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How to Build & Sell a $10 Million Online Business: Insider Secrets from Flippa’s CEO
00:57:50
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- [00:00]
A
What I love seeing about hard working small business owners is they're very, very passionate about making what they've built work. And it tends to be that as a result of that, they do, for the most part, provide a very, very good end customer experience. And people will recognize that. And then much like property, people will ascribe a value to that.
- [00:17]
B
Hey there. I'm Cody McGuffey. I'm a husband dad of three and I'm the founder of Everbee, Everbee, Everbee, Everbee, where we serve over a million creators across the globe, helping them grow thriving online businesses. I believe every single human is a creator and every single creator should own a business, a business that gives them the freedom to build the life that they dream of. Built online is where creators, entrepreneurs and leaders get real insights, real stories and the edge to build something that actually lasts. This is where the next generation builders get built. Blake, what's going on, man?
- [00:52]
A
Yeah, Good to see you, Cody. Looking forward to the chat.
- [00:56]
B
Yeah, me too. How are you?
- [00:57]
A
I'm very well, thank you. I'm usually operating out of Australia. You can probably hear the thick Aussie accent, but I'm over in London spending time with our European team. So different perspective.
- [01:10]
B
Very cool. Well, I'm really grateful to have you on. Thank you for coming on, spending your time with us. You are the CEO of Flippa and Flippa has been one of those companies that I followed for many, many years. Now anyone that's obsessed with business and loves business knows who Flippa is. And if you haven't heard of Flippa, you will definitely. This will be the first time. But you're going to hear more about Flippa because people go there to buy and sell businesses every single day and that's what you're known for. And Blake, you run this company. Maybe first can you start us, start us off like talking about who Blake is and then we can talk about.
- [01:44]
A
What Flippa is after that. Yeah. So people might be interested to hear that I was, I've founded companies, I've run companies. But I guess the cool story is that before the CEO became the CEO of Flippa, I listed my own business. Where it's a marketplace on Flippa. So I know what it means to, to build something and, and exit something. And I've worked across the globe, across asia, across the U.S. spent six years in San Francisco, worked across multiple industries. Everything from Xero, which was accounting software, Lonely Planet, which is publishing, a couple of startups in there, most of which didn't work, and then even online travel I ran a really fast growing company that's called Luxury Escapes that basically does really top end travel packages and now of course running a marketplace for M and A for small business. M and A. So pretty diverse stuff. Got a wife, got a daughter, love them to death. They're back home in Melbourne so getting videos from them and generally speaking, spend my life working and then providing some fatherly love.
- [02:54]
B
I love that. How old is your daughter?
- [02:56]
A
She's five and she's been sending me funny faces all day so that's good. Given the stress of the day to day, that's pretty good to get a kick out of.
- [03:02]
B
Are you all gonna have any more kids or just, are you done with one?
- [03:05]
A
Just the one mate. Just the one. What about yourself?
- [03:08]
B
Three. I have three kids and we're done after this or now we're done. But I have a six year old boy and then a four year old girl so yeah, I'm right there with you. Yeah, it's the best. She has your, she has a heart. And then I have a seven month old son.
- [03:23]
A
Yeah. So you're a founder and you're running a great business and you got three kids and you got. No doubt a wonderful partner too. Means life is busy but it's pretty, pretty, pretty fulfilling.
- [03:34]
B
It's the best. I pinch myself often and I'm sure you do too is like you live a dream life and I'm not sorry about it. And it's one of those things where I look at my life sometimes and, and I imagine you do the same. That's why I'm saying this is because I look at it and I'm proud of it in the way that we built it with intention, we built it on purpose. And I imagine you feel the same way. You seem like an intentional guy.
- [03:58]
A
Yeah, I actually love what we stand for and what we try to deliver to our customers every day. And then I even love telling my wife and daughter stories of the customers I get to meet and what they've achieved. And I say that, you know, a lot of my team often say why do, why do you push so hard? Why do you work so hard on this business? What, what's in it for you? And I said, you know, what's in it for me is what's in it for all of the customers and what they get to achieve by working with Flybera. It's actually quite purpose driven. Now of course it's not a. Not for profit but if someone gets to build something and then exit it and make some money, they feel really good about it, they feel really good about us and then they can, you know, pave the way for the next journey generation of entrepreneurs or do something nice for their family. So it feels pretty purpose driven actually.
- [04:45]
B
It'S very purpose driven. Something can be purpose driven and also be profitable. Those things do not have to be, be separate. It's very much actually the best businesses are both those things. It's something that you love to do, it makes a lot of money and it helps a lot of people. That's the way I've always thought about it and that's why everybody, that's why I can do ever be for the past, for the next 10 years is because all those things are in line. You know, if it was not, if it wasn't purposeful but it just made a lot of money, I'm going to burn out some. Eventually the candle will say like okay, I'm going to go to go chase purpose.
- [05:18]
A
Yeah.
- [05:18]
B
But Lipa is very much, it seems to me like a really cool business because you get to see people, interesting people build interesting things and then they make a huge outcome and a life changing outcome. Huge or whatever, relatively speaking a life changing outcome for them. And, and that is a very, very special thing to be part of.
- [05:38]
A
Super important comment relative speaking because you know there's entrepreneurs all over the world and if you're living in San Francisco trying to build a billion dollar company, then you're trying to build a build, you're trying to build a billion dollar company. But if you're living in, I don't know, an island in Croatia and you build a $100,000 blog or a fantastic YouTube channel watched by millions of people and you exit that thing for 50,000, 500,000 5 million. That is life changing for you. And that's the relative bit that most people need to understand about entrepreneurship around the world.
- [06:15]
B
I completely agree with you. I, I get so excited about the idea of selling businesses because I, so many people are, they, they think of assets and they think of real estate, they think of, you know, rental properties and what, what they don't realize is that business is the most, one of the most powerful, if not the most powerful asset that you can be build that you can be building. And every time you get sale, every time you get a more cut, build that customer list, you are literally increasing the equity of your business, the potential equity of your business.
- [06:51]
A
Yep.
- [06:52]
B
That is such a powerful concept. What do you see as like, do you see that same thing as me? Like, you see like people are Just misinformed about the value of businesses. What do you say?
- [07:03]
A
Yeah. And look, it feels easy to go and work for a big brand name, earn a big salary, celebrate that to your friends, try very hard to move up the corporate ladder. That's the well trodden path that is the choice of so many. And then you of course got, you know, the day to day small business owners that we witness every day that you walk past. You know, I just went downstairs to a fantastic salad shop and I recognized the owner and who I was buying from and I was celebrating the fact that, you know, he's clearly got a good business and, and I wanted to support that business. But you're absolutely right in that, you know, every hour that somebody puts into this labor of love is a bit more value in their personal net worth. And the liquidity opportunity for them is alive and well. And as they keep doing what they're doing, so long as they do it well. It's much like renovating a house. You can put pretty ordinary fixtures in. And as a result of that, the value of that may not be quite as great as if you invest a little bit more and put very high quality fixtures in. You can serve customers extraordinarily well and drive great value for yourself in that moment or in the future. Or you can put, you know, less good quality customer experiences in. But to your point, you know, what I love seeing about hardworking small business owners is they're very, very passionate about making what they've built work. And it tends to be that as a result of that, they do for the most part provide a very, very good end customer experience and people will recognize that. And then much like property, people will ascribe a value to that and that means it's a tradable asset and there's liquidity available to you.
- [09:02]
B
You know, I, I remember I was sitting in this real estate conference because I was, my first business was in real estate investing. So I was like fixing properties, flipping properties. And I remember sitting in this real estate event and I was literally in the crowd like at this event and I don't think I even did a property at that point. Like I had no experience, I was trying to, I was in the learning. And I remember this, the founder of this event was talking and he was talking about his brokerage and he like whatever built this broke real estate brokerage. And, and I never understood, I'm like, okay, well if you are, if you're someone to like real estate investing, then why are you building this brokerage like I don't understand, like, why are you doing this? If this is so great, Real estate investing is so great, then why are you building this other thing like a business? I didn't understand that. And again I was, you know, years and years ago. And then he went on, he made this one comment and he was like, you know, I built this brokerage and I was able to sell this brokerage. And he said this one thing, he's like, you know, every single business has a multiple assigned to it and it's all on the ebitda. And I, I'm like, what is ebitda? I literally wrote it down like ebitda, what is that? And then he's, and he's like a couple other things like H Vac company, the industry has an ebitda. Plumbing has an ebitda. I'm sorry, multiple multiple. E Commerce has a multiple. Software has a multiple. And I, it was. And then he like moved on to investing after that. I took that and immediately went home and ran with it and just like researching Googling at the time, not chatgpt and was trying to understand what the hell was he even talking about. And that's when I came across Flippa. And that's when I really saw the power of whoa. When you build a business, the multiples and the investments, the roi, it's hard work, don't get me wrong. Yeah, but it's life changing. Yeah, life changing work. It can be.
- [10:49]
A
And you know, I spoke to a guy yesterday and he's built an outstanding business. It's a messaging business. He's got fantastic enterprise clients. And you know, ultimately I said to him, because I still jump on customer calls every day, you know what, what are your motivations to exit? This sounds like a great business. Why would you even consider an exit? And that's a really important piece because a lot of buyers will be skeptical of a good quality business owner who's selling and he's put in blood, sweat and tears. Been been running this thing with his co founder for 12 years. That's a very, very, very good innings. And you know, ultimately he said, well what multiple can I get? And I said, well look, you can probably get as high as four times. And you know, I hadn't run the market comps yet, but it was so, it was a flipping comment. He said that's fantastic. So that's, that's basically four years of earnings. And I said, yeah, that's four years of earnings. And so people forget four years of earnings is four years. And that is hard work. And so it's not that he's not running a great business that he can continue to live off and feed his family plus higher staff and make them happy too. It's that for all of the hard work he can earn four years of earnings up front today and then go and reinvest it into lifestyle or property or any other asset class and have a great deal of flexibility and freedom. And so the multiples are really important construct. It's basic but it's really important for people to understand.
- [12:20]
B
I love this. So I think me and you talked a little bit before we hit record. It would be cool to have like almost like an angle here to where we can really kind of dive into a case study. And the idea that we were throwing around was building and selling a company worth $10 million all online. It's catered to the online business. So I guess you could say how to build and sell a 10 million online business. $10 million online business. First question, is that possible just for anybody that's never even seen that, they've never even heard of that, is that even possible? Let's break down, break that down first. Do you see this often, Blake?
- [12:57]
A
Yeah, so we do 7000 exits per annum from small to big and small to big is still SMB. So small, medium business, M and A. And so from 10k to 10mil, you know, that's our bread and butter and we see that every day. And so yes, I mean the short answer is, Cody, it's super possible and depending on the quality of the business, it's also very probable. So there's plenty of people out there who are looking to take businesses to the next level and or use businesses for strategic bolt on benefit to an existing portfolio or some kind of need. And so yeah, there's a very active market and therefore it's very possible. It comes down to lots of things. So industry, business model, growth rate, customer base, geolocation, geolocation of the customer base, things like margins, you know, is it costing you a fortune to generate the amount of revenue that you generate or is it a strong profit margin business? All of these factors will come into play. So you almost need to reverse engineer it. Cody, from say we want a $10 million outcome and therefore what kind of earnings profile do I need to have to get there? And you know root, if you just use a very rudimentary sort of metric that most people will understand, let's talk about ecom. And so you're going to have your top line revenue and so that's Obviously the value of all of the transactions and then you're going to have your cost of sale. And you tell me, Cody, but I'm going to say something like maybe 25 profit margin.
- [14:53]
B
Yeah, 22. 25. Yeah. I mean we shoot for 30, but usually end up around 22.
- [14:57]
A
Okay, so let's just do that. So I'm doing $10 million top line revenue. I've got a 30 profit margin. So there's $3 million left over. And then from that I've got my sales and marketing and my salaries and wages and any other opex line. So all in all, you know, $3 million is left over. I'm going to spend another two. I've got a million dollars clear. Okay, Pretty rudimentary stuff. I got a million dollars clear. Now that's not going to get me the 10 minute or exit. And so here you and I are talking about pathway to $10 million. But so I'm at a mill now and that mill in this climate is probably, you know, remember that E Commerce is going through a slightly tricky time with investor sentiment just on the basis of tariffs, interest rates, customers trading down, feeling the cost of the cost of the current ecosystem, inflationary pressure, things like that, geopolitical challenges. So my $1 million net is probably to be really candid, worth about $3.
- [16:00]
B
Million today in 3x multiple on $1 million. So profit, a million bucks. 3x multiple on that right now.
- [16:08]
A
Yep. And so I'm not up my 10 million bucks. But the good news is I now understand what my business is worth. And of course we've given pretty simplified numbers, but I understand what my business is worth. And from there it's about being smart and saying what are the areas of the business where I have leverage. So if I know that within that $10 million in top line, I've got two or three best sellers. Okay, well let's, let's analyze that and let's focus on those two or three best sellers and try to get an extra 25%, 30% out of them over the next 12 months. And do I have some green shoots? Do I have some product range? A product range which looks to be doing well. I probably haven't promoted it as aggressively as other things yet. Maybe my SKU range is a little bit limited. Maybe the placement and the merchandising on the website can be improved, things like that. What am I going to do to accelerate sales for those? And I really just plot a pathway to making my business better year on year. So I go from 1mil net $3 million enterprise value and I move that over the next 24 to 36 months up to 3.3mil net. And all of a sudden I'm very close to the 10 million dollar mark.
- [17:26]
B
And if your growth rate is high, you know, if you're growing and if you're running like maybe higher profitability, I mean you are, you could probably make a case for that 10 million like it just because Blake is saying that, you know, 3x multiple is, you know, that's what you get. There's case by case situations where if your business is extra strong or maybe you have this, maybe your, your engagement rate like in your email list and maybe just people just absolutely loyal and love your brand. You can make cases to you or you could, people will see the value in your brand specifically and it's some emotional value too that can inflate that 3x multiple. And that's important especially for it's more of it. They call that a strategic buying for companies and it happens all the time.
- [18:07]
A
Do you and I see Cody like a good quality business owner and business that is got a, a lack of optimization of major marketing channels. Right. I've met, I've met five and six million dollars e commerce business owners where their, their SEO footprint is deplorable and it will take little, little tiny tweaks to get growth acceleration. I've met e commerce business owners that use one channel within the marketing mix. Maybe they've got Facebook running some meta, but they don't do anything on Google at all. There's no Google shopping, there's no non brand paid search. You know. And then I've met others who spend a fortune. They go oh my God, look at this. I've got 20 times ROAS on my paid marketing. I'm like yeah, but it looks like brand spend and you've got no competition actually building on your brand. So why do you even do brand spend? Take that cost out, rip the guts out of that and put it somewhere else. So there's just always so many ways in which a business owner can optimize for growth and therefore drive close to that $10 million enterprise value. Yeah.
- [19:11]
B
Which is, which is really cool because as a founder if you're listening to this and you're like, oh, I need to know all this stuff. No you don't actually. You just need to get to the milestones and you. The good thing is that buyers are smarter than you in certain ways. That's the, that's the beautiful thing about it is that they're picking something up. They've. You've already ran the first lap and they're ready to take you to the next lap. So they want to pick you up and they want to take you around the lap, the second round, and they're better at running that specific second lap. They're not really great or they don't want to focus on the first. Starting the companies, that's hard work. It takes a lot of effort, blood, sweat and tears to get your product to market and get to that first million dollars in in profit, revenue, whatever it is. But there's people that are really good at like, what Blake just mentioned. They can see all this data here and they just see opportunity everywhere. And they're just like, wow, I could just like make this little tweak here, this little adjustment here, and all of a sudden this thing's doing 30 higher and now they just created another million dollars of equity in the business just because they use their expertise.
- [20:11]
A
Yeah. And strategically, you know what's super interesting is if you are pursuing an exit and you get to that point and you're having active discussions and the buyer is genuinely interested in understanding your business. Selling in weaknesses is a bit of a power play. So you say we're great and we're great at the following three things, but we're really poor at this. And so most people aren't willing to be as transparent and open as that through the sales cycle because they think revealing weakness actually impacts their chances of selling. In many cases, revealing weakness improves your chances of selling. If you say I've got, I got no idea about SEO. They're like, oh my God, that's awesome. I've never spent a dollar in TikTok advertising. Oh my God, that's awesome. I, I ship all of my goods to 25% of my sales are coming out of Australia and I'm based in the U.S. well, let's set up a 3 PL in Australia. Like, you know, people fear selling in weakness, but buyers love hearing all about it.
- [21:21]
B
I completely agree with that. And you know, it's same thing for us too, because everbeast we're moving, we're kind of plowing away at the. We. We've considered, you know, acquiring some companies. We're at the stage where we're kind of considering buying versus building and certain, certain things. So far we haven't done it because we've chose to. Chose to build. But, but there's going to be a stage that we're moving into right now where everybody is going to be Acquiring companies, you know, and that's a realistic thing. And I certainly don't want to want to acquire company that is fully optimized. They've capped out everything. They just crush it on every level. That means that I'm paying premium, premium, premium. And I don't really have any opportunity for me to come in there and actually make it better. You know, it's already done in a really, well, really great way. There's certain buyers for that, by the way. I'm just not one of them. So that's a really good point. I, I want to talk about, I want to, I want to do the math here for a second. So we talked about a 3x multiple. So we're talking specifically about, let's say someone is using Everbee store, they've built a brand and they, they've now got to their first million dollars in profit. That company is worth $3 million today. Then the next year they, they 3x. Let's just say they get to 3.3 million in profit. Y times 3x. What is that? 3.33. That would be a 10x. I'm sorry, that would be a 10 million dollar valuation, correct? Correct. Perfect. What kind of revenue does somebody need to do to do a 3.3 in, in profit, traditionally speaking on 30% margin? I'm just doing my calculator math here. $11 million a year.
- [23:02]
A
Yep.
- [23:05]
B
Sounds like some people. Sounds like a tiny bit to certain people as well. It's really. But I can tell you and Blake, you can confirm or deny $10 million, $11 million in e commerce revenue is not a lot. Yep, it is totally possible. Market's huge. What are your thoughts?
- [23:25]
A
Yeah, so I guess let's be transparent. You will be operating in the top 1% of businesses in the United States once you hit $10 million in revenue. So from that perspective, it is hard. From the perspective of target addressable market and being able to achieve it, 1% sounds like a small number, but there's plenty of those people. And so it will come down to lots of things as usual, but it will come down to industry. It will come down to how good your product is comparable when you compare it to the competitive set. It will come down to the marketplaces that you choose to sell on. Right. Some marketplaces are more niche, some marketplaces are more mass market. It will come down to the price of good. And so you, are you premium priced? You know what I, most people don't play around with pricing enough. So let's say you're doing $8 million in revenue and you want to get the $10 million in revenue. Maybe you don't actually have to sell more. Maybe there's some inelasticity available to you and you can get to the 10 million mark just by praying, playing around with price. But you know, the short answer is it's really possible. And we see that every day. There's, you know, there's so many FBA sellers. You know, the key point I guess here is let's say for argument's sake, you are selling hair brushes. Well within the Amazon ecosystem. There will, you know, most likely be hundreds, if not thousands of retailers who are generating $10 million. And so the job at hand now is to compare your product to their product and compete against those people, you know, that you need to win against. I think what's critical about this is that like everything, you need to have a kind of iterative approach to how you get somewhere. It's highly unlikely you go from a million dollars to 10 million dollars within the course of a 12 month period of time. Now of course LinkedIn, Instagram and TikTok will tell you that people do that every single day.
- [25:40]
B
You do in three months. They vibe coded all the revenue too. It like all happened overnight.
- [25:49]
A
I was actually very glad to see the lovable founder. I'm sure you're cross lovable and just how quickly they are spinning out businesses. But I was actually very glad to see the very transparent post from him about not only how many businesses they're spinning out every day, which is really cool, but the reality of the businesses they're spinning out is still very little, as you would expect. And so don't buy in too much into people who claim that they got to $10 million ARR or $2 million in e comm sales within three months. It's maybe they did, but that's just not the average. And so really your job is to position yourself against the competition and say, well, I'm doing a million dollars in sales, they're doing $10 million in sales. Let me architect or reverse engineer how they got there.
- [26:34]
B
Exactly.
- [26:35]
A
I think the really cool thing is that once you get there, there's extraordinary amounts of liquidity available to you. And there are plenty of buyers, both high net worth, strategic and institutional, who are absolutely obsessed by business owners who have been able to architect their way to $10 million in revenue. Yes. And then, you know, that's where the real fun begins because you can drive competitive tension. You can choose to keep building, you can take some amount off the table if you want or you can have discussions about, you know, a very clean exit.
- [27:08]
B
Yeah, you know, I think it's worth kind of double tapping on. That is no one's saying that getting to $10 million in revenue is easy. No one's saying that getting a 10 million dollar company enterprise valuation is easy. But what it is, I'm trying to make the case that it's, it's absolutely worth it because $10 million for your family, for your co founders, for your partners, for, for your team, whatever it is, is, is life changing. And so if you're going to spend, let's say five or 10 years building something, you may as well build something like that. In my opinion, it's very worthwhile. And so I always actually Cody, the.
- [27:49]
A
Average business that sells on Flipper is four and a half years old. So I think people need to also understand that it's actually less about doing something as fast as you possibly can. The reality is good quality businesses that buyers want to buy won't happen most. They, they tend to not happen overnight.
- [28:08]
B
Totally. I mean I, I, I've always said this about, I think Ever be is people ask about ever be and when it was started and they're just like, wow, it's only been, it's only four years, four years old. I'm like, or, or there, it's already four years old. They look at ever be as like it's an older company. I'm like, no, we're actually a toddler. Like we, we're in pre K. You know, we're not even in kindergarten yet. And I think about companies, I'm curious what you think about them. How I frame them is like they're like, you're raising children, you have an infant. They, they, they don't even know how to eat themselves. You have to feed them, you have to watch them, make sure they're breathing at night. You have to, you know, and then they kind of move into crawling and talking. Eventually they can kind of talk and they can breathe without you and you don't have to worry about them so much. Eventually they move into a toddler, they get in some trouble. But they're also like innovating by themselves too and being creative and then they teenager and, and so you can bail out. When you're considering selling on Flippa, you're can, you can bail out at any time and pass, pass the baton to someone else and they can run with it there. But yeah, it's, it's a really exciting thing that I don't Know, that's mostly.
- [29:16]
A
What happen happens actually Cody, the, the reason people sell is because they run out of steam. So they have built something good and taking it to the next level feels difficult. So they will tend to just orientate to get me away from this as things fast as you can. And it tends to be on most of the conversations I have with successful business owners and I say, wow, you build a great business, you know, why don't you want to keep growing? And the reality is they don't want to keep growing because they're tired. It's not that they don't know how. It's not that they can't afford to go and get the resource. It's that ultimately they've done it for long enough now that it's, it feels too hard to go to the next level.
- [30:01]
B
Interesting. Okay, so we talked about the math part of reverse engineering. Okay. If we're an online business and specifically we sell like E commerce products, I have a quick question. There's. When we say E commerce, we're kind of grouping in, we're talking about physical products. But you're seeing this rise of print on demand probably, right? And how do the multiples, are they impacted one way or the other? Less or more because of print on demand, you don't actually have the inventory cost, but you still have the cogs. But like how do you, how do you view that? What are you saying on your side?
- [30:35]
A
So yeah, that's a good task to kind of break down E commerce actually. And so the most popular and most valuable E commerce business will be a direct to consumer product that is proprietary, owned and manufactured specifically for that company. And it's got quality goods versus cheap goods. And there are some exclusive relationships with existing suppliers that give the business owner confidence and control over the supply chain where customers have decided over a long period of time it's a high quality product and they keep coming back for more and more. Then you've got something which is equally as high quality but hyper personalized. And it's funny because that sounds like it should ascribe a premium multiple because it's personalized and people love it so much. And the repeat user base is high, but the personalization and bespoke nature of it can actually scare buyers. They just don't know how much effort is required to continue to manage it. And so they say things like, well, you know, what percentage of your sales are actually personalized? And it's funny because you worked your butt off to create this highly personalized business where maybe you, you know, print on demand on a very, very specific customer request or you maybe even, you know, do apparel and then you can print baby names on it or whatever it might be. And my history with this stuff is that like, sometimes businesses that someone has made very, very bespoke and very, very unique are awesome for the current owner and actually less good for transferable purposes.
- [32:41]
B
Interesting.
- [32:43]
A
And it's a kind of counterintuitive thing, but they're just, it's something that the buyer is less likely to know about themselves and they worry that there's too much. Too much. Yeah. DNA in the founder and their willingness to get it to where it got to versus something which is predictable and repeatable, which is more likely to be direct to consumer. I mean, the least valuable E commerce businesses, and sorry to disappoint some of the audience, but the least valuable E commerce businesses are drop shipping businesses. Unfortunate, because some drop shipping businesses are actually awesome. But just the idea that you're not actually eyeballing and the, the, the product and controlling the supply chain reeks of less good and less likely good customer experience.
- [33:38]
B
You know, I love that you said that. And that's just a transparent world, which I think is really, really important. Drop shipping. It doesn't mean that drop shipping is not a good entry point to get into business or anything like that. We're not. Blake is, I don't believe he's saying. And that's what I'm not what I'm saying. But as far as like enterprise value.
- [33:55]
A
Yeah.
- [33:56]
B
Think about it for a second. Would you go buy a drop shipping business that sells drop ships? This wine thing, this wine thing that you know, sells this thing. And you, you'd look at it, you're like, oh, this seems like a good business. And you're right, it looks good. It doesn't mean it's bad. But it's like, then you find out that it's drop shipped from AliExpress and then it goes from China and then also takes three weeks to get to the customer. Like now, now how do you value it? Do you still want to pay for that business? Do you still want to buy that business for a million dollars? You're like, ah, that seems like, okay, maybe if I like got the inventory, put it in a warehouse 3PL or something like this. Well, now you're. But, but you pay less for the business now because you have to do all that stuff. So if you multiply that by thousands of people that are buying drop shipping businesses, this is how they think about it. So if you're thinking about drop shipping business, it's not that it's bad, it's more just understand that like Blake said, it's the, it's the probably least valuable business. What are the multiples that you see?
- [34:51]
A
It's a really important p about multiples I reckon Cody, because ultimately they're willing to pay three years or four years or five years because they believe the business has got three years or five years of benefit to it and they're willing to wait that long to generate an roi. Now of course you can say well there's all these opportunities that they're going to optimize for. Well that's true, but they're also the same opportunities that you can optimize for. So buyers don't pay for what they think something will look like in the future. They pay for what something has looked like for the trailing 12 or trailing three years. And so you know, a lot of, a lot of people will say well you know, clearly we've been drop shipping successfully for a very long time. And I will say well that's true but remember, you want $10 million for your business and I've got $10 million, I've got optionality with my $10 million, I can look at your business, I can look at five other businesses and so I've got a business that's not drop shipped, I've got a business which is controlling the supply chain end to end can consistently trying to improve that. And I've got a great deal of competition for this dropship business. People forget it's not just about how they perceive your business, it's how they perceive your, the opportunity that you've given them alongside others, the market complete like.
- [36:11]
B
The landscape I guess you could say. And that's how just, just like consumers when they purchase goods, they're considering all the options that they have that's available. And it's the same thing when buyers are looking at your business. If you were to say that, you know, let's say we're reverse engineering a $10 million outcome, typically would that person be raising capital or would they be bootstrapping to get to that stage?
- [36:39]
A
So in most cases, other than say debt financing or even loans you might get From Stripe Capital, PayPal loans, Facebook meta, even people like Clearco in most cases, while you may get some inventory based loans, etc, they're bootstrapped in most cases. I mean most of the time a ten million dollar business carries very little debt other than, you know, accounts payable. And most of the time, the, the liability in the business is really inventory.
- [37:21]
B
For a lot of. About 80% of our, our listenership is probably, maybe 70% is probably print on demand. People that do actually sell print on demand. So that is a form of drop shipping. I have some friends that have sold drop shipping businesses. I forget exactly the multiples that they sold theirs for, but it was definitely on EBITDA and I want to say it was around 2 to 3x. Does that sound right to you for a drop shipping print on demand business?
- [37:44]
A
Yeah, I mean, you know, 2 to 3x in 2025 sounds right. Only two or three years ago, you know, it was higher than that, substantially higher premium than that. But it's really important that people understand the climates that they operate in. But yeah, that sounds right. That sounds right. You know, I would say typical econ margins would suggest, you know, call it a gross profit of 3 to 6 million bucks on 10 million revenue. So 30 to 60% if you're lucky at the high end. And that will depend on whether they're manufacturing the white labeling. Their drop shipping as we've spoken about net profit ranges is probably 500k to 2mil. So that's 5 to 20%. And then they're going to look at sort of traffic and how you win the audience. And so do you pay to win the audience or the audience comes to you because you've built such a good product that they've fallen in love with and you've got some natural virality around your product marketing what people think and say about it. So they're going to go and look at things like Semrush, Google Analytics, similar Web Ahref, and they're going to try to form a view as to whether most of the customer base that you win you've convinced by buying ads or they've come to you organically and they'll put a premium on revenue that is generated from free traffic versus paid traffic. It's a really, really important piece of the multiple equation that, that so people.
- [39:11]
B
Are just flooding to you, pulling the product from you. Then obviously that's a buyer wants that rather than did I acquire every single, every single customer from ads? Not that it's bad, it's just there's a premium on the other one.
- [39:23]
A
Yeah, it's not that it's bad, it's just premium as you said and then average order values. So cheap stuff is difficult to get a high exit multiple and premium stuff is far easy to get an exit multiple and probably the logical reason for that Is if you're going to do, let's just be really brazen. If you're going to do a billion bucks in revenue, it's easier to do a billion dollars in revenue on $1,000 item than it is $1 billion of revenue on a dollar item. You've just got to convince a hell of a lot of people buying a dollar item compared to convincing fewer people on a thousand dollar item. So there's a premium on high aov.
- [40:07]
B
And for anyone wondering maybe more logic with that is you think about it, I mean, when there's higher aov, there's typically higher pro like a profit. So that means you could spend more on advertising to acquire that customer. So there's just more optionality for that buyer who wants to buy your company. They see more options. But if you sell a $2 item, there's only so much money there. Like they can't really do meta ads. Cause you can't acquire a customer for $2 on Meta. But if you have a $200 item or $2,000 item, like you can, there's money to play with there. You can find ways to scale.
- [40:41]
A
Yeah. And you know, as cost of acquisition goes up, there'll be an even greater premium on this. And as you said, it's just, it's just the likelihood of you being able to afford to acquire customers over a long period of time.
- [40:52]
B
What is the, some of the mistakes that you feel like you're seeing? Let's, let's keep keeping the $10 million that, that mindset. What are some mistakes with this person? Let's say, okay, hey, Blake. Hey Cody. I, I built the business exactly what you said. Three years from now, they come and tell us on the podcast like I did exactly what you said. It's $3.3 million in EBITDA. You said the multiples on average are 3x I should be worth $10 million. But let's say that he's getting pushed back from the buyer's market and he's just not getting that. What are the mistakes that he made that you're probably telling him? Well, yeah, but like you did this and this, if you need to change this for it to really get that, to get that multiple because you made these mistakes. What are those things you think?
- [41:34]
A
So I think would be one would be revenue diversity. So you know, are you reliant on one product working really, really well, or do you have some good quality product distribution in such a way that you know your revenue is less, less risky and less tied to one versus more product. The other one would probably be, you know, cost of sales. Do you have a very high refund rate? Because you're pushing really, really hard on advertising and getting this product out to people, but in reality, when they get it, they've decided it's less good or worth less than they paid for it. And so, you know, there's a problem with the value ascribed to the good. And so that's a pretty common mistake that people push very hard on revenue, but their cost of sales line looks pretty inadequate with high refund rate, high cost to fulfill, access to inventory. You know, some people don't manage inventory very well. And so scaling a business becomes difficult when you haven't figured out how to effectively manage inventory. Then there's the basic stuff, actually, like inadequate financial documentation, bookkeeping, missing documents, inconsistent financial reporting. These are big red flags. And so you might get to an LOI and think that you're about to land your $10 million deal, but the financial story ultimately won't hold up when it's under scrutiny over dependence on the founder. You've got this extraordinarily robust growth hacking founder who could just execute extraordinarily well and hack and hustle their way to a business of the value that you've just talked about. But then a buyer looks at it and says, like, you're a unicorn, buddy. Like, I, I can't buy this business because you are, you are really good at what you do. And I just don't, I cannot accept that when I take over this business, we're gonna be as hacky and hustler as you have been. That's a, that happens quite regularly, believe it or not. They start exit planning too late. And so, you know, they're actually burned out. And they say things like, get it done for me fast. You know, these things will get in the way of an exit. So you can go and build based on what you and I have stated and all the other great recommendations you can get from Everban and other places. But the reality is there's a lot of emotional baggage that comes with selling a business too. So where are you at in your emotional state when you come to exit? Yeah, hopefully that's helpful. There's a few.
- [44:25]
B
And it's important too for anyone, depending on where you are in the stage is you don't have to have all this, all this figured out right now, today. It's more just like, just consider these things, keeping good, good books, good financials. If you don't have good financials right now, welcome to the club. You know, no one really starting a business has good financials, but you eventually need good financials and you need to have your books in order and your and all your financial documents and stuff in order. And you don't need to diverse re diversify your revenue stream on day one, but eventually you need to start doing it as you get bigger and the money gets bigger and it becomes makes logical sense to do those things later on. So you ready for the rapid fire questions, Blake?
- [45:06]
A
Awesome.
- [45:07]
B
What's your favorite business book?
- [45:10]
A
So you know what? I love Black Box Thinking. Have you read it?
- [45:15]
B
No, I've not. What is this?
- [45:17]
A
So one of the, and as everyone knows, one of the few industries around the world that's very, very good at distributing information about how an industry works and how a product works, I. E. Planes is the aviation industry. And so the reason we don't fall out of the sky very often is because there's a great deal of sharing and wisdom around what causes accidents. It's one of the very few industries. The medical industry is very, very bad at this. So black box thinking basically says shared learnings result in better performance.
- [45:48]
B
And this is from Matthew. I'm looking at Matthew Saeed.
- [45:51]
A
Yeah.
- [45:52]
B
Or you.
- [45:53]
A
This really good. Really, really good.
- [45:55]
B
What's one thing that you wish that you knew before starting or operating your businesses?
- [46:01]
A
Yeah, you know, I think that we always get tripped up on hiring. And so no matter how many times I go through the hiring process, I wish that I followed some or sort of reflected on some of the learnings of past bad hires. And so inevitably, you've got a business problem, you want to solve for it, you want to solve for it really fast. And so I, I. Hiring slow is literally the only thing you should consider when hiring someone good.
- [46:32]
B
What does hiring slow look like? You mean like multiple interviews with different people or is it multiple interviews with the same person? What is it in your world?
- [46:39]
A
So you have to figure out the likelihood of this person being successful for a long time at your organization. And so the best you will ever see of someone is in their interview. It's all downhill from there. Now, that's a very, very negative way of thinking about it, but it will kind of hold you in good stead. Remember that person. And of course, anxiety and performance in an interview will factor in here. So just forget about that for a moment. I know it's a fairly flippant comment, but ultimately people will put a lot of work into preparing for an interview where they really want to win that job. The Question for you is, is what you have seen the real version of them? And so how do you put in place a robust test? How do you put in plaster, put in place a robust process? And how do you ultimately figure out the likelihood of this person putting a smile on your face six months after you've brought them into the business? And it sucks when you identify two to three weeks in that you may have made a bad hire. And so I still think one of the hardest things about being a leader, you know, ultimately it's about capital allocation. And most of the time the most substantial use of capital is talent. And so think about how important it is that you get the higher right so as you can free yourself up to do other things. And so as they can add incremental value to the business. Someone's not adding incremental value to the business. You didn't gain anything. And so therefore, C and B graders actually make life far more difficult. And real A graders are hard to find. So therefore hiring is for me just that single biggest thing. And I have this discussion with our hiring managers at Flippa all the time. Wow, you seriously decided on that candidate already? That's fast. Why'd you go so quick? You sure if I asked you what would the number one reason this person was no longer our company six months from now? What are you likely to say? And people are going, you know, they think hiring is a chore, so they make fast decisions and then they rue those later.
- [48:58]
B
Can't say anymore. That's amazing. I think it's all. I think I'm agreeing with you because hiring is increasingly, increasingly been the most difficult thing for, for us as well. We're 45 people, so we're. I would say we're. We're fairly small. We've made a lot of mistakes in hiring. I think we've made a lot of really good decisions in hiring too. It's interesting. I still have not figured out though, and I don't know if anyone has really the formula to always get the A players. I will say the one thing is always true for us so far is that our A players, they hate working with B players and they hate working with C players. So it's my job as the founder and CEO is to remove the B and C players as soon as possible. Because if I don't remove them, then my A players will be. They want to leave. And then pretty soon I'll have a company full of B and C players and no A players. So that's, that's one thing That I, I would say that, okay, that is true for sure. But as far as always hiring the A players, I don't know if anyone so hard.
- [50:03]
A
One thing you know, it's, it's important to ask questions that give you the answers you actually are looking for. And so sometimes people's line of questioning doesn't actually reveal whether that person's going to be culturally good fit. So here at Flippa, we operate very, very quickly and it trips people up all the time. I've had people from some of the great businesses of the last decade want to work here and I've made some bad hiring decisions where I've looked at their backgrounds, looked at where they worked and then decided, well, they're just going to be amazing. How could you not work at Netflix for five years and run growth and not be amazing? Of course you're going to be amazing. And they turn out to be actually pretty ordinary. And so one of the things I often say, you know, for our culture and it might not fit everyone else's, I'm not suggesting it does either, but I'll say what, you know, what's the most you've ever achieved in a 24 hour period of time? And most people haven't achieved a lot in 24 hours because it's actually very difficult to achieve a lot in 24 hour period of time. But it still enables us to figure out whether you're speaking to a person who can make decisions decisively, can execute with very little resource and understands that within a 24 hour period of time, if you tried really, really hard, you could actually get something to market and assess the effectiveness of it. Now it doesn't mean you want to try hard, it doesn't mean you have to move fast because 24 hours is a single day. So what am I going to do and how am I going to get it out the door and how am I going to assess the impact of it? And that will tend to figure out whether someone actually is going to work in our very impact focused culture. Not necessarily the right question for all orgs, just the right question for us.
- [51:52]
B
Yeah, I like that. I'm going to replace this next question with the other question I meant to ask earlier, a little bit off topic, but a lot of customers or a lot of listeners right now are they either sell, they sell marketplaces, they sell on Amazon, which flip I know that, you know, has a lot of Amazon FBA sellers selling their companies. They also sell on their own website and they also sell on Etsy. Amazon, I know you can sell a company on sell your Amazon business website. We know that you, you can sell your own website, whether it's through Shopify, Wix, Squarespace, Everbee Store, whatever it is, we know we can sell that asset. Etsy. Do you guys see anything being sold? Any Etsy shops, any Etsy businesses being sold? And then if so, what does that typically look like?
- [52:41]
A
Not if it's exclusively Etsy and yes, if Etsy is one of the channels. So it's against Etsy's terms to sell a Etsy store exclusively, but of course it's restraint of trade to disallow someone to sell their business. And so if my business is whatever, nice, candles.com and I sell my candles directly and I sell my candles on Amazon and I sell my candles on Walmart and I sell my candles on Etsy, then I am allowed to by law, sell my business. And therefore, as part of that, the Etsy exchange will be allowed and you will need to get in touch with Etsy and explain to them what's going on. And so we see a lot of that. Cody, the short answer is we see a lot of businesses where Etsy is a channel, but we don't allow an Etsy seller who is 100% exclusively Etsy only sell. It's against Etsy's terms that I think.
- [53:45]
B
That'S, that's kind of the answer I was kind of expecting. And many people here would actually be surprised by that answer, probably because they are in the impression that you cannot ever chance for your Etsy shop ever, like, under any circumstance, ever transfer. Like if, if you sold your business to me and I wanted to buy your, your business and you, the candles business, but you, and you also wanted to transfer the, this Etsy shop to me, then I cannot do that. Etsy will not allow that. But you're saying that you, it's not designed that way, but Etsy by law has to allow you to do that. Is that correct?
- [54:15]
A
Yep. I sell 100% of the shares in my business and my business owns the Etsy storefront. Yes.
- [54:22]
B
Cool. And you, you guys, you see this, it sounds like you see this fairly often.
- [54:26]
A
Yep.
- [54:26]
B
Cool. I think it's gonna be really good news for people. Hard to do. And you have to play, like you said, you have to get in touch with Etsy and we all know how that works. But it's actually the same with Amazon.
- [54:36]
A
Like, it's, it's actually not that straightforward with Amazon too. I mean, the reality is all the aggregators of the last few years clearly went through a good time and a torrid time, but at the end of the day they, they. Once institutional capital enters an industry, it tends to become more accepted. But the reality is, yeah, you still have to actually get in touch with Amazon and tell them that you've sold your business.
- [54:59]
B
I know that.
- [55:00]
A
And then it'll work out just fine.
- [55:03]
B
Cool. Do you ever find that people that have purchased their Amazon business or purchase their Etsy and it was part of that sale, that it is somehow shut down after the transferring of things, or is it seem to work out very.
- [55:15]
A
Much, often threats of it being shut down. And so that's why people need to run the process in accordance with an SOP that we provide them, which is basically here is the asset purchase agreement or share purchase agreement. Contact the account manager and or customer support within Amazon or Etsy. Explain to them that you have sold your business. Explain to them that you want to go through the legitimate exchange of ownership and in 99.9% places, that goes swimmingly well, where you just try to log in yourself and try to do the dirty on Etsy or Amazon and transfer without anyone's note, anyone noticing. It can become a bit more tricky.
- [55:57]
B
Yeah, that's, that's why I appreciate the answer to the question, because I feel like that's exactly why Flippa exists. Right? That's exactly why you all exist, because you're specialists in this thing. When you're selling an asset like your business, you don't want to take the shortcuts and the cheap ways to do things all the time. You want to do things right and you want to use a professional. And that's exactly what you guys are. Last question. Who do you think should be a business owner?
- [56:20]
A
Someone who has a passion for something. Someone who has the willingness and desire to solve problems all day, every day for a very long period of time. Someone who is intellectually curious. Someone who puts their ego aside and is willing to do almost anything as required by the business, by the customer, by yourself, to ensure that you can pay the bills and put a roof over your head and. And someone ultimately who wants to do it for a long time. I love that.
- [56:53]
B
Blake, thank you for coming on. Where can people find you? Learn more about you, learn more about Flippa. Who should contact y' all. And yeah, start there.
- [57:03]
A
Yeah, I'd love to hear from anyone who wants to, you know, sell and, or buy a business. So reach out to me on LinkedIn. Happy to say hello, love connecting with people, happy to provide just free guidance and advice. As to how you can go about the process as well. Put you in front of some resources. If you just want to get a quick free valuation or something like that, just hit flippa.com there's a get a free valuation CTA or button there, click that it is free. We'll give you a market comparables valuation based on the data that you provide us and it's a good way to get started and hopefully from there many more exits.
- [57:38]
B
Beautiful Blake, thank you again for coming on. Excited to have you on again in the future and talk to you soon.
- [57:43]
A
Thank you guy.
- [57:45]
B
Thanks Blake.