048: How To Buy An Existing Online Store And Double Revenues In Just 1 Year With Bill D’Alessandro

Bill D'Allesandro

Why start an ecommerce store from scratch when you can buy an existing site and double its revenues?

Today, Bill D’Alessandro shows us the exact process he goes through to buy an online business and how he finds stagnant businesses to buy that he can improve upon within a short time frame.

Bill D’Alessandro owns a portfolio of ecommerce stores which you can check out at ElementsBrands.com.

In this interview, Bill and I will be referring to his recent acquisition NurtureMyBody.com. Enjoy!

What You’ll Learn

  • Why you should consider buying a business as opposed to starting one from scratch
  • How to evaluate the right business to acquire
  • What multiples do ecommerce stores sell at
  • How to perform due diligence for a seller
  • How long does the entire process take?
  • What sort of help do you need to buy a business?
  • Where you can find potential businesses to buy

Other Resources And Books

Transcript

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You are listening to the My Wife Quit Her Job podcast, where I bring in successful bootstrapped business owners to teach us what strategies are working and what strategies are not. Now this isn’t one of those podcasts where we bring on famous entrepreneurs simply to celebrate their success. Instead I have them take us back to the beginning and delve deeply into the exact strategies they used early on to gain traction for their businesses.

If you enjoy this podcast please leave me a review on iTunes, and enter my podcast contest where I’m giving away free one on one business consultations every single month. For more information go to www.mywifequitherjob.com/contest. And if you are interested in starting your own online business, be sure to sign up for my free six day mini course where I’ll show you how my wife and I managed to make over 100k in profit in our first year of business. Go to www.mywifequitherjob.com for more information. Now onto the show.

Welcome to the My Wife Quit Her Job podcast. We will teach you how to create a business that suits your lifestyle so you can spend more time with your family and focus on doing the things that you love. Here is your host Steve Chou.

Steve: Welcome to the My Wife Quit Her Job podcast. Today I`m really excited to have Bill D’Allesandro on the show, did I do that right Bill?

Bill: You did.

Steve: Bill is someone who I met at the at the ecommerce fuel conference in Austin Texas last month. And he runs a company called Elements Brands and a blog over at RebelCEO.com. Now here is what is cool about Bill. He used to be an investment banker, so he has got a lot of experience with evaluating companies, and as a result his company Elements Brands has been able to create a portfolio of high quality consumer brands, and in other words Bill is just very good at buying existing ecommerce brands, especially mom and pop type of business and then making them even better and more profitable. So in this interview today, Bill is going to teach us the ins and outs of buying existing businesses with potential, and with that welcome to the show Bill, how are you doing today?

Bill: Doing good Steve, thanks for having me.

Steve: Yeah, so give us a quick background story behind Elements Brands and why you started this company.

Bill: Sure so I started Elements Brands in 2010. At the time I was working in investment Banking, and I was you know working 100 hours a week, and not really enjoying it all that much. And I read a book that I`m sure many people listening are familiar with called The 4 Hour Work Week. I read The 4 Hour Work Week and I had an idea for a product, my first product called KP Elements. It’s a skin cream for a specific skin condition called keratosis pilaris, said you know there really was nothing on the market for the condition. So I said I don’t know anything about skin cream at all, but it sounds like there is a big market here and I need to learn.

So from that one product I launched it with a contract manufacturer and a contract warehouse because I was still working for someone else so– actually we launched the contract warehouse first. First I was shipping everything, I was chopping everything off of the post office on the way to work which was terrible.

Steve: I can’t imagine doing that and working a 100 hour weeks and having time to head over to the post office.

Bill: It was tough because I’m home and like have to box up like a couple of orders you know like on my way in the next morning, it was terrible. So I very quickly outsourced the fulfillment which was great and also because I was working so much, I really was forced to automate everything from the very beginning. You know I didn’t have time you know to forward PDFs or emails over to a supplier to ship them. You know I didn’t have time to email the customers their tracking numbers; I didn’t have time to do any of that stuff, so I automated all of that from the very beginning, and this is you know four years ago when there wasn’t a lot of software existing to do that.

So I wrote a lot of custom software to kind of stitch the business together. To stitch the ecommerce cart to the fulfillment center, to monitor the inventory in the fulfillment centre and reorder from my suppliers when I got low. So I built a lot of custom software and KP Elementsstarted to take off. I did the website for 600 bucks on Elance originally, and I started getting a bunch of orders. And I realized that while the KP Element business was doing well, I really had a lot more infrastructure. The code that I had built, the infrastructure that I had built could handle more revenue than I had.

So being an investment banker and you know working on selling other people’s companies throughout the day I said, why don’t I go out and look to buy more revenue and bolt it out of my platform?

Steve: Mm-huh.

Bill: And that when KP Elements became Element Brands.

Steve: Okay, and so your KP Elements, that first site was just designed completely from scratch, right?

Bill: Totally from scratch, yeah. I did it really in the classic 4 Hour Work Week style. I had it built on E lance for about 600 bucks, and the check out page you know when you got to the buy now page, you are adding your address and going to the next step and then it would say, well were out of stock. We`ll email you when we get back in stock. Well really we didn’t have any stock to begin with, I was just testing demand to see how many people intended to buy. So yeah I started that company with about 600 to 700 bucks to the website and then about seven to nine grand, I can’t remember exactly somewhere in that eight grand range for the initial inventory that we had.

Steve: Okay, and then you sold those just primarily on your own site not using any third party sites.

Bill: Initially on our first party sites and then on a whim threw it up on Amazon and that really exploded and we can get into that later.

Steve: I guess first question for you is what were some of your motivations for buying existing companies as opposed to just starting more from scratch?

Bill: Well, it really helps you skip a lot of the pain in the ass in the beginning because you can buy a business that you already know there is a market and you already know there are customers for. So if you have an idea and you are starting a business there is a lot of work that goes into validating the market, creating the product, creating the brand, and establishing a loyal base of customers? And a lot of times you are doing all that work while not making any revenue or making a very small amount of revenue just to get started with. And that can take a couple of years and all that time you are basically figuring out is the business going to work?

Whereas if you buy a business you can come in on year three after someone has done a lot of the slog, and go all right are you tired? Like do you really want– do you want to continue the slog and that person a lot of times will say, you know I`ve got competing interest. I`m kind of tired I’m exhausted, and I want to sell you the business. But really what they have done for you is they acquire is de-risk it. So they`ve spent the last three years proving this out and you know there are lots of businesses that fail after year one and year two, and that might have been you had you started it, but this business has been around for three years.

So obviously if there is revenue and repeat customers there, there is something there. So then you can come in and make improvements and try to take the business from X to 4X and you can totally do that. It’s a lot faster to go from 0X or slower from 0X to 1X, often times it needs to go from 1X to 4X if you have the right know how.

Steve: Okay. And then of course the disadvantage is that you have to pay for some that growth upfront, you know with the confidence that you can actually grow it in the end, right?

Bill: Yeah, you definitely have to pay. So the multiples that people typically pay and we can talk more about valuations if you want, but typically you will pay between two and three times cash flow for a business.

Steve: Cash flow, okay.

Bill: So that’s two or three times annual cash flow. So if you double the business, you get your money back in a year. So it’s– often times it’s not that much upfront if you can grow it.

Steve: Okay, and you know I know a lot of listeners in the audience have been considering purchasing an existing store as opposed to starting from scratch, and I know you`ve acquired three or four companies I think or…

Bill: Two.

Steve: Okay and that ball pack in it. So I was hoping to maybe pick you know one of the two and maybe go into a little more depth about the whole process. So, just looking on your site I saw you have Nurture My Body which is one of your acquisitions, and that sells organic skin health care. KP Elements which is something you started from scratch and the Ski Balm I guess is that your other acquire.

Bill: Ski Balm actually started from scratch as well. The second acquisition is not on the website yet, and I would rather not talk about it in detail quite yet, but Nurture My Body is a better case study anyway.

Steve: Okay yeah. So let’s talk about Nurture My Body and then just first off, is there a specific reason why you chose to just focus on skin care companies particular, did you feel comfortable buying these companies because you kind of became an expert over the years?

Bill: Yeah. I could say in hind sight, I could weave a very good story about why I focus on skin care you know good margins, like low start up costs, like you don’t need tooling, electronics, but at the time it was really just because I had started KP Elements and I learned a lot about skin care and then I was looking for another acquisition and I wasn’t necessarily looking for something in personal care or beauty. But then Nurture My Body came along and I said I`m not sure– I wasn’t planning on going down this industry, but it really right over home plate for me and that’s why I ended up buying it.

Steve: So I was just curious the nature of skin care products is that people are constantly coming back for more. I was just wondering if that was just one of your criteria in acquiring a company?

Bill: That’s always great for sure. I mean that’s– especially in beauty you know repeat customers and consumable products is always really good. But at the same time I wouldn’t say that’s a necessity.

Steve: Okay.

Bill: I have a friend, he sells camping helmets, and you know you are probably not going to buy very many camping helmets, maybe you buy a second one as a gift or something, but then he gets people that come back by selling them other things like camping chairs and other camping gear, things like that.

Steve: I see.

Bill: So if you don’t have a consumable product you can still create a repeat customer base.

Steve: Okay, and then so kind of like the first question that was just on my mind is, when you are looking to make a purchase– actually let’s take a step back, so where can you find these potential deals first of all, how do you find them?

Bill: That is the hardest part. There is a lot of grey spots. There are a couple of brokers out there, you can go on BizBuySell is the largest website in the internet, a clearing house for businesses for sale. You will wave through a lot of you know mechanic shops and liquor stores and local restaurants, things like that to find a couple of ecommerce businesses. There is a lot of junk on BizBuySell if you are looking for an ecommerce business, but that`s actually where I found Nurture My Body on BizBuySell.

Steve: Okay.

Bill: So you`ve got to comb through BizBuySell, you can also find there are a couple of brokers out there if you just search for ecommerce business brokers on Google you will find several. They have listings on their websites; they list them every so often. There is also a due diligence firm I think called Centrica and they try to do a centralized listing. They try to scrap all the brokers’ websites and post them on their own. You can check them as well.

Steve: What are some of the pros and cons of using a broker, do you have to pay them of does the seller pay the broker?

Bill: The seller pays the broker, so if you are going to sell your business you can think of the broker a lot like a real estate agent. So if you are going to sell your house you hire a real estate agent. If you are going to sell your business you hire a business broker, and a business broker is going to charge you a percentage of sale when your business gets sold. Typically it’s about 10% of the sale value. So you as the seller are betting that by hiring this broker, I can get 10% more than I would have without him.

Steve: Wow 10% is a lot. I mean it a lot more that real estate.

Bill: It is and the reason it is that high is I`ve talked to several business brokers and the fact of the matter is that a lot of small businesses just never sell. So they do a lot of work and then never get paid at all. So that’s why the percentage has to be higher to account for all the business that never do sell.

Steve: Okay, and so you just mentioned that there is a lot of stuff to go through, a lot of junk that you might not be interested. So when you are looking to make a purchase you know what are kind of some easy ways for you to filter through all the stuff, and what do you look for in a business that you might want to buy?

Bill: I look for something that’s wrong with it, but easily fixable. So in the instance of Nurture My Body, they have really great products. What was in the bottles was really fantastic, they have really great repeat customers which is another thing to look for, are people coming back, do people love the brand, are people telling their friends about the brand, sharing on Facebook. What do the testimonials look like, and all that tracked down really well for Nurture My Body, but the original entrepreneurs while they were really good, and they created fantastic products, their design needed a little bit of help, so…

Steve: The website design or the product design?

Bill: All the above. So the whole brand, the logo was not great, the labels were really bad, they didn’t have UPC barcodes on them. So they couldn’t be sold in stores. The website was still running on Xcard, an old version of Xcard, it was really not optimized for conversion at all. So I saw what they had was a really good product and really bad branding, so that was the first thing I worked on when I bought the business, it’s rebranding it. So it took about seven months, and then we launched it all together a new logo, a new website, new packaging, new labels, new everything, but we didn’t change the formulas.

Steve: So just curious as you are going through I guess the perspective– what are the documents called that they give you to give all the numbers necessary.

Bill: Often times it called the confidential information memorandum or simply a memo.

Steve: Okay, and is all that information that you mentioned contained in these documents like repeat customers. Is there like a set of numbers that are required for someone to reveal in order to sell their business that you can look at, or is everything just different across the board?

Bill: So basically there is some standardization because people hire a business broker and the business broker basically will grill the seller, and source out all the information that he thinks the buyer is going to want to know and they will put it in the memo. So the memo will have a lot of good information, it will have all the financials of the business. Typically what it will exclude is things like the specific names of their suppliers; you know anything that you can use to rip them off to copy their business. But as far as the financials, obviously you need the financials to value the business.

They will also typically have a discussion to how the business started with the seller, how it’s grown, a link to the website, you can check out the products, but obviously you are going to have questions and what data beyond what’s in the memo. So typically the way the process works is you will ask your final listing, you will contact the broker, you will say hey I`m interested in this listing and the listing will be pretty generic. It will say you know the listing will say something like ecommerce brand of personal care products.

Steve: okay.

Bill: You know. And then you will say hey broker that sounds like something I might be interested in, and they’ll say okay you sign an NDA and if you sign an NDA then we’ll go ahead and send you the memo.

Steve: Okay.

Bill: And then we get the memo, you’ll read the memo and the broker says if you’re still interested I’d be glad to set you up with a call with the seller.

Steve: Okay.

Bill: And that’s just asking the questions that aren’t in the memo.

Steve: Okay. So you mentioned related to the products and the branding and you look for something wrong. Is there anything in the financials that you kind of focus on as well, I mean there are so many different aspects of buying a business, right?

Bill: Sure. So for me I like to look for good gross margins, and this is why I will never get into drop shipping because the gross margins are just brutally tight.

Steve: Okay.

Bill: I mean if you have a proprietary product, your gross margin should be closer to 70%, drop shipping gross margins are 15 to 20, and that’s before you pay for any of your expenses; your fulfillment, your branding, your website, your time, any of that. So I look for good gross margins and then that test also pull through to get that margin.

Steve: Okay.

Bill: I also look for a business that has been flat. If a business is up and growing 50% every year obviously that’s awesome, but you’re going to have to pay up for that, you’ll pay a much higher multiple.

Steve: Okay.

Bill: But if the– and if the business is down that’s obviously pretty scary unless you can really pin point exactly why it’s down and have confidence that you can reverse it. So I love to look for businesses that are flat and businesses that had the same revenue for the past three years as on track to the same revenue again. And what that tells me is the owners just don’t know how to grow it anymore, but there is a royal base of customers who like the product keep coming back, and that there’s something there like this is a decent product, it probably just needs to be exposed to more people.

Steve: Okay, and then so you mentioned the margins you’d like to see 70. That pretty much precludes drop shipping as well as carrying inventory of other people’s products, is that kind of accurate?

Bill: Yep. I agree with that and the reason I don’t like carrying inventory of other people’s products is because eventually you will end up competing with Amazon, which obviously sucks and they will– it’s a very [Inaudible] [00:17:10] on pricing and I don’t want to step in the ring with Jeff Bezos.

Steve: So to sum it up you look for companies that are flat. They sell their own kind of proprietary products– have you– have any of your two acquisitions been like kind of on the down trend or has everything been kind of flat?

Bill: Both have been pretty flat.

Steve: Okay, and then the sales have been really consistent and the repeat customer rate has been high as well since these are consumables.

Bill: Yes, and you know high is relative when you talk about repeat customer rate.

Steve: Okay.

Bill: If you’re selling software something and you have people locked in on contracts, then you have you know obviously ridiculously high recurring revenue, but if you’re selling a consumer product and you’re converting you know 50% of people are coming back and buying again, that is astronomical.

Steve: Okay.

Bill: I mean you could have you could be happy at 20-30% which would be pretty good.

Steve: Okay that actually sounds pretty high to me as well 20-30%.

Bill: Yeah, that would be very good.

Steve: Okay and then okay, so let’s go specifically with Nurture My Body. So when you acquired them they had a repeat customer in that range I guess.

Bill: Yeah, I think it was about 40%.

Steve: 40%, wow okay, and so that gave you the confidence that when you acquired it sales wouldn’t just fall off a cliff, right?

Bill: Right because I knew I had these people and I had their email addresses, and I knew that they were loyal to the brand.

Steve: And how much was the owner itself tied into the brand, was there any correlation at all?

Bill: Yes, there were some because the owner of the brand, she had been an esthetician for 20 years. She developed the formulas herself, and so you know I worked with her to transition it. I got her to agree that I could still use her likeness on the website. So it was a very sort of quiet transition.

Steve: Okay, and since we’re just talking about the transition, what is involved in actually getting a company handed off to you? Kind of how do you handle the whole on boarding process?

Bill: Most sellers will typically agree to train you for some period of time post acquisition. Simply about a month, two weeks to six weeks somewhere in there, and that’s obviously negotiable as well and then beyond that they’ll usually offer to be paid, if you want a consultant to stay longer. So you typically have a couple of weeks with the seller, but also during due diligence you know I want to make sure that I wasn’t buying a business that I couldn’t step into that was going to collapse once the sellers left.

Steve: Right.

Bill: So as part of my diligence I flew out to meet them and sat with them for two days while they run their business. I just said you know pretend I’m not here, just run your business, I just want to watch you and take notes, so I know that when it’s my time to do the things that you are doing, I’ll know what to do.

Steve: Okay.

Bill: Because a lot of sellers will say “oh it’s really easy to run the business, I only do A and B everyday and it’s only a couple of hours and it’s done,” but then you sit and watch and see that they are doing ABCDE&F every day, and they’re like “oh I didn’t think of that just a little thing, or I didn’t think of that because it was a little thing,” and often it amounts to a lot more than they say they were doing every day.

Steve: Okay sure okay, and so this is even before money has changed hands you do this.

Bill: Yeah so…

Steve: Okay.

Bill: Just kind of finished the process from earlier, you get the memo and you have a chance for a call with the seller, they sort of answer any questions that you have and the broker will help you gather any further data request that you have, at which point they expect you to come in with a bid for the business. So you’ll submit what’s called an LOI, a letter of intent.

Steve: Okay.

Bill: And that LOI basically says “hey seller, I’ve taken a look at your business, I understand what it is. Here’s the number I’m prepared to pay you. Here is the date that I intend to close. Here is how I expect you to stay on and consult.” Basically outlines the terms of your offer, and it’s about a page long and well it’s not really a legal document, it’s more about– this is just our understanding, does this sound good to you?

Steve: Okay.

Bill: And if the seller says “yes this sounds good to me” they will sign the LOI and agree to give you what’s called exclusivity, and that says basically the seller is promising that for 30 days or 60 days or two weeks or however long you negotiate, that they won’t talk to any other buyers, that they’ll only talk to you, and they’re going to reveal to you, you know basically anything you want to know. This is your chance to dig deep into their accounting to make sure it matches what you see in their shopping cart, to make sure it matches what you see on their margin statements. This is your chance to make sure they’re not lying to you about everything or anything.

Steve: What is their incentive to sign such a document?

Bill: Because you are the buyer requiring.

Steve: Okay.

Bill: Because you won’t pay them, I mean this is the type of thing if you buy a house you insist on being able to inspect it for mold and have your engineer inspect it to make sure the foundation is okay, it’s not going to fall down. I mean nobody would buy a house without doing those things.

Steve: Okay.

Bill: Similar to buying a business and any buyer wants a diligence period.

Steve: Okay and so that period is typically how long then?

Bill: It’s typically about a month and the reason that…

Steve: A month, okay.

Bill: A buyer will ask for exclusivity is because typically diligence is when you the buyer going to start spending money. That could be hiring an accountant to go through their books. That could be flying out there to see them. That could be hiring a lawyer to begin to draft up the ask purchase agreement. So you as the buyer are going to spend money, and basically your seller is telling you that they’re serious, and you’re telling them that you’re serious, and it would be a bummer for you the buyer, if you were spending money and then the seller calls you one day and goes, I am on a contract with someone else.

Steve: So it is a lot like buying a house because there’s this contingency period and at that point you’re locked, right?

Bill: Well after you sign the LOI, the buyer typically is able to back out for any reason. It’s a very weak document, so you can back out for any reason you know if you find anything you figure out that they are kind of doesn’t match or if you decide that you just don’t like the way their building smells or whatever.

Steve: Okay.

Bill: You can back out, and that’s the time you should go out and actually meet the seller in person and you just see how they run their business.

Steve: I guess did you look at a bunch of other companies and go through this entire process before you found Nurture My Body?

Bill: So I looked at my NDAs folder the other day and I signed about 200 NDAs.

Steve: Okay.

Bill: So it means I got about 200 books before I bought one company.

Steve: And how many of those did you actually submit a letter of intent to?

Bill: Three.

Steve: Three, okay and can you just tell us what some of the things happened when you actually went to visit some of the other two that you did not buy?

Bill: Well, so one of them I did buy, so the other two; one of them the seller got cold feet and flaked out, and one of them I discovered some risks to their business model that had not been talked about before.

Steve: Okay.

Bill: Basically some large competitors and they say had said they had some opportunities that turned out to be not be as real as close to closing as they said they were.

Steve: Okay.

Bill: So this is the time to find all that out during diligence.

Steve: Okay and so what are some of the things that you typically spend money on during this process?

Bill: Hands down the most important is a plane ticket to go see them.

Steve: Okay.

Bill: Hands down I mean like yes you are going to spend a little bit of money on accountants and lawyers, but the very first thing you should do before hiring any of those folks is get on a plane and meet the seller. Spend a couple of nights in a hotel, sit with them and watch them do their business because you might decide hey right now before I even get in the functions and everything, this is not a business, I want out.

Steve: Okay.

Bill: The other things you will spend money on are lawyers and accountants. If you are a pretty savvy accounting you might not need to hire one. Basically what the accountant is going to do is what’s called a quality of earnings report, and they’re going to look and see– they’ll basically compare all the business accounting records, and they’re going to cross reference it to the margin statements and the carts and everything, just basically double check to make sure everything ties out.

Steve: Okay.

Bill: That they actually made the money that they say they made. Compare their bank balances right, because bank balance month to month– the difference in bank balance should be revenue minus expenses for that month.

Steve: So is it a huge red flag in general then if the business that you are trying to buy is kind of mixed a little bit of personal with their business?

Bill: No, every business has that.

Steve: Okay.

Bill: And that’s part of also what you’re going to do when you are accounting diligence, you’re going to go line by line to that income statement with the seller and try to understand which things are personal and which ones are business. Because the things that are personal the seller will try to say– the seller is going to try and exclude as many things as possible. “Oh this is personal, this is an expense you won’t incur,” because that will increase the perceived profitability of the business. So you will pay a higher multiple.

Steve: Okay, and then so you know also during your office visit, how much does the personality of the actual seller really matter to you? Are you just primarily looking at the nuts and bolts of how to run the business?

Bill: Yeah-yeah.

Steve: Okay.

Bill: Because for me when I buy a business I have a rule, I buy 100% of the business. I don’t let a seller stick around with 10% or 20% which might be tempting. If you’re buying a business say “hey if I let a seller keep 20% of the business, I can still have control over everything and it will be 20% cheaper and I will be able to have him stick around in case I need him.” I would advise against doing that because what you’re going to have is a person who used to own 100% of the business as their baby that they started, and then you’re going to come in and gut it or change it you know yank the ship in a different direction, and they’re probably not going to be happy about it.

Steve: Okay.

Bill: But they’re not going to do anything about it, but you’re not going to be able to make them go away because they own 20% of the business, so there is going to be a thorn in your side forever.

Steve: Okay, and then how does kind of inventory come into play, is that just all included in the sale?

Bill: This is a negotiated point typically, and I have fairly firm views on this that sometimes don’t jive with the views of the sellers or brokers. A lot of times you will see a business for sale and they’ll say this business is for sale for $200,000 plus you know $50,000 of inventory. You know the asking price for the business is $250,000. And they’ll say typically that– they’ll say all right three times my cash flow gets me to 200,000, and then I also want to sell my inventory. So really your effective multiple then creeps up from two and a half to three or more you know, so your effective multiple to cheque you’re paying divided by the cash flow you’re getting is much higher.

So I think that’s BS you know because my basically– my question to them is okay then I just want to buy the business, I don’t want the inventory. And they are like, “oh well you can’t do that,” and I’m like “well then can I just buy the inventory and not the business,” and they are like “oh no you can’t do that.” And I’m– so their total– they’re completely one and the same, but they are not, the inventory is wired to run the business. The inventory is part of the business; you wouldn’t sell me the business without the inventory, there wouldn’t be no business anymore.

Steve: Okay.

Bill: So to me I think it’s fairly ridiculous for sellers and brokers to insist on valuing the inventory separately. Typically the way that it was handled and this is how– and the reason I say this is because coming from investment banking, we were representing– we were the brokers actually, and we were representing businesses for sale with $5000,000 of cash flow every year, I mean much larger businesses and much more professional deals. And the way the inventory was always valued every single time is what you do is you look for what is called a normalized level of inventory.

So you can say all right the business has had you know say it had $100,000 in sales and we have had twenty thousand dollars in inventory relatively consistently. So you say all right inventory should be about 20% of sales, so when the business– when you are going to close on the business you say all right what kind of sales do you have you know trailing three months. And if it’s not the same you take 20% of that, and that’s the amount of inventory that they should have. And if they have less than that what that really means is that the seller has been shirking, has been not buying new inventory because they know they are about to sell the business, which he is about to stick you with writing a big check for inventory from their supplier right after you buy the business.

Steve: Right.

Bill: So the business is under inventory. So if that happens what you’re going to do is if there is a delta, if they are under inventory by 10 grand, you’re going to reduce the purchase price by 10 grand. And this is pre-agreed upon ahead of time. So you agree upon a normalized little inventory, and then you agree upon on the date of closing we are going to value the inventory and adjust the purchase price by any under-inventory if there is any. And what this will do is it will prevent the seller form doing what I just described from running down their inventory.

Steve: Okay, that makes a whole lot of sense, okay.

Bill: And it goes the other way too, so you say, okay seller if you have more inventory than you typically have we’ll increase the purchase price by however much. So if you normally have $20,000 in inventory and you have 30, we’ll increase the purchase price by 10 grand. Because that’s your over inventory and that’s the inventory I’m getting beyond what is necessary to run the business on a day to day basis.

Steve: Okay. And a couple of questions that just popped into my head. When you are buying a business, does the platform that they are on matter at all? Or do you typically just use the platform of your own choice?

Bill: The technology platform?

Steve: Yes.

Bill: For me I wouldn’t care.

Steve: Okay.

Bill: If it’s good that’s one last thing I have to do. If it’s not a platform I like, like in the case of Nurture My Body is all outdated self hosted [inaudible] [00:30:25] that I can kind of use something that’s broken that I need to fix.

Steve: Okay.

Bill: And that could be an opportunity if they are on an old platform with cranky check out flow out flow and just a bad conversion outsmart website, that could be one of those things you look at you know this is broken, this is something I can fix and get a win.

Steve: Okay. And I kind of wanted to spend some time on some of the things that you did to kind of take some of the business you’ve acquired to the next level. So first of, you know what are some of the common plateaus that you see some of these small business owners get to and they just can’t seem to get past?

Bill: The biggest one is marketing. They create a product, they get some initial buzz, they get existing customer base, but they really don’t know how to get the product out of in front of a bunch of other people. And you know they are not doing AdWords or they are doing AdWords very poorly and very unprofitably which is very easy to do. AdWords is quite difficult to do over time profitably. So they might have tried it and got AdWords doesn’t work for me and stopped it. They are also probably not doing any email marketing at all. So many sellers…

Steve: Interesting.

Bill: Are doing no email marketing.

Steve: Okay.

Bill: And this was something that I even did not appreciate the value of for a long time, and I had a good friend who was beating me over the head to say you have to email. And I was emailing once a month. And Nurture My Body was emailing once a month too before I bought it, and I was like any more than that people are going to get pissed and they are going to unsubscribe. And I had a buddy and he basically all he does is email marketing consultant, and he was like if the people are going to unsubscribe they were never going to buy from you anyway. And so he convinced me to go to once a week form once a month.

Steve: Okay.

Bill: Which is a dramatic increase, but still not that absurdly often and I went kicking and screaming to once a week. And it was a huge difference, huge difference. I mean email revenue is I think half of the revenue for Nurture My Body.

Steve: Really? Wow, okay.

Bill: It’s incredible, I mean like this is a huge level and everybody– nobody realizes it. And you don’t have to discount. I’m not saying you have to send a coupon every week. So we just sent emails and said, hey here is a profile of aloe vera, one of the ingredients in our personal care products. Or hey like here is new legislation about organic products that just came out. And every email just had our logo on the top and a signature at the bottom.

And it’s just a reminder, it’s like hey here we are, remember us? Remember this brand? Remember you like it? Remember you wanted to buy some? And people click through and they buy, it’s just a reminder, it’s just putting your logo in their face.

Steve: So is your call to action at the end of these emails to a specific product or just to your site?

Bill: It depends, sometimes it’s to a product like if we profile a product in the email, sometimes it’s to a blog post on the site like learn a little bit about more about the legislation that just happened.

Steve: Okay.

Bill: Or sometimes is to a category, so we’ll say you know, winter is coming like look at these moisturizers for dry skin in the winter. You know and that would take them over the category page for moisturizers.

Steve: Yeah actually is what’s funny is we recently started emailing once a week as well, and we have everything just on this auto responder’s sequence. So as soon as you are on and you can email every week for you know 10 or 12 weeks and it’s just like on auto pilot, and the customers just keep coming, it’s really nice. Do you guys use auto responder’s sequences as well?

Bill: A couple, so we do some like replenishment auto responders; because we know it took last about a month.

Steve: Okay.

Bill: So we start hitting you with replenishment. We are also starting to do some like cross promotional auto responders, so like if you buy shampoo but not conditioner you going to get a coupon for conditioner.

Steve: Okay.

Bill: To try to get you to broaden what products you are buying from us.

Steve: Okay. And then so what platform do you use for that just curious?

Bill: So the store is on Bigcommerce and then we using email platform called klaviyo.

Steve: Klaviyo.

Bill: K-L-A-V-I-Y-O

Steve: Okay.

Bill: It’s kind of pricy, it runs depending on how many people you have, it’s about 300 bucks a month.

Steve: Okay.

Bill: Which is definitely more than MailChimp, or some of the other ones.

Steve: Cheaper than Infusionsoft still.

Bill: Yeah it’s cheaper than big boys; it’s kind of in this middle ground, a couple of a hundred bucks a month. But it has a really cool Bigcommerce integration and not just Bigcommerce, it integrates with a lot of carts, but it will pull in you know not only just people’s email addresses when they buy, but actually what they bought. And they also have a tracking pixel that you can put on your website. So not only will you know who they are and what they bought, you’ll also know what they are looking at?

Steve: Okay.

Bill: So if they come back like I can look at my activity feeding Klaviyo and see that Steve you know who bought for me a couple of weeks ago is now on the website in real time clicking on shampoo. And if I wanted to I can fire an email off to you with a coupon for 10% off shampoo.

Steve: As I’m in the store?

Bill: Yeah.

Steve: That is really cool, okay I have to take a look at that platform. So email marketing is one thing, AdWords, what are some of the other things that some of these small business, mom and pop business owners are not doing?

Bill: Let’s see. Another thing that really helps marketing wise is to reach out to bloggers.

Steve: Okay.

Bill: You know just getting by in this niche mummy bloggers are really big. So I just reach out to them and I go, hey I would love to send you some free shampoos, or some free body lotions or take a pick whatever you want if you would just review it on your blog. I’ll send you free whatever you want. I’ll send one for you and I’ll send you one to give away to a reader.

Steve: Okay.

Bill: And then they’ll do review on it, and then the best part of the giveaway is clutch because what you do that is you go– have them say enter your email address below. And we’ll enter you in a draw for a free thing of Nurture My Body shampoo that I’ve just told you it was awesome. And then you are going to get email addresses for all their readers, and then they are going to fall in your email flow.

Steve: I see. Okay so giveaways– do you actually have provide incentives for liking your Facebook page and Twitting as well?

Bill: Sometimes.

Steve: Okay.

Bill: I don’t care so much about any of those kind of social actions because I’ve had a hard time proving it they actually drive revenue where as I know email is a gold mine.

Steve: Okay.

Bill: So if they do one thing, I would like to have them give me their email address.

Steve: Okay.

Bill: The software that will help you with this is called Blueboox with two O’s.

Steve: Blueboox, okay.

Bill: And that will– it kind of automates the actual email here before you know it works with Facebook like or whatever before it puts them in, and then it will give you a list of everybody that completed the action. So you can pick a winner.

Steve: Okay. That’s cool, so you just mentioned socially you haven’t been able to get working so much. Does that imply then that you don’t use Facebook advertising?

Bill: You know I’ve doubled in it.

Steve: Okay.

Bill: I had a great talk by Ezra Firestone about Facebook marketing, and so there is a couple of things I want to try. But I think the hard thing about Facebook is that people are tiply not in a buying mood when they are on Facebook, they are on a looking pictures of their friends and cat videos mode.

Steve: Great.

Bill: And they are not ready to buy anything. So I’ve had a lot of trouble trying to convert people to purchase from a Facebook ad.

Steve: Okay.

Bill: However, I just I learnt from Ezra what he is doing and seeing some success with is basically putting a squeeze page. So instead of the ad taking you directly to the product page, the ad takes you to like blog post or like a newsy type article that describes something about the product. And with a couple saddle links to the product in the text, and that’s kind of transition that from cat video mode into learning and buying mode. And then maybe they click over the store and buy one. And Ezra was telling me he has had a lot of success with that. So that’s something I’m going to look at try and see.

Steve: It’s funny you talked about that as soon as I heard that talk I went and created the exact same thing. And so I had this article with a whole bunch of really nice pictures where you click and it’ll take you to the product, but it’s like an article. So we are on the wedding industry, so the article is called like 9 Unique Wedding Ideas to Make Your Wedding Extra Special. And on there is a pop up screen to get their email addresses and everything. So it’s just worked out really well.

Bill: Nice. That’s good.

Steve: So you get to convert on the friend and earn a chance to get on the back and watch you get your email address.

Bill: That’s really good. Put a like to that on the comments I’d love to see it.

Steve: Oh yeah, yeah I’ll show it to you. So okay, so it just seems like when you are buying these companies you are looking for people who might not necessarily be that tech savvy then, right. They are not aware of all these different ways to market your store. And that’s where the opportunity lies. Is that kind of accurate?

Bill: Frequently yes.

Steve: Okay. And then one thing I did also want to touch on is on boarding. You mentioned it’s just like two weeks or a month together with the seller. And I assume that’s all negotiable, but it just doesn’t seem like enough time in order to transition over a full business that might have all these little small things to be aware of. And so I guess what I’m trying to ask is it smooth, is this process smooth and is there a lot of negotiating going on after the fact once money is changed hands?

Bill: I wouldn’t say there is a lot of negotiating going on because the money has already changed hands. I would actually I thought the same thing before I did it, and I actually ended up not even needing the whole time.

Steve: Really? Okay.

Bill: You know because it’s– you definitely need them for the first week or so. I mean you are talking about 8 hours a day you know all the time with this person training you. And you’ll pick it up, I mean assuming you are not a moron. You’ll pick it up pretty quick and then you know yeah I think I had a month with Nurture My Body sellers, and I don’t think I really hardly spoke to them after two weeks.

Steve: Really? Okay.

Bill: But then after the you know for the next three to four months once a month I would have a question, I’d just pick up the phone and call them, and they were very gracious about just taking my call.

Steve: Okay. And then I’m just curious so how much did you grow in Nurture My Body once you acquired it?

Bill: So I acquired it in February of 2013, it’s now September of 2014; business is about three times the size.

Steve: Wow. Okay and so some of the things that you did were you re-branded it, and then were they using paper click?

Bill: They were not doing any paper click. We started doing a little bit of paper click, another thing we did is we took the products to Amazon. They were selling on Amazon, but it was– the listings were poorly optimized and they weren’t doing any prime.

Steve: Okay.

Bill: So they weren’t doing any FBI. So we are taking select products to FBI, we’ve re-optimized all the listings, bigger pictures, better key words and the descriptions more like likely descriptions, things like that.

Steve: So let’s talk about Amazon real quick, I know we are running out of time, but what were some of your motivations for going on Amazon, and how do you kind of decide what you want to list there?

Bill: There is only one motivation, it’s a huge market. It’s just a huge market. I mean if for me I was– so back in 2011 I have been selling KP Elements online for about a year at kpelements.com, and I have said you know I found out I like literally read an article I was like Oh you can sell on Amazon? You know I thought everything on Amazon was sold by Amazon. And I still think a large majority of the online shopping public believes that.

And I was like oh you can sign up as a seller, kind of like eBay, like there was a market place where you can sell things in the Amazon. And I sold $39 a month. And my product retail was 35 and so I said, if I sell one a month it would be worth it, and I tried on a whim. And that was just merchant fulfilled, I didn’t do prime or anything. Merchant fulfilled for people who are listening and don’t know what that is, is basically if Amazon sells your product, it’s basically you drop shipping for Amazon.

They’ll send you an email and go, hey mail to this person and they process the payment and just take their cut and send you the money. So I was just doing merchant fulfilled and really quickly Amazon became about half as big as the website.

Steve: Wow! This is from merchant fulfilled?

Bill: Merchant fulfilled.

Steve: Okay.

Bill: Yeah. And then you know I was like I don’t want to do prime; it’s kind of a pain. I got to manage inventory in two different warehouses, and then I had a friend who had a brand of supplements and he was all over me to do prime for like a year. And like an idiot I was ignoring him, and I was like I just don’t want to deal with it etcetera. And I finally caved because he was insistent and sent two cases to Amazon. Literally within a week my sales on Amazon had tripled.

Steve: Crazy, okay.

Bill: I changed nothing else, just going to prime. So it’s a huge channel.

Steve: Do you know if it affected your existing channel at all?

Bill: I would say it cannibalized it by about 5%.

Steve: 5% okay.

Bill: Not a lot. But at the same time now Amazon is bigger than my primary channel.

Steve: I guess it’s that whole of energy involved in managing your Amazon listings, right?

Bill: I mean there is like you got a– you have to keep supplying their warehouse. You also have to manage the negative reviews, you also have– Amazon is becoming very competitive in the same way that you know before Google, before people realize how much money there was to be made on Google, the people that had realized it were just wreaking it in, and then you know the world of SEO became a thing and Google just became very-very-very competitive. Amazon is going through that same transition right now, where the broader public is starting to realize there’s a lot of money slashing out of Amazon and it’s getting very-very competitive.

Steve: Okay. And so do you foresee your Amazon sales grow faster than the sales of your regular site?

Bill: It’s hard to say. I don’t know, that’s really hard to say because it depends so much on you know the competition on Amazon. And their algorithm is such a black box, so you know what you rank for and everything. It’s hard to predict.

Steve: Okay. Yeah I mean one of the key take aways from attending their conference as well is I need to get on Amazon. So we are actually in the process of using FBI ourselves. So…

Bill: Awesome!

Steve: I’ll keep you posted.

Bill: I’m sure you’ll have good news to report.

Steve: Awesome. But hey I don’t want to take up too much more of your time; we’ve already been talking for 45 minutes. If anyone has any questions on just the whole process of buying and selling websites, how can they reach you?

Bill: Yeah you can find me at RebelCEO.com, there is a contact form on there, it drops right into my inbox. I see them all, that’s the easiest way to get hold of me. Or you can find me on Twitter @BillDA.

Steve: Okay. Awesome Bill, hey thanks a lot for coming on the show, I learnt a lot and a lot of good stuff that you brought today.

Bill: Yeah sure, thanks Steve, glad to do it.

Steve: All right man. Take care.

Bill: All right, you too.

Steve: Hope you enjoyed that episode. I have often wondered what it will be like to purchase an online business and grow an existing customer base as opposed to starting one from scratch. And Bill has got a lot of experience in this area and I’m thankful that he is willing to share his strategies with us. For more information about this episode go to mywifequitherjob.com/episode48.

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5 thoughts on “048: How To Buy An Existing Online Store And Double Revenues In Just 1 Year With Bill D’Alessandro”

  1. paul says:

    Good insight for those of us that are interested in a potential purchase of a site as apposed to a start up. Would be nice to know what the approximate purchase price was for the site he talked about, my guess is that it was at least 100k+?

    Paul

  2. Anne @ Money Propeller says:

    Thank you for this. For me, the nuggets regarding repeat customers, inventory levels and flat lined revenues prior to purchase, were amazing. I really appreciate those insights.

  3. taylor says:

    Bill and/or steve, would you recommend for or against starting a business on amazon before launching your own site?

    1. Steve C says:

      I actually recommend that you start on Amazon and launch your website once you know you have traction with your niche.

      1. taylor says:

        thank you. Do you have any articles on getting a product manufactured or white labeling?

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