 3 million to Amazon, that's quite a big budget to work on your own direct channel.
Coran Woodmass: Now, you don't want to cut off Amazon, of course, but maybe you could invest $500,000 over the course of the year to build up your own channel. Of course that scales depending on how large your businesses but I think those direct to the consumer channels are really important, especially when things like subscriptions can be applied to your products if it's a consumable, a company like Native Deodorant here in the States sold, they launched their company specifically on their own website. I think it was Shopify. Within two years they sold for $100 million to P&G, and they had one sales channel, one country. They just sold in the US, just on their website and P&G came along and bought them. They had huge margins and a huge 60% repeat purchase rate on a subscription based product. So that's why they came knocking on that deal.
Coran Woodmass: They also had 10 million of EBITDA, which is no small amount in two years. That's a pretty good clip that they sold for. So that's never going to go away and it's actually more valuable because you control those levers. You control your own website, you control your own email list, you control whether you bill customers again, whereas if the with Amazon, you've actually got Amazon between you and the customer, which is why there's a limit on what those businesses would be worth. So that's on the value side, but in general, as a business owner to get up and running with e-commerce faster, like you were saying, 10 years ago, you know, a lot of this stuff was built from scratch. It wasn't out-of-the-box software like Shopify or BigCommerce. So I think it's awesome that these platforms are out there, for sure.
Jeff Bullas: Yeah. So you mentioned an interesting area, which has evolved over the last 10 years, which is a subscription business model, even for physical products. Can you explore a little bit more about that trend, because that's quite fascinating? We recently saw I'm just trying to think of the name of it. The shaving company. They sold, what was their name? I'm trying to remember it.
Coran Woodmass: There's a couple. There's Dollar Shave Club, sold for a billion to Unilever, and has Harry's sold? They've just raised a lot of money, I think.
Jeff Bullas: Yeah, but these are physical products where you obviously pay so much a month and get a certain amount of product per month. So tell me a bit about the subscription model and obviously, the ones we talked about, like the deodorant obviously has a higher margin. The shaving also had a higher margin. Because typically, the Gillette's of this world have been charging a premium price for something that costs very little, and I suppose that's where Harry's and the Dollar Shave Club saw an opportunity in that high margin business dominated by almost oligopolies globally. So tell us a bit about the subscription model trend, because it's actually maybe emerged in the last 10 years hasn't it? From my observation.
Coran Woodmass: Yeah. So from an investor's perspective, why this is more valuable is as it's predictable revenue. So with a lot of the direct to consumer D2C brands, when they can show investors things like... If you've ever watched Shark Tank, Mr. Wonderful always asked this, the US version. He's always asking, "What's your cost to acquire a customer?" which is called CAC in the industry. "What's your lifetime value or LTV?" Right? And, "What's your AOV?" which is the average order value. So a subscription based business ticks all of these boxes. You know how much it costs to acquire a customer and how much you're going to make out of them, up front and also over time. So the longer a customer stays with you, the more predictable that revenue is. The longer that trend has been, everything else being equal, the easier it is to model the future. It's not guaranteed, but it's a higher chance than if someone's buying a one off product and you need to keep reselling that customer every time. So that's why it's valued differently. Why it's popular is people are super lazy.
Coran Woodmass: Once you get a product you like, just get it shipped to me. We have these protein bar things that we eat and we've got them on subscription and we ran out yesterday and had to place an emergency order. "This is going to run out." But it was already on subscriptions So it's kind of funny that you kind of get reliant on those types of things, especially right now when you're not wanting to go to the store so much. So that's why subscription is... If you can hit the point where it's a no brainer or critical to your customer, that's where it really matters. I saw Michael speak, the founder of Dollar Shave Club, and he was saying the reason he came up with this idea was twofold. He was frustrated that in chemists and drugstores, he had to go to the counter and ask for that cabinet to be unlocked because it was like Fort Knox, just to get your blades and whatever.
Coran Woodmass: And he's like, "This is ridiculous. Why can't they just be easier to buy?" And at the same time, he got a shipment through his father in law, I think, of a container load of cheap razors and I forgot the story of how they got this. But those two things combined, he's like, "Why can't we sell this online and make it easier for people?" And they came up with that awesome video that went super viral in the beginning and they were off to the races.
Jeff Bullas: Yeah, they were. I watched it and their business model too and marketing was, was a bit of a beautiful growth hack as well in terms of getting friends and family to basically spread and share on social because that big growth hack initially was using social media to actually get their message out and the reason it worked quite well back then is because social media was very organic. Today if you want to be seen on social, unless you're a president running a country and have 70 million people following you, you basically have to “pay for attention”. That’s advertising. So they got their timing right in a couple of different ways. Number one was they actually were in the middle of the social media organic, you know, growth spurt, which started to peter out in 2013/14. So, timing tends to be a little bit of everything in business. I saw a TED talk recently saying that the top five factors for business success number one, by a long way at over 40%, was timing.
Jeff Bullas: So at the moment, we're in the middle of an opportunity for people to launch an Amazon store themselves. We're seeing people developing brands rather than just commodities on Amazon. So what are some of the product areas you see as being good at the moment? Which ones do you see as being in the middle of great timing?
Coran Woodmass: I'm just going to kind of take a step back and say how would you get started in this space? And I think it depends.
Jeff Bullas: Let's maybe go to that then.
Coran Woodmass: Yeah, maybe we'll start there and then answer that question by default, or as an extension of that. So, I get asked this quite a lot, because people assume I'm an expert on Amazon because we sell Amazon based businesses. And I'm very close to some of the most successful Amazon sellers in the world right now, including a call we just had before we jumped on here. I'd argue that that client is probably one of the top Amazon marketers alive. So that's kind of a unique perspective. But this type of business model isn't for everyone. As I mentioned, this, me being an operator and an online based business wasn't actually that exciting. So I'd start with this business model for you? So go and find someone who's already doing it, get an understanding of if that's even interesting to you for starters. The second thing is I'd look at how much capital I have to deploy. The most successful people that start a physical based product in any area, whether it's Amazon or direct to consumer, invest a lot up front and then invest more money to keep the business growing in the early days to give it some room to breathe.
Coran Woodmass: So if you're going to have to invest anyway, you may want to actually look at acquiring something that's already working, because the owner has spent years trying to figure out what worked and what didn't and they've got it to a profitable point. So if you have more than $100,000 to go to start with, then acquiring might actually make sense. Whereas starting from scratch, you could probably get there with 10,000 to 50,000. Depending on the category and you typically get a lot more money than people make out when they're trying to sell you a course on how to get started. If you want real money out of it, that is, to actually replace your income. A friend of mine has a 1,000 day principle. Dan is his name. He runs the Tropical MBA podcast, he has this 1,000 day principle where he says if you start a business from scratch, it's going to take about 1,000 days for you to replace your income and it's not going to be a quick thing to get going.
Coran Woodmass: And that's even more true in an inventory based business where you need to... What you think is, I want something that's going to sell really well. If it grows really fast, you're going to have to put more money in, not just reinvest profits.
Jeff Bullas: That's right.
Coran Woodmass: That's a little rant. But that's kind of something to think about with this business model. Now, to answer your question, things I'd be looking at is how consumer behavior is changing now, as far as trends, and it could be a little bit tricky to figure out what's going to happen next. So I'd also look at recession trends in the past, what products keep selling well in recessions? And also, what are you and your friends and family buying right now? And where do you think that's going to go? So I think part of that is an art and part of that is science.
Coran Woodmass: And then being a part of that target market would also be helpful as well. If you're an athlete, if you're in a certain category, or certain industry craft, whatever it is, you've got insider knowledge, you know where everyone else is going, right? So the closer you get to the customer, the more predictability you'll have. And then just being observant as to what else is out there. And not doing the copycat game like seeing what else is selling well, and just selling another one of those. There's definitely a shelf life on that approach as a general rule, so yeah, that's where I'd start and high margin. I mean, you hit this on the head earlier. Look for high margins, you're not going to make a real business if you're competing on price. A lot of our clients actually have premium products even on Amazon. They're higher priced, but they're better quality products higher rated than everyone else. So there's a couple of ideas.
Jeff Bullas: Yeah, well, the other area that Sophie mentioned when I talked to her was, she went to premium organic teas, which sort of compete a little bit in the supplement space and there were some claims being made by some of the other sellers on Amazon and they got shut down because she wasn't making those claims. They were almost deemed to be pharmaceutical type supplements. So she ended up with good timing in another way in that all our competitors got shut down by Amazon because of unsubstantiated claims and she was like the last woman standing effectively but you know, you can't count on that.
Coran Woodmass: The Steven Bradbury approach.
Jeff Bullas: That's right. Famous Aussie ice skater, where everyone fell over at the end except him, and he crossed a line and took the gold medal at the Winter Olympics. You just can't count on that unless you want to push them over.
Coran Woodmass: Yeah, exactly.
Jeff Bullas: So you've built the business. You've started and I do like... You give an example of the 1,000 day trajectory. A lot of people see people doing well on Amazon, going, "Yeah, I'll do that and I'll be making money next month," or, "I'll start with $10 and we'll be making a million dollars this year." You've just debunked that entire myth. You've broken so many people's dreams already. That's fine. This show's hopefully about reality as well as dreams. So you've started the business, invested, you're two or three years in, maybe a year in, if you're lucky. Some have done that faster than others. When it comes to selling your business, and you mentioned a few key factors, what a savvy entrepreneur investor is going to be looking for. What would you need to make sure you have in place, if you're going to go to market and exit and sell your business?
Coran Woodmass: For perspective, worldwide, out of all the deals that we track, publicly available, we've seen about a 24, 24% sell-through rate. Meaning out of every 100 businesses, only about 25 of them are going to sell, at best. The vast majority of businesses that go to market want to sell, simply won't sell for a number of reasons and what I'm going to share with you and the audience here is, how to think about this as a concept. Now the most important thing to begin with is, what stage is your business in? There's actually three stages in an Amazon based business or any product based business. Any business, really, before going to sell, there's three stages. The first is startup. In a product based business, you're just trying to figure out what works. You're trying to find that hero product and that could take anywhere from six months to two years, just to find what really works. What's profitable, what you can sell, what the customer's like, what makes the product better.
Coran Woodmass: Then you need to build out a suite of products around that customer to build out a real brand and then you hit that growth phase where you're expanding the product line for that target market and it's critical that you stay on point with the target market here and not shoot in different directions, which some people do as well. When you're in that growth phase, often you're putting more cash in and not being able to take cash out, so you think, hang on a minute, I'm doing a few million in revenue, I could sell this, take out a couple million dollars and then someone else can run with that, which may actually be an option. However, if you can just bridge that gap and get to the next stage, which is optimizing for profit, which is actually going to make the business more valuable.
Coran Woodmass: If you can push through that growth phase and only sell once you're in the optimization phase, that's where you're going to see the biggest return on your time, money invested in building that brand. Most people, like I said, sell in the growth phase so it's not optimized for sale and a lot of people that get into this space are sold on get rich quick and then think, I'll just build a brand in a couple years and sell it. You might be selling too soon or it might be the best thing ever. But that's what we see. People don't look at the stage of the business that they're in before going to sell.
Coran Woodmass: We work with our clients anywhere from 6 to 24 months, sometimes longer, before going to sell and it's amazing the small tweaks we can make along the way to improve the value of the business. One of the businesses last year we sold in just nine months of optimization work with the client and exit planning, we took the business to triple the value in just nine months and sold it late last year. That was a huge result. It was actually unsellable when we first spoke and the main reason for that was the margin sucked. They weren't making money and that's why they wanted to sell the business but a few tweaks later, we actually made it very profitable and sold it for over seven figures. So that as a pretty big outcome for them, over tripling the value, like I said, in just nine months. Working with someone and understanding what it takes, what investors are looking for, is something that's critical.
Coran Woodmass: We already touched on the first one, which is the brand itself. The next is profitability, product diversification. You want the product suite as a percentage of revenue, to represent a suite of products, not one hero product. Often, you get to a hero product stage and maybe some accessory products and you think, "I'll just sell now." Well if your business is reliant, more than, say, 30% of your revenue's coming from one product, that value is just not going to be there. There's a lot of risk involved, especially if you're selling on Amazon because you have single channel risk with revenue and then you have a single product risk and investors are not going to over-pay for something like that. They want diversification. Brand, diversification of products and then diversification of sales channels also will improve the chance of you selling and the value of the business.
Coran Woodmass: If you can generate a single channel outside of Amazon to be more than 30% of your overall revenue, that's going to increase the multiple and change the type of buyer that would want to buy your business. That toy company I mentioned last year had about 30% of their revenue through retail channels. However, it wasn't valued as high because a lot of those retail accounts were new, so they didn't know if they were going to reorder. If we had waited a year longer, and there's reasons we didn't, but if we had waited a year longer, the chance of us selling for a much higher amount were very high but for a few reasons, the client wanted to sell and the buyer also wanted to buy immediately. It was one of the fastest closes we've seen in this space and they paid well above an average e-commerce multiple for that. So all of these things really matter. When it comes to diversification of sales channel control matters, we talked a lot about Shopify here, if you control the sales channel, the distance between you and the customer, that's valued higher if it's a higher percentage of your revenue.
Coran Woodmass: I have clients that literally text me if they get about 50% outside of Amazon. They're cheering, "I've made it. I got to over 50%." And that really moves the needle on the value of the asset that you're building. That's a couple thoughts. A few different ways to look at value and how to really maximize the thing and the last thing I'd say on this is history. A lot of times, clients... We have one client that went from zero to low eight figures in revenue in just two years, from a cold start. That's almost impossible in any industry, right? But they did it using Amazon as the main platform. That's insane, to have this much growth in such a short amount of time. However, if you try and sell really quickly without proving out more history, there's a ceiling on how much someone's going to pay for that. That's something to take into consideration as well. Don't rush to sell.
Coran Woodmass: Think about strategically planning your exit, especially if this is your main business. If this is your sole income and you really want to optimize the outcome, if you spend some more time strategically planning for an exit, you could double, triple the exit and like we started with, you could really set up your life, your family and future families for life if you do it right.
Jeff Bullas: Right. So if you do it right, you can have that generational wealth and be sitting next to turquoise oceans and reading a book and going on these wonderful holidays. Generational wealth. So what I've found interesting too was, you've talked about hero products, the risk of a hero product, without building a suite of products out and you also talked about multiple channels. I would totally agree with you in that if you're going to sell something, as an entrepreneur, you want to have as much control as you possibly can and if you are only selling through Amazon, that is a risk because Amazon can change the rules. They can increase their costs. We see it all the time. In essence, they care about you because you're paying that 30%, which is huge, but essentially they're about making money and then you talked about other channels outside of that. You've got the hero product risk. You've got the channel risk. It's interesting, you mentioned retail stores as a channel of distribution. You also then mentioned building your own Shopify story or a similar. In other words, using a platform or even building your own e-commerce store, which if you want to go into that space without using a platform, that's a lot of work. I've been in the middle of that.
Coran Woodmass: And a lot of money.
Jeff Bullas: A lot of money, exactly. So platforms like Shopify and BigCommerce certainly provide a lot of, not done for you, not the correct word for it but they've done a lot of the heavy lifting already by providing an ecosystem where you can start quickly. So for an entrepreneur, a lot of people say entrepreneurs are all about, they're big risk takers. There was a conversation I was having the other day with a friend and I said, "Actually, the best entrepreneurs are the ones that don't take much risk at all."
Coran Woodmass: Absolutely. I totally agree with that.
Jeff Bullas: Can you talk a little bit about the risk takers you've seen? The most successful Amazon store owners. What do you see? How do they minimize their risk?
Coran Woodmass: Yeah. I've got the unique perspective of hanging out with a lot of these top sellers that I'm proud to call clients, quite frankly. A lot of them aren't diversified outside their business. They might diversify with another business but few of them are actually taking cash out to invest, which are some point of your life, might make sense. But I heard an interview with John Paul DeJoria, who was the founder of Paul Mitchell Systems and Patron Tequila, multi-billionaire. He was actually homeless twice on his way to becoming a billionaire and he said his biggest piece of advice was, along the way, regardless of how much promise the business has, take cash out of the business to invest for yourself and your family, and for him, it was real estate. He was putting money aside, taking profits out of the business along the way, investing that for himself. So taking some chips off the table as you go. It has an added benefit because if you have a proven way to get a return on capital, when you go to sell the business, you'll know how much money you need to sell to have generational wealth.
Coran Woodmass: We've seen a number of people in this space sell. Some of them were clients, unfortunately. Others were friends that sold and didn't sell for enough but had the basis of a business that could've been worth a lot more if they just had structured things a little bit better but they didn't know how much money they needed and you can only really know that once you have some investments that are actually giving you an ROI. There's a difference between cash flow and cash pile, as we say. If you have a pile of cash, you think, I've got no worries in the world. But what happens to a pile of cash if you still have expenses? It's going to continually decrease and regardless of the size of that pile of cash, decreasing if not a good thing. Your fear mechanism kicks in in your brain. If you don't have cash flow coming in and you're depleting your bank account, it changes your mental state. Trust me, I've been through this myself. It's a crazy phenomenon.
Coran Woodmass: So being able to efficiently deploy capital before you sell a business is actually a pretty smart move. I have a friend, interviewed him on my podcast, Truth About Exits. He spent a full year after selling his business, just trying to figure out how to generate a solid, predictable return. He chose mostly real estate as well and then a year after that he realized he didn't sell for enough money. He actually came and bought one of our deals, which was larger than the business he sold, ironically. Late last year he bought a deal from us, so he's back in the e-commerce world, building again, but he's unlocked that next level of financial security, which is good. That's kind of a long way of answering your question.
Jeff Bullas: Yeah, well it's important because as you said, cash pile versus cash flow, watching your cash deplete if you don't have a source of revenue. You don't necessarily have to have a big source of revenue, as long as it pays for your life. Like you said, some people want a jet, some people are happy just to live simply in a cabin in the forest and eat potatoes but everyone's idea of success varies. I certainly, for me, making life as simple as possible has become quite a goal of mine. I've actually learned to say no a lot more and there was a really interesting statement about this too. Someone said, "When you go to say yes to something, just imagine if you were going to do it tomorrow." So you might be saying yes to something three months, six months in the future, but if you're going to do it tomorrow, would you really want to do it? Would you want to be up at 6:00 AM to do that conference call? Or would you be wanting to... Whatever. It really puts a reality check on it quite quickly and especially as you get a little in older in years, you sort of go, what's really important?
Jeff Bullas: You sort of sit back and reflect going, what really does bring me joy? I think the other thing you mentioned at the beginning of our chat was, is doing an Amazon e-commerce business something you... is good for you? Because you might really hate it. I got into a retail business about 15 years ago. It was the worst thing in the world. It seriously was the wrong thing for me. Where I play today is the right thing for me and I didn't take any risk. I did it as a side hustle while I worked full time and it was, it was close to... Within about three years of starting the online publishing, education site, Jeffbullas.com, within about that three to four years, I was starting to get paid enough that if I wanted to, I could live off. Hadn't quite replaced my day job revenue or salary but I just sort of ended up getting myself slowly fired from the job I was in because I was getting distracted by my website, my blog, my speaking around the world and it was actually almost no risk.
Jeff Bullas: I just slowly segued out of the business, or the company I was working for. It's been just so easy. Whereas before, I'd be trying to force things to make them happen and if you don't enjoy them doing it, you are going to wake up each day hating yourself and hating life and I think the thing for you is you love what you do, I can see it, you're passionate about it. Like you said, you're not really into running an Amazon store yourself but you love the deal flow. Can you tell us a little bit more about what you mean by deal flow? Because that's interesting.
Coran Woodmass: Yeah, so if you look at any sort of investing, you'll find that there's retail and then there's wholesale or off market deals. So if you're looking for a house to buy, for example, and you look at the local real estate agent, there's going to be listings but it's already priced, they already have an expectation for sale. It's the same in businesses. Businesses for sale. If a broker's involved, if an advisor's involved, they've already set expectations, they've prepared the business for sale. However, if you go direct to find real estate deals, business deals, whatever it is, IPOs... If you know that a company's going to go public before it's going public, that's also direct deal flow.
Coran Woodmass: There's direct deal flow, which is you have a direct line to the opportunity. You typically get a better return the closer you are to the deal, which is what my broker friend was talking about is deal flow in our world is, how many entrepreneurs do you know, or business owners, that are looking to sell at some point in the future? Because if you can work with them, then you can take a percentage on the sale, which we get equity at the best time in a business when it's fully optimized for a sale. So we're incentivized to sell for the highest price possible. Our clients, when we win, the investors win because they're looking for that type of a deal. That's what I mean by deal flow, having a constant flow of whatever you're wanting to do. So if you're a speaker, it could be a lot of speaking gigs. In other industries it's really talked about as lead flow. In investing, it's talked about as deal flow because often we're looking for deals to work on. So we say we're running a deal when we take a business to market. Investors will say, "What deals do you have coming up?" That's why it's called “deal flow”.
Jeff Bullas: Right, okay. Makes total sense. So Coran, how did you structure your revenue from the FBA Broker? How does that work? I heard two areas. Number one, there is a fee involved, and then there's equity. So can you explain a little bit more about how you operate so people can understand? Because some people might want to sell their Amazon stores, just might want to sell their e-commerce stores. How do you operate?
Coran Woodmass: Like I mentioned, we get involved in the business as early as possible. Often 6 to 24 months ahead of selling the business. We offer actual exit planning where we get in with you in the business, understand exactly what levers to pull to increase value, not just a surface level free phone call, we actually work in the business with you to understand what's going on. So there's a fee for that. When we actually go to market and sell the business, most people think that it's like a house. Everyone has a house or lives in a house, so it's kind of an easier thing to grasp. If you have a house and you want to sell it, you call it your agent, they put it on the market. Simple, right? Whatever's right or wrong with it, it is what it is. When it comes to a business, that's actually a horrible way to maximize value. There's actually three things to consider before selling a business. The first is, are you mentally ready to sell the business? Because you need to be committed to move forward. The second thing is, will the market likely pay the value that makes it worthwhile? Not just worthwhile but you need to be excited about that number to sell your business, in my opinion.
Coran Woodmass: And the third thing is, is your business ready to sell? Which is why we end up working with our clients for so long before selling. We do what we call a pre-sale audit, where we go through the whole business as an investor would and this was born out of seven and eight figure deals that closed and also those that didn't close. We've been through diligence with public companies, $100 million funds, the works. Strategic acquirers to private investors. The whole works. We've got over 100 points as a checklist that we go through with all of our clients. Financials, logistics, everything. We look at the metrics behind the business as an investor would and there's three outcomes. Everything comes in threes. Why is that?
Coran Woodmass: Three outcomes from the pre-sale audit. One is you're ready to go to market. We've got the green light to sell. The second is, maybe there's a couple of things you need to work on in the business to improve the value. We'll give you what that is. Or third, and occasionally this happens, is actually an investor reg flag that would stop the deal from happening. So we want to make sure that that work's done upfront before we actually go to market, so when we go to market, the information we've gathered in our pre-sale audit, pre-populating what's referred to as a data room, which an investor wants to see to pass due diligence. Again, most people think you just need an offer, you just need one buyer. It's not the case. Just getting to an offer is the beginning of the deal, not the end. We don't really believe we're running a deal until we have that offer signed. Then we get into diligence. We get past diligence, get into the contract and closing where we all get paid. So we work on a retainer plus success fee. That retainer is refunded out of the success fee and that's to do all of that work building up to getting the deal launched and taken to market.
Coran Woodmass: We don't use a list price, like I mentioned earlier. This is quite unique when it comes to selling businesses because we don't want to limit what the market will pay. We want to see what offers are out there and then negotiate the best possible deal for our clients. That's how we work. What I meant by we get equity at the right time is, as a percentage of the sale is our success fee, so it's essentially equity in the company at the right time when they're about to sell. So that's what I meant there. It's not physical equity in the company unless we've negotiated another deal, but typically when we work with a client, we prepare them for sale, which is a fee and take them to market, a retainer and then a success fee on the other end.
Jeff Bullas: That makes total sense. So it's been fascinating talking to you, Coran, in terms of just the whole insight and looking under the hood of Amazon and online stores and some of the stories around that. It's been fascinating to... I see your passion as well about it, which is obvious, and you've obviously got some good timing happening.
Coran Woodmass: For sure.
Jeff Bullas: You're an overnight success after what? Four years? Is that right?
Coran Woodmass: That's right. Well, the three year thing was right for me too, yes.
Jeff Bullas: You were the three year 1,000 day success story as well. I think that's important for people to understand is you've got to be playing the long game, which you have been doing. What's fascinating too for me is you started off as a traveling nomad and the opportunity came out of a conversation at a bar regarding deal flow and you also had done some Amazon store work before. You ended up in the place where you're meant to be, by the look of it to me. It's fascinating and I find it great to see these stories as I have fireside chats to people. I hadn't met you before you reached out to me to actually be on the show and so I went, "I think the timing could be good, sounds like an interesting story," and it's been great to have a chat. So thank you Coran for your time and look forward to maybe doing a follow up in a year to see how the lay of the land is because we can't predict the future out of this. We're in the middle of this pandemic, this global trauma. Everyone's doing predictions of what the future's going to look like and a lot of those predictions are going to be wrong but if there's one thing for sure, we're in the middle of a huge change and out of change and the pain comes opportunity.
Jeff Bullas: I am intrigued by what that will be. We'll both be watching with interest along with the rest of the world in terms of what is going to come out of this. Thank you very much for your time, Coran, it's been great.
Coran Woodmass: Awesome. Yeah, thanks Jeff.
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