February 1, 2019
Building a company with more than 100 employees and over 200K customers isn’t easy, but that’s exactly what today’s guest has accomplished. In this episode, I speak with Greg Mercer about how he built Jungle Scout into the power-house company it is today.
Besides the company’s history and growth, we also dig into Greg’s thoughts on scaling a SaaS company, the future of Amazon FBA sellers, and what makes him unique as an entrepreneur.
Whether you’re looking to execute with a fast-growing team, need advice on making quick decisions, or simply want to hear from a successful entrepreneur, you don’t want to miss this interview.
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“You have to be very clear on what you expect the software to do.” – Greg – Tweet This!
“As the business has matured, it’s become more and more important to build a really high quality product.” – Greg – Tweet This!
“You need to be relentless in trying to cut down the scope of any product.” – Greg – Tweet This!
What do you think are important elements when making this decision? Let us know in the comments!
Justin: Welcome to Empire Flippers podcast, episode 181. Building a company with more than 100 employees and over 200,000 customers isn’t easy. That’s exactly what today’s guest has accomplished. Up soon is my interview with Greg Mercer about how he built Jungle Scout into the powerhouse company it is today. We talk about how he got started and built it to scale, but I also wanted to pry into what I think makes him unique as an entrepreneur, and that’s how he’s able to quickly make decisions and execute with a fast-growing team. You’ll find the show notes for this one at EmpireFlippers.com/GregMercer. All right, let’s do this.
Announcer: Sick of listening to entrepreneurial advice from guys with day jobs? Want to hear about the real successes and failures that come with building an online empire? You are not alone. From San Diego to Tokyo, New York to Bangkok, join thousands and entrepreneurs and investors who are prioritizing wealth and personal freedom over the oppression of an office cubicle. Check out the empire podcast, and now, your hosts, Justin and Joe.
Justin: All right, Joe, you and I both know that building a software based company as non-technical founders is not an easy undertaking, and probably not something I think we could’ve done from the start.
Joe: Yeah. Definitely not something we could’ve done from the start between the costs, the know-how, the engineers. I’m glad it’s something we didn’t attempt from the beginning.
Justin: Yeah. Are you familiar with the guy, Dane Maxwell?
Joe: I am not.
Justin: Okay. So, a while back, he had a course called The Foundation, and that was a big inspiration for Greg and others to kind of start these software businesses as non-technical founders, and it was kind of a pre-salesy way to kind of validate your idea, get some cashflow. They basically fund your attempt to build what you’re talking about, and then, kind of build it out and it was an interesting kind of breakthrough for, I think, non-technical people to start trying out technical projects.
Joe: Yeah. I’ve heard of this, actually. I’ve heard of this, and it makes a lot of sense.
Justin: Yeah. He’s out of that now. I think he went off to be a musician of something. He wanted to play music and gave up the business. I don’t know what happened there, but it was a really kind of inspiring thing for a lot of entrepreneurs that said, “Look, I want to build a SaaS company. Let me figure our how to do this.” One of the things I loved about Greg Mercer and I loved about this interview is I love the way he makes decisions. It’s fascinating to me because it’s so different from the way you and I operate. I mean, we’ll mull things, right? It takes a while to kind of think it through. In a lot of instances, we can see that, that helped us. That was helpful to us. He doesn’t do that at all. It’s a lot of quick, just gut kind of decisions, and he tends to have, I don’t want to call it luck, but his gut’s often right. And so, one of the things I asked him about was, “How do you scale those gut decisions?” That’s a challenge.
Joe: Yeah. I mean, I think one of the advantages you probably do have with software is it’s easy to make a gut decision, go with it, and then, back track. If you need to, you can roll back, right? Whereas, if you have a more service-based business, and you start to hire a bunch of people, make a bunch of plans, it’s more of a big boat to try and turn around if you did make the wrong decision.
Justin: Another this is, and I mentioned in the intro, he has over 100 employees now. It’s an interesting comparison to Tim Soulo from Ahrefs, who I spoke to on the last podcast, where he said they’re maxing out at 50 people, and their reason for that was not to go past that line, not to kind of … the bloat territory of having to hire a bunch of administrative people to kind of manage the people. And so, we’re crossing that barrier now. We’ve crossed the 50 person mark, and there is some truth to that, right? There is some costs that come with just managing the managers and managing the team and some administrative support that kicks in. Our thought, though, I think if you get past that hurdle, past that initial point, it scales well, right? So, you can scale your team even better, but there is some point at which … where you cross that chasm where your employee costs go up significantly, where they’re not driving revenue directly.
Joe: Yeah. I mean, we talked a little about this on the last podcast. I think the employee number is a bad number to just use as an absolute benchmark. It’s more like revenue per employee, but beyond that, you’re right. There is like a No Man’s Land, where you’re between 30 and 50, where you don’t have enough money to justify the costs of all those admin people to take care of your people, and you don’t really have enough people to justify it either, but once you get over 50, you really need it. So, it’s a tough place to be and a tough size to be at, and I’m glad we’re past it.
Justin: Well, I don’t know if we’re past it. I think we’re kind of in it right now, honestly. I think Greg gives me hope, though, because he’s at 100 plus people, and it’s kind of crossed that barrier. So, we actually talk about that in the interview. I think there’s hope. I think we’re going to get past it, but I think we’re right in it. We made the decision to do it, but we’re paying the price now as well. Another thing I wanted to mention is you and I, I think, both would probably say that trying to build, particularly, a large software company of platform on the back of a third party company is a pretty risky proposition, and so, I at least speak for me. I would say that tying a software business to Amazon can be valuable if Amazon takes off, which it has. It continues to grow and do really well. It could do well for you in the short term, but the long term seems risky, and that’s just not the case with Jungle Scout.
Joe: Yeah. I mean, they’ve definitely proven everyone wrong in that kind of case. I’m sure everybody was the naysayer in the beginning, “Oh, they’re going to shut you down. They’re going to change their API. They’re going to reduce your access. They’re going to do this, this, and that,” and honestly, they’ve welcomed it because hell, they want sellers to have these kind of tools in order to be better sellers on their platform. That just makes sense. I mean, if you’re going to give the type of people that are going to feed a marketplace of better sellers, of course that market place is going to advocate for you.
Justin: Yeah, man, for sure. All right, we’re going to get into the interview. Before we do that, [inaudible 00:06:05] to our featured listing of week. What you got for us, man?
Joe: This week, we’re talking about listing 44934. This is a Amazon associate’s package of sites. It also includes a small information product, specifically in the photography niche. It’s making just over $30,000 a month net profit. We have it listed for $1.1 million and change. It’s definitely the kind of thing you could use for income replacement, but it’s a big business. It’s the kind of thing that comes with a good staff in place. It even has a Portuguese and Brazilian side to it that’s dedicated towards that side of the business, but it is mostly in English. I like it because it’s fairly diversified in terms of different sites. It has something different things going for it. It also has some good opportunities in terms of PPC and that thing that the seller knows he hasn’t taken advantage of yet.
Justin: One thing, it’s been relatively steady for the last two years, and that’s kind of nice. If you’re looking for … You’re not having the feast and famine months for the most part, which is kind of nice, too. If you’re looking for a little, I don’t know, stability, this seems like now that … It’s supplied that for the last couple of years.
Joe: Yeah. It’s not highly seasonal, and it has a huge email list of over 330,000 English-speaking users. So, I think that, that’s great, especially if you’re an email marketer. You can take advantage of that. It has a nice Facebook following as well, with almost 45,000 Facebook followers.
Justin: All right, again, that’s listing number 44934, and we’ll put a link to that in the show notes. All right, let’s dig in the heart of this week’s episode.
Announcer: Now, for the heart of this week’s episode.
Justin: All right. Today, we got Greg Mercer from Jungle Scout. Buddy, how you doing, man? Good to have you on the show.
Greg Mercer: Justin, thank you for having me on the show. It’s always a blast to chat with you, and it’s been way too long.
Justin: Yeah, man. What was the first time we met? I think it was Dynamite Circle, the DC Bangkok event or something, and we got to hang out there for a bit.
Greg Mercer: Yep. I think that’s absolutely right. That probably would’ve been, let’s see, the end of 20 … no, probably was the end of 2015, I think. [crosstalk 00:08:12]
Justin: Yeah. Something like that. You’re mostly in the US. You don’t spend a ton of time in [inaudible 00:08:16], right?
Greg Mercer: That’s true. I moved back to the US in January of 2018. So, I’ve been living here in Austin for about a year, still traveling. Last year, I probably traveled for three or four months, but no quite like I used to. The first few years of the business, I lived totally remotely. I had no home anywhere.
Justin: Cool. I want to cover kind of some of the start of Jungle Scout, and I’m going to refer, I’m going to link to Pat Flynn’s interview with you, kind of how Jungle Scout got started, and one of the things you talked about was you heard an interview with Pat and Dane Maxwell, who’s from … What was it? The Foundation, I think, and he talked to non-software people about how to start software businesses, and for whatever reason, that lit a fire in you or something, right?
Greg Mercer: Yeah. At the time, I was just selling physical products on Amazon and just strong entrepreneurial spirit my whole life. So, I was looking for kind of other things or where the grass is greener always. It’s a typical problem of entrepreneurs, but Dane Maxwell, he made it sound like starting SaaS businesses was so easy and just the ultimate gold mine of businesses. So, I was like, “Man, I really need to start one of these one day, but I have no idea how to program. I don’t know anything about it. I don’t really have an idea,” but I think I just kind of just thought about that for months and months until I came up with an idea of what I thought the public might like.
Justin: What is it scratching your own itch? I know you were selling on Amazon at the time, right?
Greg Mercer: Yeah, that’s exactly right. So, it was scratching my own itch. So, anyone who is not familiar with Jungle Scout, it’s a product research tool for Amazon sellers. So, it helps you find profitable opportunities on Amazon, and at the time, I had a pretty complex spreadsheet. I had developed algorithms to estimate how well any product on Amazon was selling, and that was really kind of valuable piece of information that I had because all of a sudden, I understood what the demand was like for all these products on Amazon. So, most people were just kind of guessing or just putting all their products up on Amazon or whatever else, and all off a sudden, I could tell what was selling well on Amazon instead of just guessing. So, that’s really how it all started, and that’s, yeah, how Jungle Scout was born. So, the first thing I did was create a Chrome extension. So, I essentially turned this complex spreadsheet and these algorithms I had created into a Chrome extension, and that was the original product we sold.
Justin: And it was also something you were using, right? I mean, you needed to find these profitable, viable niches, and Amazon was a much different beast back then, but you wanted to find the [inaudible 00:10:36], like, “I want to find the gold.” It’s funny, man. Those keyword research type businesses, I know a bunch of them that have done well, and friends have started them. Spencer Haws with Long Tail Pro did quite will, AMZ Tracker, right? There’s a whole bunch of these businesses that kind of got started with, “Where do you find the money? Where do you find the gold?” What was the first step? Did you hire a developer? Was it just spreadsheet based? How did you find someone to build that Chrome plugin?
Greg Mercer: I found them on … Let’s see. Upwork used to be called Elance. So, I found them on Elance. No idea what I was doing, really. Prior to that, I had tried to create a couple real simple software projects, and they both failed … just the project, in general, failed miserably because I had no idea how to manage developers. I had no idea how to work with them. So, I learned a little bit through those, and my biggest takeaways were, essentially, you have to be very, very clear on what you expect the software to do. So, that might sound simple if you’re listening to this podcast right now, but I was trying to just send emails with descriptions of what I was looking for and not being real clear about how everything worked. Whereas, this one, I finally understood, “Okay, I’m going to give them this rough drawing of what it looks like. I’m going to explain to him what all the different buttons would do,” and that was a really important part. And then, I also hired a little bit higher caliber developer.
Greg Mercer: So, previously, I was trying to hire these developers that were making three or five dollars an hour, whatever else, and I don’t think there’s really any way around it. I mean, good developers make good money. Even if they’re living in these low-cost countries, good developers that really know what they’re doing, they’re still making pretty good money. I’m not talking about astronomical for this particular person because he did live in a low-cost area, but instead of three or five dollars, I think I was paying him 25 or 30 dollars per from, and he’s still more so on the junior end of developers, but he was good enough with my instruction, kind of what I had learned, to turn this Chrome extension into a reality.
Justin: It’s funny how much money you can spend with cheap developers. You’re like, “I’m going to save money of five bucks an hour,” and it costs a lot more because it takes them 10 times as long to get it done as the person that costs 30 or whatever. Yeah. That’s interesting. So, you build this out. What was your kind of marketing/launch strategy? Was it just you and your buddies? How did you sell your first couple of deals?
Greg Mercer: Yes. Again, looking back, I had no idea what I was doing. I was just trying to consume as much information and content as I could of how to sell this thing, and long story short, I tried a number of different things, but ultimately, what ended up working in the early days and is still a good sales channel for us today, is doing webinars with people who already have audiences that are interested in this, or webinars or podcasts or YouTube videos or whatever else, people who have existing audiences, and then, offering them an affiliate commission, and these were designed to be highly educational. So, if we’re going to do an hour webinar, 55 minutes of this is pure education information that they’d be proud to show their audience, and then, essentially, the last five minutes of it is kind of a light sales pitch or even through that educational information, you just understand how valuable Jungle Scout is. So, that’s ultimately how I sold the first 50 or 100 kind of licenses of this Chrome extension. That’s, ultimately, what got it all started.
Justin: Gotcha. So, were you cold emailing these people for these webinars? I mean, how’d that work?
Greg Mercer: Yes. So, I should also say that I was also, I’d say, relatively well-known in some of Facebook groups and even on Reddit that were talking Amazon FBA. So, I was kind of well-known in there for offering valuable information, just helping people a lot, and through that, I had kind of established some relationships with those people. Just through Facebook Messenger, I’ve talked to them about things or whatever else. So, they kind of knew who I was a little bit. It wasn’t quite a cold email, but then, I still had to reach out to them and be like, “Hey, what do you think about doing a webinar? Here’s a similar one that I did. Take a look at it. I think it’d be really valuable for your audience.” We also had a really good conversion rate, and then, these people that I started with were people who had relatively smaller audiences.
Greg Mercer: So, I wasn’t starting off going to … You mentioned Pat Flynn earlier, or some of these people with really big audiences because they probably get 100 emails like that a day. I’m talking about people who have a email list of 1000 people, 5000 people, whatever else, get a little bit of traffic to their site. Those are the types of people that I started with, and then, there would be maybe 50 or 100 people on a webinar. We had a pretty good conversion rate, sometimes 15 or 20 percent, and then, kind of just worked my way up from there.
Justin: I’m guessing you tried a bunch of other things aside from just the webinars. You found the webinars effective. One of the struggles in kind of scaling marketing is that you start off doing something that’s super effective, but it doesn’t move the needle later. It’s just not big enough to continue the growth of the business at the level you’re at. I’m guessing that wasn’t the case for these webinars because you could level up and go to larger audiences and larger audiences. Is that kind of what you found?
Greg Mercer: Yeah. We were able to scale up just with that quite a bit. I would say today, that’s no longer a scalable for kind of the amount of [inaudible 00:15:35] we have now and the size we’re trying to get to. So, we still do a lot of this today, but there’s only so many people with kind of with audiences interested in talking about Amazon FBA or kind of this particular product. So, now, we rely much more kind of on our content marketing strategy, but the reason that, that’s not really effective in the early days is now we have this really strong domain authority. We can rank really well for a whole bunch of keywords because over the years, we just acquired thousands and thousands of really high quality back links. We’ve been providing really good content. Google recognizes our site as it has tons of traffic, and people are hanging out there, using our free tools and everything else that goes into kind of content marketing. So, that was definitely the long play. In the early days, it’s just with a brand new site, it’s impossible to rank any stuff or these primary keywords or these high volume keywords.
Justin: Yeah. So, content is the long ball strategy for the marketing, and the shorter term hustle is webinars. Let’s bang them out because of customers. At what point did you realize, “Wow, I’m really on to something. This is something I could do full time and [inaudible 00:16:38]”?
Greg Mercer: Yeah. It’s funny looking back because I was trying to be careful that I had a very successful Amazon business. It was making me good money. It was very scalable. I knew how to grow this thing. It’s like, all right, I have 50 products that are each profitable. I just need to add 1000 more products or 10,000 more products or whatever else. I can do that. I saw the clear path ahead to scale that into a very large business. So, this was kind of a little side project. I was trying to be careful not to let it be too big of a distraction, even though it’s kind of exciting to me. But then, at one point, I don’t think it was just like a clear day that I realized this. I think I just started spending a little bit more time on it, a little bit more time on it.
Greg Mercer: I was kind of talking to other people, and they were shocked how kind of good conversion rates are and how excited people were when they found this product and just kind of … All signs pointed to it being just filling a need that people really wanted. So, just kind of over time, I just realized that more and more and more. I think when I told my story, more people who were experienced in the space, they’re all like, “Wow. Holy cow.” I didn’t have anywhere near that amount of growth the first six months or the first year or whatever else, and that’s when it finally kind of occurred to me.
Justin: Yeah. I mean, there’s a bit of a timing thing, right? I mean, when you started Jungle Scout, Amazon was early. You were kind of early days. So, you got lucky, and I’m doing the air quotes. The “lucky” bit was timing, and then, it comes with a whole bunch of work, good marketing efforts, and having a quality product. I was just talking to Joe about this literally today where we were talking about the value of having a high quality product versus kind of marketing, and right, there’s generally a balance between the two, which one you would prefer to be better or worse. I mean, which one do you think it … I talked to Tim Soulo from Ahrefs, and he’s the marketing guy there, but his claim to fame is, “Look, we’ve sold so well because our product is amazing. Screw the marketing.” Do you feel that was the case for Jungle Scout, that you just created a kick-ass product, and people were talking about it, or was it a blend?
Greg Mercer: That’s a really good questions. I think it’s always a little bit of a blend, and I think as the business has matured, it’s become more and more important to build a really high quality product. We kind of created this space. Before Jungle Scout, there wasn’t a product research base for Amazon or figure out what the good opportunities were on Amazon. It just didn’t exist. Whereas, now, we have dozens and dozens and dozens of competitors. So, it’s more important now that we have a really good product. We continue to innovate and stay ahead of all those competitors because they’re all gunning for us, right? We’re the market leader, and they want to be us. So, they’re gunning for us every day, but in the earlier days-
Justin: I bet. I bet.
Greg Mercer: Yeah. The earlier days, I’d probably say it was more heavily reliant on the marketing because I think back, and I remember our first competitor launched just two or three months after Jungle Scout did, and it was an identical replica of what Jungle Scout was. It looked the exact same. Everything worked the same. There was a few little small things differently that we thought we were better about, but ultimately, the audience probably did even care, or the public didn’t even care about those things. So, I was worried. I was like, “Holy crap, man. Is this guy going to take away half my business or whatever else,” but his marketing wasn’t very good, and I actually haven’t even heard of his company in the past year or two now. So, they just kind of died off. So, that goes to show that it is a combination. Even if you have the exact same product of a two month old company, then you still have to market it well to grow.
Justin: Yeah. Was there a point at which you said, “Look, Jungle Scout’s absolutely taking off. I have to give up my Amazon businesses. Those are kind of just less important. I have to switch focus and to put more time over here,”? And I guess the second part to that is, do you have any weird feelings or thoughts about that? Because there’s a real kind of preacher/practitioner thing going on with you, right? You have to show that you got chops on Amazon, and so, giving up those businesses or focusing less on them, was there any awkwardness there?
Greg Mercer: Yeah. I think there was a little bit of awkwardness, and in 2018, I pretty much moved completely out of the FBA business. I’d still say I spend two or three weeks on it, and I still have it, and it’s still nice to run experiments to understand what’s working, but I’m doing anything for kind of the day-to-day work in it anymore, and there definitely is a little bit of awkwardness there. I still think I have a very good understanding about the FBA space. I have to know kind of what the customers want. It’s really nice to still run experiments and launch new products and whatever else, to kind of be doing these original kind of case studies or maintaining kind of thought leadership in the area, but yeah, I think it was a little bit weird. Now, on the Jungle Scout team, since it’s grown into a very large team, though, we also have a lot of other Amazon experts on our team, who a lot of them are even smarter than I am. So, I think that kind of helped with any kind of weirdness around it.
Justin: It’s funny you mentioned 2018 because that’s way later than I thought you were thinking about. Now, today, right, your situation, you guys have over 100 people on your staff. You have over 200,000 customers. You have a very large team, and this is early 2019. I would’ve thought you would’ve given those FBA businesses up much before 2018. That’s funny you mentioned that. I mentioned that because I know Dan and Ian felt awkward about that, our buddies over at Tropical MBA. When they kind of gave up their business, they were like, “What do you have to talk about anymore? I’m not in the nitty gritty anymore.” So, in terms of building a software product … and I ask this selfishly because we’re working on a platform at Empire Flippers right now, and so, that’s taking [inaudible 00:21:51] time and work. Did you have scope issues? Talk to me a little bit about that. Customers requesting this product, that product, how did you kind of manage that?
Greg Mercer: Yeah. I think this is always an issue where something that you need to think about when building software products. For the non-technical founder or for the person who doesn’t understand development very well, it’s very easy to think that every idea you come up with and every project that you have’s easy for developers to do. So, it’s like, “Oh, man. I’ll just have this list of 5000 things that I want done. Each of them will take him 20 minutes. We’ll have this done in a month or whatever.” And the fact of the matter is building software and custom software is very time-consuming. It takes a lot of developers, especially once you get to larger scales where it has to perform very well under lots of load and lots of users and everything else. So, yeah, scope and the roadmap and what we’re building next is always kind of an issue and something that we really always have to be thinking about. The advice that I would give for the listeners of this podcast is you need to be relentless in trying to cut down the scope of any product and be thinking about, “What is the very minimal that I can build right now that provides value?”
Greg Mercer: Because the beautiful thing about SaaS is you can always be improving it, right? We push new code up every single day of the week. So, every single day gets a little bit better, but what you don’t want is to hold off for a year to release something to, to wait until it has all those little features and bells and whistles and everything else that you wanted into it. It’s better to release it every week or whatever else, and just consistently improve it a little bit. That’s actually where a lot of software founders fail, is they try to wait too long to release something, especially people who have raised VC money. They have some cash. So, they can say, “Okay, I’m going to build this beautiful product. It’s going to take a year-and-a-half or two years or whatever else,” and it’s just too long of a cycle. You’re not getting feedback from your customers yet about what they really want. You’re not building any momentum in the company. No one likes to work on something for two years without getting any feedback or having real users use it. So, yeah, that’d be some of my advice.
Justin: It’s funny you mentioned that. Our VP of engineering who’s worked with you on multiple projects has the same approach as an engineer, surprisingly enough. So, he is like, “Look, I just want to get out there quicker.” So, I think there’s probably some … You guys have come up with that or worked on that together. You’ve been in the same [crosstalk 00:24:06]. I can tell.
Greg Mercer: Absolutely.
Justin: Let’s talk a little bit about just scaling a SaaS business. Did you feel like you had a tiger by the tail, and you were just trying to hang on, or were you always constantly playing catch up in terms of hiring, in terms of putting the right people in place, or was it more like you were just kind of keeping even with it as it grew?
Greg Mercer: I think it was always organized chaos, trying to have the tiger by the tail, things were going well. We were consistently growing, but I think back to those first two or three years. There was tons and tons of problems that I didn’t foresee coming up, and I think we were always behind on hiring. Let’s see. Yeah, I mean, really, I just felt like we were always a little bit behind on everything. So, we always needed to be moving faster. There was always problems. So, yeah.
Justin: Did you raise any money?
Greg Mercer: No. It was completely funded from my-
Justin: All cashflow.
Greg Mercer: Yeah, from my other FBA business.
Justin: I wonder if you had’ve raised money if you’d have been a bit more open about hiring faster because it’s like … I mean, I don’t know. Because we’re in a similar boat, right? And we’ve kind of gone through that where we’re just trying to play catch up, and then, we hire a bunch of people because we’re like, “Oh, God. We just need these people.” I don’t know. It’s interesting. We’re self-funded as well, but I hear a lot from friends of mine that have raised money. It’s a lot easier to spend it. You’re supposed to spend it, right?
Greg Mercer: Yeah. I think when it’s not your money, it’s probably a little bit easier to spend, and anytime you raise money, 9 out of 10 times, these investors are looking to get a return on their money from the exit. So, they’re encouraging you to grow very, very fast, and there’s probably a good balance in that. A little bit of that’s probably good, especially when you’re on to something really big, and you kind of want to get out in front of the competition. At the same time, though, we’ve kind of gone through different spurts in the company where we’ve hire a lot of people in a small amount of time, and it’s hard to have all these new employees working on the right things really understand what’s going on. A lot of ours, before they’re really useful, they have to learn a certain amount about that kind of Amazon space and our customers. So, you’ll go through these big growth spurts and then not really increase productivity for a while, and then, you kind of get them dialed in, working on the right things. So, yeah, it’s very hard to hire and grow really fast.
Justin: Talk to me about the difference between your kind of hiring process for hiring your first, let’s say, dozen people versus follow on employees. Were you looking for people that just seemed like a good fit and were bright and hungry? Because you didn’t have roles necessarily. They need to figure it out, right?
Greg Mercer: Right.
Justin: They need to figure out roles with you.
Greg Mercer: Hiring the first dozen was way different than, let’s say, employee 50 through 100. The first dozen, you needed very scrappy people who just figure stuff out. So, these would be like a generalist marketer, just a generalist hustler person who could answer tickets but then also create help articles and also do this and that and whatever else. So, it was very much just these young scrappy, hungry people who could just figure anything out and just get stuff done, and that was really important in the early days, and if I were to do it all over again, I would hire that same type of person in the early days. As we scaled, and let’s talk about employees 50 through 100, now, all of sudden, we have a lot of specialists. So, these people are the best that we could find in their individual task, but they only do one thing. So, before, we had a marketer who did some Google Ads and some Facebook ads and whatever else. Now, we have one person who’s just focused on Facebook ads, two people just focused on Google AdWords, and these people are specialists in that particular space, and the same thing’s true with engineering.
Greg Mercer: Before, we would hire these kind of full stack engineers. Whereas, now, most people still know front-end and backend and whatever else, but we have some dev ops guys. All they’re doing is dev ops. We have front-end guys. We have someone who’s kind of like specialist in extensions. So, those types of people are what worked really well now because they’re the best at this one individual thing that we need them to be working on. Whereas, the generalist, kind of just the hustlers, it’s more common now to have kind of issues with them or for them to not be as fulfilled because we are trying to get them to just focus on one thing, and they’re more so creative and like doing lots of different things, and they like kind of working on something that’s no longer … It’s not up to their department to work on that anymore. We used to have-
Justin: Yeah. They want to wear multiple hats. They want to explore in the business. They want to play. They want to play in the business, probably similar to what you did early on. They want to be a part of that. Did you keep a lot of those early hires, or once it became more just role-based, did they get, I don’t know, for a lack of a better word, bored with it and move on?
Greg Mercer: Yeah. I think we’ve lost two or three of them. The rest of them … We have very low turnover at Jungle Scout. The rest of them, we have been able to find roles that they really excel in, they’re still happy with, but a lot of them still probably wish they could still wear more hats.
Justin: Yeah. It’s interesting. Maybe if you can find … I mean, I’m thinking [inaudible 00:29:00], but if you can find ways to let them still kind of have a piece of that and wear other hats while still filling a role, that kind of makes sense.
Greg Mercer: That’s kind of what we’ve done. They have this specialized role now, but we kind of let them do a few little side projects that are … These things might be kind of helpful for the company, but also just keeps them energized and stoked about what they’re working on.
Justin: How important were values to your business? I mean, you probably didn’t think about it at first, but at what point did values and trying to pass that down and keep that consistent throughout the company, when did that come into play?
Greg Mercer: I never really wrote down core values or brand values or anything like that until January of 2018, so about a year ago, and I do think it’s important. If you read online or whatever else, it probably tells you that you should be always writing all this stuff down and whatever else, but I didn’t really find it necessary because there’s only 10 or 15 people on your team or whatever else. You’re kind of training them, and just naturally, you’re passing on kind of the values that you believe in, even if you haven’t really thought about them too thoroughly or written them down yet. So, January 2018, I sat down. I spent quite a bit of time writing down some core values, and these are the things that we were already all doing as a company or were very much founded kind of in our roots, but I did realize, okay, now that these people are maybe two layers away from me, if we don’t really emphasize these things all the time, then it’s going to be difficult for them to understand that’s what we believe in a company. This is was makes us special, and this is the things that they need to be doing.
Greg Mercer: So, a few examples of them are one of our core values is err on the side of decision, test, and then, iterate. So, always been a big believer of making decisions quickly, deciding on things instead of, “Oh, let’s think about it a few more nights, and then, having another meeting and think about it a few more nights,” or whatever. So, that’s [inaudible 00:30:47] we’re always stressing. At the end of a meeting, if we’re 64 [inaudible 00:30:51] something, it’s like, “Hey, let’s just err on the side of decision, and let’s just make this decision.” So, that’s a big one. Be scrappy. Do more with less. That’s one of our core values, the same thing, just finding out ways to get stuff done. So, yeah, we have a bunch of them that we kind of drill these into meetings or the onboarding and just whenever else we get a change to talk about them to make sure that it’s kind of thought about all the time within the company.
Justin: It’s funny. I want to get back to the decision-making. I think that’s super interesting. I have some questions for you about that, but when you talk about the values, three or four years ago, I thought, “Well, that’s just silly.” It’s like people playing at the pool table or the foosball machine in the office. That’s “culture”. It’s company culture, and that’s all silly stuff, and that doesn’t matter. You just need to hustle, and as you get larger, you start to think about … Well, you get removed from people. I’m getting questions about decisions that should be made that they should know. How do they not know where we come from, and what kind of decisions should be made there? And so, yeah, we’re finding that trying to find a way to kind of incorporate that throughout the team with everybody is important because we’re losing that if we don’t, right?
Greg Mercer: Yeah, absolutely. Even other things like now we have tone of voice guidelines and a few of those other things that … I agree. A few years ago, if you would’ve told me about that I would’ve been like, “Man, that’s the stupidest thing.” But then, we started noticing that the tone or the writing in our emails versus our blog posts versus copy on an ad or whatever else was all sounding very different, and all of a sudden, we didn’t seem like kind of the same company, and it was kind of weird. So, then, we had to kind of do things like that, and it’s a little bit of a hassle to create those things, but it does achieve a lot more consistency throughout the company.
Justin: Yeah, it’s important, too, but you want to do it without being super corporatey, right? Because that’s not good.
Greg Mercer: Right, exactly. That’s why I quit my old job is all that stupid corporate stuff, right? So, it’s like, how do you find the right balance there?
Justin: Yeah. So, I want to get back to your decision-making, man. This is something I found really fascinating about you and mutual friend, Travis Jamison. I found the two of you super comparable in that way, where you make ridiculously fast decisions, and Joe and I, we operate differently. I want to sleep on it. I want to take a little bit of time to kind of mull it over. I just need that, or maybe I don’t, but I feel like I need that, and you make these extremely quick decisions, and it works, though. It’s super effective for you. Has it always been that way for you? Is that learned behavior? What’s the deal with that?
Greg Mercer: I think I’ve just always kind of been that way, and from time to time, we probably would’ve made a little bit better decision if we would’ve thought about it for a few more days, but the way I look at is kind of the opportunity cost of not making that decisions and devoting more mental brainpower to it, whatever else, that I’m a firm believe that it’s always better to just make the decision. So, if we sit down in a meeting, we have something to decided. At the end of the meeting, kind of the two options are you err on the side of decision. You just make the decision, or the other option is to understand how you’re going to collect more data or more information to help you make that decision. So, at the end of the meeting, it’s like, “Okay, we don’t quite feel comfortable making a decision on it right now, but we know what we’re going to do. We’re going to survey the customers. We’re going to do this.” After collecting that data, that’s as much as we’re going to gather about this. So, it’s not beneficial to think about it any longer. Let’s look at the information, and then, make a decision.
Justin: That’s helpful. So, you have to at least have the answer on the information you do need to get a decision. If you can’t make a decision, you need to know the info you needed to make the decision. I like that. Yeah, that’s interesting. I am fascinated by your kind of quick approach to decision-making. Sounds like you’ve always been that way. Do you do it that way on big decisions, or is it normally just small kind of at the table quick decisions? Like a large company, we’re going to take this direction. We’re going to change the product to this.
Greg Mercer: Yeah. I mean, larger decisions, it slows down a little bit, and I guess, since I’ve kind of always been this way, this was something that I didn’t realize about myself until other people, started bringing it up quite frequently with me. So, I definitely take different decisions or the impact of how this is going to change our future differently. Bigger things will be a little bit slower, but yeah, I’d say, in general, everyone that’s around me always tells me, “Wow. Okay. We came to a decision on that really fast.” So, yeah.
Justin: A lot of that’s based on gut, right? We do this, too. A lot of the decisions we make are based on gut and analytics [inaudible 00:35:02]. Well, you do your best, but early on, you’re hustling. There’s a lot of just gut decisions made, right? I totally get that, but how do you take your gut decisions and pass that down to your management, to the supervisors, everyone else because it seems like it’s just a hard thing to take your gut/brain decisions and put that in your team.
Greg Mercer: Yeah. It really is. I still run our product team. So, I work with all the product managers directly. They’re direct reports of mine, and I’ve noticed kind of this issue pop up with them a lot lately that I’m comfortable with just making decisions all of a sudden. I’ll be like, “Hey, I feel good about that. Let’s just go for that,” and it’s like I’m willing to accept the rest. You can blame me if it goes wrong or whatever because I said, “Yeah, we should do this.” But it’s much harder when you’re not the CEO of the company, and you’re more worried about making these decisions, right? Because it’s like, “Man, if this doesn’t go well, what do I have to kind of back up that we chose to do this and whatever else?” So, I don’t have a good answer for you there, Justin. I don’t know for sure how to kind of …
Justin: I think maybe SOPs with a backup of values, and then, obviously, ask is the last ditch, right? But stick to your SOPs and whatever your kind of rules of engagement are. Next, default to kind of the values of the company and go with it, and last, obviously, ask, I guess. That’s what we’re doing. I just wanted to see if you had something else [crosstalk 00:36:20].
Greg Mercer: No, I don’t have anything else. I think that’s good.
Justin: All right, man. Let’s switch it up from kind of building and scaling the SaaS business. I guess, one last bit that I wanted to ask you about, part of your growth process was through acquisition, right?
Greg Mercer: Mm-hmm (affirmative).
Justin: And you and I have talked about this before, but you kind of had this hub business, and it would kind of buy the spoke businesses around it, right? And I know a few of the guys that were acquired by your company. Was that intentional? Did you look for them? Did they bring the deals to you? How did that work?
Greg Mercer: Yeah. So, the company’s always been profitable, and as a result, we had cash to spend. I was looking at ways to kind of reinvest it with that. Jungle Scout is a very top-of-the-funnel product. So, a lot of people just getting started with Amazon, that would be the first product that they build. Then, all of a sudden, we have this very large audience, hundreds of thousands of email addresses of Amazon sellers or aspiring Amazon sellers. So, part of our growth strategy was we have this cash. We had this large audience of them. Let’s see what other products are good, what other good products are out there on the market, and offer those to them. So, yeah, that’s always been a little bit of our strategy. We probably won’t do any acquisitions this year in 2019 unless a couple of our larger competitors are looking to sell. Now, we’ve kind of decided that there’s a level of complexity with these acquisitions that it might be easier just to build some of this stuff in-house, but let’s see. Both of the acquisitions that we did, they kind of came to me wanting to talk about it. So, yeah, I was already familiar with them. They probably kind of knew that we were interested, but both of them, I think they were the first ones to reach out to us.
Justin: I think one of them brought you a baked in deal. I think I remember this. So, it was already someone had made in offer, already had a deal going, and then, they brought it to you saying, “Hey, I got this. What do you think?” And you were like, “Yep. It’s already vetted. I’m interested in this. A competitor was looking at this. I’ll snatch you up. No problem.”
Greg Mercer: Yeah. That’s exactly right.
Justin: That’s helpful.
Greg Mercer: Yeah, totally.
Justin: So, yeah, I think the acquisition approach is interesting because a lot of our customers are doing that, right? They’re buying out businesses and parallel industries and related industries and trying to make something of it. I think it’s more difficult, probably, with technical businesses or development based businesses because you’re buying legacy code and all the technical debt that they have, and at times, it’s probably easier to just build it with all that extra hassle and baggage.
Greg Mercer: Yeah. That’s what we’ve kind of found. All of our products and all of the stuff that we’ve built in-house uses the same languages for code, the same kind of development standards, all of these different things we’ve kind of systematized so that any of our engineers could work on any other product or piece of individual products, and that really streamlines kind of the simplicity of hiring. We’re looking for people who are experts in these particular code languages. Then, when you acquire a software product, it’s most likely not written in the code languages that the rest of the stuff is. There’s a few more popular ones that have been more common, but even if it shares some of the code, we’ve kind of found that, just kind of the standards and how it’s set up and what it’s hosted on, all these other things just add a level complexity to it. So, now, for it to be an interesting acquisition target, it would also have to have a very large customer base. So, to really move the need for us for growing an audience and really move the needle for revenue, we’re not really interested in just smaller software products anymore. We get emails about this often, but if they’re only doing-
Justin: You want market share.
Greg Mercer: Yeah. If they’re only doing 10 or 20K MRR or something, it just doesn’t move the needle at all. It’s just more of a hassle.
Justin: Yeah. Got it. Yeah. You want market share. You want users. Yeah. I get it. So, I mean, our listeners are going to kill me if I don’t ask you any FBA questions. So, we’ll talk about your SaaS business and growing that [inaudible 00:40:01] and some of our listeners, but the FBA stuff, we got to talk about. Do you think it’s harder for FBA entrepreneurs, FBA sellers, today than it was two, three years ago?
Greg Mercer: Good question. I’d say if you’re a very small FBA seller, you only have like a thousand bucks to get started with, you’re trying to make it happen, it’s significantly harder, I think, for that person to make it happen today. A lot of those very inexpensive kind of niches or products to get into, they’re very saturated because of a very low barrier of entry. So, I’d say those are a little bit harder. That being said, for the people who have a little bit bigger businesses or more money to invest, I don’t think it’s really any … We haven’t really found that it’s anymore harder for our customers. So, yeah, I’d say those people who have a little bit more money to spend or are willing to treat it like a real business, they’re still thriving, and then, I’d say the other area that people are really thriving are when they make significant improvements to products or alterations, and then, are kind of selling those on Amazon. So, actually, even my little brother, he found two products on Amazon that were doing extremely well. There was pretty much no one else selling them because had patents on these individual products.
Greg Mercer: So, he took the time to read the patent, learn about what was patented in these products, make tweaks so it no longer fell under the patent. I think one was a design patent. So, it was pretty easy to do. The other was a utility patent, but he was still able to make the kind of tweaks to it, and these products are just killing it because there’s only one competitor. It’s the one with the patent that scares away most people. The margins are good because it’s this patented item. So, yeah, we’ve seen a lot of people do stuff similar to that or even create these new inventions that they’re now launching on Amazon. They’re doing really well with those. So, I think it’s still a very exciting opportunity, but just as any market matures, you have to take it a little bit more seriously and treat it like a real business.
Justin: Yeah. The shortcut hustlers aren’t doing as well starting out of the gate. That’s where it’s a challenge. If you’re building a real business, a real brand with real product, with product improvements and changes, that’s helpful. In fact, one of the things that I think is interesting right now in our part of the industry, Greg, is that, on average, FBA businesses sell for slightly less than our overall average, and I think that’s completely wrong, particularly for the right to the good businesses, the ones with quality reviews, the ones that have a brand, real brand recognition, real solid products. They should be selling for more. There’s a moat around that castle, right? Because it’s harder for the new, up-and-coming, just kind of whipping something together guys to compete with that. I think that’s interesting. So, I’m like if anything, I think FBA, particularly quality FBA businesses right now are undervalued.
Greg Mercer: Cool. Yeah, it makes sense to me. Yeah, I believe that.
Justin: So, okay. So, for FBA people looking to get into the industry, it’s tough, unless you’re building a real brand, unless you’re making real changes to the product. Where should current FBA sellers be careful? I mean, there’s a lot of talk about, “Oh, Amazon is trying to take me out of this niche,” or there’s a little worry of that. It sounds a little conspiratorial to me. I’m not sure I buy it. What do you think?
Greg Mercer: I agree. I think that [inaudible 00:43:04] kind of a conspiracy. What people need to understand is that when they sell a product through the FBA program, even if it’s seller fulfilled, they make a guaranteed 15% commission, and I’ve spoken to a lot of … I know a lot of people at Amazon pretty well now in all these different departments, and they’ve made it very clear to me that it’s pretty rare for them to have a 15% margin on products that they’re selling themselves. So, they like FBA sellers. They don’t take on any of the risk. They don’t have to purchase these products themselves, and it’s guaranteed 25% for any product that they sell through them. So, they’re not really incentivized in any way to try to kind of take over and kick out the FBA sellers on Amazon. It’s still a very good business for them. That being said-
Justin: Yeah, a 15% margin is not horrible, and it’s the wholesale versus retail approach. They don’t have to deal with any of the hassles. Yeah.
Greg Mercer: Totally, and so, yeah, by Amazon standards, a lot of their products are very low margin. They’re doing a high volume, low margin game. So, 15% for them is solid. So, I will say one thing that I’ve kind of noticed is a trend over the past year is Amazon does seem to be scaling up their private label brands quite a bit, though, which is pretty interesting. I think that’s as a result of them seeing all of the FBA sellers that are private labeling products and doing so really successfully. With that, though, we did this kind of report on a couple months ago where we looked at all their products and everything else. We’re still only talking like a couple thousand products here. Whereas, there are close to a million products that sell 500 units on Amazon per month or more. So, you’re still talking about … It’s just like they have a couple thousand products, but there’s a million that are really good opportunities. So, it’s big space.
Justin: Between Jungle Scout and the other kind of brands you’ve incorporated in the business, you have a tremendous amount of data, tremendous amount of data about some really interesting businesses. So, you’ve go to have some insights in some of the businesses you see as being successful in FBA in 2019, 2020, and beyond. Are there any, part A, [inaudible 00:45:10] you would kind of shy away from as a framework for thinking about it, and part B, any ones that you think would be particularly interesting in the next year or two or three years?
Greg Mercer: The ones that are particularly interesting to me are all the ones that, historically, have had very high margins. So, examples of these categories are things like furniture or beds. We’ve seen Casper and a lot of those guys coming to the beds, but these are categories that have historically have had like 500% margins. It’s just these ridiculous markups, right? Same thing with furniture. You go to a furniture store and try to buy a couch for like $5000, that thing costs like $300 to make, just ridiculous margins. So, a lot of those are now moving into the FBA space and still have these very good margins because this is what kind of people have just been trained to think that these things should cost, even though, now, the distribution channel is way more effective. They don’t need a huge warehouse to hold all the mattresses anymore and whatever else. So, yeah, I think a lot of those are pretty interesting. Again, though, these are often categories that are a little bit more capital intensive. So, again, it’s a little bit harder for the really small guys to get into those, but I think a lot of the kind of bigger businesses or people with just a little bit more money to spend are really going to thrive in a lot of those categories.
Justin: Yeah. The mattress stuff’s interesting aside from FBA. I mean, you’ve seen that industry over the last, I don’t know, 10, 20 years start to fragment a little bit because it used to be kind of for the major players, and you’ve seen the upstarts kind of come in and start taking over in the brand, and now, with the FBA, it’s even better. That’s interesting. Tell me a little bit about your million dollar case study. I don’t know much about it. I researched it briefly, and I was like, “Oh, that looks kind of cool.” What’s the deal with that?
Greg Mercer: Yeah. The million dollar case study is the best piece of content that we’ve ever produced, and we’re still doing it. So, we’re on season four right now. This is the fourth time we’re doing it, and what we’re doing is from start to end, we’re finding a product, finding a factory, launching the product, optimizing it on Amazon, et cetera, et cetera. So, you get to see from start to finish how to launch a product successful on Amazon, and it originally started because most private label sellers are so cautious about sharing what they sell or whatever else, and we’re like, “Dude, we should just launch a product publicly, show what the product is. We’re going to get a bunch of competitors from it, but who cares?” It’s going to be highly educational because they get to follow along with this whole process, and our goal is to scale the company up to a million dollars in revenue, and that’s why it’s called the million dollar case study. We donate all of the profit to Pencils of Promise. So, we’ve built a few schools in underprivileged countries around the world because of it, and yeah, it’s really cool. I think we’re up to around three-quarters of a million dollars. So, sometime in 2019, we’ll hit the million dollars in revenue, and then, I don’t know. Maybe we’ll start a ten million dollar case study.
Justin: Well, that’s amazing. It’s disruptive because no one wants to share their niche, right? You’re like, “I’m going to go the other route. I’m going to show you my niche, and I’m going to tell you every single thing about it.” Is this the same thing. It was a couple years ago, and I don’t even know if you remember doing this, but there was some kind of Shark Tank-style thing you were going to do where you were going to have people compete and invest in the business. You did it with a few other guys, I think a couple of the podcasters. Was it the same thing?
Greg Mercer: Yeah. Different projec.t so, yeah, I started Go, Pitch, Win as just a piece of content series that, yeah, people were pitching their businesses to me. We originally gave away 10,000 bucks to the winner, and then, I recently recorded another one with a few other guys that’s going to be released starting in February, and this time, we’re giving away $50,000. It’s called Five Minute Pitch, and it’s just a good. So, I’ve always wanted to be a shark, right? Who doesn’t like Shark Tank? So, I just started my own Shark Tank. So, people come on. They pitch their business, and instead of taking a piece of the business, we’re actually just gifting them 50,000 bucks.
Justin: I’m going to link to both of those. [inaudible 00:48:40] people can check it out. I think it’s super interesting. The shark thing was really interesting to me. I remember seeing that, and I never talked to you about it or whatever. I knew you were really busy at the time, and I was really busy, but I was like, “That’s a sexy marketing idea. I love that.” The first one, it worked out well? You got leads from it? It went really well?
Greg Mercer: Yeah. I think it went pretty well. The businesses that are pitching are very young and small businesses, and that relates with our audience quite a bit. We have a lot of entrepreneurs or small businesses as our audience. So, they love hearing about these other businesses that are only doing a few thousand dollars a month or are kind of just getting started with their first few products or what have you. So, yeah, I think it’s gone really well.
Justin: Cool, man. What content or what platforms should I send people to if they want to follow up or get more information from you? What’s your best content your putting out right now?
Greg Mercer: So, we put all of it on our blog. That’s always a good place to check. Our YouTube channel is doing really well, and we’re putting out one to two new pieces of content every week on our YouTube channel. So, we’re posting the million dollar case study on there, but also just lots of other pieces of content. So, yeah, I’d say check out those two places, the Jungle Scout blog and the Jungle Scout YouTube channel.
Justin: Cool, man. Thanks so much for coming on. I appreciate it.
Greg Mercer: Thanks for having me. I had fun. Take care.
Announcer: You’ve been listening to the Empire podcast. Now, some news and updates.
Justin: All right, man, time for some news and updates. First off, we’ve got an alpha or an internal launch of our new platform, which I think is fantastic. Obviously, some bugs and some funkiness when it rolled out, as was expected, and the team was screaming, and people were freaking out for a couple of days, but it looks like it’s starting to steady out. One of the greatest things about this is John Myers, I was talking to him about this, and he puts it as a central source of truth. That’s his wording for it. I think that’s true, and this will be very, very helpful for us, is we’ll have … At Empire Flippers, there’s a central source of truth that plays nice with our other systems, with HubSpot, with Zendesk, insofar as we’re going to use it, that kind of thing.
Joe: Yeah. I’m very excited about this, an essential source of data, where we had disparate databases before. Now, things are all centralized, running reports and being more accurate about stuff is going to be much easier, and when we roll out the next version of this platform, and we start encouraging customers to use it, it’s going to be a lot easier because our staff will have already been on it for six months.
Justin: Yeah, I’ve seen some of the stuff kind of behind the scenes in terms of what our customers will be able to do in terms of their dashboards and what they’re able to see. I think it’s going to be really fantastic. People are really going to appreciate it, and I know we’re still a ways from launching it, but I think they’re really going to like it when it comes out. Second thing I want to mention is something we’re struggling with literally right now as we record this podcast is we’ve had an issue with Stripe. So, basically, we’ve had a bunch of people make their deposits on businesses, and with our deposit process, basically, everyone makes a deposit, and even when they go to buy the business, we had to refund the deposit, and then, require a wire from them [inaudible 00:51:27] goes to us [inaudible 00:51:28] or whatever. So, that’s generally how we do business, and so, all deposits are paid and then refunded. Well, we hit some kind of threshold where our refunds were higher than our deposits, and it put Stripe in a negative balance situation where, effectively, they’re loaning us money interest free.
Justin: So, they shut it down. They didn’t shut down our ability to receive deposits, but our ability to refund people, and so, we’re getting some requests like, “Hey, it’s been eight days, and I haven’t gotten my refund. What’s going on?” And we dig into it and find out this is the case. Not cool, Stripe. Not cool at all. It makes us look terrible to our customers of not being able to give them their deposits back, and we are, over the last 24 hours, just been hammering them about this issue.
Joe: Yeah. If someone works at Stripe, I would appreciate you reaching out to us, and the real reason here that I’m a little angry at Stripe is because we had to alert you about the issue. If we didn’t tell you, we never would have found this out, and it took you guys two weeks to come back to us with answers, and that’s just unacceptable, and I think that if we’re going to continue to do business with Stripe, we have to understand that this is something we can move forward with on a consistent basis.
Justin: I’m glad we found the issue, though, which is basically our account balance going negative. Now, they can pull money from our account, but them going negative at all puts it in a position where they consider themselves at risk. I mean, we’ve looked at our options. We’re talking to them about options, just keeping some money on balance to cover the float looks like probably the best solution because, I mean, we can’t have this happen again. If this does happen again, I think we just have to move away from Stripe.
Joe: Yeah, I mean, we moved through this with them every six to nine months. Every six to nine months, I explain it to them. They say, “Oh, you know what? You’re right. Sorry about that. We’ll go ahead and lift any of the reserves on you.” And they go ahead and do that, and then, I guess, a new flotilla of customer support come through, and I have to go through the same explanation again in six to nine months. It’s very annoying.
Justin: Our real struggle there is that, let’s say we have a brand new customer, it’s brand new to us, that kind of cross the thresholds, a little unsure about the deposit process, but it’s like, “You know what? These guys seem trustworthy. They have a lot of stuff out there.” I mean, if they’re taking people’s deposits, they wouldn’t be around this long. I’m going to go ahead and pull the trigger, and they do it, their first time they make that deposit, and they try to get it back, and it takes two weeks. I don’t know, man. It sucks. So, I’m hoping that we’re working with everyone who made those deposits and letting them know, “Here’s the situation. Here’s what going on,” and keeping them updated, but it sucks, man. I’m hoping we don’t lose good, valuable potential customers because of this issue. A third thing I want to point out is one of our listeners reached out. His name’s Oscar. Thanks Oscar, by the way, but he reached out to let us know that he had contacted both the FBA side of Amazon and the Amazon associate side regarding double dipping.
Justin: Now, you’ve probably heard us talk about this before, but we were really intrigued by the idea and interested and encouraged the idea of both having Amazon associate accounts that are getting a commission on sending people to products on Amazon and then having, owning the FBA business that you’re sending that affiliate site to. So, you’re basically double dipping. You’re making a little bit on the affiliate side, and you’re making a bit on the Amazon FBA side. We thought that was really interesting. We had heard from someone that maybe that wasn’t allowed or whatever, but anyway, Oscar dug into it. He was like, “I love this idea. Let me ask them,” and asked both a customer representative from FBA and a customer representative from the associate side, and they both side, “Yep. No problem at all. Make sure you check with the other side, but we’re completely fine with it.” Now, the caveat is, I’ll say it Joe, with Amazon, you’re kind of stuck with what that rep says, right? So, you have one rep that says yes, another rep says no, right hand not talking to the left, but at least that’s confirmation from both sides. Someone that can make that call on both sides says, “Yes, it’s allowed.”
Joe: Yeah. I definitely would check “buyer beware” as they always say and check with your own representative if you have one, but it does seem like they are willing to allow people to promote their own products on Amazon associates if they are a FBA seller.
Justin: Which is great. I know people are doing that. I know Jon-Haver from Authority Website Income has talked about that a bit. So, it’s just good to hear some validation from Amazon that, that’s okay. All right, buddy. Time for the listener shout section, also known as the indulgent ego-boosting, social-proof segment. First up, we got a question from Matt on Twitter. It said, “Is there a percentage fee to you at close, or is listing fee the only fee?” Hey, Matt, we definitely have a listing fee, but we also have a percentage fee. That percentage fee depends on the size of the deal. So, at it’s highest, you’ll pay 15%. At the lowest, you’ll pay 8%, and that depends on how large the deal is. Over five million is 8%. I think it’s two to five million is 10%. On to two million is 12%. Anything under a million dollar list price is 15%.
Joe: That is correct, Justin.
Justin: I got a mention from [Gareth James 00:56:25], SEO Doctor on Twitter. He said, “Empire Flippers needs to be slowly trying to push website valuations up.” That’s pointing to one of our listings, listing 45647. It’s Amazon associates business, and then, Chris Dyson replied, “Buying Amazon sites just after they’ve been valued on their Q4 revenues,” and basically saying that’s a really bad idea, and I definitely hear … Well, there’s two things there, right? So, first, let’s talk about the last one, buying Amazon sites after they’ve been valued on Q4. I totally understand what you’re saying, Chris. I agree with you. If you’re basing it on a shorter window, let’s say, a three month pricing window from like October, November, December, that’s not going to give you an accurate representation of how that’s going to perform long-term. The good news from us is that, generally, when we’re dealing with any business that has some kind of seasonality, we try and do a 12-month window. So, we’re basing it on an annual basis, right? So, whatever it earns over the course of the year, it takes into account both the highs and the lows, and in the instances where we’re not basing it on a 12-month window, we generally lower the multiple. So, the multiple is going to be lower on anything that’s priced on a lower time frame to kind of account for that.
Joe: And we also look to expand the pricing window. So, if we have something that’s rapidly expanding, we simply can’t use 12-months because 12 months ago, it simply wasn’t a good picture of where the business is at today or in the last six months, let’s say. We’ll try to expand the pricing window as it gets to seven, eight, nine, 12 months, and use that as a better, accurate representation because we update our prices every month.
Justin: And in terms of Gareth’s point that we’re pushing website valuations up, it’s pretty close. I mean, we definitely make adjustments to valuations over time for different monetization types, but it’s less us pushing and more us reacting to the market. So, we’re trying to get our customers maximum value, our seller customers, maximum value, right? And we’re trying to sell at the price point that both the buyer and the seller are happy. We want win, win, win across the board, and the best way to do that is get the right price. So, we’re constantly testing the market and trying to determine where that optimal price point is, and you’re going to see that in many different areas. I would say that you’re right that valuations have been going up in terms of the multiples getting higher, and it depends on the monetization type, but across the board, it is a little higher than it was 12 months ago, let’s say.
Joe: And I only see that continuing to go up. I mean, unless we hit a really bad recession year-
Justin: Economic downturn, yeah.
Joe: An economic downturn, here in 2019 or 2020, and asset prices across the board were to go lower, I don’t see a reason why these types of online businesses would start selling for lower multiples.
Justin: And another one on Twitter from James Holt who said, “Drop shipping is dead.” In other news, this drop shipping site is offered for sale at more than a million dollars, [inaudible 00:59:19] listing 45178. You just think it’s funny. I mean, we’ve heard that a ton, Joe, that drop shipping is dead. SEO is dead. AdSense is dead, over the number of years that we’ve been doing this, and I think there’s a couple of things at play here, right? Things go out of fashion, particularly in shiny object syndrome of internet online businesses. Everyone was on Teespring, and then, everyone’s on FBA, and a bunch of people go over to Merch, and then, that’s dead, and it’s dead in terms of less people are interested in it because they’ve moved on to the shiny new thing, but in terms of that model and not making money anymore, that’s completely untrue.
Joe: Yeah, and just as of this week, there’s been three different people looking at that drop shipping business. So, it’s pretty obvious that drop shipping is not dead, and if you have the right type of drop shipping business, it’s definitely still valuable.
Justin: Yeah, one thing I would say is the source from Alibaba, Facebook traffic with no real brand, just like shipping stuff in from China with no adjustments and not building out a real brand, that’s not a viable drop shipping business to buy. You can still money at it. We see a lot of businesses that make money, but there’s not a lot of buyers out there for those types of businesses. So, it is changing, and it’s changing in the fact that you’re going to need a more solid brand. You should have a product that you’ve made adjustments to, that you’ve requested adjustments to, that’s very specific to you. That’s helpful.
Justin: That’s it for episode 181 of the Empire Flippers podcast. Thanks for sticking with us. We’ll be back soon with another show. You can find the show notes for this episode or more at EmpireFlippers.com/GregMercer, and make sure to follow us on Twitter, @EmpireFlippers. See you next time.
Joe: Bye bye, everybody.
Announcer: Hope you enjoyed this episode of the Empire podcast with Justin and Joe. Hit up EmpireFlippers.com for more. That’s EmpireFlippers.com. Thanks for listening.