Acquisitions Anonymous - #1 for business buying, selling and operating - Do you want to own a union-based business?? | A Commercial Roofing Company and an eCommerce Retail Brand - Acquisitions Anonymous Episode 78

Starting point is 00:00:00 Welcome back to another episode of Acquisitions Anonymous, the internet's number one podcast about buying and selling small businesses. I'm here today with my co-host, Mills Snell. Michael is on vacation, but this should still be a good one. Anyway, we can talk about San Antonio poorly behind his back if we want. Mills, this should be fun, just two of us. Yeah, but I love it. I love it. Well, we got two cool deals today. I think they could not be much different, a commercial roofing contractor, and a,

Starting point is 00:00:30 low-cost GoPro drone. So Mills, if you would please kick us off. We want to start with the word from one of our sponsors, and then we'll get right into the first deal. Yeah, yeah. So sponsor today is Beyond Eight Figures Podcast. It's Beyond Eight Figures.com. It's a podcast where entrepreneurs and experts speak up on the topics

Starting point is 00:00:51 related to business and life in general. Each week, the host Andrew Lawrence is joined by interviewees from different backgrounds to discuss what helped them get ahead while succeeding at entrepreneurship. You'll learn how these people achieve success by exploring their personal journeys along the way, both professionally and emotionally. So make sure you check them out. And I've listened to a couple episodes. It's really fun.

Starting point is 00:01:14 It's generally more positive than the Acquisitions Anonymous podcast where we typically just poop on deals. So give those guys a listen. And thanks so much for supporting the podcast. Thank you so much for to be on Eighth Figures for sponsor. us. Really positive group of guys. They are available everywhere podcasts are sold, including Apple, Google, Spotify, and Stitcher, as you can see on the screen if you're with us on YouTube. All right, Mills, you've got our first deal today. What we got? Yeah, so this is a commercial roofing company, which some of our regular listeners will know that I am part owner of a commercial

Starting point is 00:01:48 reefing business here in South Carolina. So this one is a fun one. I think we've had this one in our parking lot, as we call it, for quite some time. And today's a good day. And, I think to talk about it. So it's a commercial roofing company with 90 employees. They have over $14.5 million in sales. Their project sizes range from $75,000 to $3.75 million. The annual cash flow is just over $3 million, $3,057. The asking price is $13,425,000. The revenue, I'm guessing this is in the most recent year, whenever this was, was 14,769,000, and again, 3,057,000 in cash flow. So that's 21% profit margin. The business is located in Pittsburgh, Pennsylvania, with a 75-mile radius outside of Pittsburgh.

Starting point is 00:02:45 And this business, they are predominantly W-2 employees. So they've got 90 total employees on W-2, but 15 of those are 7.5.5. Alleried support staff and 75 or hourly craftsmen and sheet metal workers. They say that they use subcontractors as needed, but 95% of it is self-performed. The reason for sale is other endeavors. Not sure exactly what that means, but it sounds kind of ominous. They rely on word of mouth referrals, having a strong foothold in that area, and long-standing relationships.

Starting point is 00:03:21 So a couple things here, you know, they focus on larger industrial and institutional products. They've been around over 20 years. It's all commercial. It's about 50% of their revenue is re-roofing, 40% new construction and 10% maintenance. They, you know, again, they self-perform. They sub out only as needed, which we can talk about a little bit. And they do work for, you know, roof consultants, which are a fixture of our industry, general contractors and private owners. They say that it's a highly sought after business in their

Starting point is 00:03:58 area. They currently have 28 jobs going with over $9 million in assets. The broker says the bank loan is nearly 70% collateralized. It's a mixture of ding, ding, ding, union and non-union. The union side is making up 80% of their total sales and 60% of their current projects. They're generally the largest employer on a month-to-month basis in their union. That might be the sheet metal union or it may be that there's a roofing union in that area. I'm not sure. They employ an average of 44 roofers and 15 sheet metal workers per day with a fairly even split of new construction versus renovation and mostly in the public sector. So if you're in this part of the world and you want to do publicly funded projects, there's almost always a union component. So you, you know, you may look at it

Starting point is 00:04:51 from the outside and say, I don't want to buy a union business. But if you want to own a roofing business in this part of the world, in this part of the country, it's kind of unavoidable. You have to have a union component. Again, it's priced at 13,425,000. So that's a little over a four times multiple. And maybe we'll leave it at that for now. And then we can delve into things. a little bit more. So this one's, this is interesting Mills. As our resident Roofer, I have a lot of questions here for you. So these guys are, they said their union side is 80% of revenue. Is that typical in this industry that it's mostly union? In this part of the world, it definitely is. So like we have zero union labor, you know,

Starting point is 00:05:37 in South Carolina. And most of the Southeast is, you know, right to work states. So again, if you want to do publicly funded projects, so if you want to work on schools and hospitals and, you know, public facilities like, you know, baseball stadiums or something, you're going to have to be willing to have union labor because most of those contracts, you know, have some clauses, have some components that require union participation. So you may say, hey, look, I have to own a roofing business in Pennsylvania and it can't have any union labor. Well, it's going to be a very fundamentally different business. It wouldn't really be able to focus on larger projects like the ones that they say they do. Okay. And they say that they've got 90 FTEs and they self-perform

Starting point is 00:06:23 95% of their work. Is that generally good? Yes. Yes. That's very, very good. Now, it's good if you look at the, like just at the headline number. The devil's in the details always, but having your own captive labor ends up being worth its weight in gold. because if you're relying on subcontractors, and we've talked about this with a number of other businesses, it's problematic. You don't have as much control. I mean, even by the letter of the law and the IRS,

Starting point is 00:06:54 you literally have technically very little control over how your subcontractors perform work. But the quality just tends to suffer because the incentives aren't well aligned. The subcontractors are going to get paid based on production. Hey, you're going to pay us a certain amount of money to put this roof. on. And so the faster we do it, the better it is. The subcontractors rarely have a brand. And so they will be, you know, typically there's a one to two year workmanship warranty for most construction projects, meaning if anything goes wrong in the first year to two years, we have to come back and fix it as the contractor. And then, and roofing is largely warranty centric work, then there's like a 20-year

Starting point is 00:07:33 warranty, you know, that most people are buying. So if anything happens in those subsequent years, the manufacturer is getting involved. The point being, When there's an issue, the sub is long gone, and it's your brand that's on the line. And if you're doing subpar work, manufacturers don't like that. Customers don't like it. General contractors don't like it. And at the end of the day, it may not really be you who's doing it. Interesting.

Starting point is 00:07:57 Yeah, that's great points. So these guys, they're going to do $14 million in sales. They've got 28 jobs that are currently in various stages of progress, which means their average job size is about half a million dollars. Is that a big roofing job? Is that a small roofing job, average? Well, that's a good question. I mean, you know, to put like a new roof on a gas station might be $25,000.

Starting point is 00:08:21 To re-roof, you know, a 50,000 square foot warehouse, you know, it just varies. It depends on the conditions. But my guess is that, you know, there's a really big difference between, you know, the average and, you know, and the median on this. I mean, they probably, they mentioned a job as big as 3.75 million. that is probably the biggest job they've ever done, just given where they are in total revenue. My guess is that you have a couple of really big jobs, especially because they have union labor, and then they have tons of service work, right? Those are $500, $1,000 calls. And then there's probably lots of small roofs that are, you know, $50 to $100 to $150,000.

Starting point is 00:09:03 But that's, it's very, this is very normal. Nothing about their job sizes sticks out to me, except that they probably took on a ton of risk on that $3.75 million job. And I'd want to know how did that project go? What did you learn? Where did you hit your face on the pavement? Did you staff the job appropriately from a project management in an estimating standpoint? You know, just on a job that big, their margins are going to be really, really compressed. So the fact that they're, you know, stating 21% net margin, that's definitely top decile margins for commercial roofing.

Starting point is 00:09:38 I'd really want to press on that, you know, a good bit harder to find out how real is it. For what it's worth, looking at the financials in the document here, that is an SDE margin, not necessarily an evadal margin, and they're adding back $430,000 of owner's wages. And then they have a negative replacement cost of $80,000. So basically, this assumes that owner can replace his $431,000 salary with an $80,000. W-2 employee, which doesn't take a rocket scientist to guess that that might be a little cheap for the caliber of person you're going to want to oversee your $14 million construction company as basically CEO.

Starting point is 00:10:20 And, you know, this says that there's three owners here. One of them's absent and two of them are active. I mean, these are not the types of businesses. I'm living through this, but these are not the types of businesses that transition overnight. You know, you can't just say, hey, these two guys are gone, they're out. You know, the knowledge transfer happens. you know, simultaneously, it doesn't happen. There's got to be a massive overlap between the former owners and the new owner being there. And you're right, $80,000 isn't going to cut it. Probably not even

Starting point is 00:10:47 twice that amount to get somebody confident. I do commend them. They do say in their document here, the seller training period is six to 12 months, which a lot of times they will say it's six to 12 days or something, right? See you later. Yeah, two weeks, right? But six to 12 months here seems like, you know, they understand that they're going to need to pass you the reins over time, which I think is good. There's also another interesting trend in their financials. We don't have full detail, but we do have the full detail on the adbacks, no detail on the actual expenses. But the ad backs, the depreciation line in their ad backs goes from 45,000 to 49,000. And in 2020, the year that they're selling, it jumps to $305,000 of depreciation, which tells us.

Starting point is 00:11:35 me, they probably just bought a bunch of equipment and have begun to depreciate it. You know, this is a $250,000 jump in depreciation expense. So let's assume, I don't know, the useful life on a truck is 10 years or something. So this means they just bought two and a half million dollars of equipment, which I think this is a really good thing because a lot of times when we look at these deals, they go, oh, we have $9 million of assets. And we go, well, yeah, that's like the price you paid for them. They're fully depreciated. They're probably, you know, rust buckets, right? But in this case, I can estimate that at least two and a half million of their $9 million on assets are probably pretty new, right? Yeah. And it depends on what they bought,

Starting point is 00:12:15 right? I mean, it could be that they bought, you know, really heavy equipment like dump trucks and, you know, material handling, you know, things that basically forklifts that put stuff on the roof, or they could have bought, you know, a bunch of pickup trucks, a fleet full of pickup trucks. So what they bought, I think, is also important. But you're right. That, that, reverse engineering I think is probably going to be pretty accurate. And, you know, they just stroke the checks for it. They want to be paid for it. I don't think we have a balance sheet. I wonder if they, you know, just paid cash. We don't have a balance sheet. I wonder if they paid cash for that or, you know, if they're if it's heavily financed and now there's debt on the company's

Starting point is 00:12:54 balance sheet to offset it. Cash mills because they're not adding back any interest expense. There is an interest expense add back a line item. it is $1,000 or negative $1,000, whatever that means. So I don't think there's a lot of debt that they're servicing, which is good. I mean, they probably own these assets free and clear. So, Mills. Let's talk about some of these adbacks real quick, Bill. Yeah.

Starting point is 00:13:17 I mean, people like to beat up on ad backs. Some of these I think are actually, you know, real and good. You know, $60,000 a year auto expense, $5,000 a month. If you have three owners and they all keep brand new trucks, you know, or they do this to, I mean, that probably falls to the, you know, the bottom line, right? Yeah. You're not going to have to spend $5,000 a month. You know, their pension, you know, life insurance, like they probably overfunding, you know, they said it's $5,300 a year for three life and disability policies for the three owners. Like, I like these kind of adbacks because

Starting point is 00:13:53 they are not going to have to continue more than likely, right? Some big line items like that. The fact, though, that they say on meals and entertainment, they spend $109,000 in 20,000. I'd really want to know. That sounds like maybe you took all your clients on a really big trip somewhere and it was really expensive. Not like your trips to Chick-fil-A every Monday. Right. But like if you took your clients, that's not necessarily an ad back, right? That's kind of a cost to go to business. Right. If this is just a massive, that's a marketing line item. Yeah, exactly. A lot of people tend to just add back. They go, oh, meals and entertainment, that line item is an ad back. Well, that a line item is not an ad back if those meals and

Starting point is 00:14:31 entertainment are driving your revenue. There are tons of businesses, right, that operate on handshakes and take it to the baseball game and all that stuff. Like, that's normal. Yes, yes. Or like, what if they said, I mean, this is not the industry that it would happen in, but hey, we buy all of our employees lunch, you know, and that's why it was $100,000 a year. And hey, by the way, now we're going to stop. You know, how do you think that goes over with your, with your employees if you're stopping buying lunch? Like, right, right. So Mills, at a very high level, this looks like a damn good roofing company. Is it not? Like what, like what scares you about this listing? Uh, I think that the, the union labor component is just very, very difficult because you're going to, and there's

Starting point is 00:15:13 people who have done this, some of them active on SMB, Nick Fidelity, bought a roofing business with a union labor component. And it's there, you just are going to inherit some pension liability associated with the union. The flip side of the difficulty, and it's going to make the business harder to sell the next go round, right, whenever you're ready to be done with it. But the flip side of that is if you need more skilled labor, you just call up the union hall and you tell them, hey, look, I need this many journeymen, I need this many apprentices, like put them on, you know, put them on my jobs. And your skilled labor is theoretically easier to solve for. But it's just a, you know, if it's your first transaction, it's very, very difficult to buy a business that has a union component.

Starting point is 00:16:00 And that's why if you look at most, you know, sophisticated buyers who do this time and time again, they just avoid them, just kind of flat out avoid them. It's too, it's too problematic. So if you did want to buy this business, I imagine there is a point, there's a whole section of your diligence checklist around the union relationship, right? And the pension and all that stuff. So can you kind of unpack like what you would have to diligence in working with the union? What would you want to understand? man it's really difficult because a lot of it i mean this kind of feels like some some conversation you'd be having in like the 1920s or 30s you know but you're there's a lot of politics involved

Starting point is 00:16:41 they say you know we are the number one employer at our union hall um you know that maybe creates some sway so to speak but um you know it's it to me there's a lot of gray area there and even if you right even if you get it all ironed out all in black and white hey here's kind of our labor rates, here's what we're anticipating the labor rates to be. You don't know how long the labor rates have been what they are today and how long they're going to continue. Those are usually kind of multi-year agreements that are being negotiated. There's a lot of detail that you would want to get, and you may not be able to get it all right away. So you think about the, you know, the sellers, they have a very tricky relationship with the union.

Starting point is 00:17:30 They rely on them, but they are also at, at odds with them from an incentive standpoint. You're not going to have two conversations at the sellers and say, hey, it's time for me to, you know, get in there and start talking to your union contacts. I mean, it's very, very difficult to go down that path. And I would have to defer to somebody who's done it firsthand about, you know, the nuances of how they navigated it. Yep. I would understand. You probably expect you want to understand those pension liabilities, too, which is interesting

Starting point is 00:17:58 that they're adding back pension expense and it's a union business. I wonder, though, if that's just, I wonder if that's just the each of the owners, because the detail is, you know, alluding to a 401K, and it kind of looks like they're just maxing out their 401ks for these three guys. Okay. Maybe that's it. anything else to add on this roofing business before we move on in the next one? This is something that we may have mentioned on another episode, but it's impossible to know from the outside looking in, but inside the roofing industry, it's probably the worst time in, you know, modern history to buy a roofing business from a supply chain standpoint.

Starting point is 00:18:40 The lead times have gone from two weeks to 50 weeks on a lot of materials. And there's no way that you could look at this and know that. there's no way that you could, you know, even in conversations with sellers, I've talked to some people who have been trying to buy and have bought roofing businesses. And they're like, yeah, you know, my sellers say it's not a big deal. They're navigating it really well. You know, I'm sure they are, right? They have every reason to tell you that it's not a big deal. But you want to try and triangulate, you know, around the industry as much as you can and do some due diligence that's not just coming from the people who have every incentive to make you feel warm and fuzzy about buying something. So, you know, reach out to other folks in the industry to find out what's actually happening inside. How, you know, how are things going? Where is this industry in its natural cyclicality? Because I think if you actually talk to some people who know right now would be just hands out, it would be the worst time to buy everything business.

Starting point is 00:19:35 Be really, really hard. So talk to operators network around. This is like when you hire somebody, you don't just call the references they give you. Like you get backdoor references, right? It's kind of the same thing. talk to somebody that's not the broker or the seller about this industry. Yeah, exactly. And there's trade associations, industry associations.

Starting point is 00:19:55 You can do that. And you don't have to tell them the company you're looking at buying, but just try and poke around as much as you can. Yep. All right. Makes sense. Cool. All right.

Starting point is 00:20:05 So this next deal, let's move on in the next one. This one is pretty cool. This came to us from a listener. So this was submitted by the owner of this business, who is trying to sell it, which is pretty cool. And he explicitly authorized us to share all of this information. So we are not so, acquisition is not so anonymous on the second deal, but all with the permission of the seller.

Starting point is 00:20:28 So this is pretty cool business. I'm going to put it on the screen now if you're watching along with us on YouTube. This business is called Air Video. And if you're not watching along with us, it is basically a Nerf football. It has, it's like a nerfy football-shaped thing with wings on the back, right, with like a tail on the back and you mount your GoPro. There's like a socket that accepts a GoPro on the front. So you can throw the Nerf ball essentially and get a really cool shot with the GoPro. The owner describes it as basically a poor man's drone, right? If you want like that type of drone shot through the air,

Starting point is 00:21:04 you can throw it. And on their website, they've got a couple examples. Air Video.com, A-E-R-Vidio.com. You can kind of see the types of shots that they can produce, which, which is pretty cool and do sort of replicate drone shots on the cheap. So the owner of this business sent an email, he said he started in 2016 in the Netherlands. It's now based in Germany. It was designed to be a cheap alternative to a camera drone. Initially did it on Kickstarter. Did really well on Kickstarter.

Starting point is 00:21:32 Then in 2018, they were on the German version of Shark Tank. They sold 15% of the business at a million dollar valuation. It says they've done about $150,000 of annual revenue each of the past three. years so it's not growing but he says it is profitable um it says he's got a pretty smooth process in place for the manufacturing marketing logistics uh sounds like the business you know he kind of runs on autopilot but doesn't grow on autopilot um he can't figure out how to grow it uh he says they did do some uh product dev over the last year or two they tried to make uh just like we have throw your go pro is the main product they tried to make throw your phone happen

Starting point is 00:22:10 um and he said for a lot of reasons it didn't have didn't work mainly because i think people didn't want to throw their $1,000 phones. And they just couldn't get it off the ground. So that product launch failed. The seller says he's pretty demotivated. He reevaluated his life and wants to pursue some other things so he'd like to sell the business. It is on Flippa.

Starting point is 00:22:31 You can go on Flippa and find it. We'll put it on the screen here. It's called the five-year established e-commerce business selling camera accessories in the action sports niche. and he's asking $60,000 excluding inventory or $100,000-ish inclusive of inventory. So, Mills, what do you think about this business? Seems pretty cool. Cool product. Yeah, it really is. I mean, gosh, I mean, buyer business fit is like what's kind of ringing in my ear. The average order value seems pretty good. You know, it's like 80 euros, 85, whatever, U.S. dollars.

Starting point is 00:23:09 you know, I guess is he built, is he he's making them or sourcing them, right, somewhere in Europe, and then he's shipping them from Europe to the United States. And he's got a massive, I can't remember where I saw this. Like, you know, a lot of his, a lot of his revenues coming from the United States. Logistically, like, there's got to be some fine tuning there, right? It could happen in terms of the logistics. Yes. I mean, I, does it necessarily say?

Starting point is 00:23:39 he's sourcing from Europe. It says he's based in Europe. This type of thing I would think is probably coming from China. If I just had to guess, it's foam. It's just going to be done way cheaper in China. It's some of these types of things you can't even do anywhere but China because the rest of the world has forgotten how to make them. But yeah, I would bet he's probably sourcing this in Asia. And then if he's still doing all this fulfillment in Europe, but all of his sales are in America, there's definitely an opportunity to set up a 3PL in America. However, given the size of this business, being that it's $150,000 a year in sales, and it's a $85 a.O.V, that is 1,750 orders a year, also known as 4.8 a day. So, like, five orders

Starting point is 00:24:29 a day, I'd be willing to bet money this guy is shipping it himself, like, from his garage. Like, these things are small. So I don't know that this business, I could be wrong. I don't know this business is large enough to support the cost structure of a 3PL and maintain whatever flow through he's got. If it is, if I'm wrong about that, it would be much easier to flip your 3PL from Europe over to the United States. I also wonder not an expert in European tax, but I wonder if there might be some VAT or lack

Starting point is 00:25:01 of VAT implications by importing from the U.S. directly into China or from China directly in the U.S. or some tariff implications. There are certain stuff, you know, like steel wood that is subject to pretty steep tariffs right now coming in from Asia. And I don't know if foam or toys or whatever this would be categorized as toys, maybe, would kind of get dinged on the tariffs. So you'd have to ask those questions if you're going to move your logistics internationally. But of course, there's some probably pretty juicy shipping savings on the table.

Starting point is 00:25:34 Bill, you mentioned something about the kind of maybe I'm imagining a line where if you're under a certain size or threshold, third party logistics doesn't make sense. And when you get over it, it probably is accretive in some way. How do you think about what that line is? This is not specific to this business, but I think it's relevant. So that is a super nuanced question, Mills. It depends a lot on your... You do all your own, right? You do all your own. You do all your own. We do currently do all of our own distribution. In our early days, we did 3PL. And then we got to a point from a complexity point of view that having that control where I could just say, hey, I want to try this new bundle. You know, so I just walk in the warehouse and I go, hey guys, can you make 10 of these?

Starting point is 00:26:21 You know, like just attach them together in a bag, right? To do that with a 3PL, you have to call them, you have to tell them what you want. They have to quote it. Then they have to do it. And it's like one to two weeks of lag and they're, you know, the money is kind of material but they'll charge you a couple bucks for it but just the brain damage of like it's a special project right just to like see if people want to buy a bundle of the red one and the blue one right so our business grew to a point where we're doing a lot of kits and bundles we're also doing some

Starting point is 00:26:47 in-house manufacturing so it made sense just to centralize the ops that being said we are now at the scale uh you know kind of 50 million plus in sales where the 3 p we have enough scale that the 3PLs are now willing to do custom stuff for us which you know at least lower scales, 3PLs are very rigid because you're just not a big customer. So it's weird in that there might be almost this sort of you shape where in the early days, 3PL can make the most sense because it's easy to get off the ground. In the mid days, you may be tempted if you have a business that's semi-custom, you start to have enough scale to justify doing it yourself if you need custom stuff.

Starting point is 00:27:25 And then at the larger side, 3PL starts to make sense again in all cases because you have the cloud to make them do custom stuff. but in this case five orders a day is not sexy to any 3PL that if you give you guys an idea what a 3PL costs they'll probably charge you between two and three dollars to pick this order and they've got labor in it so they're talking about like a five dollar a day profit probably by bringing on this this account like that's just tough yeah it's interesting I mean this business I mean it's a $60,000 asking price um if you were were like really, really into GoPro and you also had like a pretty decent sized social media

Starting point is 00:28:08 following. It seems like you could totally just fold this thing in to, you know, maybe you just do what this guy's doing and you try and do it on your own. You try and do it out of your house, five orders a day. And it could probably be like a fun little side project, so to speak. Yeah. I mean, so they raised 123,000 euros on Kickstarter. I'm not, I don't have their Instagram up, but maybe they've got some YouTube following, et cetera. If you've got a little bit of an audience here, they got a thousand subscribers on YouTube, so not much. Instagram is probably roughly similar.

Starting point is 00:28:42 So they don't have a platform, but Mills, as you were saying, if you were already in action sports or something, and you had a whole bunch of people that followed you that were into this type of stuff, and you could kind of try to make this a thing, you could actually, you'd probably goose sales a little bit by putting it in front of an existing kind of action sports audience.

Starting point is 00:29:00 They got almost 30,000 on Instagram, which is, you know, pretty impressive for a business this small. The other thing. So, Bill, my fear. Go ahead. I was just going to say, my fear with this is like, has it already popped, you know, like it was a new thing. It's kind of a novelty product. Like, have you kind of saturated, you know, a decent portion of your target market? And, I mean, they've already got 28,000 Instagram followers, right?

Starting point is 00:29:29 They've already been through the Kickstarter phase. So has all the excitement around this product already happened? And now you're just kind of banking on the long tail of, you know, five orders a day. Very possible. You would have to also ask yourself or ask the seller, you know, who bought it? One thing that occurs to me is the way this seems marketed is very much towards like adult action sports athletes. I think there would be a huge market here in kids where you do not want like your kid has a GoPro because they watch GoPro stuff on YouTube. and they want a drone and you don't want to spend $500 on a drone for your kid.

Starting point is 00:30:04 So if you could get the price on this down a little bit from 88, it seems a little pricey. But like if this is a $499.99 gift for a kid, like that's a more renewable market. You know, like there's because there's new kids getting in a drone photography all the time. You know, you could try to position it that way. This also strikes me as a product that you could probably do well on Facebook ads because it lends itself really well to like innovative videos and action sports. and it's cool. I do think the price point at 90 bucks is a little bit above that kind of impulse purchase price point that does so well on Facebook ads. If you could get it down to 50 bucks,

Starting point is 00:30:39 kind of as I said, I think this would be very advertisable. There's probably also some opportunities to take your brand air video and expand it because right now he probably thinks his brand is about this little Nerf thing that holds cameras. If he were to reimagine it and say air video is about sort of accessories that let you do drone photography like for drone photography enthusiasts right i'm sure there are all kinds of little accessories you could make for actual drones or for go pro cameras or you know here's how to strap mounts for gopros onto other jerry rig things like if you know the front grill of your car or whatever um if they were kind of broaden their aperture of what they think this brand is and put that air video uh stuff on other products is they

Starting point is 00:31:27 You know that you've got this customer here who's interested in innovative drone photography, right, with different throwing arcs and but also doesn't want to buy a drone. You know, that person probably wants to buy other stuff too. I'd find a way to sell it to him. And by the way, he's only asking. Bill, you buy. Go ahead, Mills. You go ahead.

Starting point is 00:31:45 No, no, you go ahead. By the way, he's only asking $100,000, which includes a bunch of inventory. And this business is, we don't know the profitability profile, but it's revenue of about $150. 50, you know, let's say it makes 50 grand a year, you know, that's not that bad. It says on Flippa, he makes $33,000 a month in profit, which is $40,000 a year. So he wants like two times, like inventory and everything included. It's like two, two and a half times, EBITDA. So he's got, he's got reasonable price expectations.

Starting point is 00:32:18 And by the way, I don't think he's underpriced it. I think this is probably what is worth. It's small. It's not growing. You know, it's one product. I think this is a fair price for it. But the point is like it's not, you don't have to pay up like a huge rich multiple for this thing. Mm-hmm.

Starting point is 00:32:34 Mm-hmm. Bill, I mean, you've focused, I think, on more kind of consumable, repeatable sales, you know, sales generating products. You know, things where brand affinity and brand loyalty actually gets you a bigger, you know, lifetime customer value. How do you think about? you know, I've heard you speak, you know, in a really fascinating way about, you know, the weight of something and, you know, the dimensions and how that affects shipping costs and all those things, I think, come into play. But on this, my concern is like, it's not something that somebody's going to probably buy twice. Like, if it gets stuck in a tree and their GoPro, you know, is in it, they're definitely not buying another one, you know, kind of thing. So how do you think about the novelty kind of more one-time purchase? You've already started to answer it to say, expand your brand. to be something more, something a little bit broader. But to me, there's got to be a discount factor for the fact that this is not, you know, like the Dollar Shave Club where every single month you're getting razor blades in the mail and there's lower churn. Yeah, so there's a balance, right? If you are

Starting point is 00:33:43 going to have a single purchase product like this, you have to have a huge tan. A huge total addressable market. I'll give an example, like my friends over at Ridge Wallet, like if you were a guy listening to this, you have seen the ads for Ridge Wallet, right? They're huge. I think they're like 100 million plus crushing it. That wallet, that thing is freaking bomb proof. Like you are never going to buy another one. They say that's lifetime warranty, like whole deal. Like that is not a consumable product. Right. And you only carry one wallet as a guy. But their TAM is so giant, right? It's all guys with wallets that they can build a big business there, right? Without consumables. The thing that consumables gets you is a higher lifetime value, right? So you can come back again and again. So you can

Starting point is 00:34:31 operate in a smaller tam because you're getting more money out of each consumer. With something not consumable, you, like the most you're ever going to get out of this guy that buys an air video thing is 90 bucks, right, unless you maybe new products, right? But ultimately, even if somebody bought one of everything you own, maybe it's two or three hundred dollars, right? Versus a $50 consumable, if they use it for three years, they might spend $1,000 or more. So it's kind of going to cross this idea of lifetime value of the customer with size of your tam. Like massive tam that you can advertise to, you can get away with a non-consumable.

Starting point is 00:35:08 Like the guys of rich have been an amazing business, right, with a non-consumable. So having a consumer just kind of buffers a smaller tam or gives you a little more room for error. Whereas the tam for this thing, the tam for this, I don't know how big this is. Right? Because this is people that can afford a GoPro, but can't afford a drone and care enough about their GoPro footage to spend $80 on an accessory, but not enough to spend $400. Like, I just, I don't know how big this Tam is, maybe, unless the Tam is kids, which is a huge tam, right? So that's why I kind of went to kids earlier. Like, you've got to find, it could be this product is good, but it's pointed at the wrong end market. You know, maybe you got to point it

Starting point is 00:35:53 out a bigger Tam and reposition it. If I were diligent this, I would really, really be interested in where the traffic was coming from. I would want to know if they are running any Facebook ads at all, or is it just all trickle down from Google and Kickstarter or do they have other influencers? Like, how do people hear about this? Have people ever bought more than one? Is it all word of mouth that they tell their friends?

Starting point is 00:36:22 Like, that's what I would really want to understand, to your point, Mills, about is this just the long tail after a pop? how are new people discovering this? And then I want to ask myself, how can I get a lot more new people to discover this? Like, what are the types of people that discover this organically and buy it? And where to more people like them hang out? And is there a way to go get them? I mean, there's a lot of work here. I mean, this isn't the type of business that you just buy and it can explode. But if you are willing to like understand this market and do kind of your classic product positioning and, marketing and then figure out the digital marketing tax is to get the product in front of them, which is all risky and expensive and might not work. And, you know, it's usually a trial and error exercise and each trial is expensive because you blow money on Facebook and Instagram ads, et cetera. So I'm not trying to say this is easy, but that's what success looks like in this deal is trying to get in front of a lot more people economically and maybe tell them the story

Starting point is 00:37:20 a little different. Yeah. Yeah. That's a great insight, yeah. Yeah. So I think I think this is cool. If you want to buy this one, it is for sale. We will put in the show notes how to contact Pablo, the owner. It's Pablo at airvideo.com. You can just shoot an email or you can inquire via Flippa. On Flippa, it's just called Air Video. So search for Air Video Flippa, and you can reach out to Pablo. All right. That concludes another episode of Acquisition Anonymous. This was really fun. Thanks for holding down with me, Mills. And we will see you guys next week. Thank you.

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