How the Merger and Acquisition Landscape Is Changing And What It Means For Your eCommerce Business | Ben Leonard

Matt Edmundson: Welcome to the e-Commerce podcast with me, your host, Matt Edmundson. The E-Commerce podcast is all about helping you deliver e-commerce wow, and to help us do just that. I am chatting with today's guest, Ben Leonard from ECom Brokers, about how the merger and acquisition landscape is changing and what it means for your e-commerce business.

But before Ben and I jump into that conversation. Let me suggest a few other e-commerce podcast episodes that I think you are gonna also enjoy listening to. The first one, obviously is called How to Effectively Set Up and Scale Your Business to Sale. Uh, this is actually an episode that Ben and I recorded. Uh, about a year ago now.

It was about a while ago. Uh, and so check out my previous episode with Ben. Ben is a returning guest. Yes, there's a lot of demand. So we've got him back. Uh, and also check out actually my story knowing when and how to sell your e-commerce business cuz I sold mine. So they check out those two episodes.

You can find these and their entire archive of episodes on our website for free ecommercepodcast.net. And on our website you can also sign up for our newsletter and each week, uh, we will email you these links with the notes and the links from today's conversation with Ben direct to your inbox totally free.

Totally amazing. So do sign up for that if you're not already a member. Uh, also let me mention to you that this episode is brought to you by the eCommerce Cohort, which helps you deliver eCommerce wow to your customers. Uh, um, you know, eCommerce cohort, if you're a regular to the show, you have heard me talk about this.

Uh, it is a membership group that is gonna help you grow your e-commerce business. So if you're involved in ecommerce. It's something I genuinely think you should find out more about and check out. Uh, it's just awesome, uh, what's been going on there in recent months, uh, with the cohort and the stuff that we've been learning together.

So, whether you are starting out in eCommerce or if like me, you're a well established eCommercer, uh, checkout ecommercecohort.com. That's ecommercecohort.com. Uh, or you can email me directly [email protected] with any questions. Because we're obviously super proud of it. Do check it out. Like I say, the links will be in the show notes, and if you sign up to our newsletter, They'll be winging their way to you automagically.

Oh, yes. Now best known as the founder of Bees Gear. Ben Leonard is the classic millennial entrepreneur. He built a business on a laptop in a cupboard in his spare time. Uh, the difference while Ben grew, uh, an international seven figure business and successfully exited after three years, which is, as we all know, The business. Holy Grail. Now Ben is doing it all over again and helping others do the same with E-Com brokers. And Ben, it's awesome to have you back. Thank you so much for coming back on the show. How have you been?

Ben Leonard: Great. Thanks. It's good to be here. Thanks Matt, for having me back on the show. Yeah. All well, all fun, all exciting, busy.

But, um, yeah, it's a, it's a fun space to be in.

Matt Edmundson: Yeah. It's definitely a fun space to be in. Absolutely. Now, uh, you look, uh, from memory when we did the last one, you, you look like you're in a slightly different location. Am I, am I right there or are you, uh, just redecorating.

Ben Leonard: No, I think last time I was in my, my home office, uh, which is my preferred location, but at the minute I'm actually in a co-working space.

I'm on the move today.

Matt Edmundson: Ah, always moving about. Always moving about. So for those who maybe haven't checked out that episode yet or haven't heard it, tell the good folks, uh, a little bit about e-commerce, uh, Ecom brokers, what it does, um, and how you got involved with it.

Ben Leonard: Sure. Yeah. So, um, Ecom brokers came to exist in the kind of classic scratching your own niche, kind of entrepreneurial fashion. I guess When I sold my first brand, I had a lucky escape with the broker. Um, that I used to be fair. In actual fact, there, they were more of a flipping or listing website, right. And, uh, series of, of potentially catastrophic errors were averted mostly by my fantastic accountant, Allison.

And so at the end of that process, uh, we became co-founders. In ecom brokers we decided to improve on the experience that we had and actually as a happy side effect. Um, it improves on the experience that buyers have too. And so we found ecom brokers to help e-commerce business owners plan and execute their exit.

For some people, that means that they're gonna sell very soon. And for some people that means we work with them for, you know, 12, 18, 24 months. Yeah. And, uh, get people ready to, to sell their business for the, the deal that that is appropriate for them and, and, and matches their goals.

Matt Edmundson: So you say, um, instantly, Ben, my ears prick up when you use phrases like Lucky Escape and Catastrophic.

And what was some of the sort of, when you used phrases like that, Obviously there's things in your mind that you are thinking about. What, what did you have lucky escapes from, if you don't mind me asking?

Ben Leonard: Yeah, sure. Um, the service I used, uh, so let me paint the picture, of course, because the, when I made the decision to sell it was early 2019, which is actually in e-commerce, E-commerce years, a bit like dog years right now, so much changes so quickly.

And there weren't that many options around for buying and selling eCommerce businesses because at that time, especially even still now in the eyes of some people, but eCommerce businesses were not big boy grown up businesses because they didn't have doors and a window. Yeah. There were still something other, something online, something intangible about them, which made mergers and acquisitions in e-commerce, uh, separate to mergers and acquisitions that we might traditionally consider for, for bricks and mortar business.

there weren't that many services around to help you find a buyer. A friend of mine had sold too much, much smaller businesses through one of these listing or flipping websites, which was perfectly appropriate for his size of business. And yeah, is is often okay for something like a monetized blog, for example, when it comes to real big boy grown up physical products brand, which is turning over several million dollars.

You really need a more thorough process, which I was naive to at the time. And the organization that I used had automated too much of the process. I love automation in terms of improving efficiencies within the operations of the e-commerce business, but in terms of handling a mature mergers and acquisitions process, you need to be very careful how much you automate and the parts that hadn't been automated had been handed over to people who were frankly not qualified to do them.

The chap calculating my numbers turned out, I discovered after the fact was, um, a recent graduate with something like a history of art degree . Um, yeah,

Matt Edmundson: it's really helpful for when you're selling a business. Yeah. Yeah. A lot of experience.

Ben Leonard: Exactly. Now, fortunately, throughout the running of my business, I'd worked closely with my accountants with, with quarterly and then actually monthly meetings so that I understood my numbers and I understood what that meant for how I should shape my strategy when running my business.

So when the numbers came back to me from this service saying, you know, this is your. Your, the value of your business based off of this EBITDA that we've calculated. Um, I knew something wasn't right and when I presented this to my accountant who did some digging, we discovered it made several catastrophic errors which would've cost me in the region of 300,000 pounds.

Oh, wow. So, yeah. So when we discovered this, I went back to them and negotiated down their commission. I still wanted to use their service to find the buyer. Um, because they could, they could do that better than I could at that stage. And actually even on the lower commission, they still made more money thanks to us fixing their error than they would have done had we.

And the really worrying thing was this had gone through their entire QA process. They were ready to go. Yeah. So the obvious thing for us was at the end of the process, cuz Allison actually has close to 30 years mergers and acquisitions experience. The obvious thing for us was, well actually we can create a much more thorough, mature process with Allison's experience on m and a.

And my experience, actually understanding e-commerce, brand building and operations, covering kind of both sides of the equation, we've now added more people too, um, in order that those types of errors don't happen. And we we're much more bespoke and hands on than a sort of. List them and flip 'em and get 'em out the door.

Uh, purely working on an, on a, on a volume basis, right?

Matt Edmundson: Yeah, yeah, yeah. No. So a lucky escape. Well, 300,000 pound, uh, lucky escape by the sounds of it. Yeah. Yeah. Which is, which is whatever it is, about $400,000. I suppose. If you are, um, outside of the UK, maybe not that much at the moment because the pound against the dollar is tanked.

But, uh, let's not talk about that. So, um, so you, you, you, you had this sort of lucky escape. You had a good accountant by the sounds of it, which was really helpful. Um, and you set up e-com brokers as a result, right? Of your experience and you've helped other. E-com entrepreneurs, uh, build scale and exit their businesses in the meantime, uh, through that brokerage.

So what's happening at the moment? I mean, it's been a whatever a year, 12, 18 months since we spoke, what's happened in the m and a landscape during that time?

Ben Leonard: It has been tough in 2022, and it amuses me because there are some people in this space who, uh, who jump on podcasts and live videos and stuff, and YouTube videos, uh, really talking about how fantastic things are.

And I think that that, that there's no point in wearing, uh, roast into spectacles all the time. We need to be honest with ourselves that 2022 has been difficult. Um, you know, we've seen that the, the, the Covid shopping spree is over, so sales have been falling. Yeah, costs have been rising, production costs, you know, supply and demand factories have been out of action.

And even when they're back in action, um, they have a huge backlog, which for many, many smaller business owners has really hurt because the factories have had to prioritize their much, much larger and more corporate clients, for instance. Yeah, I, I actually experienced that myself with a new brand that I'm developing and we had to change, change supplier.

Shipping costs. We all know how difficult that has been, although thankfully, I'm pleased to say that we are now seeing container prices come down, which is really good. But competitions continuing to rise. We're seeing more and more people get into entrepreneurship, which is fantastic. And for many of them that reach into entrepreneurship is starting a physical e-commerce products brand.

Um, so there's more and more people. Developing brands and selling products on their own website and marketplaces such as Amazon, Walmart, balls, all these things. Yeah, and everybody's getting smarter. So the competition is not just more competitors, but the competition is better. You know, a few years ago it was pretty easy to stay ahead of your competition with the latest hack or plugin or sneaky little work around and, and it's, it's difficult to make those things work Now, right now you've got to be much more thinking about the long term and building more of a sustainable brand looking and feeling and behaving like a legit CPG brand, which is great if you have that mindset.

But if you're looking for a get rich quick scheme on the internet, that that's much harder suddenly. Yeah. Yeah. And so what has happened then in the buying landscape is the main buyers of e-commerce businesses who are predominantly these, um, aggregators. And if people aren't familiar with those, they are organizations which have raised combination of, of debt and, and equity in lines of credit to, um, acquire e-commerce businesses at as lower price as they can. Yeah. Roll them into their portfolio where they will be worth more together as a sum rather than separately. And then either sell them on or go public. Yeah.

None of them have gone public yet, but those guys have discovered that the business model that they dreamed up in about 2018, um, although in principle works, they find it very difficult and they're having a reflection. They're saying, oh, we need to get a act together. Because they've recognized they have had a distinct lack of operational capability. You know, people listening all over the world, running their business really, really well from their computer in their spare room, are much more operationally nimble than these aggregators who one of the problems they have is they can't hire the talent because the talent, okay, listening to this, doesn't want a job.

They want to build their own brand. And so they had a lack of foresight. They thought that they could just buy these businesses and they would just run themselves. These aren't, these aren't real businesses. This is just stuff selling on the internet. Yeah. Right. And, and, and they've had a realization that it's not as easy as they thought.

Yeah. So because of that, the appetite for risk and for buying these businesses as frequently as they were, is down. So that means it's not a seller's market anymore. So multiples have gone down. So the value of businesses has dropped, particularly for a weak brand. If you have a very strong brand rather than just a, you know, a website that sells stuff, then your, the value is, is holding not too badly.

Mm-hmm. , but the risk appetite of the, of most buyers has dropped. Their willingness to do deals very quickly has, has dropped. We used to seal, we used to get offers, um, letters of intent submitted within 48 hours of taking businesses to market very often, and that's taking longer now. Mm-hmm. . And whereas due diligence could be conducted around 30 days, it's now taking more like 45 to 80 days.

So that's a very, very long-winded way of saying, um, it's been tough for sellers and multiples are down. We've seen fewer deals and the deals that have been done have been done at lower than expected prices compared to, say last year. Yeah. But we are, we are seeing signs of recovery now, and I think 2023 will be a lot stronger.

Matt Edmundson: Well, it's interesting you say that. I, it's, it's, um, I was chatting with somebody the other day who, uh, was part of an investment group, you know, what you would call an aggregator. And, um, and they've been, uh, not this year, but the year before, they're buying up businesses, you know, quite happily, uh, bought some quite big businesses actually for them.

Um, and then this year struggled to raise, the investors are kind of slowed down and pulled back a little bit. So they came across a great business opportunity that was, I think they, he, the guy selling wanted. I think maybe a million for his business, but it was turn, it was creating a net profit of like six, 700,000.

I mean, it, it seemed almost a little bit too good to be true. But the, the moral of the story was he was like, I can't, I can't find the million now from the investors to go buy what is a really obvious business that to buy. Um, that sounds like a really good deal. Oh yeah. I mean, the deal itself was, was ridiculous and good.

Yeah, yeah, yeah, yeah. It was. Um, but I mean, the point of it is, um, even with a ridiculously good deal, he was struggling to get the funds to buy the business. Do you see what I mean? Yeah. It's like investors pulled up. Yeah.

Ben Leonard: We saw several aggregators really have to completely change strategy. When investors that were previously happy to bankroll them have said, put the brakes on completely.

Yeah. So that has really, really changed things up.

Matt Edmundson: Mm-hmm. , it's interesting, isn't it? That's that kind of. Yeah. That, that has happened all very quick. Cause the year before, every man and his dog was buying a business cuz Covid was like, you know, the, the, the eCommerce entrepreneur's dream in some respects, wasn't it?

And then it sort of caught up with everybody this year. Yeah.

Ben Leonard: Uh, I think that much of what we've seen has been a correction. You know, what was going on before we were seeing some pretty poor businesses being sold for really big money. We saw a lot of people get rich off of not having that good of a business.

Mm-hmm.. So a significant amount of this drop in, in, in multiples has been a correction. I think perhaps they went a little bit too far. Now it's, it's starting to come back and, and kind of even out a bit, but we were seeing pretty shambolic businesses go for, you know, 5, 6, 7X, um, which was absolutely bonkers.

And now we're seeing, um, much more of a stabilization into more sensible territory.

Matt Edmundson: So is it, is it, instead of 5, 6, 7, has it sort of gone back to the three four?

Ben Leonard: Yes. Let me give you an example. We've just saw the business doing 200 bang on like bang on $200,000 SDE. Okay brand identity. Yeah. Could be a lot better, if I'm being honest, for 3.8, which is a, which is very strong.

Yeah. This year, um, I, we have access to data from some of the listing sites, and I think if it had been sold on there, it would've gone for something more like 2.8. Yeah. Um, and, and, and probably a lower ebitda, um, because it probably would've not been correctly put together. Uh, so. Three to four is where we're at if you're doing a few hundred grand in SDE, um,

Matt Edmundson: just explain what you mean by SDE.

Ben Leonard: Oh yeah, sorry. Um, so SDE is, uh, more of an American term. Um, it's basically an adjusted ebitda. Uh, that's another, some more jargon I'm throwing in there. Um, so we, we, we value a business, um, by calculating this sde, which it stands for seller's discretionary earnings.

Uh, for people wanting to do kind of a back of an envelope calculation, it's not your profit, but for the purposes of this episode, think of it as your profit. It's basically, it's your net income, which is so your gross income, your gross sales, minus your cost of goods and marketing costs. Add back to that.

Add backs and adjustments, which a good broker should be identifying, which are costs that are not gonna be passed onto the new owners of the business. Mm-hmm. opportunities to recognize the true value of the business. That's a whole other conversation. And you end up with the seller's discretionary earnings number, uh, that doesn't include the cost of the inventory that you have on hand at the time of the deal.

Yeah. And we then multiply that by a multiple. So that's where, where that, what we were talking about a few moments ago comes in the the three to four X that we're talking about, and that gives us the value of the business. The multiple is effectively what the market thinks of your business, if you like. Yeah. And it's kind of a positive feedback the higher your SDE.

The happy side effect is the higher you're multiple. Mm-hmm. So for instance, um, recently we had a business that was doing about 2 million SDE in dollars and that was a 5.55 x multiple. Right? So it's not just the case that you take your a business doing. We wouldn't say that 200 grand business I mentioned that went for 3.8.

We, it wouldn't be that your, your 2 million business will also go for 3.8. The fact that it's a much bigger business with so much more going for it, it also has, gets a higher multiple applied to it. Yeah. So it's, it's a compounding positive feedback. The bigger the business, the bigger the multiple typically.

Matt Edmundson: Right. So, um, if all of that has happened in 2022, you know, the sort of the, the, the investors have slowed down. The aggregators are. Not buying as many business. And the, the multiple, um, of your sde as you call it, has fallen, uh, to where it was maybe sort of a couple years ago where more like what you'd expect it to be a bit more sensible.

Um, has what investors are looking for changed now or is that still the same, it's just maybe there's less of them?

Ben Leonard: Nope. It's definitely changed. So previously when all this started, short history lesson. The first aggregator in this space really was 101 commerce, and they don't really exist anymore.

They got swallowed up. The, the aggregator that pioneered merges and acquisitions and the roll up model for e-commerce businesses was an organization called Thrasio. Mm-hmm. , which came to exist in September, 2018 at a Dunkin Donuts, I think in Boston. Uh, some, some financial guys in the US said to each other, hold on a second, we can acquire these e-commerce businesses, which are selling predominantly on marketplaces like Amazon, roll them up and then go public. And actually they bought my business. It was their first European acquisition and they always wanted good brands, but also they had so much money to play with that they were quite happy to, to just participate in what I call cash arbitrage.

They were happy to buy a pretty poor business. It was effectively just an Amazon account or a website, just selling stuff that was making positive cash flow. Buy it for three x, roll it into their portfolio. It was sitting at 7, 8, 9, 10 50. Next. Wait until they went public. The moment they bought it, they'd, they, they tripled or quadrupled their, the value of the business because it was sitting within their portfolio.

Now, buyers are much more interested in treating this as a real CPG play. So we talk about something at ecom brokers. We talk about this value pyramid. Mm-hmm. which is the, the lens through which buyers are looking at, at a, a business that they're looking to acquire. It consists of five layers that shape like a pyramid, and it's like a pyramid because the most important layers are at the bottom.

If they drop out, the whole thing collapses. Mm-hmm. So the bottom layer is brand. Right. Then it's growth and profitability, then it's risk, then it's transferability, and at the top is documentation. A business really needs at least three of those layers to be in good standing for it to be an attractive, sellable proposition.

But you really have to have brand because with no, you know, buyers want sustainability, growth potential. Mm-hmm. intellectual property, repeat customer, and a brand gives you that, but generic stuff doesn't, you know? Yeah. With no brand, there's no hook, there's no excitement, there's no following, there's no repeat custom, there's no word of mouth, there's no social.

There's no group of loyal fans who are excited to receive your product in the Post, who will read your emails, buy your next product, and underpin your brand as something sustainable and with longevity. And that's why. The buyers and the investors who are backing these buyers are insisting on backing brand now.

Right? So we see people come to us with these e-commerce businesses, which are an e-commerce business, but the e-commerce business is not represented by a real brand or a strong brand. It's really just stuff. And they have still have these expectations of what was going on in the market, you know, 18 months ago, that they could sell that business for five x.

And I have to tell them that either it's gonna go for two and a half x or it's not gonna sell at all.

Matt Edmundson: Yeah, that's a pretty big change, isn't it? And so huge. So this whole I, so now everything's predicated. I like your pyramid at the bottom, we've got brand. Um, and you, you, that's your foundation now. So what does that mean then for, uh, a website that is, In effect selling stuff on Amazon and it, and they've sort of built a business selling stuff, and they're okay at selling stuff.

Maybe they're making a, you know, reasonable profits at it. Does that mean they're, they're, they're completely outta luck or not?

Ben Leonard: Not at all. So there's nothing wrong with that. If, if, if that's what you want. You just have to be recognizing the fact that you need to make sure that you constantly have your tap on, um, and it's putting water into your bath faster than it's coming out of the plug.

Yeah. And that you don't really have a sellable proposition. You, you have a, you've created a job. And there's nothing wrong with that. But if you want to create something with longevity that you can turn into an asset that you can sell, and for which you don't have to keep, you know, it's the, the, the Alice in Wonderland thing.

You don't have to keep running as fast as you can stay in one place. Then pivoting to a more brand oriented strategy would be a good way to go. So hopefully, if you are one of these people, at least hopefully you're selling things that are related to each other. Because to me, you know, there's lots of definitions of brand.

Yeah. But my favorite is that a brand is a, a, a suite of related products that solve problems for a particular group of people. Okay. So that could be, uh, knitters, could be boxers, could be amateur photographers, could be professional dentists, could be software developers. And suppose you are selling, you know, a bit of a mishmash of stuff, but it's broadly within the arts and crafts niche.

Yeah, you still have an opportunity to strengthen your brand identity, and I think that, you know, the best way to do that is to ask yourself, how do your favorite brands look, feel and behave? Do that, right? That could be your favorite brands related to a hobby that you do or your job, or even the food products that are sitting in your cupboards at home.

What do they do while they learn about their customers? They build a brand that reflect. Who their customers are and what they aspire to be. And they provide those customers with, with value in the form of everything, all the peripherals around the brand, right? Helpful, free, compelling, engaging, useful information, um, on their website, on YouTube, on podcasts, on TikTok, on Instagram, wherever your customers might be.

So know you get providing all this stuff in a place that your customers aren't needs to be where they are. You know, if your customers are on Pinterest, go there for instance. And so when you make your business look and feel and behave like a real brand and you make sure it's underpinned with intellectual property in term the form of, of, uh, patents and trademarks, et cetera, suddenly you have something a lot more sustainable with which you can build a loyal following with, uh, a community with whom you can engage. And if you start doing that, then all of a sudden this business that was just a business is now a business that's represented by a brand identity. Yeah. And that is a lot more attractive to a buyer.

Matt Edmundson: Okay. So, so the, the moral of this story then is whether you are selling stuff or whether you're just starting out or whether you've actually got a project, say you manufacture.

You've got to build this concept of a brand identity. Uh, if you want to build the, if you want to exit your business, if you want the to and to do that with maximum value. Am I picking that up?

Ben Leonard: Yeah. Yeah. Excellent.

Matt Edmundson: So, Um, and you can obviously build brand if you sell stuff and if you sell other people's stuff, like you say, through the mechanism, through the educational content, through all these other things that you do.

Um, but actually maybe one of the, if I'm going back to the, the person in the arts and crafts space, one of, well, I'm gonna go to power tools cuz actually it's a bit more , something I can cope with a bit better. Uh, cuz I like my, my woodwork, one of the things that I saw work really well. Um, a project I was involved with, they were selling stuff online, right.

I wanna say stuff, I mean, other people's stuff you need like DeWalt and, um, Bosch and all the sort of the well known brands. Yep. And so in effect, they were just like selling other people's brands and they were doing it well and they were providing educational content and they, their usp was, was really cool.

And, and, and, and I still buy my stuff from them. But what they started to do was they started to go actually, , I can't, I can't create another DeWalt because that's DeWalt. What I can do though, is look at, say the blades. You know, you put in saws and things like that. We can set a brand up doing those blades because actually that's an easy, easy sort of quick win.

And so they started doing their own branded. Um, blades for saws and jigsaws and all those sorts of things. And they, so they knew all the customers that had bought the products because, you know, they'd been selling those and they started to ship to them their branded products wherever they could, and that's what they upsold to them and cross sold.

Um, yep. And so they built this sort of brand as a result of it. Uh, not in power tools, but actually in the peripherals, Do you know what I mean? In the, in the accessories. And, um, and that actually worked super well for them, uh, as a, as an idea. And I thought it was very clever. Um, yep. You know, brilliant scene, see?

Ben Leonard: Yeah. And you see that in, in various things. You know, you see little brands crop up. Which, you know, yeah. You, you can build your brand on the back of an existing, uh, niche trend, and you can do it in a way that's, that's relatively easy and low cost to get into. You know, somebody listening, um, might be, uh, a keen keeper of tropical fish and the costs involved in starting a brand of all singing, all dancing, highly technical aquariums and fish tanks would be astronomical. But if you start thinking about, well, what are the reusable parts that these customers need? Can we build a brand around that? And, and, and, uh, the consumerable around that hobby. And you could aspire one day as you have built your brand and when the cashflow allows it to start, then developing the big, clever stuff.

Right? And perhaps, you know, this, this Blades brand that you mentioned, perhaps some that's something that they would aspire to do eventually, is actually create their own tools as well. Um, not necessarily required. It depends on, on the goals and aspirations of the owners really.

Matt Edmundson: Yeah, totally. It's interesting, isn't it?

How you, you can do, when you think about branding, you can do these, these sort of, I don't wanna use a phrase, subbrands, but you can, you get what I mean? You, you can do these sort of things and, and build up. It doesn't have to be all things to all men overnight, really. So Ben, I know that, um, That you've got a few brands that you're working on, right?

So you still, you still, I don't wanna use the phrase mess around, but that's what I'd use if I was talking about me. I'd be kind of messing, you know, sort of got these other brands that I do and I don't need to go into what those brands are. But you are, obviously, you're involved in the brokerage, but you're still building your own e-commerce brands over here, and I'm assuming rightly or wrongly, uh, you are building them to exit them at some point or to sell them or to get, you know, something done in, in, in what, say, three to five years, right?

Ben Leonard: Yep. Yeah, a hundred percent.

Matt Edmundson: So what are the principles then that you are following when building these brands?

What are some of the things that you are intentionally doing to maximize the value? So when you say focus on brand, build brand, I guess I'm just after a few more. How does that work practically? You know, what are some of the things to think about?

Ben Leonard: So it's about, um, reverse engineering. I'm beginning with the end in mind.

And thinking about, you know, I mentioned before that value pyramid about what is valuable to a potential buyer. So it's beginning, first of all, with building this brand identity and having a strict, being strict about that and making sure that you stay in your lane. So for example, I've just launched a boxing brand.

Whereas with my first brand, which is a fitness brand, we had a line of boxing products. We're going even more niche now. And this brand is purely boxing. Mm-hmm. and it's, I'm, I'm about to use American English and butcher real English here. But the riches are in the, the riches are in the niches, right?

Yeah. Okay. The riches are in the niches. It doesn't quite work quite so well, does it? But when you do that, It's very, very powerful because your brand can then be that much more compelling and be a brand, you know, when you, ideally it's a, you're gonna create something that you're passionate about and you are able to communicate with your people mm-hmm.

and provide them with value in the form of helpful, compelling, engaging, useful, valuable information. Community is so, so, so important, and one of the things that I like to focus on is being agile and doing the things that can't scale, or, well, they can scale, but the big corporates think can't scale.

Mm-hmm.. So it's building these one to one relationships on social media, in the dms, in a Facebook group that you're gonna set up around your business. When you do that, the sense of reciprocity and loyalty towards your brand really, really takes off. The word of mouth takes off, the flywheel starts to spin, and it's your nimbleness, your lack of bureaucratic layers, which allow you then on your laptop, on your spare room to out-maneuver the big guns.

Even now the big guns are still failing to out-maneuver the little guys because for all their resources, they, yes, if they use a big enough hammer, they can hammer a square peg into a round hole, but it's much, much more efficient to just use a little hammer to hammer a round peg into a round hole.

So that's what I'm focusing on. I'm focusing on relationship building, being nimble, staying in my lane in terms of brand and thinking about what buyers want. So it's brand. It's making sure that my business is growing and that when we come to exit it, we can exit it when we're growing. But we haven't maxed out growth.

So we want to make sure that we leave opportunities on the table for a potential buyer. Mm-hmm. , we want to make sure that we de-risk the business so we don't have all our eggs in one basket. So we have sufficient number of SKUs, we are in enough marketplaces, we're selling in enough international territories that if any one of those things kind of drops off, we can take the hit the business can take the hit, yeah.

Yeah. Diversity into traffic sources, et cetera. And I'm focusing on making the business highly, highly transferable. Cause a buyer wants to take the business, the brand, in fact, pick it up and drop it into their existing setup. So when we make the business highly transferable by having basically an operations manual full of, uh, SOPs, which define how we run the business, hopefully you've automated quite a lot of the business, potentially have a remote team running aspects of the day to day.

It's much more attractive for a buyer cuz they know that they're, they're buying a well-oiled, slick machine rather than inheriting chaos. And I don't want, they don't want to inherit chaos. So either they're, they're gonna pay you very little for it or they're just not gonna buy your business. So that's, that's kind of what I focus on.

Matt Edmundson: So actually you're, you're, I mean, you just rehashed in some respects, this pyramid. These, these are the sort of things that you are in effect focusing on. You're being deliberate in each of those areas, aren't you? The brand, the growth, the risk. If I go back to, I mean, we've talked about brand, let me go back to growth and one of the things that you said previously, uh, on your, on the last podcast, which you, you just said again here is when you exit, you are looking to, you are looking to, uh, hand over a business that is still growing and still has opportunity for growth. It's not reached the peak. Right? Um, which seems slightly counterintuitive for maximizing the value if I want to sell. Um, Do you wanna dig into that a little bit?

Ben Leonard: Yeah.It, it is counterintuitive and, and this is a conversation we have regularly with people who say, uh, but Ben, if I do this, that might be, if I launch this new product or if we launch onto this channel or into this market, we'll make more money. Therefore, our SDE will be higher in six months' time and we can sell the business for more.

That isn't untrue. But also you have to remember that this is a deal. We want to attract a buyer. Mm-hmm, a buyer wants a return on their investment. So if we have built in roots to growth for the buyer, set up ready for them, you know, it's you. The perfect pass through to your center forward, and all he has to do is slot it, pass to goalkeeper then Good football analogy.

Yeah. Love it. It becomes very, very attractive for them. And, and somebody listening to this will say, yeah, but Ben, uh, I don't wanna give that to the buyer. You know, I want, I want to be paid for that. A hundred percent you do. We push the multiple up. That makes the business more attractive, which means the buyer's willing to pay more for it.

So the multiple gets pushed up. Yeah. So it's a, it's a balancing act. It's a bit like, you know, one example, it's not, doesn't quite tie in perfectly with this, but seasonal businesses, businesses which do the bulk of their trade in say q4, it's, it's the perennial discussion. Do we sell before q4 or after q4?

Well, after q4 you're gonna have had big spike in sales, so your SDE will be higher. Wonderful. Before q4, you've got the carrot on the stick of q4. Mm-hmm.. And the buyer wants a bit of that, and they want a faster return on, on, on, on their investment. So oftentimes what we'll do is we'll, we'll go to market just before Q4 and see what the market says.

And the power is in the hand. If it's a great brand, that it's a great business, the power is in the hands of the seller, we can kind of do what we want. You know, we can sell before Q4 or after Q4 and adjust accordingly.

Matt Edmundson: Yeah. Really good. Very good. So we gotta leave a little bit of growth. Um, yeah, spreading risk.

One of the things that you mentioned when you were talking about spreading risk is, um, Uh, diversifying your product range and diversifying the marketplaces where you sell your products. So if any of those collapse, the business is still there, right? Yeah. Um, are they the two main things you do or are there some of the things to think about there?

Ben Leonard: So those are really, really important. Um, you want to make sure that particularly for your own website, for example, your traffic sources are diversifying, you know, heavily relying on, say, one Facebook account, on Facebook ads account is, um, a bit foolhardy because what if your account gets banned for some reason?

What if the rules on advertising your particular type of product change? What if. uh, what if TikTok is banned in the US? I don't think it will, but what if it does? Right. For example, so diversifying your track, it's, it, it pretty much, many, many aspects of your business, you know? Yeah. Be on more than one channel.

Because, you know, I talk to people who use the language Amazon business frequently. Well, no, only Jeff has an Amazon business. Amazon is a channel. Right. You know, that's, you've gotta be taught. Yes. So it's, it's yes. Beyond Amazon, Amazon can be the vast, vast majority of resales. It's not a problem. But make sure you, you at least have some sales through your own website.

Perhaps other marketplaces like Walmart, you're in Europe on all the sub little marketplaces there. I'm a big fan of that. I think that's a huge opportunity. Yeah. It's, it's making sure you have enough SKUs, right? Be aware of the hero SKU. What happens if your factory shuts down? What happens if your product gets suspended on your main marketplace like Amazon?

Because somebody puts in a claim that you are violating their patent with your main hero product and it's accounting for like 80% of your revenue. So enough SKUs, you know, I'm a big fan of sort of, you know, between sort of. Five and 50 SKUs. Yeah. Um, you know, more is okay, but the bigger it gets, the more complex it gets.

And buyers cherish simplicity.

Matt Edmundson: Not only buyers, but I also cherish simplicity. It's gotta be.

Ben Leonard: Yeah. I don't wanna run a business that's too complicated.

Matt Edmundson: No, not at all. Not at all. And I guess, uh, the others that you mentioned, like transferability, that makes a lot of sense. As in, I need to create a business that can be, you know, transferred fairly straightforwardly, uh, to the other buyer.

I mean, that was when I saw Jersey uh, last year, uh, one of the great things was very transferable. Uh, cuz the guys that bought it, the gorgeous retail group, they had the warehouse. They were already selling those kind of products. Do you know what I mean? It was very much plug and play for them, it was really easy.

Um, So I get transferability and the final one, documentation, um, will send shivers down every entrepreneur's spine. I don't just talk about documentation. Yeah. Um, but this is, again, something you touched on last time, which is the top of your pyramid here, which I think is really important. And that's getting your documentation in order as soon as possible, rather than trying to scram and get it all done later on down the line.

Ben Leonard: It makes your life so much less painful. When you are running your business apart from anything else, having a good, good record keeping whilst you're running your business, forget trying to sell it for, you know, even if selling is, is, is far, far in the future for you. It makes your life a heck of a lot easier when you come to the end of each financial year, right?

If you have got everything neatly organized in terms of your financials, your tax document, You know, right down to your company formation documents, everything to do with ip, then your life is gonna be a lot, lot easier. And when it comes to due diligence with a potential buyer, they're gonna ask for all of these things and you're gonna be able to need to produce a document.

ABC from two years ago. The other aspect of the documentation, which kind of slips into transferability, of course, and is systems and processes. So documenting all your systems and processes in SOPs as part of an operations manual, um, that you can, you know, imagine that it's, imagine that it's physical ring binder with an office manual, how to run your business.

You can hand over to a, a new owner and say, there you go. Yeah, it is going to make, it's gonna, there's a lot of happy side effects to this. It makes your life easier. It makes the buyer's life easier. Yeah, it means during due diligence they are that much more impressed with your business that when their investment committee is sitting down and saying, right, we've got this many million to spend, these are the businesses we're looking at right now.

Which one do we want? They're much more likely to pick yours when they've been that much more impressed with your business during due diligence. More likely they'll be happy to pay more for it. And if they do find anything in due diligence that they're not fully comfortable with, it's a much sweeter pill to swallow because you have made the whole process that much smoother.

Matt Edmundson: Yeah. Very good, very good. Um, so, uh, I'm aware of time, Ben and I, I feel like we, we can keep going, but it's one of those where if you are. If you are building your e-commerce business and you are wanting to exit your business, say in the next, I don't know, 18 months to three years, um, we've gone through some of the things to think about.

Should I, if I, should I be holding off for maybe a year or two or is it something I should, I could think about, you know, starting the process now. Um, where do you, I mean, you said it was gonna get better in 23. That was my hope, when you were talking, I was like, okay, should I hold on for that?

Ben Leonard: The best thing you can do is find out what your business is worth now.

Mm-hmm. and what it could be worth in the future if you do A, B, C. When you find out what your business is worth now I liken it to, to, to getting a map and a compass. You, you. You know, you know, orienting without a map and a Compass is a really bad idea. But if you have a map and a Compass, you know where you are, you know where you're going, and you can start to shape your strategy, right?

These are the things we need to do to get, you know, the business could be worth, you know, half a million now. I wanna sell it for two. Okay. What are the things I need to get do to get there? And you stack up the dominoes and start knocking them down. Mm-hmm. . And you can work with the right experts to do that with you.

And it might be that you are in a place where you can get where you want to be in six months, or it might be 12 months or 18 months. All of that is fine, but just having an understanding of what your business could be worth now helps to shape your strategy so that you can make sure that your strategy, coming back to the value pyramid, is gonna set your business up so that it's ticking all those layers of the pyramid for a potential buyer when the time comes.

Matt Edmundson: Yeah, great advice. Figure out what it's worth now, and so, Ben, let me ask you, my, uh, final question. Go for it. Uh, which I've started asking people cause I'm just really curious. This episode is sponsored by the e-commerce cohort, right? Which is like a, it's like an a membership group, um, for E-com entrepreneurs.

So, You, we've done this virtually, uh, on the phone. You're in a, you know, working space somewhere. Uh, and I'm in my shed at the bottom of my garden. Um, but let's imagine for the sake of argument, we're actually in a hotel room and you've just delivered, you know, the keynote on how to sell your business. You know, everyone's going wild, the crowd's going wild. Best speech you've ever done.

And so you stand up, you take a bow, and you do that thing they do at the Oscars. I would just like to thank, and there's a list of paper. I'm curious who is on your list, whether it's family members, book authors, mentors, podcasts, whatever it is, what's, what's on your list? Who do you thank?

Ben Leonard: Wow. Uh, I thank my wife, um, for being Good answer.

Yeah. Uh, she cause a, because she's an amazing wife and, and mom. Um, b when I started my first brand, she really encouraged me to go for it, Um, so bit of context. I'm an ecologist, right? I got into business by accident. I had a heart problem. I got better, but I was signed off work and I couldn't do my fitness hobbies.

My wife really encouraged me to, um, work on this little project. I had this idea for a fitness brand. Wow. Turned out I was pretty good at it and I sold it for quite a lot of money later. Mm-hmm. . So my wife, my parents, um, they. They brought me up, alright. And they supported me as well, and my dad lent me my first, uh, few grand, which I needed to help start, start my first business.

Someone at the front door. Um, I mean, those are the big two, right? Uh, my accountant, Allison, right? If it wasn't for her, um, that deal would've gone, uh, could have gone sideways or at least I would've given up my business for a significantly less than I'm up to and we wouldn't have started Ecom Brokers. So those are the big ones.

And I think the last one is, uh, David Attenborough. Oh, okay. Uh, you know, I'm, I'm an ecology nerd. Yeah. Um, my new, one of my new brands is in particular is, is gonna be highly environmentally friendly and I, I want to use it to empower change in the, the way the consumers consume products and, and when I'm finished burning through this entrepreneurial fuse in the next 10 years or so.

I'm still gonna be an entrepreneur, but I'm gonna apply entrepreneurial spirit to my first love, which is environmental conservation. Okay. And, uh, I love David Attenborough. Um, uh, I grew up like religiously consuming everything that he created and, uh, he's, yeah, he's probably my hero.

Matt Edmundson: Fantastic. Well, that's the first time David Attenborough has been mentioned on an e-commerce podcast.

Uh, and so Google does not know what to do with that information. But no, that's, awesome. No, no, no. Not at all. Not at all. I think he's brilliant. I I, I'm, I like you. I, I consume a lot of David Attenborough's content, so, uh, that's brilliant. Uh, Ben, listen, you've been an absolute legend. How do people reach you? How do people get hold of you if they want to get their business valued?

I'm sure that's something you can help with. What's the best way to do that?

Ben Leonard: Absolutely. Uh, getting your business valued, head to ecombrokers.co uk. It's a UK domain. We work all over the world. We have a deal director in Chicago, for example. Uh, if you wanna contact me, just email me, [email protected]. Um, I'm on all the main social media channels.

My handle is @BenLeonardPro. I'm on LinkedIn. Um, contact me. I'm always happy to chat.

Matt Edmundson: Reach out and say, how's it? Uh, no, that's brilliant. Uh, and we will of course link to all of Ben's info in the show notes, uh, which you can also get for free along with the transcript at ecommercepodcast.net or direct to your inbox if you've already signed up to the newsletter. Uh, Ben, thank you so much for joining me, bro. Really, really appreciate it. Good to catch up. Uh, good to hear what's going on and, um, no doubt we'll have another conversation, I guess in about 12 to 18 months if our history is anything to go by.

Ben Leonard: Great. Yeah, thanks for having me.

Matt Edmundson: Awesome, man. Thank you for joining me. So there you have it. What a great conversation. Huge thanks again to Ben for joining me today and also a big shout out to today's show sponsor the e-commerce cohort. Do head over to ecommercecohort.com for more information about this new type of community that you can join. Be sure to follow the e-commerce podcast wherever you get your podcast from because we've got some more great conversations lined up and I don't want you to miss any of them.

And just in case no one has told you yet today, dear listener, uh, you are awesome. Yes you are. Uh, it's just a burden we all have to bear. Now, the E-Commerce Podcast is produced by Aurion Media. You can find our entire archive of episodes on your favorite podcast app. The team that makes this show possible is Sadaf Beynon, Josh Catchpole, Estella Robin and Tim Johnson. Our theme song was written by Josh Edmundson and My Good Self. And as I mentioned, uh, if you would like to read the transcript or show notes, head over to our website, ecommercepodcast.net where you can also sign up for our weekly newsletter. Get all of this good stuff direct to your inbox, totally free. Uh, no problem at all.

So that's it from me. That's it from Ben. Thank you so much for joining us. Have a fantastic week. I will see you next time. Bye for now.