[03:18] No problem at all. So let’s talk about this clever little idea that you have for coming up with new product ideas that has something to do with the patent office. So tell me a little bit about that.
- Oh, I’ve been an Amazon seller for four to five years. And a few years ago, I was trying to figure out what I could do that might be a little bit different that I didn’t think other people might be doing, or at least I wasn’t aware of it if they were. And one of the things I sort of tripped across with was this idea of finding products with expired patents, and then basically recreating my own version. And the way it kind of came about was I basically tripped across this product, which was made by a company called Kids Fly Safe, which was a kind of a safety harness for kids on airplanes.
- And the price was just outrageously high for what it was, which was basically a glorified seatbelt. And so it just made me kind of curious, why were they charging 80 bucks for this little seatbelt thing? And so I—just out of curiosity I started researching the product. And the first thing I did is I found that basically the exact same product on Alibaba for five bucks. So I was like, “How is it that this thing is selling for 80 bucks?” And I thought, “Well, I wonder if there’s IP on this,” intellectual property—that is. And I pretty quickly found the patent that—the US Patent Office—and looked at, and the first thing I noticed was, “Oh, this is interesting. The patent has expired.” And it only expired relatively recently.
So what I realized pretty quickly was that the reason they could charge 80 bucks for this thing that you could get for five, really had to do with the fact that the people didn’t realize that the patent had expired and that they were able to charge a premium for it. I said, “Oh. Well, what if I go find products with expired patents and then start competing with them?” I can charge a lower price, and still make a very nice profit at the same time. And so that’s kind of what I started doing and looking at. And believe it or not, I just kept on finding more and more products like that. So you know, it wasn’t that hard to find. Sorry, go ahead Trent.
[05:55] No, I was just going to ask you. So, let’s unpack this and make sure that the audience is able to replicate what you’ve done. So first off, tell me how you—when you started to research this product, how did you find it on the patent office website?
- Well, like most websites, the patent office website has a search function. Now honestly, it’s not a great search function. It’s—the government sites, they don’t really make good usability a big factor in it. But if you kind of dig enough, you can basically set it for a search—a way to search it so that you’re only going to get those things with expired patents. And just for, by way of background for your audience—typically patents, or I should say utility patents, which are a patent on the way something works, they typically go for 20 years. And design patents usually last something like 15 years. So all you really have to do in the search is go back 20 years or more to find those expired patents with expired patents. Or 15, or 16 years or more for a design patent. So it’s not that complicated to find.
But the trick then is you find that you find these interesting expired patents, and you kind of sort through them. And then what you do is you go back to Amazon, and you sort of try and find the products that basically match those expired patents. And that’s what I did is I started to do that.
[07:34] Okay. So once you do that you’ve identified, “Okay, so this product on Amazon that’s seemingly selling quite well, based upon the number of reviews and so forth. And sure, it looks like it’s the same product, and now there’s an expired patent.” So there’s an opportunity for you, what do you do next?
- Well, then it just go, into research mode. So you first look at the—kind of do your research on the practice, like I did with the kids safety harness. And you kind of say, “Okay, are they charging a premium for it?” And nine times out of 10, the answer is “Yes, they are charging a premium for it because they have the patent.” And then you go. And then I usually go to Alibaba, or other sites, or other suppliers, and see kind of, what that kind of product might be available for, in the marketplace. And then, if it makes—if I think it makes sense—generally is something I want to do I pull the trigger.
So I actually wrote a book that talks about this. And I include in there a number of products that I saw, that have fallen off patent. So one of them was a kind of a sun hat for kids, that was developed by a company called Sunday Afternoons. And basically, sold—it sells for roughly $25 on Amazon. And basically, again, it’s available on Alibaba for—I don’t know, certainly less than $5. And I saw that it expired. So I talked about that.
There’s another one that I sort of came across which I was amazed how well it sold. It’s a pricey one, which was the Bottom Buddy, which was basically a—yes, it’s a device that makes you wipe your behind more easily if you’re overweight or handicapped in some fashion. And I looked and it sells for like… I think it’s probably 50 or 60 bucks. And again, I found the patent had expired. And the actual price of that, again, is something less than five bucks. So I could probably offer that kind of product. Instead of 50 bucks, I could probably offer it at—yes, something less than. Maybe 30 or 40, and still make a healthy profit without anybody’s IP.
[10:08] Okay, so your book is called The $500 Startup on Amazon: How a Dad of Three Launched a Business on Amazon and Escaped the Hamster Wheel of 9-5. That’s a mouthful.
[10:21] When did you write it?
- Just came out, meaning a few months ago. And I wrote it to sort of tell my story. I realized there were a lot of Amazon books out there that told you kind of how to sell on Amazon. But they tend to be kind of technical in nature. And I wanted to write a book that not only would help people understand how to sell on Amazon, but also sort of tell it through the prism of my personal story. So that’s how I went.
[10:52] And what is—let’s—because we haven’t dove into that a bunch yet. I mean, from the patent perspective. I think we’ve exposed the idea. I think people now understand that there’s an opportunity there. And I don’t think there’s a whole lot more to explain with respect to be, finding products that are coming off patent. Because once identified an opportunity, then it’s just standard product research, which has been covered—God knows how many times by how many other podcasts, and how many other YouTube videos. I don’t know that we needed to cover that in detail here. Was there any other details about the process that we haven’t talked about yet?
- I think it’s really—it’s pretty straightforward from that perspective. One of the things that I kind of—I actually tried to create a business that would make it easier for people to find these products. I actually never launched that business. But the reason I didn’t is because I I want to match Amazon products with expired patents. Turns out, that’s a little harder to do. And then I realized, I never actually went forward with that business. But you can still do the matching by just sort of finding the general product, and kind of doing it in a kind of a manual type way. I was just trying to automate it.
[12:03] So for someone who’s listening to this, who hasn’t yet pulled the trigger on starting their own Amazon business. Or maybe they have and their first product was a flop, which is oftentimes the case, it was for me. My first two products were flops as a matter of fact. What advice would you give people to want to start selling on Amazon based upon your personal experience?
- I think the most important piece of advice may sound simple. But it’s just take a first step. I have a lot of friends who are very, very smart. They’re wonderfully analytic. But they kind of talk themselves—because they’re really smart. They talk themselves out of just about anything. And because Amazon is so—there’s so much data on Amazon, you could analyze a million ways why you shouldn’t sell on Amazon. But I think the fact of the matter is huge opportunity. But you just have to kind of get over the analysis paralysis problem. That was really my problem to start.
Eventually, my first product was darts. And I just struggled to figure out what to sell. But eventually, I just said, “Screw it. I’m just gonna start. Darts is it.” Is that even though I have no interest in the game, and I’ve never played the game. I was just gonna do it. And it turns out—that turned out to be a really good product to start with. It worked out pretty well. But so that—I think the best advice I would say is just to begin, and don’t be afraid. The truth is, you don’t have to spend that much money to start usually. And usually, for most people, at least in my experience, it’s like anywhere from $10 to $20,000, you can really start with, and really get a real product going.
[13:49] The thing that I find amazing—and it’s all to do with paradigms and how we look at things is—as people won’t bat an eye to spend a hundred grand on a college education. But right when it comes to starting their own business, be it on Amazon or on anywhere, they’re looking for the perfect idea. The idea with no chance of failure whatsoever, which no such idea exists.
[14:14] What they fail to understand is that when your first idea is a flop, it’s like going to school, you’re still going to learn a whole bunch of stuff. And instead of spending a hundred grand and four years of your life to get an undergrad, you’re going to spend maybe 2000 and a month, or two, or three. But you’re going to get a massively valuable education which will then help you to make a better decision on product number two, and then product number three. But people don’t—they don’t think that way. They want—I want the perfect homerun product from the get go, or I’m just going to sit on my couch and analyze stuff forever.
- Well, there’s a line I sometimes use, I call it the curse of the overeducated. And the curse of the overeducated really is fear of failure. And for me, when I started doing this, I started a number of different companies over the years. And the most recent one I did, before I started selling on Amazon, was a huge rocket ship until it crashed and burned Earth. Right? And I had raised a ton of money from venture capitalists and such in order to do this particular company. And I was just kind of licking my wounds afterwards. And I was like, afterwards, I’m like, “Oh, God. I really don’t want to find a job. I really don’t want to interview for a job. I really, really don’t”. And I also didn’t want to go through the process of raising money again, which was also challenging. So I was like, “What can I do to—that wouldn’t require me to go raise a ton of capital?”
And I went through a whole bunch of different ideas. And I often call that process of thinking of ideas—I call it the genius to idiot cycle, which means everything I think, of course, is sure genius because I thought of it. Right? Until you realize it’s just the dumbest idea ever. And you kind of go through this up and down process of good ideas and bad ideas. And eventually, I sort of settled on the Amazon private label model because it just—it’s low cost, seems like a really interesting opportunity. And I just treated it as an experiment when I started.
And again, darts was the first example of that. And I just locked on that one. I found a supplier in China. I had it shipped from China directly to the Amazon warehouse. And off I was going. And I was very fortunate on that first one that it worked. I actually didn’t even tell my wife that I was doing it in the beginning. I was like, “You’re just too big to take.” But she’s a very analytical person. And so I was, “Okay, let me gather a few months of data on this before I tell her what I’m doing. And if I have data, she’ll find it to be okay.”
[16:58] Yes. So for folks who maybe aren’t super familiar with this space yet, or maybe don’t see the big picture, one of the things that I do want to make sure people understand is what is going on in the Amazon private label ecosystem these days. And over the last six months, there’s about eight or 10 companies that have collectively raised over a billion dollars. Several of them are my customers with my software. And that’s how—I was actually on a call before this. Like 15 seconds before we started recording, I was doing a training at these guys.
And they’re in the business of buying existing Amazon FBA brands. And so this pool of companies has a billion dollars to spend, and the ramifications of that for you—when I say you, I mean the audience who’s listening to my voice right now. If you can build a successful—even a single product company—these guys will buy it. So even if you don’t want to run something forever, I mean, you could literally spool up a business in an 18 to 24 months, sell it for what it would have earned you over the next, say, three years. If you do the math on that, it can be a very, very compelling business.
And guess what? Once you’ve done it once, you’ll have the confidence to do it again, and again, and again, and again. And these companies aren’t going away anytime soon. They’re gonna be buying businesses. It’s called a roll up. That’s the financial lingo for it. They’re gonna be doing this for some time yet. So there’s a tremendous opportunity.
- Well, funny you mentioned that because that’s my next business. So I’ve actually gone out and raised money to buy businesses like mine. And you’re right. It’s an amazing opportunity because—I mean, you just have to do the math to realize how big an opportunity is. Because there are probably 8 million sellers out there today. And they’re probably anywhere from two to five hundred thousand alone. Sort of fit into the sweet spot of a lot of these roll up companies, and that by sweet spot, I mean anywhere from a few $100,000 of annual revenue to many millions.
And so you have all this money flooding into that market to buy these little businesses. And typically, they buy them for what’s known as seller discretionary earnings, which is basically what it costs to run the business without you in the business. And so, it’s a great opportunity for people to build up a small brand and then sell it. In fact, today I just bought my first Amazon business. Relatively small one, but I paid the three times seller discretionary earnings for it. And then we’re gonna obviously try and improve it and grow that revenue beyond where it is today.
[19:58] So what—without disclosing anything you don’t want to disclose—what did you buy?
- I’d rather not tell you what the product is.
[20:07] Yes. I didn’t say that.
- But it’s a relatively small one because we want it to basically show how much you can really improve the earnings and revenue for these businesses. And there—a lot of people who want to sell potentially can do so by posting them on one of the brokerages. They can contact us as well. We’re one of the companies called sorfeo.com. And that, I think, it’s a great opportunity for your audience to invest a relatively modest amount of money to build a sort of a mini brand. And then very likely, if you have any kind of real success with it. And by real success, I just mean, prove the market fit, and prove the market wants what you’re selling, then it’s very likely one of these roll up companies will come to your way and want to buy it.
[21:03] So how about this as a strategy? And I’m literally spitballing as we go. So there’s somebody in the audience is thinking, “Hmm, I’d like to sell my company to a roll up company. That sounds cool. But I don’t want to launch any products from scratch. What if I was to look on Amazon for products that had a high review rating, but not very many reviews? And maybe, as a part of that research, I’ll find some real micro brands—people who—they created a great product, but they just weren’t very good at marketing it. And I look at their marketing on Amazon, and I can see the deficiencies in their marketing. And I can see that there’s no ad campaigns running or what have you? And maybe the people that launched these things are kind of burnt out, or they’re off doing other things, and it’s just kind of sitting there.
Why wouldn’t I use that to buy a couple of micro brands—squish them all together, streamline operations, grow sales a little bit, and then turn around and sell it 18 months later to a roll up company?
- There’s nothing wrong with that strategy. It’s a good strategy in fact. What you find, or at least and I’ve certainly found this is, the sort of a point with a lot of Amazon sellers that I kind of…I call it the stall out point. And by that—what I mean by that is you get to like $300,000, $400,000, $500,000 in revenue for your product, and you’re happy. And it’s a lifestyle business, putting some nice money in your pocket. That’s great.
But in order to go from, say $500,000 of revenue, and you want to go to a million or two or whatever, you actually have to invest real cash to get that point, in terms of advertising, and inventory, and all the things that you would need to do. And what happens is a lot of these guys don’t want to do that. Because taking—if I’m putting $100,000 in my pocket every year from this business to take 20 or 30 out of your pocket, which you might want to use to go on a vacation or something, and putting it in advertising doesn’t necessarily sound like something you want to do.
So you’re kind of left with this interesting conundrum if you’re an Amazon seller, which is you either find investors to help fund it for you. But if it’s a lifestyle business, you tend not to want investors. Or you take on more debt, which has pros and cons associated with. A lot of people don’t like taking on more debt. So you find that there are a lot of these Amazon businesses that just sort of stay in the sort of cash flow mode, even though their potential upside might be quite significant.
[23:40] And yet, they’re not maybe large enough to catch the attention of the roll up companies. So they’re these diamonds in the rough and all you have to do is be an explorer and go around and find them. I know from my perspective, as if I was aspiring to build—obviously, I’m running a software company. So I’m not launching a private label brand anytime soon. But I don’t think I would launch one. I think I would do what I just described because I know how plentiful those assets are. And I also know from doing my Amazon reseller business that the research process could be completely systematized and largely handled to a VA for the first round of research, and then that VA would then give me a shortlist of things that I would review according to whatever criteria I had.
[24:24] All right, Mark. Well, it’s been a pleasure to have you on. So folks, there will be links in the show notes for this episode. I don’t know the episode number just yet. But in post production, I’ll end the episode and there will be an episode number so you’ll be able to come there. And if you need to get a hold of Mark—Mark, the easiest way for people to get in touch with you is?
[24:54] Wonderful, Mark. It’s been a pleasure to have you on. Thank you so much for making some time.
Well that’s it for today’s episode. If you enjoyed this episode, I would love it if you would take a moment and like, rate, and review it on your favorite podcast listening app. To get to the show notes for today’s episode, go to brightideas.co/356. Thanks very much for tuning in. We’ll see you in another one soon. Take care. Bye!
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