RMRB 22: Selling Worldwide
This week, Jake spoke with Tom about his ecommerce business created in Jan 2016. The business sells a high-end hair styling tool via five Shopify sites, each focused on a country: AU, US, UK, CA, NZ. Each site capitalizes on a variety of organic and paid advertising, providing a diverse traffic stream. The business sells several brands, including their own privately manufactured brand which is the best seller.
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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. This week I’m going to be looking at $1 million ecommerce business that has different sites focused on different countries around the world. I got the opportunity to sit down with the owner of this business to discuss how it came to be and what are the day to day and where he sees the business going. And I’m just really thankful for the opportunity to get to speak with him.
Tom, a thank you for coming on here today. How are you doing?
Tom: I’m great. Glad to be here.
Speaker 1: Yeah, it is my pleasure to have you on here. I’m very excited to discuss this million dollar business with you. But before we get to that, I want to go ahead and run through a little quick summary of the business. Again, the business was started in June of 2016, has a monthly revenue of $71,170, expenses of $40,644, to make for a net profit of $30,526, which is generated on a 12 month average. Included in the this business are the primary domain and all site content and files for five sites, Shopify accounts for five sites, employee relationships, supplier relationships and 10 park domains for brand protection. Please note that inventory is not normally included in the list price for the details can be provided to active depositors.
Tom, can you tell us a little bit about your background in building and running online businesses?
Tom: Yeah. I started importing products around 2016 and I went overseas traveling for a couple of years before getting into business in Thailand. I just saw this opportunity when I came back to Australia two years ago to purchase this business. I was looking for something that was going to be a little bit quiet. It was meant to be just a part time business just to keep me busy. And it very rapidly grow and now it is what it is today.
Speaker 1: So you mentioned to me before we started the interview that you actually purchased this business in June of 2016. So how did you stumble upon this business?
Tom: I found the business for sale in online classifieds listing website and it had mainly been established as a service business to the hair dressing industry and it was going around to hair salons servicing some of their tools. And there was, yeah, I saw a real potential there with the sale of their hair styling products online.
When I bought the business, I was told that it was about a 60/40 split between online sales and in store sales. And pretty rapidly I saw there was a big opening in the niche to produce some better quality tools. And so what we did was we saw that there was a really good brand in place with some specific tools that the business had been selling for the past 18 years. And we’re really lucky that there’s some really good groundwork done with suppliers in Australia and Japan and Taiwan at the time. So we’re really lucky that we could leverage off those suppliers.
So essentially someone else had already done the groundwork in finding a high quality product. And the original owner of the business was a hairdresser himself. So he initially found these products and he was able to test them and knew they were high quality. And then the owner of the business after that, he was in product development. And so he was able to refine the products further. Then when I purchased the business, I was able to market the product. So it was just a little bit of right time and right place and that there was a definite opening in the industry to be able to provide our products and services at a price that was a little bit more fair, a little bit more transparent, and offered a really good quality product at a really fair price that was easily available for sale online. And just trying to provide trust where if the products weren’t quite right for them, just offering a really easy returns policy where no one else in the industry had offered a returns policy before.
So we just implemented a returns policy and our theory was that we never wanted anyone to walk away unhappy with our products. And over the last two years we’ve only had two one star reviews and tons of five star reviews. So that just shows that the product really does speak for itself. And the one star reviews we got were related to shipping and not to the actual product itself. And we can’t control Australia Post or DHL.
Speaker 1: After having the business for two years, why have you decided to sell it today rather than continue to grow it yourself?
Tom: The main reason would be cashflow. Cashflow has been a killer since we purchased this business. When I first started growing the online website, we were dealing with suppliers that had three to six month lead times. And to grow our business over two years to go from, it was doing about $400 to $500 a week in revenue when we first purchased it. So about $2,000 a month in revenue. To grow from $2,000 a month in revenue to close to a million dollars in revenue over two years with a product where you have to order three to six months in advance has been really tricky.
And in that timeframe, over those two years, probably for the first 12 months, I was working probably 100 hours a week, seven days a week. And then for the six months after that, it started dropping. And then over the past six months it’s really dropped down and being able to get everything into a fulfillment center, introducing a good support network of staff. So we’ve got a couple of different VAs that have taken over customer service, a little bit of social media and graphic design and taking over the AdWords and SEO.
So yeah, the main reason for selling it is yeah, in part cashflow and part burnout after spending two years just working flat step, even in the past six months, our cashflow has been improving. But yeah, I’ve got a lot of my net worth is invested in one asset, so it’d be good to split that out a little bit as well.
Speaker 1: When talking about your original goals with the business when you purchased it, did you see yourself growing and then flipping it a couple of years down the line when you felt burnt out? Or was your goal originally not to flip it?
Tom: No, so my goal has always been to create a website that was sustainable for the future. Everything has been in a way of that I’ve tried to diversify everything that I can diversify within the business to provide multiple income streams and really stabled traffic to the website to make sure that we never really have too many dips in sales each month. Even until now we’re investing a lot in SEO. Because a lot of people, it’s still quite new to be able to purchase this product online. So there’s been a lot of building trust. So everything’s been set up in a way that we’d continue it forward in a way that the business would be sustainable into the longterm future
Speaker 1: With the five Shopify sites that are associated with the business, they’re all obviously revenue streams for the business. Is one of them larger than the rest or is it pretty even 20% across all of them?
Tom: No. So the largest Shopify store is the Australian based Shopify store and that’s because I’m based in Australia and that’s where the business was originally established. When we purchased the business two years ago, we didn’t even rank close to page one or on page five or six. And over the past two years we’ve managed to get, we bounced a lot around the top free for like our main keywords for organic traffic. So I think we’ve got the most diverse kind of portfolio of organic traffic for this product in Australia. We rank number one for about 30 or 40 different keywords and we’d bounce around the top three for most of our top keywords that we’re trying to rank for.
And so that’s where the biggest room for improvement is, definitely in working on the international brands. I think we’ve got a significant market share in Australia now. Everyone knows us. Our product is really well received. The Australian store, after two years, we’re seeing really strong growth month on month of repeat purchases. So because the product doesn’t need to be replaced very often, our a repeat purchase rate is around 8% now, but that’s grown from nothing over the past two years. And over last six months it’s doubled. So does take, it is a product that does have quite a long conversion window. So normally we’re looking at anywhere from 30 to 90 days when someone first sees our product to when they make the conversion.
And so that’s why the international stores are taking a bit longer to get to that point. But yeah, it’s about, the split would be about 60% Australia, 10% New Zealand, 10% UK, 5% US and 5% Canada.
Speaker 1: So you would then feel like a big opportunity that you would focus on if you were to keep the business, a big opportunity would be to expand and improve upon at the international stores you have?
Tom: Yeah. And the international stores have been growing rapidly over the past 12 months. The New Zealand stores gone from doing $1,000 to $2,000 a month 12 months ago to last month we just did our biggest month ever in New Zealand of about $12,000. And the same thing’s happening with the UK store, because that’s our next longest established stock. That’s been established for nine months now. And last night we just did our biggest map ever there as well, where I think we did about $7,000 or $8,000 in the UK.
So they do take, because it is quite a high end product that is quite an expensive product, but the best part about it is that the product, it’s a need, it’s not a want. Hair stylists need to buy these products and they need to buy them from someone. And if we can offer them a good product at a good price online, simple and easy. Quite often hairstylists in small towns might not have the opportunity to go to a store and buy the products. And that’s where there’s quite a big opportunity as well. Particularly in states where there are a lot of small towns. That’s where we see a lot of our styles coming from.
Speaker 1: When you look back over the last year at the business in terms of the numbers, you see really steady numbers. It’s not like they’re lower or anything, but this huge spike a couple of months ago in June of 2018. So what happened in June and how can replicate that?
Tom: So in June, it all started in June of 2017 where six months prior to that, I planned an into financial year sale because I knew that these hairstylists were going to be able to claim it back at the end of the month and it would be like they never spent the money because they’d get a tax rebate at the end of the month for purchasing our products. So I planned for June of 2017 to have stock arriving every week from the first week of June to the second week of July. I planned on having stock arriving every seven days.
So I managed to talk down our supplier, we used to have to put down a 50% deposit. I managed to talk him down to a 10% deposit. So I put down an order for a huge amount of stock that I couldn’t afford to buy otherwise. And during the 2017, we had our first end of financial year sale and that was what really kick started our business and really gave us the opportunity to start to open the international stores, which is when we invested about $30,000 in August of 2017, into to the search engine optimization foundations and a total rebrand of our store happened to time perfectly end of financial year sale.
So that was what gave us the cash flow to continue through. And from our previous experience in 2017, I got to May of 2018 and I knew that I’d ordered way too much stock in the lead up to over December and January and February. I worked out that I’d been ordering too much stock and I think I our stock levels peaked at about $220,000 and that was about double I wanted to hold.
So basically I got in early to launch our sale before any of the other big brands were launching their end of financial year sale. So we actually launched in the last week of May and then we just continued the momentum on through the month of June. And it just happened to be that the international stores really started to pick up around then. That was, yeah, we just launched our US store in June as well, so we were starting to see a few sales in the US and the UK. We’ve moved into some good positions organically in the UK and the same in New Zealand, really really steadying up from New Zealand and they just all added together. And that’s kind of where I see the business going. Is that when, that’s why we never have the dips because the way that I planned the business was that if one store or one country doesn’t perform well for whatever reason, one of the other stores will pick up its slack. Because chances are they’re either having, out of operating in five different countries that there is one country that will spike that month for whatever reason. The weather might be really bad and people might spending more time shopping or looking online.
There’s numbers of different reasons as to why there’s spikes and why there’s dips. They might be in one country, people might be running lots of sales and it might be really hard to compete for impressions on Facebook. And there might be a dip in one country that month, but generally over five it averages out. I think that’s why we’ve seen quite steady sales over the past 12 months, is because the international stores are slowly saddened to take hold. And yeah, there’s some big spots but it doesn’t really dip too much I don’t think.
Speaker 1: You mentioned earlier that the large portion of your traffic comes organically. Do you do any marketing for the business though to generate traffic?
Tom: Yes. It’s actually a pretty even split between Google organic and Google paid and Facebook and Instagram organic and paid traffic. There’s a pretty even split there. There is definitely opportunities mainly in the US. I mean, in Australia last year we only had an audience, when we found a perfect target audience on Facebook, there was only an audience of 50,000 people to advertise to. And as they started taking away options for Facebook advertising, it got a little bit trickier.
So in Australia we achieved 400,000 Australian in sales from Facebook advertising to a group of 40,000 people. And the place where I see the big opportunities are in countries like the US. That same audience as an audience of over 250,000 people, which is small as far as audiences go on Facebook, but it’s very specific. So there’s definitely a lot of potential in other countries to replicate what we’ve done. But it just takes time and it takes working capital as well. You’ve got to be willing to spend the money before you’re going to see the sales on the international stores, which we slowly started to see. But the conversion window as quite a long conversion window.
Some people might take as long as six months from seeing our product to when they buy it, but because they have to purchase these products to do their work, and it’s been quite an expensive product. I mean, our average order value is pretty much around $400 across all our websites. They have to purchase this product and $400 to a hair stylist does quite a lot of money. And because it’s the individual purchasing it, it could be up to a week’s wages purchasing one of our products. So the conversion window does take quite a long time. So that’s why growth’s a little bit slow, but it’s steady.
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Other than improving the international markets, which we’ve already spoken about, do you feel like there are any big opportunities for growth that a new owner could focus on with the business?
Tom: Yeah. Well, the other option is if the new owner had any connections within the industry or otherwise could, there’s a lot of room for improvement. We do wholesale our products to a few retail outlets. And because of the margins and the product, the companies that we currently wholesale to, their margin that they make is less than our cost per acquisition is on Facebook advertising or Google AdWords. So there’s a lot of room there to be able to wholesale the product just because there’s quite a wide margin in it. And yeah, being able to offer a good level of customer support and training to the companies that are selling the products, it’s definitely a lot of opportunity there.
Speaker 1: On the flip side of the opportunities there’s risks. Do you feel like there are any potential risks associated with this business that you want a potential buyer to be aware of?
Tom: Well, all business carries risk. Not quite sure what the biggest risks would be. But yeah, we’ve tried really hard to protect the business from any Google updates. I mean, if one website gets penalized, then the other websites aren’t gonna drop because of the way we’ve structured the business. And it’s a product people need to purchase anyway. I’m not sure what the biggest risks would be.
Speaker 1: I mean, if you’re playing along with Google’s terms of service, I mean, there is obviously a risk of being in Google’s playground where they could go ahead and change everything and then you’re left high and dry. But as unlikely as it is, it doesn’t sound like there’s a ton of business specific risk to this business.
Tom: No, we’ve worked hard to try to keep the risk down as low as possible by having a website split out, by having the multiple streams of income between Google AdWords. Google shopping has been a really big one for us. Pay for social media on Facebook and Instagram, ads on Bing. All those different mediums do work. And so it is quite well diversified. I mean, it’s diversified by country again.
I think a lot of the risk is mitigated. It’s just, yeah, the main reason for selling is that it’s quite hard without the working capital to be able to take the business, to grow it to where I’d like to see it to go and the time frame that I’d like to grow it. Yeah, it’s quite hard to get money from banks in Australia. So I’ve grown the business without having to borrow any money. So there’s only so much I can do. I’ve just got no interest in working 100 hours a week and breaking myself to do it with the means that I have. So yeah.
Speaker 1: You had mentioned earlier that you have employees with this business. So can you describe the type of work that they do and then where does that leave you as the amount and type of work that you need to do on the business on a weekly basis?
Tom: Okay, cool. So yeah, the first, so all the employees we have are based in the Philippines. It’s all virtual assistants. The first employee is doing Google AdWords. We employed him in March. Since we’ve had him, I logged into Google Analytics for the first time today. So I don’t need to look at AdWords at all. That’s 100% handled by him. And over the past three to four months he’s double the traffic that we’ve had coming in from Google AdWords.
Then we’ve got a copywriter/customer service person. So my idea was, because it’s quite technical, I would get the customer service person to start out by writing blog posts and researching to write blog posts and then they would have a good understanding of the products and then they’d be able to apply to more technical messages in regard to the products.
All our customer service, 90% of it is handled through Facebook Messenger and the other 10% would be for emails. We don’t answer the phone anymore. The phone goes to voicemail and voicemails are it on to our email and then we can then reply to the voicemails via email or via Facebook Messenger.
And then the third employee is our social media assistant who just collates all the content that we’ve got into one place and posts to Facebook and Instagram every day. Then I normally go in and I’ll pick from the content that he’s creating, he just constantly pumps out content and from the content he’s creating, I go in and pick what I think looks the best and set up a Facebook ad for it and probably change the ads over twice a month with what’s running. The ads don’t need to be super technical, I think, because we’ve got quite good brand awareness and there’s so much past data to go off. It’s quite simple. It’s just a case of picking the content that’s performing the best from what our social media assistant is posting. Just pick the posts that are performing the best and then run some paid campaigns for Facebook.
And then yeah, all the inventory is held a fulfillment center. The fulfillment center has an API to pull across all our sales data. So when we sell a product it’s automatically pulled over to the fulfillment center and sent out. So it is becoming quite hands off really.
Speaker 1: Is this the first business that you’ve bought?
Tom: It’s the first business that I’ve bought, but it’s not the first business that I’ve run.
Speaker 1: So when looking to potentially buy this business a couple of years ago, how did you determine that it had opportunities for growth? What stuck out to you?
Tom: Well, when I purchased this business, I’d just come from living in Thailand. I had got a management company there and had about 10 staff working for me. I wanted to purchase a business that needed no staff. I had the big fancy office overlooking in the water, a big workshop out of back in the marina. And when I purchased this business, I wanted none of that. I just wanted to bootstrap it and be able to get by on doing the minimum amount of work possible.
And of course when I first purchased the business, that’s not what happened. I purchased the business and it grew, started to grow really quickly. I was just looking for a niche where there wouldn’t be a lot of competition, where it would be a product that someone would need not want. So it’s quite recession proof. And particularly with the people that we’re marketing to wouldn’t be affected so much through ups and downs. They’re always going to need this product. So they were the big ones.
Speaker 1: Then now that it’s time to sell it, you have obviously said that you’re selling it because you were feeling burnt out with the business. It was never your intention to buy and then increase it, flip it, make more money. But seeing as that’s kind of what you’ve done here and massively grown the business, do you have any tips for someone who does want to get into buying and flipping sites?
Tom: Well, it’s a lot easier when someone else has done work and laid the groundwork and laid the foundations and found a good quality product from a manufacturer that’s got the ability to produce that product. I mean, when we first purchased the a business, probably a lot of what led to the burnout was establishing a really good foundation of getting the product to a point when it was able to ship from supplier to the fulfillment center. that took 18 months to get that right. And during that 18 months I was checking every single pair of products that we were selling personally myself because I didn’t want to have any staff.
So yeah, I guess it’s just about if someone else has laid good foundations, it’s really easy to pick up where they’ve started off because they’ve had that passion when they started. And then yeah, just a new set of eyes can make all the difference, I guess.
Speaker 1: Would you commit to a noncompete?
Tom: Oh, 100% I have no intention of working in the industry at all.
Speaker 1: How much support are you willing to offer a buyer during the transition period?
Tom: Because the products are fairly complex in nature, willing to offer basic, yeah, any support via, whether that’s by Skype, email or even in person if they to meet in person. I’m happy to go above and beyond whatever needs to happen. Whether it’s just in the first three months, if it takes them a bit longer, if it takes six months, if it takes 12 months for me to be out of the business, that’s what it takes, but so long as I can make that process as smooth as possible.
Speaker 1: Are you open to discussing something like an earn out?
Tom: Yeah, definitely open to discussing the options. Obviously we want to get as much as possible up front to make sure that it’s viable for us to sell the business. I mean, it’s not taking that many hours per week to run, so we would need to get a significant portion up front to make it viable for an earn out to work for us. But that’s how I bought the business originally, so I’m definitely open to it.
Speaker 1: Awesome. Tom, thank you so much for the time. I do have one final 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 started with Tom in June of 2016, has a monthly revenue of $71,170, expenses of $40,644, to make for net profit of $30,526, which is generated on a 12 month average. Included in the sale of this business are the primary domain and all site content and files for five sites, Shopify accounts for five sites, employee relationships, supplier relationships and 10 parked domains for brand protection. Please note the inventory’s not normally included in the list price. Further the details can be provided to active depositors.
Tom, so now two years later after you’ve bought the business and you already thought two years ago that it was one worth buying, but now especially two years later after all this growth, why do you feel like this is a business worth buying?
Tom: I think the hard jobs are being put in. We put a lot into product development, which has put us right at the forefront of what’s happening in the industry. A lot of companies in this industry, they’re selling products that haven’t changed much in the last 30, 40 even some of them as far as 50 years back. Their products haven’t changed, but our products are pushing the boundaries and they’re just making them a lot more modern and a lot more relevant to what our target market wants. The hard work’s been done and now it’s time for someone to reap the rewards.
Speaker 1: Tom, thank you so much for taking the time today. I really appreciate it and I loved sitting down with you to talk about this $1 million business.
Tom: Yeah, great. Thanks for taking the time and yeah, there’s a lot of stuff that I’ve missed out. There’s so much went into creating this business that we haven’t covered half of the stuff that we went through in getting it to where it is today. There is definitely a lot of potential for the future.
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