Acquisitions Anonymous - #1 for business buying, selling and operating - A very profitable B2B Internet Business in the Petcare Vertical - Acquisition Anonymous episode 141

Episode Date: November 16, 2022

Want to receive this listing in your inbox? Signup for our weekly newsletter:https://www.getrevue.co/profile/acquanon-----Michael Girdley (@Girdley) and Bill D'Alessandro (@Bill) talk about a B2B Internet Business in Petcare Vertical. In this episode, we will examine their sales strategy and see if they have any unutilized pricing power, in addition to learning how this deal operates. We found something exceptional in this deal, so we will explain why its growth is delayed. Moreover, we realize something super interesting about this deal. Tune in to the episode to find out!Subscribe to our channel!-----Thanks to our sponsors!CloudBookkeeping offers adaptable solutions to businesses that want to focus on growth with a “client service first” approach. They offer a full suite of accounting services, including sophisticated reporting, QuickBooks software solutions, and full-service payroll options.-----Acquisitions Anonymous episode 141Show Notes:(00:00) - Introduction(00:50) - Our sponsor is Cloud bookkeeping(02:18) - Deal & financials: B2B Internet Business in Petcare Vertical(03:05) - Wait… what does this business do?(04:53) - What is their sales strategy?(06:41) - What does Bill love about this deal?(10:31) - Do they have unused pricing power?(12:54) - Where is the moat of this business?(17:21) - Is there a recurring revenue here?(19:54) - Why is this business’ growth on hold?(20:25) - What are the usual options when you find a reasonably priced deal?(23:28) - What gives us the chills on this deal?(25:52) - Is this a trend that will continue?-----Additional episodes you might enjoy:#140 Let’s SBA the heck out of this deal - with special Guest Heather Endresen#139 Will we make bank with a Medical Equipment Supply Company?#138 See-food but for plants? With special guest Xavier Helgesen Subscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

Hey, everybody, Michael here. Welcome to Acquisitions Anonymous, episode number 14,000. No, I'm just kidding. I think we're on like 140 or something. Anyway, we had a ton of fun today. Bill and I went deep in a deal that is super fun in the pet space and something I've never even seen before. It's actually a consulting and educational service where people come in if they want to learn how to start a pet-based business. So if you want to be a doggie-day. care owner or work in different kind of dog training or cat training or whatever, you come to these folks that run this business. And spoiler alert, their margins are incredible. So with no further do, here is a quick word from our sponsor. And then we jump into the episode. Have fun. Hey, Michael here. Want to talk to you about today's sponsor for the episode, which is cloudbookkeeping.com. So cloud bookkeeping is actually run by my neighbor, Charlie. So I've met. him in person and can attest that he's a real human being and a good person. And what cloud bookkeeping does is offer a full suite of bookkeeping services all in the cloud for you around

QuickBooks and other technologies that you're using as a small business owner. So if you're interested in getting the bookkeeping part of running a business off of your plate and focusing on running your business, Charlie and his team are one to call. They can put together a bunch of other stuff in terms of helping you manage and grow your business besides just bookkeeping, sophisticated reporting, definitely helping you get your QuickBooks online set up in the right way, and a number of things around payroll as well. So definitely know them and recommend them. If you want to find out more about Cloud Bookkeeping, you can go to their website at cloudbookkeeping.com, reach out to Charlie. I know many of you have and see if he can help you make your running

your business easier and more fun by letting them help with a lot of the bookkeeping solutions. And when you call, mention this podcast, it would help us and help Charlie know that we're supporting him as well. So thanks a bunch and cloudbookkeeping.com as the sponsor for today's episode. All right. Okay. So we got a killer deal here. So this is like, I think we talked about this before the show.

This is writing like 14 different micro and macro internet trends. So you're going to read it, Bill? I'm going to read it. All right. This one's cool. I saw this. I said, we got to cover this on the podcast.

So the header is B2B internet business in the pet care vertical. Huge margins, training and advisory services for pet care companies, parentheses, groomers, sitters, trainers, daycares, and more. So this is a website closers deal. And it says the company has discovered there's large demand from entrepreneurs that are eager to launch pet-related businesses. If there's one thing Americans truly cherish, it's their pets. about 70% of U.S. households or about 90 million families own a pet.

So basically what this business offers, it's no surprise these entrepreneurs see potential for great success in operating pet care businesses. That's given this consulting firm an expanding client base eager to learn the best techniques for operating in the pet care service industry, which has been growing for the past three decades with over 30,000 service providers in the U.S. alone. This company offers a one-year consulting program for $19,000. And more than 90% of those clients have renewed for a second year in 2021. The company is enjoying highly growing, highly growing monthly recurring revenue for a client base that includes nearly 1,400 active clients and a client list that exceeds 8,000.

To get a better understanding of how this company built up such a strong reputation, let's review their history and achievements. Launched in 2013, this company set out to become duty experts in staff training and business consulting for the pet service industry. As their services have expanded, so is their audience and now includes doggy daycare owners, boarding facilities, groomers, trainers, and veterinarians. Their clients are independent business owners, but they have also cultivated strong relationships with franchisees and corporate owners as well. Their signature business consulting programs include basically online courses that walk a new entrepreneur through the five stages of opening their business.

There's another one for established businesses that want to grow, and they have a year-long profit network that seems like people join for companies eager to scale. They have an online membership program with a library of blogs and videos. They have subscription courses, which are their best-selling products. They've been in business for nine years. Company is debt-free, and it profits more than $1.2 million. Its monthly subscription programs generate 55% of the company's revenue. High profit margins.

This is really long. Let's see. Their sales strategy is sell primarily through email marketing, employing a digital marketing campaign that brings clients to their email sales funnel. This is focused on selling the company's staff training memberships and business consulting services to generate recurring revenue with an email database of 8,200 people, roughly. So the business does gross income of about $1.6 million and cash flow of about a million dollars.

I know it's at 1.2 in the description. But how's that for margins, baby? Million bucks to EBITDA on 1.6 of revenue. And they are asking, I'll say just $4 million. So it's exactly four times and says they only have two employees. So this is another pet deal. Michael, what do you think? Okay, so let me make sure I understand exactly what this business is because this is a new

one to me, which that says something. I've looked at a lot of businesses. So basically they market themselves through a lot of SEO and that sort of thing to people who are interested in running a business in the pet care space. And those can be pet sitters, doggie daycare people, all that kind of stuff, right? So that's, do I have that first step, right? Yep. Okay. And then once they get those people as leads, they run marketing campaigns against them to get them to start to sign up for courses and recurring revenue customized stuff. And some of that is like, here's a five step thing to start your own doggy daycare or to start

your own pet sitting business or all that kind of stuff. And then at the end, they have some sort of profit network for companies eager to scale. And I guess that's capitalized. So it must be some kind of thing. Yep. I think that's like the trademark. So this is for like existing companies. So this is what I love about this business.

They've got the, I want to start a pet service business. But then they're also like, well, there's a ton of them out there already, we need a, you know, a program for people who already have one and want to get bigger. So they got an offering for that too. Yeah. Well, and you got to like that because there's a lot of businesses and I'm in some where it's like there's no recurring revenue. It's like you're eating what you kill to use kind of the laws of like the Sahara language. But in this case, like they get you open and then once you're established, they also start to sell you stuff to help you keep growing and be successful over time, which that's kind of beautiful.

Like, I love that aspect of it. Yeah, it says their one-year consulting program is offered at $19,000 and more than 90% of those clients were new for a second year. That's pretty freaking killer. What I can't really tell, and I'm sure it's probably both, like they talk about it in some sentences as a consulting business and in some sentences as an online course business. And like, let's be honest, the best online courses. are kind of half consulting, half courses.

You know, you get to talk to them once a week. You know, there's this whole continuum from, you know, on one end, like self-serve, self-paced, you watch the videos, you know, whatever you want, all the way up to like one-on-one coaching and consulting at the other end. And you kind of turn the dial between how much interaction you get, you pay more money, you get more interaction with live human beings in between. Yeah. Well, I don't, I think we've talked about it.

Mirko and I are building a course for holdcos because I'm sick of answering questions for free about hold code for people. And that's one of the things we've kind of debated, like, how much of it should be just like self-service. And then how much of it is like, okay, like how much of my time is involved? Because that's the other reason, like some of the cohort-based stuff, like this can be pretty good. And I like teaching and stuff like that. But I didn't want like a fifth job. It doesn't sound right good to me. So anyway, I think that's a good point. And also that maybe I apologize if I just started plugging my course. Please buy my course. I need the money. Well, what you got to do is you got to productize it, right? Like,

you can buy the base level. You just watch the videos. You buy the mid level. You get put in a cohort. You know, this is why courses like launch on a date and then close and they put everybody in cohort. They all get on Zoom's with you. And then there's like the maximum, which is like you get all the videos. You get to be part of the cohorts and you get weekly calls with Michael. Weekly call. Oh, so like, oh, you scale like the weekly calls. I like that idea. Yeah. So you can do that. Like Michael's on a weekly call with 10. other people at once, or there's like the Cadillac where it's like one-on-one and like they've paid you enough that you're happy to do it. Mirko's taking notes right now. That's what I love about

Mirko. Mirko is coin operated. If you start telling Mirko how to make more money, he's taking notes. And this is why I'm a terrible, I'm a terrible guru because I just gave you all that for free. And everyone else listening. That I think it's super genius. So this business, so like, look at here's business, right? This is classic, classic AA. So all right. So these guys, you know, what I love about this is they saw, you know, pretty early. Actually, it says they started in 2013.

And they saw a trend, which is pets are coming, right? Everybody's getting pets. There's been massive, massive growth in pets in the United States. We talked about it on other episodes. And they basically said, hey, let's sell picks to the miners, essentially, right? Let's sell courses. There's going to be a ton of people wanting to get into this industry. Let's help them do it.

With a service-based business at bonkers margins, with B-to-B customers, which means you can charge more, right? That's what they're making a million bucks a year. You know, I will say, like I love everything about the business model. Do you think this business should be bigger, Michael, than a million and a half in revenue? It's really interesting. No, I don't. No? I mean, I still think there is just such a small percentage of people that are capitalized well enough to do to even have like, let's say you're going to get in the pet sitting business.

That's their average client value is 851 for a lifetime client value. Like, most people don't have that kind of money. And then there's just this whole percentage of people that just like, they refuse to go pay for help. Maybe I'm in that bucket too. But I think, I mean, I think I'm kind of surprised. It's actually as big as it is in terms of that. I feel like this should be freaking giant. I mean, I have seen behind the curtain of some online course businesses that are printing $10 million a year of revenue on in nicheier things than this.

I mean, this is every dog walker, every pet, pet anything in the United States. if you want to open a pet business, like this, that's your market. Sure. Okay. I mean, their email database is only 8,300 subscribers. Like, my email, my email mailing list has more than that. And all I do is post on Twitter. Are you making a million dollars a year?

You should start monetizing. These guys are pretty good. Plus or minus a million dollars. Yeah, I think that's a great point, Bill. Like, now that you talk about it, like, why? isn't this bigger? Because this like 4,700 monthly visitors to their website, like, that's not much. That's like a bad tweet. Yeah. Look, yeah. So I am falling more in love with this business as we do it, right? Because the margins are great. It's in an awesome industry, right, with big tailwinds. A lot of

people want to get into its industry. And it seems like it's starting in 2013, right? So I'm going to go out of limb here and say like they're probably, they seem to be semi-digitally savvy, but this is probably not like guru level, like full-on, big Twitter following, you know, like digital marketing scale. Like this business, I just think this business should be bigger, right? Yeah, not everyone is capitalized to open a doggy daycare, right? That's, I don't know how much the build out is, a million bucks or something. A lot of people are capitalized to like start your own side hustle as a dog walker. like here's how to use wag.com, here's how to like do it, you know, $99 self-paced course. You know, you got to segment out the market.

I would think if, you know, I don't know what this business. We didn't sign an NDA. I don't know what this business is. If it has a good brand and a good reputation in the marketplace, you could buy this thing and stratify it out, right, all the way down from $99 one time to the $19,000 one year course that they're selling right now to even more, right? that includes we fly out, help you pick a location, whole thing, it's $100,000, right? And you freaking nail it.

You know, you could stratify that market. This business should be way bigger. You should also be, by the way, Michael, you've got up. I love this. You should be selling franchises in this business and getting a kickback. Right? I mean, there's just a million ways to monetize beyond just the course fee. It's, I'm still kind of lost.

I mean, I haven't seen where they are on this. I'm looking on the first and second page of Google. And I was like, well, maybe I can guess which one it is. And it's not here at all, which kind of makes sense, right? They only have 4,700, like, website visitors a month. I mean, the other thing that's just like, I think a stupid, simple way to, like, to turbocharge this, like, get on Twitter, become pet business guy and just start writing threads about pets, like, in the pet business. Like, I think it would kill just like car dealership guys killing and. Oh, car dealership guy.

Nick Huber, self-storage, like, that's exactly how you do this business. But with cute dog. The cute dog. I mean, Nick is cute, but he's not a dog. He does, you know, like I looked at my headshot and I specifically chose one for Twitter and social media that was very kind of happy, you know, like, you know, like huggy. It is interesting to see what kind of poses people choose. and Nick, Nick, who I love, because he's just such a unique personality and a really nice guy,

chose Blue Steel, right? And it's just like, but when I put my potential headshots out on social media, I was like, hey, give me some feedback. Everybody was like, no, Blue Steel's terrible. Don't do that. That's not you. And I was like, yeah, pretty much, I'm definitely not Blue Steel. Yeah, well, your vibe is different.

You're like everybody's favorite uncle on Twitter. Are you saying I'm old? No, a young uncle, right? You know? Fun. Yeah, uncles can be young. I'm an uncle. Hey, don't know.

I mean, I think the other parallel here is you look at people who've done similar kind of businesses in like the gym and personal training space, which is, I mean, arguably a similar size, I think, to pet spend now. And those businesses, like, you know, I think Alex Hormosey, that guy that's on Twitter, he comes from that space. like where those guys figured out how to get even more kind of, well, they're basically, where they all started to make real money was when they became lead gen businesses for gyms, right? And they just like did SEO at scale and then turned over leads and said $150 for each one. You know, it doesn't appear that they're doing that here. Like it's kind of their SEO, best we can tell is pretty weak sauce. You know, you can just tell from the stuff. Like there's such a lot of opportunity here to really take and do this. But here, I guess my question, Bill, is I can pay

$4 million for this, which basically the assets look like they've built up some like content, which is great. And they have some recurring revenue, which is great. But they don't have like a big place where they've put themselves, you know, the owning positions in SEO. You know, they, I would assume a lot of these customers are not that sticky. Like, what am I actually, am I actually sure that I'm going to get four years worth of cash flow out of this business or am I better off like, like trying to compete with these guys? You're making like a buy versus build case here? I was just kind of asking a really bad question to see where you took it.

So, I mean, I think like it depends. You're right on, right? It depends on the quality of the assets. Like if you get in here and they've got incredibly well produced and built out, you know, courses that, you know, that are very well structured and well filmed and kind of evergreen, you know, and they've got, I think they said about 50% of the revenue is recurring. So they got, you know, $750,000 of recurring revenue at a 66% margin. So you got half your EBITDA is recurring. You know, that's the other thing that's probably like the zero fixed costs in this business,

right? So that means you're, you know, you got a decent chunk of recurring revenue, which is good. You got a community, right? It sounds like this profit network is probably more like a community of people swapping stories, you know, that can be sticky. That's where I would, I would look here for kind of non-replicable assets, is if content was very, very good and if the community is very, very active. If it feels more like, oh, this is consulting, you know, and we got to do a lot of one-on-ones or the content's not so good, then I would say that my most valuable asset would be, do they have a bullhorn? Do they have a way to attract a whole bunch of people to at a huge social media presence. If not, I'm hiring you, Gurley, to tweet about it, and we're going head to

head. That'd be $2,000 a month. Yep, exactly. Oh, man. Yeah, the whole, the whole, like, article were some, you know, tech bro, I assume you saw it this week, the whole thing where some tech guys, VCs are paying, like, tech bros to write their tweets for them. Like, all of that works really well to have some, like, Gen Z guy, you know, tech bro goes to write your, your memes for you, when you're a VC, except for when the founder walks in and asks you about the meme and you go, huh? You know, as you walk around your Ferengamo, you know, loafers, Mr. Gen X. Like, it just doesn't work.

Like, it's just such a bad idea. Anyway. And then, man, the ghostwriting industry, like, I've dug into that. I've talked to a lot of those people. Like, that is the biggest bunch of liars. Like, it's just 100%. Like, and then, I mean, I get hit up by those. ghost writers all the time. And they're like, wait, so, yeah, I have 200 followers on Twitter.

You should pay me $5,000 a month. I'll grow your account. And it's like, okay, we'll show me which one you did. And they won't, they won't show you one. They can't say, right? And even if they say, you're like, well, then prove it. And they're like, dur, I'm a ghostwriter. Yeah, prove it, right? I'll sign in India. Or call me when you build your own account up to one that matters. So, man, there's just so much opportunity to grow up. So I guess the question is, why haven't these guys done it because the stuff we're laying out here for growth like better SEO better social media presence like we're not seeing the strong social media presence i mean it's not if they say they have a strong social media presence and then their website gets 4700 monthly visitors that is not a

strong social media presence let's be clear the broker says it's a strong social media presence right this is website closers yes this is website closers so yeah right right right right right right I don't know. If I had a guess, or I'm trying to guess why this isn't bigger, it might be that it's priced way too high. I mean, they said they've got a $19,000 annual product. As you mentioned at the top of the episode, they could be pricing out. Like maybe they launched a $99 one-time pop. This thing might triple.

They might be underestimating how big the lower end of the market is, just a hunch. At the same time, though, I then see I've got 90% of those clients were not. newing and I go, well, maybe it's price too low, you know, right? So I bet they've probably not done really rigorous price segmentation on the market and figured out who you can charge how much and really push those price points. And I think they probably don't have the reach they claim to, or that website closers claims that they do. Otherwise, I just think it would be bigger. And they clearly don't have like, you know, strip mall guys, or car dealership guy or like that kind of bullhorn on Twitter or like to attract people.

They probably don't have like a paid marketing engine on Facebook, you know, where they're actually doing real digital marketing lead gen. If I had a guess this thing is grown via word of mouth. And that's why it's not bigger. Yeah. So great. I mean, a great sign. If you go in and you're somebody that wants to own that top of funnel, like you could really

do well with this. I think you could. The question is, do they have assets that are worth $4 million or should you just go compete with them? You know, one thing I did pull out of here is they seem like they have a network of coaches. It says today the coaches who are part of their training programs are current owners of or have owned their own pet care facilities with professional certifications in the pet care industry. It also says they offer staff training programs. So basically, if you have a doggy daycare and you want to train your staff, staff training programs that teach, pet care staff about canine body language and how to work safely with dogs and how to onboard new

employees faster with reduced training hours. So like if this content, like if they really have like a network of people who are creating this content for them, I mean, this is semi-technical content, right? Like dog body language, you know, how do you deal with aggressive dogs? What do you do when this happens? You know, all that stuff. I don't know that I could just like pop in front of a camera and make this content. You know, to compete with these guys, you're going to need to source the experts, you know, pay them, film it. You know, like, this isn't like how to start a business online where like I could just like hit record and boom, here we go. You know, this feels a little bit more technical. You might even need some veterinarians. You might need, you know, you need people

with cred here. So there might be a moat in the content. That would be the thing I was focused on. In the end, you know, in the end, I think this business is actually pretty fairly priced. Like, I don't feel like it's too high. I don't feel like it's too low. I don't feel like it's a screaming deal based on what I know. But, you know, digging into it. Oh, what do you say? Oh, so yeah.

So I agree. So actually that is the biggest red flag about this business to me. Because it's website closers who, you know, let's just say they're a little sensational. This is going to be the most meta explanation ever. I'm very excited about this. I see where you're going. Go ahead. So it's website closers.

So it's a broker that is, is that knows how to sell. Let's just say that, right? And they website closers typically sells e-com businesses. They sell e-combs businesses all day long at four times cash flow. They run across business like this. I would think they're savvy enough to know, like if this was actually, oh, damn, 66% net, EBITDA recurring revenue.

Like, they're the type of broker that would smell software evaluation, right? And price it as such. But they haven't. right. So, you know, either one of two things, when I see this, when I see a deal that's misprice like this, I go, okay, like one of two things is going on. Either the broker doesn't know what they're doing, which happens sometimes, right? You get an unsophisticated broker that's working outside their industry. They don't realize what they've got and they price it low. I don't think that's the case here, given that it's website closers, right? And they are

professional business sellers, you know, with full throated lungs, right? I think they know something that says this is worth 4x. I'd like to find out what it is. But it seems too cheap for as good as the description reads, if you ask me. I love that analysis. I think that's a good place to close on this one. If somebody digs into this one in the audience, please let us know. I think it's a great fine, Phil.

Super interesting business. And like, man, just so cool how many businesses I feel like I'm running into in the last month where it's like $2 million in revenue, $1.2 million in profits. Like, there are so many cool opportunities out there. And, you know, every time I'm involved in a business doing 20% EBIDA as percentage of revenue, I'm like, this sucks. No kidding. Or, dude, try an inventory-based business that has working capital on top of that. You know, like, damn.

At least you're online. It's crazy. So this is, so you bring something up, and I think this is interesting because I agree, I'm seeing more. You don't see them all over the place, right? But it feels like you've seen, I've seen a little bit more of these, as you've. mentioned. I wonder slash kind of think this is a trend that will continue. Right. And more and more remote work drives this, right? The gig economy drives this, you know, the internet and technology drives this. The more automation and the fewer humans, the fewer humans in the United States

who are in huge salaries that you can have, right, the better your margins get. The more you can automate the business, your incremental, you know, your marginal cost goes to zero, right? And that was classically true of software. But I think you're starting to see it apply in some other places now technologically enabled in a way that it hasn't. And I think that's a trend that'll continue. 100%. I love it. All right, guys. Thank you very much. Good job, Bill. And if you are a listener and you enjoyed today's banter, including all of my off topic comments, please open up your Apple podcast app and write a review and give us something that rhymes with Rive Stars. And we would really appreciate it as we continue our never-ending quest to not only break even, but be the number one

entrepreneurship podcast in the world. I don't know if that's a shared goal bill, but I think it'd be awesome. Yeah, we should win. Whatever winning is, we're going to do it. That's right. All right. See y'all next week.