RMRB 18: Building Relationships with Suppliers

Jake Davis

November 7, 2018

 

This week, Jake spoke with Jonathan about his Amazon FBA business created in September 2013 in the home & kitchen niche. Jonathan has grown the business to be making over $17k/month in profit. The business has a unique long-standing relationship with a major manufacturer, who is otherwise closed to new partnerships.

Find more businesses like this one on our marketplace: http://bit.ly/2ySV7Ba

Check Out This Week’s Episode:

 


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Jake Davis:          What if you 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 at your current business to the next level.

                                Hey, listeners. Welcome back to the Real Money Real Business Podcast. This week, I’m going to be speaking to [Jonathan 00:00:38] about his Amazon FBA business in the home and kitchen niche, that is making over $17,000 every single month in average net profit.

                                Now, something really cool about this business is this relationship he has with one of the suppliers, which he’s going to detail a bit during the interview. Really excited about this one. Jonathan, thank you for joining me today. How are you doing?

Jonathan:           Oh, I’m doing great. How are you?

Jake Davis:          I’m doing very well, very well. Thank you for asking and again, for taking the time. I’m really glad we are able to coordinate today to get you on to talk about this half a million dollar business.

                                Before we dive into the questions that I have for you, I want to go ahead and run through a little quick summary of the business. Again, the business was built in September of 2013. Has a monthly revenue of $168,823. Expenses of $151,735, to make for a net profit of $17,087, which is generated on a 10-month average.

                                Included in the sale of this business is 57 SKUs, exclusive supplier contacts, Amazon Seller Central account, branded domain, trademark, and Amazon brand registry. Please note that inventory is not normally included in the list price. Further details can be provided to active depositors.

                                Jonathan, can you tell us a little bit about your background in building and running online businesses?

Jonathan:           Yeah, absolutely. As a young kid at home, I was always buying and selling things from China, flipping them on eBay, and I did that throughout high school. I had a vending machine business, and I’ve always been very entrepreneurial.

                                I actually got a job in finance for the first four years out of college. After that experience, I decided that that wasn’t the life for me. I pivoted to starting an FBA business. I grew that, started off with credit cards, and grew it to where it is today, over the past six years.

Jake Davis:          Six years; that is quite a while. Just looking back over the course of the business history, how has your involvement with the business evolved as you have grown the business in the last six years?

Jonathan:           Absolutely. I think when you first start out, you’re hitting refresh every five minutes on the Seller Central account to see any pending orders. And you’re just ecstatic to see any sales at all. I think I’ve learned a lot, adding more SKUs, growing the business, and then ultimately as an entrepreneur, you hit a point where maybe the business has gotten ahead of you, and you can’t take it to the next level.

                                Or in my case, a combination of something else, where I feel like I’ve burned out on the opportunity and lost that hunger and that stimulation that I craved early on, when I was constantly hitting refresh on Seller Central every five minutes or so.

Jake Davis:          Is that why you have decided to sell the business today? You just kind of lost interest on it?

Jonathan:           Well, I’ve got my hands in a few different opportunities that have interested me, in other businesses, and entrepreneurial endeavors. Yeah, I just think that it’s gotten monotonous and the functions and the niche and opportunity that I’ve pursued. I think the business would definitely be better suited with someone else that could take it to the next level and maybe branch out into some other channels.

Jake Davis:          It’s certainly an interesting thing, because you have built a half-a-million-dollar business, which is no small feat at all. When you look back over the last year, just looking again at the numbers, something you notice is that there’s a bit of a dip in February of this year. You were so profitable, but it wasn’t nearly to the level that it has been the last couple of months. What was going on in February?

Jonathan:           Yeah, absolutely. I think the numbers really show why I’m even pursuing a sale. They really prove that to me other than showing to the potential buyers, and that’s that when you start missing deadlines … for instance, I missed Chinese New Year to get a container out. Therefore, I was stocked out of some profitable products.

                                Or on the inverse, I had too much inventory of other products going into the holiday season, which really ramped up my storage charges. It just proved to me that the operational efficiency of running a business on Amazon is much more important than it used to be.

                                Therefore, I’ve really tried to stabilize the business and get my head in the game and really show that this is a great business. I think the last few months have really proved that, that it can continue to go in this direction.

                                But my inability to really have a tight rein on days of inventory and maximize the earnings power of the business really has been revealed in those rougher months earlier in the year.

Jake Davis:          That brings us to today, where you are making about $25,000 every single month in net profit over the last several months. Looking at the business, what do you, the owner, have to do on a monthly basis … or even a weekly basis … to maintain that $25,000 in profit?

Jonathan:           Yeah, that’s a great question. In all honesty, there’s not a lot that you have to do. You need to really take care of your customers, and you need to most importantly you need to prepare for future orders or have a great forecasting and production schedule, given that China is 30 to 70 days out in terms of production and shipping by sea. You need to prepare for that, and you need to prepare for the holidays, and really have again a tight rein on days of inventory, and inventory control.

                                You also, if you want to grow the business, you need to get creative and think about other products that could really add to the product lineup and be of value to the Amazon customer base.

Jake Davis:          With the Amazon customer base in mind, why did you settle upon the Amazon FBA business model rather than setting out on, say, a Shopify storefront on your own Web site?

Jonathan:           Yeah, that’s a great question. You’ve got a built-in audience on FBA. When family friends ask, “Hey, why does somebody buy your product over another?,” the real simple answer is visibility.

                                If you can master visibility on Amazon, whether it’s through keyword ranking or PPC, or any other methods that you’re doing, that increases your visibility to that audience of 300 million-plus people.

                                The propensity and trust that Amazon has built, with their customers to just have your credit card stored on file and just hit “Buy Now,” that’s really a very unique experience that is much harder to replicate on a Shopify store or a standalone e-commerce platform.

Jake Davis:          For sure. For sure. That is something that a lot of people love about Amazon FBA, where you have this giant customer install base and you’re on Amazon’s platform, so you get their entire install base. But then looking at what you have with the business today, there is a branded Web site, correct?

Jonathan:           Well, I do own the domain, but-

Jake Davis:          Okay. So that you own the domain-

Jonathan:           Yeah.

Jake Davis:          … but you don’t have anything set up on that domain.

Jonathan:           That’s correct. Absolutely.

Jake Davis:          Okay. Do you feel like there is opportunity to expand and be on Amazon; and if someone comes in with, say, Shopify knowledge, and they can market outside of Amazon with social media marketing, drive traffic to that Web site, do you feel like there’s opportunity there?

Jonathan:           Absolutely. I think that the number one regret that I have in my whole e-commerce learning experience, up until this stage in my career, is that I haven’t been able to build my own customer list. I’ve sold tens of thousands of orders over the years. I don’t have a single email.

                                If one has experience in building up that Facebook community or having inserts in their product and squeezing them to some type of click funnel, if they have knowledge in that sphere of e-commerce, I think that there’s a huge opportunity, especially given the brand credibility.

                                When you Google the brand, and there’s a lot of credible reviews from third-party review sites and just general cachet with the brand. Absolutely a great opportunity for someone that knows Shopify well.

Jake Davis:          Then you also have the emails that you mentioned, and then the social media marketing. There is a world of opportunity out there to grow on platforms outside of Amazon. Is the reason why you haven’t really tackled some of those, just due to lack of time and expertise in those areas?

Jonathan:           Yeah, I think it takes a lot of resources, whether it’s financial, or human capital, or just general grit and determination to learn those channels. If someone has that experience and can couple that with this opportunity, or this business, I think it does make a lot of sense.

                                But those are all skills that I’ve just now started learning, that I wish I had built up two or three years ago. But you’re absolutely correct.

Jake Davis:          Hey listeners. Do you want to find a business that is just right for you? Head on over to Empire Flippers and have a look at our marketplace. Where you can see real businesses making real money, just like the one we’re looking at today.

                                In fact, don’t miss out. Head over now, share your email address, and we’ll send you hot fresh new listings of successful businesses every week to your in box. Now, back to the interview.

                                What do you feel some of the other opportunities for growth are for the business?

Jonathan:           Yeah, that’s a great question. I think being in the home category, there’s a lot of adjacent products that could be bundled with the current offering, or that would be a great upsell or cross-sell.

                                If you look at, for instance, in the bedroom, some of the products are bedroom products. Typically, when you buy one brand of specific product, you’re going to oftentimes trust that brand and buy other products that may fit in your basket.

                                I think that broadening out within the lineup at the different vendors that I have, would be an opportunity; pursuing other Amazon Marketplaces outside of the U.S. This is a great opportunity; Shopify is also a fantastic opportunity, and social media. Those would be the real low-hanging fruit.

                                Furthermore, the biggest near-term opportunity is just to manage inventory better, have greater inventory controls. And be able to manage a broad array of SKUs that I’ve dropped in some cases, to streamline the business a little bit more and make it easier for myself.

Jake Davis:          Do you feel like there are any major potential risks associated with this business that you would want a potential new owner to be aware of?

Jonathan:           That’s a great question. I actually think there’s less risk today than there would have been because previously, in 2017 and before, the business had a much larger piece of the revenue driven by a specific product. That has contracted a bit, and made it a little bit more balanced of a business in terms of which listings are generating the amount of revenue contributed to the top lines.

                                In that sense, there’s not a lot of product risk. The listings are very longstanding, and some of them have several thousand reviews. I think that’s a real opportunity for someone to accelerate the credibility that has been built.

                                The biggest risk in general is the evolution of Amazon, and whether or not that’s a challenge or an opportunity, to a new owner, and whether they can diversify just from Amazon U.S. I think that would be the biggest risk in my view.

Jake Davis:          Have you explored getting outside of just Amazon U.S.? Have you explored getting onto Amazon U.K., stuff like that?

Jonathan:           I have. I’ve looked at the de, the Germany platform and selling into the broader European region. Again, one of the things that I have not been able to accomplish is really building a team around myself. I think if you have different team members or people with skills that are able to manage different aspects of the business in different channels, that would really help grow this business.

                                I’ve reached a pivot point, which is why we’re having this discussion. Do I want to dig deep and build a team around this, and try to pursue all these avenues and channels? Or do I think it’s better suited for another entrepreneur that may have expertise and desire to pursue those avenues? That’s why we’re here today.

Jake Davis:          When you talk about starting out, you mentioned a couple of things throughout this interview that you regret or you wish you had done this. But if there was one piece of advice you would have, that you could go back and tell yourself when you started out, what would it be?

Jonathan:           What would it be. Well, I think I had mentioned it earlier on, Jake. I would definitely would have familiarized myself with learning active campaigns or ManyChat or even Facebook and just building a community, because your customers are everything. The people that care about your product and your brand are the lifeblood of your business. It doesn’t matter what type of products you want, or you think should be in the marketplace. It matters what your customers want, and what they’re willing to buy.

                                Again, the thing that I would pursue, especially if I were to continue on in e-commerce, is definitely no question, building a customer database and a customer list. It’ll help you with launching. It’ll help you with product discovery or product research. And it’ll help you clean up inventory when you have too much of a given SKU. Those would be my real suggestions or biggest regrets on things I wish I would have done a little bit better.

Jake Davis:          On the one hand, there are regrets and things you didn’t get done. On the other hand, glass half full, there are opportunities for a new owner to take advantage of to grow the business even more.

Jonathan:           Yeah, absolutely. No question. Yeah, I think this is a really unique opportunity in the sense that the business reached a high point in terms of revenue last year, and it’s kind of bottomed out, and really made a nice comeback in the past few months. Really, I think I’ve revealed to any potential buyer that there’s a lot of power here that could be unleashed if someone had the right skill set.

Jake Davis:          Yeah, if nothing else, you made $25,000 in profit last month, right? That certainly helps when you look at the state of the business and feel like if it’s doing well or not.

Jonathan:           Yeah, absolutely. Furthermore, as a buyer, either you’re paying the multiple that Empire Flippers is putting on these businesses, you’re paying that at the maximum monthly output or earnings power of one of these businesses. Or you’re paying it at a discount. Right now, it seems pretty obvious that it’s kind of trading at a discount. Multiple that you all are putting on it. I think it’s a real opportunity for someone.

Jake Davis:          Jonathan, would you commit to a non-compete?

Jonathan:           Yeah, absolutely. I have no desire to pursue in any of these products in the future. Like I said, part of the reason for me, selling this business, is that I’ve kind of lost stimulation for the products and for the business itself.

Jake Davis:          How much support are you willing to offer a new owner during the transition period?

Jonathan:           Yeah, I’d be happy to arrange any training or any help that an owner needs to feel comfortable with running the business on a day-to-day basis. That can all be negotiated; by no means am I just trying to sell this business and cut loose. I’m happy to definitely migrate any learning or skill sets that need to be obtained.

Jake Davis:          Are you willing to negotiate on something like an earnout?

Jonathan:           Yeah, I’m definitely open to any offers that we can review and take a look and see if they make sense. But yeah, I’m open to see whatever buyers would like to submit.

Jake Davis:          Awesome, Jonathan, thank you so much. I do have another question for you. But before we get to that, I want to go ahead and run through that quick summary of the business again.

                                The business was built in September of 2013. Has a monthly revenue of $168,823. Expenses of $151,735 to make for a net profit of $17,087. Which is generated on a 10-month average.

                                Included in the sale of this business are 57 SKUs, exclusive supplier contacts, Amazon Seller Central account, branded domain, trademark, Amazon brand registry. Please note that inventory is not normally included in the list price. Further details can be provided to active depositors.

                                Jonathan, if you were looking at this business from the perspective of a buyer, objectively looking at this, why do you feel like it is a business worth buying?

Jonathan:           Yeah, I think, wow, there’s a lot of reasons. Especially trying to get into Amazon, where Amazon has matured to. I’ll give you a few off the bat.

                                First of all, a lot of sellers that enter the space may get into products that are low end in price point. Those are very competitive products. That’s very hard to sustain a business on, say as [inaudible 00:18:42] $20 products. A lot of my products are $50 and above. The sweet spot of Amazon is kind of 20 to 50. I think that’s a good little price point.

                                But the credibility of the brand, when somebody buys a $100 product or a $90 product, they really have a lot of trust in you. I think that is very hard to replicate or duplicate. That would be one, is the price points.

                                The other would be just the general review count in terms of verified reviews over a long period of the business, which are very hard to replicate in today’s Amazon system.

                                The last thing would be the product niche itself, is not a trendy or a faddy product. These are longstanding products that should hold up in recessionary times, as well as growth expansion times. I think that is very appealing; that they’re consistent products that are even not very heavily driven in holiday or seasonal times. Having that consistency is really important.

                                Those would be three key things that I’d love to mention to a potential buyer.

Jake Davis:          Jonathan, thank you so much for taking the time today. I really do appreciate it.

Jonathan:           Absolutely, Jake. Thanks so much for having me.

Jake Davis:          You just learned how this business works. And I want to give you the opportunity to learn more about what you can do to buy real online businesses, just like this one. If you want to find out more about businesses making real money, head over to empireflippers.com, and sign up for our mailing list.

                                There’s an entire world of people quietly investing their money into online businesses and seeing great returns. Now, we want to help you do the same thing.


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