Acquisitions Anonymous - #1 for business buying, selling and operating - Selling millions in Anime products on Tiktok - Acquisitions Anonymous 286

Starting point is 00:00:00 Hello, ladies and gentlemen, welcome back to another episode of Acquisitions Anonymous, the internet's number one podcast on buying, selling, and operating small businesses. I am one of your hosts, Bill Dallessandro, and this week I am with my co-host, Heather Enderson, and we talk about an anime products business that is big on TikTok. So this is a business is under three years old, has popped up selling anime products on TikTok. It appears to be run by one person or a few people. Just pretty impressive how fast it's grown. We talk about some of the pros and cons of TikTok businesses

Starting point is 00:00:36 and whether this business is transactable. If you're interested in kind of trend following online businesses and TikTok, I think you really like this one. Please enjoy this episode of Acquisitions Anonymous. If you're looking to buy, grow, invest in, or sell profitable businesses, guess what? There is a cool conference coming up that I think you'll be really interested in it. The M&A Launchpad conference is happening May 11th,

Starting point is 00:01:00 2024 in Houston, Texas. And if you're interested in small business deals, you're going to want to be there. It's a one-day event where you can network with individuals who've been there and done that, successful business owners, savvy acquires, and private equity investors. If you go to the conference,

Starting point is 00:01:14 you're going to gain firsthand insights from 30 industry experts who has masterfully navigated the journey, but acquiring, operating, scaling, and openly selling businesses for great profits. You're also going to meet my friend Walker Diabell there, Walker is a great guy who is the Wall Street Journal bestselling author of Buy Then Build. And also Walker and the guys over at MNA Launchpad have extended a special offer for acquisitions anonymous listeners.

Starting point is 00:01:39 So we got a great deal for you, $200 off your ticket to the M&A Launchpad conference. So to claim it, all you have to do is go over to mA launchpad.com and enter the code AA at checkout to claim your discount. So head over to M.Alaunchpad.com and enter code A-A at checkout for $200 off a ticket. So don't miss out on the conference. One of the big levels up for me is meeting other people in person that are doing the things that I want to do. It's one thing to follow them on Twitter, but the depth you get in person is just so much more real.

Starting point is 00:02:13 So if this is something you're interested in, head over to ma-launchpad.com and get registered. They'll see you in Houston on May 11, 2024. for. Bill, you're in your new place. It looks like. I'm in my new co-working space here in Charlotte, North Carolina, which is why I'm still trying to figure out my audio. I don't know, so you have to forgive me.

Starting point is 00:02:31 It's a little echoey. But I'm excited for this one because Heather and I are going back to back today, back-to-back to back-to-back e-commerce deals, which is my favorite kind. I know. We have a good one. We have a good. I love all the random stuff. So we had the last one, if you let's do it, was a kidney supplement business.

Starting point is 00:02:49 And then we also have a fun one today. which is cartoon goods for anime fans. It's from Acre. So you can check this one out. It is an asking price of $1.28 million, which is a $1.8 multiple on profit and one times revenue. Priced attractively to find a new owner in a timely manner. It also says e-commerce startup at the top.

Starting point is 00:03:14 TTM revenue is $2.7 million. TTM profit, 731,000. Monthly revenue, 933. $9,000 monthly profit, $260,000. Profitable and unique niche e-commerce with $978,000 in TDM revenue. Well, they already said that, offers customized cartoon goods. Based in the USA and operating on Shopify, it has forged a distinct niche within the anime community since its inception in February of 2021.

Starting point is 00:03:46 So it is kind of a startup. That's where that came from. That's not. They're sort of, yeah, repeating. the metrics from above, but it says basically 162,000 in revenue last month and 47,000 in profit last month. So the team size is two to 2220 people. Business model is it operates as an online retailer of customized cartoon goods selling directly to consumers via Shopify. It targets the niche and anime community unique merchandise using a combination of organic search, paid ads,

Starting point is 00:04:18 and influencer marketing to drive revenue. The operation hinges on efficient management and robust supply and fulfillment process and commitment to quality resulting in significant loyal customer base. TechStack is just Shopify, and there's no real competitors, which sounds maybe a little surprising. Growth opportunities, there's a big long laundry list in several key areas, expanding the product portfolio with a loyal and growing customer base, the introduction of new designs and product lines could stimulate additional sales. Anime community has diverse interests, providing ample room

Starting point is 00:04:56 to explore and expand the existing product range. You could also have enhanced digital marketing, utilizing social media influencers, TikTok, although is TikTok even going to be around then? Let's see, building a stronger team. And overall, there are several growth opportunities that a new owner could capitalize on to drive the business forward. The business has consistently grown in revenue and profit, keeping overhead cost to a minimum for a high net profit margin. The established revenue stream from organic search paid ads and influencer marketing contribute to a strong financial foundation.

Starting point is 00:05:35 It operates in a niche sub-market with no direct competition. They're still saying that. Targeting anime fans and et cetera, et cetera, revenue is mainly generated through Shopify, and supported by content on TikTok and influencer product promotions. I think that last sentence kind of tells you what the whole business is. Pretty much.

Starting point is 00:05:54 Pretty much. Yeah, that's it. It's a TikTok anime business. The decision to sell the business has been made with a belief in the business's potential for future growth under new ownership. The current owner recognizes

Starting point is 00:06:07 that fresh leadership could bring innovative perspectives and strategies that can further elevate the business. Additionally, selling the business aligns with the owner's personal aspirations providing an opportunity to pursue new ventures and projects. The intention is to ensure the continuity and further success of the business while exploring new personal and professional opportunities. And it's bootstruct. What do you think? That is the worst reason for selling I have

Starting point is 00:06:31 ever heard. That is terrible. I mean, it's just the decision. It was just so mealy-mouthed. Like, that is awful. Okay. That being said, so what we did miss in here is It targets anime fans with custom designs of popular products like blanket hoodies. A blanket hoodie, like, is this, this is like an ooty knockoff or like a slanket or like, you know, one of those things. It's like a poncho or the hood, I guess. Yeah. Yeah. Yeah.

Starting point is 00:07:02 So like, you know, cutesy, kind of me and me type products. The thing that the huge question I have immediately is around content licensing. You know, I don't know if they're licenses. all of the anime characters that they're doing. But if they're not, this is not a business. I mean, this is, this is, if this is not licensed, this is a hustle and it's just waiting to get shut down. Either by TikTok because you're posting on licensing content or by the brand owners or

Starting point is 00:07:32 by shot. I mean, there's just like a million ways you get the rug pulled out from you if you're not licensing this properly. So just upfront, we should say, I hope this is licensed. Let's assume it is just going forward. Otherwise, there's not much to talk about. But that would be a huge deal. point for me. Yeah, and it's custom designs. Okay, so you know, you've got to get the licensing and then

Starting point is 00:07:51 they're doing something custom with them. So I think we talked about this another time, Bill, like, you know, that you've got to have, you've got to have good design work that keeps changing, right? Because people want to see something new. The anime community has diverse tastes, as they point out. So they, you know, they're going to want whatever the latest thing is. You have to really keep on top of that and make sure your designs are appealing to them. So there's that creative. side to a business that always makes me a little concerned about changing ownership, who's doing the creative? And if it's the seller, that's a little scary because unless you have those exact skills, that's going to be a tough transition. Even if it's an employee or a contractor, I've seen

Starting point is 00:08:33 some businesses where they're trying to sell and all the creative is being done by a 1099 contractor that has really no strong tie to the business. You could lose them any time. So I worry a little bit about anything with creativity and TikTok, you know, is obviously creativity, whatever the videos are that they're doing on TikTok, you know, that how does that transfer? And of course, back to like, the big, the big one is it started in 21 and we're selling it now for not a really great reason. So that's always a big concern too. And it's probably not financeable just because of that right there because it's only started in 21. So you probably don't have a full tax return. we're getting old, Heather, that's almost three years old.

Starting point is 00:09:17 Starting 2020. Feels like it was last year. I am getting old. That's true. Yeah, but it's not enough history for a lender. And, you know, again, the lender is going to be very suspicious at anybody that's selling a three-year-old business. Why are we dumping it now?

Starting point is 00:09:34 You know, what's the sustainability of this very, very young business to take on it, you know, a 10-year loan is what an SBA loan is. You're a three-year-old business. and you think you qualify for 10 years of leverage, probably not. So that's probably off the table here. So it's funny to hear you said now in 2024, because in 2021, 2022, this was like the MO. I knew people who their whole thing was they would spin up an e-commerce business as soon as it hit two years of history, which is the SBA minimum, right? They would immediately hire a broker at Abbott for sale and sell to an aggregator or sell to, you know, somebody with an SBA loan by how times have changed.

Starting point is 00:10:12 My help they've changed. I think we may have learned a thing or two. That could have happened. That's good to hear. I'm glad to hear that. Yeah. So let's just break down what's going on probably in this business. First of all, this is a phenomenally successful business for the entrepreneur that started it, right?

Starting point is 00:10:29 Because this is functionally, I'm going to simplify a little bit, but functionally, this is a guy or girl with a found a factory that can make, you know, cute products, is probably doing some of the design themselves or, or with some help of new graph designer, bringing in product and then basically just posting about it on TikTok and they have compelling product and it's working. So it's like 100% Shopify revenue. It's not on Amazon, which could be a potential, again, if it's licensed, could be a potential great expansion opportunity.

Starting point is 00:11:00 Like if they're doing numbers on TikTok and they're not on Amazon, they're leaving so much money on the table. People that succeed on TikTok, it creates this huge Amazon halo effect. So they need to get on Amazon like, yesterday. If you were buying this business, that would be the first thing that I would do. Again, assuming it's licensed and like allowed on Amazon, I would take it to Amazon right away. But this person has made a great business for themselves. They're doing, they say almost

Starting point is 00:11:29 $300,000 of TTM profit. The numbers are all over the place a little bit because it says in one place, it says 2.7 million of TTM revenue and $730,000 of TTM profit. But in the description, it says a million bucks of TPM revenue and 277,000 of TPM profit. So either way, this person is making 300 grand at least, you know, basically, it's probably a

Starting point is 00:11:52 one-man show or like a couple-person show. So good, like, good for you. Like, this is fantastic. To your point, Heather, I think it might be tough to buy because of the short history and also I'm betting it's

Starting point is 00:12:08 pretty dependent on the owner. Mm-hmm. Yeah. What about TikTok? Are we worried about TikTok? Oh, boy. Okay, a lot of people been asking you this over the last few days. We have to talk about it.

Starting point is 00:12:20 Come on. We have to talk about it. So I don't know anybody in Washington, D.C., this is my opinion only. So, you know, they're going to pass, they think they're going to pass this bill maybe that requires Biden to sell TikTok or it will be banned. And it seems as though everybody behind it is like, oh, yes, we will the United States. We will say, do it. and you will jump how high, right? And yesterday, my dance was like, yeah, we're not selling it.

Starting point is 00:12:45 So, like, we dare you to ban it. And so now this puts the United States in, like, an incredibly dumb place where they don't want to ban TikTok. Like, nobody wants to ban TikTok. Like, you don't take the punchbow away in the middle of the party and then ask everybody to the party to vote for you. You know, like, we're coming up to the election. Like, everybody's addicted to TikTok.

Starting point is 00:13:04 Like, this is not, I don't think this is a winning election issue. I mean, I could be wrong. I don't think take away my TikTok. is a winning election issue at all. I think first, the people are actually thinking about it and realize that it's a, you know,

Starting point is 00:13:16 a Chinese spy app. You know, yeah, it's probably a good idea of ban TikTok. I don't think the voters want to ban TikTok. I think the voters want to scroll TikTok. So I don't think it's going to have. I don't think they're,

Starting point is 00:13:26 I think our government's going to wimp out and go, just kidding. You know, and they'll come up with some like, oh, put the data centers in a different state, you know,

Starting point is 00:13:34 because they have this project Texas thing where they were supposed to put all the data centers in Texas with Oracle. They claim, do it. And then it came out that the CCP had backdoor access to all the servers anyway. So like, I don't, I just don't, I just don't see TikTok getting banned. I really don't. I don't think the voters want it. No, I agree with you. And I think it's kind of a tough thing to legislate because even,

Starting point is 00:13:55 even Twitter or X is not fully U.S. own, right? There was a lot of discussion about, you know, where the investment money came for Elon to buy the platform. So are you going to say that all social media platforms that are allowed in the U.S. have to be owned this percentage by U.S., you know, it's not going to make any sense for any of the platforms to abide by that. So yeah, maybe they'll put some controls in and, you know, I don't think it'll go away either, but it made people nervous. It's making people nervous. It's making people nervous. I don't think it's going anywhere. That being said, you know, all of these risks, right, the TikTok risk, the one owner risk, all that stuff. This business is.

Starting point is 00:14:38 priced at 1.8 times profit, right? You know, they kind of are acknowledging a lot of this. They want $1.28 million. Now, again, I have some questions because it says their TTM profit is $731,000, but then in the description it says TTM profit is 277. So this is either price at 1.8 times profit or five times profit. I have a guess what they're doing there. I don't know if this works out math-wise, but see, you don't really see listings that say 47, thousand, two hundred and fifteen dollars in profit last month very often. So I feel like they're making a forecast on Instrat really T, not really thrilling to well. I think they're trying to take their recent growth and forecast it out and say you'll probably make X because we're growing

Starting point is 00:15:25 so quickly and the month every month is better or whatever. That's my guess. Yeah. I mean, that's obviously the first diligent point. Let's say it is price at 1.8. Like is there a price here where this makes sense. I mean, if you can figure out, you know, assuming the owner is not some, you know, design savant, you know, and, you know, just a brilliant, assuming they're just kind of like trend following

Starting point is 00:15:47 and making cool, funny stuff, you know, you can probably outsource some of that. I mean, there might be a price here where this is a good deal. Yeah, right. There might be a price and structure, you know, so maybe you can, maybe you can structure something where the,

Starting point is 00:16:00 if the seller gets you through transition and you keep the revenue above a certain amount, you know, or there's a seller note that's sort of tied to something like that. I think you could still buy this with a really creative structure and not really probably accessing much of any SBA financing because of the, like I said, the relative age of the business. But, you know, it is a good business, and they're doing something right.

Starting point is 00:16:25 And the anime world, I assume, is going strong and will be for, you know, my son is into that. I have no idea what any of it means. but I know that it's growing it's a good market a certain age group really likes it so you know this person he or she has come on to something that's probably got a lot of potential yeah I mean you're right Heather about structure I mean this is ripe for structure you know if you come in you kind of systemizes business you take it to Amazon you increase the products I mean you could do very well and convince the seller that the

Starting point is 00:17:04 he or she is going to benefit from you doing very well from bringing in, you know, say, hey, you keep posting on TikTok, right? I'm going to come in, professionalize this business. We're going to roll it out to Amazon. We're going to launch some new products. And we're all going to, you know, we're going to share the profits as we go forward. I think that makes a lot more sense. What is a little tough here is to come in and write the seller's a seller check to go away,

Starting point is 00:17:25 both because you no longer have them doing the creative, but also because not only is there the TikTok platform risk of like is there TikTok tomorrow. But the inherent nature of TikTok is very ephemeral. You always need to be posting new stuff, coming up with new content, new ideas. And if you stop, you'll fall up a cliff. So there's, you know, it's kind of like you've got to keep flapping your wings on TikTok in order to stay in the air. So, like, it's tough to just give somebody a check and let them go away.

Starting point is 00:17:53 But some sort of earn-out structure, I think, makes a lot of sense for this. Yeah. And if we're going to structure around a deal here, then I think your first question is going after that motivation, the seller's motivation, a little bit more. Like, would you stay under the right circumstances? Are you just wanting to get rid of part of this business and have more time for something else? Or, you know, that may be a non-starter if the person really wants completely out and just doesn't want to do this anymore. But if they're still, you know, a lot of sellers, if they're younger, often would like to stay and give up the parts of the running the business

Starting point is 00:18:27 that they don't like to somebody else and just keep the parts that they do like. So maybe there's something like that here. Yeah, maybe some. So that's what I would offer is some sort of earn out structure. I mean, there's so many of these businesses now. So like TikTok shops is really catching on. And if you can make good content, I've seen stuff blow up from zero to millions in a few months going viral on TikTok.

Starting point is 00:18:54 But the question is, how long can it last? You got to keep putting more content out. You got to always make the next hit. it's kind of a content treadmill. It takes a certain type of person don't want to do that. Yeah, it's a hamster wheel for sure. And I'm not even on T-Tock.

Starting point is 00:19:09 So I don't know what these products are that I'm missing out. So much cool stuff, Heather. You're totally messing out. I'm totally missing out and to go buy more stuff. The top-selling product on TikTok shops right now is coconut oil for oil pulling. Oh, the T.

Starting point is 00:19:28 Yes, which I'm pretty sure is complete oak. You know, it's supposed to like pull toxins out of your mouth. But it's coconut oil. I mean, it's just straight up coconut oil. You just, that sounds awful. This brand is doing millions. I mean, like 10 million of coconut oil on TikTok. Like, it is nuts.

Starting point is 00:19:47 And it's a total no-name brand. Like, you've never heard of it. And they're just really good at TikTok. Wow. You can go on TikTok shops and look at the leaderboard and you can see what products are selling on TikTok. It's really wild to see. All right. You're making me interested.

Starting point is 00:20:00 I might have to do it. do that. You should. It's really cool. TikTok shops is I don't want to say they're necessarily coming for Amazon, but I think they're coming for Instagram and kind of the whole influencer ecosystem. Yeah. Makes sense to combine. Yeah, it makes sense. It does because like everybody that posts on TikTok now is an affiliate, right? Like you post a video, you just tag the product on TikTok shops and TikTok has perfect attribution to give you a commission because the whole transaction happens inside the TikTok app. And I'm just seeing,

Starting point is 00:20:34 I would be worried if I was a creator because it's really democratizing people who can get paid for making content. A lot more competition coming. Fascinating. Yeah. TikTok is, will be very,

Starting point is 00:20:48 very interesting over the next couple of years in e-commerce, as they seem to really want to be an e-commerce platform and to sell a lot of product on TikToks. And that's, that's a push. So I'm interested to see where it goes. Wow.

Starting point is 00:20:59 Very cool. Well, that's it for this one. So again, this is a deal from Acquire.com, formerly known as Microacquire now, just Acquire.com. And they've got tons of companies listening every day. I sold a business on Acre a couple years ago. You read about it by Twitter. They've become good friends of the pod,

Starting point is 00:21:18 and we're finding more and more deals to the folks at Acre. So I hope you guys like this one. Thanks for listening, and we'll see you next time.

Acquisitions Anonymous - #1 for business buying, selling and operating - Selling millions in Anime products on Tiktok - Acquisitions Anonymous 286

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