RMRB 12: Diversifying Traffic Sources
This 2-site Ecommerce business sells products on the sites and on Amazon, this established business has multiple government and international supply contracts in place that will last for years to come (guaranteed income reducing deal risk). The business has very good earnings history, very strong traffic, and thanks to a team in place, requires low work hours of Matt, the owner.
Find more businesses like this one on our marketplace: http://bit.ly/2pgZMYo
Check Out This Week’s Episode:
Speaker 1: What if you could cut through the noise in the online business world and learn from someone who has built a real business. We verified the numbers and combed through the P&L. This is not only a real business but a real asset that people want to buy. We’re going to pull the curtain back and give you the insights this entrepreneur has discovered that you can use to level up your knowledge, whether you’re looking to buy a business or looking for inspiration to take your current business to the next level.
Hey, listeners, welcome back to the Real Money Real Business Podcast. Today, we’re gonna be looking at a business that in addition to selling on Amazon, and a few other different places, it’s spread out across two different eCommerce websites. But, it’s also gonna have income that is steady for quite a while now, as there are some long-standing contracts in place with this business. I’m very eager to find out how that kind of works with this business. I’ve got the owner of the business with me today. Matt, thank you for coming on here today.
Matt: Sure, my pleasure.
Speaker 1: Before we dive into the questions that I have for you I want to go ahead and run through a quick summary of the business. Again, the business was built in January 1995, has a monthly revenue of $19,200, expenses of $12,490, to make for a net profit of $6,710, which is generated on a 12-month average. Included in the sale of this business are the main site domain, second site domain, 35 associated domains, Social Media profiles for main site, which include Twitter, Pinterest, and an abandoned Facebook page; Social Media pages for the second site, which include Twitter, Pinterest, Facebook and Google+; the Amazon seller central account, supplier contacts, and SOPs, and government contracts. Please note that inventory is not normally included in the list price. Further details can be provided to active depositors.
Matt, can you tell us a little bit about your background in building and running online businesses?
Matt: Sure. So, online specifically or overall?
Speaker 1: Go a little into your background in Brick and Mortar.
Speaker 1: I know that this business really started in Brick and Mortar. Tell us how you developed from Brick and Mortar to an online entrepreneur.
Matt: Sure. So, I started my first business when I was 12 and when I couldn’t even spell entrepreneur. Some days I still can’t spell entrepreneur.
Speaker 1: It’s the worst word to spell.
Matt: It’s the eu, or like it keeps eluding me sometimes. But, I’m a serial entrepreneur and had my first online business was actually in the book space in 2001 at that point. From there … This is back in the day when VPSs didn’t exist, and when XLs were many hundreds if not $1200 or so and authorized dot net was the only gateway. You had to use gateways. It was a very different world than today. Then, another company that was essentially a click and mortar, where people could go on line and order food and we would deliver to them, and it would be like a Postmates or an Uber Eats of today. But, this was back in 2002, which we had for about 10 years. The company and the storage space where people would order online and we would actually do the pickups and deliveries in person. So, I’ve been around Zen Cart and Magento, since it really started, quite honestly, and then from there. So, I’ve been around eCommerce for a while. Kind of love it and it keeps pulling me back in.
Speaker 1: It’s interesting because I look at this and even at January 1995, let alone the fact that the business was really started before that with the Brick and Mortar store, but this business is older than I am. I was born in November 1995, so my question is … That’s a long time. I can tell you that that is 22 years or more, 23 years, because January has already come this year, so 23 years of history for this online …
Speaker 1: … store. What bumps in the road have you hit? What things did you learn along the way?
Matt: Well, first of all I acquired the business in 2015, because I would have been about 10 years old at the time that the business started. What’s kind of cool is that I’m just like a steward and someone who has sort of picked it up and kind of dusted it off and cleaned up a lot of stuff in the process, just kind of fall in love with it. But, I’ve got another business that has been taking more of my time, and I’m kind of one of those people who believes that if something isn’t growing, and you’re not spending and giving a lot of time to it, it’s dying slowly, and I really just don’t want to see that happen.
Again, this is one of the first 100 sites with a shopping cart on the internet. Everything started with the original founder hard coding, everything, and it was originally based on Mail Order Manager, or MOM, which was like a FoxPro Database, which I’m not even really sure what it is; I only learned about it after acquiring the company. It’s pretty much seen almost every trend in eCommerce since day one and before. It’s a really cool business that I don’t usually see as someone who has bought and sold a bunch of online businesses in the past. It’s just you don’t usually see something like this, which is kind of what attracted my attention to it when I first saw it in 2014.
Speaker 1: What has happened since you bought it in 2014? Have you grown it; has it been stagnate? What’s been going on?
Matt: So, when I acquired it, it was being managed … The first site, and the main site, was being managed by people who just didn’t understand eCommerce. They were more kind of pick, pack, and ship employees, and as the owner seemed to sort of get disengaged with it, it just sort of fell into disrepair. Things like there was an Amazon store that was making about $100,000 a year but losing money. Quite honestly, my response is I looked at the couple of things that weren’t losing money and just shut everything else off, and I have not had a chance to really go back and focus on it. But, it was a lot of taking kind of the frame and the bones of what was there, getting rid of things that didn’t make sense, creating a significant amount of process, and just cleaning up and [giving 00:05:56] love to it, and taking something where there was so much there and fixing it.
We’ve been flat to a little bit up on revenue but much more profitable. I would much rather have something where it’s profitable and it works and someone can build from there then something where it’s just sort of broken. It was definitely more broken than I expected initially.
Speaker 1: Now you feel like you’ve done a good job of making it so it’s no longer broken?
Matt: A hundred percent. What we have right now is a lot of it is due to process. We’ve essentially taken everything and things that were losing money we’ve either adjusted the price or taken it off. We haven’t really pushed those changes to [inaudible 00:06:36] third-party sites because our focus has been on our site, but it’s something that a buyer could absolutely and should do. We’ve essentially taken everything, broke it down into process, passed it to a person who works for us full-time, who is offshore actually in your neck of the woods in the Philippines, and essentially made it so it makes profit, and makes money and doesn’t require a ton of time. I think it makes sense for someone to spend more time on it and truly grow it and truly figure out some of the off channel things and grow into different categories and update it. Because, quite honestly, I just have not had the time to focus on it, but it’s absolutely my passion project I absolutely love.
Speaker 1: So, when you work on the business what do you put your time into doing?
Matt: So, what my focus is, one is I route most emails customer service wise to go to me, because I like to know about any problems. So, I probably forward three or four emails a day to people and just wrote, “Take a look at that.” Once a month I look at financials. If someone has a question, or something like that, then usually what will happen is I’ll make a process for it so I don’t have to answer the question ever again. But, by and large, I don’t spend much time on it outside of like there are a couple of … If a sales inquiry comes in for like a larger account, which could be anything from government, to a university, to someone offshore. Unfortunately, a lot of the offshore ones usually are not legitimate inquiries, but responding to that. There really is not a ton of time that we put into it, though.
Speaker 1: You mention the processes that you write up, and you were telling me about this before we got on the phone here, or before we started recording here. Can you tell listeners a little bit about these processes, because I know that you’re very proud of them?
Matt: I’m proud of them because it literally has allowed me to not spend time on something more than once. I feel like having been on the buyer’s side more time than I’ve been on the seller’s side of the phone, everyone says like, “Oh, yeah, we’ll figure that out,” or “That’s really simple,” like “As soon as you buy it’ll show you that.” It just sort of, in my experience, has never come and never been there. So, we set out a “How do we handle everything?” So, I’m looking right now at a list of what we’ve got and so one is charge backs. You open it up and it’s investing a charge back. It says, “Log into the gateway, go to the report section, and to the draft or ticket number, and the order number field,” and it literally goes through every single step. This is not gonna be a 20-step process. Many of them have videos, and it’s everything from how to send a followup campaign to a segment in MailChimp. There is a video above and then it’s log into MailChimp. There’s a picture of the login screen. They’re just literally tons of pictures.
So, if I were hand the business over to you tomorrow you would be able to run everything based on the documentation we have, and it’s everything from how to place a drop-ship order; how to create a UPS form; how to test a promo code; inventory and PAR levels. Like, how to create a sales receipt; blog post writing, and our process for hiring new people; our monthly Social Media schedule. So, literally everything from top to bottom has been set up to literally be handled without me. Essentially I’m totally irrelevant to the operations of the business, which is sort of terrifying and amazing all at the same time. It’s only terrifying because I feel completely irrelevant at times.
Speaker 1: That’s really interesting that you feel that way. How long have you felt that you were not necessary for the business?
Matt: So, we bought it January first of ’15, and we probably have spent I’d say probably, it’s over 1000 hours certainly; I would say somewhere around mid ’16 I’d say was when a lot of the weight had been lifted off. Now I think the only time that someone asks me, or something, is something that is sort of either a snowflake, meaning it doesn’t happen that often, or it’s something that is really just something new that hasn’t come up, which does not tend to happen that often now.
So, it’s kind of cool but, as I said, it’s one of those things where if I derive all of my self-worth from the business I would be pretty lonely, and pretty upset, because like I’ve just sort of set it up to operate without me, which is great because I’ve been able to … Have a baby who is in the few-months-old range now, and I’ve been able to just disappear and not be around, which is like the huge benefit. But, it’s kind of amazing to see how little I’m needed now compared to before where it felt like I was needed to everything and anything.
Speaker 1: Do you mean disappear on the business, not disappear on the baby?
Matt: Exactly. Well, yes, definitely on the business.
Speaker 1: So, with all of the Social Media channels that are available for this business, how are they utilized? Could they be improved on, or do you feel like they do a pretty sufficient job right now?
Matt: So, we have not spent a ton of time on the business Social Media wise. What we’ve found is we tried a little bit in the beginning and we were not able to get that traffic to convert, so we just sort of naturally kind of just shied away from it and haven’t really spent that much time on it. I don’t know if that’s the right answer, and maybe I should be spending more time on that, but a lot of what we bought … We bought a company that was old but not taken care of well, so it’s kind of like going into like a hoarder’s house and trying to find stuff to put on eBay, where it’s like there are sometimes you’re gonna just throw stuff out as you’re going that if you had only that one room to work on you might spend time kind of cleaning up.
Like I said, we just kind of went through and said like, “Okay, like this doesn’t make sense; it’s losing money. Shut it off. We’ll figure it out later.” A lot of that stuff is still a big opportunity. Social Media, I think, is one of those things that I’m optimistic but I’m slightly skeptical about Social Media generating revenue as a whole. I think that my bias sort of against it is probably part of the reason why we haven’t gone back to it, quite honestly.
Speaker 1: With all of the parts of the business here, you have the drop-shipping, the eCommerce, the [inaudible 00:12:35], which section of the business generates the most revenue?
Matt: Mostly I would say it’s eCommerce, but the way we have filled … So, we have a very overall lean inventory, so I would say we keep about a month or so of inventory, month to month and a half of inventory, on hand. Obviously it depends on the SKU, because we have, I want to say, we probably have a 1000 SKUs or so on the site, mostly variations. So, we’ll sell things in … We’ll buy in a case of a 1000 and it could be that someone’s buying a dozen, or a 100, or 250, or 500. If it’s a larger order we’ll sometimes drop-ship direct from a distributor, or a manufacturer; if it’s something that is like more kind of B2C, like typical everyday order, we usually have that in the warehouse and we’ll just drop-ship … I’m sorry, by drop-ship I mean send it from our 3PL.
So, I have no inventory that sits in my home; I haven’t seen the inventory since we moved it to a 3PL in, I want to say it was, late ’16, I think. Call it like the summer of 2016 or so. They just pick, pack, and ship everything. But, the website generates most of our revenue. We also have contracts, one with someone who is in Europe who essentially buys from us and resells in the Europe market, and one that is a government agency. Those are two things where we’ll get large-size orders less frequently. Then, it is kind of the eCommerce orders that come in every day that are shipped out by the 3PL, and if it can’t be shipped out by the 3PL and it needs to be drop-shipped, that’s where the person who is offshore in the Philippines takes care of that.
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What do you feel some of the major opportunities for growth are that a new owner could take advantage of?
Matt: So, I think one of the … There is a sort of two different angles, one would be on the B2B side; one would be on the B2C side. On the B2B side I would say it’s reaching out … We have a list of universities and the right places to reach out to. It would be a really good campaign reaching out to that, and reaching out to that list, which we actually are having … When our system offshore has downtime we’re having her fill out and complete that lead list. This way we’re utilizing them more completely as opposed to them having downtime. That would be more on the B2B side.
On the B2C side, we wanted to … There is a natural upsell. Depending on the product zone buys, there is almost always a natural upsell, and we really should spend some time and money investing in having that built into the site, and we just have not. Because, I think there is a way to increase the average ticket, and everything that’s going on, and every order that comes through, by probably .. I would go with about 15-25% depending on the SKUs that are picked. The other piece is there is a ton of lack of education in the product space, and that creates a ton of opportunity that I still feel like we really have not done a good job with. The great thing is that we’re an industry that is 100% recession proof and, quite honestly, is beyond Evergreen.
Speaker 1: You mentioned the education factor as an opportunity, so how would you go about trying to educate people on the products, on the niche, on the space, if you were to keep the business and try to grow it?
Matt: What’s interesting is I got an idea. Yesterday I was listening to the sample interview of another Empire Flipper’s business, and it was talking about comparison blogs. I felt like it was like a bolt of lightning that was like, “Oh, my god, I can’t believe we haven’t done this,” because people are so just uneducated and just often don’t have the experience understanding the product. I feel like it’s a natural place where we could either build out some sort of like a kind of plug-and-play thing where we could compare products on a very detailed level, and from that we could probably create, I don’t know, 500-1000 pieces of content. My mind has been sort of churning about like, “How do I create that, and how do I create that as a process that could be done by someone else to create all that content, which will then be indexed really, really well?”
It was funny, we were working with … We first had an SEO consultant who a friend recommended, was based in the UK, who I’m happy to share the [inaudible 00:17:08] information with a buyer on. He absolutely loved the site, because when we bought it we were at about 20,000 or so page views, and he just tweaked a couple things and it like jumped. His response was, “It’s kind of like trying to like push like an ice cube across like a wet counter in terms of like responding,” because this site is so old, so trusted. No one’s messed with anything back link wise, ever. As a result it responds so fast compared to what he’s used to. He was telling me it would be three or four months and, literally, within like a couple weeks we were watching stuff, traffic, just like move really quickly.
I’m sure if someone actually went back in … We just hired him to fix redirects and do some very like high-level stuff. We really haven’t done anything in the past couple of years. But that was kind of his response to that was just really cool, and just not normal and not my experience with other SEO, or SEO brother sites, that I’ve had.
Speaker 1: Do you feel like there are any major risks associated with this business that a potential buyer should be aware of?
Matt: I would say that we have two contracts comprise probably about somewhere between about a little more than a third of our revenue. We’ve had the contract … There is two of them, one that started in November/December of last year and is essentially it is a two-year agreement. But, because it’s an offshore entity it doesn’t make sense to litigate anything, because it’s just not enough revenue to want to actually hire an attorney in Europe and try to sue them, because that would be a risk. The government contract that we have there is another year on it as of now, so it essentially expires in July of ’19, and there’s two renewals before a rebid is required. The agency that we have, essentially, they came under scrutiny, as a lot of other agencies have, for granting contracts for too long. So we, essentially, rebid it last year and won it easily. That’s been around, god I want to say since like 2013/2014 or so, so it’s been around for five years already, and we’ve got it, essentially, for another three years, and I expect it to continue beyond then, because they’ve been really happy with us; we’ve been really happy with them.
So, that would be one risk. Another risk would be … I would say that there are probably six or seven suppliers and distributors in the space, so if you ended up angering all six or seven of them that would be a risk. I would say … We’ve been around so long that I’m not like, we haven’t been hit by anything Google related, so it’s not really anything from that that I’d worry about. Depending on where you host, hosting could be an issue. We’re based, both of the sites are based on Magento, and we’re hosting right now a company based out of … It’s a Magento-specialized host, effectively, based in Chicago. We’ve been really happy with them, but like if someone went in and really screwed up the site that would be a risk. It’s one of those things where, because it’s been around for so long and sort of been through so many things …
Someone introduced me to, actually it was a seller of the second site. It was like, “Oh, I really like this guy; you’ve got to reach out to …” I think his name is Kenny, I think. I think, but “You got to talk to him.” He emailed a b.i.d., “Oh, it’s like I’ve been in this industry for 20 years, and like I used to sell to the first site, which I didn’t even realize, when I worked at another company.” It’s like it’s just … We’re like, I just feel so lucky because how often do see someone where they’re connecting you; they already know your history; already happy with you and like, “It was great to hear from you?” I feel like that doesn’t happen, and hasn’t happened, when I was like in the moving industry, or other industries like that. I just kind of feel like that’s really cool.
Speaker 1: Would you commit to a noncompete?
Matt: Absolutely. My goal, I love the business and I want it to succeed, and whatever makes someone feel comfortable with that. I’m happy to commit to a noncompete and do whatever makes a buyer comfortable, because, like I said, I’m usually on the buyer’s side of the phone, not the seller’s side of the phone.
Speaker 1: So, in terms of making the buyer comfortable what are you willing to offer in terms of helping out during the transition period?
Matt: Whatever is needed. My expectation is that someone should be able to pick this up fairly quickly with the documentation, but the goal, I think, is kind of specific to the person. If someone wants me to come over and fly out to wherever they are I can spend a couple days on site, if needed, or a week on site, if needed, and then, essentially, something by phone. If they live nearby the New York Metro area they’re more than welcome whenever. My goal is to make sure that they have everything they need. I feel like having someone who has been managing the site for, I guess, a little over two years now, and them going with the company should defray that risk significantly, and having the processes defrays it significantly, as well. But, the goal is to make sure whatever makes a buyer feel comfortable is really what I’m fairly comfortable with, and going from there.
Speaker 1: Are you willing to discuss something like an Earnout?
Matt: I would be open to an Earnout. Obviously, every seller wants all cash at closing; every buyer wants to defray their risk. I will say that in January of ’16 I had a deal that sold where a buyer didn’t want to pay like a second part of an Earnout, so I’m a little bit … I would want to make sure that I’m better protected on the second deal, but I am absolutely open to an Earnout, and open to making sure that the buyer feels comfortable, because if there isn’t trust on both sides, no matter how much a paper deal, or whatever, it just won’t work.
Speaker 1: Awesome. Matt, thank you so much for taking the time today. I really, really appreciate it. I know across the world here New York to Vietnam it’s pretty fantastic that we’re able to connect here.
Matt: Yeah, I agree.
Speaker 1: I do have a final question for you. Before we get to that, though, I want to go ahead and run through the quick summary of the business again.
Speaker 1: The online component for the business was created in January of 1995, has a monthly revenue of $19,200, expenses of $12,490 to make for a net profit of $6,710, which is generated on a 12-month average. Included in the sale of this business are the main site domain, the second site domain, 35 associated domains, Social Media profiles for main site, Social Media profiles for second site, Amazon seller central account, supplier contacts, and SOPs, and government contracts. Please note that inventory is not normally included in the list price. Further details can be provided to active depositors.
Matt, can you give me, in your own words, your best 30-second pitch on why someone should purchase this business.
Matt: So, I would say, so what you’re buying is two sites that have been around for, the first for 20-something years, and then the last for about seven or eight years, that cover two different parts of the same product mix. You’ve got a customer base of essentially 200,000 who have purchased overall through the years. There is an active list of 20,000. We’ll have customers who will call us after not buying for 10 years, because they remember our name and will just pick up the phone and call us, or place an order. We’ve got stable process, stable inventory and suppliers, great relationships and, quite honesty, even a great runway in an Evergreen product that is recession proof.
Speaker 1: And, at the end of the day this business has a ton of history that shows that it’s been around a while and there’s no reason that it won’t be around for much longer.
Matt: Yeah. I can’t see any … I mean, this is my personal criteria is I don’t look at businesses, or like businesses, that are less than two or three years. We’re so far beyond that with this that it would be hard to see this not continuing for many, many, many more years.
Speaker 1: Matt, thank you so much for taking the time today.
Matt: Of course, thanks for your time.
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