Most of the high growth eComm companies I know are all building to sell. Some want to sell once revenue hits $5 million, some $25 million and some $100+. Regardless of what your target number is or regardless of if you even have a number, this interview with Chad will be super helpful.
Hear how Chad built his pet brand business and sold it for 7-figures in under 3 years.
Here’s a look at what we’ll cover:
- Tips and advice for sellers
- Maximize EBITA as you prepare to sell
- Practical tips to “think profit first.”
- Tips for prepping to sell your business
- Learning from successes and failures
- Understanding how self-imposed limits are holding you back!
Chad Maghielse
Via Facebook
Mentioned in this episode
“The 4-Hour Workweek” by Tim Farriss
“Profit First” by Mike Michalowicz
Episode Transcript:
Brett:
Well, hello, and welcome to another edition of the eCommerce Evolution podcast. I'm your host, Brett Curry, CEO of OMG Commerce, and man, am I excited about today's episode. I love diving into entrepreneurial journeys, founders' stories, and this one is fantastic, because we're going to hear from an E-commerce entrepreneur who built a business off of a whim, off of a crazy idea, which we'll talk about in a second. Discovered he had a really great business, built it, sold it, had a fantastic seven-figure exit. Now he's investing and consulting and doing other great things.
Brett:
My guest today is Chad Maghielse. Chad and I met a few months ago at Ryan Daniel Moran's lake house. If you listen to the podcast, a lot of you know I've now interviewed several people that I met at Ryan Daniel Moran's lake house, but it was an awesome meeting. I was like, "Man, there's so many cool people that I need to get on the podcast, need to connect with," and Chad was one of them. Chad, with that quick intro, man, welcome to the podcast.
Chad:
Thanks for having me.
Brett:
Thanks for taking the time, and how are you doing?
Chad:
I'm doing great, I'm doing great. Thanks for having me. Yeah, Brett and I met in Austin. We're both investors in a fund there and advise some of the businesses in it. Brett and I just hit it off and said we were going to do a podcast episode someday, so here we are.
Brett:
Here we are. I think we were chatting at Ryan's kitchen table, enjoying a keto brownie or some other goodie from one of the brands that was there, and started chatting about investing and exits, and it was a ton of fun. Let's dive into the origin story of your business, Chad. I love this story, because it's you solving a problem that you had, or rather that your dogs had, but talk a little bit about that. Well, what's your background first, just real briefly? Then let's talk about the origin story of the business.
Chad:
My background was in real estate. I was a real estate agent for a number of years. I'm into real estate investing now, but at the time I was a real estate agent. Years ago, I read the Tim Ferriss 4-Hour Workweek book that probably everybody who's listening to your podcast has read. Kind of the classic, and that lit the fire under me that I want to design my own lifestyle. I don't want to be on anybody else's time. I want to just build something that can provide the lifestyle I want to have. Hard to do that with real estate, because you're always on call, so I started exploring-
Brett:
You're at the mercy of buyer and seller, right?
Chad:
Yeah, yeah.
Brett:
I mean, you've got to cater to them.
Chad:
It wasn't unusual for my phone to ring at like 10:00 PM on a Friday night, and I was...
Brett:
Not what you want.
Chad:
"I'm not doing this long term," so started looking at different business models. I came across, you mentioned Ryan Moran's podcast. There was another guy, Kevin Rizer, who had the Private Label Podcast. I came across their material, and that got me interested in that world. I knew I wanted to create some sort of physical products brand in E-commerce, and I ended up creating a pet supplies company that was based off of my two dogs. I have two French bulldogs. Their names are Brock and Beast, and they're adorable little monsters, but dogs are gross, especially French bulldogs.
Brett:
Brock and Beast. Dogs are gross. They're so much fun, but they're gross.
Chad:
Right, right.
Brett:
You said they're French bulldogs?
Chad:
French bulldogs. Little 20-pound pig-bunny-looking French bulldogs.
Brett:
How old are they now?
Chad:
Oh, man. They're almost 6 now.
Brett:
Wow, okay, so you-
Chad:
Yeah, they grew up fast.
Brett:
You discovered your adorable dogs... What's that?
Chad:
I said they grew up fast.
Brett:
Yeah. Adorable dogs, but you noticed a problem. These dogs had a bit of a problem that you needed to solve. What was it?
Chad:
Well, they had a lot of problems. The most obvious one at first was just they have horrible breath. Horrible breath. That led into actually my first product. I had a list of 10 potential products, and that was the one that I wanted to do, because there were other products on the market that addressed that problem, but the ingredients were things that I and many of the other customers out there weren't comfortable with. There were some that had like grain alcohol and stuff that, you'll hear different opinions from different people, but there was enough concern that some of the ingredients in existing products were dangerous to dogs.
Brett:
Likely not the cleanest ingredients; not the healthiest options for the dog.
Chad:
Yeah, so I wanted to create something that had a different ingredient profile and would be healthier, but then based around my wife and my dogs, and I wanted products that I would use on my dogs. I created this brand that people who see their pets as part of their family really identified with. Somebody that just thinks a dog is just an animal and not a member of the family, they're going to be turned off by that brand, but it really connected with people who truly see their pets as part of the family; as one of their kids or something like that.
Brett:
Yeah, which totally makes sense, because someone that's likely getting close enough to their dog to smell their breath, or to be concerned about how the breath smells, that dog is important to them. The dog is in the house and on the couch and around and stuff like that.
Chad:
Oh, yeah.
Brett:
For somebody where the dog is just something to be whatever, to tend to the farm or something like that, that dog is outside. Who cares what the dog's breath smells like?
Chad:
Yeah. My brand wouldn't have been for them. We ended up with breath products; we ended up with anti-itch products; with shampoos. Treats for anxiety for dogs, and cats too. I mean, most of our products were geared towards dogs, but 10% of our customers were people that had cats.
Brett:
Nice. When did you realize, "Hey, this is a real business"? I mean, you had the luxury of, you had a successful career. If the E-comm thing didn't work out, you would have been fine. When did you realize that, "Man, I'm onto something here; this product can really take off, and could lead to a bigger business, not just a single product"?
Chad:
Yeah. I briefly mentioned this to you in our previous conversation, but when I started the business, I don't think I had the confidence to say, "Okay, this is a million-dollar-plus idea. I'll sell this in a couple of years," and all that. I think it was just a cash-flowing side hustle at first, but I had a pretty successful launch, relatively speaking. A few months in-
Brett:
Was the launch on Amazon exclusively, or on and off Amazon?
Chad:
Started just on Amazon. I think I got one of those like $29 Shopify sites just so I had something off Amazon, but honestly, any sales of any meaningful amount were on Amazon to start with. We expanded to other platforms later, but the launch was mostly on Amazon. I had the goal of getting to $50,000 a month in sales. That was my first goal, and at the time that seemed like a lofty goal, but once I hit that and was going above it, I'm like, "Okay, I want to get to $100,000 a month in sales." Then I really started thinking that I can sell this. As I'm sure all your listeners know, that million-dollar run rate of $83,334 a month, equals a million dollars extrapolated over 12 months; my first month when I hit that $83,000 mark I think is when I really started thinking, "Okay, I can probably sell this."
Brett:
It's a million-dollar business. Yeah.
Chad:
Yeah, yeah. At that point, I was at a business conference. I think actually it was one of the Capitalism conferences, and Coran Woodmass, who is The FBA Broker, was one of the speakers there. I grabbed him at the bar or ran into him at the bar after and said, "Hey, I want to buy you a beer and talk for a minute," and just got talking about the process of what it would look like to sell. He said something along the lines of, "Hey, you just had your first month where you crossed that million-dollar run rate. Your business is not worth that much yet. Come back and talk to me again in six months to a year." We stayed in contact, and I grew the business significantly-
Brett:
At this point, were you still just the single product, or you'd expanded?
Chad:
No, no.
Brett:
Okay.
Chad:
Yeah, I think once I'd crossed like $25,000 a month with the first product, I expanded to a second product, which was a shampoo, and then a third product, an anti-itch thing, and then ended up with six products total when I sold the company.
Brett:
Awesome. That's awesome. Talk about some of the things that you got right initially. Sometimes we just nail something, either because of training or advice we get, or because we've just thought it through. Sometimes we get things right because of blind luck. There's a variety of things. What did you get right from the beginning?
Chad:
I think one of the biggest things that I got right from the beginning was spending some extra time on really getting a great brand, as far as logo, packaging, stuff like that. I know that's counter to some advice that you hear a lot of, "Hey, just get your product to market as quick as possible," but a lot of my products came in these 8- or 16-ounce bottles, and literally all of my competitors at the time just had a standard white or clear bottle with a 4-by-6 stick-on label, and they didn't look very expensive or, in my opinion, very high-quality.
Chad:
I had to talk to 20 different suppliers to get somebody that would do this, but I finally got somebody that did these full-body shrink-sleeve labels, head to toe, and they looked much more expensive, even though they only cost a little bit more. That was able to justify higher profit margins. I think, especially products that your pet is ingesting, like a breath thing, they want to have confidence in the quality of it, and I think, I don't know, the better you can make it look, the more perceived quality is there and the more comfortable a customer is in trusting you with their pet's health. That was something that it took a little extra time to get to market, but I think that was definitely helpful to my long-term success. That was...
Brett:
Yeah, and I want to dive into that just a little bit, because I think it's super important. I think that that mindset of, "Hey, don't spend too much time on it; just throw some packaging on there, sell it and then iterate," so it's MVP, minimum viable product, then test, iterate and go from there.
Chad:
Yeah.
Brett:
I think that's valid to a certain degree, but here's where I believe you win on Amazon, and then in the greater E-commerce game, is with a good brand, right?
Chad:
Totally.
Brett:
A brand that people trust. That's where you can have a great seven- or eight-figure exit is with a brand that has some brand equity, that people trust and respect. Here's the thing. I think you want to take the time to really think about it, and, "Who is my buyer persona? What kind of tone and feel, and what's my brand messaging?" You want to think about that. Don't just slap something up there. I think really those days of just sourcing some product and throwing up a crappy listing, I think those are over.
Chad:
Yeah, that's long gone.
Brett:
Yeah, but I think, to free up a little bit, you don't have to spend so much time into it that this will be your packaging forever. You're still going to test and iterate, and there'll be a V2 and a V3, but still try to get it right. How do you make that good first impression? Think branding; think merchandising. How is this going to show up on the digital shelf? That's super duper important. The days are gone where you can just throw any old thing up there and just expect it to sell because it's Amazon.
Chad:
Yeah, for sure. Especially with E-commerce, people see your photo. That's the first thing they notice, and maybe review rating or something, but you've got to try to visually stand out, and that's hard to do if your product looks like all of your competitors'.
Brett:
Yep. Any tips or advice there? Any resources that you read or consumed, or people you consulted with, or steps you took to really nail that brand and the packaging design?
Chad:
Yeah. I had probably a dozen different concepts for what the brand would look like, and there's different services you can use to split test them. I mean, to even create the candidates in the first place, I used just 99designs, and I ran a few campaigns.
Brett:
Yeah. Yep, it's actually great.
Chad:
It is.
Brett:
You get all kinds of ideas from 99designs. In the early days of OMG, not our current logo but one of our first logos, we used 99designs. It was fantastic, and we got a ton of ideas, and it really helped us shape our thinking.
Chad:
Yeah. I mean, if anybody listening doesn't know about 99designs, you just tell them what you want, and the different artists will compete for your business. You'll get 10 different possible logos or branding things, and then you can narrow that down to a few and be like, "Okay, I like this one. It's not completely done, but I like where you're at, so I want to hire you as a graphic designer, and let's make some tweaks beyond that." Yeah, I would definitely recommend getting other people's opinions. You've got to trust your own gut and you've got to trust your vision, but get 10 different ideas, and then ask your friends and family and your Facebook audience or whoever. Here's another thing: for anybody that's just getting started, I think it is very helpful to document the creation of your brand. Even saying like, "Hey, I'm running this 99designs campaign. Here's my favorite three logos. What do you guys think about this?" Really sharing-
Brett:
Yeah, and sharing that on social, right, and getting some engagements, some buy-in there.
Chad:
Absolutely, because those people that give you their opinion on that may become your first buyers for your first product launch.
Brett:
They'll feel invested in your venture.
Chad:
Absolutely. Absolutely, and one tactic you can do; if you have a Facebook group or something that you create, and then run a poll and say, "Okay, for our first product, we're going to go with one of these three designs. Everybody that votes gets a 10% off coupon or something." Then you can follow up with them. That can be your product launch.
Brett:
Yeah, I like it. I like it. Cool, so you got the branding and the package design right. What else did you get right from the beginning?
Chad:
I think really narrowing down my audience, and it wasn't just people who have dogs. Narrowing down, my audience was people whose pets are part of their family, and also who are charity-minded people, because one of the big things we did that I really think was a pillar of the success of my brand was we had this right on all of the bottles, kind of like an insert card, but literally on the products. We said, "Hey, send in a photo of your pet with this product that you purchased, and we will donate a portion of the profit from your sale to a pet with cancer and reply back to you with a photo of the exact pet that your purchase helped." I had a VA do that, and...
Brett:
That is awesome.
Chad:
It made such a huge difference, because literally, if you bought-
Brett:
That created a lot of social sharing, I would assume, and lots of chatter?
Chad:
Oh, yeah. Tons of user-generated content, and tons of loyal fans or customers or whatever you want to call them that loved our business and loved what we stood for. It was a legitimate thing, and we donated tens of thousands of dollars and literally saved the lives of multiple pets with cancer, because a lot of people just didn't have the money to... if your dog has cancer and you're not in a financial position to do something about it, and you're looking, "Okay, do I pay rent or do I help save my pet," that's a tough position to unfortunately-
Brett:
It's a tough call. Yeah, it's a tough call. You've got to survive.
Chad:
Yeah, a lot of people are in, so we did that, and if you bought one of the products you'd literally get a photo of your pet and this website called the Magic Bullet Fund. It's like a GoFundMe for different pets that have cancer, so we'd donate to the specific pet and be like, "Your dog, Buddy, helped this dog, Ralph. Here's a photo of them together," and my VA would put that together.
Brett:
I love that. I think a lot of people are going to hear that and think, "Oh, that's a great idea. You're donating to charity." I know a few of our clients, they donate to 1% for the Planet, so a percentage of each sale or a percentage of the profit goes to 1% for the Planet. Great charity. There's a lot of great things out there like that. What I love about what you're doing, though, is you're making it personal.
Chad:
Absolutely.
Brett:
It's not just, "This is going to help dogs with cancer," but, "This helped this dog with cancer. Here's a picture of your dog, Buddy, and this dog that's the cancer patient." That's so powerful and so emotional and so personal.
Chad:
It was, and it felt good, too. It's like, yes, that helped my business, and I guess there's a selfish gain with that, but it really felt good to know it really did help a lot of other people's lives too. You've got to believe that every... not every, but most people who'd get that photo back of their dog and the dog they helped, they'd post that on their social media. They'd tag my company, or what used to be my company, and it just created this continual momentum of people who loved our products, but loved what we stood for and what good we were doing in the world.
Brett:
I love that, and I think sometimes we're maybe thinking, "Hey, let's keep it on the down-low, the charitable things we're doing," but I think making it more public and more visible actually fosters the mindset of other people being generous and other people sharing.
Chad:
It does.
Brett:
Getting that sharing going actually leads to more giving and more generosity, and it benefits the business, so it's a real win-win and I think you should double down on it.
Chad:
It does. I think we briefly talked about this in Austin, in person, but that was a hard decision for me, because I didn't want it to just be a charity for show thing. I think you and I talked, we have similar religious, Christian backgrounds, and I take that-
Brett:
Yeah, yeah. Yeah.
Chad:
There's that Bible verse about, "Don't let your left hand know what your right hand's..."
Brett:
Right. Yeah, yeah.
Chad:
Don't be braggadocios with your giving, so I think, okay, I'm going to take that perspective to my personal life, but in business I want to foster this idea of... I want to encourage more capitalist companies to do more good in the world and do more charity work, so I think in business that is a good thing to promote. I wrestled with that a little bit in the beginning, but I think that's the right way to go.
Brett:
Totally, and I think if you look at the heart, and not to get on a quick theological discussion, but I think it's important. Looking at that, I think if you look at the heart of it, it's more about, "Don't be boastful, or don't be too high on yourself for giving," but that doesn't mean you can't talk about it. I think this is a real balance of one of those things of, "Hey, I'm actually doing this because, one, it's enriching the lives of my customers; two, it's enriching the lives and actually helping other people; and then it's fostering generosity," so it totally makes sense. Yeah, I love it.
Chad:
Right.
Brett:
That's awesome. Cool. We love hearing those success stories. That's inspirational and fun, but let's face it: we all like to hear about the failures. What did you not get right, or what were those learning moments? Anything you can share there? Mistakes? Places you tripped up? Things you wish you had known?
Chad:
Well, I mean, right off the bat, my company name changed in the first week, because right off the bat I did not do enough research on the company name.
Brett:
Had trademark issues or something?
Chad:
Yeah, had my listing taken down literally a few days into the launch. That sucks, and I guess some people might be tempted to give up at that point, but it was pretty easy to fix, and I was back up and running 48 hours later and ended up having a successful launch. Make sure you truly do all of the research on that, because you don't want to have to deal with that kind of stuff. Make sure you do all of the trademark research. Make sure you do more than just a basic search, which was my mistake. There's that.
Chad:
Also, a longer-term thing where I think I dropped the ball, that I, if I had a do-over, would have done this a lot better: I did not do a good job at keeping my audience engaged in the long term. Our first customer interactions were always super positive, because they usually came from the charities and stuff that we talked about. People would send in a photo of their dog and all of that, so we had great first contact with our customers, but I did not have a good email follow-up sequence built out, where there's just a couple of emails a month that go out automatically. I just didn't do that. Looking back, I don't know why. I mean, I guess there's always an excuse. I was busy or whatever.
Brett:
You're busy with so many other things, but...
Chad:
Yeah, the reality was-
Brett:
It's one of the highest-return things you can do, though.
Chad:
Yeah. The reality was, I was lazy and didn't get it done, and I should have, or I should have just hired somebody else to do it. It sat on my to-do list literally for years. I ran the company for 2 1/2 years and sold it. That was on my to-do list the whole time and never got done. I think I would have sold for a higher amount and would have had more repeating buyers had I done that, so I'd highly recommend, once you're to the point where you're making enough profit where you can afford to have someone create those for you, if you don't have time to do it yourself, do that, because I wish I would have.
Brett:
Yeah, that's awesome. Let's transition a little bit. I want to talk about the sales process, because we work with a lot of high-growth brands. I mean, that's what we do at OMG Commerce; we're accelerating the growth of brands that are already successful, and we're investing now. Most people's goal is, "Hey, I'm building to sell. I'm building to sell, and then I'll go start the next thing or invest in something." Let's talk about how you approached the process of selling. I guess, let's just talk about that first. How did you prep for sale?
Chad:
Well, I followed the guidance of the broker that I used, who was Coran Woodmass. Great guy. Him and his wife Leanne work together on it.
Brett:
What's the name of their company again? I know they're FBA...
Chad:
The FBA Broker.
Brett:
Yeah.
Chad:
I'm super happy with them. Would definitely recommend them. What they had told me was, "Optimize for profit at this point." When you're thinking you're going to sell in six months, that's not the time to experiment and try, "Okay, let's go advertise on Pinterest. Never done that before, but let's give it a shot." When you're prepping for sale, it's not the time to throw things at a wall and see what sticks. It's the time to double down on what's working, .. expenses.
Brett:
You're maximizing that multiple at that point. "Let's get that base, that EBITDA, as high as we can for the purpose of the multiple."
Chad:
Yeah, get the EBITDA as high as you can. I did that. I doubled down on what was working. I did not launch additional products in that last bit of time, and I think that that was the right call. I prepped three products, or I had them sourced and actually had the first inventory order, and used that as a carrot with the buyers: "Hey, I've got your-"
Brett:
Nice. "Hey, you've got your next three products ready."
Chad:
Right. "You've got your next three products. Here's the first sample inventory order of, I don't know, 50 bottles each or 50 units each," so whoever's buying it can take that and run with it. I think that helped attract the buyers, and we got a few offers in the beginning, and I think it was, "Hey, we've got your next step planned out already. You don't need to worry about that." I think that was good. I could have obviously continued to grow the company and sold it for a higher multiple, or a higher dollar amount at least; however, the timing of it was crazy, because I sold it, and literally two months later COVID hits. In the long run, that is a positive. A lot of E-commerce brands saw some substantial growth during COVID, but stress-wise, at least, in the beginning, when just everything...
Brett:
Yeah.
Chad:
You know.
Brett:
In the first couple of months of COVID, nobody was buying businesses. Like, nobody was doing anything.
Chad:
Yeah. Yeah, all of that got put on hold.
Brett:
All deals were off the table at that point.
Chad:
Yeah. I'm happy when I sold. I'm sure I could have, if I waited until now, could have sold and got more money, but I'm happy with the timing of everything. Now I'm moving into investing and consulting and stuff like that.
Brett:
Yeah. I mean, you did well. You had a seven-figure exit. You built a great brand.
Chad:
Thank you.
Brett:
It's impossible to nail the timing perfectly, but you did fantastic, so you've got to feel good about that. If you had to go through the process again, and ideally, you're probably going to build something and sell again, what would you do differently than you did maybe the first time?
Chad:
In the sale process, or in the building process?
Brett:
In the sales process. Sales process.
Chad:
I mean, I don't need the money as much anymore, having gone through a sale, so I think I would probably hold out for an even better offer.
Brett:
Yeah. Why not? You wouldn't be under pressure to sell.
Chad:
Yeah. I think people are realizing that buying a business is a good spot to invest your money a lot of times, because so much is uncertain right now. It's tough to invest in the stock market and real estate right now, because you don't know what's going to happen, and prices are so high.
Brett:
Don't know what's going to happen. It's all out of your control.
Chad:
It is.
Brett:
Sitting on cash is tough because of inflation. That's not necessarily the best idea. Obviously you want to have liquidity, but yeah.
Chad:
Right, so I think knowing that you can go into a negotiation as the price-setter, not like a beggar, and be like, "Hey, no. This is what I want." I'm not going to be rude or anything, but I'm not going to entertain less than that. If you do, "I have a quality business. This is in high demand." You've got to have that level of confidence, and that can probably get you an extra couple hundred thousand dollars if you're negotiating-
Brett:
Yeah, and you've got the freedom at this point and the confidence to say, "I can be patient. I can wait a little bit. I don't have to take the first deal."
Chad:
Yeah, right.
Brett:
I think people can even be disciplined, even with their first exit as well, but it's much easier after you've got some cash in the bank and you've had your first exit. It's easier mentally to do that.
Chad:
Right. Exactly.
Brett:
Let's talk about this. I know you're an investor now. You and I are in the same fund, and have a lot of fun doing that, but you're also investing in real estate. That totally makes sense, because you've got a real estate background, but can you talk a little bit about that? What's fascinating is, when you sell a business, there's a big tax event. That's a taxable event. There's a big tax burden.
Chad:
There can be.
Brett:
You were able to minimize that because of some real estate investing. Do you want to talk through a few of the details there?
Chad:
Yeah. I mean, we're filming this in June of 2021. I mean, who knows what's going to change in tax law, depending on when somebody's watching this, because there's-
Brett:
Right, tax laws. This is true.
Chad:
... a lot up in the air, but I sold in January of 2020. At that time, and it's still true today to the best of my knowledge, you can do what's called real estate bonus depreciation as an investor. What that basically means is, instead of the property depreciating over the course of a number of years, you can depreciate a large amount of it year one if you get a cost segregation study. If you buy properties financed, say you put 20% down, and you get a cost segregation study done, a lot of times that will come in and allow you to have 25 to 30% of not the money you put down, but of the purchase price of the property. If you buy a million-dollar property, put down $200,000, you might get a $300,000 tax credit.
Chad:
That allows you to... I mean, it's not eliminating your taxes, but defer them to later. Greatly reduce it. Even better than that is if you can find a good mobile home park deal. Mobile home parks can have 50 to 60% year one bonus depreciation, so do the math on that; that can save you a lot of money on taxes. I would highly recommend, Tom Wheelwright is a good resource for minimizing your taxes. Real estate I think is the number one way, at least that I know of; there might be better things. Legal way to minimize your taxes as much as possible. Yeah, cost segregation studies and bonus depreciation are the key to minimizing your taxes when you have a big exit.
Brett:
Yeah. I'm not a real estate expert by any means, looking at some different options right now, but there's obviously real estate appreciates over time, and there are cashflow properties and there are different opportunities there, but I think the piece that a lot of people don't consider is the bonus depreciation aspect and minimizing your tax burden, and just some of the tax strategies that can really make real estate that much more attractive. I think it's definitely worth looking at.
Chad:
For sure.
Brett:
If you've made an exit, or if you've got extra profits to invest, real estate should probably be something you consider.
Chad:
Right.
Brett:
Fantastic. Anything else you would mention on things you've learned, or advice you would give to someone who is about to start the process of selling a business? What tips or advice would you give them?
Chad:
Well, I guess first I would say the foundational thing is you can do it. I don't mean this to minimize anybody else's challenges or anything, but a lot of people won't even try because they think it'll be too difficult, or they think they don't have enough money to do it, but there's so much training available to get you started that's for free on podcasts and YouTube, and then you can pay for better training once you've at least started. I would say, if you take six months or take a year to learn some of this stuff, and if you can save $5 a day, you have enough money to get started over let's say a year and a half. I started my company with literally $300,000, that's it, and then sold it for over a million. It can be done. Again, I don't mean this to be demeaning; I mean this to be encouraging. If you have access to the internet and have enough money to smoke cigarettes, you can make a million-dollar business. Honestly.
Brett:
You can. It's totally true.
Chad:
It's completely true, and I recognize that it sounds like bullshit, but it's not. It's completely true, and I don't mean that to talk down to anybody; I mean that to just encourage anyone who might think they can't do it, or don't have the resources. If you can smoke cigarettes and you have internet access, you can do it. I would say that. Beyond that-
Brett:
Smoking your way to millions. Oh, wait. No, that's...
Chad:
That's another business model. I would say that as an encouragement. I would say that, like we talked about, getting a good brand is foundational. Don't take the shortcuts and just use one of the softwares out there to say, "Okay, this product looks good on the demand versus competition thing," because that can change real quick, because other people are also seeing that product, and the competition can change very quickly. Make sure you have a brand that people want to buy. They buy your brand; they don't buy the commodity. Your products obviously are important, but your branding is, I would say, even more important. You need to have people invested in that brand, because their brands they buy say something about them. People that bought my products, it was a statement.
Brett:
Exactly, and that leads to a higher multiple. It makes the exit process better. You're really trying to build multiple products that a group of people can buy. What about someone who's looking to sell their business? They've already got an established brand; they're selling; they're profitable. What advice would you give to them when they're getting ready to sell, or considering selling?
Chad:
Well, I mean, like we talked about, don't experiment. Don't waste money on things that are not proven. Double down on getting your profit margins up. One thing I'd say to test, a lot of people don't test raising their prices, and it's worth a test. I was afraid to do that for a while. I had a product that was selling really well. I didn't want to rock the boat, but I tested raising the price from, I think it was $15 to $17. I got not only an increase in profit; I actually got an increase in sales.
Brett:
Wow.
Chad:
That doesn't always-
Brett:
That's interesting.
Chad:
It is.
Brett:
Price is kind of an emotional thing; it's not as logical as most people think. There are emotional factors to why one price works and another price doesn't.
Chad:
Yeah.
Brett:
You went from $15 to $17, so doing quick math, that's a 12%, something like that; 12, 15% increase. Not only are you making better margin, but you sold more with the higher price.
Chad:
Right, and I think it-
Brett:
Perceived value, I would assume.
Chad:
Right, and I think it was because this was a product that was ingested by your dog, and people perceive that more expensive prices equals higher quality. If it's something that's for your health or for your pet's health, you don't want the discount, cheapest thing possible; you want the quality thing, and you're willing to pay for it. That's not only true with ingestible products. I have a buddy who has a CrossFit products company. He has like a weightlifting belt, and his belt is more expensive than most of the other belts. I think somebody has like knockoffs of his that are much cheaper, but people want to buy his, because it's a good brand, first of all, but also there's a perceived quality. You don't want to hurt your back with some crappy band.
Brett:
Yeah. Clean and jerks, you've got to keep the back safe, and working out in CrossFit, usually it's a group. You're working at a gym. You're concerned a little bit about how you look as you're working out.
Chad:
Yeah, yeah. All that to say, test raising your prices. I mean, test it by a dollar. See how you do. Maybe test it by another dollar after that. Not always going to work. I had one product that I tried that on that it didn't work. It decreased sales and I went back, but more often than not it worked. A lot of people don't think to test that. I would say test that, because obviously the higher the profit margins, the more appealing your business is going to be to potential buyers.
Brett:
Yeah. Would you suggest someone potentially talk to a business broker? Is there a time you would suggest doing that?
Chad:
I mean, I'd have an initial conversation once you hit the first month of whatever your goal price is, so you get your first month, let's say it's $100,000 and you extrapolate that 12 months forward. I'd have that first conversation then, knowing you're probably not going to sell yet, but a good broker, and I would recommend Coran and Leanne Woodmass, but I'm sure there are other good ones as well. A good broker will help give you advice. There's some accounting stuff you've got to get in order. I had to get an accountant to redo my books and get them more organized and all that before I was ready to really present all of that data to potential buyers. Yeah, I'd say it certainly doesn't hurt to have that conversation early and learn at least what you need to do in preparation.
Brett:
Most business brokers are happy to do that, and I hear great things about the group you were just talking about. I know Ryan Moran speaks very highly of them, and so do people in the community. Quiet Light Brokerage; shout out to Joe Valley and Brad and the gang there. They do a great job. There's a number of great brokers. I've found that I think brokers do want to have those conversations early. They don't see that as a burden. They see that as a positive, so once you hit that run rate that you maybe set as your target, have that conversation, and they'll guide you into some more specifics too, and let you know what the current landscape is like and all of those important things.
Chad:
Yeah, and if your listeners haven't thought about selling yet, they might not know this, but businesses in our E-commerce world are generally valued on their trailing 12 months of profit, so it's not like you can have a good three months and say, "All right, I want to sell my business for a ton." You want to stabilize at that trailing 12 months. Ideally, you want to show growth, continual growth, but don't have the growth be just top-line; you need to show growth of profit. People are buying profit, in most cases.
Brett:
Yeah. I mean, and that's such a good thing to underscore. What is someone buying when they're buying a business? Yes, they're buying a brand. Yes, they're buying the products you have. They're buying your inventory and all that, but really they're buying a multiple of your earnings. That's how businesses are valued, and that's what people are buying. They're buying that cashflow. They're buying that profit, because that does speak a lot to the potential. That's what people are purchasing, so you've got to keep that in mind for sure.
Chad:
Yeah. I would recommend also, this really helps when you're... I mean, even before you're ready to sell; this is just helpful for running a business. Read the book Profit First by Mike Michalowicz. That really helps you get organized, and there's even a course, Profit First for Ecommerce Sellers. I'd read the book first and then take the course. That really helps you increase your profits, see where you have unnecessary expenses and do something about it. It's kind of like an envelope system, but for modern-day E-commerce brands. I'd definitely recommend checking that out if you're thinking in the next year or two you might want to sell.
Brett:
Nice. Love it. Love it. That's awesome. Chad Maghielse, ladies and gentlemen. Chad, this has been a ton of fun, man. You brought the thunder.
Chad:
Yeah, really enjoyed it.
Brett:
Brought the value. If people want to connect with you, if people want to say, "Hey, I'd love to chat with Chad," can they connect with you on LinkedIn or on Facebook, or what's the best way people can...
Chad:
Yeah, either one of those would be fine, Facebook or LinkedIn. I'm just under Chad Maghielse on both. I'm sure you can put the spelling of my name in the show notes, but it's M-A-G-H-I-E-L-S-E. Yeah, I'd be happy to chat here and there. I'm open to doing a little bit of one-on-one consulting. I don't want that to become my job, but I do miss this world. Brett and I were talking, we both invest in this fund that helps businesses grow, and when we met in Austin I had a lot of fun getting to give some advice to some of the younger companies. I've hosted a couple of training calls since then, and I miss that, so I'd be open to a little bit of consulting here and there, just not much. I don't want it to become a full-time thing; I want it to be something that's fun.
Brett:
Exactly, and you're an investor, and you're still a busy guy. You're doing a lot of things, but it is fun. It is rewarding. I'm enjoying this stage too, where now we can invest in brands and consult and share our resources and our network and our ideas, and you've got a lot to bring to the table for sure..
Chad:
Yeah. There's a lot of cool ideas out there. I'm really excited about a lot of the brands in that fund we invest in.
Brett:
Me too.
Chad:
There's seemingly an endless supply of great ideas that just need a little help on some of the other things in this business.
Brett:
Yeah, it's so interesting. There's a lot of founders out there with beautiful ideas. Either they're brilliant at product design or product formulation or something, and maybe they need marketing help or maybe they need just funding or whatever.
Chad:
Right.
Brett:
Yeah, it's been a lot of fun to be a part of that and to watch for sure.
Chad:
Yeah, for sure. For sure.
Brett:
Awesome. Well, Chad, man, really appreciate it. Thanks for taking the time, and this was a ton of fun.
Chad:
Appreciate the invite. Thanks, Brett.
Brett:
Absolutely. As always, thank you for tuning in, and we'd love to hear back from you. Hey, whatever your podcast platform of choice is, whether that's iTunes or something else, leave a review there if you feel so inclined. If we're delivering the value and entertaining and helping you, then leave that review. That means a lot to me and to my crew. Helps other people find the show as well. With that, until next time, thank you for listening.
Chad:
All right, man. Thanks for having me. That was awesome.
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