The Art and Science of Acquiring Shopify Businesses | Fabio Savi

Fabio: We get super excited about a business, that has customers come back. So not just on a subscription model, has them come back at any point. We even look at businesses where there's no real reason for them to come back, but they come back after seven months and there's no real reason because the products, they don't deteriorate.

The products are good, but we just saw, strange timeframe that customers like to come back, not six, not 12 months, but seven months in. And so these for us, are great signs that. business has found a great product market fit, has found a community that people, uh, of people that love the product, and that's for us the number one thing.

Matt: Welcome to the e-Commerce podcast with me your host, Matt Edmundson. Now, the E-Commerce podcast is a podcast all about helping you deliver e-commerce. Wow. And to help us do just that, I am chatting with today's guest, Fabio Savi from everstores about the art and science of acquiring shopify businesses. Who knew there was both an art and a science to this.

But that's what we're gonna get into. Uh, but before Fabio and I dive into our conversation, let me share with you, uh, a previous podcast pick or two, which is not easy to say. Uh, so check out, um, how to grow your business through acquisition with. Steven Speer. Uh, that was a great uh, Steven Speer. Steven Speer, not sphere, uh, and how the mergers and acquisitions landscape is changing and what that means for you.

A recent episode recorded with Ben Leonard. Check both those out cuz that's gonna add to today's conversation and you can access, uh, podcast picks and our entire podcast archive for free on our website, ecommercepodcast.net. Plus if you sign up for our newsletter. We'll send you links to our podcast picks along with notes and links from today's show with Fabio.

They get delivered straight to your inbox, all at no cost to you, which is pretty amazing now. Sponsor section. It says on my notes, let's do the show sponsor. Are you struggling to grow your e-commerce business? Do you feel like you are constantly spinning your wheels trying to figure out what to focus on next?

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Oh, yes. Okay. Now, if you are a regular to the show, uh, you'll know that we've had on the e-commerce podcast before, folks who can help you sell your e-commerce business. Like recently, we had Ben Leonard, uh, who I mentioned at the start. We've had, uh, Brad Wayland way back. Talking about how to do, how to sell your business.

We did an episode with Steven Speer about how to buy e-commerce businesses as well, like how to sort of grow your business through acquisition. And these are all great episodes that I really, really enjoyed. But the, the common thread amongst those is these are all me chatting with people who help you either buy or sell businesses, but today, Is a little bit different.

We have Fabio Savi on the show who specializes in actually buying e-commerce businesses. Yes. Today we are talking to the buyer. Now, Fabio is the rockstar ex-banker who's now leading the acquisitions team at everstores with lightning fast turnaround times. Fabio and his team can snag Shopify stores in just a few weeks, and with a data-driven approach to every aspect of the process, from acquisition to due diligence to operations, there is no doubt that Fabio and his team are the true rock stars of the industry. That's what we're gonna find out. Plus, with some of the smartest data scientists and machine learning engineers in the game, uh, they, the process is guaranteed to be both smooth and transparent, which I'm really, really curious about.

Fabio, welcome to the show, man. Great to have you. How are you doing?

Fabio: Thank you Matt. It's a pleasure to be on. Thanks for having me. I'm doing well. How about you?

Matt: Yeah, doing super well. Uh, we were joking before we hit the record button. That is today is one of those rare dates, ladies and gentlemen, where it is in fact, sunny here in Liverpool, England, where I'm recording the podcast from.

So sunny, in fact that the sun streaming through the window keeps turning off the camera cuz it overheats. It's never happened before. Uh, so I'm not quite, I'm, I'm at quite a loss, uh, as to what's going on, but yes. That's where we're at. So if you are watching the YouTube video, my screen goes blank. It's okay.

I'm still here. You'll still be able to hear me. We'll make it work somehow. Um, but yeah, I'm good. Now you are in Berlin, right? So I'm in Liverpool. You are in not so sunny Berlin.

Fabio: Yeah, I used to be based in London. Um, I mean the weather is not much better, but Berlin winters are, are kind of bleak.

Matt: Yeah. Yeah, that's, that's kind of the impression that I get.

But I think the summers are better, aren't they, uh, in Berlin than in London. Yes. So you kind of get, you know, you're given with one hand, taken with the other. That's okay. Exactly. That's okay. Now, Fabio, I mentioned it in the bio, right? And it's also on the ever stores website. And I wanna dive into this pretty much straightaway.

There is a pretty bold promise, uh, on the website right there in the header section, and it says, we'll buy your Shopify store whenever you are ready. Cash out in weeks instead of months. Now. The reason I'm drawing everyone's attention to this is because I've sold businesses, uh, over the years, quite a, well say quite a few.

I've sold a few businesses over the years, and if I'm honest with you, Fabio, every time I sell a business, an e-commerce business, the process has taken months and not weeks with one exception. And this was a business I sold in 2002. This is a long old time ago. Uh, but it has taken months so. I'm a little bit skeptical when someone tells me it can be done in weeks.

So before we get into the mechanics of buying a business, I just wanted to ask straight away, is this a true statement and can, can we talk about how you actually do that?

Fabio: Of course. I mean, long story short, yes, it's a true statement. The fastest deal we've ever done was around three and a half weeks. Um, so it really, really depends a bit on the merchant, and I guess that's, that's also the beauty of the Everstores model as you hinted on before.

We have a bunch of very smart data scientists, data engineers, and they take whatever manual work that had to be done in those acquisition processes and they kind of remove that. The only barrier to really doing a deal in two, uh, two weeks, three weeks, most of the time is that the merger needs to prepare the data.

So if there's a merchant that, uh, has prepared their P&L has some accounting statements, they have an up-to-date inventory evaluation, there's really no hurdle from our side as to why we can't, uh, finish the deal within two, three weeks. Right. Now, you're right. Most of the time that we do deals, they end up closing within three and a half, four and a half weeks, uh, but still enough for us to measure in weeks rather than months.

Matt: That. I mean, I'm not gonna lie, that's pretty insane. So, and I, I, I mean, knowing a little bit, I suppose about, about the industry, I can see what you're talking about when you say, actually the reason it takes so long is because of the merchants getting information ready. And yes, I have to get P&Ls ready, I have to get contracts and all, all kinds of stuff, which, you know, in due diligence terms, you're gonna have to sort of, um, Create.

So how do you, how do you, if that's on the basis of me, surely that impacts you as a business or is there something else that you are doing with your clever data scientists? Because they're not making me work faster. Right. So, um, is there something else that you are doing that's extracting that data from me in perhaps an easier and smarter way?

Fabio: Of course. So when we think around the P&L and what line items we have to audit before we can make an investment, um, the two biggest ones are revenue and ad spend of course. But then also you look at your COGS, you look at your F&D, so it's your cost of goods sold and your fulfillment delivery costs.

Um, out of those, The revenue and the ad spend we have, we can pull them as a single source of truth because the revenue we pull directly from Shopify, we do our own adjustments to it. But that's, there is no real debate about it. That's the revenue that the store has done. In terms of ad spend we connect to all the ad accounts that the merchants run, so we have pretty much verifiable data there that these are correct as well.

So that means that our two week DD phase only really has to delve into COGS and F&D. And for those, we have pretty simple methodologies and we really just look at what the latest unit economics were like. Right. Um, so I mean, that's the financial part. Of course there's also legal due diligence that has to be done, um, and that kind of stuff, which sometimes takes a little bit longer.

But in terms of financial due diligence, which oftentimes really affects the price. Mm-hmm. Um, we're very, very fast in that because a lot of it gets pulled directly, um, from the apps.

Matt: Well, that's quite interesting because I think one of the big things that, um, that you are addressing here, which I'm, I'm really intrigued by, I'm not gonna lie, is the fact that you are, you are hitting head on.

I think one of the key reasons people don't think about selling their business is because, um, people are put off by phrases like due diligence and, um, I've got to, you know, I dunno if I'm gonna sell the business, but I've gotta let this stranger know everything about my business. I've gotta go to speak to my accountant, I've gotta go speak to my lawyers.

I'm out five grand, 10 grand before we even got anywhere because of, you know, I'm, I'm speaking to everybody. So what you are saying is, and I'm surprised actually that, um, in some respects you're the first person on the show to talk about this. And I'm surprised in some respects it's taken this long. You plug straight into the Shopify site and you extract the vast majority of this data straight away, which gives you a fairly reasonable valuation, I would've thought.

Um, subject to everything else, obviously, but it's without costing anybody anything. Um, you can quite quickly decide whether or not you and the merchant are on the same page. Am I understanding that right?

Fabio: Yeah, you, you hit the nail on the head. I think even more so in your first point. Yes. One item is costs, right?

You need to go to the accountants. You need to go to the lawyers. But even more importantly is the attention, right? If you're running a brand, it's taking up all of your attention, and now you also have to divert for a sale that might not even happen anyways, right? And so what I think is a nice thing about everstores is that what you said rings true, it's when merchants are a little bit iffy about if they wanna do a deal or not.

Their entire time till they receive evaluation, their input, it's 10 minutes. It takes us 42 hours to 72 hours to give them evaluation slash an offer, um, sorry, 48 to 72 hours. But the, the merchant is done within 10 minutes before they ever have to put in a ton of work into getting the legal documentation out into verifying their COGS and their F&D.

They will know if we're more or less, as you said, on the same page in terms of valuation and offer. And so that make sure that they only really put in effort towards something, uh, if they know that deal's gonna happen.

Matt: Yeah. No, it's really fascinating. Really fascinating. So, and I'm guessing this is why, um, in the title of the, we talk about the art and science for acquiring Shopify businesses, and I, I take it from your point of view, you are working with Shopify merchants because you can plug into that system fairly easily and extract the data.

Is that right? Do you, do you sort of meander outside of Shopify or are you like, no, we're just Shopify all the way, man,

Fabio: You're a hundred percent right. So, Shopify for two reasons. One is because it's just simply, incredibly easy to start a Shopify store, from merchants and also for us to plug in and, get the data.

But the second is that we're incredibly, uh, incredibly bullish on Shopify. So on Shopify, you own the customer data. You actually own the customer. Whereas on Amazon you don't, right? Mm-hmm. And so there's a lot more intricacies that come at play in Shopify that make an inside out valuation system much more worth it than, for example, doing that on an Amazon store.

Matt: Yeah, no, that's fair enough. I I it's interesting, isn't it? Because if up until co well I'd say up until recently, um, there was this sort of mass explosion of aggregators who would just come and buy specifically Amazon stores actually. Um, and, uh, the value of online businesses went up because of covid.

It's then fallen down again because the cost of goods became so high and so complex just trying to get the stuff to fulfill the orders, cost of living crisis, interest rates increase. And it seems like aggregators in some respects have almost fallen off the edge of our planet. They've just sort of shrunk in and, and no one's really talking about buying anything anymore.

Um, would you, I suppose my first question to you is, would you call yourself an aggregator in its traditional sense, or is your model a little bit different?

Fabio: It's a, it's a great question. So We like to think of ourselves as more of a technology company that's currently applying the technology to acquiring, Shopify stores.

And I think probably best to give a little bit of color into how everstores actually got started, uh, into what we're pivoting towards. So initially, Everstores was founded upon the idea that there's this big mismatch between. As you said, the amount of stores that exist on Shopify and the amount of stores on Shopify that actually get to exit.

Um, and we, we like to call it the long tail. So it's where most merchants are located, doing a few hundred thousand dollars a year in sales to a few million. Um, but they're still deceptively far away from like a very reliable exit. Yeah. And so when we started acquiring and operating those stores, and especially integrating the stores, we realized that, um, The tech stack of each of these stores was completely different.

Yeah. They may have used the same two, three apps for email, the Klaviyo, MailChimp, et cetera, but to check on their 3pl to check on their ad health accounts, they use completely different apps. And so yeah, the immediate first thing that we started doing when we acquired this brands was to integrate our own operating system.

So instead of having 80 different dashboards to check what's happening at your Shopify store, we made it possible, internally to drive from one cockpit, have one dashboard that tells you which decisions you need to make. And the future of everstores is to also release tech technology. So not just be able to apply it to acquired Shopify stores, but also for merchants that might not be interested in selling, but might be interested to run it from one cockpit rather than 12.

Matt: Yeah. Well that's really, I, I can see where you're going with the software development, uh, and that, that, that makes a lot of sense. So you are bringing these companies in. You are, you are whacking them on the same. Um, platform. But to sort of come back to my original question, you're not an a, you're, you're not considering yourself as an, an aggregator, but like a, a tech car like this, the, the, the tech face aggregators, I think have had a bit of a bad rap, haven't they?

So I can see why you're distancing yourself from them. Um, so can I ask the dashboard then, you're bringing all the companies onto your system. Um, what are some of the things I'm really curious here, Fabio. Uh, what are some of the things that you guys see common in e-commerce businesses that they're not measuring, that you measure on your dashboard because you guys think it's important? If such a thing exists. If you follow my question,

Fabio: I. Of course. Yeah. I, I think given concrete example of a kpi, for example, is that everyone always, you know, fusses about CLTC CAC or LTV CAC. Mm-hmm. Right? And I think it's quite generally understood that an e-com, that's not the best metric to track because, uh, you always reach the end of your e-commerce store before the theoretical lifetime of that customer.

Right. It's because cash is just king. And so we have our own proxies to evaluate that. And we have actually. Completely relative CLTVs on like the time period per store, right? We're not gonna measure the same cltv methodology wise for, uh, a subscription store that sells dog poop bags versus one that sells, uh, mattresses, right?

And so, mm-hmm. We, it's, it's less about completely reinventing the wheel. It's more about making small adjustments to commonly known metrics to make them more accurate towards applying them at DTC. And I think that's, that's, CLTV CAC is one in terms of ad creatives and how we measure those. It's another, we're able to, to quickly refresh, ad creative sets rather than just do the manual work and think about which set's really gonna work.

We're able to generate quite a few and then have the manual input on which ones we should test. And I think that that's the nice power of the dashboard is that it allows the humans to make better driven decisions, but it doesn't make the difference for them.

Matt: Okay. So your, um, Your, I mean your example there of the, sorry, was it a doggy bag? Um, which is a company I think you, you acquired Right. A, a sustainable dog bag company versus, um, a mat. Did you, have you acquired a mattress company? I'm kind of curious.

Fabio: So we are, we're, we're always looking, uh, I think mattresses are a bit difficult to acquire, just purely given like the size. Mm-hmm. We have a few weighted blanket stores, so once I weigh like very premium weighted blankets, okay. And I mean, comparing it there also holds still true, right? You, you don't have the same kind of customer turnaround cycle, uh, for, for for weighted blankets.

Matt: So I'm, I'm as a, as someone who is looking to, um, acquire businesses then, um, You see, if someone came to me and they said, Matt, you know, you, what kind of e-commerce business would you buy?

This is just how my brain works. Fabio. I'd be like, right. I have done well in beauty. I've done well in health supplements. Um, and we, we do well for our clients who operate in industry where they are selling a small product that is a repeatable purchase, right? So, um, beauty would classically fit into that.

It's a small product. I can put it in a small box and they buy it from me today. They're probably gonna buy it from me in two months time if I do customer service well, um, health supplements fulfills that, pharmaceuticals fulfills that. And a bunch of, you know, when I think back over the coaching work, the client work we've done, um, power tool companies, you know, in some respects they, they don't order every month, but.

Um, you've got a power tool and you know, they were buying stuff for their power tools every month. Do you know what I mean? It's, uh, so we've done really well in those sorts of industries. So if you came to me and said, Matt, what kind of business would you buy? I'd be like, I am looking for an e-commerce business that has a small product that is a repeatable purchase.

I'm gonna do well there. Um, so do you then, as someone who buys companies, have that sort of. Tightness of company that you are looking for, or are you just literally looking at everything and you're not going, we're not gonna be, we're not gonna focus in on those kind of specifics more, but we're gonna focus more on your dashboard and the metrics from the dashboard.

Fabio: Yeah, it's, it's a great question. So we have a few different verticals that we really love. So we love, as you said, I mean, you said beauty, which is interesting cuz it's actually not one of ours. Uh, and I'll get into that reason a little bit later. But we love pets. Mm-hmm. We love mother and baby, we love mental health, wellbeing, stuff like this.

Um, that's not to say that we don't play anywhere outside, right? We have like a gaming brand, for example. Uh, and we're looking at some toys, brands. Now it's more about saying that we love those sectors. Mm-hmm. We actively want to get engaged in those sectors so then we can start maybe cross pollinating stores already within those verticals.

Yeah. Now, um, that's not to say we don't play outside because outside how it works is that we make investments based purely on investment case thesis. So it doesn't matter what kind of category the store is in. If it looks like we can make operational improvements, uh, and grow the store, we will invest.

So the only categories where that does not hold true. Um, it's in vice, so sex drugs, weapons, stuff like this that's really hard to, uh, I would say normally advertise so on meta or, or any other platforms. Mm-hmm. That's where we have even including cbd, right? I mean, CBD now is, is a category where you have such high CLTV CACs because customers, if they find the brand, they will keep repeat, uh, repeat purchasing.

They love where they get their CBD from. Um, but it's just really, really hard to advertise it in terms of their legal complexities and beauty. Very similar. So one of our strategies for the brands when we acquire them is to internationalize them. Mm-hmm. And it sounds so extremely simple, just bringing the product in front of more people.

Um, but especially in Europe, right? You have all these different borders and each regulation for each country is slightly different. And so the, the issue with beauty products for us, Um, is that, you know, the product liability issues and the regulatory certifications that we have through per country, per border, yeah. Um, is always something that makes it a little bit harder than,

Matt: yeah, no, I don't get me wrong. I sold my beauty business. I've not done beauty now for about 18 months, coming up for two years. Um, whether I would get back into beauty would be an interesting question. Um, But it's, I I get what you're saying about Beau and for me, beauty is insanely competitive.

I mean, probably one of the most competitive markets I've ever seen. Um, I mean the health sipplement space is actually quite competitive. Are there any spaces that aren't competitive these days? I don't. Maybe weighted blankets even that, I imagine there's a lot of competition. Um,

Fabio: would you get back into the beauty game?

Matt: Would I get back into the beauty game? I think I would, um, because. I think, well, I wouldn't do beauty the way that I did it, uh, because I, I think, um, there's part of the reason we got out of it. Um, and part of the reason we sold, I just thought my time in that industry had ended. Um, if that makes sense. And there were people that were better, smarter and cleverer than me that could take it onto the next phase.

Um, but I think if it was the right product, the right approach, yeah, I think I'd probably be interested in it just because we know the market and, um, you know, What is it? 120% of females buy beauty products or something. It should mean there's some crazy statistic. Um, and it's also a growing market amongst men now.

So, um, but super competitive. So yeah, I, I think I probably would, but I think I would have some, uh, I'd have to have a very good reason to do that. Fabio, I don't know if that answers your question.

Fabio: It does, but I, I think it led me to an even, you know, more important point, which is also where you said in terms of what stores you would start.

So something where you kind of build a community that reengages with the product. I think when you're looking at bigger deals, so in, deals that are, or companies that are doing above 5 million a year in sales, that's definitely something you see. Right? You see something where they're focusing on retention.

Uh, very, very obviously, so, but at the deal sizes that we're looking at, right? We're buying stores that are doing anywhere from 500 k a year to, a couple of million. That's not so much of a factor there. it's a lot of stores that are just focusing on one time purchases. So we call them equipment stores where customers don't really subscribe.

They don't ever come back. But it's really about that, that first time AOV. Uh, so we're by, by saying, Hey, we're only gonna play in, in space where you have subscription products or you have a community that consistently reengages. It really narrows the scope by so much because if a store is doing that, it wouldn't really be in that long till per se.

Matt: Yeah, that's a really interesting point because I, again, I was chatting to someone about this here that, I mean, we have lots of conversations, as you can imagine, uh, around e-commerce. Um, one of the things that I think we do particularly well as a business is, uh, we are very good at helping customers buy from, from us a second time. So I'd be really interested in buying a company that didn't have a strong repeat customer base, but I thought it could have because that's where I'd be like, I think that would be where we could add some insane value and get some really quick wins.

Um, So I, I, I get why you are looking at that, you know, that whole repeat purchase, um, community side of things. But it's, it's interesting you give this sort of is so have you discovered then there's a turnover level, there's sort of like a sales level and the higher the turnover, the more likely there is to be this engaged community that buys time and time again?

Fabio: I don't know if there's, um, there's strict correlation per se, but I noticed that, you know, when we were doing our smaller deals, um, you see a lot more equipment stores, uh, when we are doing the bigger ones, there tends to be a higher customer lifetime retention, so. Mm-hmm. Um, and that's kind of, Regardless of what category they're in, uh, we noticed that when you're growing, you really have to focus on retention because it's, it's just, and it just sounds obvious, but it's just so much more profitable to focus on keeping the customers and acquiring a new one, especially, especially in today's fact, right?

Yeah. Um, but there's so many businesses that just simply don't do it. Um, and it's, it's not always a wrong, right? If you're doing 500 k year in sales, yeah. Your biggest value lever, it probably isn't gonna be to retain the customers that you have. It's probably gonna be to acquire new customers or to really rethink how you're approaching those customers.

Matt: So what are some of, I mean, you, you we're talking about a vast array of, of businesses here. What are some of the things, the key factors then, that you guys consider when valuing a Shopify business? Um, what, uh, so I guess if I'm, if I'm listening to the show, I'm thinking Fabio, if I'm listening to the show, um, and I'm thinking of selling my business, What is interesting to you?

And also if people listening to the show might be like me going, I'm really interested in buying a few businesses. Um, again, what's interesting to you will become interesting to me, so I'm really kind of curious. What are some of the key factors that you guys look at?

Fabio: I can tell you a little bit about how our models work. Um mm-hmm. Because that's, that's always the first question we get because we don't do multiple base valuation. We do it from the inside out. And so, okay. It's, it's always a bit of a question like, is that a big black box? Is there any color into how it works? Um, and, and there is, so we used two models. Very simply put, so as I said, some of us came from the finance background.

Uh, Very short. We, we didn't spend so long there, but, uh, the first few acquisitions that we, that we did, we did on a multiple base evaluation methodology. And so yeah, we acquired three businesses in the span of a month, acquired them all with just simply putting our finger in the air and kind of waiting for a multiple to get on it.

Uh, and so we very quickly realized that's probably not the best way to value these DTC stores. And so, mm-hmm. We had this, you know, we all claimed to have this very smart team of techies and. Why could we not make it more of a science? Uh, and so we spent months developing this kind of inside out valuation methodologies.

We pull directly from the stores and it basically runs through two models. So the first is what we call the customer behavior model, predicting how customers behave. So it's, it's a known fact that depending on how and when you acquire customers, um, they have different lifetime values, right? If you acquire a bunch of of customers when you're discounting heavily during Q4 gifting season.

Uh, these customers are not always gonna be worth as much as, you know, the run rate customers that you require. Sure. And so, um, that's one thing that our customer or that that model focuses on. The second model that we kind of intertwine with that model is the customer acquisition cost model. So we see that every store at some point, kind of, it's a plateau at point where their next customer starts getting more expensive than the previous customer.

And that's obviously not a point that's ideal for an individual merchant to sit at because. It's, yeah, it's, it's simply unprofitable or not as profitable as it should be. Mm-hmm. Um, and the second is they want to kind of break through that ceiling and, and reach the new kind of scaling curve. So that's the second analysis we run and we look at if we could make some operational improvements to the business, so be that cro, be that, uh, changing some levers in the ad account, be that targeting a new audience, what would that customer acquisition curve look like?

We marry those two models and we get a good idea of how customers spend. So in, in reality, what that means is, We get super excited about a business, that has customers come back. So not just on a subscription model, has them come back at any point. We even look at businesses where there's no real reason for them to come back, but they come back after seven months and there's no real reason because the products, they don't deteriorate.

The products are good, but we just saw, strange timeframe that customers like to come back, not six, not 12 months, but seven months in. And so these for us, are great signs that. business has found a great product market fit, has found a community that people, uh, of people that love the product, and that's for us the number one thing.

In terms of specific ratios, we look at KPIs. There's not really anything. We look for the stories to be profitable before factoring in any other costs. So before factoring in salaries, uh, cars, software that you might use, if it's profitable on that level, which I mean, I hopefully it, it should be, uh, that's fine for us.

So we're really, really agnostic in terms of what we look for.

Matt: So do you, um, when you, uh, well, firstly that's fascinating. I, I like how you are trying to predict how customers are gonna behave and understand the different customers. Cuz you're right, someone that's coming from Black Friday is not gonna be as valuable maybe as, um, and so you've, you've got some clever way of sort of distinguishing those, uh, those customers and pulling that outta the data.

And understanding that with your customer acquisition costs. Okay. I can, I can start to get my head around that. Um, because you're right, I've always, in some respects, I've always struggled with the multiple. I, I realized when we were selling our beauty business that if I sold my beauty business on the basis of a traditional multiple, it would be worth.

X. Um, you take the net profit you times it by, or your EBITDA or whatever, you know, whatever number it was, and you would times it by a certain value. And there's the value of the business plus cash at the bank, plus stock. And it was a very crude calc calculation, but I. I realized when it came selling the business that actually the, the business, the value of the business is not that straightforward.

Because if, let's say you guys bought it, you buy the business, well, does that mean you are gonna have to ha take with you all of the staff, for example, and the premises and lease all of that to carry that on? Does that business have to run like that? Or are you a similar business to mine and you are not.

You don't need the warehouse. You can just bring all the stock into your own warehouse. You've got your own distribution system, so there's most of the staff you're not gonna need. Um, well then the, the value is very different between one and the other. Do you know what I mean? And so, um, I, I get why you're not looking at, at, at the multiple aspect of it.

Um, because I, I do think it's quite a crude, a crude model. Um, So,

Fabio: especially, especially on Shopify, right? I think, um, not to speak of, of any other e-comm platforms, but comparing it to Amazon, there's so much more personality and, and nuances and intricacies that are built into a Shopify store where even if you're valuing.

And we come across this, this quite often, right? We come across two businesses that are selling pretty much the identical product. Yeah. I mean, they both source it from, from different suppliers, but end of the day it's, it's more or less the same thing. But these businesses themselves have so many different things.

Even if they had similar profit margins, so many different levers that change the valuation of business and us just saying, Hey, currently we're seeing three and a half times, this is the market standard in terms of multiples, it just misses out too much. Uh, yeah. In terms of business.

Matt: Yeah. No, that's fair enough.

That's fair enough. It's um, when you are, when you are buying a business, then Fabio are you, are you, are you buying the business? Are you buying the shares in the company? You are taking everything on lock, stock and barrel, or are you buying the assets of the business and integrating them over? You're not necessarily bringing the staff or is it a combination of the two? I'm just kind of curious as to what you do once you've acquired the business.

Fabio: I. Yeah, so we, we acquire only the assets, so we do asset deals, which to our model is, is fundamental because we're able to move much quicker. Asset deals get done generally a bit quicker than, share deals. The due diligence required is much less.

Mm-hmm. Um, and so we, we focus mostly on asset deals. Now, there are some jurisdictions in which asset deals are significantly. Less attractive to a seller than, than a share deal. The UK being one for example. Yeah. Massive deal. And so we are, we are a little bit flexible in terms of how we look at deals.

Let's say that there's a big deal coming in and the seller really isn't, uh, flexible in terms of how, you know, the deal structure. That's something that we're willing to change, right? Mm-hmm. But in terms of average run of the mill deals that we do, uh, every day, it's, it's mostly asset deals. Mm-hmm. That's, and sorry to, to answer the second part of the question, we don't take over anything, so no employees.

Uh, we take over purely the Shopify stores, any other assets that might come with it. Um, but no employees, no. And that, that's also something that is, you know, a little bit of a yellowish flag for us sometimes if there are at this size. So at 500 k to a few million a year, employees that are really, really key to running the business, it might make us double take a little bit of a wow, maybe we should double think about if we really want to get into this business.

Matt: Yeah. Okay. So the, um, and I guess from that then you are, one of the things that you are looking at is, I think you mentioned earlier, sort of operational cost savings. So by bringing a business into your, I'm gonna use the word empire, but you know what I mean, it's probably the wrong word, but by bringing it into your, um, uh, your system, there you are, you are instantly making operational cost savings.

Right? Because you don't need a lot of those overheads. You've, you've already got them. They're already flowing out, so you can instantly see a cost saving there. But how do you manage it if, um, and I'm just thinking again, if I went out and bought, um, if I went out and bought a business, um, I bought it into my. Warehouse bought it. You know, I had my guys deal with it. Um, I get that there's an operational cost saving, but how do you deal with the voice? So, and what I mean by this is quite often sites, let's take a weighted blanket.

Um, that website will have probably a founder and there'll be some kind of story associated with that. Um, the founder might be quite active on social media. There might be a Do you know what I mean there, there might be a. The brand might contain that person, um, a little bit more. So is that what you mean when you say that's a red flag for us? We don't get involved. Um, but I'm, I'm kind of curious if you do get involved, how do you deal with that?

Fabio: Yeah. So it depends to what degree the founder is really operationally involved or an employee for that matter. Um, and I mean, we like to call it our umbrella, but we can use empire. Uh, so when we, when we

Matt: That's a much better phrase. Yeah. Yeah.

Fabio: When we take stories over, we look at how involved or during the dd phase as well, and before. We seek to double check how much that founder was involved. And so this way the blankets companies is a great example. The two founders were involved, um, to what extent they were saying, you know, this helps improve sleep.

This decreases anxiety. And they were really kind of, you know, the two faces that showed up on the website. But on our DD and our findings, they said that buyers were not really buying it. Because of these two faces, they were buying it because of the product. They were buying it because of the studies conducted all the blankets.

Mm-hmm. Not because of the two faces. And so when we're able to really put, um, or take apart the founder and the business, that's for us a very clear investment case. Mm-hmm. When there are, um, other brands and, and we've seen quite a few, right? Where, uh, love Island, for example. Right? Love Island, a lot of these, these stars, they have their own Shopify stores and they sell, they use their face to sell whatever it is.

Yeah. Jewelry or, or something else. Those are much harder for us to play in. And we, we haven't bought a single one of those brands purely because it's, I mean, none of us have that face. Right.

Matt: Yeah, it's very true. So how do you, do you, when you take over a business, and let's say a business has a particular brand voice, um, that they've used over time, so it's not necessarily a face, but it's more of a voice.

Do you try very hard to maintain that voice? Or, or do you have like, um, Uh, an Empire Voice that, that you use across all, and you're, you're trying to get everything more towards this one singular voice, cuz that's easier and everyone can cope with that. I, I, I dunno if you thought that through, I dunno if that's a long term strategy. I'm just kind of curious how you deal with that?

Fabio: No, it is, it is, it's something that we think about. So, um, full transparency. The first three stores that we ever acquired, uh, so. Two are in the US, um, of which one was the dog poop bags, and one was a gaming brand. That was actually the first mistake that we made. We had this whole like theoretical knowledge of this standard operations like playbook that everyone should follow, that every dtc store should follow, and they shouldn't deviate it from it because then you're not doing something right.

Mm-hmm. And so we bought those stores, immediately applied the playbook, and I mean the performance just really went down. And so we were, we were wondering like, what are, what are we doing wrong? We have all the theoretical knowledge and. That's when we really made a big shift. And every acquisition afterwards, we run very much like the owner.

Yes, we make improvements. Yes, we'll make, we'll change the landing pages, we'll make them look a little bit better, but we run them in the same voice that the owner has. And so again, if the, if that voice is something very active, the owner has to be on podcasts, newsletters, things like that, maybe it's not the best business to integrate and to to operate.

But if it's a voice where, Um, let's take the Dr. Poop bag thing, for example, where it really focuses on sustainability, focuses on the fact that. This is the most environmentally friendly solution. Yes, they might be a little bit more expensive, but it, it gets made up for the environmental impact, right? Um, while there might be so many other angles, there might be another angle to say, Hey, focus on the ease of this, that it just gets delivered to your doorstep every 30 days.

Um, we really chose just to focus on that sustainability angle because of course, the founder has a reason for why they're using that voice. They're not just using it randomly. Uh, and the most naive thing for us to do would be to say, Hey. Amazing. You ran this business for two years and now we're gonna completely change the voice, right?

Mm-hmm. So that's also never the plan. We never want to destroy the brand equity of these brands and roll them, for example, to let's say, everstores shop and sell all the products under our name. That's, that's not really the plan.

Matt: Okay. But do you, um, do you tie in the owner of the business in some way once you've purchased the assets of the business?

Um, for example, when we sold the beauty business, I was not allowed to go back into beauty for two years. I had to be careful with, um, what kind of coaching we did as a con, you know, what kind of fulfillment we did as a company who there, there was all kinds of things put on us. And also, um, and to be fair to the person, the company that bought it, I mean, they've been amazing.

Uh, and we've had a great relationship. Um, they wanted to retain me as part of the deal. They're like, we just wanna be able to call you up at some point and ask you a whole bunch of questions. Um, almost like a. Consultant type role, but, um, not that that's ever actually happened. Thinking about, I mean, no, to be fair, they've called me once or twice, but nothing massive, nothing major.

So do you find then that once you've purchased a business, the, the owner is, I'm gonna use a phrase free to go. It does sound a little bit like they've escaped from jail, but Do, you know, what I mean? It's that kind of, um, or is there, is there some kind of tie in that you have with the owner?

Fabio: Yeah. Um, so there isn't, and that's, that's part of the reasons of everstores is that whole like reliable, simple, uh, sorry, simple exit liquidity.

Mm-hmm. Kind of gets thrown away if you have an earn out or you require 'em to stay afterwards. And so principally none of our deals have earnouts. Mm-hmm. We will also not go to that model. Um, How it happens is that, you know, the second you sign the contract, we wire 70% of the money. Then there is a integration period.

So depending really on the complexity of the business, but normally it's around two months. Um, but there's no real input required from the owner. So it's more about our ad teams will then start running the ads, they will start maybe changing the creatives, that kind of stuff. Yeah. And the whole integration period is there not only just to receive the inventory, but also to say, Hey, um, We're sending an email every week to say, Hey, this is what we did this weekend.

Actually, it didn't work out right. We tried this new angle. It didn't work out. Do you have any thoughts on why this might be? And so to really go into much less of an active role and much more of a passive role for the owner. And when that period is done, they're fully able to move on in, in terms of, you know, Competitive requirements, like you said, with, you're not allowed to start in beauty.

Yeah. Uh, if we buy a gaming brand that makes gaming skins, we, we put in the contract that the, the founder's not able to do another gaming skin store, but they're generally not very broad. So if they do something in the. Mental, mental wellness, mental health space. It's not about not doing another thing in the mental health space.

It's more about not doing the exact same thing that we bought from you. So weighted blanket, not another way to blanket. You can start linens, you can start duvets, whatever, but not weighted blankets. Yeah. For two years.

Matt: Two years seems to be the standard protocol. Two years. That's it. You know, and it, I dunno whether that's a just sort of an unwritten spoken rule of reasonableness. Maybe I don't, I dunno what that is.

Fabio: I think it's a magic number that's just continually being passed down.

Matt: No one knows where it's come from or why, um, yeah, there's, there's a number of those numbers we have in our lives, isn't there? Um, Oh, this has been fascinating, Fabio. I mean, I've got so many questions about how you guys do it from a process, not because I necessarily wanna sell, but because I'm interested in acquisition, you know, and so super curious to see how your dashboard works when it comes out.

So, when it does, do let me know, because I, I, I do wanna see it. Um, but enough about me, uh, and what I want to do, Fabio, let's go back to the merchants, right? So what are some of the common mistakes you've seen, uh, owners make when they're looking to sell their business and how can they avoid them?

Fabio: Yeah.

Number one is not running the business while you're focusing on the exit, and it sounds so incredibly simple. But it's, we see it happen so often, and so it's actually, when you go through the process with us, there's a big yellow box with red font that says, don't stop running your business until the deal's complete.

So no matter if we do the we, we always seek to do the deal. If we go through dd, we want to do the deal. Um, but regardless of whether you do it with us or with someone else, don't ever stop running the business because what happens, uh, is that someone will drop out and then you have to now restart that business from two weeks of spending nothing on ads.

Right. And there's nothing worse to come back to than that. So yeah, the, the top thing that we say is, Even if you're preparing for an exit, don't take it for granted until you sign the paper. Um, yeah, I mean, we always say that we wanna make the deal as soon as we enter the contract, but even with us, like it's just unilateral advice.

Please don't ever assume that it's concrete until you sign. Um, in terms of anything else, I would say focusing too much on, on crafting a story around what the buyer can do with the business. Um, there's so many times when we look at, you know, we kind of get pitched by the merchant in terms of what we can do.

The same way that we never pitched them for a sale. We're here if they want to sell, uh, we're not pressuring them and we'll always be there for a sale. But the same thing with with making reasons for the buyer. I think if you have a reasonably sophisticated buyer that knows what they want to do with the brand, there's no real need for you to come up with reasons.

And I think that if the buyer is consistently asking you, Hey, what are the value levers that we can pull here in this brand? And they keep asking, even though they've already done the dd, it's probably a sign that it's not the best buyer out there for you.

Matt: Yeah. No, that's fair play. That's fair Play. So, I'm just, I'm just trying to filter through the 20,000 questions that are in my head at the same time.

Um, and I'm also aware of time. So let me, let me, uh, ask you the question I ask everybody. Fabio, let's go down that road. Uh, as you know, this show is sponsored by e-commerce cohort, which helps businesses deliver e-commerce wow to their company, uh, to their customer through coaching and training. So I want you to imagine, right, you are in a room.

Full of cohort members, uh, and you've just delivered a keynote speech all about how to acquire businesses. Uh, and they stand up and they're just like, yeah, go Fabio. Best speech you've ever done. Um, and you get a few moments just to go, you know what, I wouldn't be here if it wasn't for dot, dot, dot. Um, and you've got a few minutes to thank those who have had an influence on your own e-commerce journey.

I'm kind of curious, who would you. Who would you thank and why? And it can be anybody from family, mentors, author, software, podcasters, you name it. But who's on your list and why?

Fabio: Hmm, that's a very good question. I think it's, it's twofold. Uh, so one is these, I think, you know, it's probably very well known like five years ago when you were looking at e-commerce, every other ad I would get on my YouTube, like passive income, drop shipping, hustle, that kind of stuff, right? These like traditional kind of like scammy things and mm-hmm.

Uh, I never really followed in, in those footsteps, but that for the first time ever brought awareness to Shopify. And that's been a foundational part to, I mean, how everstores has grown and so, uh, one, I would like to thank all those people, even if they're selling courses. It's incredible. Uh, and second that the founding team of everstores and also the partners that we are with in, in, in the Environment, so 3pls, the agencies we speak to, these are incredibly smart people who have more than anything really figured out what the merchant struggles with the most.

And we approach that very similarly. So we don't approach it with the fact, Hey, we're gonna make a return on this asset. The first principle that we have in mind is how can we make the merchant's life easier now? Mm-hmm. Um, and I think that's, that's a kind of like framework of thinking that has been passed through to me, not only by the founders of everstores, but also by the, you know, through 3PL agencies we work with.

Matt: Mm-hmm. No, fantastic. Fantastic. How about yourself? Oh, uh, no one's ever asked me that question. Uh, who would I thank and why? Um, I think there's a guy called Chris. Uh, and I can't remember his surname. I just remember he was, when we did our first ever e-commerce business, we ended up buying products from a guy called Chris at a company called Bliss who, um, he was really flexible while I was figuring out computer code.

And I just said, I'm just gonna, this is back in 2002. I'm like, I'm just gonna. I dunno, I dunno how it works, this whole online selling thing, but can I sell your products? And he is like, yeah, sure. And I said, I'm just gonna order them as of when I sell them because I've not got enough money to buy stock.

And he was like, fine, no problem. Um, and um, we set up that business and he ended up buying it from us six months later. Um, and that sort of, yeah, that was, that was me starting out and getting the booger, I think. Um, With, uh, with all things online. So, yeah, it's been a fascinating journey. I mean, there's so many people, I'd think like the whole team that works with me, uh, at Aurion, who are just absolute legends.

My business partner in the beauty industry, Andy, he was top bloke. Um, so yeah, I've, the trouble is I've not got enough time to list them all, uh, Fabio. But, um, yes, my wife, my kids, you know, so, Fabio, listen, it's been an absolute, honestly, man. Uh, been really interested in talking to you and, um, I'm sure that there are people out there listening who are going, yeah, I've got some more questions.

So, how do people reach you? How do they connect with you if they want to do that?

Fabio: So principally through the website, I'm available at LinkedIn I'm Fabio Savi. Uh, it's also my email address [email protected]. But on the website, if you go there, it should be super. I mean, we try to design it to be super intuitive. Uh, there's also a little button with my face on it, so if you press there, you get a direct link to my, uh, to my chat account. But, uh, yeah, that's how you find me.

Matt: Fantastic. Fantastic. Well, we will of course link to Fabio's info in the show notes, which as I mentioned at the start, you can get along for free, uh, along with the transcript at ecommercepodcast.net.

They'll also come straight to your inbox if you signed up for our newsletter. Fabio, listen man. Brilliant conversation. Uh, really enjoyed it. It's a shame time has got away from me in some respects. Um, but thanks for coming on to the e-Commerce podcast. You've been an absolute legend. I really appreciate it.

Fabio: Thank you, Matt. It's a pleasure.

Matt: Oh, it's been great. It's been great. So there you have it. What a great conversation. A huge thanks again to Fabio for joining me today. Also, a big shout out to today's show sponsor the e-commerce cohort. Now remember to check out their free training online at ecommercecycles.com.

Yes, it is free. Also, be sure to follow the e-commerce podcast wherever you get your podcast from because we've got yet more great conversations lined up. And we don't want you to miss any of them. And before I wrap up today's episode, let me take a moment to invite you, dear listener, to become a part of the show.

Yes. If you're an e-commerce entrepreneur or an expert, uh, and would like to share your insights with our audience, just like Fabio, uh, what we'd love to hear from you. Or if you know someone that would make a great guest, send them our way. Just head over to the ecommercepodcast.net website and get in touch.

We're always looking for fresh perspectives and new ideas, so don't be shy. Whether you just starting out or have years of experience under your belt, we'd love to hear from you. So that's it from me. Oh no, actually I've, I've forgot one last thing in case No told yet Today. You are awesome. How can I forget that bit?

You are created awesome. It's just a burden you have to bear. I've got to bear it. Fabio's gotta bear it and you've gotta bear it as well. 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, Estella Robin and Tanya Hutsuliak.

Our theme song is written by Josh Edmundson, and as I mentioned, if you would like to read the transcript or show notes, you can find them on the website, ecommercepodcast.net, where coincidentally, you can sign up for the newsletter. Now that's it from me. That's it from Fabio. Thank you so much for joining us.

Have a fantastic week wherever you are in the world. I will see you next time. Bye for now.