Build a Shopify Business You Can Actually Sell One Day.

0:00Welcome back to another episode of the Shopify 1 % podcast. I'm excited for today's episode because it's a topic that I hear so many merchants talk about, have questions about. And then when someone actually goes through it, I hear so many other people asking questions. And that's the topic of selling, potentially selling or selling your business or getting some kind of significant investment or some financial event for all your hard work one day. And before this episode, I did a little bit of research and the numbers are actually quite low. Like it's less than roughly 20 % of e-commerce, well, actually businesses in general, it might even be less for e-commerce.

0:39We'll find out with our guests right away. But just to set the stage a little bit, it's a very low number of businesses that ever actually sell. And so if you're a business owner, you're listening to this podcast, you probably know that you work for a lot of years and you might not make a lot of money because business is a grind and there's years where you maybe pay your employees but maybe you don't pay yourself it's a lot of hard work and then at the end to not have some kind of exit kind of sucks and so my hope is to give some information to our listeners today on how to prepare for that because it's not later down the road that you want to think okay I'm ready to sell it actually starts like day one so my guest today is the founder of they got acquired, which we're going to get into what that all is.

1:25But Lexi, welcome to the show. Thank you so much for being here. Hey, yeah, sure. This is my favorite topic, so I'm happy to shout about it. So you've sold businesses yourself and then you built they got acquired because you said, I saw somewhere you wished it existed when you sold. So what was missing for you? Yeah, exactly. Well, I sold two businesses. They were both in the media space. One was a small content marketing agency and the other was a website property, like a website for writers. And what was missing for me was everything. Like when I looked around, I didn't know where to find resources and I didn't know who could help me.

2:05And all the examples that I saw of acquisitions were like these massive companies that were selling for billions of dollars or hundreds of millions of dollars. And, you know, here I was with my six or seven figure sale, which would be meaningful for me and meaningful for, you know, a lot of founders who bootstrap. But I didn't know how to find resources about that specifically. And also, you know, how to find an advisor or someone who could guide me through the process. And most of the places I looked, it looked like the bankers were doing much bigger deals. So yeah, that's, I felt like I needed something to guide me through it.

2:39And yeah, that's what we do. They got acquired. It's so interesting. You're, and you're also kind of stuck in this space where you can't, it doesn't make financial sense to be paying the professional firms $50 ,000 or$100 ,000 for advice through this transaction. I mean, we've gone through similar things at Bull. Like we've had two pretty significant raises in our history. One was for$19 million and one was for$35 million. And we could, when you're doing that kind, you can afford to pay for proper legal counsel. But I was part of a family business that we sold. And you've got to be careful. You can't, you can't, yeah, you can't be spending a hundred thousand dollars for advice because that'll quickly eat up all the proceeds.

3:19And so that's awesome that you built this. Tell me a bit about it. Like what is the, they got acquired? Yeah, thanks. Well, we are a media brand at heart because my background is as a media entrepreneur. So the biggest thing we do is educate. Like we want to teach founders, how do you sell your business? And also even more so, what do you think about now so you can sell for more later? Right. And we also, we connect founders who want to sell to advisors or brokers or bankers who are a good fit for that business. So a lot of the educating, we do it through storytelling. So we tell stories of founders who have sold their business and how they did it and what they learned, the mistakes they made, so that we can all learn from all those people.

4:01And, you know, we've interviewed hundreds of founders and they've been so generous to share their learnings with us. But I think that's one of the best way to learn is to talk to other people who have exited, but not all founders have that network. And so we try to become like that friend that you can have straight talk with about an acquisition. Yeah, it's not something you go through every day building your business and all of a sudden, I mean, you're dealing with people if they're acquiring it that have maybe done this a lot and could be easy to be taken advantage of. Right. Like you don't if you don't know other people's stories and what is OK and what's not OK.

4:33So maybe let's talk about, let's start with some of the big misconceptions about selling a Shopify business. But I mean, you could say this about any business, but our listeners all run online stores. Some of them have retail locations there. But what are some misconceptions founders have about selling, especially maybe about running an e-commerce business? Well, I think one we've alluded to a little bit already, which is that you have to have a really big business to sell. Because you can sell almost any business as long as it has profit. It doesn't really matter how small you are. How you go about doing it will change depending on how big you are.

5:07So like you were mentioning, it doesn't make sense to pay an advisor$100 ,000 if you have a low six-figure sale. So you have to think about like, how do I go about it? I might be too small to use an advisor, for example, but you're really never too small to sell the business unless you don't have profit. I think what's hard to sell is an unprofitable business. And actually that gets kind of another misconception is because we see all these stories of VC-backed businesses that are selling before they're profitable or acquired before they're making any real money, people think that applies to, can apply to the rest of us.

5:41And it doesn't usually. It's difficult to sell an e-commerce company that's not profitable. So that's the number one thing that you want to have just for yourself as you're building the business, but also when you go to sell is profit. And by profit, I mean EBITDA or another word in the M &A space, they use SDE, which is seller's discretionary earnings. And that's basically a proxy for profit that applies to smaller businesses. Right. And discretionary earnings, because as a founder, if you are spending money on something that wouldn't be spent on for the acquirer, correct? I might use the profits of my e-commerce business to pay for myself to go to a lot of conventions or something like that.

6:29But now if someone were to acquire that discretionary spending wouldn't be there. So it potentially is profit. Is that what you mean by that? Well, so I'm not an accountant, by the way. But my understanding is that the biggest difference is that SDE, you can include your own salary. So you're paying yourself$100 ,000 a year, then that counts as profit. Whereas a much bigger business, they're going to be looking at EBITDA and they're going to take that out. But for smaller companies, if you're an owner who just has a few contractors, the money you put in your pocket at the end of the day, that is profit to you, right?

7:06Because you're taking it home. And so it works a little differently. And I think a buyer can see it that way as well. Like they understand that's how an owner is thinking about it. So what is a buyer actually buying? Is it all your inventory? Is it just your cash flow or future potential earnings, maybe systems that you've set up, your story, your social? Like, what are they actually buying? Well, what they want to buy is they want to buy predictable revenue and predictable EBITDA or profit. So they want you to have systems in place where you're going to make money every month or every year and they can count on that coming in.

7:43And yes, like for an e-commerce business, they'd also buy your inventory. And honestly, I'm not. So we cover all types of businesses. We've written plenty of stories about e-commerce businesses, but e-commerce businesses do have some specifics that I'm not like quite as familiar with because what you're talking about, like having that inventory, like that's unique to an e-commerce business. And that's why you really want to work with someone who has experience selling e-commerce businesses specifically. Yeah. Every business is unique. Yeah. Mm-hmm. Mm-hmm. But yeah, and they're also buying the brand.

8:15But really what they care about is anything that ties into revenue and profit at the end of the day. So one thing on that note, then I would imagine, and this would probably be true for all businesses, is the amount of your revenue that is recurring or repeatable or subscription in some component would affect the valuation. 100%. And in fact, one of the best ways to make more for your business when you sell it is to have recurring revenue. Buyers are going to pay a lot more for recurring revenue. And excuse me, it makes sense because as an owner, when you own a business, you want to have predictable, consistent revenue that you know you're going to get over time, right?

8:59It creates a less stressful environment for you. Well, the buyer wants the same thing. The buyer wants predictable, consistent revenue. So if you have recurring revenue, whether that's part of your like just part of your revenue or all of your revenue that's going to help you sell for a lot more so this is actually one of the ways that we suggest people think about if you're setting your business up years in advance before selling it you want to think about like how can i add in a recurring revenue model because that's going to sell for a lot more yeah when we with our raises at bold we actually had so we had different types of revenue and we've had an agency component and we don't do agency work anymore, but at the time we did.

9:39And, you know, that work is kind of one-time revenue. Like you would do a project and they might pay you$50 ,000 or some whatever amount, but it's one time. And then we had our software revenue, which is generally recurring, some type of a monthly fee. And they literally looked at our revenue and they said, okay, this bucket gets like a one X multiple, the one-time revenue. This bucket over here, the recurring revenue was like, it varied, but it was like 10x that. And it's the same company, we're the same business, we're the same brand, but they just looked at the revenue buckets completely different when they looked at the multiples.

10:19Same thing happens for when you sell. So that's why if you were starting out a business, like if you picked a business to start based on your exit, rather than what you actually want to build and what the market needs or whatever, you would probably build a software business because software trades for much higher multiples than pretty much any other type of business. We've seen some of, so we have a subscription platform at Bold, like our listeners know, but I don't know if you're aware, but anyways, so we have a lot of stores running subscriptions for e-commerce, not software, e-commerce subscriptions.

10:53And we've seen some of them sell and get valuations similar to what software companies get. And it's awesome. That's one of the things I love, the fact that we, in a small way, are helping that brand get something more. And I just want to add something else that I've noticed lately is I talked to someone, and get your thoughts on this, but I talked to someone about six months ago who acquired e-commerce businesses. And he said one of the first things they do is obvious. They look at the recurring revenue, if there's any subscription. They look at the one-time revenue. but then they also look at revenue from repeat customers.

11:32So there's one-time revenue, which is just a customer coming once, one and done, they buy, they never return. But then there's repeat customers who aren't on a subscription, but they buy over and they might come, I don't know, say you sell dog food. Like they might not be on a dog food subscription, but they're a repeat and they buy. And he applied a different multiple to that revenue and then also by the same token, when he sold these businesses, he made sure investors also apply to different multiples. So he kind of broke it into three buckets. Any thoughts on repeat business that's still one-time revenue and how important that is or any strategy?

12:12I'll stop there, but any thoughts on that? Yeah, that's awesome. I think that's a great way to think about it. Anytime you sell a business, if there's something that you're doing that makes it, again, more predictable and consistent, then that's great for you as an owner and it's going to be great for a buyer. So any buyer is going to ask what percentage of your buyers are repeat customers. And they're also going to ask, do you have control over that? Like, how are you making sure that continues to happen? Maybe that's like paid media or you have an email list or there's some way that you're getting people to come back.

12:45But that makes it a lot stronger for sure. What kills multiples? so you've got two businesses doing the same just if you just look at the numbers and one store is doing a million dollars and 500 000 of it is recurring 500 000 one time what can kill it even though you maybe have the numbers but what's what are like red flags for buyers a big one is growth so growth can kill or it can like multiply if you have consistent strong growth over the last couple of years, the buyer is going to think, oh, this brand is going to continue to grow. And so I want to, I'm going to pay for that, right? Because I want a brand that's going to continue to grow.

13:27And on the other side, if the brand is declining for the last few years, which by the way, is a problem a lot of e-commerce owners are facing because it's been a tough couple of years for a lot of business owners. That can also hurt like how much you sell for. So sometimes I'll talk to founders who will say, oh, we've had a bad couple, like last two years. But the year before that, you know, we did really well. But the thing is, the buyer is not going to look at that. They don't care what you did before. They care about what you've done most recently and what the trend is. And they're assuming that the trend is going to continue.

13:59Right. So for people listening right now, I've sometimes asked founders, I say, what's your long term goal? And they a lot of times people say, well, maybe, you know, one day to sell it, write this. And, you know, I've always heard that it's not a decision you make one day, it's you got to start planning now. What are some things that merchants should be thinking about, even if they're not at all on the market for selling, but they want to start setting themselves up for, I always say like, even if you're not selling, structuring your business in a way that's healthy for someone who's looking at it is still a good exercise.

14:34But regardless, what are some things people should be looking at and doing now to be prepared? Yeah. The cool thing is that most of the things that you would do to be appealing for a buyer are also the same things that would make a business great for you to run. Right. So sometimes there are people who like make these optimizations with a goal of selling and then they're like, oh, actually this business became more profitable and it's less stressful. And so I want to keep running it. There's a reason they care about those metrics, right? Yeah, exactly. So one good one is thinking about founder dependencies.

15:05Yeah. And that means like, where is your company dependent on you as the founder? so that could be operationally so like maybe you're doing you're actually executing stuff in the day-to-day like you're making the business run or it can be a branding dependency where people are buying from the brand because they know your name and your face and if you weren't there then they wouldn't buy in the same way right and both of these things are a risk for a buyer because you know if you leave then they won't be able to continue to run the business in the same way And most founders, not all, but most founders, when they sell their business, they're doing it because they do want to exit.

15:43Like they want to move on to something else. They want to go on to the next phase of their life. And so you want to set it up in a way where you can transfer it over. And there may be like a transition period, short or long, but eventually you can transition it over. So building teams and delegating and having systems that are documented so that other people can do the work. That's one of the best ways to set yourself up. And founder dependency is also, you asked about multiple killers. That can be a deal killer. Yeah. It's so interesting because the last episode literally was about the importance of building a personal brand as a founder.

16:19So I just want to make sure listeners know that is important. It is like building your personal brand, you as a founder, becoming an authority on something. You know, the AI now is looking at all of these data points and that is considerations into when it recommends a product. So, but then transitioning is the key, right? Like it's, there's a balance of it being dependent on you versus successful because of you. But if something were to happen, it's such a unique challenge that you want to build your personal brand, but you also want it to then flourish without you. Yeah, totally. It's a contradiction.

16:57And it's like I said earlier, most of the things that you want to do for a buyer are the same things you would do for yourself to run the business. This is like one of the few exceptions, I think, because I actually think like when you are, especially when you're starting a company, people want to hear from people, not brands, right? They want to know who is the personality behind this company and they want to learn to trust you. but so so it's good i think to have yourself be visible as part of that brand but then over time you've got to find a way to transition that trust either into the brand itself or someone else who wants to be the face of the brand who is going to stick around for a long time or it could be multiple people it's really tricky and i think this is like a sticky point that's becoming more and more sticky as branding becomes more important some other things i have noticed too i'll get your thought on this diversification in general.

17:47So like I think of being channel specific, like I know some brands that all of their acquisition is through meta ads, for example. And we've seen issues in the past where people have built up audiences on certain channels and then something happens, some algorithm changes, or you're no longer able to reach that audience, or you have to pay to reach them. But channel diversification, the three that I listed, I have channel diversification product and supplier too. Like, you know, from a risk perspective, what are some other diversification things you see brands should consider? Yeah, I think those are the main ones.

18:27Because you're right, like buyers want low risk. Right. So if there's any risk points you want to diversify, I mean, where you sell, I don't know what the e-commerce word is for that, but like where you sell. So it used to be that like some aggregators were buying up shops that were just on Amazon. Yeah. I don't think that's as popular anymore because most, not all, but most buyers, they want diversification to make sure that if there is a point of failure, it doesn't doom the whole company. So anything like, I mean, the founder dependency is also another thing that's, you're basically diversifying by having the company run on a team instead of yourself, right?

19:06yeah how you make money how you get customers how you source if one supplier could potentially be a risk we see these brands right now building empires on tiktok shop and just crushing it like tiktok shop right now is the hottest thing and people are seeing incredible success but it's an interesting time because TikTok is being very lenient and giving like really promoting and very easy to work with. But, you know, as they have to meet numbers and meet quarterly earnings, that could change. And so if your business is just like the Amazon's a great example, because we know brands that built empires on Amazon, but then Amazon would build a version of their product and call it Amazon basics.

19:54Like maybe you've got some ultra lightweight hiking backpack. Actually, this happened to a backpack company and then Amazon literally made an identical copy of it. And, you know, the company is still okay, but it hurt their numbers dramatically. So yeah, channel diversification, I think is one I would listen there for sure. What is the, if you're thinking, is there a certain metrics that you would track monthly or quarterly as a founder? If you're like with your business, let's just say if you were going to sell, they got acquired or any of your, a few different business. What are some things that you, like your dashboard of health that you would track?

20:37Good question. We have some due diligence checklists, which I can give to you as a resource if you want to put in the show notes. That'd be amazing. But basically it goes line by line. Like these are the things that a buyer might ask you for when you go to sell, but really profit is the biggest driver. And I think that's something that gets overlooked because, you know, everyone wants to build a great brand and team and all these things cost money. But at the end of the day, profit is really going to be the most important metric when you go to sell. So I would put that like at the very top of the dashboard.

21:11Growth, I would also track at a high level is are we growing from the last year or two? Like, how's that trend looking? And then, I mean, some of the things I would track for a media company probably aren't the same for an e-commerce company but i'm just thinking around like audience right and how you get people to your product right in a healthy way that like to me that's it is it's easy to build a brand and just pay for traffic but it's not organic healthy growth that's something i would care about is it healthy profit versus paid for profit that could collapse right when you look under the hood yeah i mean so many businesses now are baited are grown though on paid profit no i know i'm not against it by any means by any means but then turning that into you can pay for them but then do you get them to repeat do you get them to subscribe do you get them into some other healthy channel right essentially yeah yeah i had a i was just looking back for our listeners go back and listen to an episode called profit first we had an episode it It was in August last year, but I had, are you, Lexi, are you familiar with Michael Michalowicz?

22:20Yeah, definitely. Yeah, his book. Yeah. So he's got his book, Profit First. I had him on the show a little while ago and I loved, it just reminded me of this concept when he's talking about the importance of profit. And he's got a really interesting concept on that. He flips it backwards. You know, usually the way you do accounting, traditional accounting is you have, you know, your expenses and everything else and everything you pay. And then what's left at the very end is profit. And the premise of it, and I'm going to butcher this a little bit and condense it, but the premise is you need to flip it and think profit first.

22:55Like what should you be making? And then build everything else around it, build your pricing, build your, how do you, your cost, your every else model needs to support what your profit should be. don't just let the profit be a surprise and like i've heard founders i think i've probably done this myself like at the end of the year you're doing your bookkeeping and then you ask your accountant did we make any profit it's like a it's like a surprise at the end versus you should know what your profit is going to be everything else might you don't know as much but it's a backwards way of thinking essentially it's a really good episode i would encourage anyone to go listen to that one.

23:32So he'll explain it much better than I did. So Lexi, I want to take a super quick break just to hear a little bit from our sponsors who make the show possible. And then when we come back, I want to talk about the difference between brokers and advisors and what is their difference? How do brokers work? Like billing? I think a lot of people are not clear on that. So I'd love to pick your brain on that. But first, let's just really hear quick from one of our sponsors. At the beginning of the show, I told you why everyone serious about their Shopify business should have their store backed up and protected with Rewind.

24:05There is no excuse not to. There literally is no undo button for Shopify. Shopify's own terms actually say that your data is 100 % your responsibility. Your products, your theme, your customizations, your settings, everything. They don't back up any of it. And no, a CSV export does not cover it. With CSV exports, there's no images, no meta fields, no themes, settings, etc. Nothing. I was talking to the people at Rewind about a brand where one team member actually ran a bulk update and accidentally overwrote 11 ,000 products. Orders, customers, contacts, all of it gone in a single action. Luckily though, with Rewind, it was a simple one-click rollback.

24:49It could be anything, a bad CSV import, a random app you just installed that messes everything up, or all of these AI tools that everyone's using to manage their store. Now, I have heard so many horror stories. Rewind just gives you peace of mind no matter what. If you don't have Rewind installed, you absolutely should have it. Go now and get it. Shopify 1 % dot com slash Rewind. You'll get an exclusive 30 days free on me. The link is also in the show notes. At the top of the show I mentioned, OmniSend can now talk to ChatGPT and Claude. And I want to tell you why that's even bigger than it sounds.

25:24So if you missed it, quick catch up. OmniSend is what I use for email and SMS on every Shopify store I work with, plus for this show as well. And you can now connect your AI, Claude, ChatGPT, straight to your OmniSend account. Your data, your campaigns, your flows, everything. You open a chat and you ask, what should I focus on this week to make more money? And it will come back with real answers about your store, which flow is underperforming, which automation needs improvement, which customers are going quiet, what's missing, everything. My favorite part, though, is AI segments. I used to build these by hand, clicking through filters forever.