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In this, the first ever episode of the Brand Builder Show, I sit down with none other than Jon Elder.
Jon launched his business on Amazon in 2014, and went on to sell it for multiple 7-figures in 2019. He now uses his expertise to help other sellers go the same route.
Key Topics:
- How to build your brand in a way that creates the most value for a potential future buyer
- What goals you should be looking to shoot for if you’d love to one day sell a business for 7 figures
- The keys to growing a team that supports the growth of the business without adding unnecessary pressure
Episode Links
Talking Points
00:00 Introduction to Guest – Jon Elder
03:05 Jon Elder’s Background
07:28 Why aim for exit?
17:26 Preparing for an exit
20:20 Goals for an exit
24:08 Future of selling an Amazon business
26:46 Selecting a buyer
30:42 Best time to start paying yourself
33:14 Fundamentals of a seven-figure exit
40:44 How to reach Jon?
Connect with Us
Useful Resources
- Explore Brand Builder University – courses & coaching to help you grow your brand.
- Free PPC Evaluation Tool – analyse your PPC performance against your top competitors.
- Amazon Bookkeeping Made Easy
- 50% Off Helium10 Software Suite
- Amazon Listings Done For You
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Ben Donovan 00:00
Welcome to the very first episode of The Brand Builder Show. My name is Ben and I will be your host and I am so pumped for this new podcast that is designed to help Amazon sellers become brand builders. And we’re kicking it off with a big one today for the first episode, the inaugural episode of The Brand Builder Show.
Ben Donovan 00:19
We’ve got Jon Elder coming on for the first episode today. Jon or as he is known by his Twitter handle or his website, Black Label advisor, is someone who has built an Amazon business started in 2014 and sold it in 2019 for multiple seven figures. Someone that knows his stuff when it comes to not just selling random stuff online, but actually building a real cohesive business, something that’s got a lot of value in it that becomes an asset. That of course, as you know, ultimately changed his and his family’s life. And so today, I’m gonna be digging into all of that with him, asking him how he did it, what that journey was like, how the sale went through, how stressful it was, how you at home can really set yourself up for an exit of a business and really do well in that.
Ben Donovan 01:04
And so I’m excited for this episode. This is the first episode of The Brand Builder Show and I would love to kick off with some momentum. If you do like the content of this episode, the premise of this show, then please do rate it on the podcast app that you’re listening on Apple, Spotify, Google, wherever. Tap that five stars, give us a little review. I would massively, massively appreciate that. I’m not going to ask that every episode but it is the first one so I do need to get that in there. And if you’re watching on YouTube, we’re going to be putting these episodes in video format on YouTube, as well. We may look at sort of shortening some of them down for YouTube to make it a bit easier to watch in video. Let us know, give us some feedback. This is your show too. I would love to hear from you. Number one, what you think we can do better as each episode goes. Number two, who we can get on the show to really pick their brains.
Ben Donovan 01:53
My heart, my goal with this podcast is to really help those people that come into just selling online or being an Amazon seller just to make a little bit of money on the side, turn it into a real business, a real brand that becomes something that you’re proud of. But also can become an asset that can provide a potential exit for you one day that really helps you to live the life that you dream of, provide for your family, do all those amazing things. And so we’re going to talk about building valuable businesses along this way with some really valuable guests so your support and helping us do that would mean the world. I appreciate that. But without further ado, let’s jump into the first episode with Jon Elder. It’s going to be a good one.
Ben Donovan 02:33
Welcome to the first ever episode of the brand builders show. Jon, thanks so much for joining me today.
Jon Elder 02:38
Absolutely, Ben. It’s great to be here. It’s an honor to be on the show.
Ben Donovan 02:41
I’m super excited to dive into your journey – someone who has built and sold an Amazon business for multiple seven figures. What an honor to have you as the first guest! I know it’s going to be an action-packed show so to kick us off, why don’t you just give us a little bit about your background – how you first got into selling online, why you got into it, what are the timelines? Give us a bit of that background and then we’ll dig into the story.
Jon Elder 03:05
Yeah, like so many people, the goal is time, freedom, financial freedom. And for me, you know, I went to the University of Washington. I studied Construction Management and I thought I was going to be in that field pretty much forever. You know, you get your degree and you go in your field and you never leave. I soon found out that it was just an extremely demanding field and it was one where you go from one project to another and the workplace environment might not be suited to you. And you can’t control that, obviously. You can’t control the client, you can’t control the upper management.
Jon Elder 03:40
So I wanted to start thinking about business ideas that were time flexible and low requirements for initial capital investment. And so I looked into franchising but I’m like you know what, “I’m not going to take out 500 grand for that. I want to do something small that I can scale over time”. And so that’s where private labeling on Amazon came into play. So it was just a ton of research. I kind of gathered my idea behind it and started in 2014 and that’s when really the journey started. So I launched my first sporting goods product and that became the number one seller in that category pretty much overnight. And just use the same practices of exploiting niches and looking out for different opportunities, better materials, better value, better packaging, being better than every competitor in offering something new and different.
Jon Elder 04:44
And, of course, there are mistakes made along the journey. But I just kept learning from each launch that I did, and kept growing and so that led into five total brands. All the brands were very successful and then I exited in 2019. So I exited right before COVID which is pretty crazy. It was a private buyer and that whole process took nine months. The first lending bank failed, they pulled out the deal and then the buyer had to find an alternate bank. It was a pretty stressful journey for exiting, it’s not common. Most most exits happen within four months or less so it’s a rocky journey but one that I learned a lot from. And I’ll just mention this, so many people are not thinking 5, 10 years out, that was something I did. So I had a vision board, literally a whiteboard. And I had a specific multiple seven figure number for an exit someday.
Jon Elder 05:53
In 2014, it was just kind of an idea. And as I heard, Amazon was experiencing 100% year over year growth. I’m like “Wow, we could hit this number a lot faster”. So we hit the goal number in under five years and exited. So everything I did was focused on that exit and that’s something that is so important, especially for people listening – really think about your goals. Some people say it’s a legacy business and they want to pass it on to their family and that’s awesome in its own way. But a vast majority of people do want to exit so it’s really important to focus on the mechanics of keeping your business really clean for an exit.
Ben Donovan 06:38
Yeah, that’s really good. I’d love to break it down a little bit from start to finish because you start in 2014, sold in 2019, really before it was trendy to sell an Amazon business. Because it’s all anyone seems to talk about these days – selling an Amazon business, the big exit. But you did it before it was trendy. You had an idea in mind from the very beginning to sell the business before anybody would have been talking about that. There would have been lots of other things you could have tried to do. A lot of people focus on cash flow but you had that exit in mind. What was it about an exit that you knew what you wanted to do right from the beginning? Was it business training you had? Or was there someone who told you that this is the best way to go about it? What was it that got you focused on that from the beginning?
Jon Elder 07:28
You know, thankfully, I grew my Amazon business with lots of seven and eight figure sellers. And so we all kind of compiled our knowledge in a really high level Facebook group. It wasn’t any fancy group. It’s just basically a hodgepodge of sellers and we just grew over time. And just sharing that knowledge and information as so many of them exited from their Amazon business in 2018 and 2019 that it made sense to explore the idea and say “hey, let me at least get a business valuation from a business broker”. And at that time aggregators weren’t really a thing so you had to go the business broker route, which is still a fantastic route now. But you know, the next step was getting that business valuation, all the numbers checked out. I’m like “Oh my gosh. This is mind blowing. This is my goal from day one – the exit”. And you know, a broker does all the work for you so they’re doing 50 plus interviews and they’re only bringing maybe a high level five back to you for a question and answer session. So that whole process was actually pretty strong. It was the lending process that was a huge pain.
Ben Donovan 08:47
So yeah. I’ve got loads of questions about that that will come just like the broker. Because I know you can get SBA loans and that kind of thing in America which we don’t have here, which I’d love to find out more about. But going back to the beginning of the journey, when you started the brand, you had five brands. Did you still have five when you sold or did you sell them all?
Jon Elder 09:07
Yeah, all five brands were sold under one Amazon account. So I didn’t sell my entity, my LLC entity, I kept. It was an asset sale so everything related to the business was sold except the business account. So the Amazon account was sold, all the design patents, utility patents, everything like that was sold.
Ben Donovan 09:30
Nice, yes. Did you have a lot of patents and protection, stuff like that?
Jon Elder 09:34
Yeah, mainly for important stuff like some unique designs, especially some kids products that had a barrage of Chinese competitors that kept copying. And so those design patents are powerful. I had a utility patent as well for a very specific product. It was an accessory product that made an existing product very unique. And so that added some really nice protection in the marketplace.
Ben Donovan 10:03
Yeah, I know that’s one of the things because I’m a big fan of yours on Twitter and I’ve been using Twitter a lot more recently. I know it’s something you’ve talked about on Twitter a lot is “The more protection you can have for your brand, the more valuable it’s going to be for a potential buyer”.
Jon Elder 10:18
Absolutely, absolutely. They’re looking at it from a risk analysis. They’re looking at your forecasted numbers, but they’re really looking at the possibility of expansion in your brand. So people are getting pickier and pickier, especially aggregators right now. So just because something looks really, really strong on your P&L statement, that doesn’t mean that they’re going to buy it anymore. You need to have a strong pipeline of products. You need to have a really strong branding story. And for some people that’s tying into a charity. For some people, there’s a deeper meaning to your brand other than you’re just selling your product; there’s something meaningful behind the brand. They’re looking for great expansion opportunities now so things have changed in that direction.
Ben Donovan 11:09
Yeah, great. A question on that, because I hear conflicting advice. Some people say, you want to do everything you can to make your brand as attractive as possible. So on lots of platforms, build social media, build an audience, all that kind of stuff. And then you also have people that say, “No. Actually, these guys are looking for a brand that’s doing all of their revenue on Amazon so then they can come and do that stuff”. Do you have an opinion on the best sort of balance to find in that?
Jon Elder 11:33
You know what, I would go with option one. Every buyer I’ve spoken to, business aggregators, private equity firms and private buyers, they want to see the concept proven. Now they’re going to take something that you have built and expanded. They have financial capability. They have in-house photography studio stuff. So they want to see that you have a strong Instagram presence. They want to see that you have a strong presence in Walmart. Any type of expansion that you had, that’s great, that’s a good thing. So it’s proving that one, your business is actually less risky so that’s extremely risky to buy a business that’s 100% revenue on Amazon. I mean that’s almost sheer insanity because Amazon is constantly getting hit with new competitors. I’ve never met a single buyer that would say that that would be more of a strategic thing, maybe. But every buyer that I know and you know, have relationships with aggregators, they’re looking for an already established catalog of products, and looking for a strong following. We’re talking about your email list as well. Do you have thousands and thousands of subscribers? Well that benefits them as a buyer because then they can re-market new product launches to them so they don’t want to have to build those things from scratch. They want the bone structure to be strong in your business, and then they’re going to further refine it.
Ben Donovan 13:06
Yeah, right. Coming back to these five brands, for someone that’s starting out, is that a methodology that you would say, if you were doing it again, you would do that again? Or would you focus on one? Or was it just something that happened for you and you kind of went with it? How did it play out?
Jon Elder 13:22
Yeah, that was a strategic thing for exiting the business someday. So a lot of Amazon sellers, third party sellers, they get stuck in a single brand. And that’s very, very risky because you need to be diverse. It’s no different than investments. So if you have a brand in the kitchen and home category, if you have a brand outdoors, and maybe a brand in sporting goods, that gives them flexibility with different markets with different demographics. Maybe one category that you’re selling in has just terrible pressure from Chinese sellers and maybe the other one doesn’t. So you know, they don’t want to have one brand take a huge hit, and then all of a sudden, their cash flow disappears. They want to see multiple brands. That’s definitely something I’d recommend to everyone listening – to diversify and have multiple brands.
Ben Donovan 14:19
Yeah, definitely. When you were talking about selling it, were there discussions about siphoning those off into single brands or sellers? Was it always going to be the five together?
Jon Elder 14:30
Yeah, one cohesive package. The benefit there is that all of your Amazon selling reports are all tied to one cohesive package. Also, when you’re doing SBA loans, especially the sub $5 million type loans. They are wanting to see your tax returns for your business all encompassing. So they don’t want to have to do weird math and analyze that. That’s a huge con when you’re exiting a business. They want to see the Tax Return before the entire business. So if you have 10 brands, they don’t want to see a tax return that spliced up or they have to remove something from the revenue that’s showing there. They want to see all 10 brands because you’re going to be showing two years of tax returns and 24 months of P&L statements so there’s a lot of data there that is necessary when you’re exiting. And so you’re not you’re not going to want to split things off. It wouldn’t make sense.
Ben Donovan 15:31
Yeah, sure. Okay. a random question about SBA loans just out of interest to me. Well, I’m from the UK and we don’t have anything like that but you put a 10% deposit down, right? Get an SBA loan and buy a business?
Jon Elder 15:43
I don’t know the specific number of what’s required for that but yes, there needs to be some cash inside. We can actually just walk through my exit. So I had, let’s see, roughly 20% earn out which is paid quarterly in perpetuity in the future, as long as they hit certain net profit goals. And then the other one was a seller’s note and then the rest was cash so typically SBA loans, you’re dealing with loans that are below 5 million for the lending side and then obviously, that buyer can add in a seller note from outside funding. Earnout is something that’s negotiated between you and the buyer. And then the cash can come from his own resources.
Ben Donovan 16:34
It’s just such a crazy concept, especially from the UK, right? There’s SBA loans and you can just put such a small deposit down and buy a business that’s generating so much revenue. It’s just a crazy world.
Jon Elder 16:46
Yeah, it’s really, really cheap money right now. So that’s why you’re seeing so many aggregators and so many private buyers going into this because just the access to capital right now is very, very easy. So it’s an interesting time for sure.
Ben Donovan 17:05
Yeah, definitely, definitely. Let’s talk about the sort of the preparation stage for the exit then and then maybe a few more questions just on the exit itself and how people can go through that. But were there any sort of key things that you did in the year, two years in the lead up to that exit to prepare for it knowing that you’re going to do that to make sure that you’ve got the best value for your business?
Jon Elder 17:26
It’s keeping your business really clean and launching sustainably so you wouldn’t want to have any strange dips in your revenue. You just want to launch in a smart way. You don’t want to launch too many products with risk. You wouldn’t want to put yourself in a really bad, negative cash position; you want to launch sustainably. And if you’re thinking about exiting, you already have an established catalog of products, you need to be maintaining your bestsellers, that needs to be focused.
Jon Elder 17:59
Number one is making sure that those sales stay consistent all the way up until the exit. And a lot of people are like, “Oh, I get my initial letter of intent and I’m good to go”. But that’s not true. So what happens is, you get that letter of intent, you need to continue during the exit. Let’s say it takes you four months. Those four months, you need to continue to grow, you need to continue to launch, and you need to continue to watch your expenses. So you can’t just sit back and be like, “The exit’s in the bag and I don’t need to worry about my business”. No, it’s actually more important than ever because the bank is going to be asking for all sorts of updated documents. And so if you show this massive drop in revenue, the deal is dead. So you have to work almost two jobs – you’re running your Amazon business, but you’re also supplying all these documents to the bank as needed, and making sure that your business is remaining strong month after month during the final contracts being signed up.
Ben Donovan 18:00
Was that a stressful time for you?
Jon Elder 19:06
I’ve talked to my wife about this, and it’s easily one of the most stressful periods of time in my entire life. So it’s up there with having our two boys and seeing labor and the birth experience. But it was very, very stressful. My situation was a little different because the first bank pulled out. And so you know, there was a period of limbo. Is this going to happen? Is the buyer really committed? He found a second bank and thankfully everything was fine. But it was very, very stressful.
Ben Donovan 19:47
Yeah, man, I can imagine, it’s crazy. Do you have any recommendations, because I know you work now with a lot of sellers that are looking to go on this journey of doing big exits and that’s sort of your latest, I don’t want to call it a pivot as such, but I suppose, a natural progression of what you’re doing. Do you have sort of like goals thresholds where you want to hit X amount of revenue, and then you want to be aiming for X kind of multiple? Can you put some figures around that? Maybe people listening that have started a year or two ago are wondering what are the numbers they could achieve? What are the numbers they should aim for, maybe?
Jon Elder 20:20
If we just look at the size of your business in revenue, I would say you should be targeting at least a minimum of 5 million a year in revenue. That’s kind of a sweet spot between 5 and 10 million a year. Some people exit and with smaller businesses. One of my clients exited, I think it was right around 2 million a year in revenue. Everyone is so different. Now in terms of multiple, as your business gets larger, and more intelligent, and you garner more intellectual property, protection, your brand starts to get some buzz on social media. If you’re at that level and let’s say you’re doing 7, 10 million a year, and you’re a little diversified off of Amazon, you should be looking at multiples in the five plus region at this point.
Jon Elder 21:24
And so the reason why there’s been a compression of people just being picky. So right now, especially aggregators, aren’t buying up every single brand they see. They’re being very, very specific now. A lot of aggregators have had brands failing them. Part of that is they’re just not good operators. Amazon business is very intense and you can’t just buy into this and assume that everything’s gonna be fine. For example, even an aggregator can’t control 10 brand new sellers undercutting you by 50% of your price. You can’t do anything about that. So some of those things have happened. But really, from an operator standpoint, a lot of brands have failed because of improper forecasting in the logistics side. So going out of stock should never be an option for you. Do everything in the world to stay in stock. So yeah, I mean, they have gotten more picky. It’s something that has changed. And so now, it’s all about the brand expansion opportunity. And that’s where we are right now.
Ben Donovan 22:42
Where do you see the future of it going because there’s a lot of buzz around the world of aggregators, and through SEO, sending out cold mail pieces all around the world to three letter boxes? It’s like they’re desperate to buy businesses, right? But it can’t go on forever. People feel like at times, there’s a time limit, there’s a deadline. They need to build a business so they can sell it quickly. And you know, the opportunity to sell the business might be gone, in a year or two. What are your thoughts about that and the future, 5, 10 years?
Jon Elder 23:12
Yeah, that’s more tied to aggregators. So in reality, that aggregator mania has actually ended. Some aggregators have disappeared, gone belly up. You’re gonna see a lot more of that. But in reality, kind of like any industry, you’re gonna see aggregators condense a little bit. The strong guys are going to be strong operators. They are going to get pickier and pickier in terms of acquisitions, and they’re going to be just fine. We’re in the 70 plus right now for a number of aggregators. And there’s an immense amount of money and an immense amount of aggregators that have no idea what they’re doing. That’s part of my job as well as working with some of those aggregators to kind of write the ship and make sure they stay focused on the operation side.
Jon Elder 24:08
But the opportunity is always going to be there, that’s just reality. Everyone, 10 or 20 years ago, if you ask them, “Buddy, would you like a cash-flowing business with 20% profit?” Years ago, the answer would be yes. 20 years from now, the answer is going to be yes. It might pivot a little bit in terms of what the buyers of businesses will look like. It might transition to private equity firms, it might transition heavily to small business owners. For example, I sold to a small business owner so I didn’t sell to an aggregator. I actually flew to the business owner’s property and trained them on site, literally training someone from scratch. And then, I spent 12 months doing additional training with them. He’s in a different state. So yeah, the opportunity is going to be there.
Jon Elder 25:07
To anyone listening, I would not worry about that per se. If you’re really worried about aggregators, there is going to be a shorter window for that. And probably in about two years, aggregators are going to be ultra picky with who they pick. But there’s an entire market of private buyers. These are like small business owners, executives who are bored and they want to try something brand new with some money. And that was my situation, he was a really high up guy at a software company and he wanted to try something new. And he’s actually doing well and making money with the business and we stay in contact with each other still to this day. So the type of buyer range you know, a couple of years from now but right now everyone is obsessed with the aggregator. But the opportunity to exit is not going to change.
Ben Donovan 26:08
Yeah, that’s good to hear. I completely agree with that. And that’s my thing when people say, “Is the opportunity still there as well?” People are still buying products and people will still buy products for 20, 30, 100 years so if you can be an entrepreneur and provide solutions, the opportunity is not going anywhere.
Jon Elder 26:26
Absolutely.
Ben Donovan 26:28
That was going to be my next question, actually. It was about how the brand is going and whether that played into your selling process. Were you just like whoever gives me the most money, let’s go baby, or did you think I want to make sure that this person is going to really succeed with it? What was your thought process there?
Jon Elder 26:46
There is a portion that is very real. During interviews, you’re also interviewing the potential buyer. So you’re asking questions like “What’s your experience with Amazon? How many hours a week are you going to work? Are you comfortable with that? Are you comfortable with forecasting numbers and making sure things are in stock?” So those are questions that you ask the buyer during that initial interview. They’re, of course, asking you questions as the seller. They’re asking you “Have you ever been suspended? Tell me about your competition”, and lots of other questions so it is a joint interview. You want someone who is going to take your business, grow it, and be successful. Most of these exits have some earned out money packaged in it. And so you want him to be successful because whatever happens with the business decides that that is the driver for do I get paid this quarter? So yeah, that’s something that’s really important to think about. Don’t just sell to anyone. Sell to the right buyer who’s really invested in growing the business.
Ben Donovan 27:57
Yeah, that’s awesome. Of course, you can’t talk about details you can’t talk about. But you talked about having an ongoing payment from the exit and that’s part of the structure that a lot of people will take. So that for you, that’s just going to continue forever whilst the business is going?
Jon Elder 28:11
Yeah, that’s something that comes with a really good lawyer so you have counsel from the selling side of an exit. And my lawyer was very adamant about changing the verbiage of the earnout to say perpetuity. So some buyers of businesses get really aggressive with that and they say “We’re going to put a cap of five years on the earnout”. Well, if he messes up the business and he doesn’t pay you out any money in those five years for those quarters, that money’s gone. And for my exit, it was close to 20% of the entire exit so that’s money that’s still on the table and it’s being paid out over time each quarter.
Jon Elder 29:01
For people listening, make sure you have that in your exit contract language – that any earnout is in perpetuity. So basically what that means is if it takes them 10 years to pay me the money, it takes him 10 years. If he exits in four years, I get paid my earnout from his exit.
Ben Donovan 29:19
It is a set amount though, it doesn’t keep going on?
Jon Elder 29:21
Yeah, it’s a set amount and so we just call it like a bucket of money and you’re pouring out a little bit of the money from the bucket over time, typically every three months.
Jon Elder 29:30
And they have to that net profit threshold number, that’s a negotiated number. So you basically kind of meet somewhere in the middle and you say, “Okay, that’s fair. That makes me a little uncomfortable”. That makes you the buyer a little uncomfortable, so that’s kind of like a middle ground. You want the number to be attainable. And then, he also wants to be able to pay that out too because a buyer of a business doesn’t want a never ending earn out. He wants to have total 100% control of the business. So the buyer of my business, he’s definitely itching to get that off his books.
Ben Donovan 30:09
Yeah, I bet. That’s good, good. Okay, last couple of questions. I know you’re a busy man. You talked about this being a cash flow business – a business that you can earn, obviously from. What’s your thoughts on someone that’s in the early stages of building the business, because obviously, the bulk of the money you’re going to earn is in the exit, right? But what’s a good time to start paying yourself, taking money out? A lot of people will be doing this because they want to get out of their nine to five, they want to work for themselves. Talk to us a little bit about that balance and finding the right timing for that.
Jon Elder 30:42
Yeah, that’s a personal decision that plays into so many unique aspects. But for me, I’ll just talk about my story. So I had a very successful career in the commercial construction industry. And so you know, I have a day job and I have my salary. I didn’t really have a need to pay myself for a long time. So I didn’t pay myself, I think it was about a year and a half, actually, where I just reinvested 100% of my profits back into the business. Not everyone does that, not everyone has to do that. That was just something very aggressive that I did just because I was relying on my normal income. And after a couple years, I went full time and to prove that just from a risk assessment, I wanted to be able to pay myself the same salary as my day job. And it was a great salary so I wanted to make sure I was able to pay myself that. So I proved that over six months, got my wife bought into the idea, and we felt comfortable with that that was the right approach.
Jon Elder 31:44
So it’s really important to prove yourself that you can stay in a strong cash flow position, maintain a strong business, and then pay yourself a salary. But do it in a really smart way. And don’t rush to pay yourself money because a lot of people shoot themselves in the foot and pay themselves way too much way too soon. It’s like, what are you doing? Like you have these 500 product launches, you need that capital? It’s just something to think about. But yeah, typically, I would say to any Amazon business owner, give it a full year of reinvesting and reinvesting all of your profits before you start paying yourself. But everyone’s so different, and every business is different so it’s really hard to say that there’s a perfect answer to that.
Ben Donovan 32:35
Yeah, it’s a good good answer. I know I’m someone that was a victim of trying to do it full time too soon. And you know, that definitely slowed growth down and I think the longer you can not pay yourself for that, the better is right.
Jon Elder 32:47
Yes, absolutely. Yeah. That’s really good.
Ben Donovan 32:50
Awesome. And then just for people that are like at the very beginning of the journey, they might be listening to this episode thinking “Well, that’s nice for Jon. He started five years ago or for five years, he started and sold his business and was super excited for him”. I’m just at the beginning, right? How do I even get there like what would be the fundamentals that you say to someone right at the beginning of the journey that dreams of that seven figure exit?
Jon Elder 33:14
Yeah, that’s actually something that I go through my clients all the time, especially the beginner type sellers. But, number one, pursue something you’re passionate about. So many people get into business, product ideas that they have zero interest in. Like for example, I would never go into makeup. I have zero interest in makeup. Even though it might be strong on paper, it’s just not something that I would go into. So go into something you’re really passionate about. And the reason why is because you’re going to have to innovate a lot along the way. So you’re gonna have to always be thinking from a perspective of how can I make this product better every single year? How can I improve it? How can I attach accessory items to it? How can I increase the value, the material quality? All of those elements need to sing together. And so to do that, there has to be some passion. You can’t just be like, “Oh, I don’t even care about my product, but it makes money”. That’s not how it works on Amazon. On Amazon, you have to continue to innovate and continue to improve your products. So there has to be interest there. So start from a high level look at categories that you’re interested in.
Jon Elder 34:24
I had a client that was in the boating category. And he was really interested in wakeboarding products. So start there and go dig down. Spend some time in retail stores for things you’re interested in. Go look at products, physically touch them, see if there’s stuff that you can improve upon. And then also, start using a tool like Jungle Scout, for example, and looking at the existing competition, looking at what competitors are doing for their revenue, doing some simple math for potential net profit for products. And then just, you know, exploiting opportunity if you see a consistent pattern of products with a whole bunch of negative reviews, and none of the sellers are solving them. Well, what you can do is you can go in, mine that data, work with the factory and solve all of those negative reviews and produce a product that’s amazing. So that’s where I would start.
Ben Donovan 35:25
Yeah, definitely. And that is a case of rinse and repeat, right? And you did that for over five years?
Jon Elder 35:30
Yeah, you’re repeating the same thing and you’re getting better at it over time. And you’re learning what to not waste time on and what to really focus on. And honestly, I’ll be focused 80 to 90% of my time on product innovation, really thinking about how this product is going to be better from the moment they receive it? All the touchpoints – What is the packaging going to feel like in their hands? What does the insert card say? What’s the branding story of the product? How is it going to improve their life? I had a product line and was partnering with a local veterans company. It was immense, high end leather, a really rugged leather goods company, and that was part of the story so people really enjoyed that. Be a brand that does more than just sell a physical product. Do something else and make it meaningful for the customer.
Ben Donovan 36:31
Yeah, that’s really good. That’s awesome. I know I said that would be my last question. But just as you’re talking about how focusing your time on innovating with products, it just sort of came to mind about where you ended up with the team? You know, five brands, multiple seven figure exit. And I know again, on Twitter, you talk a lot about the power of outsourcing. Talk to us about just that final team and how you came to that point.
Jon Elder 36:57
Yeah, so outsourcing is something that a lot of people are really unsure about. So you can utilize the Philippines, that’s an amazing resource for employees. So if you’re looking for a VA to take over customer service, that’d be the first thing to outsource. The number of emails every single day you get from Amazon customers just increases exponentially as you scale. And so hiring someone for that, and having something like an Amazon alert and your VA alerts, if there’s like an issue with the listing? And then, possibly getting your VA access to fix the listing. So you know, if there’s photography involved, set up a Google Drive account, and you know, keep that stored locally and allow them to fix things on the go.
Jon Elder 37:48
So really, the key is to outsource everything except the important stuff. And so as a business owner, that would be your financials, that would be product innovation, and product launches. So I spent a lot of time really focused on potential product ideas and in launching those so everything else was outsourced. So for example, logistics was outsourced. I had an American employee working full time. And he did everything from logistics to helping the VA with customer service. You know, things like PPC were outsourced to an agency. And my Facebook and Instagram marketing was outsourced to an agency as well. So those are things that you want to outsource when it makes financial sense. Obviously, everyone’s going to bootstrap along the way. The key is to outsource that very, very fast. So that’s part of reinvesting in your business that’s beneficial. It might make sense to, you know, instead of paying yourself too soon, using that money to pay that monthly fee for a PPC agency and just have them skyrocket your sales because that takes up hours and hours of your time if you DIY it so those are all things I recommend to outsource and obviously photography and video production.
Ben Donovan 39:13
Yeah, so true. Outsourcing is something that can really free up so much time and you obviously use that really well to create the leverage to grow your business. So I definitely really enjoyed hearing your thoughts – someone who’s been there, done it, and built something really substantial. So I feel like I could ask you questions all day. I’ve got so many more but I know you’re a busy man.
Ben Donovan 39:36
Yeah, definitely. That would be awesome. Have you got any plans to do anything more in e-commerce or are you focusing solely on the advisors?
Jon Elder 39:44
Definitely. Yeah. Once you get your feet wet in e-commerce, you’re never truly done with it. Especially for me as a business owner, it’s just such a passion, you know, the products business. So I’ve definitely dabbled with the idea of launching a beta in the USA type product line. It’s definitely very, very hard to do that. But it’s something that would be really, really interesting and fun to accomplish. So that’s something that I’m considering. And obviously right now, we’re working on building up Black Label Advisor. That’s been so incredibly busy. Everything from media outlet interviews, I was on Forbes last week, and this podcast so that’s been keeping me really busy. And then obviously, working with my clients. So it’s been a good journey so far.
Ben Donovan 40:39
Yeah. Awesome. Tell us a bit about that to finish, tell us where people can find out more about you and follow you and get in contact with you.
Jon Elder 40:44
Yeah, so my website is blacklabeladvisor.com. And then if you want to shoot me an email, it’s [email protected]. And then on my websites, I have all my social media links. And yeah, it’s typically what I do with people. I’ve seen 90% of my clients, they work with me on a one to two hour a month basis. And so we’re doing high level calls, consulting, going over branding issues, and going over logistics issues. All my clients obviously get access to my entire contact list for all the different service-based companies. And actually right now there’s about 15 minutes to go on the giveaway. So you know, I have relationships with just awesome software companies like Feedback Whiz, and others Merchant Words. And so my job as a consultant is to help people scale sustainably in a smart way and achieve the success I had. And it’s just a fun experience just meeting people from all over the world as well.
Ben Donovan 41:50
Definitely, definitely. That’s awesome. Well, like I said, I’ve been following you for a while and someone of not only the skill but of good character as well. And that doesn’t always come around in this industry. So I highly recommend getting in touch and following along on social media. And yeah, looking forward to seeing how the journey continues to unfold, Jon.
Jon Elder 42:08
Absolutely. It’s so great to be on today, Ben,
Ben Donovan 42:12
What an episode that was with Jon Elder! What a legend, right? I just got so much out of that. Personally, like I said in the interview, I could have just been asking him questions all day long there. I feel like that was like some free consulting time for me. thanks Jon. But it’s amazing, right? What can be achieved in a short period of time, what we’re seeing in the e-commerce space right now is nothing short of sensational. And what Jon gave us there in terms of tips and strategy was fundamental to really grow something strong so go give Jon a follow on Twitter, go find him on social media, visit his website, check out all his stuff there. Let him know you loved the episode. And if you did like the episode, please do let me know as well. Let me know your feedback, what you thought was good, bad or ugly. And we will definitely work to keep making this the best brand builder podcast on the planet, and I appreciate all the feedback you give. Of course, if you can give us a review on iTunes, Spotify, Google, wherever you listen to podcasts these days, and also subscribe on YouTube, like the video. I would massively appreciate it. But above all, I hope this episode has helped you on your journey of becoming a brand builder and I’ll see you in the next episode real soon.
Welcome to the very first episode of The Brand Builder Show. My name is Ben and I will be your host and I am so pumped for this new podcast that is designed to help Amazon sellers become brand builders. And we’re kicking it off with a big one today for the first episode, the inaugural episode of The Brand Builder Show.
Ben Donovan 00:19
We’ve got Jon Elder coming on for the first episode today. Jon or as he is known by his Twitter handle or his website, Black Label advisor, is someone who has built an Amazon business started in 2014 and sold it in 2019 for multiple seven figures. Someone that knows his stuff when it comes to not just selling random stuff online, but actually building a real cohesive business, something that’s got a lot of value in it that becomes an asset. That of course, as you know, ultimately changed his and his family’s life. And so today, I’m gonna be digging into all of that with him, asking him how he did it, what that journey was like, how the sale went through, how stressful it was, how you at home can really set yourself up for an exit of a business and really do well in that.
Ben Donovan 01:04
And so I’m excited for this episode. This is the first episode of The Brand Builder Show and I would love to kick off with some momentum. If you do like the content of this episode, the premise of this show, then please do rate it on the podcast app that you’re listening on Apple, Spotify, Google, wherever. Tap that five stars, give us a little review. I would massively, massively appreciate that. I’m not going to ask that every episode but it is the first one so I do need to get that in there. And if you’re watching on YouTube, we’re going to be putting these episodes in video format on YouTube, as well. We may look at sort of shortening some of them down for YouTube to make it a bit easier to watch in video. Let us know, give us some feedback. This is your show too. I would love to hear from you. Number one, what you think we can do better as each episode goes. Number two, who we can get on the show to really pick their brains.
Ben Donovan 01:53
My heart, my goal with this podcast is to really help those people that come into just selling online or being an Amazon seller just to make a little bit of money on the side, turn it into a real business, a real brand that becomes something that you’re proud of. But also can become an asset that can provide a potential exit for you one day that really helps you to live the life that you dream of, provide for your family, do all those amazing things. And so we’re going to talk about building valuable businesses along this way with some really valuable guests so your support and helping us do that would mean the world. I appreciate that. But without further ado, let’s jump into the first episode with Jon Elder. It’s going to be a good one.
Ben Donovan 02:33
Welcome to the first ever episode of the brand builders show. Jon, thanks so much for joining me today.
Jon Elder 02:38
Absolutely, Ben. It’s great to be here. It’s an honor to be on the show.
Ben Donovan 02:41
I’m super excited to dive into your journey – someone who has built and sold an Amazon business for multiple seven figures. What an honor to have you as the first guest! I know it’s going to be an action-packed show so to kick us off, why don’t you just give us a little bit about your background – how you first got into selling online, why you got into it, what are the timelines? Give us a bit of that background and then we’ll dig into the story.
Jon Elder 03:05
Yeah, like so many people, the goal is time, freedom, financial freedom. And for me, you know, I went to the University of Washington. I studied Construction Management and I thought I was going to be in that field pretty much forever. You know, you get your degree and you go in your field and you never leave. I soon found out that it was just an extremely demanding field and it was one where you go from one project to another and the workplace environment might not be suited to you. And you can’t control that, obviously. You can’t control the client, you can’t control the upper management.
Jon Elder 03:40
So I wanted to start thinking about business ideas that were time flexible and low requirements for initial capital investment. And so I looked into franchising but I’m like you know what, “I’m not going to take out 500 grand for that. I want to do something small that I can scale over time”. And so that’s where private labeling on Amazon came into play. So it was just a ton of research. I kind of gathered my idea behind it and started in 2014 and that’s when really the journey started. So I launched my first sporting goods product and that became the number one seller in that category pretty much overnight. And just use the same practices of exploiting niches and looking out for different opportunities, better materials, better value, better packaging, being better than every competitor in offering something new and different.
Jon Elder 04:44
And, of course, there are mistakes made along the journey. But I just kept learning from each launch that I did, and kept growing and so that led into five total brands. All the brands were very successful and then I exited in 2019. So I exited right before COVID which is pretty crazy. It was a private buyer and that whole process took nine months. The first lending bank failed, they pulled out the deal and then the buyer had to find an alternate bank. It was a pretty stressful journey for exiting, it’s not common. Most most exits happen within four months or less so it’s a rocky journey but one that I learned a lot from. And I’ll just mention this, so many people are not thinking 5, 10 years out, that was something I did. So I had a vision board, literally a whiteboard. And I had a specific multiple seven figure number for an exit someday.
Jon Elder 05:53
In 2014, it was just kind of an idea. And as I heard, Amazon was experiencing 100% year over year growth. I’m like “Wow, we could hit this number a lot faster”. So we hit the goal number in under five years and exited. So everything I did was focused on that exit and that’s something that is so important, especially for people listening – really think about your goals. Some people say it’s a legacy business and they want to pass it on to their family and that’s awesome in its own way. But a vast majority of people do want to exit so it’s really important to focus on the mechanics of keeping your business really clean for an exit.
Ben Donovan 06:38
Yeah, that’s really good. I’d love to break it down a little bit from start to finish because you start in 2014, sold in 2019, really before it was trendy to sell an Amazon business. Because it’s all anyone seems to talk about these days – selling an Amazon business, the big exit. But you did it before it was trendy. You had an idea in mind from the very beginning to sell the business before anybody would have been talking about that. There would have been lots of other things you could have tried to do. A lot of people focus on cash flow but you had that exit in mind. What was it about an exit that you knew what you wanted to do right from the beginning? Was it business training you had? Or was there someone who told you that this is the best way to go about it? What was it that got you focused on that from the beginning?
Jon Elder 07:28
You know, thankfully, I grew my Amazon business with lots of seven and eight figure sellers. And so we all kind of compiled our knowledge in a really high level Facebook group. It wasn’t any fancy group. It’s just basically a hodgepodge of sellers and we just grew over time. And just sharing that knowledge and information as so many of them exited from their Amazon business in 2018 and 2019 that it made sense to explore the idea and say “hey, let me at least get a business valuation from a business broker”. And at that time aggregators weren’t really a thing so you had to go the business broker route, which is still a fantastic route now. But you know, the next step was getting that business valuation, all the numbers checked out. I’m like “Oh my gosh. This is mind blowing. This is my goal from day one – the exit”. And you know, a broker does all the work for you so they’re doing 50 plus interviews and they’re only bringing maybe a high level five back to you for a question and answer session. So that whole process was actually pretty strong. It was the lending process that was a huge pain.
Ben Donovan 08:47
So yeah. I’ve got loads of questions about that that will come just like the broker. Because I know you can get SBA loans and that kind of thing in America which we don’t have here, which I’d love to find out more about. But going back to the beginning of the journey, when you started the brand, you had five brands. Did you still have five when you sold or did you sell them all?
Jon Elder 09:07
Yeah, all five brands were sold under one Amazon account. So I didn’t sell my entity, my LLC entity, I kept. It was an asset sale so everything related to the business was sold except the business account. So the Amazon account was sold, all the design patents, utility patents, everything like that was sold.
Ben Donovan 09:30
Nice, yes. Did you have a lot of patents and protection, stuff like that?
Jon Elder 09:34
Yeah, mainly for important stuff like some unique designs, especially some kids products that had a barrage of Chinese competitors that kept copying. And so those design patents are powerful. I had a utility patent as well for a very specific product. It was an accessory product that made an existing product very unique. And so that added some really nice protection in the marketplace.
Ben Donovan 10:03
Yeah, I know that’s one of the things because I’m a big fan of yours on Twitter and I’ve been using Twitter a lot more recently. I know it’s something you’ve talked about on Twitter a lot is “The more protection you can have for your brand, the more valuable it’s going to be for a potential buyer”.
Jon Elder 10:18
Absolutely, absolutely. They’re looking at it from a risk analysis. They’re looking at your forecasted numbers, but they’re really looking at the possibility of expansion in your brand. So people are getting pickier and pickier, especially aggregators right now. So just because something looks really, really strong on your P&L statement, that doesn’t mean that they’re going to buy it anymore. You need to have a strong pipeline of products. You need to have a really strong branding story. And for some people that’s tying into a charity. For some people, there’s a deeper meaning to your brand other than you’re just selling your product; there’s something meaningful behind the brand. They’re looking for great expansion opportunities now so things have changed in that direction.
Ben Donovan 11:09
Yeah, great. A question on that, because I hear conflicting advice. Some people say, you want to do everything you can to make your brand as attractive as possible. So on lots of platforms, build social media, build an audience, all that kind of stuff. And then you also have people that say, “No. Actually, these guys are looking for a brand that’s doing all of their revenue on Amazon so then they can come and do that stuff”. Do you have an opinion on the best sort of balance to find in that?
Jon Elder 11:33
You know what, I would go with option one. Every buyer I’ve spoken to, business aggregators, private equity firms and private buyers, they want to see the concept proven. Now they’re going to take something that you have built and expanded. They have financial capability. They have in-house photography studio stuff. So they want to see that you have a strong Instagram presence. They want to see that you have a strong presence in Walmart. Any type of expansion that you had, that’s great, that’s a good thing. So it’s proving that one, your business is actually less risky so that’s extremely risky to buy a business that’s 100% revenue on Amazon. I mean that’s almost sheer insanity because Amazon is constantly getting hit with new competitors. I’ve never met a single buyer that would say that that would be more of a strategic thing, maybe. But every buyer that I know and you know, have relationships with aggregators, they’re looking for an already established catalog of products, and looking for a strong following. We’re talking about your email list as well. Do you have thousands and thousands of subscribers? Well that benefits them as a buyer because then they can re-market new product launches to them so they don’t want to have to build those things from scratch. They want the bone structure to be strong in your business, and then they’re going to further refine it.
Ben Donovan 13:06
Yeah, right. Coming back to these five brands, for someone that’s starting out, is that a methodology that you would say, if you were doing it again, you would do that again? Or would you focus on one? Or was it just something that happened for you and you kind of went with it? How did it play out?
Jon Elder 13:22
Yeah, that was a strategic thing for exiting the business someday. So a lot of Amazon sellers, third party sellers, they get stuck in a single brand. And that’s very, very risky because you need to be diverse. It’s no different than investments. So if you have a brand in the kitchen and home category, if you have a brand outdoors, and maybe a brand in sporting goods, that gives them flexibility with different markets with different demographics. Maybe one category that you’re selling in has just terrible pressure from Chinese sellers and maybe the other one doesn’t. So you know, they don’t want to have one brand take a huge hit, and then all of a sudden, their cash flow disappears. They want to see multiple brands. That’s definitely something I’d recommend to everyone listening – to diversify and have multiple brands.
Ben Donovan 14:19
Yeah, definitely. When you were talking about selling it, were there discussions about siphoning those off into single brands or sellers? Was it always going to be the five together?
Jon Elder 14:30
Yeah, one cohesive package. The benefit there is that all of your Amazon selling reports are all tied to one cohesive package. Also, when you’re doing SBA loans, especially the sub $5 million type loans. They are wanting to see your tax returns for your business all encompassing. So they don’t want to have to do weird math and analyze that. That’s a huge con when you’re exiting a business. They want to see the Tax Return before the entire business. So if you have 10 brands, they don’t want to see a tax return that spliced up or they have to remove something from the revenue that’s showing there. They want to see all 10 brands because you’re going to be showing two years of tax returns and 24 months of P&L statements so there’s a lot of data there that is necessary when you’re exiting. And so you’re not you’re not going to want to split things off. It wouldn’t make sense.
Ben Donovan 15:31
Yeah, sure. Okay. a random question about SBA loans just out of interest to me. Well, I’m from the UK and we don’t have anything like that but you put a 10% deposit down, right? Get an SBA loan and buy a business?
Jon Elder 15:43
I don’t know the specific number of what’s required for that but yes, there needs to be some cash inside. We can actually just walk through my exit. So I had, let’s see, roughly 20% earn out which is paid quarterly in perpetuity in the future, as long as they hit certain net profit goals. And then the other one was a seller’s note and then the rest was cash so typically SBA loans, you’re dealing with loans that are below 5 million for the lending side and then obviously, that buyer can add in a seller note from outside funding. Earnout is something that’s negotiated between you and the buyer. And then the cash can come from his own resources.
Ben Donovan 16:34
It’s just such a crazy concept, especially from the UK, right? There’s SBA loans and you can just put such a small deposit down and buy a business that’s generating so much revenue. It’s just a crazy world.
Jon Elder 16:46
Yeah, it’s really, really cheap money right now. So that’s why you’re seeing so many aggregators and so many private buyers going into this because just the access to capital right now is very, very easy. So it’s an interesting time for sure.
Ben Donovan 17:05
Yeah, definitely, definitely. Let’s talk about the sort of the preparation stage for the exit then and then maybe a few more questions just on the exit itself and how people can go through that. But were there any sort of key things that you did in the year, two years in the lead up to that exit to prepare for it knowing that you’re going to do that to make sure that you’ve got the best value for your business?
Jon Elder 17:26
It’s keeping your business really clean and launching sustainably so you wouldn’t want to have any strange dips in your revenue. You just want to launch in a smart way. You don’t want to launch too many products with risk. You wouldn’t want to put yourself in a really bad, negative cash position; you want to launch sustainably. And if you’re thinking about exiting, you already have an established catalog of products, you need to be maintaining your bestsellers, that needs to be focused.
Jon Elder 17:59
Number one is making sure that those sales stay consistent all the way up until the exit. And a lot of people are like, “Oh, I get my initial letter of intent and I’m good to go”. But that’s not true. So what happens is, you get that letter of intent, you need to continue during the exit. Let’s say it takes you four months. Those four months, you need to continue to grow, you need to continue to launch, and you need to continue to watch your expenses. So you can’t just sit back and be like, “The exit’s in the bag and I don’t need to worry about my business”. No, it’s actually more important than ever because the bank is going to be asking for all sorts of updated documents. And so if you show this massive drop in revenue, the deal is dead. So you have to work almost two jobs – you’re running your Amazon business, but you’re also supplying all these documents to the bank as needed, and making sure that your business is remaining strong month after month during the final contracts being signed up.
Ben Donovan 18:00
Was that a stressful time for you?
Jon Elder 19:06
I’ve talked to my wife about this, and it’s easily one of the most stressful periods of time in my entire life. So it’s up there with having our two boys and seeing labor and the birth experience. But it was very, very stressful. My situation was a little different because the first bank pulled out. And so you know, there was a period of limbo. Is this going to happen? Is the buyer really committed? He found a second bank and thankfully everything was fine. But it was very, very stressful.
Ben Donovan 19:47
Yeah, man, I can imagine, it’s crazy. Do you have any recommendations, because I know you work now with a lot of sellers that are looking to go on this journey of doing big exits and that’s sort of your latest, I don’t want to call it a pivot as such, but I suppose, a natural progression of what you’re doing. Do you have sort of like goals thresholds where you want to hit X amount of revenue, and then you want to be aiming for X kind of multiple? Can you put some figures around that? Maybe people listening that have started a year or two ago are wondering what are the numbers they could achieve? What are the numbers they should aim for, maybe?
Jon Elder 20:20
If we just look at the size of your business in revenue, I would say you should be targeting at least a minimum of 5 million a year in revenue. That’s kind of a sweet spot between 5 and 10 million a year. Some people exit and with smaller businesses. One of my clients exited, I think it was right around 2 million a year in revenue. Everyone is so different. Now in terms of multiple, as your business gets larger, and more intelligent, and you garner more intellectual property, protection, your brand starts to get some buzz on social media. If you’re at that level and let’s say you’re doing 7, 10 million a year, and you’re a little diversified off of Amazon, you should be looking at multiples in the five plus region at this point.
Jon Elder 21:24
And so the reason why there’s been a compression of people just being picky. So right now, especially aggregators, aren’t buying up every single brand they see. They’re being very, very specific now. A lot of aggregators have had brands failing them. Part of that is they’re just not good operators. Amazon business is very intense and you can’t just buy into this and assume that everything’s gonna be fine. For example, even an aggregator can’t control 10 brand new sellers undercutting you by 50% of your price. You can’t do anything about that. So some of those things have happened. But really, from an operator standpoint, a lot of brands have failed because of improper forecasting in the logistics side. So going out of stock should never be an option for you. Do everything in the world to stay in stock. So yeah, I mean, they have gotten more picky. It’s something that has changed. And so now, it’s all about the brand expansion opportunity. And that’s where we are right now.
Ben Donovan 22:42
Where do you see the future of it going because there’s a lot of buzz around the world of aggregators, and through SEO, sending out cold mail pieces all around the world to three letter boxes? It’s like they’re desperate to buy businesses, right? But it can’t go on forever. People feel like at times, there’s a time limit, there’s a deadline. They need to build a business so they can sell it quickly. And you know, the opportunity to sell the business might be gone, in a year or two. What are your thoughts about that and the future, 5, 10 years?
Jon Elder 23:12
Yeah, that’s more tied to aggregators. So in reality, that aggregator mania has actually ended. Some aggregators have disappeared, gone belly up. You’re gonna see a lot more of that. But in reality, kind of like any industry, you’re gonna see aggregators condense a little bit. The strong guys are going to be strong operators. They are going to get pickier and pickier in terms of acquisitions, and they’re going to be just fine. We’re in the 70 plus right now for a number of aggregators. And there’s an immense amount of money and an immense amount of aggregators that have no idea what they’re doing. That’s part of my job as well as working with some of those aggregators to kind of write the ship and make sure they stay focused on the operation side.
Jon Elder 24:08
But the opportunity is always going to be there, that’s just reality. Everyone, 10 or 20 years ago, if you ask them, “Buddy, would you like a cash-flowing business with 20% profit?” Years ago, the answer would be yes. 20 years from now, the answer is going to be yes. It might pivot a little bit in terms of what the buyers of businesses will look like. It might transition to private equity firms, it might transition heavily to small business owners. For example, I sold to a small business owner so I didn’t sell to an aggregator. I actually flew to the business owner’s property and trained them on site, literally training someone from scratch. And then, I spent 12 months doing additional training with them. He’s in a different state. So yeah, the opportunity is going to be there.
Jon Elder 25:07
To anyone listening, I would not worry about that per se. If you’re really worried about aggregators, there is going to be a shorter window for that. And probably in about two years, aggregators are going to be ultra picky with who they pick. But there’s an entire market of private buyers. These are like small business owners, executives who are bored and they want to try something brand new with some money. And that was my situation, he was a really high up guy at a software company and he wanted to try something new. And he’s actually doing well and making money with the business and we stay in contact with each other still to this day. So the type of buyer range you know, a couple of years from now but right now everyone is obsessed with the aggregator. But the opportunity to exit is not going to change.
Ben Donovan 26:08
Yeah, that’s good to hear. I completely agree with that. And that’s my thing when people say, “Is the opportunity still there as well?” People are still buying products and people will still buy products for 20, 30, 100 years so if you can be an entrepreneur and provide solutions, the opportunity is not going anywhere.
Jon Elder 26:26
Absolutely.
Ben Donovan 26:28
That was going to be my next question, actually. It was about how the brand is going and whether that played into your selling process. Were you just like whoever gives me the most money, let’s go baby, or did you think I want to make sure that this person is going to really succeed with it? What was your thought process there?
Jon Elder 26:46
There is a portion that is very real. During interviews, you’re also interviewing the potential buyer. So you’re asking questions like “What’s your experience with Amazon? How many hours a week are you going to work? Are you comfortable with that? Are you comfortable with forecasting numbers and making sure things are in stock?” So those are questions that you ask the buyer during that initial interview. They’re, of course, asking you questions as the seller. They’re asking you “Have you ever been suspended? Tell me about your competition”, and lots of other questions so it is a joint interview. You want someone who is going to take your business, grow it, and be successful. Most of these exits have some earned out money packaged in it. And so you want him to be successful because whatever happens with the business decides that that is the driver for do I get paid this quarter? So yeah, that’s something that’s really important to think about. Don’t just sell to anyone. Sell to the right buyer who’s really invested in growing the business.
Ben Donovan 27:57
Yeah, that’s awesome. Of course, you can’t talk about details you can’t talk about. But you talked about having an ongoing payment from the exit and that’s part of the structure that a lot of people will take. So that for you, that’s just going to continue forever whilst the business is going?
Jon Elder 28:11
Yeah, that’s something that comes with a really good lawyer so you have counsel from the selling side of an exit. And my lawyer was very adamant about changing the verbiage of the earnout to say perpetuity. So some buyers of businesses get really aggressive with that and they say “We’re going to put a cap of five years on the earnout”. Well, if he messes up the business and he doesn’t pay you out any money in those five years for those quarters, that money’s gone. And for my exit, it was close to 20% of the entire exit so that’s money that’s still on the table and it’s being paid out over time each quarter.
Jon Elder 29:01
For people listening, make sure you have that in your exit contract language – that any earnout is in perpetuity. So basically what that means is if it takes them 10 years to pay me the money, it takes him 10 years. If he exits in four years, I get paid my earnout from his exit.
Ben Donovan 29:19
It is a set amount though, it doesn’t keep going on?
Jon Elder 29:21
Yeah, it’s a set amount and so we just call it like a bucket of money and you’re pouring out a little bit of the money from the bucket over time, typically every three months.
Jon Elder 29:30
And they have to that net profit threshold number, that’s a negotiated number. So you basically kind of meet somewhere in the middle and you say, “Okay, that’s fair. That makes me a little uncomfortable”. That makes you the buyer a little uncomfortable, so that’s kind of like a middle ground. You want the number to be attainable. And then, he also wants to be able to pay that out too because a buyer of a business doesn’t want a never ending earn out. He wants to have total 100% control of the business. So the buyer of my business, he’s definitely itching to get that off his books.
Ben Donovan 30:09
Yeah, I bet. That’s good, good. Okay, last couple of questions. I know you’re a busy man. You talked about this being a cash flow business – a business that you can earn, obviously from. What’s your thoughts on someone that’s in the early stages of building the business, because obviously, the bulk of the money you’re going to earn is in the exit, right? But what’s a good time to start paying yourself, taking money out? A lot of people will be doing this because they want to get out of their nine to five, they want to work for themselves. Talk to us a little bit about that balance and finding the right timing for that.
Jon Elder 30:42
Yeah, that’s a personal decision that plays into so many unique aspects. But for me, I’ll just talk about my story. So I had a very successful career in the commercial construction industry. And so you know, I have a day job and I have my salary. I didn’t really have a need to pay myself for a long time. So I didn’t pay myself, I think it was about a year and a half, actually, where I just reinvested 100% of my profits back into the business. Not everyone does that, not everyone has to do that. That was just something very aggressive that I did just because I was relying on my normal income. And after a couple years, I went full time and to prove that just from a risk assessment, I wanted to be able to pay myself the same salary as my day job. And it was a great salary so I wanted to make sure I was able to pay myself that. So I proved that over six months, got my wife bought into the idea, and we felt comfortable with that that was the right approach.
Jon Elder 31:44
So it’s really important to prove yourself that you can stay in a strong cash flow position, maintain a strong business, and then pay yourself a salary. But do it in a really smart way. And don’t rush to pay yourself money because a lot of people shoot themselves in the foot and pay themselves way too much way too soon. It’s like, what are you doing? Like you have these 500 product launches, you need that capital? It’s just something to think about. But yeah, typically, I would say to any Amazon business owner, give it a full year of reinvesting and reinvesting all of your profits before you start paying yourself. But everyone’s so different, and every business is different so it’s really hard to say that there’s a perfect answer to that.
Ben Donovan 32:35
Yeah, it’s a good good answer. I know I’m someone that was a victim of trying to do it full time too soon. And you know, that definitely slowed growth down and I think the longer you can not pay yourself for that, the better is right.
Jon Elder 32:47
Yes, absolutely. Yeah. That’s really good.
Ben Donovan 32:50
Awesome. And then just for people that are like at the very beginning of the journey, they might be listening to this episode thinking “Well, that’s nice for Jon. He started five years ago or for five years, he started and sold his business and was super excited for him”. I’m just at the beginning, right? How do I even get there like what would be the fundamentals that you say to someone right at the beginning of the journey that dreams of that seven figure exit?
Jon Elder 33:14
Yeah, that’s actually something that I go through my clients all the time, especially the beginner type sellers. But, number one, pursue something you’re passionate about. So many people get into business, product ideas that they have zero interest in. Like for example, I would never go into makeup. I have zero interest in makeup. Even though it might be strong on paper, it’s just not something that I would go into. So go into something you’re really passionate about. And the reason why is because you’re going to have to innovate a lot along the way. So you’re gonna have to always be thinking from a perspective of how can I make this product better every single year? How can I improve it? How can I attach accessory items to it? How can I increase the value, the material quality? All of those elements need to sing together. And so to do that, there has to be some passion. You can’t just be like, “Oh, I don’t even care about my product, but it makes money”. That’s not how it works on Amazon. On Amazon, you have to continue to innovate and continue to improve your products. So there has to be interest there. So start from a high level look at categories that you’re interested in.
Jon Elder 34:24
I had a client that was in the boating category. And he was really interested in wakeboarding products. So start there and go dig down. Spend some time in retail stores for things you’re interested in. Go look at products, physically touch them, see if there’s stuff that you can improve upon. And then also, start using a tool like Jungle Scout, for example, and looking at the existing competition, looking at what competitors are doing for their revenue, doing some simple math for potential net profit for products. And then just, you know, exploiting opportunity if you see a consistent pattern of products with a whole bunch of negative reviews, and none of the sellers are solving them. Well, what you can do is you can go in, mine that data, work with the factory and solve all of those negative reviews and produce a product that’s amazing. So that’s where I would start.
Ben Donovan 35:25
Yeah, definitely. And that is a case of rinse and repeat, right? And you did that for over five years?
Jon Elder 35:30
Yeah, you’re repeating the same thing and you’re getting better at it over time. And you’re learning what to not waste time on and what to really focus on. And honestly, I’ll be focused 80 to 90% of my time on product innovation, really thinking about how this product is going to be better from the moment they receive it? All the touchpoints – What is the packaging going to feel like in their hands? What does the insert card say? What’s the branding story of the product? How is it going to improve their life? I had a product line and was partnering with a local veterans company. It was immense, high end leather, a really rugged leather goods company, and that was part of the story so people really enjoyed that. Be a brand that does more than just sell a physical product. Do something else and make it meaningful for the customer.
Ben Donovan 36:31
Yeah, that’s really good. That’s awesome. I know I said that would be my last question. But just as you’re talking about how focusing your time on innovating with products, it just sort of came to mind about where you ended up with the team? You know, five brands, multiple seven figure exit. And I know again, on Twitter, you talk a lot about the power of outsourcing. Talk to us about just that final team and how you came to that point.
Jon Elder 36:57
Yeah, so outsourcing is something that a lot of people are really unsure about. So you can utilize the Philippines, that’s an amazing resource for employees. So if you’re looking for a VA to take over customer service, that’d be the first thing to outsource. The number of emails every single day you get from Amazon customers just increases exponentially as you scale. And so hiring someone for that, and having something like an Amazon alert and your VA alerts, if there’s like an issue with the listing? And then, possibly getting your VA access to fix the listing. So you know, if there’s photography involved, set up a Google Drive account, and you know, keep that stored locally and allow them to fix things on the go.
Jon Elder 37:48
So really, the key is to outsource everything except the important stuff. And so as a business owner, that would be your financials, that would be product innovation, and product launches. So I spent a lot of time really focused on potential product ideas and in launching those so everything else was outsourced. So for example, logistics was outsourced. I had an American employee working full time. And he did everything from logistics to helping the VA with customer service. You know, things like PPC were outsourced to an agency. And my Facebook and Instagram marketing was outsourced to an agency as well. So those are things that you want to outsource when it makes financial sense. Obviously, everyone’s going to bootstrap along the way. The key is to outsource that very, very fast. So that’s part of reinvesting in your business that’s beneficial. It might make sense to, you know, instead of paying yourself too soon, using that money to pay that monthly fee for a PPC agency and just have them skyrocket your sales because that takes up hours and hours of your time if you DIY it so those are all things I recommend to outsource and obviously photography and video production.
Ben Donovan 39:13
Yeah, so true. Outsourcing is something that can really free up so much time and you obviously use that really well to create the leverage to grow your business. So I definitely really enjoyed hearing your thoughts – someone who’s been there, done it, and built something really substantial. So I feel like I could ask you questions all day. I’ve got so many more but I know you’re a busy man.
Ben Donovan 39:36
Yeah, definitely. That would be awesome. Have you got any plans to do anything more in e-commerce or are you focusing solely on the advisors?
Jon Elder 39:44
Definitely. Yeah. Once you get your feet wet in e-commerce, you’re never truly done with it. Especially for me as a business owner, it’s just such a passion, you know, the products business. So I’ve definitely dabbled with the idea of launching a beta in the USA type product line. It’s definitely very, very hard to do that. But it’s something that would be really, really interesting and fun to accomplish. So that’s something that I’m considering. And obviously right now, we’re working on building up Black Label Advisor. That’s been so incredibly busy. Everything from media outlet interviews, I was on Forbes last week, and this podcast so that’s been keeping me really busy. And then obviously, working with my clients. So it’s been a good journey so far.
Ben Donovan 40:39
Yeah. Awesome. Tell us a bit about that to finish, tell us where people can find out more about you and follow you and get in contact with you.
Jon Elder 40:44
Yeah, so my website is blacklabeladvisor.com. And then if you want to shoot me an email, it’s [email protected]. And then on my websites, I have all my social media links. And yeah, it’s typically what I do with people. I’ve seen 90% of my clients, they work with me on a one to two hour a month basis. And so we’re doing high level calls, consulting, going over branding issues, and going over logistics issues. All my clients obviously get access to my entire contact list for all the different service-based companies. And actually right now there’s about 15 minutes to go on the giveaway. So you know, I have relationships with just awesome software companies like Feedback Whiz, and others Merchant Words. And so my job as a consultant is to help people scale sustainably in a smart way and achieve the success I had. And it’s just a fun experience just meeting people from all over the world as well.
Ben Donovan 41:50
Definitely, definitely. That’s awesome. Well, like I said, I’ve been following you for a while and someone of not only the skill but of good character as well. And that doesn’t always come around in this industry. So I highly recommend getting in touch and following along on social media. And yeah, looking forward to seeing how the journey continues to unfold, Jon.
Jon Elder 42:08
Absolutely. It’s so great to be on today, Ben,
Ben Donovan 42:12
What an episode that was with Jon Elder! What a legend, right? I just got so much out of that. Personally, like I said in the interview, I could have just been asking him questions all day long there. I feel like that was like some free consulting time for me. thanks Jon. But it’s amazing, right? What can be achieved in a short period of time, what we’re seeing in the e-commerce space right now is nothing short of sensational. And what Jon gave us there in terms of tips and strategy was fundamental to really grow something strong so go give Jon a follow on Twitter, go find him on social media, visit his website, check out all his stuff there. Let him know you loved the episode. And if you did like the episode, please do let me know as well. Let me know your feedback, what you thought was good, bad or ugly. And we will definitely work to keep making this the best brand builder podcast on the planet, and I appreciate all the feedback you give. Of course, if you can give us a review on iTunes, Spotify, Google, wherever you listen to podcasts these days, and also subscribe on YouTube, like the video. I would massively appreciate it. But above all, I hope this episode has helped you on your journey of becoming a brand builder and I’ll see you in the next episode real soon.
