Acquisitions Anonymous - #1 for business buying, selling and operating - Skincare co's are hot. Do you want to own one?? | 2 Skin Care eCommerce Businesses for sale | Acquisitions Anonymous Episode 73

Episode Date: March 2, 2022

Michael Girdley (@Girdley), Bill D’Alessandro (@BillDA) and Mills Snell (@thegeneralmills) discuss 2 eCommerce deals in today's episode. An eCommerce skincare product seller & an Amazon FBA eCommerce Brand in the Anti-aging, beauty and skin care segments-----* 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.-----Show Notes:(0:00) Intro(1:10) Cloudbookkeeping.com(2:16) Health & Wellness brand: eCommerce skincare product seller(6:23) The fools Gold of FBA Businesses(7:20) Understanding the value through market knowlegde(8:30) No brand loyalty.(11:15) Amazon FBA as a source of revenue(15:10) Big Client anecdote(16:00) In-n-Out(18:10) Going from eCommerce marketplace to an own domain website & brand value(21:07) Value forward advisory(22:02) Amazon FBA eCommercer Brand in the anti-aging, beauty & skin care segments(23:14) Year established as a red flag(23:49) Private lable product(25:27) Margins, cost structure & scaling up on FBA eCommerce(26:40) Sourcing from India?(28:19) Large inventory thoughts, contradictions in the listing(29:29) Should we be mistrustful of this business?(32:23) The growth is just not possible without a cheat code(33:41) Is it realistic to acquire 1 eCommerce business a year?(34:58) Good businesses transact at great multiples-----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 that include sophisticated reporting, QuickBooks software solutions, and full-service payroll options.Value Forward Advisory is a Minneapolis based company that focuses on the growth and eventual sale of mature companies up $15 million in revenues.  They offer Contract CFO, businesses taxes and succession planning.  Owner, Zack Ryan, enjoys this podcast and is happy to support it.-----Past guests on Acquanon include Nick Huber, Brent Beshore, Aaron Rubin, Mike Botkin, Ari Ozick, Mitchell Baldridge, Xavier Helgelsen, Mike Loftus, Steve Divitkos, Dzmitry Miranovich, Morgan Tate and more.-----Additional episodes you might enjoy:#62 Two Landscaping Businesses for Sale - Mike Loftus CEO 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]

Welcome back, everybody, to another episode of Acquisitions Anonymous, the number one podcast on Small Business M&A. I'm Bill Snell, one of your co-hosts, joined by Michael Girdley and Bill D. Alessandro. Hey, guys. Hey, hey. We have a fun episode today. We typically in the past have talked about our own kind of respective sweet spots. I kind of have a traditional private equity background. Michael has one of the more interesting and obscure backgrounds in that he knows retail,

seasonal businesses and then also early stage SaaS. And then Bill knows e-com. And so typically in the beginning, before we had guests, we just talked about things that we knew or we talked about things we didn't know. Then we started having guests come on and talk about their subject matter kind of expertise. And it's been a little while since we've done an e-com episode.

So Bill has a couple good deals for us today in the e-com space that should be really fun. And I'm going to get my mind blown that people buy things like this. You guys are going to work me out today, aren't you? Yeah, yeah. Hey, guys, Michael here. I want to talk to you about one of our sponsors in our never-ending quest to make Acquisitions Anonymous

Breakeven. And that sponsor is cloudbookkeeping.com. It's actually run by my neighbor, Charlie, who's a great guy, and he has been our longest ten-yeared sponsor, and we're super grateful for him to support the podcast. So what Cloud Bookkeeping does, it is a set of Cloud Bookkeepers that if you're a small business person, help you get out of the business of doing your books

and let you focus on the business of taking care of your customers. So they do all the complexities, bookkeeping, payroll, and they come across in our very client service first. That's their phrase, but I know that's true because I've spent time with Charlie and dug into their business. So full suite of accounting services,

sophisticated reporting, quickbook software solutions, and full service payroll options. So definitely talk to Charlie, if you want to get out of doing bookkeeping and outsource that to a trusted third party, and you can find them at cloudbookkeeping.com. So thanks again for sponsoring today, cloudbookkeeping.com. So Bill, you have, or no, sorry, Michael, you have our first deal from Biz Buy Sell. Yeah, yeah, awesome.

Yeah, it's off Buy Biz Sell, my favorite website. Also, don't go there. It'll give you computer diseases. Anyway, Biz Buy Cell is where it is. The title of this one is Health and Wellness brand. It's an Amazon B2B and Shopify sales channel-based business located in Hillsborough County, Florida, so near Tampa. So that's a good sign. The pictures on the listing are of hands with creams on them.

And apparently it's just the same picture of four different times. So that's exciting. The asking price is about $5 million, $4.95 million. It claims to cash flow $896,000. So $5 million asking price, $900,000 in $5,000. cash flow. Gross revenue is 6.8 million. It does not have any but a number, no inventory, and it's been around since 2015. So they sell health and wellness, looks like creams. So this is actually from website closers, but cross-posted to Biz Buy Sell and Website,

and Website Closers at online brokerage and listing site. So they say they present an e-commerce store that's became a top player and performer in the field of skincare products. Starting out initially as an Amazon seller, the company has dramatically improved its sales channels. Today, Amazon represents 50% of the company sales, but a stunning 40% now goes to their B2B distribution with top retailers such as the CVS chain requesting partnerships. They've further diversified with their own website, which now represents 10% of gross revenues. At the same time, product diversification has made the seller more attractive to buyers in both the D2C and B2B sales areas. This expansion includes selling not just skincare products, but both bath and body washes and plenty of

tools and accessories in both categories. They sell products under their own trademarked brand name, and they have been phenomenally popular with their buyers. The brand now shows a huge 31% repeat customer rate having sold to more than 4 million people. The popularity of these profits products has come to the attention of wholesalers who have enabled the brand to shift away from a reliance on Amazon to a thriving news source for sales. This is one of the most profitable fields within the beauty care space. The global skincare market is huge. And a good line here from the Brooker says this is as healthy a purchase as they can get for their loyal customer base. They have 21 skews, average order value of $45. And the gross revenues closing it on $10 million would suggest they

have far more than that in terms of growing and selling to their existing customer base. Their core products within these categories include eye masks, foot masks, balms, and bath accessories. And each product is fully trademarked. A lot more stuff going on here. And then they talk first, we were just talking about their retail, both through Amazon and direct customer base. And they say they have a wholesale base that's growing fast.

And they expanded after their retail base into the wholesale market. And while wholesale orders come in less frequency than direct-to-consumer orders, they are definitely larger. The company is now receiving four to eight wholesale orders each year, which amounts to $3 to $5 million in revenue. So compare that to their total revenue.

looks like about half the business is through wholesale. And now they're getting inquiries from big brands and retailers like CBS, McKesson, Loblaws, et cetera, who are ready to start carrying their products. And man, we start just, this listing just keeps going on and on and on. So in terms of how they get business, they have their direct marketing campaigns, I seem to their existing customer base, and they get 100,000 monthly visits on their website, 4 million customers, global, beyond just North America, and have consistently grown year over year.

And yeah, that's, I think, the whole thing, six employees located in Tampa. And just to recap, asking price of $5 million, cash flows $900,000 and gross revenue is $6.8 million. So that was a mouthful. What do we think? This is actually a good teaser. Like, there's some real information in here.

It's repetitive, but there's real info. Yeah, website closers is like well-known. for being the most locacious and, you know, biz buzzword filled. But they actually did pepper in a lot of good stats and actual information this time, which is good. So I, and obviously I brought both these deals today. This is one that initially really excited me. This is sort of, I suspect this may be sort of like the fool's gold of FBI listings. Because at first class, what you see here is business with really good, you know, kind of 20%,

EBITDA margins. You know, they're growing. They've got, you know, seven million in sales. They seem like they've got some channel diversity, Amazon, D2C, and wholesale. Been around since 2015. Like, that's good too. Shows you that there's a there there, you know, that didn't just crop up overnight and, you know, rock it to the top of the rankings. But there's a few things in here that kind of worry me a bit. The phrase here where it says, that expansion includes not selling, not just skincare products, but bath and body washes and plenty of tools and accessories in both categories. Now, in order to know why this is a red fly, you got to kind of know this category. That means nothing to me. Just like as an outsider, I'm like, oh, okay, cool. There's no red flags.

Tell us, Bill, why is it bad? So let me tell you what this probably is. So in health and beauty, there's kind of two categories of things that you can sell. You can sell consumables, like lotions, potions, creams, body washes, right? Those are great products, right? Typically, high margins, consumable, a lot of brand equity in those products, people usually come back. Those are great businesses to buy. The other category of things is bigger, is very big. I don't know if it's bigger, but it's huge. And that's kind of the tools and accessories. So think, and then inside of that you have like the electronic ones, like hair dryers, hair straighteners, you know, mirrors, beauty mirrors with the magnification, all that stuff.

And then you've got like the tools, which are makeup brushes, you know, eyelash curlers, like all that stuff, right? And both of the tools categories, the electronic and the non-electronic are, like, I have seen people move stupid volume in these categories, but the problem is there is no brand mode at all because a makeup brush or makeup sponge is the same as the same is the same. and consumers will switch. And then on the electronic side, you have all of the made-in-China electronics, catches on fire, high return rate, et cetera.

And also just the margins on the tools aren't nearly as good. And they're typically not consumable. Some of the makeup tools you could kind of argue are semi-consumable. But if any of our listeners are married or our female, you guys, I've seen my wife, you know, change. She just buys whatever is at the store, whenever one pops up at the top of Amazon, no brand loyalty. on the tool side. So a lot of times you see brands kind of tiptoe into the tool side to get into that big market, but it's a much worse business than the skincare part. And the wholesale customers

have a huge appetite for this stuff, like the low price makeup brushes because they're impulse purchases, so they want to put them with the register and they kind of blow through them, but the margins aren't great. So kind of putting that together with the fact that this company has big wholesale penetration. I'm one, they're not big enough. Their brand is going to be desired by CVS, I don't think. So it makes me wonder what products are actually in wholesale right now and if it's the good stuff.

Bill, what about the average order value? $45 seems pretty good, right? That is pretty good. That is definitely good. I assume that's kind of on Amazon and their website and which, you know, that's not accounting for wholesale. So I would wonder, as I said, kind of the mix. on all the channels. So, I mean, is, you know, is part of the play with something like this that you

have these four million people that have bought from you, you should have four million contact information, I guess, but you don't if you sold through Amazon, right? Like, the only contact information you have is the people you've sold directly to. Correct. Okay. So that, that, you know, correct. Yes. Which they say it's 10% of gross revenues now, but that could be last month. So a huge portion of that, those 4 million people could be earlier. So it's likely they don't have 10% of these people's contact information. It's not 10% of 4 billion. They say they have 85,000 email.

There you go. Email addresses. So, I mean, that's good, right? As long as there's some engagement there. I mean, that's a pretty decent and 90,000 Instagram followers if they got them, you know, legitimately and there's actually engagement. Yeah. Which is a big asterisk, Mills.

You really want a diligence to any of these businesses, whether they, ever bought followers or not. All right, Bill, I have a question on this. I have a question on this about this. Like, the way we've talked about it is that the Amazon FBA is kind of the worst source of revenue, so to speak. Like, on one end of the spectrum, you have Amazon FBA. On the other end, it's your own.com.

They're at 50% Amazon, 10% their own. com and then 40% B2B. And they make that sound like a good thing. I don't know what I would like. like less, Amazon FBA or CBS and Big Box? I have pros and cons. So I would say, like, everybody wants to crap on FBA businesses, right? Amazon FBA revenue is like the easy come, easy go revenue, right?

You can explode, but at the bottom can fall out overnight. And that's why these businesses typically trade lower than pure DDC econ businesses. So, you know, it's fickle or can be fickle. The B-to-B side is can be equally fickle, right? you know, you've got 40% of your revenue through a couple customers and they drop you, boom. Yep. I think when you hear, you got to know who's writing this teaser, right?

So website closes is writing it and they sell a ton of 100% FBA businesses. So now they're selling a 50% FBA business, 40% wholesale, 10% D2C, and that seems really great when you're anchored at 100% Amazon. Yeah. The problem to me is like that B2B revenue, like not all revenues created equal. and I bet their margins, if you look back, were amazing. They were better than this before they got into B2B because you look at, like, I had a client a while back

who was like the best day of her business life was when she got a million dollar PO from Walgreens and it was also like turned out in hindsight to be the worst day of her business life because you have sliding fees, you have buyback dollars, some of the things we've talked about in other episodes and, you know, they may have, call it, you know, three-ish million dollars in revenue from B to B.

and I bet it's razor-thin margins. It's a huge headache. It's very capital-intensive. It's the complete opposite from a cash conversion cycle to what they're used to doing, which is collecting directly from customers or directly from Amazon almost instantaneously. It's just, to me, that is very problematic. It also, there's kind of a clue, right? They're saying, hey, we have some imminent, like CVS is really interested. They're ready to place a PO at any time. I'm wondering if the sellers know how difficult that revenue is because they're obviously in it. And they're kind of trying to top tick and let this be somebody else's problem, but get the kind of credit or get the valuation bump from it. It scares the living daylights out of me. Yep. Yep. I completely agree with that. So yeah. I was just going to say this, this really smells like, you know, you see this classic business mistake where people are so like, like focused on top line revenue growth that they start chasing top line dollars and not realizing that that's not actually really the best thing for the enterprise value of the business or like a strategy to actually build something sustainable.

Because it looks like they kept adding worse and worse categories of revenue. And now they're super excited about their top line, but it's like, well, you're in some pretty tough markets, like in pretty tough channels. The thing that's interesting to me is they flash CVS is interested, as you said, Mills. But down here it says the brand has seen significant interest from CVS-McCasset-Lod. and Shoppers Drug Mart with CVS rated to place their first order. It's a major expansion opportunity. So at the same time, none of these people have ordered, but also they have 40% of revenue through B2B. So that makes me wonder where these products are going and why they

didn't mention any of the names of their current customers, right? Which makes me wonder, like, are the current customers distributors you've never heard of that are selling it on eBay, you know, and the company doesn't even know. I don't know. It just makes me wonder, why are you just talking about these big brands as maybe we'll order, not as already worked? And I'll also share an anecdote about CBS specifically.

CVS approached us and wanted one of our brands in CVS chain wide. There was over $300,000 of slotting fees, plus free fill of a couple of units to all their store, which means you've got to give every CVS, one or two free units right out of your pocket in addition to the slotting fees. I modeled it out. We wouldn't break even until the third year. Which is not going to last that long.

Exactly. Right. Exactly. Yes. Because you can get kicked out at any point, at which point they can return all the inventory to you. Right. And billing back for it.

Yeah. Have you had any success, Bill? They don't say this. But it seems like the two main ways to get in Big Box is in line, like on the aisle. it's there as a kind of, it's there year round or in cap, which is, hey, just throw a bunch of product at this thing. It may only be up for 45 or 60 days at most, but it's probably going to move. Have you had, do you have a preference one way or the other? It seems like there are two totally different animals. Yeah. So you're talking about kind of the difference between what they'll call

in the street being planogrammed in, which means that you've got a home on the shelf or what they'll call an in and out, which means that you'll ship them. them, you know, they'll place a PO, they're going to put it on an N-CAP, sometimes you'll ship it in. They'll ask you to do, like, dedicated cardboard, like a display or something that hangs on the end of the aisle. And you're kind of responsible for all of that. You ship them the built-out shippers, you know, cardboard. They put it, they see if it goes, you know, they haven't allocated you shelf space because it's an N-cap or it's a freestanding thing. And then they kind of see. The, obviously, you would like to be planogrammed in. but being planagramed in comes with a lot more risk too because that's when the slotting fees show

up that's when the return to vendors the RTVs meaning if you don't sell through they got to clear out that shelf space and you eat it so it's much more of a partnership when you go in on shelf plan a grand in whereas the the kind of end cap etc the in and out can seem like it's just more of like a hit of revenue so you as buyer want to be really sure what type of relationship they have with these big boxers and whether these are repeat orders or whether they're going to announce. Yep. In the end, I think there's a reason why all these retailers got really big, right? Like, they have massive buying power and they can dictate terms to somebody like this.

And it's pretty scary, you know, if you don't watch yourself. And at a certain point, you get addicted to it and you need that revenue to keep people employed and stuff like that. And if they decide, hey, they're going to take 5% of your margin, just like you see Amazon doing with the FBI people, every three, months, it's just a little, like a little bit more, a little tiny bite. And yeah, it's tough, very tough. And I mean, it all definitely comes back to this idea that the best businesses are the ones that own their customer relationships. And when you go through a CBS or you go through

an Amazon, you're advocating that, right? And so there's a tradeoff there and it can be dangerous to a business. Yep. So, I mean, on that point, Michael, you know, one thing that I have to say, I do like about this, right? On one hand, it looks like their business 50% Amazon. 10% dot com and 40% B2B, right? But if you took the B2B out of it, their dot com has grown to 20% of their Amazon revenue, which is pretty good for a brand like this that started on Amazon, because you guys have heard me on the podcast,

say going from Amazon to dot com is one of the hardest things to do in e-commerce is to build that brand on a dot com after starting Amazon. And they, I mean, I have not seen many brands that get to 20% of revenue. you know, on dot com. So kudos to them. They've also got, Michael's got it on the screen now, you know,

90,000 followers on their Instagram account, 85,000 subscribers for email marketing. They got 80,000 hits a month on their Pinterest. You know, assuming they didn't buy that stuff,

that's an indicator of some actual traction and there may be some actual brand value here. I would be as, as buyer, I'll tip my hand a little bit and say, I think I know which one this is. so I've looked at the products they sell. Their main products are pretty good, like consumable stuff, but, and I can't tell what

percent of revenue it is, they're selling things like straight razor blades with their logo on it, which is like way off, you know, focus, right? They've got some tools in there, like they've got, they're making cosmetics for women, and then they've got straight razor blades for guys that just have their brand name stamped on it, right? Like straight import from Alibaba. So as buyer, you've got to kind of set, you got to tease this out and go, how much of this business is the good part of the business? You know, the good skews on the good channels versus the bad skews on the bad channels.

And consider, I would try to kind of almost do like a sum of the parts valuation here and try to figure out what you think the business is really worth as a whole. Will this business actually get sold? You made it sound like crazier things have happened. Oh, hell yeah. This is definitely in a cell. This market is very hot. The products are in a great category. This is over the bar to transact for sure.

It's not over my bar, which is notoriously high. And we're a little picky at Allman's brands, but this will sell for sure at asking. I mean, this is what, 4x, 5x? Yeah, I mean, maybe it might not go for 5x, but this will definitely go for 4x plus. Well, well, please. All right, let's move on to the next.

We'll hurt to them. Yeah, exactly. I was just like, that seems way too hard. Hey, guys, Michael here. I want to talk about our sponsor for this episode, Value Forward Advisory. It's actually a friend of the pod named Zach Ryan. If you're watching this on video, I've pulled up his website. So he's a fractional CFO, does tax, valuation, exit plannings based out of Minneapolis. And they help folks that are in the growth mode and eventual sale of mature companies with up to $15 million a year in revenue. So if you're in need of contract CFO services, business taxes, and succession planning, owner, Zach Ryan is available. And he says he does enjoy this podcast and is happy to support it.

And so in our never-ending quest to break even here at Acquisitions Anonymous, we are thankful for Zach supporting this episode. So thanks a bunch. Oh, and you can find him at value forward advisory.com. So him and his smiling face are there, and he is open for business. give a holler. So this next one, I think, is kind of the better version in some ways, the one we just did. So this is also from website closers. It is an Amazon FBA, e-commerce brand in the anti-aging beauty and skin care segments.

Their website teaser has been edited. It's now under contract. It's been edited from the original teaser, which is much better, actually. So I think I may kind of read through the original teaser on the email. So the business has five skews, which are very upscale products, vegan and plant base, retailing for $40 a unit, with an unbelievable landed cost of $1.30 a unit, including shipping into FBA. They have done no PPC so far, which is PPC, pay-per-click on Amazon advertising for any

these products, which is a massive scale opportunity for a new owner to capitalize by simply turning on Amazon ads. Revenue of about $850,000. cash flow, wait for this, $6333,000. So that is a, I mean, if this is accurate, this is an SDE margin of 75%. The asking price is 3x cash flow or $1.9 million. So, and I think the big red flag in this listing is year established 2020.

So this is a very young business, you know, 12 to 18 months old, kind of rockets out of nowhere to 850K of sales, great margins on these beauty products. It says they are artfully designed, high-end beauty brand that catches the eye and most demanding consumer, high profit margins in the anti-aging skincare niche, trusted and reliable supplier

with fast lead times being one of the strong assets of the business, including scaling and expanding more streamlined. By the way, this is the tell that this is a private label product. The with fast lead times means that the manufacturer already has the formula and they're just slapping this brand's label on it, which is rampant. Does that mean it's domestic, Bill, or it's still, it's still international? Yeah, typically this is a domestic kind of skincare products manufacturer. They have a menu of products that are basically, you know, you can't change them because

that would require separate FBI approval and et cetera. So this was called private label. You just slap your label on their product, as opposed to contract manufacturing, which is where you kind of can make up your own formula. lead times on contract manufacturing typically six to 12 weeks and longer on the first one because you got to develop a product. So it says it's an easily relocatable business model, hugely flexible in every way, low workload because it's all FBA and only five skews.

And it says they're kind of like serum products that you put on your face. Their scale opportunities are to launch on Shopify, as we just discussed, turning on their Amazon ads, which does seem like relatively low, and fruit, expand Amazon International, listing the existing products in other online marketplaces like Walmart, eBay, Etsy, et cetera, which almost never moves the needle at all for any brand. Like you typically, Walmart is typically one to five percent of sales of Amazon sales, so not a huge growth opportunity. And they also say you can add more complimentary products to the line, creams, lotions,

facial cleansers, other items, et cetera. What do you guys think about this one? It is amazing how fast things take off. Not knowing anything about ecom. Not knowing anything about ecom. Like my my radar goes up because I just think their margins have to get competed away. It's less of that, Mills, and more of that one person who's running this business. Like as the business scales, they need to add overhead.

Like this is the classic, you know, SD is not the normalized operating margin in this business, right? This is one guy who's not paying himself, right? and as they get bigger and bigger, they're going to have to add more staff. And in order to compete, the way the margins get competed away in this is that as you get bigger, you know, people do come into your niche. And in order to play ball, you need to hire more marketing resources. You got to put out more content. You got to pay more money for ads, all that stuff.

So your margins, it's not your price gets eroded, is that your cost structure explodes. Yes. Because right now their cost is, you know, what a dollar? What did it say? $1.30 a unit. Sell $40 a unit. on a $40, you know, skew, I mean, if the category gets competitive enough, you could be paying, what's the paper click?

Or what's the customer acquisition cost on something like this? It could be $4 or $5, right? Oh, $4 or $5.50. Oh, my gosh. Oh, yeah. Oh, yeah. Because this is the type of business where everybody knows it's a repeat purchase business. So people will spend way into the J-Cerve on repeat out, you know, like,

lifetime value to acquire customers in this industry. And in a framework where there is zero switching costs, that's mind-boggling to me. I mean, this is, this is what brand is, right? You know, people come back because they use that serum and their skin looks better. And they don't really know what's in it. You know, there's voodoo in the jar and they don't, like, don't screw it up. But it is, speaking of the voodoo, the thing that stuck out to me here in this version of the teaser is these products are being made in Noida, India.

No-I-D-A-India. Really? N-O-I-D-A-N-A-N-A-N-A, which has become an exceptionally reliable manufacturer of these serums. And, like, I've been to India and China. Like, there is nothing there besides soap that I tend to want to put on my skin. Like, those are not, like, you know, like, when I buy something like this, I want to come from Germany or Sweden, you know, a place would clean fresh air. It just scares the heck out of me. But on the other side,

yeah, I wouldn't advertise this. If this was your teaser, you would keep this fact on the deal. Is that what you're saying? Probably and definitely my mark. Yes. Yeah. I mean, unless they, to the customer base, see that as a benefit? Like, I don't. Unless maybe the customer base is Indian, in which case maybe. I mean, the internet's a big place. That is fascinating. What do you think, Bill, about the fact that they have five months worth of sales is sitting in inventory? That seems, so let's talk about contradictions in this listing, and this is one of them. So there are a few things here that are just enigmas to me, which is they talk about their fast lead times, right? And yet they're sitting on five months of inventory.

So that tells me maybe there, I mean, this business is so young, maybe there was like a massive upfront order they're still working through. But again, now that makes me worry about MOQs. It seems, I mean, this could be nothing. This could just be laziness and this inventory is so cheap. I mean, their gross margins are so good. It might make sense to just buy more, get the best price and carry six months at a time. Possible? They do say, too, that it's like somewhere in here, it's like healthy monthly average of 1,200 units being sold.

So you're talking about 6,000 units times, you know, $1.80 or whatever it was. That's only 10 grand. I mean, yeah. So they got 10 grand of mentor. This is the beauty of high gross margin businesses, right? You can scale them and the working cap is just not that bad. The thing that, I mean, the number one to make a question about this listing is how the hell did you do this without advertising? Right.

So, I mean, this business is not even two years old, has in a brutally competitive category, I will add, face serums on Amazon, brutally competitive. they're at a premium price point of 40 bucks. I mean, you can get type vitamin C serum into Amazon. Like, you can get have, they can be had for $14. And by the way, they're all the same crap because they're all private label. It's all these exact same thing. So how in the world, in less than two years, did they take in a brutally competitive category with no brand outside of Amazon, right?

It's not like they got all these Instagram followers or something. How did they go to a million in sales at bonkers margins at premium price point in the most competitive online marketplace in the world in a brutally competitive category. I don't have an answer for that in this teaser, and they didn't use any advertising. And I will say that I would be completely unsurprised to find out there's a lot of shady shit going on behind the scenes. They are sending out free units. They are gaming the Amazon algorithm in 10 different ways. I would also be completely unsurprised to find that this was not seller's first business. And in fact, they have sold five other businesses like this that they just spin them up.

They've got like a black hat network of review manipulators, right? They pop them and they sell them through, you know, website closers every time, you know, after 18 months. This is a common pattern. So I would have a lot of questions about who is seller, what are his prior businesses, et cetera. One sentence that based to that theme, which has me suspicious, you know, putting on tinfoil hat, girdly here, is the sentence that says, it has taken this creative business, just 12 months to reach this lofty position.

That word creative is like, one man's creative is another man's shenanigans. And, yeah, like, it's a euphemism for sure. We're so creative, meaning we're shady AF. That's definitely something. But, I mean, I do think the hypothesis, maybe this has carved out a niche, right,

in, say, targeting a specific ethnicity or skin type or skin condition, I mean, if you dug into this and found out that it was building a unique brand in one of those kind of very true niches. Would that change your mind about this business? Some, although as you said, competition comes fast. The thing that weirds me out here also is that they only want 3x for it, which tells me that they want to sell fast.

I mean, if this is a quality business with a quality brand that is actually scaling on this trajectory, it's worth 5x plus. And they know that. website closure knows that super well. So why is it priced at 3X? Just because it's young is what they'll say. But it's because it's young and they want it to sell fast. I mean, I will go out on limb here and say,

it is not possible to do what they have done here without any Amazon advertising unless you are either black hat or you have some sort of external cheat code like an influencer's name on it or, you know, Jessica Alba is your partner or something like it. It is not possible to do this without cheating or without having a cheat code. That's kind of what I was wondering is like, I mean, surely, right, a seller, like you could, you could kind of link up with a celebrity and a celebrity could totally do this just on repeat,

right? Jazz up a business, put their name on it, put it out to a million followers, and then just rinse and repeat and just let somebody kind of pick up the bag. Yep. Yep. And, you know, they just post about it a few times on their Instagram. They've got 20% equity stake in the business. You've got a behind the scenes operator. I'm not saying that's what this is. I have said, I'm saying that I have seen this before a couple times. Yeah. Which I think we've talked about influencer-driven brands on the podcast before and why they're less often transactable unless you keep that influence or interested.

Yep. Super interesting. All right. What's a cool one? So, Bill, I mean, like, Zooming out from this, you own more than one brand that does direct-to-consumer e-com. You have bought, you've transacted both buying and selling. It seems like with a high bar, it's got to be so hard. Like, is your goal that you could buy one e-com business a year? Or like, is that even realistic, you know, with kind of a very specific strike zone? Yeah, so that is our goal, is to do one a year.

Okay. And I mean, I think faster than that, you have to compromise on quality. You just do. I mean, there's tons of these Amazon aggregators out there that are transacting multiple times a month. And I mean, I'll just, I'll just tell you, like, you're either doing your own sourcing, right, where these businesses are coming to market, which we do, and they're doing too. So they're doing their own sourcing or to transact that fast and that frequently. The bar is lower because they've raised billions of dollars that they've got to blow out the door. You got to deploy it. So I'm not saying it's not going to work for the. them. I'm just saying they're operating at a different quality bar than I am. Right. And you just got to you got to be running the smash and grab game, right? And you also got to be willing to pay up too. So this market has gotten so hot that, you know, good businesses are for sale. There are so many great e-commerce businesses out there, great ones. People typically don't sell them because they're so good. But, you know, when they do get sold, they transact at great multiples, five plus X EBITDAB, or more at times. I mean, I've seen seven, eight, nine times lately in the market for a good growing e-commerce business with like a stable, unmessy supply chain and a limited number of skews. I mean, it's, and there's billions of dollars in aggregator capital out there that will pay that price.

Yeah. So it's crazy because, I mean, you and I've had plenty of science. bar conversations about different categories. And it never ceases to amaze me how much insight you have on these different categories. And like you, I mean, you bring in things like shipping weight and average order value and things that I would never think about. And it just makes me realize, like, how big the universe is of e-commerce sales and how small the strike zone is for things that are actually worth transacting on if you know the nuances. Right. Like, you could buy something that seemingly is really good. And you probably have done this right on your own learning curve.

Deals that you got super excited about five years ago, now you're like, I would never buy that. I would never do that. Oh, yes. The bar gets raised. Oh, I've gotten creamed. I'm asked, like, suns, I learned the hard way about seasonal businesses. I should have just asked Michael. You know, we had a sunscreen business. It was brutal. The thing I will say, though, is it is not that the e-com businesses that I like are the only good e-commerce businesses. and it brings back to what has become my mantra on this podcast, which is buyer business fit. These are good businesses.

I think there are some things that are objectively good about them, but there are a lot of things that are also subjectively good about them for me, right? This is where my experiences. This is where our existing supply chains are. It leaves a lot of room for marketing. So we've got, you know, these businesses play into our moat at Elements brands a little bit. I have a buddy who specializes in oversized, stuff through FBA. So think like mattresses, pillows, floorboards, you know, stuff to build a deck,

you know, things like that, which, oh my God, I would not touch with a hundred foot pole. But he has built a nationwide network of 3PL facilities. And he does, he doesn't do FBA. He does seller fulfilled. And he's able to offer these on Amazon. And the competition in these categories is much lower because the moat is operational, right? So he can buy, you know, businesses that scare a crap out of me. But he loves them. He vacuums them up for really low multiples too because no one can buy them, right? Aggregators can't buy them. They're not like pure FBA. There's all these operations and employees and stuff, but he's already got that. So he gets a ton of synergies out. He puts them in his same distribution centers and crushes it.

So it's about e-com. I think people think e-commerce is like one. sector. You know, that's like saying retail is one sector. You know, you've got, you've got to pick your spots and build a competency, just like anything else. Yeah. I love it, man. Fun, fun hearing you talk about that. You got a lot of insight. These are two good deals and really, really insightful. So thanks everybody for joining us and we'll be back again next week.