Host: E commerce aggregators have been in the business press lately. Aggregators are the firms that roll up e commerce businesses and have been buying e commerce brands right and left for the last couple years. Well, they've been in the headlines because of trouble at one of the biggest aggregators, Thrasio. So I wanted to bring on someone with his finger on the pulse of e commerce business acquisition and the obvious choice was Joe Valley, a partner at Quiet Light. Quiet Light is the well regarded broker of e commerce and other digital businesses. In this conversation you're going to get a look back and a look forward at the market for e commerce businesses. The white hot market for them is cooling, so if you're interested in the category, good opportunities may become available in the months ahead. Also, I'm doing kind of a twofer on E commerce. Tomorrow I'll be publishing an interview with Alex Michael, who acquired an FBA business just a few months ago. So today's interview with Joe is a look at the e commerce market and tomorrow's with Alex is the story of a first time e commerce business buyer and how it's going for him. Hint, going awesome. One other thing, I want to plug Joe's own podcast, the Quiet Light Pod. Tons of valuable episodes for those of us interested in digital business. In e commerce in particular, Joe is a great podcast host and turns out a great podcast guest as well as you're about to hear in this deep dive into the market for e commerce businesses. Enjoy. Welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs and on this podcast I talk to the people who do it. What size of business should you buy? What can you afford? How much STE or EBITDA does the business you acquire need to generate to pay off your loan, pay you the income you need, and reinvest in the business? Of course, the answer varies from person to person, so you need to answer this question for yourself. Chelsea Wood runs the Acquisition Lab and did a great interview on Acquiring Minds just a few weeks ago. The Lab is a Do it with youh Buy side advisory service founded by one Walker Deibel, author of Buy Then Build. Chelsea's running a live session on this question, what size of business should you buy? She's worked with over 250 searchers who've gone through the lab and this question comes up constantly. So at the live session she'll explain how to arrive at the answer. Acquiring Minds is co hosting it, so I'll be there as well playing MC and taking notes. It's Wednesday of this week, Wednesday, June 22nd at 10am Pacific 1pm Eastern. Register in the show notes Joe Vallee, thank you for joining me today on Acquiring Minds.

Guest: Good to be here, Will. Thanks for having me, man.

Host: Joe, you're the owner of Quiet Light Brokerage, a name that regular listeners of Acquiring Minds will certainly know. Quiet Light is considered one of the highest quality brokerages of digital businesses, including E commerce. So in your role at Quiet Light, you are really at the front lines of acquisition activity in E Commerce and a great person to discuss today's topic with. And that topic is this turmoil that we're hearing about seeing with the e commerce aggregators and what that means for individual acquisition entrepreneurs, which is this, this audience, the Acquiring Minds audience. Before we get into all of that though, Joe, why don't you give us a little bit more of an intro on you, if you would.

[3:41] Guest: Sure. I'm an entrepreneur, just like everybody listening in the audience if they could currently are an entrepreneur if they're hoping to be one. I was in that same situation once upon a time as well. I started my first business, I think it was, God, I'm getting old now. It was 1997. I left a company that I had. I was the 34th employee. By the time I left there were over 1,000 and that was only in a two and a half year span. So it was amazing, awesome and awful at the same time. But I've been self employed since 1997. Launched my first product in 1998. I owned a media buying agency for radio and then launched my first product on Radio in 1998. Eventually I did two TV infomercials with two different products and the last one I took to just 100% online in 2005. I took it through the best of and the worst of the economy. Came out the other end of 2010, kind of tired, worn out, woke up one day and decided to sell my business. So I called the 3 online business brokerage firms that I could find and thankfully one of them was a guy named Mark Doust at Quiet Lights. And Mark's like he gave the other two were just trying to get their hooks into me for commission, trying to get me signed an engagement letter. Mark was like, well look, based upon the review of your P and ls, he actually requested them, reviewed them. He's like I think you could sell now. Yes, but if you wait another six months based on your trends, you're easily going to make another six figures. Easily. Maybe instead of 600, another 100, maybe another 200,000. Depends upon the trends. Go. And I'm like, you're telling me to go away? He goes, it's in your best interest. And I loved the guy. I thought that was great. So I waited, came back. He didn't call me, didn't pester me, didn't anything. I reached back out in early October of 2010 and and signed an engagement letter with Quiet Light. Mark was not my advisor, it was Jason Yelowitz. And we listed it and had it sold. I closed by the end of November. And then I took 2011 off trying to figure out what to do with my life. Puttered around a little bit, did some things back in the media buying world. Realized why I stopped it. And I bought a business at a content site in April of 2012. And I joined Quiet Light at the same time. The content site that I bought was hit by the Panda update. Actually, I guess I bought it in March because it was hit by the Panda update? No, the Penguin update in April of 2012. So I had something like 40 glorious days, right? I sold a business that had amazing content. I had like 300,000 unique visitors a month. It was an E commerce business. I sold physical products, but I always wrote good quality content. So I sold that and I bought a piece of crap. Cause it was, I don't know, I thought I knew everything and I was dead wrong. Got hit with a Penguin update. So I had six keywords on page one. By 10 days afterwards they were all on page two, then three, then four, then five. And by the end of it all, 10 months later, I was out $280,000. But it was a hell of a lesson. Learned a lot and really enjoyed the Quiet Light side of things. Loved being in the middle of transactions. And when I look back at my history, Will, what have I excelled at? What have I been challenged with? I was challenged when it was just me, Google, PPC and my developer. Meaning that five year stretch when all I was doing was promoting my product online. That was hard. I didn't love it. It was painful. My developer always wanted me to spend a whole bunch of money that he'd earned and I didn't have the guts for it. Prior to that, when I was running my media buying agency, I was in the middle of clients. I'd buy media for my client. On the buy side, it would go to the call center and I was helping both parties. I was often the intermediary between them both when they fought. But their success was based on how well I bought media. Lo and behold, I'm skipping a period of time from 2005 up to 2012 when I fall in that same role again. But I didn't realize it until a few years ago when I was a business coach and looking at my strengths and weaknesses and what I excelled at and what I didn't, I looked at the history of my entrepreneurship and it was being in the middle of transactions and helping people, not hawking products or goods, even though that's helping people too. I just wasn't good at it. But where I'm at now with Quiet Light, it's a solid position. Mark and I became official business partners in 2017. We've got 15 advisors now and the famous Walker Deibel is on our team.

[8:38] Host: Well, if you weren't going to mention it. I was going to mention it.

Guest: Oh, I'm going to mention it all day long. I wrote the ExitPreneurs playbook and Walker wrote Buy, then Build. Walker's probably sold 50,000 copies at this point. I've sold a tenth of that and he lets me know that all the time. But my audience is much smaller. I'm on the sell side. Right. I always to defend myself with statistics, but he's done a hell of a job helping people buy businesses, for sure.

[9:06] Host: Well, as I said on our pre call, 90% of the people who sit in the chair that you're sitting in now, my guests not only have read Buy then Build, but it was in many cases their entree into the whole concept, the whole world of buying a business.

Guest: What we really need to do here, will, is to get them to buy the playbook for the sell side. And I'm going to give it away here for free. So if anybody goes to exitpreneur IO acquiringminds, they can get the free digital version and read it on their Kindle, their nook, their ibook or whatever it is, but it is the playbook for the sell side. So as a buyer, why the hell wouldn't you want to have it? You know, I think Walker's book's amazing, minus the typos. And I always have to mention that because they're going to give them a hard time. But the sell side aspect of it, you know, when you're buying a business and you're looking at something and you think, man, that multiple is a little high. But then you dig into the P and L and like they didn't do a single ad back or they didn't do an ad back for their cash back money. And I know how much they're spending on ads every month, you start to go, okay, that's a great price, because they are giving me an ignorance discount because they didn't price it right. So I'd say buy the playbook as well. 2. Great.

Host: And it also just sounds like, as a buyer of businesses, that reading the ExitPreneurs playbook would help will help me understand the psychology and the process of that the seller has been through, or not been through, as the case may be. And just, you know, understanding the psychology of the person across the table from me is really valuable.

Guest: Oh, there's no doubt. You know, understanding the wants and needs of the seller is critical to getting what you want as a buyer. I've been in situations where I've had two equal offers. Actually, I talked about this earlier today with somebody. I sold a business, several, three now for a guy named Syed Balki. Syed runs OptinMonster. Huge. It's installed on like 10 million sites across worldwide.

Host: Including Acquiring Minds?

Guest: Including Acquiring Minds. There you go. So Syed had two. Two offers, full price, multiple million dollar offers for this business. I was selling for him. One offer was from a guy that was offering all cash and he was really special and important and whatnot. All you had to do was ask him. And otherwise he was. In other words, he was a bit of a jackass because he had a lot of cash. The other guy researched Syed, learned where he went to school. Turns out that they went to the same college. So the guy made sure to wear a gator's hat first time he talked to Syed. And it is a gator's hat. I know I mentioned it was the wrong hat, the competing school, and then I had to wear the right hat. On a podcast when I had them both on, it was pretty funny. I threw the hat away Syed, in case you're listening. But Syed chose the buyer that he liked, even though it was an SBA deal. And 10% of the purchase price was going to be on a seller note with a two year standby and then a five year repayment period and a balloon payment. That's how it was back then. It's different today. But the cash buyer was a bit of a jerk. He was going to be difficult in due diligence, and odds are he was going to try to renegotiate the purchase price for no good reason. And Syed said, no, I don't want to deal with that guy. And the other guy, a guy named Nathan, really understood that Syed's team, he cared about him and they were going to transfer the sale. So Nathan honed in on that as well. So touched base in terms of making a connection, in terms of where they went to school, and really made sure Syed knew that transferring the team and keeping the team was something that Nathan absolutely wanted to do. And that got him the deal, even though he was offering a much less attractive offer.

[13:01] Host: Yeah, yeah. Being a good mood makes it. It works totally. It's a great anecdote. And that theme comes up again and again where buyers really have to keep in mind that they need to. Even though they're the buyer, they need to sell themselves, often to the buyer, particularly in a competitive situation like the one you just described.

Guest: Just be nice, just be likable, be inquisitive, be helpful, be kind. All of those things that your mother taught you, just be that way and it will help you acquire what you want to. Just don't be an asshole.

Host: I think there was another example of this with. Again, circling back to Walker Deibel. Can you share that one?

Guest: Yeah, can we just change his name to Tarzan, though? Like mini Tarzan because of his hair? Now, come on. All right. I harass him about his hair on every podcast that I know might be listening to. So, yes, years ago, I had a listing for sale, and Walker was a potential buyer. He didn't. It was somebody a really nice, all cash buyer ended up buying it. But Walker left an impression on me. It's the first time I'd ever talked to him. And we had him on a buy or seller conference call. The seller really loved him, but the other person was very nice as well. And it was an all cash deal versus, I think, in that case, an SBA deal. About a month later, my business partner, Mark had a listing that came to him privately. He usually doesn't list businesses, and the seller of that business was really protective. She was concerned about listing the business publicly, even concerned about listing the business at all. So Mark reached out and said, look, I've got a seller that really is hoping we can just find a pocket buyer. But this buyer has to be somebody that's kind and trustworthy and likable. They can't negotiate just for the sake of negotiating, so on and so forth. And immediately, 30 days after I had talked to Walker, he popped to the forefront of my mind. And. And I introduced him to Mark and he ended up buying the business. And that was the toilet business. That he still owns today.

[15:01] Host: Yeah, that he still owns today.

Guest: So he got that just by being a nice guy. He didn't get it on the first one, but he got it randomly. He didn't go out looking for it. It was never listed for sale. But we reached out to him because he was such a great buyer.

Host: Wow. Well, today we're going to talk about not so great buyers. I think aggregators maybe don't have the best reputation as buyers, but I'm getting a little ahead of ourselves. Joe, give us some context. So let's assume that some of the people listening aren't up to their eyeballs in the e commerce industry and may or may not even know what an aggregator is. So tell us what an aggregator is, what Thrasio is and kind of this whole phenomenon that's been going on for the last few years. August Felker is a two time successful searcher. First with a traditional search fund. The second time around he did a self funded search. Today, August runs Oberle Risk Strategies, an insurance firm with a dedicated practice group for searchers and acquisition entrepreneurs like you. If you've got a business under loi, Oberle will provide complimentary due diligence on that business's insurance and benefits program. A great no risk way to get to know August and team. They love helping searchers. They've worked with hundreds. Oberle is a specialty insurance brokerage for searchers local by a former searcher. Check out oberle-risk.com O B E R L E- risk.com link in the show notes.

Guest: All right, so you mentioned Thrasia. So Carlos Cashman, a couple of other guys that started that business, let's just hone in on them or really go back a few years prior to that to a guy named Richard or RJ Jalachandra. An aggregator is somebody that is well educated. I'm making this up. Well educated, probably really good looking and incredibly charming. And all three of those things enable them to raise a lot of money to buy fulfilled by Amazon businesses initially. But it also makes them dangerous because like wow, these guys are really smart. They can do amazing things with my business and you sell it to them and they, they, so they roll up FBA businesses is what they do. So instead of, you know, a business that' $400,000 in discretionary earnings that might be worth 1.2 to $1.5 million, they own that one plus 20 more. So when they pull them all together, the multiple goes from three and a half to 12. And so by accumulating all of these different brands, their combined value jumps dramatically because the multiple jumps dramatically first. Second, they've got combined resources to work on the brands where an owner might not have the tools or resources and they've got incredibly deep pockets to theoretically never run out of inventory. Which happens with almost every E Commerce entrepreneur that I've ever spoken to. And I say theoretically because it does happen. So they've done an amazing job going back to one on one Commerce, which was one of the originals they ended up. The first call I had with Richard or rj, he called me and said, this is the deal. This is what we're going to do. We're going to buy 101 FBA businesses in the next 24 months. And I said, you're crazy. It's not going to happen. Yeah, I said, not going to happen. And he said, yes it is. And you know what? I'm not going to log into a single one of them. I said, you are not going to succeed, Richard. I'll help you however I can. But dude, there's not that many out there to buy. And there weren't back then. This might have been 20, 15, 16, 17, I can't even recall now. And they ended up buying 13 and the investors lost their faith in Richard and they ended up selling to Goja. Now there were three partners originally. Talk about incredibly talented people like Walker Deibel. And I know I'm going on a tangent, so you bring me back in Will when you need to. But it was Richard. A guy named Caith C A I T H, really great guy and a guy named Chris. Chris Doody Chris joined the Quiet Light team recently, joined the team in January. Great insight to the aggregator mindset. And he's also partners in a very, very small percentage with another aggregator called Profound Commerce. But to answer your question, an aggregator is somebody that raises money to buy FBA businesses. And I say again initially because some of them are expanding and they pool their resources to get more efficient and end up with a much higher multiple.

[19:50] Host: And so this one on one commerce, this was an early attempt at this that was I guess a failure or certainly not the success that they were hoping for.

Guest: I think they got their money back, but it didn't. They didn't buy 101.

Host: They didn't buy 101 in 24 months. Yeah, and then. But what has really put this on the map, I believe of, of the mainstream media, I mean, and of Silicon Valley in general, is Thrasio. Thracio is now the big name that's tossed around. And so what's the Thrasio story? When did it start and how big is it by comparison?

Guest: I'm going to Go back, I think it might have been 2018. And by the end of 2018, they had raised some money to buy FBA businesses. And I know that they had purchased 20, I think, altogether in 2018, and I might get the year wrong, but of the 28 of them were purchased from Quiet Light, so 40% of their purchases we sold them. So they owned 20 FBA businesses and they got a second raise valuation at $786 million. Absolutely insane, right? I mean, the businesses we were selling them were not large. I think the largest they might have bought was one and a half or two million dollars back then. But they just got an incredible valuation. And that just started the ball rolling with other would be aggregators. And so they were just buying everything they could possibly buy. And that's part of the problem. They bought, you know, children's toy brands, they bought, you know, umbrella brands. It's a German brand that I sold them. They bought mosquito brands. They bought things to clean your hands after working on a car. Anything they could get their hands on electronic charging stations, and they just bought them. And they really are the reason there's another hundred aggregators that are out there in the space today.

[21:48] Host: Yeah, yeah.

Guest: And they're good people. Let me just say this. They're actually really good people. They're getting a bad rap right now because they're blowing up in terms of imploding. But they'll survive. They'll survive. Carlos is a smart guy. Ken's there. They're good people. They try to do the right thing. I've had deals with with them where I literally had a deal under contract for an electronic charging station, like wireless. You plug it in during due diligence. The CFO of the company bought it and it plugged it in at home and it started to smoke and almost caught on fire. They still closed the transaction. They worked hard to do that. The problem I have personally with aggregators marketing is that they say that they're going to buy it for all cash and close in 30 days, and it's completely untrue. They don't close in 30 days with aggregators. And they never pay all cash. Or I should say, most times don't pay all cash. They invented something called the stability payment. You Google it, you probably can't find it, and that's that, you know, well, this is a risky business. We need to hold back 10% in escrow for 12 months. And then as long as the business is within 90% of the revenue it was when we bought it, we'll release those funds. That's not all cash. That money sits in escrow for 12 months. They look for two months back then. They don't do as much now because of competition, but they look for a couple of months of working capital money held in escrow. That means you have $300,000 worth of inventory. That's three months worth, that's $200,000 that you're gifting them. The other thing they say is avoid the broker fee. If you had the broker you wouldn't be gifting them $200,000 in inventory. But overall they're good people. But the marketing I have a bit of an issue with. What they've done really well for the industry is quiet light and other firms like us have been trying to raise awareness of the sellability of FBA businesses or FBA brands. And they come along nearly a billion dollar valuation. Now everybody knows that you can sell it and the multiples have climbed. There was a time when I would only list something if it's an FBA business at a maximum of 2.74 and then it would round down to 2.7 online. Now we can list them for what they're really worth. These are not brands that are going to completely implode. Amazon's not going to take them all in house. Amazon's not going to sell all of their own brands and not let other people sell on their platform. That's just not going to happen. They have shareholders that make a lot of money from third party brand, third party sellers.

[24:28] Host: Well let's talk more about what the, what the terms are like and what they've done to the overall market. But I want to say one other detail. I of course know about the, the aggregator phenomenon or trend or whatever. I didn't realize just how manic it got. So just coincidentally yesterday the inside the, the, the information that tech news website did a story on the aggregator ecosystem and they talked about, here's just a quote from the article. During the mania of so just last year Amazon third party businesses were sometimes selling for, for up to 4 to 5 times earnings or 4 to 5 times EBITDA. And then they talk about how, how much that's has come down or will come down and that's really going to be the meat of our conversation here Joe. But they in then they follow it up with the examples of some of the conferences where, where aggregators and prospective sellers would get together. The Tesla giveaway for referrals. There was some aggregator that if you just referred them a business that they ultimately buy, or they ultimately would buy, they'd give you a Tesla. I mean, just crazy stuff that it's just like, you know, you know, alarm bells should be ringing in everyone's mind. I didn't realize it was that white hot. What, what did you, what is some of the crazy. I mean, do you agree with that characterization, that it just felt kind of manic last year?

Guest: Yeah, yeah, quite our business. We only sold 30% of our transactions to aggregators in 2021, but we grew by 85% last year. We had an average of 3.74 offers on every listing that we put out. So there was a mania for all things digital. We're not an E commerce business broker solely. We sell content and SaaS and some service agencies as well. But probably 55 to 60% of our transactions were E Commerce. And of those probably 70% were majority FBA brands. And so, yeah, there was definitely a mania. There are pop up, and I want to call them pop up because they just imploded pop up business brokers that focus solely on selling directly to aggregators and only aggregators. Well, they're out of business because that was a very bad business model. But yeah, it's been a frenzy to the point where we had to hire somebody to just be the person that aggregators would talk to and get it all organized. And that way we could report. Anytime an aggregator makes an offer, everybody would have access to a report that would talk about the previous offers that that aggregator made, how they behaved in due diligence, what the deal structure was, and if they are currently or are going to be blacklisted in the next 24 hours because of what they did. And we've had some that have had to be blacklisted because they behaved very poorly in due diligence.

[27:26] Host: Yeah. And so often in an environment like this, just a land grab or a gold rush, there's gonna be some bad actors. So there are among. In the aggregator community, there are some bad actors.

Guest: There are. And when I say what I said about Thrasio, they're not. They're not bad actors. Their marketing materials are bullshit, as are most of the aggregators when they're giving away a Tesla. Sorry if I'm swearing here. Just trying to. The whole promotion, if you think about it, I know that the audience are buyers, but if you think about this from a seller standpoint and go, all right, should I sell directly to this aggregator and avoid the broker fee or should I hire a broker to help me get maximum value for the business? The Broker's working on your behalf to make sure you get maximum value for the business. The aggregator's job is to buy your business for as little as possible on the most favorable terms for them. Why in the world would you take your greatest asset that's worth the most net worth that you have and risk it and selling it directly to an aggregator? It's my cross to bear that I have to try to get this out there. I know that's not the audience but it's a frustration that I personally have.

Host: It's not unlike the situation in residential real estate with iBuying where the pitch of a big ibuyer is circumvent the broker, quick to close, you know, et cetera. So if you just need to unload your house quickly, we'll give you a fair market offer and we'll close in you know, X number of days leaving the agents to scramble and demonstrate where they add value which is that they'll, they're working for you, the, the owner of the house to optimize the, the sale price that you get for your house. So it's, it's, it's similar. Now I buying is based, the pricing is based on an algorithm. Supposedly Thrasio is not doing that although in the aggregators are not doing that. So I don't mean to the technology component might be different but kind of the two value propositions that the seller of the business or the seller of the home are considering kind of those competing value propositions feel similar. Joe, I want to just go back to your history lesson there for a sec which was great. You talked about how the Commerce 101 guy or 101 commerce RJ said I'm going to buy these businesses. I'm not even going to log in to any of them. One of the other criticisms that I've heard of aggregators is that in a typical roll up or business where you're assembling a fragmented industry and developing systems that go across all of the different businesses, synergies, to use a word that nobody likes but you really are synergies is really part of the value proposition of your entire rollup. And I just keep hearing and Thrasio actually I hear this about Thrasio specifically that they don't do that as you said, they just buy these completely disjointed businesses as opposed to let's say a Bill d' Alessandro who he's building a business that is in a particular niche. So it's pet products and lotions and potions as he calls it. And so it just makes a lot more sense that there would be, if you're going to be a serial buyer, a serial buyer of E commerce businesses, that they would, that they'd all be in the same category, for example. And it just doesn't seem like the aggregators have done that.

[30:50] Guest: How.

Host: Where was the value add other than multiple arbitrage that, that these guys sought to achieve? If they're not. Even if he's bragging about not even logging into any of the businesses that

Guest: he's acquiring, it's the multiple arbitrage is what it is. And then ideally, you know, the goal is to get big enough to go public and that's where they make the real money. And that's all going to change. Right. Thrasio and all of the other big players are now niching down. I took some notes here. I had a call with Deanna on our team who deals directly with the aggregators before we started recording. And let's see, there's two or three aggregators that have now completely changed up their model. In fact, we had some aggregators walk away after the Thrasio deal at the news that they're laying off 50% of their workforce or whatever the number is. Three or four of our deals fell AP because the lending partners behind the aggregators, there's only four of them or three or four of them. And so they're all in a panic and saying, look, aggregator A, B, C, D, no more. Just buy whatever you want. You got a niche down. And so there's an aggregator that would buy everything that was a consumable ingestible or a topical and so on and so forth. That was their niche. They're shifting and niching down to women's only products. So if it's an adjustable, if it's a topical anything like it's just for women, that's incredibly niche oriented. And I think that when 101 started or thrast started, the idea was that we can't niche down because we're not going to be able to buy as many. We're not going to be able to grow and scale at the same level. And now people are going, okay, we don't want to actually scale at the same level that Thrasio did. We can be very successful niching down. And Instead of buying ten $250,000 businesses, let's just buy one $2.5 million business and make wise purchases that are in the same niche instead of just buy whatever. And that's already happening. We're seeing that happen to a great deal and I think that eventually it's going to happen with thrust too. They're going to start selling stuff off and try to niche down a little bit or they've got so many different categories, they're just going to sort of compartmentalize them and maybe stick to three or four or five.

[33:17] Host: Okay, so you're talking about the go forward strategy for some of these aggregators is going to be to niche down and unload some of the businesses that they've acquired. We talked about how crazy things got up into 2021. We talked about how the multiple that you were selling e commerce business for before things got so hot and it became such a popular acquisition category was what did you say 2.74 was the going multiple.

Guest: That was on the high side.

Host: Yeah, that was on the high side. And so then according to the information yesterday, 4 and 5 became the norm. Does that reflect what quietly would sell out four and five?

Guest: Well, you got to be careful with the multiples because the 4 and 5 does it include or exclude inventory? Everybody but website closers excludes inventory. They include it in their multiple. So you just got to anytime a buyer is looking at multiples, just determine whether or not it includes or excludes inventory. But 4 to 5? Sure. But it depends upon the size of the business and the niche and how many SKUs they've got and the growth trends and all that stuff too.

Host: Okay, okay. But if you kind of apples to apples, it feels like going from 2.74 to 4 or 5, that's a 50 to 100% or 50 to 80% rise in prices of e commerce businesses in how many years that year your 2.74 number, that was what, 2017, 2018?

Guest: Yeah, four years or so in four years.

Host: Okay. And so while all these aggregators have been out there and just making things so white hot and so competitive, what are you said some what 30% of quiet light sales were to aggregators? What are what have the loan individual acquisition on entrepreneurs like my audience been doing or how are they competing against these guys?

Guest: They're just being good people. Right.

Host: Being nice like we said at the top.

Guest: Yeah. They've got the right to look at our listings. See, one of the things that we don't do when we list something is we don't just send it out to the aggregators. The aggregators, some of the other firms and I'm not going to name any names, but they'll create a listing and they'll send it out to the aggregators only for a week or two and give the aggregators the first right to look at them. We don't do that. Ours go to the public and the aggregators are part of the public in our view. They're on our list. They'll get it when everybody else gets it. And so that gives your audience, Walker's audience, an opportunity to buy it and compete along the same lines as the aggregator. Sometimes people just don't like what the aggregators have to say and the offers that they thought were going to be all cash for them are technically not. And so they go with the other folks.

Host: Yeah, yeah, but it has, I assume it's made it much harder for acquisition entrepreneurs. I mean, if nothing else, prices have gone up, so. Prices?

[36:07] Guest: Yeah, prices have gone up because people are competing for it. Right. So 3.7 offers for every listing. It's going to drive the price up. I just did a podcast this morning where it was listed, the business was listing and Walker was the advising broker, was listed at 1.35. There were only two offers. It sold at 1.55. 10 days into due diligence. The person, the company from the UK that didn't, it was an aggregator that didn't get the loi, reached out to Walker and said, okay, we'll double our price, double our price. So they went from like 1.3 to 2.6. And you know, of course the owner of the business is like, okay, no, we're just going to stick with what we have. And I talked to her, I interviewed him. I'm like, wow, why didn't you go for that money grab? He's like, we didn't feel comfortable with, you know, some of the things that they were saying. We weren't confident they were actually going to close. We're getting above asking price by a couple hundred thousand dollars and we're closing quickly. They closed in 37 days. No, we like who we have and we're going to do the right thing and stick with them. We signed a letter of intent. And by the way, this is something that buyers should pay attention to. Typically when you do a deal with quietly or anybody else or even directly, the letter of intent often says it's non binding letter of intent fully contingent on due diligence and a further detailed asset purchase agreement. As a buyer, you might want to make it not non binding that it's binding contingent on due diligence and a further detailed asset purchase agreement. That way, when that Yahoo aggregator comes in after and tries to sweep in and steal it for an extra half a million or a million, you know, you're still in a good, strong position.

Host: And are sellers. Will sellers tolerate that?

Guest: Yeah, they will.

Host: Okay.

Guest: Okay.

Host: Being in a non binding, excuse me, being in a binding in loi, they're

Guest: signing a letter of intent with the purpose of selling to who they sign the letter of intent with. So we talked about my buddy now and clients and Ramon Van Meer who we're going to get on this show. Ramon's a perfect example of that. I had his. We originally listed his business for 5 million or so, and we were under letter of intent with a guy named Matt. Great guy. He'd bought four other businesses from Quiet Light. And I'm at a funeral on a Saturday down in Georgia. I'm driving home and Ramon calls me and I go, this can't be good. Nobody calls me on a Saturday and he tells me that revenue. He gets his revenue in arrears and whatnot. And his revenue grew to the point where he was netting $300,000 a month. That's projected down 3.6 million a year. He's not going to sell the business for 5 million bucks. He's like, joe, I can't do this. I have Victor, my son. I've got to really do this. And he's like, I want to pull out a letter of intent. I said, well, if I was in your shoes, I would too. Let's do the math. And I'm driving down the road. And we figured it was going to be worth 8 or 9 million if you just waited six months. And so I made a very difficult call Monday morning to Matt, who blew a gasket. Right. Talked about suing Ramon and all this other stuff he had no legs to stand on whatsoever. It took him a couple of days to cool down and he settled down and he realized that it was in Ramon's best interest to do what he was doing. But he was sad that he was losing out on that opportunity. Any new letters of intent that Matt has signed since then have that binding aspect to it. Matt is now an aggregator. He owns a company called Profound Commerce down in Austin, Texas. Matt's a really good guy, and anytime I was on a call with Matt and competing buyers, Matt usually won because he's a really nice guy. And they raised. I think the number was 50. Matt raised $53 million in Q4 last year. And he's going to be a smart aggregator. He's going to buy the right businesses. He's not going to buy a billion. When he can buy a million. Right. He's going to buy good businesses that are larger, easy to manage, and they're good product managers. They're not acquiring businesses and then acquiring staff to run them and train them.

[40:11] Host: Joe, you're talking about him and you've mentioned other aggregators that you're talking about them in a kind of the indefinite sense, as if they're not going anywhere. So rocky waters for the aggregators right now. But the concept isn't going away. So. So, you know, Thrasio is making the news. Thracio is laying people off. And because it was the best known aggregator, everybody including me, are like, okay, well, what does this mean for aggregators overall? Is the whole model. Is the whole model not sustainable? And then you've got the bad actors and so they'll be shaken out. So, you know, make a prognostication about just aggregator in general. You see the category surviving, just getting stronger, maybe a little less ambitious, a little, little more disciplined.

Guest: Yeah, I see the category surviving because it makes sense when you just put it on paper. They're going to just niche down. They're not going to just buy anything nilly Willy. They're just going to get very specific on what they buy and have very specific criteria and they're going to be more patient. They're not going to rush to buy 25 businesses. They're going to be more patient with it. And I know this is true because new aggregators are still popping up. Right? There are three that contacted us in the last 30 days, and that's after the news about Thrasio. So they're still raising funds, or we're in the process and still got it raised and still got it pledged to them. They're just going to be smarter about it, like profound commerce. And even the existing ones are already selling off brands that don't fit with the vision that they are trying to now have. And they're just going to be a little bit more patient, a little bit more specific, a little bit more compliant and a little less top heavy in staff and make sure they don't make the same mistakes that Thrasio made. Thrasio will survive. I believe they will survive. They're not going to be in the same position. Right. They're not going to go public anytime soon, but they'll survive. And they're teaching lessons to all the other aggregators how to. And I mean this in the kindest way in case Carlos is listening to not screw up like Thrasio did.

[42:17] Host: So given this chastening that the aggregators are experiencing right now. So will the multiples that have gone up so much come back, pull back a little bit? And does this herald a good buying window next 12 or 24 months for my audience, for the individual acquisition entrepreneur?

Guest: Yeah, I think so. But it's not just because of the aggregator refocusing, right? Not implosion refocusing. It's not just because of that, it's because of the stock market. It's because of the potential losing, looming recession that everybody's concerned about. I think multiples will come down for a variety of reasons, even supply chain issues. If you think about an entrepreneur that has bootstrapped a business and is just keeping up with working capital requirements to maintain inventory and they're struggling, the inventory cost is going up, the container costs are going up and they're taking less cash out of the business. They're getting burnt out, frustrated, tired and just want to move on. Whereas nine months ago they would have demanded a four time multiple, now they'd be like, please, three times, can you just get me three times? It's going to happen.

Host: Really?

Guest: It's not happening yet, but I guarantee it's going to happen. Because a lot of the times, no matter how much I preach, no matter how much Walker preaches on the sell side and tries to teach and educate that you train for your exit, you don't just wake up and decide to sell your business. We as entrepreneurs don't listen. We think we're going to run these businesses forever and we just wake up and decide to sell because we're tired and burned out. In this situation, you're going to wake up and decide to sell. I think a lot of entrepreneurs just can't handle the struggle anymore and will just want to exit and they'll be willing to exit for less because of the stress and strain of cash flow, because of the market, the stock market, the real estate market, the supply chain challenges that are not going away yet or anytime soon because there'll be less competition because the aggregators are not going to buy as much, all of it's going to bring multiples down, all of it.

Host: You know, it's just all those headwinds that you're talking about for E commerce, it's so striking because E commerce was just so hot and aside from the aggregators, just during COVID it was just the hottest thing. I mean, everybody again, forget the aggregators. Every individual acquisition entrepreneur wanted to buy an E commerce business. E commerce, they still do. Tiny little E commerce businesses were just going Crazy. But, you know, the return to pre pandemic spending habits and then all these other headwinds, I mean, you know, prices are going to come down across every asset class.

Guest: In my view, though. Well, they're not going to come down to what they were in 2018. The multiples won't shrink that much. I think, though, what, what's, what may happen is that the multiples will come down, I believe, but the deal structures will also also be more favorable to the buyers. Right. Because the aggregators, again, even though they say we'll pay all cash and close in 30 days, they never paid all cash, or 99 times out of 100, they didn't. And so the buyers, the sellers of these FBA businesses became more familiar with earnouts, with stability payments, with seller notes, seller notes on inventory and all these different things, and therefore are getting more comfortable with them. Anytime over the last decade, when I speak to a seller, I and I talk about those things. Are you willing to accept any of those things? No, of course not. And then when they get to know their buyer, they get a little bit more flexible. Right. Seller notes can actually be very good for a seller because as long as it's secured and they believe in the buyer, it means they've got some steady income for a while after they sold their business. Because most of the people that are selling their businesses are not set up financially for life. It's a nice exit. It's a $500,000 exit. They're not set up financially for life. They still need to earn a living. And so if you as a buyer make an offer that is 350,000 in cash and $50,000 a year for the next three years at a fair interest rate, personally secured, then they're more likely to take it. It's not a terrible deal. Matt at Profound Commerce bought Mike Jackness Business Color It. Mike goes all over podcasts. I've talked about it. He's talked about it. Mike did a seller note on the inventory, and six months in, he extended the seller note on the inventory because he kind of liked getting the monthly payments. It's a weird thing, but they also liked and trusted each other very much.

[46:51] Host: And is there a seller note percentage that's standard in e commerce? In the kind of offline world, it's 10 to 15%. Is that.

Guest: Yeah. Top side 25. Yeah. You're in that 10 to 25%. Right. So the sellers are not banks. Banks. They shouldn't be funding your entire exit. The biggest seller note I've ever seen. In transactions that I've done and I've done a lot was 50% and it just blew my mind. It's happened twice. One was because the seller and the buyer acted like long lost sisters and absolutely fell in love with each other. It was incredible. The buyer made an offer and she's like, that's, that's perfect. I'm stepping into retirement. I'll have that residual income as my portfolio grows. Right. It worked for her. And the other was a mom of four that had a blog about coupon cutting and her husband worked full time and she was supposed to be working very part time while raising four children. And she ended up working 20 hours a week and it was too much. She's making $100,000 a year. Honestly, it was just too much. So she sold it and did a 50% selling note on that too. Then that was a 12 month 50% seller note. But that's the most 10 to 25% I think is comfortable. I think the place where buyers can get the most seller note is on the inventory. So if you're buying a business for a million dollars and there's $200,000 of inventory, offer a seller note on the inventory at the very least. Like if you're a cash buyer, if you're getting 25% seller note on the business, but you're buying the inventory, ask for a 6 month seller note on the inventory. And you know, with a 60 day standby, that means it's really, you know, 126 months. It's eight months. Right. Because you're not going to make that first payment. It allows you to get some, you know, some money in the bank account to pay for the seller note and pay for the inventory. It's short. The shorter it is, the more sellers are comfortable with it.

[48:59] Host: Joe, you keep mentioning FBA businesses specifically. So should our conversation be confined to that definition of E commerce businesses or what about non fba, just general E commerce businesses?

Guest: That's where this aggregator roll up started was with FBA businesses. There are now SaaS specific aggregators and content specific aggregators. There aren't really aggregators that have come out of the woodworks to buy just DTC brands that are non FBA that I know of. Deanna probably has a few on the list, but they're not as popular for some reason, which is a shame.

Host: You think they'd be more popular? I mean, they're more robust businesses. They don't have the platform risk.

Guest: Exactly, exactly. So you know, they're probably out there. I Just can't name any off the top of my head. And there's probably someone. We've got like 120 aggregators on our list now, and there's probably a few in there that are just trying to buy Shopify stores. Yeah, they'd be the smarter ones. My opinion.

Host: Okay, you hear that audience? There's the opportunity. And speaking of which, I wanted to close Joe with just any other general tips you've already given a lot. But any, like if you were talking to somebody who, you know, they thought they were going to spend a million, $2 million on a business in the next 12 to 18 months and they were maybe interested in e commerce, anything that you might tell them, anything come to mind.

Guest: Don't reinvent the wheel after you buy it. It's already working. Don't go in and change things. Perfect example. There's two pieces of advice that I want to give out here, but that's the first one. So buy the business and just sit on it for the first 90 days and learn everything you can about that business. When I sold my business, Will, I sold it in November of 2012. The best time for that business, it was a supplement brand. The best time was Q1, right? My buyer tripled the ad spend. I was spending 20,000amonth. He tripled it in Q1, went to $60,000. With no experience in Google, AdWords came back to me in June of 2012 and said, hey, look, I've kind of screwed up. Would you be interested in buying back into the business? And of course, I said, yes, 51%. He goes, well, that would be me working for you. I said, yes, you screwed it up. He ended up keeping the business and did okay. But definitely don't fix something that's not broken. Another example, Quiet Light just bought a brand. It's not a brand. It's a lead generation business. Okay? And we used to get referrals from this company. We bought it. 30 days after we bought it, our CMO changed pay per click companies. And so for like a week and a half, we got zero referrals. We reinvented the wheel. We shouldn't have, should have sat on it. The other piece of advice would come from somebody that I mention often when I'm doing podcasts. It's my mentor, one of them, a guy named Uncle Walter. Walter Abbott's my wife's uncle. I call him Uncle Walter. I was out golfing with him a decade ago and he gave me advice, which was, as an entrepreneur, you should always have a line of Credit set up wherever you can, either through your investment partners, a heloc, meaning a home equity line of credit, or with your bank if your business is established, get a line of credit set up because you will need it someday. I didn't take his advice, will, and in 2012 I sold my business and I wanted to buy a business that was much larger than the little content site that I bought. And I filed my taxes in April of 2012 and then I went to my bank to set up a HELOC to get that line of credit set up. And they were a local bank and I had a great relationship with them. But Pat said, joe, you don't have any income. I'd love to help you, but you don't have any income. I can't give you a heloc. I had a million dollars of equity in my house, more than that in my investments. But of course I didn't want to take it out because the market had crashed. But I couldn't do anything because I didn't take Walter's advice and set up a line of credit. So set up a line of credit number one, number two, or number one and number two. And number one, just don't change anything immediately after buying the business. You're not smarter than the guy that bootstrapped it and built it and is able to sell it. Learn from them and then grow it. Wait 90 days and then add your touches to it.

[53:41] Host: And Joe, one of the things on that topic about just the transition period that a lot of my guests experience and want to talk about is how you manage the team. When you come in as the new owner for E commerce businesses, what is the team size for? I guess we'll have to frame it for like a million dollar business. I mean, let me put it this way. When is there a team? Like, what level of revenue does an E commerce business have to hit before there starts to be a team? I assume many of your businesses transact and it's just the owner.

[54:16] Guest: Yeah, like you said, it depends greatly on the size. So if it's selling for a million dollars. Right. It's probably in the 250 to $350,000 discretionary earnings range. Odds are their team is maybe a husband and wife team, a couple of business partners, and they do everything. Or it's one owner and a VA or two. Right. And the VAs would transfer with the sale. And if it's a larger business like Syed, Syed was a multimillion dollar business. He had a team of like five or six people. That were essential to the business. So the buyer absolutely wanted them to stick around and sayed cared about them, so he wanted them to transfer. So our average transaction size last year was about 1.8 million and the team may consist of two or three VAs at that size.

Host: Okay, that's great.

Guest: That's really helpful.

Host: Great. Joe, give us that URL one more time where people can get the ExitPreneur playbook.

Guest: Yes, ExitPreneur IO acquiringminds.

Host: There it is. Very good. And how can people reach out to you personally, Joe?

Guest: They can hit me up@joeuietlight.com or that's probably the best place. I want to say LinkedIn, but I don't check it every day. So. Joeietlight.com Right.

Host: And quietlight.com of course, everybody go subscribe to get new listings. There it is, as I said at the top, really considered the, the gold standard, you guys. The. The listings that you have for sale are curated. I mean, that's all. That's often the word that I hear people say about Quiet Light, that it's a really. It's a curated pool of listings that you can go, go there and feel, feel confident that they're going to be a quality business for sale. Is that fair?

Guest: That is fair. Absolutely true. We put a lot of work into the packages to answer all of the buyers questions before they think to ask them so that it streamlines the process from listing to loi to closing. As far as being on the hunt for businesses, though, if they don't already know about Centurica's marketplace, they should. So C E N T U R I C A There's a marketplace tab where they can subscribe to new listing alerts from all of the online business brokerage firms that Centrica trusts or works with. And they can get very specific there. If they only want to do sba, they check a box that says SBA and they'll only get fed SBA listings. If they only want SaaS businesses, they'll only get SaaS businesses. Because it's a ton of work trying to buy a business when you're competing against so many people and you're looking at FE International website closures, Empire Flippers, Acquisition Station and a dozen others.

[57:03] Host: Great point, Chris.

Guest: And now Nate, who just bought it over there. They've done a great job streamlining that process for buyers. And of course they're doing it because they want you to know who they are because they're a great due diligence firm as well.

Host: Sure. Yeah. No That's a great tip, Centuric, everybody. And what they fundamentally do is due diligence for E commerce and also SaaS and basically any all manner of digital businesses. Correct?

Guest: Yep. Exactly. Yep. Great.

Host: Joe Valli of Quiet Light, thank you very much for your time and thoughts, sir. This has been great.

Guest: My pleasure. Thanks for having me on.

Host: Will.