A million dollars revenue in one year, six million dollars by the fourth year, then executing their exit plan and selling the business. Our guest Ben Leonard shows that you can quickly grow a company and sell it at a profit so you can find other opportunities.
In this episode, Ben Leonard shows that you can create a strong eCommerce brand without experience if you do strategic research and development. In this episode, Ben shares how he grew Beast Gear from the ground up. It’s all about solving people’s problems and striving to cater to an underserved market. Ben also emphasizes the importance of nurturing relationships with your customers. People don’t buy from brands — they buy from people.
Many owners don’t know their business’ worth and can get swayed by buyers who negotiate below their value. Thus, you need people fighting in your corner as you execute your exit plan.
Tune in to this episode to learn more about building a brand and preparing an exit plan!
Click here to read transcript
[07:28] For the folks in my audience who aren’t familiar with you or with the brand that you built and sold called Beast Gear, let’s start there.
- Sure. Well, I’m Ben Leonard and I accidentally got into eCommerce in 2016 when I started a brand of fitness equipment, as you said, called Beast Gear. I had no previous business experience or eCommerce experience and didn’t know that I had an entrepreneurial spark inside me until, unfortunately, I got quite ill with a heart problem.
I have to take some time away from work, I was signed off by the doc and I had to take a cocktail of quite strong drugs and I had to stop all my fitness hobbies: boxing and CrossFit, running around like a maniac. I needed something to do and I decided to create a brand of fitness equipment just as a hobby, perhaps earn me some extra pocket money, give me a project.
My girlfriend, who’s now my wife, was studying so she said, “Oh, I’m too busy to spend any time with you. Yeah, go for it.” So it began. It turned out I was pretty good at it. I quit my job and I scaled it up and after about three and a bit years, we were doing about 6 million dollars in sales and I sold it. Now, I help other people sell their businesses and I’m still building my own brands now with an eye to selling. That’s a very brief history of who I am and how I got into eCommerce.
[09:04] All right. Gang, here’s what we’re in for. Ben and I are going to walk you through, in this conversation, through the entire life cycle of everything he just said that he did, obviously, with the goal of imparting as many valuable golden nuggets that you guys can implement in your business today. If you’re driving, obviously don’t be taking notes while you’re driving.
We’ll have plenty of good show notes that you can refer to after the fact and transcriptions and all that stuff but if you’re not driving, get ready to take good notes because I think this is going to be a superb episode. Let’s first all talk about the very, very, very beginning, Ben, when you thought, “Okay, I’m into fitness. I’m going to do something in the fitness area.” Obviously, that’s why you chose fitness, and then, there’s a gazillion products that you could have made but you ultimately chose to make whatever you made.
Walk us through what the research and validation process looked like so that you had a, hopefully, high level of confidence that whatever you were going to invest your money in to kick your company out of the gates was not going to just go to waste and then you’ll end up with this failure and the undesirable outcome.
- Yeah. Despite not having any business experience and having never developed a brand or products and brought them to market before, I was able to follow pretty much what I would say is the correct path because I had an unfair advantage which is that I’m a scientist. My background is ecology. I’m a fully trained whale and dolphin nerd.
In science, you have an idea, you test that idea, you get the data, analyze the data, think about the results, change something, and run another experiment. That thought process allowed me to follow the right path with the brand. To begin with, you mentioned there that I was into fitness and that was the right way to start. I think all the best businesses start with people who are scratching their own itch, right? You look at Shopify. Shopify was founded when Tobi Lütke wanted to build a website to sell his snowboards.
It turned out he actually enjoyed developing the platform to build his website. First, he needed to scratch his own itch. “I need somewhere to sell my snowboards.” He’d enjoyed that more and there are lots of other people just like him who had that same itch that needed scratching. For me, I was sick, I wasn’t training, I was sadly tidying up my gym bag and looking at all the kit I wasn’t using. I looked at it and I thought, “I could probably do a better job of this. There are some things with these items of equipment that I could improve on I’m not happy about.”
Rewind the clock a couple of years before I got ill. I remember a training session in CrossFit, at the end of the session, one of my buddies said, “Oh, we beasted it today” and I said, “Beast, beast, beast, Beast Gear. That’d be a cool name for a brand.” Then, I stored it somewhere in the back of my brain and forgot all about it. It wasn’t until that day, I’m not able to train, sadly looking at my kit thinking I could do a better job. I thought, “Oh, yeah, Beast Gear. I can do that.”
It was then about scratching my own itch and thinking, “Okay, what do I like about some of this equipment? What do I not like about it? What would I do to improve it?” When you think about it that way and you focus on people rather than products, who are you serving? Then, it all comes quite naturally. For me, it was a case of “Okay, I’ve identified my people” and that’s the key, right? It’s your people, right? If you’re into knitting, if you’ve gonna start a knitting brand, you need to be into knitting, right? Or at least somebody in your organization needs to be.
I identified my first product. It was a jump rope, or skipping rope if you’re over here in the UK, because I use it a lot in my boxing training and also CrossFit and some people seem to be like, “Well, yeah but there are tons of those on sale.” Well, yeah but first of all, that really helped to validate the product because I knew there was plenty of demand.
I didn’t need to reinvent the wheel, I just needed to capture a percentage of the market and persuade those people to buy from me rather than somebody else. All I needed to do was either match the quality of or improve upon what was already out there. Fortunately, for me, I’d been skipping for years and used a lot of different products and I was able to identify what I did and didn’t like.
I found a manufacturer and discussed what they had and it was a very simple process of “Okay, I like this bit but I don’t like that bit. What if we take this and make that a bit longer? Can we strengthen this part here?” And worked through a series of prototypes until I hit upon something that I liked and that did the job and I was able to get my buddies tested. A few professional athletes actually needed to test it.
[14:27] Let me ask you for a minute. Before you went down this road of prototyping, had you conducted any marketing experiments to figure out what it’s going to cost me to acquire a customer? How many of these things do I think I can sell? Was there any of that had happened yet or do you just dive into prototyping first?
- Not in quite the level of detail that you mentioned there. For instance, I wasn’t looking at how much is it going to cost me to acquire a customer. Purely at that stage, that was a demonstration of probably my naivety at that point in my eCommerce career. I just knew fitness as an enormous industry. I’ve got a cool name and an idea for a brand here and I know that there’s plenty of demand and I know that I can improve on the equipment that I’ve already been using.
[15:21] Okay, therefore, make a better widget and they will come?
- Yeah, that was my thinking at the time and I now know that “If you build it, they will come,” as false. They need to know they can trust you but at that point, that was my very basic thinking. I’ve learned a lot since then. I created the Beast Rope and almost all the products in the Beast Gear brand were the “Beast something something.” The Beast Rope came to exist and that was how I developed the first product and that was, I guess, you’d call that the lead in product from which I was able to cross-sell and upsell multiple products.
It was a case of asking the people in my community, buddies down the gym, people in Facebook groups, people on Reddit subreddits: “What do they want? What do they not like about the main brands? What do they like? What is it that could be improved upon?” I came to realize that there was a group of people who were increasingly upset with the elitist nature of the fitness industry. It was always about being faster, stronger, skinnier, more muscley, the best.
The best equipment was often disproportionately expensive, right? Clearly, the margins on it were enormous, whereas affordable equipment for you know, I was not long out of university, not earning tons of money, the affordable equipment fell apart pretty quickly and the service was poor. I identified that there was a group people who A: felt like they deserved really great equipment for a decent price and B: were fed up of the elitism of the fitness industry.
What I then did was I zigged where everyone else zagged so rather than being a fitness brand with the face of the brand being tons of professional athletes and super chiseled people, it was me, an average Joe, who was still recovering from a heart problem who happened to like fitness.
That really worked because people related to it. The message from the brand was, “Everybody’s welcome. If you’re averagely fit and training for your first 5k, you’re a Beast, because you’re getting after your goals. If you’re going to be the next heavyweight champion of the world, you’re also a beast, you’re also welcome.” That really resonated with people.
That’s how I started to build the community and building that community like I had a new population of people who I could ask, right? Going back to that word, “ask” there. Classic book, I guess, by Ryan Levesque. Now, I could ask what they wanted. I was able to build out a suite of products to serve a particular group of people. That just really, really worked really nicely.
[18:22] I want to go down the community rabbit hole for a minute because I think it’s super, super important. I was at the Traffic and Conversion Summit the last couple of days and I was talking with a friend of mine who is going to hit 200 million on Amazon this year. He’s doing okay and it was very interesting because he talked about community as well. Walk us through the specifics of How did you start building your community? What were the tactics that you actually performed on a day in day out basis to create this community?
- To begin with, this was incredibly labor-intensive, right? Classic, kind of. A lot of people hate on him but I like the guy. Classic Gary Vee stuff, right? The Thank You Economy style, right? The putting in the effort to communicate on a one-on-one basis. This was religiously messaging every customer at that point both from email from our DTC website and through the Amazon messaging platform.
Remember, the situation was slightly different back in 2016. This was religiously commenting on everyone who posted our products and DMing them and engaging them in a real conversation, showing interest and empathy for them, checking their profile, scrolling back and seeing what they were up to a little while ago, congratulating them on that squat PB that they posted the other week, looking at where they live and talking about what a cool place that is, right?
I’m talking about real relationship really. People will be screaming, listening to me saying “But that’s not scalable.” Actually, I found it was because I was able to teach that method to my team of freelancers who were able to continue after it became unsustainable for me to do it myself.
[20:14] Let me interrupt to make sure I understand this. Initially, you don’t have a Facebook group or anything like that. You’re literally looking at “Who’s this person who bought my stuff and where are they online?” Finding their profiles, their Instagram, their Facebook, their whatever, and interacting with them in that place? Or was it different than that?
- There was that. There was also Facebook groups. I was just naturally a fan of fitness. I was a member of various groups, CrossFit groups, boxing groups, etc. What I’d done before even I had launched is I had told people about what I was doing. I’d shown people pictures of my crappy prototypes and generated interest in the process and the story.
[21:01] In these groups, because group owners typically do not like it when you’re talking about your stuff in their group. You were talking about in your group, not direct messages?
- This was A: with permission of owners and B: after having contributed significant value to those groups in the first instance or being a helpful member of the community and building up that position of trust and authority. That was one way. The other way is what you just mentioned, finding my customers and also, customers finding me because social media is all about, particularly Instagram, which was huge for me.
It’s vanity. It’s, “Hey, look at me in the gym with my new equipment,” right? Then, they tag you and they use your hashtags. It’s very easy to track these people down and then engage with them on a one-on-one basis. When they’re buying from your own website. We use Amazon almost top of funnel to acquire customers and then send them back to our own site. Then, you’re having conversations and email with them.
You’re constantly building this goodwill and trust and relationship with your customers and remember, if you’re positioning yourself as the face of the brand, they can really relate to you because people buy from people, not brands. Until you’re some enormous brand, people don’t really care about your brand.
They just want to solve the problem, which is why if you look back, not so much now, if you go and search back on the first several Beast Gear products, I no longer own that brand, and look at the old reviews from 2016, 17, and search my name, my name comes up. Because the people, they’re writing five-star reviews about how great Ben is. That really worked. That is how I built the community.
I called it The Beast Gear Tribe and I was somewhat inspired by a business relatively local to me, which listeners internationally may not have heard of because they’re pretty huge now. There’s a brand of beer from my hometown called Brew Dog. They’re from just up the road here 20 miles away. They’ve built a cult-like following of evangelical fans who… You could have a fan of Brew Dog walking down the street on the other side of the world from here wear a Brew Dog t-shirt, and on the other side of the street is somebody wearing a Brew Dog hat.
They’ll just walk in opposite directions and look at each other, catch each other’s eye and nod. They’ll just be like, “Yeah, that’s my person.” I was trying to build that tribe of Beast Gear and nothing like the scale they’re on. I’m not comparing me or the brand to them but I was inspired by them and I feel like in a small way online, I achieved that and it helped.
[23:43] I love it. Now, you mentioned a few minutes ago that you treated Amazon as your top of funnel, and then, you would move them over. Everybody wants to do that. What were the specific tactics that you used to do that successfully without getting in hot water with Amazon?
- Sure. First of all, you have to be very careful not to get in hot water with Amazon. You have to be incredibly careful about Terms of Service. It’s also important to remember that Terms of Service have evolved somewhat since 2016, 17. Nonetheless, I’m pretty certain that the strategies, even now, are perfectly kosher. For instance, every product would arrive with a leaflet or an insert, if you will, because remember, Amazon is just a sales channel.
The big boy brands are selling on there too. You’re allowed to include your marketing collateral inside of the packaging, and this would just invite people to post about your product on social media. Nothing wrong with that. When you have a very Instagram-able brand, and it’s really important to make your brand Instagram-able, people are just going to post about it on social media.
You can provide an incentive if you want. Not an incentive to leave a review, an incentive to post on social media. “Hey, show us your coolest moves with your new weightlifting straps and if you tag us, we’ll enter you into a prize draw to win a monthly price.” Yeah, that kind of thing. You don’t even need that if your brand is really Instagram-able. Then, when they do that, you communicate with them on a very one-to-one level.
Not only do you like the post, comment on it, and have that conversation I just mentioned. You have that natural conversation, you build the rapport, and if you wish, you can offer them a discount at your website. You’ve had the conversation about “Hey, Dave. Since you’re so cool, here’s 10% off of our website. Here’s the code, Dave10.”
Dave now feels this enormous goodwill towards you. Not only have you just congratulated him on his squat PB, shown interest in him and his life, had a nice conversation with him, you’ve now given him a discount so he can now go and get a new weightlifting belt for cheaper.
Now, you’ve moved on with your website where you control that marketing journey, because you’re going to get his email address. You can save that post in a collection on Instagram. I would have collections, German customers, French customers, British customers, Italian customers, Spanish customers, and if Dave has bought a pair of weightlifting straps, three months down the line when I launch a pair of weightlifting knee sleeves, I can go back into those collections and catch up with Dave, continue my conversation.
“Hey, Dave, it’s been a few months. How are you doing? Tell me about your training. What’s going on?” etc. Keep it really cool, show empathy and interest in him and then tell him about your new product launch. You can drive him to get that wherever you want, your own site or Amazon. If you wish, you can actually, at that point, also say, “How are you getting on with those weightlifting straps you bought a few months ago?” “Oh, great. By the way, where did you get them?” “I got them on Amazon.” “Oh, would you mind handing over leaving a review?”
You haven’t incentivized him, you haven’t said in exchange for… It’s not going to be one of those things from 2016 where all the reviews said, “I got this for free in exchange for a review.” None of that. It’s all just about building relationships and showing people that you care. That is how, from a laptop in a cupboard in my flat or apartment, I was appearing at the top of search for really popular fitness products and the huge fitness brands were never to be seen.
[27:43] In a nutshell, you looked at, say, your first 100 customers and thought, “I’m going to make these people my best digital friends. I’m going to interact with them, talk to them, communicate with them, congratulate them, reward them, incentivize them. Totally not scalable, but I’m going to do this like crazy because I know that they’re going to start talking about me.”
- Yep, and over time, it became less and less scalable. I got a team of people helping me with it and sometimes, after a period of time perhaps, some of the super personal elements of that had to be diminished but we’d already done enough work that the flywheel is now moving so fast.
We could take our foot off the gas a little bit on that sort of one-to-one relational stuff and the flywheel was going. At this point, we could just launch new products and our tribe would just buy them because they wanted all their stuff to be Beast Gear because we made great products. One thing that was really important is just quality. I didn’t sell any rubbish. They had to be good.
[28:56] You used two really important words. One of them is “evangelist” and the other one is “tribe” which are all just ways of describing a very healthy, close-knit, vibrant community where people are super engaged. From what I know of you so far, that was your brilliance in the early days of your brand and yet you said you just started launching more products and they just wanted to buy them. Now at this point in the journey, were you spending any money on ads? Or was it just this grassroots marketing that you were doing?
- We were doing Amazon PPC profitably. I managed PPC myself until the last year before I sold the brand and then I handed it over to an excellent agency, who actually struggled for a little while to match my results until they called up and then overtook me. I was running PPC profitably and external to that, I experimented with Facebook ads. I got an agency to help me with Facebook ads.
We struggled a bit. This was to drive sales to the direct-to-consumer website. We struggled a bit because the average order value was a little low. Later on just shortly before I sold, we had some more expensive products. By this point, it was starting to work a bit but I had never put much money to Facebook ads and although the sales on the site were doing fine.
It was organic because we benefited, not only just from the huge word of mouth we were getting. Basically we’re becoming a legit brand that you were reasonably likely to see in any gym across the UK and potentially in Europe. We benefited from some pretty great exposure from professional athletes.
We didn’t ask to feature us. They just did. I remember I got an email from a customer saying, “I saw you on the MMA last night.” I did some Googling and very quickly discovered this was fantastic. There was an MMA fighter, he’s retired now, called Michael Page, Michael Venom Page. He fought in the Bellator MMA.
He won his fight and at the end of the fight, he goes up to the camera and grins like this at the camera and he’s wearing my Beast Gear mouth guard. It says “Beast Gear” across his mouth in front of the camera. That type of thing was just great but of course, he would only buy them. I didn’t sponsor, he just bought my stuff, and that type of thing really helped.
[31:35] Yeah. Yeah, I would say that looked good on you. How long did it take you to get to your first million dollars in revenue?
- We started in June, July 2016. I would say probably we were in the second year I got to a million. After one and a half years I’ll say.
[32:10] 18 months.
- Yeah, call it 18 months. When I sold the business, it existed for about three and a half years. We were doing 4 million pounds so that’s about 6 million bucks per year.
[32:10] Okay, first million was 18 months. How long to get the second million?
- Oh, fast, because at this point, the snowball just went because the bulk of the first 18 months, I was only selling in the UK. Then, I jumped through some pretty difficult hoops to jump through which a lot of people couldn’t be bothered doing. I think this is a really important takeaway for people listening, actually.
I navigated the minefield and it was a lot more complicated then, of registering for VAT in France, Germany, Italy, Spain, Poland, and the Czech Republic. A complex process, all done in other languages, need to get documents signed by all sorts of different people. To register for VAT in France, I even have to get it…
The documents had to be translated but only by a specific type of translator, and then, this is hilarious, stamped with a wax seal, the type of wax seal they used to use on medieval letters by somebody called a notary, right? Real pain in the ass stuff but by registering for VAT in all these countries, I was able to join the Pan-EU program.
The UK has now left the EU. The pan-EU program on Amazon. The UK has now left the EU, which is a pain in the ass, but at this time, this didn’t affect me so it didn’t matter. Which meant Amazon would take the inventory that I was sending into the fulfillment centers in the UK for free, distributed across all their fulfillment centers in Europe, according to their algorithms which show “Right, we need this many weightlifting belts in Milan and we need this many in Dusseldorf or whatever it is.”
Suddenly, Mario, in Milan, instead of having to wait two days for his weightlifting belt to arrive from the UK, he could get it straight away. Almost overnight, my sales doubled. Jumping through those hoops and overcoming that barrier in the road instead of just saying “I can’t be bothered,” which all my competitors were doing, they couldn’t be bothered, was where I got the reward and the other side.
It was like climbing a mountain and emerging on the other side to some lush valley full of food, right? And no competition, no predators because no one else can be bothered to do it. That’s why getting to the second million was really fast because that coincided with about the time that I did that.
[34:46] Around this time, as your company is starting to scale, talk to me about some of the common potholes or bottlenecks or issues that you started to run into because the things that you were doing to get to a million, million and a half are not going to be the same things that you’re going to do to go to three to four million.
- I was doing well and this is when you start to counter black hatters, cop accounts, rip-offs, all that stuff. I had real problems with black hatters. I was having people take knockoff products in China, send them into FBA, and hijack my listing. There were two types of hijackers I was finding.
I was finding hijackers who actually had a physical product but it was just some rubbish and hijackers who were selling air, right? They’re selling air merchant fulfilled. There was nothing. They’re just jumping on the listing and I had so many problems but eventually, I don’t know if Amazon still do this, eventually, Amazon actually gated my brand so that only I could sell it because I was able to prove that there was no distribution channel, there were no wholesalers.
The only people who could sell my products was me. Other people could sell used and, of course, very, very rarely, ever a listing gets some random person selling a used jump rope on it for some reason. That was a huge issue, which eventually I was able to get gated and I never really run into it again.
[36:23] Was that in about 2018 when that happened, 2018, 2019?
- 2018, yeah. 2018 was when that was a real pain in the ass and then another one, which was really quite scary, happened in about 2018. This was an intellectual property dispute. I developed a product, a thick bar adapter. It’s a product which you slip onto a barbell or a dumbbell to make it thicker and therefore, more difficult to lift.
For many years, a very popular brand, which had a product which performed the same function, went basically unchallenged with no competitors in that space, until I came along and created a product which was better. I had my product design registered, which is the equivalent of a patent, but it’s over here in Europe so it’s not quite the same.
I used the best of the best intellectual property firm because I knew the importance of IP. I love saving money but when it comes to IP, I’m happy to spend money. One day, I received letters in German, from the lawyers representing a North American organization, which owned this brand that existed for some time already, the market leader in this space with thick bar adapters.
The reason they sent the letters in German is because I was selling in Germany. They could do it in any jurisdiction they liked in which I was selling and they wanted to make my life as difficult as possible because they knew I was one person operation on a laptop in a spare room. I could tell that they had previous, they’d clearly done this to other people before to scare the hell out of them.
They were threatening me with suing me for all sorts of ridiculous sums of money and telling me how to stop selling immediately. They sent the letters to Amazon, who rather than actually find out what was going on, just suspended my products. I went back to my lawyer and rather than panic, we took our time and for about three weeks, she was very diligently researching.
[38:31] You’re suspended for this whole duration?
- Not my whole account, just the product.
[38:35] Yeah, it’s brought some pain.
- Oh, yes, it’s real pain because my point was I was doing so… This is why they come after me, right? People that identified that A: my product was better and B: they were ripping people off. They were just charging a stupid price because they’ve always been unopposed in this niche.
No one ever developed a product that performs the same function but looked different and was better. We made sure that we had all our ducks in a row, which was as follows: A: my design registration protected my product, B: my product did not infringe on their design, and C: this is the hilarious part, digital product has been designed by an entrepreneur like me some time ago, late 90s, early 2000s, and then, that brand would be acquired by this enormous organization.
When they acquired the brand, they acquired the original patents but the guy who made the original patents made the mistake of having them done on the cheap. The drawings in their own patent actually didn’t match their product. Their own patent didn’t protect their product and my lawyer pointed this out to them and said, “Basically, if you don’t leave Ben alone, we’re going to go to court and invalidate your patent which will be public, and therefore, everybody is going to come in and copy your product so you can either leave Ben alone or be completely screwed.”
We tried to get my last sales recovered from them and to charge them for my legal fees. I never heard from them again, they just left with their tail between their legs, and my product was reinstated on Amazon. It was a David versus Goliath thing. It cost me 10, 15 grand but it was worth it because I won and my product continues to do very well in that space. The moral of the story is get your intellectual properties sorted from the very start, whether it’s trademarks, or patents, or design registrations. Don’t scrimp on intellectual property.
[40:37] For the folks here in America who’re wondering what a patent is, we call it a patent but I’m sure most…
- Patent. Patent, patent. Yeah. Either is fine.
[40:45] All right so now you’re at a point you’re continuing to scale, you’ve got your intellectual property looked after. Where are you in terms of annual revenue? Are you at 3 million or 4 million now? Roughly.
- We’re probably three, Yeah.
[41:03] Okay. How long after this did you start to think about wanting to sell the business? Or were you still just flat out, “I want to get to 4, 5, 10, whatever?”
- I remember it well. It was February 2019. I was at a trade show in Germany and I was with a friend and we were discussing risk and reward and how much of my business was tied up on Amazon, which is not my sandbox, and how much was on my own site, and how I was at a crossroads in my life. My wife was pregnant, we wanted to move house. I had other ideas for new brands and new ventures.
As much as I was enjoying my business, I knew that it needed more resources in terms of people. I could maybe continue with the freelancer thing, maybe build an office abroad, or hire locally but I’d become aware of the buying and selling of eCommerce businesses. I’ve known a few people who’ve done it. It was starting to get a little bit more mainstream and was now being viewed as a bit more legitimate than it had before.
People used to think that online businesses weren’t real businesses because they didn’t have a roof and a door. I got home from the event and the next month, I started to really take it seriously about trying to sell. 2019 was a year of preparing to sell and then I approached various brokers and settled on one.
[42:40] Let’s stop here for a minute, preparing to sell. Expand on what you did to prepare to sell.
- What I did to prepare to sell and what I would do now to prepare to sell are different things. I didn’t get it terribly wrong but I’ve just learned a lot from going through the process. What I did was I approached various brokers and I’m very fortunate because the accountant who looked after the accounts for Beast Gear also has about 20 years of mergers and acquisitions experience, which is why in our corner where they’re in the business, but we’ll talk about that later.
She was able to help me to understand what the business might be worth and the things that I needed to do to help make it more A: valuable and B: sellable. Really dialing in, on ad spend, reducing my costs, reducing my shipping fees, reducing my fulfillment fees by reducing packaging size, improving my storage efficiency to reduce storage costs, increase some prices and observe whether I can get away with it and don’t see a dip in sales, all these things to boost profitability.
I then approached various brokers and settled on one. The process with them took longer than I would have liked due to various factors, including one calamitous error, which I picked up on, and Alison my accountant fixed, which actually enabled me to negotiate down their commission because they hadn’t done the job properly.
The happy byproduct of this taking a little longer than I would have liked was that the whole time, the business was just getting strength, the strength, growing, and growing, and growing, really fast in 2019. The deal was done. Well, I received the letter of intent from the buyer in September 2019.
[44:44] When did you deal with the broker?
- I contacted that broker in March and the listing, and I hate the word listing because I don’t believe businesses should be listed as such, the listing went live in early September and I received the LOI late September.
The deal was done end of October. Halloween, actually. I learned a great deal from that experience. It was intense, the due diligence process is intense. I thought the buyer was going to come around and scan my retinas, and quite rightly, it should have been intense, right? They’re going to give you a lot of money for your business. They need to understand everything about it, they need to turn over every stone.
[45:38] Now, did you get tied in? Was there an earnout or was it “Here’s your check, goodbye”?
- I had an earnout and here’s what was great. I was able to negotiate to have my cake and eat it because I said, “Right, I have a list as long as my arm of products I want to launch and I have either started development for or can develop and I know what I’m doing with this.” So I negotiated a side deal where I would get a commission on the profits of those products.
Therefore, I was also able, whilst we were negotiating the earnout, I knew that I would hit those or the business would hit those figures because I knew the products that were coming in the pipeline so that was great. That’s something that I help people to do now because one of the problems with an earnout is it’s slightly odd how we talk about earnouts in eCommerce because it’s not how it’s working traditional businesses.
You’ve given the business to somebody or somebody else has got the keys to your business and your earnout isn’t really… You’re not earning it because they’re running your business, which is why it’s really important that you sell your business to the right people who actually have the chops to run it because a lot of people have raised a lot of money in eCommerce but they know diddly squat about how to run an eCommerce business.
Some people want an earnout because they can see where the business is going and that’s great and some people want to get as much upfront as possible and that’s also great. It’s all about what you want and it shouldn’t be the other way around when you’re negotiating. Yeah, I sold and it was the right thing for me and my family at the time and I learned a lot from that process and I learned that I knew how to create a brand and turn into something valuable.
That’s why I’m still building new brands now but at the same time, that process with that broker, Allison and I put our heads together and said, “Well, we could do a better job of this.” That’s where we hit like a lightbulb moment where I said, “Oh, Beast Gear will be a cool fitness brand. Hmm, there’s a gap here for a better service for eCommerce business owners to sell their business.” That’s what we’re doing now.
[47:41] That company is called what?
- That is ECom Brokers. Yeah.
[47:50] For people who haven’t sold yet, what are some of the tricks? Because there are plenty of them that buyers like to play in the due diligence phase to wear you out and get a better deal.
- Yeah, absolutely. The first thing to say is that not everyone who has an eCommerce business is going to sell it to an eCommerce aggregator and for people listening who are like, “What is an eCommerce aggregator?” In the last 18 months, in particular, around about a hundred private equity funds have raised a lot of money, billions of dollars, to roll up, aggregate eCommerce brands, and that’s fine.
[48:35] Companies buying a bunch of little companies to turn, squish them all together and make a big company.
- Then, flip it later on for even more money and that’s absolutely fine but not everyone will sell their business to one of those guys. Some will sell it to a competitor, some will sell it to family office, and some will sell it to more traditional private equity, some will sell to a private individual. There are lots of ways to do it. None of them are wrong. It’s all about what’s right for you and your business but what’s happening right now is aggregators are contacting the sellers directly.
They’ll find you because they have tools to scrape Amazon, scrape Shopify, scrape other platforms to find eCommerce businesses. They’ll contact you and that’s really exciting when that happens. “Oh my goodness, I’ve been working on this business for several years. I’ve been crying on the phone to Amazon seller support. I’ve been trying to get my Shopify site to work, and now somebody wants to give me quite a lot of money for it.”
They’ll dangle a pretty large carrot in front of you, possibly more money than you could ever have imagined getting, but your business isn’t worth a carrot. Your business is worth a whole sack of carrots and they want to take your business from you for as little as they can because business is business. I work with these guys every day.
They’re all good people but business is business and they want to get your business for as little as possible so be aware that people will find you, they’ll contact you, it will be extremely flattering, but going through a process to maximize the value of your business, present it, and market it to a pool of the right buyers. Then, have the right people fight in your corner to negotiate the right deal for you is what happens in more mature industries and what should happen in eCommerce.
Right now, I think in eCommerce, in terms of mergers and acquisitions, we’re going “It’s the Wild West” at the moment because it’s new, there’s not quite as much regulation as there is in more mature industries. What these guys do is just say, “Sell to us directly and avoid the broker fee” but the ironic thing is then the deal they present to you is skewed very much in their favor and undervalues your business 99 times out of 100 significantly.
Whereas, when you go through the appropriate process to really calculate what is your business worth not just now, but in the future. What is it worth to the new potential owner based on where it’s going and what it will be worth the moment they roll it up into their portfolio? They buy your business off you for 3x multiple the moment, they roll it up, it’s going to be worth significantly more so they can well afford to pay what it’s worth because businesses are valued based.
Typically in eCommerce, we use SDE, seller’s discretionary earnings, which is basically your business’s net income plus add backs and adjustments, and when you’re dealing directly with a potential buyer, it’s very difficult to get them to really recognize what the business is truly worth. Whereas when you go through the right process to properly calculate your add backs and adjustments, you can significantly boost the profitability of your business and therefore significantly boost the value of it and get what you deserve.
Then, there’s deal structure. If you sell your business to an aggregator or anyone else for that matter and you have an earnout, it’s really important that that earnout is tied to protect you because what if you miss an earnout target or the business misses an earnout target by a very small amount of money? Dollars, or hundreds, or just a few thousand dollars, and you miss out on hundreds of thousands of dollars because you missed an earnout target.
There needs to be a really neat ladder or sliding scale so that you’re protected because Bob in supply chain at this aggregator, half-past four and a Friday afternoon doesn’t care if you’re about to go out of stock, but you do because it’s your earnout. The deal needs to be tight such that, for instance, we often negotiate things whereby the seller continues to get read-only access to wherever you sit, wherever the brand is being sold, whether that’s Amazon, or Walmart, or Shopify, or whatever it is, so that you can flag things and say, “Hey, guys. Have you thought about this? Because otherwise, you’re going to get out of stock.”
The deal needs to be tight such that if you can demonstrate that the reason a target was missed was because of negligence on the part of the new owner because they went out of stock or they didn’t order in time or whatever it might be then you still get your earnout. Things like that are really important. When you have someone fight in your corner, that’s how you can make sure that you don’t get screwed when it comes to the deal.
[53:29] The other things that I would add to that, one of the things, and I don’t know if this happens in eCommerce but I know it definitely happens in regular M&A, is the buyer will come along and they’ll say in their letter of intent, “I’ll give you a million dollars” or whatever number. They’re going to give you a number that’s going to get you excited so that they can get you under contract to begin the slow, painful, grinding process of adjusting that price down and down and down and down.
In negotiation, there’s this principle of invested time which says that the longer a party or two parties are involved in a negotiation, the more those parties will want that negotiation to come to a successful fruition so that they don’t feel that all the time was wasted. The poor seller is in this extended negotiation period, they’re emotionally buying their new Ferrari and their lake house.
They’re kind of taking their eye off the ball a little bit and their business growth rate slows and a few things go wrong and then the buyer starts grinding and grinding and grinding. Oftentimes, that can result in a very defeated and deflated seller going and accepting a much lower number than they ever would have thought that they would have accepted in the beginning.
I did have, when I was in the process of selling one of my first companies, the buyer was trying to do that to me. This is where I think a really great broker can help you to ensure that you have a really tight LOI and that you’re prepared for these types of things so that doesn’t happen to you.
- Yeah, you use a really important word there, “emotion.” It’s a very emotional time and it’s important to have a buffer between you and the buyer to help iron out that emotion so that you can take a step back and a deep breath and take some of the emotion out a bit and just deal with raw facts and numbers. And essentially, to fight your corner.
Often what happens is the contract, the proposed contract or deal that comes over from the buyer, when it’s been in the hands of an M&A attorney who’s fighting in your corner, it goes back to them covered in red. Microsoft Word track changes because the deal that was proposed was skewed so ridiculously in the favor of the buyer.
Unfortunately, it’s really sad, but a lot of people are letting their businesses go not just for a price that is way under what it’s worth, but also a deal structure that is simply unfair. Going through a process to sell your business, maximize the value of it, and market it to a pool of the right buyers who are actually qualified and have the chops to run the thing is really, really important.
[56:41] That it is. Ben, thank you so much for coming on and sharing your story. For people who have listened this far and it might like to talk to you, what is the single easiest way for them to get in touch?
- Sure. email@example.com.
[57:00] All right. It has been my pleasure to have you on. I would look forward to having you back at some point in the future when you’ve done this again and we can share the new lessons learned. Ben, thank you so much for making some time to come and be on the show.
- Pleasure. Thanks for having me.
[57:15] To get to the show notes for today’s episode, go to brightideas.co/378 and if you enjoyed the show, I would be super grateful if you would take a moment right now on your favorite podcast listening app and go like, rate, and review the show. Because whenever a listener does that, it is by far the very, very best way to teach the algorithms that it’s a great show and they should be promoting it to other prospective listeners so if you would take a moment to do that right now, I would be super grateful. Thanks so very much for tuning in. We’ll see you in the next episode soon. Take care. Bye-bye.
Thanks very much for listening to the Bright Ideas Podcast. Check us out on the web at brightideas.co. Alright, show’s over. I’m tired.
Ben Leonard’s Bright Ideas
- Scratch an Itch
- Ask Questions
- Build Real Relationships
- Do What Competitors Won’t
- Protect Your Products
- Increase Your Brand’s Value and Sellability Before Preparing an Exit Plan
- Hire a Broker to Fight in Your Corner
Scratch an Itch
Ben started his business, Beast Gear, without any e-commerce experience! When a heart problem led him to take some time off work, he used his days to build a fitness brand.
Ben says: “I think all the best businesses start with people who are scratching their own itch.”
Likewise, his great idea did not come from thin air. As a fitness enthusiast, Ben felt that he could improve his kit. So, he proceeded to scratch that itch.
After selling his business, he realized a gap in the eCommerce industry. That’s how he came to found his brokerage company, ECom Brokers.
Focus on People Rather than Products
Ben’s target market was fitness enthusiasts like himself. So to develop his first product, he first asked: “Okay, what do I like about some of this equipment? What do I not like about it? What would I do to improve it?”
Ben explains: “When you think about it that way, and you focus on people rather than products, who are you serving? Then, it all comes quite naturally.”
He identified his first product, jump ropes. Then, he developed it based on his preferences and the inputs of his fitness buddies and professional athletes.
Ben also actively reached out to fitness communities through Facebook groups and subreddits. He asked the following questions:
- What do they want and like?
- What do they not like about the leading brands?
- What is it that I could improve on?
Through this, he was able to find:
- Customer pain points
People were becoming upset about the elitism in the fitness industry. Often, high-quality equipment was too expensive for the average consumer.
- Target market
These frustrated individuals are a huge potential market — they’re underserved by current brands.
- Right branding
Now knowing his target market, he positioned his brand to be relatable. He, an average fitness Joe, represented Beast Gear.
Nurture Real Relationships
Ben got Beast Gear to the top of search pages in Amazon by nurturing genuine relationships with his customers. He took the following steps to show empathy and build rapport:
- Religiously commented on everyone who posted their products.
- Directly messaged their customers and engaged them in a real conversation.
- Checked their customers’ profiles and congratulated them on their fitness milestones.
He was also active in several fitness communities before starting the company, and he was able to leverage these groups by being a helpful member. He even showed prototypes of his products to generate interest in his brand.
Ben sums it up in this statement: “It’s all just about building relationships and showing people that you care. That is how I — from a laptop in a cupboard in my flat — was appearing at the top of search for really popular fitness products.”
He admits that his one-to-one relational strategy is not scalable. But there came the point when he no longer needed it.
Ben recalls: “We could just launch new products, and our tribe would just buy them because they wanted all their stuff to be Beast Gear because we made great products.”
Do What Competitors Won’t
One of Ben’s key takeaways from his first business was to do what competitors can’t be bothered to do.
He joined the Pan-European FBA Programme, an arduous process that required him to jump through many complex legal hoops and sift through mountains of red tape. However, doing so allowed him to double his revenue.
Ben describes: “It was like climbing a mountain and emerging on the other side to some lush valley full of food, right? And no competition, no predators because no one else can be bothered to do it.”
Protect Your Products
As your brand grows, you will encounter knockoffs and even competitors challenging your intellectual property. Protect your product early on, so this does not become a problem.
In 2018, a huge company sued Beast Gear for allegedly copying their thick bar adapter. Instead of panicking, Ben hired an IP lawyer who did their research.
What they found was that the brand’s patent didn’t match their product. So they ended up retreating and leaving Ben alone.
“The moral of the story is get your intellectual properties sorted from the very start, whether it’s trademarks, or patents, or design registrations. Don’t scrimp on intellectual property.”
Increase Your Brand’s Value and Sellability Before Preparing an Exit Plan
In February of 2019, Ben started to consider selling the business. His family was at a crossroads, and he wanted to pursue new ventures.
So, he approached various brokers and settled on one.
To prepare for his exit plan and make his brand more valuable and sellable, his broker advised him to do the following:
- Dial-in on ad spend;
- Reduce costs in shipping and fulfillment;
- Improve logistics like storage efficiency; and
- Assess whether he can increase prices.
There was a lot to handle, but Ben says: “I thought the buyer was going to come around and scan my retinas. Quite rightly should have been intense, right? They’re going to give you a lot of money for your business. They need to understand everything about it, they need to turn over every stone.”
Hire a Broker to Fight in Your Corner
Most owners don’t negotiate a deal in their favor. Shrewd sellers employ strategies to acquire your business for as little as possible.
Ben explains: “They’ll dangle a pretty large carrot in front of you, possibly more money than you could ever have imagined getting, but your business isn’t worth a carrot. Your business is worth a whole sack of carrots, and they want to take your business from you for as little as they can because business is business.”
To protect your business from these buyers, make sure to hire a trusted broker. Here are some things they can help you with:
- Help you understand your business’ worth
Many buyers encourage business owners to sell directly to avoid broker’s fees. However, without doing your due diligence, you might not accurately calculate what your business is worth now compared to what it will be worth to your buyers in the future.
- Create a buffer from your buyers
Some buyers take advantage of the principle of invested time, which says that the longer the parties are involved in a negotiation, the more they want it to become successful.
They then continuously lower the price and wear you down. To avoid this from happening, it’s best to have a broker fighting for your corner.
- Look over your deals
Finally, a broker can make sure that you’re getting a fair deal. They can also help you negotiate an ironclad deal if you’re hoping to get earnouts.
Lastly, Ben shares these parting words of wisdom for anyone who wishes to execute an exit plan: “Going through a process to sell your business, maximize the value of it, and market it to a pool of the right buyers who are actually qualified and have the chops to run the thing is really, really important.”
What Did We Learn from this Episode?
- Great business ideas solve pertinent problems for a specific group of people.
- Asking questions, building relationships, and engaging with your community are critical for creating brand loyalty.
- Scaling up requires you to overcome obstacles that competitors are not doing and protecting your products.
- When preparing an exit plan, you need to increase your value and sellability.
- Don’t be swayed by buyers and sell at a lower rate than your business is worth.
[1:46] — Key takeaways from the Traffic and Conversion Summit
- Have an irresistible offer. This is more important than having effective copy and ads.
- Optimize your copywriting by utilizing AI. AI for writing copies.
[7:37] — How Ben started Beast Gear
- All the best businesses start with people who are scratching an itch. Ben did the same with his fitness equipment through Beast Gear.
- As an ecologist, Ben tested his ideas and gathered data through experiments. That’s what gave him an advantage in his business.
[14:27] — Zigging in the fitness industry
- Through Facebook groups and subreddits, Ben was able to know that people are getting frustrated with the elitism of the fitness industry.
- He also discovered that people wanted good quality fitness products at a lower price.
- Instead of hiring professional athletes to model for his brand, he chose himself—an average Joe—to represent Beast Gear.
- His message resonated with other people, and that’s how he started a community. He could ask this community what they wanted and tailor his products accordingly.
[19:00] — How to create a community
- Religiously message every customer on every platform.
- Engage them in real conversations and show empathy.
- Share the process of how you develop your products.
- Build goodwill, trust, and a relationship with your customers.
[24:01] — How to shift the Amazon funnel to your website
- You can add marketing collateral to the products you ship through Amazon. Through these materials, you can ask customers to post on social media.
- When people post your products, you can reach out and redirect them to your website by offering discounts.
- You can also save their posts in a collection on Instagram and continue the conversation after a few months to ask them to leave a review.
- Over time, this one-to-one relational strategy became unscalable for Beast Gear. But at that point, they already had a big enough tribe and evangelists.
[29:39] — Spending money on ads and PPC
- Ben managed Amazon PPC profitably until he handed the task off to an agency.
- He also experimented a bit with Facebook ads. However, what benefited them the most was word of mouth.
- Some athletes even showcase their products in matches without sponsorship, boosting their reach.
- By that point, they had already become a reputable brand in the UK and even Europe.
- This all boils down to having a great product that people naturally want to share.
[31:35] — Growing the business by doing what other people can’t be bothered to do
- Joining the pan-European FBA program helped Ben’s business immensely.
- His competitors didn’t join this program. As a result, Ben hit 1.5 million in revenue — he had no competition.
- Ben also asked Amazon to gate his brand against Beast Gear knockoffs.
- A competitor also wanted to sue him for intellectual property but didn’t fall through. Listen to the full episode to learn how he succeeded in this legal battle.
[40:46] — Preparing an exit plan
- You don’t need to stay with your company forever, but make sure that your exit plan will benefit you.
- Boost your company’s value and sellability through efficient systems and boosting profitability.
[47:51] — Exit plan strategies and tactics
- Have someone fighting for your corner to ensure you don’t get screwed in a deal.
- Understand what your business is worth now and what it will be worth in the future for the buyer.
- Some buyers will first offer a huge amount for your business and, slowly, over time, reduce it as much as possible. Don’t fall for this tactic.
- Market to the right buyers who have the chops to run your business.
Best known as the founder of Beast Gear, Ben Leonard is the classic millennial entrepreneur. He built a business on a laptop, in a cupboard, in his spare time. The difference? Ben grew an international 7-figure business and successfully exited after 3 years; the business holy grail.