RMRB 30: Running a Hands Off Ecommerce Business
In this episode, Jake spoke with Scott about his ecommerce and Amazon FBA business created in September 2012 in the kitchen & dining niche. His Shopify site features versions of a specific tool used for a popular drink and brings in around 60% of the revenue. The included Amazon Seller Central account features 5 SKUs and brings the remaining 40% of the revenue. With over 100K Instagram followers and an email list over 40K, this brand enjoys a devoted following and is mostly hands off for Scott to maintain.
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Jake: 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 have pair of business owners on who are running an E-commerce and Amazon [FBA 00:00:41] business that is making over sixteen thousand dollars every single month in net profit selling products in the kitchen and dining niche. And interestingly the Shopify site is earning a higher percentage of the total revenue than the Amazon FBA side of things.
Scott and Wyatt, thank you for taking the time to be on here today. How are you doing?
Scott: Great, thanks.
Wyatt: Thanks for having us Jake.
Jake: It’s my pleasure. I’m very excited to discuss this business and to learn how you two came together to start it and hear about some of the decisions you’ve made. But before we get to 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 2012, has a month revenue of thirty-nine thousand, seven hundred and ten dollars, expenses of twenty-three thousand, two hundred and forty-six dollars, to make for a net profit of sixteen thousand, four hundred and sixty-three dollars, which is generated on a twelve month average. Included in the sale of this business are the primary domain and [inaudible 00:01:30] content and files, Shopify account, Amazon Seller Central Account, five skews on Amazon, product patent and outstanding pending patents, logo trademark, email lists and social media accounts. Please note that inventory is not normally included in the list price. Further details can be provided to active depositors.
Scott and Wyatt can you both, I guess one at a time here, explain a little bit about your background in business and how you came together to start this one?
Scott: Sure, I’ll take this one. We were working on a tech app. We both were not technical, we were having a hard time finding a technical co-founder while we were in college. We were around 19 and 20 at the time. We actually created this business more of as just a small project. We had no intentions of it growing to this size when we started. Our goal was to sell I think a hundred thousand, we would have been really happy with. But we ended up figuring out marketing, ended up creating a really great product. And more importantly, really learned about how to develop a brand. It was one of those projects where we saw the opportunity and we decided to go for it and build the business to where it’s at today.
Jake: Speaking of being where we’re at today, why have you decided to sell the business?
Scott: So Wyatt and I both are working on different ventures. When we first launched this the whole reason we started it was two things. To be able to go prove to an investor that we were capable as business owners. That you could trust us with an investment for a bigger idea. And to attract technical talent. So that from a business perspective we had something to show someone who was technical and we would be able to basically prove our worth.
We feel like we’ve done that and we both have ideas that are just in more ambitious phases that we’re pursuing. We feel like at this time we’ve gotten, ten people have gotten tattoos of the brand, ten customers that we don’t personally know. We don’t feel like we have the time to invest for what this brand deserves. And that this brand has way more potential, especially in retail.
We’ve talked about this. We just don’t see ourselves going to conventions, getting into retail. It’s not exciting to us anymore as founders. We just know that if we don’t hand it off to someone who’s really excited and wants to take over the brand it’s not going to be able to go to its full potential. So we’re ready to move on because we have these other projects going on in the background.
Wyatt: The other thing is the other projects are outside of e-commerce and online retail in general. I think that’s probably one of the bigger reasons as well.
Jake: With that said, I’m very interested in this business here. And one thing I noticed when I looked back over the last year, you see very solid numbers for the majority of the year but a significant spike in November and December of 2017. Was that abnormal or do you normally see a holiday season bump?
Scott: No, that’s very normal. Something that a buyer should know is that this business is highly determined off if you want to shoot for revenue or shoot for profit. We did a substantial amount of marketing in Q-4 plus we get our normal seasonal bump, you know it’s Christmas. College students are tending to buy more in those quarters. But we ran a substantial amount of … Well, we have really great partnerships with the biggest thought leaders in our space. And so we ran a great series of ads which led to quite a bit of amount of sales. Granted, it’s going to incur a higher cost by doing that but yeah, that’s pretty regular for us to see a big bump in Q-4.
Jake: You mentioned college students in particular. Does this business cater to that age group?
Wyatt: Yeah, primarily all most all of our sales come from college students currently. But there’s definitely a huge opportunity to get customers outside of that demographic. But that’s primarily where we’ve focused almost all of our attention on marketing.
Jake: So when you look at the split between your Shopify site and the Amazon FBA side of things, which side of the business brings in more revenue?
Scott: Shopify brings in more, although we’ve seen a trend that Amazon has slowly started to trend in that direction. So we forecast that Amazon will eventually, probably take over Shopify in the long run. But we’ve also kind of done an interesting strategy where our unique products, stuff like T-shirts, branded things, certain colors we’ve left on our Shopify store. And then we’ve put our main best-sellers on Amazon. The reason that we’ve done that is Shopify is a great place for us talk about new launches for future products. So we want to make sure that we don’t drive all of our traffic to Amazon. Again, it’s a very high converting website, it’s really great for stuff that people want to buy. But we’ve tried to use this strategy so that we can keep our site relevant and that will be a place to launch new products in the future.
Jake: How does the business receive its traffic? Do you do a lot in social media, email? Or is it all organic or some other fourth thing?
Wyatt: Yeah, there’s generally like three different avenues. We have organic, paid on social, that’s with influencers, and then we have email. Which is kind of like Scott was saying, for products that we re-release. Different colors, new products entirely, stuff like that. A lot of our new customers, almost all of them actually I would say we find on Instagram. Working with influencers, we have lots of great partnerships. Those partnerships, you’ll be able to use those for a lifetime. Anyone who takes over the business like, you know, we have a Rolodex of influencers that will continue to work as great avenues.
That’s another thing that whoever takes over the business, there’s a lot of people we haven’t worked with that they could easily just bring on and they’d have a whole new demographic of customers.
Jake: Then talk to me about the email list. I know you guys have an email list of over 40 thousand subscribers so do you utilize that?
Wyatt: We do utilize it but that’s also something else that whoever takes it over, they could, if they wanted to get a blog up and running and be sending out more emails I’m sure that they could boost the revenue much better than we have personally. I think that Scott and I probably didn’t put enough time into utilizing how many customers we already actually have. Creating new product extensions, you can just, I’m sure whoever takes it over can increase the customer [inaudible 00:07:53] value with that whole list themselves, very easily.
Jake: How much work and time do you two as the owners need to invest in the business on a weekly basis?
Scott: We only spend two to three hours a week, sometimes less, sometimes a little bit more. We’ve outsourced pretty much everything. And there’s even more that we can outsource that we’ve just decided not to. So if someone wanted to come in … For instance, we do state tax returns. We do those, spend us, takes us about an hour to two a month, each. You could automate those. So very low.
At the same time if you were doing more product launches … We have quite a few products that are in R&D where we would transfer over those designs to a buyer. That would take more work, right, so a product launch, something like that, you’re going to shoot a video, reach out to PR agencies. At this point just to maintain the business it’s about two to three hours a week I would say, per founder.
Jake: Then do you have any other employees or is only you two? So the business only takes about four to five hours a week?
Scott: Yeah, it’s just us. Pretty much everything has been outsourced except for some basic operations and then the marketing. Everything else is outsourced.
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What opportunities for growth do you see for this business?
Scott: The biggest is, I think there’s, if you want to say just in e-commerce definitely products. We have, I mean ten people have gotten in touch using the brand. At this point we’ve only sold them the opener tools and one other R&D tool. So where we think where there’s huge potential is getting into solving more problems that our customer has through more products. We know we have an extremely dedicated base but we haven’t launched. There’s a ton of other products we have on the pipeline that we haven’t launched yet.
If you wanted to go out of e-commerce I definitely think that wholesale could be huge due to our margins. We have pretty incredible margins on a lot of our products and we really have done no wholesale. So if someone has experience there I think there’s a lot, and I think you could probably throw some in on the [e-marketing 00:10:27] side as well.
Wyatt: Yeah, on the marketing side we really only touched like Instagram marketing and through influencers. There’s still YouTube. We worked with Twitter a lot. I mean like when we first started the company it seemed to do pretty well and I’m sure whoever takes it over could go back to that. We had a great ambassador program which was just kind of state and local reps selling the actual product. There’s a ton of stuff you could do.
Then as far as launching the products that we [R&Ded 00:10:52], you know increasing the customer lifetime value you’re only going to see better returns. When you’re working with Facebook. For while Scott and I, you know we struggled to do Facebook advertising simply because our cost of acquisition was higher than we wished it to be. Just adding more products to the actual website itself, which we’ve already [R&DeD 00:11:12], it’s only going to bring a whole new realm of Facebook marketing which we never even got to experience. So there’s a lot of opportunity for sure.
Jake: Do either of you feel like there are any significant risks associated with this business that a new owner should be aware of?
Scott: Yeah, I think the biggest is our brand is, I wouldn’t say politically correct. We have a very niche audience which is college students. And so where the country is going, with political correctness, I think that that could be an issue in the future. Whether that means keeping the brand authentic to where it is which has gotten us … I keep bringing up the tattoos but I think it shows that we’ve really hit home with our message. Or changing that, and having to maybe go away from some of those core brand values. That could be something that the future owner is going to have to look at and make a decision for themselves. I think that would be probably thing in my eyes.
Wyatt: But if they did find a way to widen the audience and take it out of this whole niche market deal I’m sure that they could just see it as an opportunity. Because we have segmented so many different markets through our marketing. Which is, you know it’s different but it’s worked.
Jake: And with that said with the brand, you guys do have a trademark on the brand and you’re current on the previous logo but now you’re waiting for the new trademark, for the new brand, and new logo so then you can register with the Amazon brand registry program, correct?
Scott: Yeah, that’s been filed, so that should be done in about a month I believe. We’re just waiting on the patent office to process the application.
Jake: What advice would you have to someone who wanted to get started with their own e-commerce business?
Scott: I think they have to have an extremely strong why behind the brand and solve their own problem. When Wyatt and I started the company, although it was a funny problem to be solving, we really enjoyed the activity that we were solving. So we were the number one customers. And that gets into, Wyatt and I talk about this all the time, would you go to the convention? Whatever you’re starting, if there is a convention where everyone in that space went to, would you be the most excited person there or would you not want to go?
And what we find is that a lot of, like when we mentor people in e-commerce or any business, that it might be a great solution and you might be solving a great problem but you’re really not passionate about it. So when times get difficult or you run into obstacles it’s much easier to quit instead of persevere. And I think perseverance has been one of our biggest reasons why we’ve seen so much success. Because it was definitely difficult to get off the ground, it was not easy.
Jake: Would you guys commit to a non-compete?
Scott: Yeah. I don’t think that would be a problem at all.
Jake: How much support are you willing to offer a new owner during the transition period?
Wyatt: I think we’d be willing to offer as much as possible. It’s a relatively easy company to run. You know once you get down, our few core values and what we’re actually doing on a day to day basis, it’s super easy to do. It wouldn’t be an issue for us to help the next owner out at all.
Scott: Yeah, it’s easy from a business standpoint. I think it’s kind of just like learning like the local dialect of a language, right? It’s making sure that you’re consistent with the brand. So when we send out a thank you email we don’t say thank you for our order, have a nice day. We have a specific way of how we treat our customer. And that’s consistent throughout our brand, which is extremely important. We’d want to make sure that the new buyer understands that.
It’s very easy. We actually have a 30 page customer service guide that goes through how we deal with this problem, how we speak with our customers, which I think would be very helpful for them to go through. But I think that would be the biggest thing we could support them with.
Jake: You know it kind of brings up a good point here, how do you guys feel about saying good bye and passing on this brand that, as you said before, you’re the number one fans?
Scott: We were the number one fans, but both of us actually don’t drink anymore. And so we have an interesting way of looking at life. We both I think care more about what we’re doing than essentially what the profit’s derived from. What we’ve seen is we’ve become the number one fans of our new businesses that we’re starting. I can’t speak for Wyatt, but I’ve working 80 hours a week on my new business because I’m the new number one fan of the problem that I’m solving there.
We know that not everyone is going to be maybe so intense about the business that they own. I know a lot of people that run businesses that aren’t extremely passionate, they still enjoy it. For Wyatt and I we just feel like whatever we’re working on we have to love doing it. And that’s not the case with our company now because we don’t drink. We feel like we’ve created this amazing customer base and the reason we’re selling is because we want … It’s like our baby to be taken care of and our audience to get the attention that they deserve. And we just don’t feel like we can provide that any more. We’re hoping that we can find someone who can bring in a fresh energy who’s super excited and can give them that attention.
Wyatt: Yeah, it’s definitely bittersweet for sure. On my end I’m definitely a little … It is sad letting it go because Scott and I have put so much time and effort into the business. Just looking back on the past five years literally just invested almost all of our time. And I’d say that we definitely missed out on a ton of our younger years, our early twenties, because of the time and effort that we were actually putting into the business. Letting it go is definitely difficult but that’s why I completely agree with Scott. I want to make sure that whoever has the business next is really going to take it in the direction that he and I would want see. And give the attention that we once did to the business.
Jake: Are you guys open to negotiating on something like an earn out?
Scott: I think for what we’re selling it for it’s a very fair price. I, in my opinion, would more want to sell and move on from it so I could focus, I’m speaking personally, on my new venture. Versus having it drag on for another six months or a year.
Wyatt: Yeah, I agree. I just don’t see, the reason we’re selling it you know is so we can focus on these other companies. And an earn out, it just might be something that kind begins to drag on. I think otherwise we’d just pull back the reins and take the company ourselves. Just personally.
Jake: Awesome guys, thank you so much, both of you, for taking the time with me today. Now, I have one final question for you and I want individual answers here. We’ll start with Scott and then we’ll go to Wyatt. Scott, why do you feel, given everything you know about e-commerce, online business, and then this business in particular, why do you feel like this is a business worth buying?
Scott: I think that’s an easy one. There’s a lot of e-commerce businesses that sell good products. There’s very, very few with such a dedicated customer base like ours. I think in general, I always go back to the tattoos, that if there’s ten people willing to tattoo their body of something that means they really really love what you’ve created. I think that’s consistent if you look at our customers reviews online. We post every single review, even the bad ones, because that’s when we get to show our customer service.
But if you go through and you read some of those, we have thousands of five star reviews, people really really love this company. I think it’s rare that you create a company that people really love. We feel like this has so much opportunity to expand the reach and the problems that you’re solving because the brand is so strong. You could take this brand … And we’ve talked about a lot of plans. Getting into the outdoor space, getting into the hunting space. You could take a brand that people love and start solving more problems. So I think that’s the strongest reason why you should buy this.
Jake: Awesome. And Wyatt, why do you feel like it’s a business worth buying, anything to add here?
Wyatt: Yeah, I mean it kind of sounds like Scott pretty much hit every reason why. But for me, if I were looking to buy this business I would see, purely based, I mean we have five or six products that are completely unique, that you could easily patent. If you look at the products that have worked for our company it’s very easy to see that launching any of these other products we’ve already [inaudible 00:19:27] out could be massively successful. One of those could be its own little unicorn in itself. I think that’s why I would buy the business if I were looking at it. I could see any of these products doing really really well. Same as our other ones.
Jake: Scott and Wyatt, thank you both so very much for taking the time with me. I really appreciate it.
Scott: Thanks Jake.
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