#295 – Why Plan Your Amazon Exit From Day 1?

Do you love the idea of exiting your business one day? In today’s episode, we speak with another Freedom Ticket 3.0 instructor, Scott Deetz, who is going to share his “playbook” when it comes to exiting your Amazon business or brand.

Make sure to listen to the very end as he shares the four things that drive your valuation and what are aggregators looking for when acquiring an Amazon brand.

In episode 295 of the Serious Sellers Podcast, Bradley and Scott discuss:

• 01:15 – Scott’s Backstory
• 02:30 – How Scott Got Involved In Strategic Exits And Transactions
• 06:00 – Watch Scott’s Modules In Freedom Ticket 3.0!
• 07:00 – How You Make More Money When Exiting Your Business
• 10:20 – Why Planning Your Exit From Day 1 Is Important
• 15:40 – The Four Things That Drive Your Valuation
• 18:30 – Diversification And The 20/20/20 Rule
• 20:00 – Scott Shares Some Case Studies
• 25:50 – What Are Buyers Of Amazon Brands Looking For?
• 34:00 – How To Get In Touch With Scott 

Transcript

Bradley Sutton:

Did you know that you should start preparing for a potential exit from your Amazon business from day one? Today, we’re going to talk to one of the top experts in the world on this subject and go over strategies that have helped some make millions of dollars selling their Amazon businesses. How cool is that? Pretty cool I think.

Bradley Sutton:

As FBA business owners, we’ve put thousands of hours of hard work into growing our businesses. But what happens when you’ve grown the business as much as you can and don’t have the time or resources to take it to that next level? Enter Thrasio. Thrasio has acquired over 125 Amazon businesses from owners just like you. With more than 600 experts at the top of their field in brand management, growth, marketing, creative, and supply chain. Thrasio’s operating team can grow your business exponentially. Once you’ve sold your business, simply celebrate a lucrative exit, and watch your personal wealth grow while your brand flourishes in Thrasio’s portfolio. To connect with Thrasio’s deal team visit thrasio.com/helium10 that’s thrasio.com/helium10. For more information on if your brand is a good fit for Thrasio.

Bradley Sutton:

Hello everybody, and welcome to another episode of the Serious Sellers Podcast by Helium 10. I am your host Bradley Sutton, and this is the show that’s a completely BS-free, unscripted, and unrehearsed organic conversation about serious strategies for serious sellers of any level in the Amazon or Walmart world. And we’ve got somebody who’s been helping serious sellers for a while now, Scott, how’s it going?

Scott:

I’m doing great Bradley. How about yourself?

Bradley Sutton:

I’m doing just delightful. And now we’re where are you actually coming to us from? Where are you at right now?

Scott:

Minneapolis, Minnesota.

Bradley Sutton:

Okay. Is that where you’re from? I never really heard a strong accent from you.

Scott:

No. Actually, I’m originally from Wisconsin, but yeah, across the river into Minneapolis a few years back. So yeah, this is my native hometown.

Bradley Sutton:

Okay. All right. I’m probably just a little bit chilly there. You know, we here in Southern California, we were freezing, you know, putting on some heavy coats yesterday as it got down to 63. I’m assuming it gets a little bit colder in your neck of the woods. Yeah.

Scott:

That’s our balmy here. That’s for sure.

Bradley Sutton:

That’s a t-shirt weather there for you guys.

Scott:

Right. We’re still out tanning at that level.

Bradley Sutton:

I love It. I love it. All right. So let’s get into a little bit of your backstory. You know, I know you help Amazon sellers out there and you’ve dealt with a lot of companies in this space, but out of curiosity, you yourself, have you ever sold an e-commerce?

Scott:

Yeah, so my backstory is pretty simple. I’ve been an entrepreneur all my life and I had my first company was actually a software company. And because I thought I knew how to run a company, I thought I knew how to exit it. And I tried to exit it myself, it didn’t go very well. I had a handshake deal that I couldn’t finish. And I met my mentor, who’s still a partner in Northbound 20 years later. And what I found out was within 18 months, we were able to take that company, reposition it and get more than three times the price. Then I had tried to achieve on my own. And I’ll never forget when the wire cleared. I thought to myself, you know, I really need to spend my time and energies helping other entrepreneurs realize that if there’s, you know, seven things to do right in building up a business if you don’t do number seven correctly you’re going to leave more than half of your money on the table.

Scott:

It was that eye-opening for me. So that was my start in what I would call strategic exits and transactions about 20 years ago. And then from there I got involved in Amazon in 2013, started up my own Amazon company. And it was very easy to make money back on Amazon back then. So the company took off but I realized that my passion is really in helping people. So I started Northbound Group, the advisory company in 2016, with the sole purpose of recognizing that there are exits that are going to be happening for Amazon or e-commerce entrepreneurs. And if they’re not.

Bradley Sutton:

Hold on here, hold on here. So in other words, you basically kind of predicted what was going to happen, like starting in 2019, 2020 with all these aggregators. Like, did you see the tides turning, or like how in the world did you create a company dedicated to something that didn’t really even exist in 2016? Nobody was talking about, oh, you know, we’re going to be selling our Amazon businesses, but how did you predict that that was going to be a thing?

Scott:

Yeah, well, I’d love to take credit for it, but actually the true backstory to it was then in 2016, I met a guy named Ezra Firestone, who I’m sure you’re probably familiar with. And I said to Ezra, I said, you know, can I pay for a day of Facebook training and so I went up to his house. And I said, you know, at the end of the day, I’d just like to show you what I see in your company and what the true value of it is. And so I had put together a valuation model for his e-commerce company. And I walked it through it for an hour. And I said, you know, this is how I think companies should be valued that are e-commerce companies. And he said, well, Scott, he says, I think you should stop selling on Amazon tomorrow and you should start up an advisory company doing this because nobody’s talking about this in this industry. And I know most, all the people that are out there, and nobody really sees valuation the way that you do. And I remember the quote, he said, this is some mind blowing stuff. And I really think you need to get out of what you’re doing. And I didn’t know if that was a comment on how bad I was at running an e-commerce business. But that was the original spark. And when he told me what the multiples were back then, you know, that nobody could sell a company and you could only get two or three times. And here I was explaining to him that his company to the right buyer should be worth closer to eight times earnings, even back then. You know, it was kind of opening for him, and that financial model was kind of the first version you know, that we’ve been working on now for five years of how to help people get premium valuations for their companies.

Bradley Sutton:

Super, super cool. You know, like, you know, I bet you, you wish you had maybe predicted the same thing for like what’s been going on with cryptocurrency or other things but you’re definitely in the right spot at the right time, because, you know, like I remember, you know, I’ve talked about this before, but like, you know, before Thrasio and others came around, like, I remember it was really big news. I forgot when it might’ve been 2017 or something when it was this company called like Zhou Nutrition or something got sold for 20 million. And people were just like, what in the world? Somebody bought a company that was only completely started on Amazon, but now, you know, fast forward two years later, it’s all the rage and people have questions. You know, I’ve had different aggregators like Thrasio on here and we’ve talked with them, but I like the viewpoint you bring. Now, you’re one of the instructors in our freedom ticket programming, you need to do a few courses or a few different modules in there. And I remember your first module that you have, which is actually 3.11. So if anybody’s in Freedom Ticket 3.0, you guys want to fast forward and get the details. We’re not going to go over it all today, but we’re going to give some highlights, but go to 3.11, to 3.13, it’s all Scott’s modules there, but you gave this like, kind of like jaw-dropping quote that I don’t think people even understand. And it’s about where you’re really getting your money from your business. Because I think most people think that, Hey, my money I’m going to get is going to come from pretty much the profits I’m making, you know, while I’m selling. But do you remember what quote I’m talking about?

Scott:

Yeah, I think so. I think it was more than 50% of the money you ever put in your pocket is going to come on the day that you exit your business. Not the entire time that you’re running the business.

Bradley Sutton:

Exactly. That blew me away. You broke it down a little bit, but because you know, somebody might think, nah, come on now, what are you talking about, but can you break that down? How that works?

Scott:

Yeah, absolutely. There’s you know, three or four different dynamics that go into it, but very simply every time that you’re doubling or growing the business, because the nature of the Amazon business model is that you have to fund the inventory upfront, meaning you have to have it in Amazon’s warehouse. What happens is that you think that you’re building up profits, that you’re going to be able to take out of your company. And what you’re really doing is building up an asset that is getting more and more powerful, but the cash that you’re generating in your profitability is being reinvested back into things like buying more inventory, hiring new staff, to grow. You’re going to have some money that you lose on some failed launches and some other types of things. And so what’s happening is that you think you’re generating cash and you are, but that cash is then being utilized by the business. And unless you have incredible supplier terms or some other major factor out there. What’s happening is that you’re building a profit stream that is going to getting bigger and bigger. And interestingly enough, you would then think, well, yeah, but once I get to a certain size, then I can take some of that money out. And the interesting thing about that is once you get to a certain size, the multiple that your business is worth gets bigger. So the ratio of still getting more than half your money when you exit still holds true because the bigger and bigger companies. And it’s really not even close. Most of the businesses that we work with that we help exit, it’s closer to 70 or 75% of the money that they ever take out of the company is coming. When they exit. When you look at all of the compensation they receive.

Scott:

And another key factor of that is you have to look at everything after tax. And so normally when you’re getting taxed on your profits, you’re getting taxed at ordinary income rates. But when you sell a business, that’s a long-term asset. You qualify, and this is US sellers. I know we have a lot of international sellers and usually most of them have what’s called a Capital Gains Tax rate as well. And so your tax efficiency is 20% at the federal level on a sale of your business, but it might be 37% on your profitability. So when you put all of those factors together you get the dynamic that more than 50 cents out of every dollar you ever going to get is when you do this last step correctly. And also equally importantly, is you not only get all of that money coming in, I like to say it’s like the combination of Black Friday, Cyber Monday, and Prime day combined. But then after that happens, you don’t have to go back out and buy more inventory.

Scott:

You know you work at transition and you get your time back as well. So one of the things that I realized, unfortunately, my life was that I ran my first business too long. And then when I exited, I realized there was a lot more things I wanted to do in life. And so for a lot of people, it might be the right thing to build up your first business and exit it, and then, decide to maybe start another one or go do something different, but that’s the dynamic that creates it.

Bradley Sutton:

Awesome. Awesome. Now, you know that whole module that you were talking about that in a little bit more detail, what was called, I forgot what was called. Something like plans why you should think about your exit from day one or something, and then that’s how you went into that. But why, why is that even important? Like, you know I’ve been selling on Amazon for two, three years. Yeah, of course. I think anybody can understand that if you’re making pretty good money, it’s probably good thing to be thinking about, you know, potential exit, but I’m, I’m a brand new Amazon seller. I just started yesterday. Why should I be thinking about an exit already at that stage?

Scott:

Yeah. a couple of reasons you know, the first one is that when you build your business with an exit in mind, you build it differently, you build it smarter and you’re building it toward what eventually is going to pay you the most. And the easiest analogy I can make for sellers out there is that if you think about it this way, if you go put a listing up on Amazon, you spend a lot of time thinking not from your own eyes, but from the eyes of your customer, right? You guys at Helium10, you’d do a great job of saying, Hey, you have to think in terms of benefits, you know, that the customer is going to get from the product, not features. You have to think about crafting your listing and the audience of your customer. Well, your buyer of your eventual business, think of that. I like to use the expression “your ultimate buyer, is your ultimate customer”. And so if you just think about, at some point in your life, you’re going to be putting a listing together that is describing the benefits of your product, which is now your business for the eyes of a buyer. If you don’t build it with that in mind, oftentimes what can happen is you can make a lot of critical mistakes that might make you some revenue, but don’t make you more valuable. And I’ll give you two key examples that we see, that we cover in the, in the modules. One of them is if you build a collection of products and you have, you know, in one seller central account, you’ve got something in pets, you’ve got something in office supplies, automotive, and let’s say supplements because they all were great profitable product ideas that you had at the time, but there’s no cohesiveness to it.

Scott:

You might have a business that is generating cash, but when you go to exit that business and try and determine what the value of it is, you literally have to find a buyer that’s expert in all of those things that wants to buy it. So you build up something that might be making a hundred thousand dollars a year profit. And if you had just done it all in one tight niche you know, let’s call it in the pets niche which happens to be a pretty hot niche. You might be able to exit that business for, you know, three, $400,000. If you can build up a hundred thousand dollars a year profit but if it was all over the board, you literally might have built something equally interesting from a cash flow and profitability basis, but you have really no ability to exit it.

Scott:

So all of a sudden, you kind of built the ladder up against the wrong wall, because there’s nothing on the other side of it that can get you that biggest payday. So, you know, kind of reason number one is if you think about this in advance, you just build the company differently. And then the second thing is which we go over in the module is that it helps you, I call it stick to your knitting of not getting caught by every shiny object and really staying disciplined to what buyers value and why. And we see a lot of people that, you know, go off into direct to consumer Shopify, or they’ll go into different areas, which is not necessarily a bad thing, but until you’ve proven that you’re good at the thing that’s going to drive your company’s value, the highest don’t get distracted. Which is very simply put build products within a niche that are profitable and growing, and then be able to repeat that process. And I think that most people think that they have to do too many different types of things when actually what a buyer’s looking for is you just to be able to prove that you can do a few things very well and then rinse and repeat them.

Bradley Sutton:

Yeah. It’s interesting. You say that that’s kind of like a similar path we had here at Helium10. You know, like when we were building up the company, we actually had a couple of other companies, like, do you remember how we had that Pixel Perfect Photography company and stuff? And it’s just like, you know what? We’re just thinking, you know, talking about is that this is not really our jam, like our jam is Amazon tools, you know, like building up this photography company is not necessarily helping us reach our goals, you know? So like, we just gave that up and that was a fairly big business. We were just like, you know what, let’s just give it up. Let’s just focus on what we do best.

Bradley Sutton:

And, you know, fast forward a few years later, we got that $1 billion evaluation now, our main companies. So the way we just definitely do the things that you know, in that way, and I guess Amazon sellers can do that too. Now, you know, talking about setting that, you know, initial exit goal, you know, from day one, what are some of the basics on how somebody, you know, what are the factors that people should consider? Like, how do I put a number on it? What am I calculating, et cetera?

Scott:

Yeah, absolutely. I like to call it the big four, or sometimes I refer to it as the big three and one, because the one is a negative and the other three are positive. So the big four things that drive your valuation, and this is why if you go all the way back to when I was talking with Ezra, I knew that these companies were valuable because they were delivering what I thought buyers would want to have on these criteria because this isn’t just true for Amazon businesses. This is true for any business. The first thing that you’ve got to have is you’ve got to have strong profit margins and I’m not talking about trying to pretend that you have a good margin, and then all of a sudden feeling like, oh, but for this, or, but for that. When you get all the way down to the end of it, after Amazon fees, after advertising costs, after product costs, you need to have profit margins in excess of 20%. In my mind is the safe zone. If you’re a few points below that you know, you might be able to find a buyer, but too many people bring out products that they think are profitable. And then all of a sudden one price dropped due to a competitor, and they’re only making five or 10% profit. So the first thing I always say to people is don’t look at products as trying to find a way to make them profitable. Look at products that you know are profitable, find a niche to differentiate yourself. And you’ve got to have that first.

Scott:

The next thing you have to have, is you’ve got to have growth. And I call it in the Amazon world. 20% growth is flat. If you’re only growing at 20% a year, that is not too interesting to buyers. Now, if you’re doing, you know, $10 million of profit a year, and you’re going up to 12, that’s something different. But for most of us as smaller sellers, you have to have growth, which for most of us means you have to have a pipeline of new products coming to the market. The next one to recognize is that you have to higher earnings will drive a higher multiple. So if you have more products in your pipeline and you’re doing $500,000 a year profit, you’re going to be worth more than if you have 50,000 a year of profit. And then the final, one of the big four or the big three and one is you have to be diversified. And what I mean by that is not diversify again, to all kinds of, you know, Europe and all these different places that could distract you, but you can’t have too much of your product in any one particular listing profitability-wise or it’s going to be seen as risky.

Scott:

Now, there are buyers out there that love to buy what are called Hero SKU companies. So don’t feel like any of these criteria, if you don’t have them, you can’t sell your company. One of the great things about this business model is there literally is a buyer for most companies, as long as you’re profitable. But what it does mean is that its pure risk and reward is that if you have, for example, in the, in the module, we talk about if you have 10 different products that you can release over the next three years and each one of those represents a relatively equal share of your business. You’re just like a stock portfolio. You’re diversified that you don’t have any more than 20% of your revenue coming in from one particular product. So think about it. I call it the twenty, twenty, twenty rule. If you have 20% margins with over 20% growth with no product having more than 20% of your profitability, you are going to be seen by a buyer as a diversified business, and you’re going to be able to achieve a higher valuation on that particular company.

Bradley Sutton:

Interesting. All right, now let’s take a quick pause. You know, you’ve been giving us some good strategies here, but just, just, I like to take a step back and remind people of why this is important. So, you know, like I always tell people here, you can give as much, or as little details as possible. You don’t need to say any company names or people’s names, but can you give a good example and a bad example? So a bad example you know, maybe, somebody came to you after they did this all wrong, and then you saw what, you know, what their result was, you know, be it like what kind of multiple they got or something that they failed in. And then, on the flip side, somebody who has implemented everything that you’ve been talking about the last 10 minutes, and then what, what their results was just so that people can understand the difference and what a difference it can make by doing things the right way.

Scott:

Yeah, absolutely. I’ll give you two recent case studies in our, you know, at Northbound we become close colleagues and friends of our clients. And so when the bad is bad, it really hurts us. And we get very excited. You know, the mission of the company is to create life-changing events you know, for e-commerce entrepreneurs. And we had a seller had gotten way too overextended, was trying to do both Europe and the United States had gotten into too many different products. They were not profitable. They were trying to spend a lot of money trying to diversify and run Facebook ads to Shopify. And the next thing, you know, the owner found themselves in a situation where they had put over $200,000 of their own money into the business, and they didn’t know how they were going to be able to make their next inventory payments.

Scott:

And we’re literally on the verge of having to declare bankruptcy. And it was a family situation. This is real situation, you know, with families and kids. And, you know, this was not going to be just something that, you know, was a small dent. And so we came in and we said, we’ve got to refocus this business. You have two products that are really doing well here. We need to retrench around those. We need to get rid of all of this other extraneous stuff, even though it might be interesting at some point it’s not right now. And we got to get this business profitable. We went back to the supplier, we renegotiated the supplier terms with the supplier so that we could get a much more favorable cashflow situation because frankly we weren’t gonna be able to make the payments anyway.

Scott:

And within about 18 to 24 months with our coaching but really with the seller doing it on their own, give credit where it’s due, turn the company around from losing money to making about a half a million dollars a year. And we were able to then convert that into a premium exit because of the brand strength to where the seller got more than $2 million for the business today. And an earn-out that might earn them up to another two to 3 million. So literally up to about an eight or a nine X multiple on that half a million, if things go well in the company and literally went from bankruptcy to seven-figure exit within 24 months. And they were just trying to do too much classic example of not thinking about a buyer, and just thinking about all the different you know, ideas that they’d heard out there in the industry.

Scott:

So that was a, you know, one where it was really, really bad you know, life-changing bad, and we were able to turn it around and have it become successful. You know, the ones that typically do it, right? You know, what they do is they stay very focused on their niche and on their product set. And so we’ve had multiple sellers that have, you know, gotten involved, stayed focused within their within their brand, stayed focused on profitability. And you know, we’ve literally worked with people for a three-year period and they’ve gone from not being worth you know, anything when they started. I had someone at Amazon prosper, frankly, it was really fun for me, came up and said, Scott, I heard you speak at ASM conference seller con three years ago, I went home and I told my husband I, I got the playbook from Scott and I’m going to follow this playbook and I’m going to be worth $5 million in three years.

Scott:

And you can probably imagine when your spouse comes home and says, I went to a conference and I’ve got $5 million in three years, you know, and it was fun for me cause the husband in this case was actually there. And they said, you know, she said I didn’t have the guts to come up and talk to you at seller con, which kind of cracked me up, but she said, I’m here to talk to you now. I followed the playbook and frankly, a lot of it is the content that’s in the freedom ticket. I stayed exactly true to what you said. And I’m here to tell you that we’ve got just over $1.2 million in profit, and we want you to help us go to market and sell this business for $5 million. And that was in three years. And it was all due to a very simple formula of just staying true to the playbook that a buyer is going to eventually value. So, you know, that was one where, you know, like I said we may have pointed the right direction, but it was somebody that took the module and the training exactly to heart and followed it and stayed on course to what was really valuable versus getting off track.

Bradley Sutton:

I like it. Now you just talked about something about, you know, making sure that you’re attracted to the buyer and thinking about them now. Now, first of all, I got to call this out here, not to embarrass you, but it’s a really big baller move. I really like it in your presentation. You actually quoted yourself. You know, like some people say I’m going to quit, you know, Einstein once said, and they put in the quotation marks in your presentation, freedom. And he’s like it was a, it was a statement about like your buyer is who you have to worry about most. And then you put dash Scott deeds. I was like, this guy is quoting himself. I love it. But that being said, you know, all jokes aside what you said there is important. And actually, I think a lot of Amazon sellers can, can appreciate this on one side, they all know this, like how important the buyer is, just in general your customers on Amazon, that buyer, you know, like one of the big mistakes that I see it, Amazon sellers make, everybody always asks me, Hey, what’s the number one mistake that you, that Amazon sellers making. And I’m like, they don’t consider the customer enough. They’re thinking about their own wants or their own needs or what they think is the best thing about the product. And, or they’re just focused on the data and things like that. And they’re not even thinking about it from the buyer’s viewpoint. Like, why is the buyer even thinking about this kind of product? What would they like and not like about it, like the more sellers who actually think about that are the ones who are successful, but you brought up with that quote? The different side when you’re talking about the buyer, you’re talking about a potential buyer of your brand. So how, you know, I guess the question is like, what, what are buyers looking for? And I’ve asked this question, you know, to Thrasio and other companies who we’ve had on the show, but I’m just curious, you know, you, you probably have more varied background than almost anybody out there in your experience, buyers of Amazon brands, what are some, some bullet points of what they’re looking for and what they want to see.

Scott:

Yeah. Absolutely. And I make the statement as boldly as I do is because many people think that they’ve heard about what a buyer is interested, but they don’t bother to speak the language of their buyer. And that’s the key point. It’s not just enough to know that your customer might be a 35-year-old female who controls the wallet in a household it’s to really dig down and understand what are the motivations, what are the fears, what are the desires of that particular customer? And it’s the same thing for your buyer. And here’s where I always start with a conversation regarding a particular buyer. Number one, just like your buyer on Amazon, fear of loss is twice the motivator as a reward of gain. So the first thing you have to be thinking about when you’re going in, and let’s say you build up a business and it’s got a half, a million dollars of profit, and you’re going to go ask somebody to cut you a check for two to two and a half million dollars or whatever that number happens to be the first thing that you think of when you want to talk with them is telling them about all the great things and how this is going to make them a lots and lots of money.

Scott:

And they should pay the 2 million because it’s going to turn into 5 million. The first thing that’s going on inside of a buyer’s mind is before they can build an upside case, they’re trying to think of what are all of the things that could go wrong, where I could put $2 million into this business and wake up tomorrow and have it be gone. Because in the words of a buyer and somebody signing off on it, that’s what gets people fired. So you have to think about it from that lens. So the first thing I think about is when you’re putting together your presentation of your buyer before you start talking about all the great things, you know, what am I asking the buyer to believe? You have to answer the question, what if everything goes wrong, what happens? And when I think about that, you know, side of things, the first thing that I think about is Amazon compliance. I think about trademark infringement. I think about IP protection, I think about not running out of stock and having good suppliers.

Scott:

And so in the language of you presenting yourself to a buyer, the first thing I think you want to be able to present yourself is that something that is safe for a particular buyer. So we all know that Amazon is getting tighter and tighter on the rules every year. And it’s just very important for you when you’re thinking about this through the lens of a buyer, that if you can’t answer that question, none of the other questions matter, even if you’re really profitable if you haven’t built it in a safe manner. Buyers aren’t going to be as interested. So I always start there and say, make sure that you can answer that particular question in a very confident manner.

Scott:

And then the next thing I think about is the story, what is the story as to why your business is successful? And if it relies on 15 different things having to happen in order to make it successful, it’s going to seem more complicated in the way I like to explain that is that buyers love boring businesses. Or there was a famous quote by Jack Welch from GE. I think it went something like this it was “I only buy businesses an idiot can run because eventually, one will.” And what he meant by that was he couldn’t get too complicated in his acquisition strategy because he knew that his company was better at running simple businesses. And so when you design your company and you think about your story, if you’re within a niche and it’s profitable, and you’ve got the thing ironed out and you know, your supply chain, think of it as a story.

Scott:

What if you’re, if you’re going in 15 different directions to try and make a buck, it’s going to be much, much harder for a buyer to believe that. So what they’re really buying is first they’re buying safety, then they’re buying story, and then they’re buying metrics. And the metrics are what I mentioned before. They’re buying the story is that your brand, the safety is your policies and your compliance and your stick, your discipline. And then the metrics is how much can I achieve with this business? And this will get me to my, one of my other famous quotes that my mentor taught me, which was “Scott, you have to learn. It’s not what the seller is selling. It’s what the buyer is buying.” And they are not buying what your profit is in the company. They are buying what the profit will be when they add their leverage to the company.

Scott:

And so people get very confused in this industry, thinking that buyers are buying companies based on their trailing 12 months profitability. That’s how they’re calculating it, but that’s the biggest myth going? I couldn’t believe it when I heard it in this industry, they don’t get a dime of that profit. Then you know, that you’ve already spent that on the last trip to whatever Amazon conference you went to, they’re buying the future profitability of that company when they add their cash and their talent and their leverage. And so the better that you can build a company that can have that upside once a buyer takes it over, is going to drive what makes you valuable, and you have to really make sure to focus on that, frankly, when you should sell is in many ways based on that, where you’ve achieved something, but there’s still plenty more that they can achieve if they can just put more cash into the system.

Bradley Sutton:

Yeah. Alright. Excellent, excellent points. Now, we usually do this thing on the show, the TST 30-second tips. So I thought we’d do a few here. And instead of just random ones, I really liked this one chart in one of the freedom to get modules you gave about how to set up your company right today. And then you gave like, it was like a side-by-side thing. And you had a couple things on one side, it was about accounting, a couple of things that people can do on the accounting side, a couple of legal things. So maybe you could just like, you know, take two or three of these in little 30 second chunks as our 30-second tips about what, how people should set these upright. In order to have a better success in the future. Perfect.

Scott:

30-second tip. If you have a separate brand and you think it’s a big enough opportunity to spend your time on it, then it deserves its own bank account, its own LLC or legal entity from wherever you’re from, and its own seller central account. So do not take all of your ideas and have multiple brands all in one seller central account. And the reason is is that if you ever want to sell off your pet brand, but keep your brand in beauty if you have it all in one account, you’re never going to be able to do that because the buyers going to say, well, I want the whole seller central account because that’s part of my intellectual property and you’re going to have to peel it off later. So if it’s good enough to be a big enough idea, now, number one, if you’re just starting out, I encourage you to stick with one brand.

Scott:

But if you are getting bigger and you have a, you know, another idea absolutely critical that if you are willing enough to invest the money, to think that you’ve got something big enough to go after, make sure you have it completely discreet, it might cost you an extra thousand bucks a year or whatever it happens to be on the accounting side. But if it’s a worth it enough idea, keep all of your things distinct from each other so that you can exit one without having to exit the other. And my analogy is that otherwise you’re asking a buyer to buy a fruit you know, an apple and an orange and a slab of meat, and they might not be interested in all three of those. So that’s my number one tip to that. And then my second tip is you. Absolutely. If you haven’t heard of it now, you absolutely have to create Accrual Accounting and use a Bookkeeper that knows how to do that for e-commerce. And if you don’t know the difference between Cash Accounting and Accrual, cash is used for taxes oftentimes, but you have to use Accrual accounting if you’re going to ever exit your business and you’ve got to work with a Bookkeeper that can help you do that.

Bradley Sutton:

Awesome. Awesome. All right. Well, Scott, thank you so much for all these tips. And obviously, like I said, guys, make sure to go to week three of Freedom Ticket to get a lot more into detail on these subjects, but if people want to you know, hit you up, how can they find you on the interwebs to maybe get some help with their business?

Scott:

Yeap you bet, it’s a northboundgroup.com. So the word northbound and group.com, if you want to get a hold of us. And then if you want to reach me specifically if you’ve got any specific questions, it’s just my first name at, [email protected] and we take as a passion being able to be good citizens in the industry. So even if you’ve got questions and you might not looking to exit for, you know, a couple of years from now, we want to help people as much as we can because my passion is to really help change this industry and get people these life-changing exits. So reach out if you have any questions and you know, I really appreciate spending the time with you Bradley and obviously, a big congrats on not Helium10 success.

Bradley Sutton:

Awesome. Thank you so much, Scott. And we’ll be in touch in the future.

Scott:

Take care.

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Want to absolutely start crushing it on Amazon? Here are few carefully curated resources to get you started:

• Freedom Ticket: Taught by Amazon thought leader Kevin King, get A-Z Amazon strategies and techniques for establishing and solidifying your business.
• Helium 10: 30+ software tools to boost your entire sales pipeline from product research to customer communication and Amazon refund automation. Make running a successful Amazon or Walmart business easier with better data and insights. See what our customers have to say.
• Helium 10 Chrome Extension: Verify your Amazon product idea and validate how lucrative it can be with over a dozen data metrics and profitability estimation.
• SellerTradmarks.com: Trademarks are vital for protecting your Amazon brand from hijackers, and sellertrademarks.com provides a streamlined process for helping you get one.