[02:43] So Ryan, thank you very much for welcoming—or for making some time to come and join us here on the show. It is a pleasure to have you. By way of introduction, I would like to just let you guys all know a little bit about Ryan. He is the founder and CEO of a company called Recom Brands. And that is a company that is focused on buying and growing businesses—Amazon businesses rather. And they are one of the fastest growing companies in the space. Ryan started selling on Amazon in 2016, and he’s been involved in all aspects of the Amazon world including retail arbitrage, wholesale, and private label. So Ryan, thank you so much. Welcome.
- Thanks very much for having me. Great to be here.
[03:26] Absolutely. So you guys did 15 million bucks in your second year on Amazon. Is that right?
- Yes, that’s right. That’s right. That was done mostly with wholesale trading of footwear and apparel.
[03:42] Okay. And did you organically build your way there, or was that—the revenue in the first two years? Was that the result of buying some other companies and bolting them on?
- Yes. So what we bought out—we acquired our first Amazon business at the end of our second year.
[04:00] Okay. So, let’s go back to—now that people already realize you’ve accomplished some pretty extraordinary stuff in a very short period of time. Let’s back up a little bit. Let’s go to the beginning here. So your background, did it have anything to do with this? Did it lead you into this at all, or was it kind of irrelevant to selling on Amazon?
- Well, I mean, I suppose somewhat relevant. My background was commodities trading. So I was running a commodities trading desk, but it was a physical commodities trading desk. It wasn’t paper trading. It was physically moving commodities from—mine’s in Asia to Europe and other parts of Asia. And I suppose, trading commodities and trading things on Amazon, there are some relevancies but not a lot. Not a whole lot.
[04:50] Okay. So then what led you into the world of Amazon? It’s interesting, we come from all different walks of life—those of us who made it this way.
- Yes, so look. I mean, in 2016, I moved to the US. And at the time I was looking for something to do. I’m looking for a business to buy or a business to start. And at the time, e-commerce was at around 8% of total retail, and was growing at around about 10% a year. And I couldn’t see any way that that trend was gonna reverse, right or slow down even. And at the time, Amazon was about 40% of total eCommerce and gaining market share every year. And I just became massively bullish on the Amazon platform because if you look at the lifetime value of a customer on Amazon—it’s huge, right? The average Amazon Prime customer spends about 1700 dollars a year. So the lifetime value of an Amazon customer is tens of thousands of dollars.
And so, Amazon’s always going to be able to outspend on marketing dollars to attract a customer versus a standalone data site, you know which is much smaller, whose lifetime value for a customer if much smaller. And so I looked at that, and I thought, “This Amazon thing is only going to get bigger. It’s only going to get better.” And I still feel that way today because more customers makes me millions, more sellers come. And as you get more sellers and more variety, you get lower prices, and it brings more customers, and the more customers bring more sellers. It’s a flywheel that just goes around and around and around. And spins faster and faster every year. And so yes, that’s what kind of got me excited about the space. And then sorry…
[06:32] I was gonna say, not to mention just the whole searching for products is so ingrained in our—like when I’m a very avid shopper on Amazon. My wife tells me we spend about two grand a month between our replenishables, and laundry detergent, cat food, and all that stuff, and then all the things I like to buy.
I don’t search anywhere else. I don’t start my searches in Google. I always start my searches in Amazon, and I think that probably a lot of people do that. And it’s going to be really, really hard for Walmart to break that mental pattern, don’t you think?
- I think it’s gonna be very hard. But they—look, they have the resources to be able to make a dent. I just think the culture is different. The culture is just very different. The culture at Amazon is so innovative. You know the old expression, “when you get to where I am, you’ll be where I was.” But by the time Walmart gets to where Amazon is, Amazon will be way, way, way ahead. And yes, it’s gonna be difficult for those to catch Amazon here.
[07:35] So after you—so you got started, you were doing wholesale, much like I’ve been doing you. You did very well at it. And then at some point in your evolution, you decided that you wanted to start buying existing brands, and doing a roll up is what it’s called in the industry, or making acquisitions your primary focus. How long ago was that? When did you do the first one?
- So the first one was December of 2019. So just about almost a year ago.
- We decided a couple months prior to that that that’s what we wanted to do. When I first started on Amazon in 2016, 2017, I had that idea. But the problem was, many people listening who were selling at the time will know that Amazon’s Terms of Service had made it very difficult to buy different brands because there were all these stories that if you owned more than one Amazon account, you would get shut down. Like for the people who used to sit in Starbucks with totally separate Amazon accounts and get shut down for. And so you couldn’t actually implement the strategy at the time.
And so we got focused doing what we could, which was the retail arbitrage, and the wholesale. And then over time, Amazon loosened up their policy, and it became more apparent that private label was going to be a huge opportunity. And so we decided into—to go start buying and acquiring from businesses.
[09:03] And you—somewhere in this journey, you’d raise $2 million in debt financing, I believe from an individual. Was that before or after you made this first acquisition?
- That was before. The $2 million came in right as I started the business. I mean, I tested for a few months on myself. And then off the tip thing for a few months on Amazon—selling a few shoes, and different things, a few toys and a few different products to learn how the model works, and how the platform works. That’s when I went and pitched to an investor—the scale of the opportunity, and I think he was impressed by my enthusiasm, and sort of took a chance, and took a bet on me, which I appreciated. And we wrote $2 million in those early days.
[09:53] So I imagine this was a fairly high net-worth individual to stroke a check for $2 million because he liked it.
- Yes, he’s definitely a high net-worth guy. But I also had a—I’d had a background of having some success in my previous career.
- And he did some reference checks. And yes, I think we sold him on the size of the opportunity. And the thinking was, we’re going to start with this retail arbitrage model, and try and grow that. And we might pivot and evolve over time, which we did. And so we were always flexible, and he always understood that the model may change.
But ultimately, there was so much opportunity. eCommerce is like a tidal wave, and he said, “You guys are just going to go figure out how to build a big enough surfboard to ride that wave.” And so we’ve pivoted a couple of times to get there. But now we feel like we’ve really sort of landed on a very sustainable strategy that we’re very excited about.
[10:54] You know, that was the same when I raised money for my first company—that was the same reason. The fellow who gave it to me was, he says, “I think I’ve known you for a while now. I think you’re smart. I think you figure your stuff out. I don’t know exactly what it is that you’re doing. I don’t really even understand it, necessarily. But I’m willing to make a bet on you.”
And I bring that up because there are probably people listening to this episode right now who knows somebody like that. And it might not be $2 million. Maybe it’s $25,000. Maybe it’s $50,000. Maybe it’s $10,000. But don’t underestimate the ability to have to use your own relationships and credibility to go and attract, or to go and find, or convince this type of investor.
And Ryan, so just before we move off the money raising aspect of this, what does it look like for the investor roughly like, what is he getting for his two million bucks?
- Well, the deal that we did with him was it was a single digit interest rate, but he also got some equity in the company.
- Right? So he got a few points of equity in the company. And then he had an option to convert that debt into equity at a later date, which he ultimately did. So all of that debt now sits in the company as equity.
[12:07] Okay, and what percentage of the company did he end up owning?
- Today, he has just under 20%.
[12:15] Okay, so given what you’re doing, and what you’re building, his 20% is going to be—by the time you sell this thing, or do whatever your exit strategy is, which we can get to later, or you can talk about it now—he’s probably going to see a pretty nice return on his $2 million.
- I would hope so. I think so.
[12:36] All right. So you went down the path. You got started. You did what I consider the really—the smart way to get started on Amazon—which is wholesale because it’s such a low risk strategy. You had some success there, you developed some credibility, you raised some money, and then you thought, “Okay, I need to start buying brands.”
Why did you decide—before we get into how you bought them, I want to talk about why. Why did you decide, “Hey, I’m gonna buy these brands instead of launching them from scratch?”
- Yes. Yes, so, I am—I was always sort of interested in the idea of buying businesses versus launching them. And in 2016, sort of in between careers, I went and did some studying with a guy named Keith Cunningham. He’s a business coach. And Keith was—he’s a fantastic business coach, and he does a course on how to buy and sell businesses, right? And he lays out the logic for doing that. And he likes to say that the hardest thing you can do in the business world is to turn around a failing…failed business to turn that around. The second hardest thing in the world you can do is to start a business from scratch. And a far easier approach from a risk adjusted point of view is to go and buy an existing business running.
And he used to give this analogy where—which I’ll share with you—which he said, “Imagine you want to take a flight somewhere, right? And you get to the airport and you ask the hostess, where’s the plane?” And she says, “Well, look outside the window. You see that pile of rubble on the tarmac over there? Well, that’s your plane. You need to figure out how to assemble all those thousands of pieces, turn it into an airplane, and then figure out how to fly that.” Right? He says, “And that’s what starting a business is like”. He said, “Alternatively, you can have a business that’s a cruising altitude of 30,000 feet. You go sit and you inject yourself straight into the co-pilot seat. The pilot shows you the switches, and the gauges, and shows you how to operate the plane. And then when you’re ready, you switch seats, and then you take over, and keep flying the plane.” And it’s just a lot easier from a risk adjusted point of view to do that.
And so, I like this idea of buying businesses. And now I should say this but as it relates to Amazon, the rules of the game was slightly different. And this is the amazing thing about Amazon is that they’ve made it so easy for you to start a business, right? And this is why they’ve been so successful, and they have so many sellers. I mean, there’s hundreds of thousands of third-party sellers today. And the reason is that it’s totally inexpensive and easy to figure out how to launch a product on Amazon. There’s tons of consultants, there’s tons of courses out there that you can learn from Facebook groups, very collaborative community, and you can go and launch a business relatively inexpensively, and then figure out how to make it work.
And so, we’ve done both. We’ve launched businesses on Amazon. We have several brands that we launched field ground up, and we’ve bought businesses. Online businesses are a little bit faster. It’s faster. It’s a faster way to scale the business. But of course, it’s riskier. As you know and I know, and a lot of people who’ve sold on Amazon know, it’s tricky. It’s not so straightforward. There’s a bunch of things you have to get right. After this business that we bought, dropped by—the first business we bought in the first month dropped by 60%. We made a couple of small mistakes. And that was already with two years of Amazon experience, we made a couple of mistakes. And it took us a fair while to get that thing to recover. But we eventually did, fortunately.
So there’s all sorts of risks involved. But it’s—I always say this—it doesn’t matter what you do, it’s how you do it. So whether you’re buying businesses, or whether you’re launching in Greenfield, both can be fantastically successful strategies. And it just depends on how you do it, and then how well capitalized you are, and I guess what the strategic objective of the company is.
[16:45] So if—I’m speaking to the audience here—folks, if you’re we’re going to talk a lot more about how he’s finding these businesses and so forth. I do want to make you aware of two other interviews that I did on this exact topic, in case this is a rabbit hole you really want to go far down.
If you do a search on Bright Ideas for Shakil Prasla or Bill D’Alessandro, you’ll find that there are interviews—that both of those fellows have built quite a successful business of buying other brands. So with that said, Ryan, deal flow is always an issue much like a real estate house flipper. You want to find a deal. But if you’re looking on the MLS, you’re competing against everybody else who wants to find a deal. And in these markets, thanks to computers and transparency, pretty hard to find a house to flip on the MLS.
How do you—and then there’s the Amazon world or the eCommerce world—there’s all sorts of brokerages that are brokering these deals. Are you buying through the brokerages, or are you creating your own deal flow of unlisted businesses so that you don’t have competitors bidding up the price to levels that make it not worth your while to acquire the company?
- Yes. So, broker websites are a place that we find some deals. And at the same time, we get a lot of people calling us directly because we’ve got a lot of contacts and friends in the Amazon world now. And we’re—we treat people well, and we’re always very friendly. And so we get a bunch of people now bringing deals to us.
[18:29] Well, that’s a nice problem to have. So but is that how it’s—let’s go back to the beginning. So this first deal, this first acquisition that you made, I think you said it was in January of—sorry December of 2019 or January 2019.
- Correct. Correct. December ’19. Yes.
[18:46] How did you find that deal?
- That was on a broker site. Yes. The first couple came from broker websites.
[18:55] And then, and now deals are magically—deal flow is magically falling out of the sky for you. How’d you make that happen?
- I don’t know about that. But I don’t believe that magically. We’ve worked very hard at building a network over the last few years. And we need to work very hard at that. And yes, so we’re starting to get some more deals for now.
[19:18] Okay. So, speaking of deal flow, and that’s where I would recommend—maybe even you Ryan, you might enjoy it—but Bill D’Alessandro in his interview, he had a very, very clever strategy for deal flow. And I’ll leave it to the audience to go check that out if that’s a topic that they want to go into deeper detail on. So, how do you identify a company that you might like to acquire?
- Yes. So when we look at businesses that we want to buy, some of the criteria that we look for example is, do they have great reviews? Right? And it all starts with the product. If you have a great product that has great reviews, then it’s a question of just being able to optimize the creative, and the branding, and the PPC, and the SEO, etc. But initially, we want to make sure that it’s a great product, right?
And we also want to make sure that—something that’s three or six months old doesn’t work for us. We’d like business, at least, sort of 18 months to two years old at least. And have pretty stable, sort of, or growing sales, right? So if it’s dipping at all, that’s not a great time.
And the general trend of the category you want to see improving. So for something like a fad, like a fidget spinner, that’s not something we’re really interested in. So if we think that’s the sustainability to the business, and it’s got great reviews, then we like it. We’re agnostic to the category today. So we don’t mind—we’ve got products across a whole bunch of different categories, and as long they kind of meet that criteria. I mean, businesses, in terms of the size we’re buying today, the smallest business we’re looking at is probably like half a million dollars in revenue. They’re about and—we’ll buy businesses today up to sort of 5 million in revenue. And, as we—as our business gets bigger, so is the businesses that we can acquire. Yes.
[21:23] Yes. Because when you’re at 50 million buying a half million dollar business, it’s not worth the due diligence. But when you’re only at a million, it’s worth the due diligence. So are you—do you have a filter, or a criteria for x percentage of their sales must be outside of the Amazon platform to give them some diversification, or you happy to go and buy a brand that’s basically Amazon’s their only sales channel and it’s the bulk of their revenue?
- Yes. So we’re pretty much all focused on Amazon today. So a business that has sales off the Amazon platform, it’s fine. We consider that but that’s not really a core of our strategy tonight. It might evolve over time that we do that. But we’re mostly focused on what sales are happening on the Amazon platform.
So if it’s 100%, sales on Amazon, even if it’s a single skew, that’s fine by us. A lot of buyers who want to buy businesses, they prefer to have dozens of skews under the one business because that provides them a level of diversification right? And once you go down, that’s okay. We kind of take a different approach to that, where we have diversification across the portfolio, across all the different… So we’re more than happy to buy a business that has a single skew up to sort of a few more skews, let’s say, under one brand. So that’s how we look at that.
[22:45] So let’s say you have that single skew business that’s only selling on Amazon. So there’s one point of failure, that one product. What type of multiple—how do you value that company to come up with a purchase price? Is it a multiple of revenue? A multiple of earnings? What does the math behind that look like?
- It’s typically a multiple of seller discretionary earnings.
- Right. So I mean, businesses that I trade anywhere from sort of two times to three and a half times, depending on the size of the business, depending on—a bigger business does tend to get a slightly better multiple. Business that has too many skews, which is very difficult to manage, probably won’t get as good a multiple for us anyway, as a business that has fewest sort of skews with more concentration.
And then we look at the competitive—and there’s a whole bunch of factors that we take into account. We look at the competitive landscape, we look to see whether there’s room to optimize, and grow that business, right? Potentially taking it to Amazon Europe, or potentially taking it on to other platforms. And we look at the competitors. We look at a whole bunch of factors, “How old is the business? How sustainable are the earnings? How big is the review mark relative to the competitors? Are these guys a clear winner, or are there many others who have a similar kind of review mode to what these guys have?” So we look at all of those factors, and then we come up with a valuation accordingly.
[24:17] And are you only buying private label brands? Are you buying wholesale businesses as well?
- It’s all private label brands.
[24:28] How do you manage the risk of selling on a single channel? So in the risk, I’m specifically referring to his account suspension because in the private label world, especially in certain categories, there’s bad actors and they like to do nasty things that can cause good actors to run into difficulties.
So earlier, we talked about how you and you didn’t used to be able to have more than one Seller Central account. Now Amazon is permitting that so, are you maintaining individual Seller Central accounts for all the companies that you’re buying?
- Yes, at the moment, that’s how we do it. We have separate accounts. Yes, look at—this has been an interesting evolving kind of issue this. When we first started, that was the number one sort of biggest risk that used to kind of keep us up at night was, what happens if Amazon shuts you down. And actually, in those early days, we had three Amazon account suspensions already. I mean, we’ve been dragged through the mud a bunch with Amazon. So, we’ve been there and done that. And part of the reason for that was we tripped up some algorithm and they—Amazon shoots first and ask questions later. Right? And that was painful.
But if you play by the rules, and you do the right thing, and you know your product is authentic, etc, you’ll always be able to get back up. And certainly, that’s been the case for us. And so, today we look at that, and we say that that’s far less of a problem because number one, Amazon is not going anywhere. Third-party marketplace today makes up over 60% of volume on the overall platform. For Amazon locking to get rid of the third-party marketplace. And then it’s just a matter of making sure you do the right thing because if you do the right thing, you’ll always be able to get back up. Even if you get suspended temporarily. It’s not going to bring the entire business crashing down for long, right? So, yes.
[26:22] So you’re now—you’ve—how many acquisitions have you made in total?
[26:29] 10? So you’re almost doing one a month.
- Yes, we’ve—Well, I mean, we bought a couple of months ago. We bought three in a month, right? I mean, we’re starting to really gain a momentum now. Yes, we’re growing faster.
[26:46] So how are you financing all these growth? Are you using SBA loans, seller financing, or if you get some other types of credit facilities? Because the $2 million, I would imagine you spent a good chunk of it already, if not all of it?
- Yes, well, we’ve had some profits from the last couple of years. We’ve also raised some additional financing. And we’re in the process now of closing a much bigger round. I can’t sort of share details because it’s still confidential, but we’ve closing sort of a few tens of millions of dollars over the next couple of weeks. And so that’s gonna give us plenty of fuel to be able to grow much faster and drive.
[27:30] And so in this space overall, obviously, you’re not the only company doing this. Tell me, how many other companies are out there trying to do roll-ups like you? Are we talking dozens? Hundreds?
- You know, I have no idea what the number is. There’s definitely a few. Random guys are starting to pay attention. But the space is very large. I mean, Amazon third-party marketplace last year was $200 billion of GMV, hundred billion dollars of sales. And this year, it’s on track to do about 280 billion. And I’ve seen some JP Morgan reports that say next year will be 330, in the following year, $420 billion. So that is an enormous marketplace, highly fragmented. And there’s room for several players.
Now, many of the guys focused on a specific category. Some have very different investment buying criteria. Some only buy businesses that have very strong patrons for example. There’s plenty of ways to go about this.
And we try to just focus on doing our own thing, and making sure we develop a reputation in the market for being fair, upfront, honest, easy to deal with, super efficient. We close these businesses in like 30 days on average. But we’re—we might talk is really easy for sellers, very efficient. And we pay fair prices. So, there’s opportunity for—there’s opportunity here, yes.
[29:08] Yes, no doubt there’s definitely opportunity. And I love your “be the best buyer” approach. Always shoot straight from the hip, be honest, do what you say you’re going to do, and that that’s what’s gonna get you those referrals of other people saying, “Hey, my friend sold their company to you, and they said it was a really great experience. And you didn’t screw them over and so forth. And so I don’t want to deal with anybody else. I just want to sell my company.”
That’s what happens with Warren Buffett. That’s why one of the reasons why the guy is so damn successful at what he does, is he’s got this reputation that he spent decades building. As a matter of fact, he’s famous for saying that, “Reputations take decades to build and seconds to destroy, so don’t do anything stupid to destroy it.” And I got to believe by taking that same approach the volume of referrals that you’re going to get over the next year, 2, 3, 4, 5, 6, 7 years is only going to go up.
- That’s exactly right. We take a very long term approach here. And we try to do good by people. And we think that what goes around comes around, and we believe that that’s the right way to behave. And so far, we’ve had some great feedback from sellers and it’s awesome to see it. It’s awesome to work with an entrepreneur who sells a business, takes that money in, and buys a dream house, or buys an investment property, or uses it for retirement. One of our sellers was an 80-year-old capital that used the money for their retirement and it makes us super happy. We stay in touch with all of our sellers, and what we’re doing, we think it’s a lot of value for them, and a lot of value for us, and so it’s a great thing.
[30:48] So let’s wrap here. For anyone who’s listening right now who might have a brand that or a single skew brand even that they might want to sell to you, what is the single easiest way for them to get in touch?
[31:13] Wonderful. Thank you so much for making some time to be on the show. It’s been a pleasure to have you here.
- It’s great being with you and thanks very much for having me.
[31:21] So thank you so much for listening. If this is your first time or maybe it’s a repeat time, and you really enjoyed this episode, I would love it—if you would—like, and subscribe, and review, on your favorite podcast listening app. To get to the show notes for today’s episode, just go to brightideas.co/347. So that’s it for now. Take care. We’ll see you in the next episode soon. Bye-bye.
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