How To Prepare Your Amazon Business for Exit

Enjoy a new episode of  podcast The Ecommerce Lab By Ecomcy by Vincenzo Toscano, our Amazon expert.

The Ecommerce Lab By Ecomcy by Vincenzo Toscano

For Amazon business owners eyeing a lucrative sale, this episode is a goldmine of strategic insights. Meet Chris Shipferling, a leading expert in business consulting and investment banking for the lower middle market. As the founding partner of GW Partners, Chris specializes in securing top deals for eCommerce entrepreneurs.

In this discussion, Chris unravels the crucial strategies essential for preparing your Amazon business for a successful exit. From assessing brand potential and enhancing financial performance to diversifying sales channels, mitigating risks, and attracting ideal buyers, he shares indispensable knowledge.

Discover the pivotal factors influencing your business's value and how to optimize them. This episode is a comprehensive guide for those seeking to maximize the sale of their Amazon businesses.

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Introduction

Vincenzo: Hello, guys! Welcome to another episode of The Ecommerce Lab By Ecomcy, the place where we dive into all things related to Amazon FBA, Private Label and eCommerce. I'm your host, Vincenzo Toscano, the founder and CEO of Ecomcy. Today, we have a special guest with us, Chris Shipferling, the founding partner of GW Partners and also the founding partner at South Hall—two amazing companies that specialize in helping businesses navigate the intricacies of exiting the eCommerce space.

And that's actually going to be the conversation today. We know that in the last couple of months, if not years, the whole space has been a bit all over the place when it comes to aggregators, multiples, and people not knowing how to prepare for an exit. Today, Chris, with all his knowledge and experience in space, is going to share some of those “gold nuggets”, as they call it, to ensure you maximize the exit when you reach that stage. So, Chris, it's a pleasure to have you here on the show. How are you doing, my friend?

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Understanding Chris Shipferling's Background

Chris: I'm doing good, man. It's good to be on. Like we were saying earlier, it's nice to finally meet. I've seen a lot of LinkedIn posts with you in them, and I've seen a lot with your business posted everywhere. We know a lot of the same people, and at least we can now meet virtually. So, nice to finally meet you.

Vincenzo: Let's start with you, Chris, because I know you have a very interesting background as well before founding and working on these two amazing companies that I just quickly introduced. So, tell me a little bit about what brought you to where you're at right now and some of your experiences with that.

Chris: Yeah, my entire career was focused on being a sales and marketing executive in consumer products. I worked for companies that were both publicly traded and owned by private equity. I started off at a Japanese company that was publicly traded in the UK. I worked for their subsidiary, starting off as a low-level employee. My Japanese was not that great back then.

Vincenzo: Sushy?

Chris: Sushy, yeah. That's about all I remember. I was getting pretty good because every time I would go visit Tokyo for board meetings, they would put me in the area of Tokyo where they don't speak a lot of English. So, my hotel, it was a struggle. I had to use a lot of sign language.

Chris: I spent a lot of time in China, working with factories that built and manufactured and produced designed products for very large household brands. It was a really great experience, learning how to effectively understand how a consumer products brand works from manufacturing, producing the idea, differentiating the idea, solving a problem, to then all the way from supply chain to distribution and retail channel strategy. And we sold it to everybody. 

That's really where I cut my teeth on leading the charge for the company, working with a lot of e-tailers as we called them back then. Sitting in a booth at the ABC trade show back in 2003 or four, and this bookseller came up saying they wanted to sell baby products, and they happened to be called Amazon.com. No one wanted to sell to them because they were like, "Well, this is just a bookseller." I think we were one of the first baby brands to actually sell to Amazon.com back in the day.

Vincenzo: Wow.

‍Chris: And then just establishing. I remember getting a phone call from a guy, I forgot his name; he was the buyer at CSN stores, which turned into Wayfair. The genesis, like Zulily, I worked with a gal from babyuniverse.com who was like the 10th employee at Zulily, and I saw the genesis of all these e-tailers starting to pop up. Through that time, Amazon FBA was a thing. My brother-in-law was one of the first guys on FBA, back in 2007-2008.

So, it was a more extensive experience. I worked with people from Procter & Gamble at Evenflo, a great learning experience. I served as a director of sales there for a few years. Later on, I worked for a Barcelona-based company for about four years. They hired me to bring their product into North America. Their organic markets were in Spain, France, Italy, the UK, and Germany, with no presence in North America. 

So, I was stuck with a bunch of inventory, going through different collections. I was tired of hearing what the buyer had to say at Bye Bye Baby. I said, "Hey, it's time to learn about Amazon." I actually listened to the AM/PM podcast religiously with Money Coats. When I first met Kevin, I was like, "Hey, man, you taught me Amazon. How are you?" 

Vincenzo: Kevin is like that grandfather that everyone has, you know, the one who teaches you all the different things in life. 

Chris: That's Kevin, the professor of Amazon. Anyways, I did all the white papers, downloaded as many podcasts as I could, and learned how to take a widget from a warehouse and run it through back in 2014-2015 when advertising was much simpler. I learned that keywords matter, where to do keyword research. Many just launched Helium 10 in 2015, and I was really learning how to optimize. I knew this is where the world is headed—direct-to-consumer is going to be not the thing.

I also learned direct-to-consumer, what it's like to reach the consumer and have that conversation with them through various acquisition channels. At the time, the acquisition channels were a lot simpler to — Google Ads, SEO, and mainly Facebook advertising, which included Instagram and Facebook, obviously. TikTok wasn't as prevalent back then.

I don't even know if Pinterest was around yet. Not many people were really doing much with Pinterest. Twitter was not really a thing for consumer product brands. So, really just focusing on those activities. How do you help a larger company think through optimizing their website for conversion and which acquisition channels and metrics they should be thinking about? So, that was kind of my journey. I met these guys here in Charlotte; we started Global Wired Advisors. 

They were investment bankers, big managing directors of institutional investment banks. They had the financial engineering, and they all became entrepreneurs. I was an entrepreneur at the time, of course. Then we just said, "Hey, why don't we take what you normally get out of, you know, if you're a large company and you go to Bank of America and say sell my business? The process by which you go through to sell that company is very different from a process through a business broker. There are no listings, no email lists, lots of thoughtfulness, thoroughness, detail, complexity, real strategy, thinking through who are the right people to buy this, and how are they going to think about it?"

Whereas a broker, which has its place in what I would call Main Street, you just put together enough like a real estate listing. It's just enough, and the seller or the buyer is doing a lot of their own legwork, trying to understand what's really going on with the company. To be honest with you, the broker truly is just more or less a facilitator. So, we said, "Hey, why don't we take this process that has worked for Fortune 100, Fortune 500 for a very, very long time? It's highly effective; it optimizes the sale of a business. Why don't we apply it to businesses in this e-commerce, consumer product space?" So, we did that about six years ago, pre-aggregator. So, I can say…

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Strategy for a Successful Amazon Business Exit

Vincenzo: You're one of their first.

Chris: Yeah, you had some good brokerages at the time; you had Quiet Light Brokerage, Website Closers. They've been around for a while, and you had a few others. But what we noticed was no one was really doing what I said, which is we didn't really see anyone taking an investment banking process and applying that to this particular space. 

Vincenzo: Let's be honest; most people six years ago were never thinking about exiting an Amazon business.Selling on Amazon was more about making a quick buck and then closing the account. It was never considered a real business. 

Chris: Absolutely. It was like, "Hey, I'm going to arbitrage. I'll find products at the store for $1 and sell them for three. I'll go to Alibaba, hack it, find trending keywords on Google”– it's like crypto, which altcoin is about to explode and then crash.

And then, around that time, we discovered that people were either using Amazon as a sales channel, having a real brand – a diversified brand. Or they were primarily on Amazon, but they really cared about their brand, products, and solving a problem. We came on the scene in 2018, and that's when M&A activity started to pick up. At that time, we weren't dealing with large businesses; it was more about selling businesses for one million, two million, five million, ten million. Then, suddenly, the pandemic hit, and everything changed. That brings us to where we are today. I can go into more detail about the pivots we've made since then.

Just sell and give it a good try. Let's see if anybody bites. We're going to actually deploy lots of thoughtfulness and strategy into the company to mold it towards when is the right time. So it's thinking that we'll just try to, no, let's actually discover the right path towards when is the right time at the right value. Does it match your goals? That's when you really get the good molding of the two."

Vincenzo: Now, let's start touching a little bit about how this whole thing started and where we are right now because, let's be honest, in 2020, 2021, when the whole explosion of aggregators came into play, yeah, I mean, I remember I was having at least five emails per day from people aggregator saying, like, "If you have a brand, I give you 5% referral, 10%, 200k, $1 million," things like that, you know, so it was all over the place. 

And the multiples were crazy. Like one of the reasons that I feel like the situation got so bad is because they had so much money in their hands because everything that was going with Covid and the government basically giving money for free, they had to deploy this money. And because they didn't really understand e-commerce in depth, some of them, they just needed to deploy this money regardless. 

And they were paying these six to 10 times multiples that there's no way you're going to make your money back. That's right. And some of these businesses, I feel, could even improve them further. We're just buying them, and then, you know, we're not going to do anything better on this business.

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Current Market Conditions for Amazon Business Sales

Vincenzo: So the reason why I want to make this introduction is because now we come to 2023. Things are completely different. Some of these aggregators went out of business. They couldn't handle basically all this bleeding in terms of the money invested, and some of these brands going under. 

And now we see, basically, you know, the market reaching a stable situation where things are going back to normal. Multiples are back to two to three times across the board. Again, there's some exceptions, but that, which we can touch on. But I want to hear your feelings on this because so much has changed, and I feel when I talk to my clients and people in the space, like, people now feel discouraged because some of them feel like, "Oh, man, I could have gotten six, seven-time multiples. Now the multiples are nowhere there. Now, like, what should I do to maximize my exit? What are some of the tips? Should I wait? Should I sell now? So, what is your take on that?"

Chris: Yeah, well, to anyone who thinks that, just remember, there's always the trade that got away, and it's more the trade that got away than not. So you'll always meet the guy who says, 'I could have invested in Google in 1998. I could have invested in Amazon in 1994. I could have bought Bitcoin at 10 cents back in 200.' You always have that. So, just take that away, right? And in this case, unfortunately, the way you just described it was perfect. You had an anomalous event, and that only comes 

Vincenzo: Yeah, once in a lifetime, man. 

‍Chris: That's really what it is. It's a lot like what we're experiencing in AI right now, which is a lot like the Industrial Revolution in the early 1900s and late 1800s. It only comes once a century where you have this seismic shift in the way that we conduct business and the way that we conduct commerce. And so, this was a blip. It was an anomalous event. We have reverted, exactly what you said. There's been a reversion back to, you know, two, three, four, maybe, five multiples…

Vincenzo: If you have a unicorn…

Chris: Yeah, if you have a unicorn. And we'll get into, we'll get into in a moment. There are, I mean, CPG brands are still trading for six, eight, nine, ten, eleven, twelve multiples. I mean, that's normal. CPG has slowed down, and multiples have compressed slightly. But at the same time, like, it's a whole different ball game than just your audience listening who's Amazon only, which is a contrast there.

So, yeah, I mean, look, you nailed it. The state of the market was up, completely back down. You got a lot of sellers who are now going, 'Well, what do I do next? Yeah, what am I supposed to be focused on?' I think almost just, you know, by what I would call, you know, organically, they've just said, 'Hey, that was anomalous. I'm just going to focus on growing my business.'

And yeah, I mean, the current state of the union is if you've got an all-Amazon business, yes, absolutely, it's not easy to sell the company. It's not as easy as it was two years ago. So you've got to really now focus on what I would call, you know, true asset principles for your consumer products. 

I mean, you have to start thinking about yourself as a consumer products brand and not like what we just said, which is, 'Well, I'm just going to hack my way into, yeah, growing this company.' That's actually, and I want to say this, and I've said this on a couple of other podcasts, that's a totally, totally fine way of running your business. There is no good or bad. Yeah, it's the outcome. 

Vincenzo: It's the end; that's just a very decision you make. 

Building an Attractive Amazon Business for Sale

Chris: Yeah, exactly. So if I say, "Hey, look, man, you know you and I we're gonna go into business together and all we're going to do is cash flow this thing," well, that's a much different mindset. Where we're going in, basically saying, "Okay, let's do the keyword research thing, let's try exit, let's automate it through AI, let's do all these things to where, hey, if it goes away or if it goes away in two years, we don't care. We're gonna cash flow it. 

Now let's have a discussion about that cash flow. Is it my own personal bank account? Am I reinvesting it in other activities? Am I sending it off to real estate like? What am I doing with that cash flow? If you want to actually build something to sell, if you want to build something to then eventually exit, and you're a consumer products brand that's only on Amazon, well, now you have to flip your mentality because it's a different ball game. 

Now you have to think about it in terms of, okay, there's a path and a strategic plan that I have to follow. There's a way to build this brand. There's a way for me to know, I have to think differently about my product development. I have to think differently about the way that I present my brand. I have to think differently about my listings. 

Chris: And the other thing, a lot of people don't realize or don't think about is the mentality has always been on SDE and a multiple of historical data. When you want to try and bring multiples up, you've got to think about the future. And the future—there's a lot of brands that are not really... There's a lot of Amazon-specific owners that have, of course, thought about the future. So I'm not going to be egregious, but they've never really taken the time to go, "Okay, I'm actually going to plot out the future exactly."

Vincenzo: Sometimes there's always this fear that comes into play in the strategy. Like, I either do it and I fail doing it. And therefore, if I fail to do it, when it comes to selling the business, that's like a stain on the business. Like, I tried, and it didn't work out. Or I could sell it as an opportunity, right? And that comes down a little bit to what you're basically outlining, which is thinking about the future and how you picture your business for future growth.

So, basically, to summarize, if you're in a position that you have the opportunity to add other channels like Walmart, Shopify, expand to other countries, or you have the option to streamline all your things in the US, get your profit right, your sourcing prices, and everything, and then picture like, "I haven't done these opportunity is there like with these two scenarios real. What do you think? 

Chris: Yeah, absolutely, great question. I know it's a question for a lot of brand owners, for sure. Bottom line is, if you don't actually go and exercise those potential acquisition channels or sales channels, then you better have a highly defendable opportunity. Like, you can't just write down, "This could go on Shopify." Well, if I'm a sophisticated buyer, sophisticated buyers pay more. 

Vincenzo: Exactly. 

Chris: Most of the time, you do have stories of people, you know, "I don't know, I plotted it out, but then it just went crazy, and I didn't, I was unexpected," and it's like, that's the exception, not the norm. And so that's kind of how I address that, which is okay, cool. Like, if you were to go for it and fail, I would have been able to make your opportunity fail on paper for sure. 

Vincenzo: Nice. Good. Now I bet a lot of people that are hearing this and watching this, they might be asking, "Oh, this sounds interesting. I really want to dig further and see if I can sell my business. How do I identify if I am at the right stage to sell my business?" 

So I know right now the criteria from most people has changed completely compared to the last two years. Like now people are looking for higher revenue, different profit margins, and so on. So can you briefly touch on right now in 2023, what is realistically a business that is attractive and has a good chance to have a successful exit? What would you say? 

Chris: Yeah, yeah, I mean, look, it really, again, it just goes back to your goals. So for instance, if you're listening in, you're a one to two million dollar brand, there are buyers out there for your business, and if you're just only on Amazon, but you've got a defendable product, you've got defendable forecasts, defendable projections, there's a buyer, especially if you're domiciled in the United States. You've got the ability to exercise what's called the SBA loan, which I think you might be familiar with, so you can purchase a company through the SBA loan. 

While interest rates have driven those interest rates higher, there's still really great SBA loan brokers. A good friend of mine is one here in Charlotte, Steph Spear, is another guy who just does a great job when it comes to helping buyers identify good opportunities and utilizing that SBA loan. He's got his own pool of capital as well to kind of help those buyers identify more, what I would call, Main Street businesses, small businesses. 

So there's still a buyer, but you hit a ceiling. Like you're just going to sell for two, two and a half, three multiples. That's all you're going to get out of it. Now, people go, "Why should I sell?" And I always just go, "Yeah, look at your salary. When you're a million-dollar business, you're not making anything for salary. You're putting all of your money back in inventory." So at that point, if I've got 200,000 of SDE, and someone's offering me 800,000, that is literally 8,000% more than what you make at zero dollars or whatever.

Vincenzo: It is, exactly. 

‍Chris: So that's my argument to them, which is you're not making anything; you just have a million-dollar business.

Vincenzo: But it sounds amazing to tell your friends that you have a  million-dollar business.  

Chris: It's amazing. Until you and I are at the pub, and I have to borrow money for my beer, right? So, that's where it's not amazing.

Vincenzo: Um, yeah, I know. 

Chris: So that would be the argument there. I mean, look, you know, anybody who's really grown something pretty strong on Amazon, um, that's listening right now, they've got a real defendable product. They're really concerned about brand building. Um, you know what makes you a more attractive Target? It's a lot of what we just discussed. I mean, you know, we could spend a whole podcast going into... we could do a whole series going into... going by function and what makes you more attractive. 

That's really what I'm trying to say. And unfortunately, Amazon has a propensity... Amazon as a platform has a higher propensity for commoditized products than differentiated products. Unfortunately, commoditized products don't sell. They just don't. They don't sell in terms of no one really wants them. Um, so, kind of focus on brand building and then you really start to take yourself... you're already taking yourself seriously. 

So, I don't want to dilute that you're taking yourself seriously on Amazon. Now it's time to think about a strategic plan to get off Amazon and to think about how I can now diversify into what I would consider concentric circles of difficulty when it comes to becoming a more attractive target, right? If I can. 

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There's real, there's actual, you know, CRO optimization that's happening. You have an SEO strategy that's building in aggregate. 

You know, these are the things you build a community of followers through social media, and you're becoming a brand at that point that people are telling their friends about. I don't tell my friend to go buy scotch tape, but I am gonna tell my friend about this new brand that I just bought, Bad Birdie and Swan's Golf Apparel, because it's cool stuff and I like what they stand for and I really like the brand. 

And so that's when you start to get into more difficulty and the more complexity, difficulty, the more attractive you're going to be because you've built a foundation for someone to say, "I can build on this," whether that's through a strategic that says, "Hey, I can take you and run you through my operations and I'll get a ton of operational leverage and a ton of economies of scale and, oh, by the way, you already have a brand that people recognize." Yeah, those. 

Conclusion

And then the final concentric circle is, I mean, I gotta call it out. I mean, if you can get into retail, that's your true litmus test where, yeah, you haven't, I wouldn't say you've arrived, but if you're successful in retail, you kind of have arrived. I mean, when you can really sell to a Target… 

‍Vincenzo: …and Walmart…

Chris: …or something, yeah, I mean, Manscaped is much, much, much, dude wipes, Manscaped, they're much more valuable because they got into retail, much, much more valuable. 

Vincenzo: I know, awesome Chris. So I mean, thank you so much for all your insights and all your knowledge. It's been a pleasure. It's been a pleasure and I'm looking forward to having you in the next one.

‍Chris: Yeah, me too, man. Thank you so much for having me. I appreciate it. Thank you.