alex michael thank you for joining me today on acquiring minds yeah thanks for having me well it's good to be here alex you acquired an e-commerce brand called wallaroo wallaroo is an fba business so i'm excited to not only hear your story but also learn something about an fba about fba businesses amazon businesses fba businesses are very common on the online business marketplaces so it'll be great to dig into how they work but start us off with some background on you alex what were you doing before you went down this path of buying a business yeah absolutely so i spent time in a few uh different industries before acquiring walruses so spent some time in oil and gas did some investment analysis uh spent a little bit of time in energy trading consulting and then moved into the live event ticketing business for a little while uh from there i moved into tech sales which is where i was for the past i guess four or five years um before acquiring walrus so all of that probably was spanning across an eight year period or so okay and and so what was where did this this kernel of an idea come along to buy a business yeah you know entrepreneurship for me was always sort of a foregone conclusion um i started a little company with some some fraternity brothers in college and it was sort of a matter of of when not if for me um but it wasn't quite clear how that was gonna uh play out and so i was sort of just trying to be patient trying to let the chips fall where they made and let something come up organically uh and and came across um walker divel's book by then build which i'm sure some of the folks listening have probably heard of before all of the folks listening all the folks listening and so um you know anybody who's read it knows it's an awesome book and so that got me fired up about this whole world of acquisition entrepreneurship and you know this concept of de-risking by buying instead of building and how it's a lot more accessible than one would ever think so came across that and was just you know launched into this whole stratosphere of business buying it was super exciting cool so and i i'm just curious like that book did were other people in your you know your entrepreneurial buddies or frat brothers or former fat brothers or whatever were they the ones who recommended the book or had you started googling how to buy a business i'm just curious who put the book in your hands that's a good question i actually have no idea it wasn't shared with me directly i think it was probably some sort of a pandemic rabbit hole i remember it was like right right in the thick of the pandemic and i was sitting on my couch um for like the 38th night in a row and was probably just down some internet rabbit hole and came across the book so um yeah i was sort of serendipitous i guess i don't really know how it happened okay okay so then you you discover and read the book you're turned on by the concept as so many of us are um so fill in the gaps between you know completing the book and deciding to actually move forward did you was it immediate or were there was were there months or years in between i guess you said i was trying to say so months only yeah definitely months in between um yeah it was definitely a long journey i mean first it was just understanding the nature of the beast in terms of you know what all it would entail and whether this was a path i wanted to go down and you know how feasible it really was i mean you read something and it sounds neatly packaged and accessible but you know obviously the real world's a little different so i kind of let it marinate for a bit and then i started diving more into because i was a little bit too i was a little bit ambivalent on you know do i want to go sort of the physical business route versus e-commerce and amazon all these different things so it was just a lot of reading and letting things marinate and percolate and you know it definitely wasn't a linear path uh so i let it sort of sit for a while and then eventually got to the point where because i also had at the time i just didn't have enough money i didn't have the capital um so i explored some different routes to to you know gather some money or figure out how much time until i actually could put an offer in on my business and how much business i could possibly buy so um it was just a really sort of iterative circuitous process of figuring out how this could possibly happen um so i didn't put my first offer on a business until gosh probably late 2021 i'm sorry maybe maybe mid 21 yeah early to mid 2021 i would say okay so and i'd probably read the book like mid 2020 yeah okay and can you do you remember what your budget was or all these financial questions that you had to answer for yourself how you what what the final outcome was like how much capital you you had to put toward this project yeah for sure i mean when i started out i honestly you know i probably had 20 30 40 000 of liquidity at most which which wasn't enough at the time and so i was really at the beginning i was actually really impatient so i tried you know i got together with a friend of mine and said hey do you want to do this together because i know he had access to more capital and so we kind of went that route and sort of got pre-qualified for an sba loan together uh and we explored that and then you know we'd actually offered a couple of businesses together that didn't work out and over that time you know i was continuing to work in my job and stack up more and more money and eventually got to the point where i had enough liquidity to buy a business that was enough to um and we can dive into the numbers a bit more if you want but but that was enough to sort of support me and do it on my own and um you know so it wasn't really a target like i had to get to this point it was more just okay i had this much money now how much business can i get okay i have this much money now so it was kind of a and what but what was that number where you kind of felt like you could do it independently um was it 50 grand was it 70 grand so the down payment on my business was 70 grand i think in terms of having enough liquidity i think the number was more like 100 to 120 um you know because obviously if you're you know if you're getting a loan like the business doesn't want all your all your liquidity to just be thrown into a down payment right same thing as a house or anything else so i think the number was was somewhere between 100 and 120 where i was like okay i think now i should have enough to where you know my bank's gonna feel comfortable lending me um lending me some money great and okay so that's kind of how your financial picture started developing what about the choice of the style or the industry of business this question of online versus versus you know sweaty boring business that that yeah yeah i mean sweaty and boring was appealing obviously the multiples on sweaty and boring is are a lot more attractive and i i certainly dug into that i think you know i'm i'm 30 i'm single and so for me it was like all right if i make this sort of decision to anchor myself to a physical location like that's for better for worse you're getting locked in um whereas obviously e-commerce not only does it provide a little bit more lifestyle flexibility which is attractive to most people but uh just the fact that you know with the pandemic i mean online commerce isn't going anywhere and if you find the right business which i luckily did um there's just so much automation built into it and so much that you can leverage between software and supply chain and all these different things that ecommerce just seemed really attractive um i had i had some some very light ecommerce experience in the past so i figured that i could also parlay that into like hey i've done this before wink wink sort of kind of yeah and the e-commerce was also i mean for all the reasons that you were drawn to it a lot of people are drawn to it so so yes it has those benefits but that also means that there's that much more competition there's a lot of alex michaels out there who have you know 50 to 100 grand to buy a small e-commerce business um i that was just i guess a factor you were willing to over and did ultimately overcome yeah no it's a really good call out i think i mean yes but but you know there were certainly periods where i mean because i i think i told you i put in offers on probably three or four businesses total and there was certainly a point where i was like okay as an sba buyer as you know one of like you said 30 of me on any given deal like i don't know if i'm ever going to get one of these right so i kept monitoring and i kept saying like this is something i want to do but i didn't know how feasible it was just because of that level of competition and um you know it's just like buying a house right if somebody throws cash at you you know they're gonna have a leg up just because the deal gets done quicker so um yeah it was it was a it was a trade-off so yeah let's dig into that a little bit alex so you uh you put in this three or four first of all tell me where you're looking where you're searching for these e-commerce businesses to put offers on and then and then what you're saying is you put in three or four offers and from what you were hearing back from the broker or whatever you were just losing to cash buyers they were hyper-competitive processes so so two-part question first tell me where you're looking yeah so i was looking i i kind of identified sort of the top top three or four online business brokerages out there um so the big names that folks have heard of you know the empire flippers and the fe international et cetera but uh i really settled on quiet light as the one i wanted to work through um i'm sure you know that that's you hear that a lot and i mean those guys are really reputable right they vet their businesses very deeply and thoroughly you know all the brokers there have done this before you've got guys who've been on shark tank you've got walker who literally wrote the book on this right you know guys like ryan conde so uh once i stumbled upon quiet light i knew i wanted to buy one of their businesses because they just do it right um in my opinion so you know that was both good and bad it was good because i had a lot of trust in them it was bad because to your point there's a whole bunch of competition and a much more limited supply of businesses because they're very you know sort of selective so that was how i looked okay so you were monitoring quiet light basically and so these yes and so the second part of this question was you would see a business come up on quiet light you would put in an offer and what would happen those ones that you were missing out on yeah it's a good question i mean i tried to so going back to the first question a little bit i tried to kind of establish relationships with some brokers and say hey you know think of me when you have one of these deals and here's why i'd be a good buyer and they appreciated that but honestly to your point there's so much demand that like i don't know that that really made much of a difference um you know so i i tried to use that as a as a lever but yeah so i'd put an offer in on one of these deals you know it tried to be obviously try to be as good of a buyer as possible would try to be very communicative try to be very straightforward and you know would offer over asking price because then you would go over asking price would put in an offer quickly and you know inevitably in the next week or so the broker would come back and say hey listen like you know they liked you they thought it might be a good fit but they just you know they got a cash offer they got more money or they you know found somebody who's a better fit or whatever um and so that happened like i said probably two or three times at which point i was like all right well i don't know if this is ever going to happen you know but you did keep at it because because in fact wallaroo was a similar situation quiet light listing ecommerce business so so tell us how this one did in fact happen yeah i had you know i kind of put this on the back burner for a while i was you know looking into some different entrepreneurial ventures and was focused on my day job and saw this listing pop up on my email and i was like huh that one looks interesting you know it's same as before i was like all right well you know i'll have the call with them and i'll probably put an offer in if it's a good business and i probably won't get it you know um so i got lucky i happened to have the first call with the um the sellers that they had at all the first the first potential buyer call that they had and we just really hit it off i mean it was a couple of guys who had started the business in college they're close to my age really really smart guys super super nice super thoughtful um and we just clicked you know and i think that's one of the big takeaways having gone through this process is that like that goes a long way you know more so than when you're buying a house or anything else because this is their baby right and they don't want to just you know sell it and be done with it and not have any sort of trust as to where the business is going so anyway yeah so i put i put the offer in kind of figured like hey that call went really well i enjoyed it but i'm probably not gonna get this business um because it's an awesome business and they're gonna get 15 offers on it and you know i think i offered 40 50k above asking but um put the offer in thought nothing of it then a couple weeks later i woke up to an email and said congratulations you know business is yours and i was like oh okay this is real wow and and when you said and when you said that you got lucky that you were their first call that was just luck it wasn't because you were like let me let me respond to this listing as quickly as possible you just sort of responded to it promptly in the in the course of your day but you didn't scramble breathlessly to be the first one it was just it was a happy accident yeah yeah happy accident a little bit of both i happened to look at the listing when it came up and i was like you know there's no point in waiting i knew i wanted to talk to him so i went ahead and fired an email off to the broker who was super responsive um cool and uh yeah a little bit of both i guess cool okay so first of all now i haven't we haven't actually uh explained what walaru is what is what is the product or or uh portfolio products of the walrus brand yeah definitely so primary product is a leather phone wallet a leather wallet that attaches the back of your phone for the folks who are watching on uh on video you can kind of see it here and it's just this little guy that you would touch the back of your phone and you know makes life a lot easier when you don't have to carry a wallet or for women having to carry a purse or anything so um that's the main product there are a couple others one has a is the same thing with a ring on it and there's a standalone wallet as well so those are the three products right now but the one i just showed you does you know 97 of the revenue and for the people who weren't watching it's kind of it's kind of a sleeve almost that kind of creates a really slim pocket on the back of your phone for you to put in your your cards and your bills or what have you um great okay so and oh and i just wanted a little bit on the on the sba process so you were um pre-approved for an sba loan i assume right right so you've done that with your partner but then you guys decided to do it independently and so then did you have to get re-pre-approved yeah i did and it's it's a pretty quick process so for the folks who know the guys over e-commerce lending they do a really good job and so i went through them and basically said you know here's my updated personal financial statement they said okay here's about as much business as we think you can get and obviously that's you know not a commitment or anything it's just an estimation so okay and e-commerce lending that's steven speer it is great um okay what and what did you acquire the business for so you so what was it listed at and then what was the 40 or 50 000 over that you offered yeah i think it was listed at 630 000 or maybe 632 or something like that um i offered 675 so i wanted to make sure to you know make it reasonably above but but not you know not anything crazy so and that's that's before inventory so 675 just the purchase price of the business and then inventory ended up being 56k or something okay and you were expecting to put 10 down what was the structure of the of the of the loan that you were expecting to uh to put together yeah so so ecommerce lending had also pre-qualified the business and estimated 10 down as well um so that's my expectation was 10 down on the on the the price of the business and then the the you know inventory sort of rolled into that um so expected you know 75k or whatever down um interest rate is i think six percent you know give or take so it floats with the prime rate but it's it's a pretty incredible interest rate uh and then it's over ten years so it's i mean sba terms are incredible for sure yeah yeah we're so lucky as americans and the was there going to be a 10 or 15 seller note no seller no no the way that we actually structured it i i said a second ago that we wrapped the inventory in but that i realized now i remember now that the inventory was actually a seller note so there was a seller now component but it was only the inventory part of it um so i don't i don't know exactly why we did it that way i think that was just the bank decided that that's what they were comfortable with and the sellers were luckily super cool and they just said yeah whatever okay um well before we we really dig into what the business is and how fba works just a question on psychology so you know i love the question in business acquisition of like why one as a acquisition entrepreneur one should always be skeptical or wary like why am i you know lucky enough to be the one to get this business you know if if there are much better resourced entities or individuals or funds out there who do this you know all day long they're just buying business particularly in e-commerce where you have this phenomenon of the aggregators who are just you know just out there with tons of capital buying up buying up everything and now competing people like you constantly did it make when you got that email that was like hey you're the winner did it make you wary like maybe maybe this is a lemon or anything about it anything like that it's a good question it didn't um i definitely was like oh wow this just got really real but i wasn't worried of it being a lemon i think so one of the big takeaways i had is like when you buy a business like you're you're you're buying the the sellers as people in a sense that like every part of them is bleeding into the business right and i mean you can't there's only so much you can know about people in a a couple of 30-minute calls and like a video interview but you know we have pretty good instincts as humans i think and i had a strong instinct that these guys were i don't know that they were doing things the right way then it was a solid business i mean you know it's a leap but i didn't have that feeling of being wary i think you know to your point about the aggregators one of the things that i said on the call with them i was like look guys i'm the opposite of that like i'm not going to be an aggregator this isn't going to be one of 30 brands in my portfolio it's not going to be something that i just lump in that you know it just becomes a cog um this is going be my my baby just like it was yours and i'm gonna take care of it and i'm gonna give it the time and attention it deserves and the reason they were selling it is because it wasn't getting the time and attention it deserved because they couldn't give that and so i think where i got lucky was just hey i'm going to provide that time and attention it is going to be mine um so i think that's why it was just kind of that's why the luck was there i guess that's so great to hear that i mean even on an ecommerce deal like this that that that that message can work you hear it a lot in in like larger businesses or offline businesses where there's a small business owner who you know built the business a 30 year old business they built it from scratch it's a larger business maybe they got a million two three million dollars in ebitda and so private equity is knocking on their door all the time and so you as like you know somebody trying to buy that business off in a traditional search funder it's like how can i possibly compete with private equity and that it's it's the exact same it's the exact same message it's like i am not a financial buyer i mean i am i care about the of course i do care about the financial but this is this is going to be i'm going to be a steward of your legacy i'm going to grow this thing and um and that really can be the differentiator that wins the day as it as it did in your case it sounds like okay so and so you get that email and so how did you diligence did you do any yeah talk to me about the diligence i'm sure you did tom i did yeah i hired um i hired centerica they're you know sort of the market leader when it comes to e-commerce due diligence you know i knew this was a world that i didn't know all that well and so this was another lesson from this is you know don't skimp on things like lawyers and accountants and due diligence uh so with that it wasn't like i was gonna try to nickel and dime the diligence process is like hey these guys know what they're doing they know what to look for um and so i kind of hired them without giving it too much thought because they've been highly recommended and yeah they did an awesome job but i mean you know unsurprisingly nothing turned up i mean they gave me a couple things to look out for but otherwise everything was as advertised and um it was a you know sort of a clean bill of health so to speak okay so you pull the trigger you acquire the business um now tell us tell us kind of the some of the economics of the business so how much does the does a wallaroo wallet sell for uh on amazon and and tell me kind of about the cost so the the gross margin yeah what it sells for cost gross margin if you would we'll start there sure yeah absolutely so it sells for 13.95 that hero product i showed you the main one sells for 13.95 um if i'm buying it from the supplier via ocean freight it's a dollar 71 landed cost and landed cost means landed costs meaning um you know production shipping duties tariffs everything so that's you know to to my doorstep um per unit it's a dollar 71 via via ocean freight 171 for the entire thing in your hands coming from china i assume correct yep and and then you sell you said for 13.95 correct okay fascinating go ahead yeah yeah so um i i mentioned the ocean freight thing because i i learned not too long ago that i can purchase via air freight for another 25 cents um and that tightens up supply chain a ton which was a kind of a savior for me because um at risk of going on a tangent you know i had accelerated some of the ad spend and so uh we were doing a lot more in sales and so the burn rate of inventory was going faster and i was like oh i need to place an inventory order um you know with the supply chain like it is with ports getting clogged up ocean freight is a is a is a big variable right you don't know if it's going to be two months you don't know if it's gonna be three months you don't know if it's gonna be five months right there's so many variables at play and so um i found out via via air freight which is like two or three weeks uh it's 25 cents more expensive which is almost a no-brainer just because it's such a tighter supply chain and quicker turnaround time so anyway 196 is the real landed cost for me at this point so you're flying everything in now you've shipped it you've shifted it all over to air freight yeah i have and i i don't i may do some mortars via ocean freight once things chill out a little bit but right now it's just you know because i'm growing the business because i'm expanding to different channels et cetera like i don't want to get an inventory crunch um and so it's worth 25 cents per unit to me to make sure that that doesn't happen um so we'll see what happens in the future but absolutely um you know one thing that we didn't touch on um as you're going through the this uh attempt to acquire the business is so you you closed in february 2022 so three months ago um and so that meant that you were looking in the months prior to that right when the supply chain was those short those backups were most acute and they were you know they were the headline story for a couple months there i mean did that give you pause i mean you know buying an e-commerce business where you're importing something from china uh right when you know it's it's hitting the fan and that's the exact part of the economy that's kind of like slowing down the world um pretty scary did it did it how'd you feel about that piece yeah it's a great question well um and i mean it definitely made me nervous uh it definitely gave me some pause but what what made me what what sort of assuaged my fears a little bit was so that the sellers these two guys would send me the walla weekly update as we were going through due diligence the weekly update was was not just like hey here's what sales were but it was it was a different like you know nugget of information about a different part of the business right so a lot of weeks it would be about hey here's what's up with the supply chain here are the problems we're facing here's how it's affecting us here's what we're doing to address those problems and not only did it help me understand what was going on and so it wasn't this like amorphous thing that i didn't understand but you know it exposed me to what was going on and also exposed me like look we're okay we can weather this storm like this is the worst of what's going to happen more most likely and like we you know have systems in place and tactics to deal with it so that made me feel a lot better they were just super straightforward super forthcoming and really intelligent about how they dealt with all that that's awesome and it just sounds like it affected the business but it didn't the business these supply chain issues no exactly yeah that's a really good way to put it you know i mean every i think every online seller experience experienced some challenges over that time but um yeah i don't it didn't them okay okay okay um getting back to it and so alex define an fba business this will be um a lot of people will already know but but define it you know in in a little bit more detail for people sure yeah so fba is fulfillment by amazon and really all that means is that um amazon you know if if somebody places an order for your product on amazon amazon is handling the fulfillment and delivery of that item right so amazon's got all these you know you've read about all these different warehouses that they've bought up across the world and so you know somebody places an order amazon has some of your inventory which you've shipped to them and you know they have various limits and regulations on what you can ship them but you know they have some amount of your inventory and then an inventory is perhaps an order is placed through their system and it's fulfilled all through amazon so you know you obviously pay um you know you pay quite a bit to amazon for that service but the fact that they're handling fulfillment and ensuring that those prime orders are getting there on time is just you know it's worth its weight in gold i guess it's yeah it's totally it's really quite amazing so when you when you that landed cost that you talked about in fact it's landed at one of amazon's distribution centers that's where you ship it to no so the landed cost is to my door um so basically part of the workflow is that so i'll place an inventory order right let's say 15 000 units from china um they're produced sent to me they get on my doorstep right now they're sitting in my garage so there's a ton of boxes sitting in my garage which is kind of funny um and then amazon will have you know they have the inventory levels of your product listed and when it gets to a certain point so for me it's like hey if i have about 50 days of supply left i want to go ahead and kind of restock you know and so because my product sells really well um the the inventory limits are pretty high at amazon and okay 50 days of supply left i'm gonna go ahead and ship up a box um to kind of re-up right so basically you're just the workflow is making sure that amazon has enough in their warehouses to you know be able to fulfill your orders without running out mm-hmm okay and the shipment cost to amazon i assume is not doesn't eat into your mouth it's negligible yeah it's it's it's completely negligible okay and then how much do you pay amazon how is the pricing um structure for amazon what are you paying them per unit sold so it's gone up a little bit recently it's about five dollars and thirteen cents i believe per unit um so and that includes you know that's the cost of the fulfillment itself plus plus just the entire program right just like being able to sell on amazon through fba so that's um outside of ads that's everything that's going to amazon so you said 513 yeah and is that base is that how do they come up with that sum is it a just a a calculation based on the weight based on the cost of the the good itself and just a lot of factors or is it something cleaner like it's just like 20 or something i i think it's the former i think it's and i'm still sort of learning this but my understanding is that it's yeah it's it's weight it's the cost of storage it's it's sell through um so like i have some products that are a little bit newer and the cost for those are higher i think just because of the sale right because yeah because they sit right so um exactly so i think it's a percentage plus those other variables like you said okay so then you're if we include the amazon cost then your gross margin you're at about 50 now so you're whatever six and some change for a 14 product um okay and then so tell me what you told me on our pre-call about how you actually this flywheel concept and actually how you have to kind of gin up in some early sales in a product how does that how do how do i bring eyeballs to my product as an fba seller yeah good question so the flywheel effect on amazon basically you can think about it like a tax that you have to pay to amazon via advertising or in order to help your organic ranking and so there's you know there's sort of two there's two ways that your product shows up on amazon there's the paid side which you're paying for advertising and you see that little thing that says sponsored underneath it and that's a paid delivery and then there is the organic ranking so if you search for something and it just shows up and it doesn't say sponsored that's your organic rank both of those things are gonna determine you know number one how much you're spending on advertising and number two how well you rank organically those are going to determine you know the order in which people see your product when they search for a given search term and so the concept of the flywheel effect is there's this sort of like virtuous cycle where the more you spend on ads the more your organic rank increases assuming that you're getting good reviews you're delivering what you say you don't have a high return right amazon's happy with you um so the more you choose the ads the more you get the organic you know side of the house going and then it just continues like that flywheel effect right like the wind starts blowing and then it it's a virtuous cycle and so at the beginning when you launch a product on amazon and this is coming from somebody who hasn't launched it right i just bought the business but having learned from the guys essentially you know you're overspending at the beginning because you're competing against you know the category that already exists presumably and then once you start to get that effect that's when the flywheel starts going and then you presumably you have to continue to spend on ads even when your flywheel is going but you hope that you're just getting more bang for your buck as you as you spend you're getting you're just more sell through for that same whatever ten thousand dollars a month you're spending bingo yeah so you're definitely still spending a ton on ads especially in competitive categories like this so there's two metrics that are really really important and it goes back to our margin conversation right the first is a cost which is your advertising cost of sale and that's just going to be basically the amount that you spend on advertising divided by the total amount of attributed sales that you're getting so when i say attributed i mean sales that are happening directly as a function of ads right like they bought from one of the sponsored postings um so that's an important metric but a more important metric is you could call it tacos it's total advertising cost of sale and that takes into account the whole flywheel thing because the total is the dollars you've spent on ads divided by all your sales and that includes organic sales as well and so that's really what tells you like that's the actual functional metric right because that tells you how much you're spending on ads as a function of your total revenue so give us a sense of how much you're spending on on ads um well actually before you answer that we have to have a sense of where your revenue is so um when you acquire the business revenue was at what remind me did you did you tell us already yes i want to say six no i don't think i did it was 6 50 i want to say about 650k annually okay 650 000 annually okay yep um and so divided by 14 do you happen to know how many how many units that was let me just do some math here divided by 14. it's about 1000 something like that yeah between 40 and 50 000. okay um so that and then divided by 30 is you know you're selling well over a thousand of these a month yeah yeah yeah wow so that's 30 a day so that so your cash register is just going to change all day long sort of thing yeah it's cool to see there's like the little amazon seller app and that you get to see sales in real time and it's kind of cool to look at it at midnight like oh wow i just sold 10 units since i looked at this earlier i mean it can be needlessly addicting but it is kind of yeah if if those of us who like to see a little you know a like on twitter think that's exciting imagine if it's actually like the cash register ringing from a sale on amazon uh it's like it's like a dopamine straight into your bloodstream yeah totally totally yeah um okay so give us a sense of how much you pay amazon for pay-per-click ads um at the level that you're at now so the level i'm at now i'm trying to i'm trying to ramp up the spend quite a bit while maintaining that target like total average cost of sale um so i'm spending about 500 a day right now so about 15k a month um and then my target total average cost of sale is between 20 and 23 um so ideally for every dollar i spend i'm getting five back oh for every dollar you spend you're getting five back now why wouldn't you why wouldn't you i mean that is so much margin well i guess because you got all the other costs associated with your business right yeah okay exactly so so how much so so when when you hear or whatever the ding or you you see a sale in real time a 14 sale how many how many of those dollars are actually going into your pocket assuming you didn't want to reinvest them yeah it's it's between 28 and 33 percent okay usually um so i i'm not i don't know what that is in dollars i think it's like four okay four dollars something like that so i mean it's a really healthy margin for sure even at this price point um you know like you said the reason i try to stay at that 20 total average cost of sale is because you know amazon's a 37 partner in this whole endeavor right and that's before ads um just the fbas you know and then you've got ad spend and then you've got you know thankfully the cost of the goods isn't very high but yeah yeah yeah actually alex that's a that's a great point to dig into a little bit i mean one of the things that i often hear about e-commerce is like one of the best practices is to choose high cost items um and your item would not be a 14 item is not high cost um so but it's it but actually sounds like you're you're making it work the sellers were making it work and you continue to make it work so um any thoughts there or did i basically just say what there is to say on that i think you nailed it i mean the guys built an incredible business i think the it's still a good call out though right because there's it's it becomes a volume business when you're when it's a low cost item right like this remains a volume business and so i either need to you know find these additional sales channels and grow them or grow the product line um you know so there is an upper bound of how well a low ticket item can do for sure and and what about the uh uh with a product that is going to be lower cost uh and just the nature of this product i think it's easily applicable i mean as you said at the top you're only paying a buck 39 or a buck 71 or whatever it was um so the barriers for entry are very low for development of the product itself um talk to me about how you feel about that i mean are there a lot of wallaroo like products on amazon that you're just you know duking it out with every day yeah they're you know there are quite a few it's a competitive category there are more and more popping up every day i mean i think one of the things that drew me to the business was that they had that that big first mover advantage in terms of you know they've built up such a such a nice uh collection of reviews and like sort of code goodwill on amazon like you know how it goes on amazon you you search for something and you're probably gonna pick the thing with the most reviews and the highest stars like that's just how it goes um and so the fact that they had built that up in that category like it's it's hard to it's hard to catch up to that um and you know everything that i'm competing against for the most part is is a much lower cost lower quality item uh believe it or not and so like i'm more expensive than everything i'm competing against for the most part um you know so there's like really crappy little like silicone ones that they sell them in three or five packs because they break after you know two to four weeks so there's those and those are you know five six dollars for for three of them and then there's like there's another leather one but that still a nine dollar price point the quality still isn't quite as good and so um yeah you're even though it's a low ticket item i'm still competing on quality and still winning largely because the guys did such a good job you know earning that goodwill yeah yeah the the premium version of a low ticket item um yeah exactly so um going back to amazon again and just selling on amazon and fba and so obviously we've touched on many of the benefits if there are more tell me um but basically it's just like you're outsourcing your entire fulfillment um it's pretty amazing um but there are a lot of cons as we hear about a lot um you let's so let's go into those a little bit the there's platform risk as they call it so um as you said amazon was you know you've got this relationship with amazon where they're taking a huge chunk of your costs is going directly to them both in the fulfillment and now in the kind of pay to play the getting the flywheel going and the exposure you pay to amazon's proprietary ad network um so that but then also just just um you know there they any tweak any change any i mean you just you know they say jump you say how high um is that just the nature of the beast and you deal with it or or do you have is there more to say there do you have other thoughts on on platform risk yeah it's a good call out i mean it's both it's it's it is the nature of the beast you know because of you know there's a reason they can come in the the percentage that they do that they get to be a almost 40 partner in your business i mean you know that's that's where ecommerce happens is amazon and so part of it is the nature of the beast and you know the good news is that our incentives are sort of aligned i mean amazon does a really good job of ensuring that you know through their algorithm and all these different things that they are serving up the the best the best product right the most highly regarded product to their customers because they want their custom they want conversions to happen right um so the good news is that incentives are aligned but to your point there's still definitely platform risk um so i'm trying to you know i i mentioned this a little bit earlier but i'm trying to i'm trying to definitely diversify a little bit so i'm trying to build out the direct consumer presence because there really wasn't one and still doesn't but i'm working on it and then you know getting under some other marketplaces like walmart um etc so you know platform risk is real and it's it's definitely something i want to hedge as much as possible yeah and i actually i want to dig into that a little bit more but one one other question first the the other thing about fba i believe is that you don't own the relationship with a customer right so there's no direct interaction you don't have the email addresses am i right about that yeah that's exactly right i mean we get some demographics data from amazon like very high level sort of categorical stuff but yeah no email addresses there is direct interaction in the sense that you know if they have an issue with their order it's there's an email that's exchanged but a lot of the details are sort of obfuscated except for first name and state you know so yeah yep okay and so one of the things that you'll see on fba businesses that are listed for sale is you know this is just on this product is just on amazon right now it's an fba only a business you know flip on shopify or i think that's what you meant by d2c is basically haveyourown.com your own store where you where you sell directly to the consumer not via the amazon channel um and so these fba listings will say you know just turn on turn on your shopify store and sort of you know double your double your channels in theory um but of course this is way i mean makes sense and it's not totally crazy but way easier said than done and it but it sounds like in fact that is kind of the path that you you're tentatively going down so talk to me about how you think about that yeah i mean it's you know it's hard it's definitely not flipping a switch um i'm in the process of i'm in the early stages of it so i redid the website i'm finally happy with where the website is um i'm working with a so they did have a standalone website they had their own website they had it they had their own website um you know it was pretty it was pretty out of date it definitely was just sort of you know it would get an order every three four days and um but it was it was wired up it got okay yeah it was wired up yeah it was wired up all the products were listed which definitely made things easier um so yeah i just gave it a facelift that's all i did you know change some of the graphics up and change the language etc and then i'm working with a third-party firm to to start driving traffic um you know so starting to spend on facebook ads and starting to hopefully you know have that be a more reliable revenue stream but i think it's gonna take time i mean i just i just flipped on the facebook ads like last week you know so it's it's an experiment in progress and we'll see how it goes and so is that basically the playbook you you haveyourown.com probably running running shopify or something like it and figuring out fulfillment yourself handling fulfillment yourself or maybe you use a 3pl a third-party logistics company that that is not amazon but fulfilling like amazon would do for you in an fba scenario and then driving traffic with if it's a consumer product probably facebook or instagram or instagram that's basically i'm simplifying but those are basically the steps yeah those are the early steps and i think you know as as there starts to be more momentum you know hopefully exploring some other some other channels to drive traffic whether it's you know influencer stuff or tick tock or whatever right there's all these sort of ancillary channels that are popping up but yeah right now it's definitely just starting with some paid acquisition through facebook and instagram and we'll see how it goes and then kind of iterate from there cool um and uh let's return to the number so you had said it was about 650 in uh revenue when you acquired it or last year so that was 2021 numbers what are re and what was the sde sv was 182. 182. okay um great and so what are you projecting for 2022 as the new owner uh whatever whatever 40 percent above 650 is so we can do the battle down and we're growing yeah we're growing about 40 years every year i think that number's in the 900s but i can check it and that's just from kind of leaning into amazon ads like spending more months it's it's spending more on ads and honestly it's just organic growth um you know part of this flywheel effect is that i mean as the as the the product amounts more reviews it gains more category share and the category itself is just growing it's a good category right i mean people were increasingly carrying less and we need you know a credit card and a driver's license and maybe a 20 bill right so um the category itself is growing and so i mean a lot of a lot of this growth is like would have happened whether i was just sitting here watching it or you know whatever um so yeah anyway so alex that big i mean that's amazing congratulations to to um you know backass into uh 40 growth exactly yeah um no but obviously you're doing you're doing a lot into the business that i'm sure you'll see benefits from that you can claim too um right but why why would the these the pair of sellers want to sell something where there's that kind of growth trajectory without even doing really changing much yeah it's a good question so i mean obviously that's like the first thing you know you ask when you're having a conversation with them and you you take the answer with as much of a grain of salt as you can i mean so i asked him and the answer was it was two guys like i said and one lived and they went to college together and then one moved to dc and the other one moved to seattle um and they were basically saying like we were just letting this thing kind of run on autopilot and there's so much that could be done to take it to the next level and we just weren't doing it you know they both had day jobs one of them's an engineer one of them works actually at a really awesome amazon agency um interestingly enough and so they were like we had this thing we built it from nothing you know we can cash out and have 350 grand each or whatever and you know somebody else can take it to the next level so i heard that and i was like all right i guess that's a good enough answer and then i actually was up in dc not long ago and so i got to meet one of the founders in person and you know we're having dinner i was like all right so why did you took him you took him you took him to dinner took him to dinner and i was like all right give me the real answer applied him with alcohol and said give me the real answer and uh and he was like he gave me the same answer he was like man we were just looking at this thing and like we were like man we should like really you know we should send amazon canada some inventory like that's a market we haven't really gotten into yeah which wouldn't happen wouldn't happen and the business was just kind of limping along and they were like man let's just get rid of this thing like you know i think they just had had enough of it and we're proud of what they did and wanted to just you know move on yeah yeah well and they're probably saying that i mean you want to sell your business when it's strong and so the the these this growth and strength that they were seeing in their own business probably told them that it was a good time to sell not to mention that everybody's talking about how e-commerce has just exploded during the pandemic so they're you know it was it was good timing for them even though there was growth still to come um uh shoot what was i gonna i was gonna ask you something else about oh what was the how old was the business like when it had they launched it how much how much history did it have 2016 was when they launched um so between five and six years they've been around okay and do you have any sense of like what obviously e-commerce years and you know plumbing business years are very different so yeah so so so what's um you know what is good age on an e-commerce business i feel like 2015-16 is pretty pretty good age on an e-commerce business how do you what do you think it is you're dead-on i think you know it's almost like looking at dog years right like for an e-commerce business five or six years is it's pretty good um and i mean i think if you're looking at buying a business through an sba loan or any kind of a loan like that question becomes really important because the sba won't even consider loaning i think for any businesses that are like less than three years old i want to say that something like that and so um yeah i mean five or six years is is really healthy um you know and so much changes so quickly in e-commerce that like if you have a 15-year-old e-commerce business like the amount of things that have changed from a paradigm perspective on like how e-commerce happens in that window would be pretty astronomical so anyway long-winded answer but yeah i think like that five years is probably a pretty healthy sweet spot to get an idea of whether our business is going to be sustainable or not yeah yep yeah i see so many fba businesses for sale that are like just launched in 2020 and um and while they might you know they might look like great business and be just exploding in growth it's just like it's just a red line i wouldn't get a two-year-old business i just couldn't i couldn't couldn't touch um so um so your 40 growth this year to your point about how you know e-commerce things paradigm shifting all the time any any sense of uh well i won't ask what projecting growth because it's just it's just too difficult but what you want to do with the business like what what are your plans yeah i want to i want to see what i can do with these new channels i want to really take this i want to take it to the point where you know honestly in a year i want shopify itself to be doing what amazon's doing right now today um so that would be so you you want to do the thing that these fba for sale listings say like basically double your channel yeah i do um but to your point it's like it's definitely not flipping a switch and i can already tell like there's going to be a lot of tinkering involved um you know amazon amazon prides themselves on like when you spend on ads on amazon the conversion rates are crazy they're like between 10 and 15 which you know ecommerce shopify is like yeah exactly ecommerce shopify is like one two percent you're doing pretty well so it's just a whole different world um so i think that's going to take a lot of experimentation so that's that's the goal right now uh so i want to focus on that i want to you know flip the switch on it is actually kind of flipping the switch on things like walmart and things like amazon canada it's a little bit lower lift um so i want to build this out and just keep sort of diversifying channels to where you know i mean i think this category is going to keep growing it's not going anywhere i think i think this could become a you know two three four five million dollar business especially if i um maybe look at expanding the product line down the road so who knows i don't you know who knows well and and to your kind of um attitude you're very like open to what the possibilities are is that because you still have a day job what's your what's your situation alex it's a great question i actually put in my notice for my day job uh yesterday so monday okay yes all right yeah so good timing yeah um so this is this podcast interview is your is your celebration lunch for your your new chapter of your life is that what this is exactly yeah oh bingo yeah thanks for being a part of it um yeah so i i uh i was working in tucker am working in tech sales until thursday um but you know i saw what the business is doing it's growing and i think i can if i have the attention and the bandwidth and the energy to focus solely on it like you know the time horizons on all these different things building out shopify doing all these different things they just shrink so astronomically because instead of it being you know the hours of 6 to 10 pm when you're tired and you know have some such limited bandwidth versus like i get up in the morning i'm like cool what am i going to do today right i'm going to work on wall roof and so i think the upside was just astronomical and also i just want to have control over my schedule so there's that too yeah there's that there's that too but so are you gonna then do fold wallaroo full-time or that's your expectation okay okay so you so you you you gave notice to give wallarie your full time yep awesome and so if waluru was doing 182 sd last year and it's grown by 40 so let's say it's doing whatever it's on track to do 220 or 230 if my math is right um this year um so that i assume that replace your your salary and then some almost yeah i mean the the the loan eats up a big part of that so the loan is 74 a month which is like what i'll say like 90k a year um so subtract 90k from any sdd number um so yeah let's 230 right let's take 90 off of that so not quite what i was doing um but but pretty darn close and and you know anybody could live on on that money right so that's like totally yeah it's it was a no-brainer to be honest with you where where are you based alex uh austin texas you're in austin okay great yeah i think that we've hit everything that i wanted to is there anything that um you consider important in your story that people should know that we haven't touched on um i think i think the biggest take-home point here you'll kind of hear this from other people who bought businesses i think the biggest take-home point is like being a being a good buyer and giving yourself the best chance of getting your offer accepted is like it it's it's about being empathy this is the least surprising thing ever but it's about being empathetic and like asking the sellers what's important to them and figuring out how you can deliver on what's important to them right i mean i think you hear stories of uh and i heard stories from these guys about some of the other people that put offers in were just you know whether it was being entitled or not asking questions or just just generally being you know not good buyers like it's like anything right at the end of the day it's about relationships it's about money but it's also about you know this is you're buying a business from humans and you're a human and so i think if you're if you're looking at doing this if you're thinking about buying a business go into it with that mindset and you know whether or not you're an aggregator whether or not you have a whole bunch of money whether or not you're a cash buyer those things can obviously go out the window if you just treat people like humans yeah no i'm so glad you said that and let me just let me just ask a follow-up so on that first call this this you know you got that lucky call number one and you you said you really clicked with the two sellers um what does that call look like did you kind of let them talk and kind of ask them to hear their story first um or were you yeah like give me give me just a very mini coaching session on how i should approach a call like that yeah definitely so the so quietly one of the really good things quietly does is they do a seller interview that's recorded and so a lot of questions like baseline it's like 45 minutes so really like they get pretty in-depth um in terms of asking the sellers a lot of questions so if you go into that first call with the sellers and you're asking questions that have already been answered you know they're already going to be pretty put off right so this goes this should go without saying but go through the materials that have been presented to you because you can get to much more interesting stuff rather than like you know hey where are you guys sourcing your product like dude that's in the prospectus right so um that would be point number one but the structure of the call is basically just you know broker kind of sets the stage you know says hey alex or whoever the buyer is you know talk about yourself for a minute and then from there you're basically interviewing them so you're asking them questions and then if they want to ask you anything obviously they can and i'm sure it depends on the seller but um yeah you're asking them questions and so you can you can go about that a lot of different ways right you could you could grill them and you could say cool so like why are you selling like why are you really selling it you know and you know why should i buy your business and you can you know be really rude about it or you can say you know as you pass your baby on to somebody else what's important to you and what's you know what do you want you know the person to to make sure that they do uh to carry the torch forward and um so yeah i think there's two ways that awesome you can go about it there's one way that's a lot better than the other and and so you you ask them in so many words like what are they looking for in their ideal buyer yeah exactly exactly um and and you know it's also you know unsurprisingly takes a level of self-awareness like if i was to say you know hey i'm not an aggregator like i don't have all those resources some sellers i might have gotten unlucky and they might have been like oh that's what we're looking for right we just want a ton of cash from an aggregator and that's fine right so you've got to you know be explicit be honest about what you are and aren't going to bring to the table um and hopefully it works out alex first uh spell wallaroo for us and tell us what um let's send some traffic to your non-amazon to your dtc website yeah what's the url it's uh wallaroo wallets.com it's w-a-l-l-a-r-o-o wallets dot com um great so walrus is a real animal by the way fun fact what is a wallaroo it sounds australian it is it's like a cross between a wall being a kangaroo and it's like a real thing um which is super cool yeah in that well that that's uh that's um that's the logo or that's the little emblem that's stitched on the side yeah yeah it's like it's a wallaroo and it's putting cards in their little pouch so yeah oh it's a marsupial that makes sense yeah exactly nice cool and uh alex how can people get in touch with you if they want to ask you questions or um or connect for any reason yeah definitely linkedin's a good one i'm on their way too much i don't really do much social media but i do linkedin um so my name is alex michael m-i-c-h-a-e-l and um yeah love to chat this stuff's fun to talk about obviously you ask really good questions so it's definitely fun to talk to you about it cool well i'll put your linkedin uh your linkedin link in the show notes so people can connect there that's actually how we we connected um so yeah uh it does work to connect with this man on linkedin alex this was awesome thank you for the tutorial on on fba and sharing your story with us it's been it's been great thanks so much for having me well it's been a blast and congratulations by the way on on the acquisition on 40 growth uh this year that's it's a great momentum all right we'll catch up with you in a year all right thanks well see ya