The Amazon aggregator industry is no walk in the park. The competition is tight, and innovation is vital to your survival. When you choose to buy a business, it doesn’t stop with the acquisition. John Hefter and Thrasio certainly had to learn everything there was to know about a brand, from operations to marketing, to make it successful.

From an office next to a Dunkin Donuts dumpster, Thrasio didn’t start in the best place on Earth. However, through a fantastic foundational idea and structure, it eventually grew exponentially. In just two years and a half, Thrasio managed to have a billion-dollar valuation and become one of the biggest FBA companies in the field.

In this episode, John shares how he and his team in Thrasio became the fastest profitable company in American history to achieve unicorn status. As a record-breaker, John shares his insights on what the organization does to differentiate and strengthen its brand and turn “stupid” ideas into “smart” ones. He also mentions their formula for what makes a great product. John talks about the industry competition—how it either hurts or helps them. Finally, he shares tips for other brand owners: what they should do if they want a thriving business in the long-run, or buy a business.

Tune in to this episode to learn more about the methodology on how to buy a business and make rapid profits.

[05:34] No problem. Thank you very much for making some time. So for the folks who aren’t yet familiar with your company or you, let’s start there. What’s Thrasio do, and who are you with respect to Thras.io?

  • Sure. Yeah. I’ve done this so many times. I think I could do it in my sleep but always comes out a little bit different because I can’t even make a sandwich the same way twice. So for—what we are is the—well, on the highest level, we’re the fastest profitable company in American history to reach unicorn status. And what we basically do is we buy third-party Amazon businesses. And we not only buy them, but we actually operate them. So we buy a business tied into our very complex operational matrix and generally make brands better as we move along. 

And our pace has picked up fairly significantly from the early days. So I’m on the founding team, when I started it with an idea sort of in a basement over a couple glasses of wine with a friend and former colleague of mine. That led to four of us in an office that was adjacent to a Dunkin Donuts dumpster, which was not the best place on earth. And then slowly progressed into this really great foundational idea and structure, that then from there, we were able to get sort of parabolic growth. 

So we started with an idea of doing an eCommerce roll up. Josh and Carlos had been musing about this for a few years. By the time I came along, we started to get signals that FBA was becoming a place that you probably really wanted to play. And the idea was that the operational structure of these businesses was much more similar than—let’s say—running 75, or 50, or 25 traditional direct consumer sites. There were a lot more sinews and synergies that existed in the FBA world. 

And so the idea basically came about this way is that we could buy Amazon businesses, and we could figure out ways to become experts in things that most sellers aren’t experts in. And most of that is just on the aggregate, right? You get people who run a successful business. They build a great brand. They’re generally good at a few things. When you’re one to two person operating crew, you’re generally not good at all things. Right? 

And so what we discovered was that businesses that had grown to about a million dollars a year in sales and up as opposed to getting more efficient, which would be your traditional sort of brick and mortar model, you figure out ways to get better supply chain relationships, and so on, and so forth. Businesses were getting less efficient. So it takes more to operate a business at a large scale than it does at a small scale. And a lot of people who are running these businesses were sort of holding on to the small scale mentality, and not taking their brands to the next level. 

And then there was a real pressure point. And this is really where I think this market was built, is their businesses were scaling also super fast. Right? So they haven’t seen this massive growth curve. Well, as a business operator, that can become very stressful when you were looking to make a couple extra grand a month, selling staplers that you sourced. Right? And then all of a sudden, in order to stay and keep up with your growth, you have to use your own money, and put $500,000 down in a staple order to keep up with inventory. 

So what happened was this sort of convergence of business owners would build successful things that were not fully optimized, and they really didn’t know what to do next. And that’s sort of where when we entered, the space was a sort of serendipitous time of these things coming together. A few people had fiddled around with the idea, perhaps unsuccessfully. And perhaps their ideas were a little bit more highfalutin than ours, which was we wanted to build a really sound operational system by meat and potato businesses that we know we could rely on for a long period of time. Spatulas is the prime example that we use. 

A spatula is going to be the same now as it’s going to be in 50 years. And so we know if we buy an ASIN that has 10,000 reviews, that’s probably a very stable asset. So while people were looking to build these exotic brands, we were looking to aggregate and operate, maybe more sort of humble brands, let’s say.

[10:25] Love it. When did you—and by the way, you’ve given me the title for this. It’s from “Dunkin Donuts dumpster to…” and I’ll fill in whatever there is. So you started Thrasio at what year?

  • We were really fiddling around the idea in 2017. But we really started operating 2018 at the very beginning.

[10:46] Okay, so since then you’ve acquired roughly a hundred brands? 100?

  • I think we’re at 105 now, as of today.

[10:55] Okay. So in the beginning, you and your three co founders… Were you guys—did you raise money right from the get go, from through your network, and rely on kind of your track record in business to get these people’s trust? Or did you fund it yourselves originally?

  • A little bit of a hybrid. And Carlos and Josh are really—have run the fundraising efforts from day one. So both Carlos and Josh had exits previously, and had managed very successful businesses in the past. So they were able to fund with some of their own money and some seed investors from people that they’ve worked with in the past. 

And that was—we had our first thesis, which actually was wrong. We thought what we’d do is buy FBA businesses that had started out successful and for whatever reason had dipped down, and we were gonna buy them and then bring them back up at the top.

[11:51] You’re gonna do a turnaround play?

  • Totally. Yeah. We realized that’s a very challenging thing. It’s probably something we could do now on a regular basis, but in the early days, certainly a challenge. And you get to learn that Amazon will sort of like—for lack of a better term—will sort of just like partition off certain ASINs that have not performed well over a long period of time. Because it sends a signal to their algorithm that this product will not perform effectively. So it’s really hard then to pull it out of that partition and bring it back into the sort of open and played in space. So we learned the hard way with our first brand.

But our next three or four were really successful. And the fourth or fifth one ended up becoming a major hit for us and sort of the seminal brand for our initial story, which was a brand called Angry Orange. It was a single product ASIN, run by a really nice guy named Adam, who’s—I forget the exact story of. Like, his cousin-in-law was a chemist who had horses. He didn’t like the smell of horse stalls so he invented this sort of orange concentrate-based products that he can use to clean the stalls. And Adam said, like, “Hey, do you mind if I try to sell some of this on Amazon?” And his cousin-in-law sent him a tote to Ohio, he filled up by hand in his garage, and built a $2 million a year business off of one product ASIN that had one listing photo. And like what I would say is not the prettiest branding on earth. 

And I—we picked up the phone and talked the broker who was dealing with that business. And I hung up the phone afterwards, and I was like, “We’re buying this thing. Kill me if I’m wrong, I’m dying on the cell. This is a brand that we absolutely need to have.” And I got the bottle in the next day or two from Amazon. And I put it up to Carlos—his nose. And I said, “Smell that? You know what that is? That’s gold, Carlos.” And I just knew that this thing was just not optimized. 

So we spent a few months going through 40 different—47 different to be exact—label variations. And we came up with the idea of doing a sunkist orange bottle, and started with a pattern for us for product optimization was just what I call a thumb stopper. Right? So you’re scrolling, and you could see a sea of products, and it just stops you in your tracks. And I was like, “This bright orange bottle, I know it’s a pain to source. We’ll do that.” And instantly when we made the change. The conversion rate on the unit session right on that product doubled. And it stayed that way ever since once we optimized the creative and the branding. 

And from there, we took it to the—from a $2 million brand—to depending on we ran out of stock, and stuff, and run rates. And stuff can be $15-$30 million and one right now. So…

[14:52] We’re…we’re watching this. There’s the bottling, branding there.

  • Yes. So I like—always on the hero image. I want things that are in your face, and vibrant, and make you just sort of pause in a sea of white. And that to me was the first step on like what I would say is a big hit. And then, we really started talking…

[15:15] Tell me about Snoop Dogg. I mean, come on. He’s in… 

  • Oh, Snoop? Yeah. No. So I—Snoop—I have a friend of mine that I worked with, well, over a decade ago I spent a couple years. NASCAR has like an NFL films version of NASCAR. That’s called NASCAR Media Group, and my buddy Mike had been at NFL Films prior to that. He’s like, “Come and work with me for a few years.” So I did that. And now he is, like, works for Snoop Dogg. So middle of pandemic, Snoop Dogg wasn’t doing much. And we talked to his management team and I was like, “Hey, you sitting around? Why don’t we try this out?” And I just thought it would be fun to give it a whirl. And it worked out. It worked out great.

[16:01] Yeah. Right. Is that his dog?

  • That is his dog. Yes.

[16:05] Okay. Cool. But he did—this product… So this product now is not just for horses. It’s an odor eliminator. So if you’ve got a dog, then you’ve got odor issues. Okay.

  • Correct. Yeah, no, it was turned into really a general house pet focus brand.

[16:20] Yeah, because more people have cats and dogs than horses. Real rocket science there.

  • That is correct. Yes.

[16:28] So over the last couple weeks, I’ve been interviewing several of your competitors. And I stumbled into this because, like a couple months ago, somebody shared an article with me that was on, I think, Marketplace Pulse or something, and how you and your flock of competition, of which there are an increasing number of, collectively raised north of a billion dollars in about a six or nine month period, I think it’s what it was. 

And so I became fascinated. That’s why I’ve been reaching out to you guys to do these interviews. Because one of the things that I’m wanting to understand, because it—because this applies to any business where there’s a lot of activity going on. Like in, so for example, there’s consolidation going on in self-storage right now. So there’s all these companies that are rolling up self-storage. And there’s all these companies that roll up mom and pop gas stations. And there’s all these kind of roll ups, there’s nothing new about roll ups. 

So now there’s this huge amount of activity in the Amazon FBA space. And you were—near as I can tell—one of the earlier companies. But now there are many, which suggests to me that: a good time to be a seller, but man, what an incredible feeding frenzy for you guys, which would also maybe suggest that there’s a lot of companies who are going to pay way too much money. And their investors are going to get absolutely effing creamed as a result of it because, at some point, the economics have to make sense. So what do you say to the naysayer that’s like, “Okay, you got this far, that’s great. But now that there’s 47 of you out there, like it’s not sustainable?”

  • Sure. Well, I will say this and that’s it. I could literally spend hours talking about this topic. On the highest level I look at it as simply this way is we’ve built a market ourselves. Right? In a lot of ways we created this gold rush, so to speak. And I want to be the leader on the auto mile. But there’s plenty of room for other people to come in, and serve as Amazon sellers, and build a healthy market. So sellers have great choices to sell their businesses. 

For us, what I think separates us apart, number one is operational excellence. Number two is a preponderance of expertise, knowledge, wisdom, and the core of our team is just so incredibly fantastic. And I tell people this all the time, whether I’m in Clubhouse, or I’m doing podcasts, “I wish you could just sit there in our senior management meetings and our operational leanings when, and see how far ahead of the market we are is, in terms of our operational capacity, our goals, and our strategy.” 

So, for me and for the rest of the company, we’re not really worried about competition. We’re gonna focus on being the best operators ourselves. We understand that our 60-person M&A team, who can close four deals in a day, will have the capacity to outrun anyone else who’s just trying to get their toe in the water now. Two years behind us is a lifetime.

[19:38] Yeah. 

  • Right? And for me, what’s really—what I worry about most is—mostly investors, they’ll end up doing fine. I do worry about sellers, going with someone who’s sort of in the gold rush, who needs to deploy capital. Right? And who has zero operational experience. And if you have zero operational experience in the Amazon game, you can get really, really hurt. It’s a very challenging ecosystem to navigate. 

And I just heard a story from Tom Wang, who’s a pretty famous guy in the Amazon space. We had him on our podcast a few weeks ago. And he said he had a friend who sold a business, got an ice multiple, and the day they closed, the leader of the business called him up and said, “Hey, so what do we do now? How do we get your account?” They’d never run Amazon business before. They never had. No. They’d zero operating knowledge. And to me that creates a very scary space but also an exciting space. 

So we have some structural advantages to that, I think are just compounded by all this. So our ability to have the supply chain expertise that’s beyond anything our competitors have, or to be able to launch 500 products in a year, or to have 80 people who can just do branding, or to have our debt frankly be cheaper than anyone else in this space. All of these creates sort of like something akin to the Matthew principle. Right? Which is sort of like, “To those who have everything, everything will be given.” 

And for us, even as this gold rush has occurred, we’ve actually found as our inbound lead flow has increased dramatically, almost exponential. And the reason is, is that other people who are trying to learn how to do this, are putting their advertisements out there. And then they’re funneling people to us by proxy. Right? 

So like, for us—as a person who loves to sort of share the wealth and wishes people well, and as an entity, I think we—that permeates in our culture. I hope for a healthy ecosystem here. There’s plenty of room for people to have success. We’re not afraid of competition. We’re going to focus on what we do well. And there’s rooms for other theses too, right, as to what makes a good acquisition. So something that might not be great for us might be great for someone else. And I hope that the market flourishes. 

But I think we’re gonna see a gold rush of sorts. A bubble, particularly, on the lower end of our acquisition schedule, which would be that the original core base—the $1-3 million businesses. I think we’re going to see a little run on multiples in the next year, until what’s gonna happen is that a few people are really going to mess up, and that the investor community’s gonna get cold feet, and some of that capital is going to go away. That’s likely what’s going to happen. And maybe not. 

But for us, our influx of leads, our funnel has never been greater by a wide margin. So we’d see this as just not a mercantile pie, where it’s a fixed pie. It’s just a forever growing pie of this interest and this will lead more sellers who enter the ecosystem, which will lead to more million dollar sellers, which means more business opportunities for everyone who’s operating correctly.

[22:21] And COVID has accelerated eCommerce by about five years. So…

  • Correct.

[23:02]  …it just got a whole lot bigger, a whole lot sooner. So in a minute or two, we’re going to talk about things that people who own brands today are going to be interested in, or people who are even thinking of starting brands that they would one day like to sell to you. 

But first, I want to put my devil’s advocate or…yeah, I guess that’s the right expression. Head on for a minute. And just say, a minute ago, you mentioned the seller, he sold to an inexperienced acquirer or aggregator. But he got his check, who cares? He’s got his money. I mean, are you guys—are there—are notes on most of these deals, and they’ve got to hang around for a while. And so it is a big deal who you sell.

  • That’s the catch. Look, I’m sure there are a few people out there who are maybe getting crazy upfront multiples. But that’s not how this game is being played. Nor, if you operate with someone like us, is it generally beneficial. So I’ll break that down a little bit for you. 

So most deals have burnouts attached to them. And so, there’s a stabilization payment that’s sort of like, “Hey, we’ll give you this multiple upfront but the rest is sort of over a period of two years.” But if these people have zero operational experience, they’re going to need you to hold their hand for months, maybe a full year. And whatever your next project or life goals are, you’re going to be tied to just literally teaching someone from a fool and hoping to make them into a hero, which is not an easy thing to do. And you’re going to perhaps put yourself in a position that’s not really ideal. 

For us we offer a couple things. The general concept is this—is that you can just sell your brand new house to us, and if you want to just drop the keys off. We also—if people want to be engaged, and continue with their brand, and give support—we’ll welcome that. But for the most part, we have the experience of running a hundred brands. So we know how to operate an Amazon business. And we can do things that a lot of people can’t do instantly. You’re tying into our supply chain optimization, our world class PPC team. You get to see if it’s a direct consumer fit. We’ll get a website spun up. We’ll put you in our product launch program. We’ll tie in all of the other advantageous relationships we have in various other communities that will lead to positive traffic to your listings. And that’s why our average company grows at a rate of 158% in the first year after we acquire it, because we tie it in. 

And that’s why we encourage—and I’ve always encouraged people, even from day one, when they wouldn’t have the experience with us—because we have all this operational expertise. You want the internet, because we’re gonna grow your business. And when you actually do a deal with us. Maybe there’s a little bit less upfront from someone else who’s reaching to pay you, but you’re gonna have something that’s the most stable, that’s the most easy to transfer, and move on with your life, whatever you want to do. And it’s just the burden, the hand, with a closer to the guarantee of everything else that comes with it. And for me, that sort of sense of security is really what separates the wheat from the chaff as far as we’re concerned.

[26:16] And that’s not unlike stuff that Warren Buffett has been quoted as saying for years, and years, and years is “Be the best buyer in the marketplace.” Spend years building your reputation so that when someone wants to sell, they look at you and they think, “Well, I want to sell to Warren because I know my business is going to be in good hands. I’m going to be in good hands. The future is going to be bright.” 

And you’re echoing what another one of your competitors’ CEOs, who I interviewed a week or two ago said, he said, “Trent, this business only works—this aggregator business only works—if the aggregator is really good at growing the brand post acquisition.” And now I…

  • Yep.

[26:51] I asked him, why? Because I wasn’t sure what the deal— I didn’t ask him what the deal structure were. He was just paying all cash and people were dropping off the keys. We just didn’t get to that in the conversation. And now that I know that the vast majority of deals, at least that you’re doing, are essentially, are burnout-based. I’m—as a seller—I would be super keen to understand how skilled the acquirer is because I know that I’m getting married for the next two years. 

  • Yes.

[27:19] And I want to make it a prosperous two years, not one with just infighting.

  • I would ask a bunch of questions to anyone you’re about to sell your business to. What’s your operation team look like? What’s your brand book gonna look like? How are you going to build it? What’s your product roadmap, how are you gonna do it? Where’s your money coming from? How much of it’s secured? What— all those questions should be asked. And if you get an uneasy feeling you might be with someone who is trying to sort of maybe fake it till they make it.

[27:53] Yes. All right. So let’s transition, and talk a little bit about the things that brands that haven’t yet been acquired should care about, and things they need to understand to be more successful. So, you alluded to this in our pre interview. You said, “Trent, make sure you ask me about the recipe for a winning product.” So I assume you had something in mind. So over to you.

  • Yeah. So it’s really something that we spend a ton of time thinking about. So we’re going to launch 500 products this year. I think it might be a little bit less than that but something akin to that. Every product we launch is done with purpose, care, and a strategy related to differentiation that will make the product viable. Or how do I say this? More likely for success than the average people on the market. 

So a couple of things we look at. If you look at the Jungle Scout survey from 2020, it says that 47% of third-party sellers launch a new whitespace product as opposed to leveraging their current assets. To me, I look at that as possibly a mistake. Although, it is important to go into unknown territory on a regular basis. And what I mean by that is, if you have a viable Amazon asset, there’s generally low hanging fruit that you can leverage to launch your next adjacent product with a higher rate of success than just throwing something out there from scratch. 

So an example would be for us, is we built a tool that kicks us out for us. It lets us know when using all of our data is when people buy our salt and pepper grinder, like what do they buy next? Now, you might say salt and pepper, which is intuitive. But that’s a very specific example, and we have thousands of products. So this tool will kick out and say, “Hey, maybe you should sell Himalayan salt.” And so then we come up with this basic conclusion, is we can leverage the best selling product that we have in this category. Launch the salt, create an offering that exists on the parent product. So that will be the grinders, that then will send traffic into our new product, which will and likely increase the chances of success. 

And yeah. And then when we launch, we really commit to long term viability. And we don’t really worry about profit a ton because the ROI horizon. if it’s—what? Four months or nine months? It doesn’t really matter. What we want is a solid sort of piece of real estate on Amazon to exist somewhere. So what we will do is look for those simple—we call them stupid smart ideas. 

So I’ll give you an example we’re doing with Angry Orange right now. We worked on a pattern over the fall. And basically, we found that that spray that you showed—that picture, the 24 ounce spray of Angry Orange—one of the most common things that people buy with it is a UV flashlight, which is used to identify pet stains. So we’re like, “Well, that’s too massive search volume piece. Why don’t we just do this? Give me a deer scope-looking thing, and we’ll attach the UV light to our 24 ounce spray. And we’ll combine these two products into one that’s sort of an instagrammable fun kind of product that people use to go target and get pet stains.” So that’s going to go live in a few weeks for us. But that’s what I call a stupid smart idea. That thing’s gonna crush it. There’s no doubt to me that it’ll do really well. 

So there’s ways of what I call it just leveraging your current assets. Don’t always be chasing the silver ball. When you do chase the silver ball, it’s incumbent on you to find real differentiation in your offering. So you get a class, you learn how to do it. You’re like, “Oh, lemon squeezers are the thing I should watch.” So you go, and you just find your sourcing agent. Or you go to the manufacturer, and you’re like, “Give me your best lemon squeezer.” Okay. But now you’re just a sea. You’re just like a fish in the sea of lemon squeezers. There’s nothing special about your particular offering. 

Now, this is a hyperbolic example. But if I was to launch a lemon squeezer, and they were all silver, and I made mine yellow, and mine came with a free cart of Italian lemons, then obviously, my offer would be more compelling. So that would lead to higher conversions if the math worked out well. So I look always for product improvements, visual differentiation, or something else I can offer when I go to launch your product to give it a better chance at success.

[32:55] You actually just reminded me of a couple that I interviewed maybe a year or two ago. So they sold a cat box, like a carry box, of which there are many on Amazon. And I’m no product launch expert. I’ve never launched—I mean, my first foray, I feebled my way through private label experience. But I was a horrible failure, which is why I chose the wholesale model. I was much better at that. 

But anyway, so I looked at them. And I said, “How many of these things did you have to give away to get traction?” And they said, “None.”  And I said, “Well, what did you do?” I mean, like, “I’m looking at your competitors, it’s the same damn box”. And they said, what they did was they looked for three complementary products that had a very low COGs: cost of goods. 

If I remember correctly, it was a little jingly  bell on the end of a stick. And it was a portable, collapsible litter box, and a portable, collapsible, like, water/food dish. And I think the aggregate COGs on all three of those things was maybe like $1. And then they put them obviously in the featured image, because they were included. And then they ran ads—product placement ads—the ads that show up right beneath the add to cart button of their competitors product. And they have started off at a lower price than their competitors. 

So someone who’s got already the search ranking, you’re going there, and you’re adding it to cart, or you’re about to. And then right below it, you see this cat box that looks exactly the same that has extra stuff, and the price is cheaper. And they literally siphoned off all the traffic, which is what you’ve just described doing. And I think it’s absolutely brilliant. 

Now, what I described, has any of that changed? Does any of that stuff no longer work? Or is that still a totally viable strategy?

  • I mean, it really depends. There has to be affinity to the thing that you’re giving away for free, and not everything is appropriate. So I’d say a really great match would be if you’re selling an oyster knife, sell the oyster gloves with it.  Right? That’s a market that we saw the change when it was just everyone selling oyster knives. And now, half the ASIN or half the listings have the combined thing. So you can look for that. There’s other ways to do it too. 

For me, it’s like, alright. Well, let’s say I’m taking the 24 ounce Angry Orange again, use that for example. One of the first things I did is I read the reviews, and I realized that people were like, “Is there any way to buy this in bulk?” Right? And that was coming up from the—some emails were getting, and so on and so forth. So I was like, “AlL right, let’s launch the gallon.” And so we launched a gallon, attached it to the 24 ounce allowed size variation. And that product is $54-ish. So the other one’s $20 and change. 

And what that allowed for was a higher gross margin per unit sold. Even though it was 20% of what the 24 ounce bottle does. And what that allows us to do is then put that money back into marketing. Right? Or maybe that profit then funnels your next wacky experiment of something that you want to try that might or might not work, like my UV light flashlight thing that goes and combines together. 

So it’s sort of like finding the easy hits, the little differentiators, the little edges that will then allow you to do and engage in more of your maybe high risk behavior. But I talk to people all the time—successful sellers who like—they’ll just be like, “Yeah, I took 20 things for my supplier. I launched them all into work”. And to me that just seemed like a foolhardy attempt to thinking about launching. It takes a lot of effort; someone’s doing a lot of work to get those things live. And you should make bets. 

And if you don’t step back and think like a customer and be like, “Why is this thing special?” And what are you doing? Why are you making the bet? And to me, it’s something that simple. And a lot of people just, surprisingly, maybe don’t engage in that sort of thought process.

[36:59] So one of the companies in our ecosphere is called Viral Launch. And they’ve been around for years. And they got famous for the name, Viral Launch, being able to help new private label sellers launch products by doing these huge promotional giveaways, which would stimulate sales, and get reviews, and help them to rank higher in the algorithm, and so forth. Does that product launch strategy of giving away a bunch of stuff and really discounting the hell out of your product in the beginning to drive BSR, so that you can drive organic rank, does that still work? Or does that— is that old school?

  • Not as much as it used to. And Casey Gauss, who’s the founder of Viral Launch now works with us. We’re so happy to have him on board. He’s been with us since last fall. Yeah, it can be effective. 

What you really want to do though is stimulate Amazon’s algorithm to make Amazon believe that your product is a viable product that’s desired within the Amazon system and outside of it. And that, to me, I think is the new sort of crux of product launch that’s a harder nut to crack. 

In 2018, wanted to launch something, just give away a ton. There was a bunch of services who were doing sort of like giveaway programs, and that there’s still some in existence. And you’d launch it, and maybe it would hook. And it was an—isn’t easy way of doing it. It was just a money issue. But now, our evidence shows that you actually have to stimulate Amazon from multiple places. And what I mean by that is focusing on outside traffic.

[38:40] Yeah. And so that was going to be my next question. There’s been a lot of controversy around people who are using Facebook paid campaigns to put people in a messenger funnel that then says, “Go search for my product. Using this search term, go to page four, add it to cart. And message me, and I’ll send you all of your money back”, which is a huge violation of Amazon’s Terms of Service, because Amazon themselves said, “We don’t really have any way of catching these people.” Is that still a thing?

  • Many chat sequences have fallen out of favor because Amazon has caught people, because the way they’ll catch it is to sample-wise. Yeah, they put it in the funnel, and then you’ve caught them. Right? So those are—like that goes back to something that’s very prevalent in this space. And understandably, it’s just human nature. We’re always looking for the hack. Right? The easy way to do things—the way to wish to ensure success.

 And the reality is, it’s like doing the non hacky way is generally the best way to do something. I always said when I was going in school, “Why would I cheat on a test when basically by writing everything down, I’m already studying?” So it’s, for me, I look at it as like, “Can we spend time on product quality? Can we make sure our pricing model makes sense? Can we give compelling offering offers? Can we provide meaningful branding and compelling copy that drive someone to convert? Can we create other traffic that will create interest in our product we’re trying to launch and drive it into the ASIN?” If we can do all of those things—certainly easier said than done—then our success rate will be higher. And that’s really how we look at things. 

But to do the straight giveaway plan, and to pull something off the shelf that you got from a supplier or a trading company is a much more challenging prospect than it was maybe just a few short years ago.

[40:41] Yeah. We’re gonna get into your buying criteria in a minute. But I think you said it’s between one and three million. So my question here is—and this is—we’ll move off of this after this question. Is there an opportunity—do you think—for entrepreneurs to go by companies that are doing a quarter million, or 300,000, or 400,000? And then turn them into $2 million companies to sell them to you? And if there is that opportunity, kind of how would they find them? And then how long do you think it would—on average, take them to grow that brand into something that they could then turn and flip to you?

  • Sure. So, first to clarify, our sort of range is million dollar businesses to $200 million businesses. So a little bit wider than the one to three. However, our sweet spot is still in that sort of, let’s call it one to nine range, is where most of our businesses fall. I think there’s opportunity for that. I think because this new marketplace has emerged, where aggregators are taking hold, that there are going to be some people who are looking for emerging businesses to hook their wagons to. So I think there’s probably a direct market for that. 

As far as that— like, what I would do is, if you already had a business that’s doing half a million a year, what I would do is just look for resources to help you get it to the next tranche to get you to that million dollar range because then your options will just be exacerbated to such a great degree. So if you haven’t tested multiple PPC companies or software, there’s something in your business that you likely can do to grow it. If you’ve gotten that far, spend six months investing and viable products that will support your business, and try to grow it slowly and organically. And then you’ll be in a really great spot. If you’ve gotten to half a million dollars a year or 250,000 a year, you’ve done a lot of the hard work. So just take it to the—try to push it to the next one. Unless you’re so exhausted, that you think that the time to move on is now.

[42:59] So for someone who wants to buy those businesses—because there will be exhausted entrepreneurs in that space. Life changes, a kid comes along, whatever, there’s always change. Is the broker network the best place to find the $250,000 companies for sale?

  • I think so. Yeah, I would still say that the empires of the world, and that group will be done a lot of business with, they still will take businesses of that size and scale. So that’s the easiest way to find a suitor. And maybe now you can go outside of the broker network. And there’s some people specializing in smaller brands. I’m not aware of any firsthand, but there just have to be now.

[43:41] Okay. So I promised to ask you about your buying criteria, because undoubtedly, some folks listening to this—if they’re still listening—they’re thinking, “Hey, this is…I’m pretty interested in this. And I need to know what range I need to be in, so and what I need to build so that one day, Thrasio might want to buy it from me.” So tell me a little bit about that criteria.

  • Sure. So first and foremost, build the business for yourself and not the—like the M&A world. Don’t try to build a perfect model for the M&A world. Look at your ease and impact scenarios that exist within your own business domain, and try to optimize them and build the business in the way you think you see fit. 
  • So what I’m trying to say is, don’t start a Shopify site because you think that Thrasio would like me to have the Shopify site. Start a Shopify site if you have the relevant expertise and a path to get real success on direct to consumer. Right? So that to me, I can’t overemphasize that enough. I’ve seen and talked to sellers, who’ve had the mission of sort of “I want to make my business perfect for us or for anyone else in the space.” 

So focus on the core of your business, and build it as far as what we look for. One of the beautiful things about our model is we’re really open to almost anything. There’s a few things that we shy away from—real fad products or anything that has technical obsolescence, that’s a real concern. I’d be pretty wary of maybe a drone company because there’s going to be 19 new drones in the next few years that’ll be better than this one, and that ASIN will lose its steady value over time. Or maybe a cell phone cases. Those turnover so often, that it’s not a stable asset that I can rely on like a spatula. 

If you have a product that’s ranked reasonably well, we look for—we love things that are boring. We’ll take things that are odd, niche, large scale. What we’re really looking for is solid real estate on Amazon. We’re indifferent if the brand is optimized from any aspect of the business because we can sort of do that ourselves.

Even from an accounting standpoint, we can rebuild your P&L for you, and tell you what you’re looking at before we even buy it. There’s really nothing that you’d have to do with us. So it’s sort of a commerce as you are—entity. But for me, if you’re directly speaking of Amazon M&A, what would you like? You would like to have—if you had 10 products, that there’s three of them that make up 75% of your sales, or something along those lines because that’s your solid real estate. 

We’d maybe look at—if you had 50 ASINs doing the same amount of business, and all of them were on these tenuous spots, and sort of like bottom page one, or all running on PPC, those would hold a little bit less value to us. So it’s—other people have other visions of what they think is great. So they might say, like, “I can take this brand. And I only want ones that I can build a brand outside of Amazon on, and make it sort of like a zeitgeist experience.” 

For us, yes. We’ll put more value into those brands, but we really have to see it and have that plan for ourselves. So I don’t think there’s really like a fixed rule. Focus on building profitable products that have steady performance, and if you do that, you’re gonna find plenty of happy suitors in the marketplace.

[47:26] So for a brand that is listening to this, and they’re thinking, “This is interesting. I’m not ready yet. But definitely now I can see a path to an exit that maybe I didn’t see before that I listened to this interview.” What types of things should that founder or that team be doing today? If they—let’s assume—they have a 12 month runway, what should they be focusing on today to make them the most appealing, potential acquisition possible 12 months from now?

  • Yeah. I would say, to me, is that anyone who’s buying these businesses, we’re not buying off a revenue. We’re buying off of EBITDA or discretionary earnings. Right? I mean, so make your business profitable. If you have products that you’re launching, and you want to continue launching, that’s okay. We can account for that. And that piece will just be on the earnout. So if you bring to us, like, “I’ve just launched 10 products this year. They haven’t reached maturity yet.” I want to see some of that maturity, we’ll tie that into a deal. 

For me, it’s looking at—again that ease and impact scale to say, “How can I make my business more profitable?” It might be as simple as, “I need to get better at PPC because my performance is substandard.” It might be, “I’m going to spend $4,000 on a really good creative because my stuff’s just kind of okay. And I think I can get my conversion rate to go from 13-16% if I just clean this up, and my profit will look good.” Try to do your efforts to show a positive sales philosophy in the stuff that you’re working on. Keep your eye on the ball, and run your ship as tight as possible for the period right before you’re going to sell it. 

And that to me is if you hand over something that’s like, “Here’s my brand. It’s 10 products.” They’re all scaling really well. They have steady performance. The branding looks solid, like you’re gonna have a good time on the open market as far as I’m concerned.

[49:42] Yes. Okay. So what’s next for Thrasio? What’s the next chapter?

  • Yeah. So it’s an exceptionally exciting time to be part of our organization right now. We are buying businesses that at a rate that’s just—what’s—it’s daunting but very exciting, and we have the capacity to manage it. So my guess is that we’ll go from 100 to 200 in about a year, brands that we’ve acquired. We have a variety of very creative nuance initiatives that we’re entering into that will create massive strategic advantages for us as a company going forward. 

So our goal is—still remains to be the best Amazon and eCommerce operators on the planet. And we see ourselves as a future seminal company that will be known beyond this ecosystem for decades to come. So our—there’s no resting on our laurels over here at Thrasio. We’re really committed to doing exceptional things, and continuing our legacy of sort of forging new ground in the eCommerce and Amazon space. 

So this is the one place where I don’t want to get overly specific. I’m very open about what we do and how we do things because I know how hard it is to actually do them. But suffice to say, I’m exceptionally confident in our ability to continue as premium operators in this space for the coming years.

[51:22] It has been an absolute pleasure to have you come on the show, share all that you have. I’ve been writing some notes, and picked up a few ideas, one of which I want to discuss with you once we stop recording. 

And for folks who are listening who want to get in touch with you or your team—I would assume if they’ve got something for sale, that they just go to your website Thrasio, and there’s going to be a form there they can fill out. Right?

  • Absolutely, yeah. Or you can email our head of acquisitions, Ken. It’s ken@thras.io. Wanna reach out to me, I’m john@thras.io. So you can do that. I’m on LinkedIn. I have a podcast that I run with our head of marketing called Private Label Live. It runs most Fridays during the year. We have events on Clubhouse where we try to be as open as possible, because at the end of the day, I really—and we really—want to see other sellers succeed. Regardless of whether they sell to us or not. We think that there’s a scenario here where anyone in this space has the potential to win. And we’re very excited about bringing success to a wide swath of people who are in this ecosystem.

[52:31] Love hearing that. John, thank you so much for making some time. It’s been a pleasure.

  • It’s been a pleasure. Thanks for having me.

[52:38] Thank you so much for listening to get to the show notes. For today’s episode, go to bright ideas.co/360. And if you really enjoyed this episode, I would love it, love it, love it and would be super grateful if you would take a moment. And on your favorite podcast listening app, please go give the show a like a rating and a review. Because it’s the thing that stimulates the algorithm. It’s how other people who don’t yet know that the bright ideas podcast exists. It’s how they’re going to discover the show. 

So thank you so much for tuning in. Thank you so much in advance for the review. And we’ll see you in the next episode soon. Take care. Bye bye.

John Hefter’s Bright Ideas 

  • Create a “Thumb-Stopper” Brand
  • Pay Less Attention to Competitors
  • Think of “Stupid-Smart” Ideas
  • Focus on the Core of Your Business

Create a ‘Thumb-Stopper’ Brand

In this episode, John talks about the success of Thrasio as an Amazon aggregator. Their first breakthrough is with the brand “Angry Orange.” With a product listing that “wasn’t the prettiest branding on earth,” they turned a $2 million-a-year business brand into a $15- to $30-million name. 

For this specific brand, they had to go through dozens of different label variations. They began with a pattern for product optimization, which they call a “thumb-stopper”—a product that makes you “stop from your tracks”—which was a bright orange bottle.

Optimizing the branding is important because there’s so much noise in the online markets. Being able to cut through and reach your intended customer is paramount.

The first step in becoming a big hit is grabbing attention. John emphasizes, “I want things that are in your face and vibrant and make you just sort of pause.”

Pay Less Attention to Competitors

To become a successful player in the Amazon space, you have to know what you do. Operational excellence is their primary concern. The company believes that there is plenty of room for other players to enter and enjoy success.

There are hundreds of thousands of competitors in Amazon. Still, for John, he believes that they built the market themselves. Having a healthy and thriving market benefits everyone, so he believes in maintaining and helping the eCommerce ecosystem. 

“In a lot of ways, we created this gold rush, so to speak. And I want to be the leader on the auto mile.” John says.

He adds that there are many reasons why business owners want to sell to them, which he thinks separates them. Namely:

  • Operational excellence
  • Preponderance of expertise, knowledge, and wisdom
  • A fantastic team with tons of experience

For John, he says that competition is the least of their worries. Instead, they focus on being the best operators themselves.

He expresses his concern about sellers going with someone who’s sort of in the gold rush, who needs to deploy the capital, and has zero operational experience. “If you have zero operational experience in the Amazon game, you can get really hurt,” he says. “It’s a very challenging ecosystem to navigate.”

Nonetheless, Thrasio has all the structural advantages that compound with their experience. “We’re not afraid of competition, we’re going to focus on what we do well,” John shares. 

This abundance mindset might be something you should adopt when buying a business and growing it.

Think of “Stupid-Smart” Ideas

When you want to sell a product, it’s easy to chase the silver ball. Most people tend to rely on intuition when it comes to selling specific products. They also try to spot short-term trends and follow fads that don’t last. However, the answer is less complicated.

John believes in “stupid-smart” ideas. These are ideas so simple that you’d disregard them as something too obvious. One way to thrive in the market is to combine two related products possibly.

An example is their brand Angry Orange, where they included a small UV light with the orange-based cleaning spray to make it more fun and Instagram-able. Even with such a seemingly insignificant addition, they already know that it will perform well in the market.

“Every product we launch is done with purpose care, and a strategy related to differentiation that will make the product viable, or more likely for success than the average people on the market,” John stresses.

John cited a Jungle Scout survey from 2020, which says that “47 % of third party sellers launch a new whitespace product instead of leveraging their current assets.”

The most important thing to do, as John says, is to “stimulate Amazon’s algorithm to make Amazon believe that your product is a viable product that’s desired within the Amazon system and outside of it.”

Focus on the Core of Your Business 

John emphasized that if someone wants to buy a business, they should build the business for themselves and not cater it with an expectation to sell.

“Don’t try to build a perfect model for the M&A world,” he emphasizes.

He advises that one should look at scenarios within their business domain and try to optimize them. He advocated for building the business in the way owners see fit.

For example, John says, “Don’t start a Shopify site because you would like me to have the Shopify site. Start a Shopify site if you have the relevant expertise and a path to get real success on direct-to-consumer.”

Ultimately, starting a business is all about its purpose and product, without the excessive pressure of selling it in the future. In short, make your business excel for the sake of quality, not because you know someone’s out to buy a business.

What Did We Learn from This Episode?

  1. We learned about how Thrasio became the fastest profitable company in American history.
  2. Make customers stop in their tracks when they see your product and brand.
  3. It’s essential to strive for operational excellence and pay less attention to competitors.
  4. The non-hacky, boring way is usually the best way to go about something.
  5. Focus on the core of your business instead of modeling it for other people. 

Episode Highlights

[05:34] — What is Thrasio, and how do they buy a business?

  • Thrasio had humble beginnings. Their office used to be adjacent to a Dunkin Donuts dumpster, but they’re now the fastest-growing profitable company in American history, 
  • Thrasio is an Amazon-based company that buys a business and operates them. They focus on sound operational systems and companies with a small-scale mentality.

[11:05] — Early experiences and lessons

  • Their methodology of trying to turn-around declining companies proved ineffective and challenging. 
  • The seminal brand ‘Angry Orange’ marked their major hit and initial story as a company.

[14:52] — The initial steps in creating a big hit

  • To make something go viral, John believes that it has to be attention-grabbing, ‘in your face,’ and vibrant. 
  • People should pause and ‘see light’ when they see your creative branding.
  • John recalls a story of working with Snoop Dogg. Listen to the whole podcast to learn more about it!

[18:08] — Focus on your business instead of your competitors

  • The primary goal of the company is operational excellence.
  • There’s plenty of room for other people to come in and build a healthy, thriving market.
  • An abundance mindset certainly helped their business avoid distractions, evolve rapidly, and create gold rush ecosystems.

[24:42] — Being operationally superior is paramount

  • Having expertise in virtually every field, such as supply chain and branding, assures their clients that they will grow an Amazon business.
  • The sense of security businesses have from being taken care of by them cannot be equaled by most upfront payments.
  • Their average company grows at a rate of 158% from just the first year of acquisition.

[28:17] — The recipe for a winning product

  • Whenever the company does a product launch, they do it with purpose, care, and a differentiation strategy.
  • To increase your chances of success, you should leverage one asset to send traffic to another product rather than grow something from scratch. 
  • Focus on long-term viability, instead of short-term profit, when launching a product.
  • Pay attention to “stupid-smart” ideas that seem obvious. Don’t always chase the silver ball in front of you.

[37:35] — Stimulating the Amazon system

  • The tough nut to crack in terms of product launches is: making the Amazon algorithm believe that people want your product.
  • You also have to focus on outside traffic to generate traffic from multiple places.
  • People generally want to find the hack or shortcut around success, but the non-hacky way is usually the best way to do something.

[44:02] — Useful advice for future brand owners

  • Build a business for yourself without the perfect goal of being acquired. Focus on excellence.
  • Don’t look for someone out to buy a business. Instead, ensure that you have relevant expertise and you can optimize your operations.
  • They buy a business based on products that are boring and stand the test of time.
  • Brand owners should work on having good creatives and making sure that the product sells.

[49:50] — What is next for Thrasio?

  • The company is buying businesses at a rate that is both ‘exciting’ and daunting. Precisely, they predict a jump from 100 brands to 200 brands in a year.
  • Their goal is to continue to be the best Amazon and eCommerce operators on the planet. They don’t want to rest on their laurels.

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Today’s Guest

John Hefter is a V.P. and founding team member of Thrasio, the fastest profitable company ever to reach a $1B valuation in the United States. One of the largest and most profitable consumer product companies in the Amazon ecosystem while building an amazing place to work, full of people who love to come in every day.

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