The Fatal Error When Selling Your Business with Thomas Smale - Honest Ecommerce Ep. 150

anything you have within your business as a process write it down because if a buyer comes in they're going to want to know how to run your business welcome to honest ecommerce a podcast dedicated to cutting through the bs and finding actionable advice for online store owners i'm your host chase climer and i believe running a direct-to-consumer brand does not have to be complicated or a guessing game on this podcast we interview founders and experts who are putting in the work and creating real results i also share my own insights from running our top shopify consultancy electric eye we cut the fluff in favor of facts to help you grow your ecommerce business let's get on with the show hey everybody welcome back to another episode of honest ecommerce i'm your host chase climber today uh we're gonna have a fantastic conversation my guest joining me is thomas smail he comes to us from fe international over there he is the founder and ceo they're an award-winning global m a advisor that's mergers and acquisitions for people that don't like uh that's not a contraction but i don't know what it actually is uh simplification uh but he's uh he's got a lot of experience in the sas and e-commerce ecosystems helping brands kind of get ready for uh scaling and exiting and you know making some money from that so thomas welcome to the show how are you doing yeah thanks have me on chase i'm doing well i'm doing fantastic as well so this is a topic i do we don't talk about that often you know a lot of the audience here are uh they're just getting started or you know or they're in that scaling phase but they're you know there's kind of the there's a third piece of the of the pie and it's honestly a strategy that a lot of people uh get into from the beginning is they want to sell their business so you know i guess before we get started on all that i'm sure that you as a little kid didn't grow up and say i want to be the guy that helps people sell their businesses so how'd you end up in this line of work what's that backstory yeah so i guess the short story is i didn't really know what i wanted to do um i was at college or university depending where you are in the world how you describe it and was about to graduate into pretty bad recessions so i graduated in 2010 but the economy was not in particularly good good shape at the time so finding a job was difficult so i like the idea of starting my own business i just didn't really know what um so i kind of felt at the time when i was at college i was trying all sorts of different things on the side to try and make some extra money i was like anything but gonna get a regular job oh i tried it so you name it i probably tried it um i tried buying selling domains was how i first got into this industry so undeveloped domains not even a website moved on from that quite quickly because i never really i still even now do not really conceptually understand the value behind domains it's very to me it's very subjective because it's how good is the name is as good as it like it sounds to someone whereas with a business it makes a lot more sense because if a business makes a certain amount of money it made sense to me i was doing a business degree at the time the business is worth selling because it generates cash flow so that made more sense so i pivoted from buying selling domains and we're talking maybe i'm over playing buying we're talking about buying something for 50 and selling it for 200. um started buying selling very small websites um similar similar sort of concept um at the time so in 2010 when i founded fe like marketplaces and options to sell your business really did not exist at the time um so buying selling all but myself built up a bit of a reputation from the content i was sharing writing talking about um like very unique at the time and then business owners started to come to me and say hey thomas i here you know how to sell websites i've got this like big or what i thought at the time was a big website can you help me sell it um which is really what m a is uh like it's quite a fancy term but effectively it's mergers and acquisitions is helping people exit their their business but back then we were doing deals for helping i think the first website we ever sold about 18 000 so i'd help them sell it we'd do everything um then at the time because what we were doing is so unique but in demand the word of mouth really snowballed people started to come to us and say hey you sold a business for my friend um why i heard you sold of business to a competitor or whatever it whatever it might be um so that word of mouth snowballed and that's really how i got into it how the company was founded in 2010 was doing very small deals and then from there it's really just compounded and then now we've done over 1100 deals over a billion dollars in uh total valuation sold and we wouldn't even look at a deal below 100 000 these days the majority of our deal is a seven eight figure valuation absolutely so back then uh you know what were what were some of the reasons people were selling their businesses and what were some of the reasons people were looking to buy businesses so i think the reason and this is still the same today a lot of people that sell sell because entrepreneurs tend to be serial entrepreneurs there are very few in my experience at least one-time entrepreneurs very few people have one business that they keep forever sell after 50 years and never do anything else again um in the online space particularly it's easy to or relatively easy to spin up multiple businesses you can launch five e-commerce stores five websites five software whatever you might wanna do you can launch multiple websites quite easily so at the time it was usually people selling they had their own five websites and they would sell the smallest or the biggest or the one they were now least interested in and that's still the same today a lot of the clients we work with don't just have one business and if they do they're probably selling that business to then move on and launch something new maybe they have a new idea or change in personal circumstances like for most people what you started 10 years ago is probably not necessarily what you want to do 10 years on or what you're interested in because your life has probably changed and moved on so i'm i guess i'm still very fortunate that i still love what i do but a lot of people after ten years or five years or three years have have changed their mind um from a buying perspective as i'd say three main groups so the first group would be people who have a full-time job or a job and want to get into running their own business but do not necessarily want to launch one themselves you can buy an established business you have assuming you buy it properly you have 100 chance that business is making money you don't have to worry about all the issues you have starting your business you take over saying established you can quit your job and run that business um the second common group is strategic buyers so you might already have an e-commerce brand and it would make sense for you to buy another e-commerce brand which is selling a similar product or maybe they sell um on a similar platform or different similar supply chain or team or whatever it might be so strategic buyers really vary what they look like it could be anything from a big public company to a small a small business owner who's just working by themselves um and then particularly as deals get bigger you then get investment firms so usually people describe it as private equity private equity firms are generally have raised money from investors or groups of investors and then they're looking to acquire to build out a portfolio usually they will own or control multiple businesses in a similar industry and their motivation is really kind of combining them all together and benefiting from synergies and economies of scale that you can get um so they're the three main types of buyers and then there's a reasonable amount of overlap within that group so sometimes you get people who want to quit their job who will get funding from an investor they know um same with strategic buyers so there's often overlap between the groups but they're the three three main groups that buy and also why they're looking to buy awesome yeah that was a great little kind of intro into you know just how the how it basically works and and the motivations behind it um but you you know there's obviously a lot of different types of businesses and a lot of different types of websites out there and you guys kind of really focus in on sas and e-commerce so uh what what's appealing to you about those particular types of their assets at the end of the day you know as an asset to help people prepare for sale yeah i would also add we also work on content-based businesses they're the three main business models we look at um so say in general all three of the business models um primarily sell online so just what i like in general but particularly as everyone's seen over the last couple of years with coronavirus and all the lockdowns that come with it more and more people are coming online in other parts of the world out i guess we're very privileged in the i mean i'm from the uk but i live in the us now they're privileged in the us the vast majority of people have access to the internet kind of take it for granted there are lots of places in the world that are only just getting internet access so more more people coming online more and more people are now buying online so if you just look at the e-commerce industry content business industry um software industry or sas there's more more potential customers coming into the industry consistently that's never going to that's never going to change i don't think that's ever going to slow down world population increases more and more people have access online so overall industry is growing um i mean we've been doing this since 2010 but over the last couple of years at least um the social shift of remote work becoming more socially acceptable definitely brought more investors into the space who previously might have only wanted to buy businesses with physical offices or real estate whereas now you could conceivably buy a business as a team that's entirely remote and that's not a problem and the vast majority of companies you work with are completely remote it's not necessarily a criteria of ours but it's definitely a commonality that that we see um so i think if you just look at the three different business models so i think content content businesses that's things like blogs um they're always gonna be popular because people are always online researching all sorts of random topics and i guess there's a never-ending supply of things that people want to learn about and search so 20 years ago when i was growing up you'd have to buy a book or like a magazine or whatever to learn about a topic now you could just google it so content websites are always going to have demand um and i guess they usually advertise they usually have ads on there or affiliate offers or various different ways of monetizing like that um e-commerce industry except more people are coming online particularly over the last couple of years where it's really accelerated people who may have had internet access before are now buying online at a much higher rate than they ever have before people have amazon accounts and you could have your own store and you could be selling on amazon you can just sell on amazon you can not sell an amazon tool there's not really a right or wrong way to do it in my mind but there are so many different options you have for distribution now to reach potential um buyers then the software space years ago if you wanted to if you're a business owner and you wanted to do things you'd have to from a software perspective you'd have to physically get it installed in a server in your office so like on-premise software but now not everything but almost everything can be done in the cloud so the sas industry as a whole just if you just look at the industry if you just ignore buying and selling those businesses the industry is going to continue to grow the average sas business will continue to grow just as the total addressable market grows um i think that's the thing and then i guess we're just a middleman as the industry grows our job is to help founders successfully sell but for the industry grows overall then we probably grow overall as well that's awesome yeah i'm you know just the curious my curious nature is like the uh the content buying and selling content businesses was always something i was super interested in when i was uh you know before i kind of found e-commerce uh and you know honesty commerce is is a bit of a content play as well uh anyone listening obviously uh i've been doing this quite a while and we invest in the in the content and we've got a few sponsors here as well to try to make things as cool as we can for you and then obviously sas is every one of our partners is basically a software uh over at the agency but uh you know we're here today because everyone is involved in this this whole thing is you know basically an e-commerce business or tangentially related e-commerce so let's just let's focus in on e-commerce so i've got a business thomas and i've been working on this for a couple years but you know i've got some i got shiny object syndrome i've done what i can for this business it's fairly successful but success is a metric that only you tie to yourself no one no one else really cares right i'm done with this business i want to sell it i have no clue what i want to do what do i need to do so the the very first thing you need to do is figure out what it's worth um so depending on your business my suggestion would be find a company like fe international but it might not necessarily be f international find a company that has represented businesses that are similar to yours so if using another example if you were thinking of selling a house the first thing you would do is go somewhere like zillow and you look at the houses similar to yours so sold locally and you'd probably find the real tour that at least is what i did when i bought my house find the realtors who've worked on similar deals and you'd reach out to them and be like hey i want to buy a house or sell a house similar to the one you've sold locally can you help so exactly the same in the m a world find an m a firm or a business broker or marketplace depending how big your business is if it's really small you might not be able to work with a firm like us because if it's big you might be calling a different company um it really depends so find who sold a business similar to yours and hopefully multiple companies usually while a lot of deals in the space of private there'll be press releases ask founder friends who you know have sold businesses um see who they worked with get a valuation well most firms in the industry will offer a free evaluation at least we do so we'll give you an idea what your business is worth for free and an overview of what the process looks like so chase your business is great it's worth 10 million dollars um we think it's going to take 90 days to sell here's the process um and then you might get some other valuations as well um like at 8 million dollars it's going to take a year to sell or sorry we don't really know how to sell this kind of business so get a range of valuations um it's important to do that as well and get an understanding of like who you like because everyone has a different process like while i think we have a really good process one thing that you might not like working with us is that we dictate how the process works we're we're not a market we're not a diy marketplace like we know our process works so we follow it if you want to come work with us and change our process works we won't work with you so maybe you want to go sell somewhere else so start with evaluation and affirm where you like their process and and how they how they do things make sure you like the person or the team you're going to be working with and make sure it is a team as well like ideally if you hire fe for example there's probably throughout the course of a deal 20 different people that have at least touched that business or looked at it in some way if you go to a much smaller firm there's often just one person and we have experts each different stage of the process it's the the way i describe it completely respectfully to my team the people in our team who are evaluation experts like they're good with numbers and spreadsheets you do not want that same person physically going out there to sell your business and dealing with buyers and negotiating you want them telling you how much your business is worth you don't want them doing that so that's why we have a team we have lots of different people that work in it to me at least that process is much more optimal than one person who knows a little bit of everything um so that's how to start the process and then depending who you're working with everyone's process will vary but hopefully once you've established what your business is worth you can decide what you want to do from there whether it's sell now hold the business for longer um maybe you never want to sell maybe you want to shut it down i guess there's lots of different ways to approach it once you've got that valuation if you're struggling with scaling your sales maybe electric guy can help our team has helped our clients generate millions of dollars in additional revenue through our unique brand scaling framework you can learn more about our agency at electricguy.io that's r e-l-e-c-t-r-i c e y e dot io mesa is the shopify expansion pack to level up your brand by turning all your internet connected apps into your business epicenter mesa can lighten your workload and tame the day-to-day chaos of running your store join other successful brands that have learned how to balance clever workflows with a solid infrastructure to get more done without more overhead whether you need to order data in google sheets products on etsy or customers added to hubspot mesa has you covered peace of mind is right around the corner when all your apps are working seamlessly together to put it quite simply mesa is a better way to work search mesa that's m-e-s-a in the shopify app store and download the app today is your store holiday ready now is the time to make sure you and your team are prepared for the busy season ahead gorgeous and channel help desk built for ecommerce has machine learning functionality that takes the pressure off small support teams and gives them the tools to manage a large number of inquiries at scale especially during the holiday season gorgeous combines all your different communication channels like email sms social media live chat and even phone into one platform and gives you an organized view of all your customer inquiries their powerful functionality can save your support team hours per day and makes managing customer orders a breeze merchants can close tickets faster than ever with the help of pre-written responses integrated with customer data to increase the overall efficiency of customer support their built-in automations also free up time for support agents to give better answers to complex product related questions providing next level support which helps increase sales brand loyalty and recognition eric bandholz the founder of beardbrand says we're a seven-figure business and we have essentially one person on customer support and experience it's impossible to do it without tools such as gorgeous to help us innovate learn how to level up your customer support by speaking to their team visit gorgeous.grsm.io honest mention this podcast when you sign up to get two months free that's g o r g i a s dot g r s m dot io slash h o n e s t [Music] our partner rewind can protect your shopify store with automated backups of your most important data rewind should be the first app you install to protect your store against human error misbehaving apps and collaborators gone bad it's like having your very own magic undo button trusted by over 100 000 businesses from side hustles to the biggest online retailers like nyx gatorade and movement watches best of all respond to any of their welcome emails and mention this podcast honest e-commerce and get your first month absolutely free getting an online business off the ground isn't easy so if you find yourself working late tackling a to-do list that's a mile long with your fifth cup of coffee by your side remember great email doesn't have to be complicated that's what clavio is for it's the email and sms platform built to help ecommerce brands earn more money by creating genuine customer relationships once you set up your free klavio account you can start sending beautiful branded messages in minutes thanks to drag and drop design templates and built-in guidance and with ecommerce specific recommendations and insights you can keep growing your business as you go get started with a free account at clavio.com honest that's o dot k-l-a-v-i-y-o-dot slash h o n e s t so from a you know founders perspective uh on you know the e-commerce side of your business how you know there's the process that's what it's like if you've made that decision that you you want to sell it what are things that i should be doing as a founder or as a listener or as i'm building my e-commerce company to make sure that i have a better valuation or an easier time selling my business what are what are some uh systems or processes that you see that are in place in businesses that sell faster or for more money firstly you do have to start with the actual valuation because as part of that process there will almost definitely be specific things to your business so i will give some more generic points after this but there'll be some things very specific to your business that you could you could find a checklist of 20 things you absolutely must do and you could check all of those boxes but there might be one thing specific to your business that makes it not sellable that wouldn't necessarily be on a generic checklist and that should at least if you work with a good firm get picked up in the valuation process because there's lots of analysis that goes into it so start with that for some more generic points in general um buyers always want to and this sounds kind of obvious buyers want to buy a business is growing um some people make the mistake of only trying to sell a business once it starts declining so you might grow for five years and then move on in life or move on to another project or get busy or the business might just get difficult then the business starts declining you don't really see the writing on the wall maybe not honest with yourself and then a year later once the business has been declining they then look to sell that's not a very good idea sell the business while it's still growing you're going to maximize valuation um and at least the way i look at it if you just kind of look like big picture it's not really a bad thing if you sell a business that's growing and a buyer comes in and also manages to continue growing the business like if you've walked away with an amount of cash that can change your life does it really matter that the next buyer who's giving you that cash in the first place then goes on as successful customers are happy employees are happy like big picture that's like always a always a good thing there's never any bad things there so selling a growing business always better than a business that you've already given up on and moved on from um putting good processes and systems in place internally particularly in e-commerce if you've got any like logistics challenges um i mean today it's much easier like with platforms like shopify for example the shopify platform is great there are lots of plugins and apps you can use to run your store there's lots of agencies like yours that can help people build a successful business on shopify 11 years ago when i started fe shopify did not exist at least not in the form it did today i think it was founded in 2010 so it was definitely not definitely not the platform it is today back then so you were stuck with all sorts of terrible platforms that people probably don't remember like volusion which when i mentioned that people know i've been online for a long time because most people have not seen volusion ever since um but platforms like that it's much easier these days to have a business which is easy to take over from a technology perspective because if you say hey i'm selling this business we do 10 million a year in sales it's on the shopify platform lots of people get how shopify works very similar to what happened in the content business space with wordpress when now everyone uses wordpress but almost everyone you ever speak to knows what wordpress is and has used it if they have a content-based business ten years ago yes it was the thing but it wasn't necessarily everybody's people were still building websites with like dreamweaver and html and stuff like that so while some people still do um [Music] technology has become easier but you still need to document how things work um so how you update your from us like simple things from like how you update your like product descriptions to how how you know when to order more products um when you how you do inspections with your supplier to make sure the products are like at the standard you need anything you have within your business as a process write it down because if a buyer comes in they're going to want to know how to run your business and the easier it is for them to come in and run your business the easier it is to sell them for them to kind of come in and take over if you don't have anything written down then either your business is going to be difficult to sell or you're going to have a challenging transition period where you have to handhold and train the buyer for a long period of time um this is obviously a little bit difficult to predict but try build a business in a space that's evergreen and will always be around if you build your business around uh and this happens quite often in e-commerce specifically people see a trend um and like i said these days like shopify it's easy to spin up a store and i don't know if you necessarily do it in hours but if you're smarter than me you probably could you can spin up a spin up a store in a couple of hours and you can leverage almost any trend to start selling products in that that space so if you want to build a business you can sell definitely needs to be in an industry that has probably been around for a while and it's gonna conceivably continue to be around and continue to be popular if you're just chasing every single new new trends um so years ago it was like fidget spinners they kind of came on and people would come to us with websites like fidget spinner ecommerce.com or whatever it would be

um and they would have six months of sales and they would have been making millions a month they wanted to sell that business but it was never possible we'd never be able to help them because we have literally no idea what was going to happen with fidget spinners and obviously now most people don't even really remember what they are and they're definitely not selling at the same rate they were back then so try build a business in an industry where it is going to continuously grow um and if not if you do want to like leverage those trends make that part of your business model so build a store around like the latest products that are kind of seasonal and then if your business model every year is hey here's my process of finding um popular products and selling them that's a much more sustainable business for someone to buy because they're like well this whole business is built around reacting to trends rather than just chasing one part of the trend or one specific trend which will i guess by the nature of trends will die um so there's some things to think about but fundamentally you need to start with evaluation because every business is different it's difficult for me to give generic advice that applies to everyone because every business is is different and somewhat unique absolutely no no there's a lot of fantastic advice there and it's funny that you say that uh uh you can't sell a business that is kind of catching a trend or riding that wave i mean i we also don't work with businesses that are kind of trying you know to it's almost as in essence like a cash grab we're always kind of wary about that because uh you know a it's such a flash in the pan it's not sustainable in in any regard and you know nothing against those businesses if you're smart enough to see that trend come and make that money like power to you but uh you know it's it's definitely a little bit more of a quick money thing than it is to to make a sustainable thing over time on the other side of things right so we've talked about how uh you know what's the process like when you're about to sell it what are things that you need to do to for it to be able to be sold um do you also help people on the buy side so we will we have a lot of content for people who want to buy a business but from a service perspective we represent sellers so you have a business sell we represent you you as a seller pay us um buyers don't pay us anything is part of the process i mean we have there might be some small fees throughout the process as part of buying a business but fundamentally the seller is the one paying us so we will help them if you come to us and say hey i have a million dollars i want to buy business here's what i'd like to buy we will show you a selection of businesses we'll give you resources to teach you how to buy a business um no we do not necessarily represent um buyers directly absolutely and then is there anything that i forgot to ask you about today that you think is like crucial to kind of this whole process or that you think needs to be shared i think look when you're building your your business i mean we've spoken about what you need to do when you've decided to sell it um but i think it's definitely important early on in your business to start thinking about what you would like to achieve and what you'd like to sell for because i think a lot of people follow kind of generic advice which might be applicable advice can really depend on like what you're trying to achieve if you're just trying to say just if you're just trying to build a million dollar business what you need to do to build a million dollar business is completely different from if you're trying to build a billion dollar business so i think too many people trying to build million dollar businesses follow billion dollar advice and too many people trying to build billion dollar businesses the following million dollar advice so kind of things you need to do and learn about are different so for example the stage fe is at today eight figures revenue our team's over 100 people now the kind of things i'm doing a ceo are completely different than it was when we were five people so the kind of things you need to and i think you need to be prepared for the things that go with that i'm now effectively just a manager i've spent all my time managing people reviewing work doing kind of strategic thinking early on in your business what you're doing is different a lot of people decide to sell when they kind of hit a upper limit of how much they're either willing to do or can do themselves um but i think it's important to understand that early on like if you're just trying to build a business you don't want to hire any people you just want it to be you or maybe like you and a couple of family members that's fine but don't read the article about how to build the next facebook because it's not going to be useful for you um and it will help determine other decisions early on which can be really important when you come to sell so should you raise money or not most clients we work with don't raise money so when they sell for a million dollars um it's much more of social norm now but years ago people would laugh at you if you hadn't raised money you you almost had to raise money whereas now if you sell for a million dollars and you're in 100 of the business yourself you're getting a million dollars when you sell whereas previously people might sell for a million dollars but they would have raised money and they only own 10 percent or you own 10 of a 10 million business you also still walk away with a million dollars so figure out what you're trying to achieve early on in your business and you mentioned a lot of people listening or i guess watching uh early on in their business so think about that early because it really will help determine your decisions so when we talk about like trending products for example that doesn't necessarily mean just because i think you can't sell a business built around one product if you can ride the wave and do really well with the trending product you can make a lot of money which far outweighs building a business you can eventually sell so i'm sure there were some people out there with fidget spinners who made millions of dollars a month for a few months which is it's great you say ride the wave take the money while you can but one thing i've learned about running a business over the last 11 years is there's always ups and downs so when times are good i guess make the most of it absolutely that's some fantastic advice really it's it's like what is your you know what type of business are you trying to build build and being realistic with yourself and you know just in getting there and putting on you know almost blinders and just doing what needs to be done to get that at that exact level and i think that's you know something to be said there is to talk to people that have done it before you know million dollar businesses aren't difficult to build 10 million dollar businesses aren't difficult to build billion dollar businesses probably a little more difficult to build like that's when you're getting to a different type of caliber of business so um you can definitely get some great advice out there and speak to smart people whenever you need it um thomas i can't thank you enough for coming on the show today and sharing all this information if you know if there's a listener out there that is thinking about selling their business uh how do they get a hold of you yeah well firstly i appreciate you having me on um secondly we go to the international website depending who you are you can navigate around so if you want a free evaluation go to our sales section request evaluation um fill out a short form and then someone in the team will reach out and if you mention you listen to this podcast and heard then the team will i wouldn't say they'll prioritize you but they will know that you've kind of thought about this kind of stuff in advance and uh they'll get back to you awesome thank you so much cool well thanks chase all right i can't thank our guests enough for coming on the show and sharing their knowledge and journey with us we've got a lot to think about and potentially add into our own business you can find all the links in the show notes make sure you head over to honestycommerce.co to check out all the other amazing content that we have make sure you subscribe leave a review and obviously if you're thinking about growing your business check out our agency at electricguy.io until next time

2021-12-12 15:53

Other news