TAE 19. 3 Year Build. $4MM in Sales. 6 Months to Sell. Repeat! – Chris Nowak

Show Notes:

We’re live today on Truth About Exits. We have Chris Novak. Chris grew his business to around 4 million in annual sales and sold within only three years of launching and now he's looking to do it all over again. Chris, thanks for coming on the show. 

Thanks for having me. 

Awesome.I'm really excited to dig into the details as much as we can talk about on this transaction with you. I'd like to start with at the beginning really of when you actually decided to sell the business,you are operating a successful business what was the thought process behind deciding to sell?

 It was kind of funny, I mean literally it was a guy who had called me that I was friends with just through the Amazon business and he was like, Hey, I just talked to  this broker and he can give me this x multiple for my business. I kind of said to him like, if I can get that multiple for my business, I will gladly sell it and that's really how it started. Then I just kind of like started investigating it more at the same time the business had reached a point to me that was just like kind of never even imaginable really when I started the whole thing. I had never wanted a large company outside of my home office. I just really started this thing as like a side Gig. It grew to this large level for a side gig. It just seemed like an opportune time to look into selling it and then kind of proceeded from there.

Absolutely. It sounds like a familiar story. A lot of the entrepreneurs that we meet that get started on Amazon specifically find, if they get the combination right with the power of Amazon and doubling down on what works, they can build pretty significant businesses pretty quickly. Getting to around 4 million in annual sales in only three years in traditional brick and mortar businesses would be pretty tough. That's the power of Amazon. Let's say a friend of yours had spoken to a broker up that thrown out a number and you thought, hey, if I could get that, that's worth it to me to sell the business. Then you went into research mode and looked into that a little bit more. Did you interview other advisors or brokers and how did you go about that process?

Yeah, I talked to two brokers and there weren't many in the space really because I started looking into it. There I was actually like two and a half years in that I had reached the 4 million ish level and started looking into this and then you'll hear later that it took six months to close. But, basically I had interviewed two and made my decision based on based on the one who gave me the most aggressive valuation because that's what I wanted, the higher dollar.

Makes sense. I will preface this by saying we weren't the broker you sold with. We're not going to talk specifically about the brokerage. There's pluses and minuses to every advisor and broker out there. But what I'm really interested in talking about is the actual deal as much as we can talk about today. Okay. You spoke to a couple of brokers, you went with the one that gave you the best feeling on price moving forward and what did you do next to prepare the business for sale? What was that process like?

The broker asked me to fill out tons of questions. I can't remember how many pages it was, eight or ten pages of just about everything you can think of for prospective buyers to look at. Then also like some audited financials from my tax lady. We put together those two things that only took, I don't know, a couple of weeks and then pretty much got the listing live.

That was a pretty quick process, you mentioned that it was also a quick process before you started talking to different buyers. How long did that take?

Yeah, we listed it and I remember the first week was just kind of like crickets and I was thinking, oh great no interest. Then by the next week I think we had like four or five calls scheduled the following week, week two and by the end of the week two we had three offers. It went quick. The initial process from listing to kind of like offers and then got, yeah.

That tells me that you did something right and building the business if you had competing offers, which is awesome. How did you go through and decide which buyer to work with, out of those three offers?

One was immediately eliminated because they were like a low ball offer. The other two were pretty close in value or offer or whatever in similar terms. One of them turned out to be a local, I was living in Orange County at the time and one of them turned out to be a local guy, orange county. He had reached out to me after the fact like, cause the first initial calls with each of these are like over a kind of like a conference call on the brokers listening in. He reached out to me after the fact and basically expressed that he was very interested in the business and all the reasons why and all the reasons why he liked the niche in particular and my business in particular. Then it turned out he was 20 minutes away from me. We ended up meeting for lunch. That was who I chose just based on knowing him versus someone halfway across the country that I just had a kind of a single conversation with.

That's a really good point that you raised there. I think oftentimes on the buy side, at least when I'm dealing with first time buyers or newer buyers, they don't realize how much that can actually play in the deal structure or winning the deal, especially in competitive environments like this deal was where you want to extend that offer to get to know the person a little bit more, let them get to know you. It's actually a lot more psychology involved in dealmaking than the numbers. The numbers help and they need to be there and they need to be accurate. But it's actually that personal touch that really matters. We were dealing with a large private equity group that raised about half a billion in debt and very experienced in business acquisitions. The number two guy I was dealing with next to the CEO in that company actually had a psychology degree. We would have all these conversations back and forth. Once I figured out that was the case, I realized how important actually psychology is in the deal making process. Yeah, side note there but that's really cool and also worked for you because as we'll talk about, the process was quite drawn out both of those two offers that were around the same value, they were both looking to use the SBA program .

Correct.

To help acquire the business the SBA is a US based organization that's a government backed organization, the small business administration essentially trying to generate trade and commerce for the US economy. They back a lot of these loans and they cover the bank or lender if the borrower defaults. That's why these loans are popular. Sometimes you can get in as low as 10 or 15% down, although that is changing a little bit at the moment. We're doing a couple of these right now,that's probably going to change. But how was that process from your perspective, both the buyers were looking to use an SBA loan on the deal. What happened next once you started that process?

Yeah, we started the process and all this happened in October of 2017 it's kind of listing it and then I think that offers were like the first week of November and all that. From there the process took a long time. It was six months and it was frustrating to say the least as we got, I forget our original closing date, they promised us was like February 15th or something like that, which already seemed like a long time away from November, beginning of November. But part of that was waiting for the financials to close out for the year. I forgot, we got to February 15th and they were like, oh by the way because it's a California business and you're in California, you have to do, I even forgot what the term is but it's like back in the day. Billy, a kid skipped town and he had owed debts to someone who was trying to sell this business before he skipped down. Essentially there was a law made that basically said he had to put an ad in the newspaper. Kind of like when you in California they make you do the same thing when you form an LLC. Well, because I was selling the business, I had a list in the newspaper that I was selling it who I was selling it to and the reason was in case I owed anyone money and I was like if I only owe them money, they're going to be in China anyway in this type of business. There not going to be reading the local newspapers, what is this going to prove? That delayed it like another couple of months.

Then they just kept on. I mean they had other delays to the bank. I won't name the bank either, like I won't name the broker but the bank it was actually their first ever FBA business that they had funded through the program that I forget the term. It was their first ever SBA loan on an FBA business. There was that excuse too that their underwriters didn't get it and all that. Yeah, it took six months with I mean probably three or four different dates promised on a closing and then even down to the last day, like the wire was an issue getting the wire over to me.

Oh wow. Okay six months of back and forth. Did the business change at all during this process?

Yeah, that's the one thing that I would advise for anyone if they are looking to sell their business and the process of selling their business is don't change a thing like don't let up on the throttle because through this process, I initially was given the February 15th date and January was always a really busy month for us and we also had the holidays in that time. We had good months of December and January coming up. I was like, okay, well those are gonna be great months. Then February is just a half a month. Like I don't really have to do anything else. Right. I can just kind of coast the rest of this timeout already kind of in halfway vacation mode here. Through that I just wasn't as attentive to the business essentially. We had a little slip on some of our skews towards the end of the year and the beginning of the following year.

Then through that process when the final financials came in, cause we had basically estimated what the numbers would be through the end of the year. When the numbers came in final the final final numbers for the end of the year, the actual numbers there were lower than what we estimated. Then through that we had to revise the, basically the sales price down. At that point I actually went back to both the original offers and kind of gave them here's the deal and here's the price I'm willing to accept and here's why. The non-local guy was actually like a higher bidder at that point. I kind of went to the local guy and I was just completely honest with because we had built that trust and I said here's the other offer, like if you want to match it this is exactly what I'm willing to take. This is the terms I'm willing to take. Like if you're okay with that deal, then we can move forward. He was and that's the one thing is just don't back off. Keep everything going like 110% like you'd normally do when you're building that business. Just until you get that wire in your bank, then you can relax.

Yeah, exactly. As much as we'd like to believe that deals done, it's never done until the wires in the bank. If there's any deal structure as well, until all of that is done, you'll still needing to be in the business somewhat. That's all negotiated. I'm curious specifically with this deal, after the year end numbers came in, you mentioned that you went back to both buyers, were you out of your exclusivity period by that time on the letter of intent?

I actually hadn't even signed a letter of intent up to that point. It was all just like verbal communication because to me it was like, we're waiting for these final numbers let's just wait for the final numbers and then I'll sign.

Ah, gotcha. Okay both of the buyers said if the numbers come in, this is what we're willing to pay and let's wait until those numbers come in. That makes sense.

Yeah. But they were both at the same time they're already working on their financing, they were getting pre-approvals. They were like starting all that process, getting all their paperwork in a row and everything. IT was literally like waiting for those final numbers and then go from there.

You negotiated those terms or negotiated with the buyers directly, your advisor didn't do that for you?

No. Yeah. They didn't really negotiate much of anything for me.

Oh, okay. One of the tricks we do or not tricks our process at that point is when we're negotiating with other buyers, we never reveal the actual deal structure or the terms and the price, we don't reveal anything it’s all blind. The reason we do that is to give our sellers the best outcome possible because you don't know how much that it would have come up. All we say is look doesn't offer that's higher than yours. We give them loose guidelines as to maybe terms let's say, but not the specifics of the high level price and the actual specific terms. We give them guidance on what it looks like and they can come back in, they can come in higher up that you find where the markets level is not just matching the better offer because it may have gone higher. Okay. That's interesting. Once you agreed to times you got the final numbers, then you went on the LOI, then started the rest of the process. 

Yes.

Were there any other changes in revenue? Net profits during the time until the finance was actually approved and you've put in your ad in the paper and things?

Um, no there was normal because like I said, January was are always busy for the business. Then February tapered off a little bit and it kind of that was like the normal anyway, but up till I think a little actually trying to look at my original sale. Remember I told you I couldn't remember the date well It was July 22nd, 2015. I looked up like my screenshot that I have on my phone on my foxtel. Oh Wow. But through that I also looked up basically like I was taking screenshots of my sales the last several days just to kind of like if he ever asked what they were at the buyer or anything I had, I was just going to send him those. But basically we held that, we actually like came, we ended up coming back to a better level towards the end of it. The very, very end to where we were at kind of what our original numbers would have been for the trailing 12 months when we listed and assumed. We did manage to get some of that back because I actually got into a phase where like this thing might not close Chris and you're gonna have to thinking about growing it again. I got into this like push again and really pushed things, wasn't adding new skews necessarily. I think I did add a skew that was already launching anyway like in February, but that was just already scheduled. But everything else was just pushing the paperclick and pushing with kind of what I know about Amazon to get more sales running deals and running sales and coupons and all that. 

Yeah, absolutely. That's something that's really important. You want to continue operating the business, you want it to be optimized for the exit but you also want to maintain the business in case something does fall apart in the process because not all deals close unfortunately. As much as we'd love them all to close. That's not really the case. That was a smart move on your behalf to say, hey, maybe this might not close. Let's keep pushing forward as if I'm not selling the business and what can I do to operate and optimize each day. That's a good mindset to have during a deal process. It can also help with the transfer and handover process. Because if you are in your day to day routine, it's very easy to walk through the acquirer, the buyer of your business and show them exactly what you're doing on a day to day basis to maintain the business and also what you're doing to grow the business. How long was the actual handover and training process negotiated in this deal?

I believe we had 60 days of one-on-one support and it tapered really fast. The buyer, he had to run a very small Amazon store before, he had the very basics down but it was more like online arbitrage business. It never really dealt private label, I believe. Nothing to this like size or magnitude. I also had a virtual assistant that was, I mean she was the greatest virtual assistant, I think that has existed, but she was running, I mean 90% of the tasks that the business needed. I had very little to do on a daily basis. It started off obviously intense in the very first couple of days are intense cause you're transferring over and the account got put on hold because we changed the information on it and all that. That was back up within, I forgot what by the end of the day, that first day. Got through the initial just like transfer of everything. Right. Transfer with the emails, transfer over all that. Then it really, I mean it tapered down quickly. I think it was maybe because of the buyer but we were doing, I don't know, maybe a couple hours a day for the first week after those initial, at the initial two days we did a couple hours a day and then it tapered down to like a couple hours every couple days. It tapered down quickly. But the entire period was like a 60 days is quite kind of promised him.

Oh cool. That was a pretty quick handover that replicates a lot of what we see as well there. A lot of that work is front loaded. The buyers will always, depending on their experience, ask for a log, a transition or training period. But typically you can do a lot of that front loaded and then just be there for support if needed, which is good. You can negotiate that in the terms, which is great. Okay, you've got through the whole process and the money, the wire hits your account you're officially done. What did you do to celebrate once he closed this deal?

I think immediately that night we went out, my wife and I went out to like our favourite restaurant in Orange County a steakhouse, The Ranch and we had a really nice bottle of opus one, 2010 that we opened that night. Then we tipped the bread guy 1000 bucks. That was fun. After it was like almost like, cause the waiter, the waiter was rude to us all night for some reason. Then the bread guy comes over smiling and we purposely like in front of the waiter like here's 1000 bucks for you. Like thank you for being nice. We did that and then we then we planned a trip to, we went to Cabo. We have two kids and we got grandma to watch the kids and we went for, I forgot what it was, five or six nights to Cabo and that was like our big celebration.

I liked it. This is something that we advise people to do and oftentimes we forget to do ourselves and dismisses reward ourselves once something goes right and you can kind of get that deal fatigue hitting in that it's good that you guys made a point of actually celebrating what you would do at planning what you're doing. Then also going through with that after the sale, I think that's really important. How long did that feeling last once you came back from Cabo or was it sometime during that trip like, okay, I gotta do something else now.

No, it was still like going on. Actually then there was like this, I had a trip to Cancun planned randomly already with like a bunch of other Amazon sellers and I would say that was like that end of it because I went there and I had known these guys, we were in like a Facebook together. All of us doing over $1 million. The group is called MDS “Million Dollar Seller”, but we had been in there I was like the third or fourth member of that group when it started and I had become friends essentially with these people now for going on three and a half years or three years by the time this trip and actually it was like close to three and a half and I was meeting them for the first time. A lot of them and then all of them had heard that I sold my business and there was a lot of like horrays and celebrating and all that they're with these friends that I had built that kind of helped me build my business over the years. Right. That was like the last thing when actually right before I left for that trip, I filed my new paperwork for my new LLC, for my new Amazon business. It was like while I was gone, I got like all my new LLC book and all that. The new business was planned in my head and kind of ready to go by the time we got back from that.

Awesome. You already knew that it was back to work. Let's do this again. When you reached out to come on the podcast, that was what you led with was I did this and now I'm looking to do it all over again, which I thought was really cool. Before we get into what you are doing next, if anything, would you do differently next time if you were to go sell the business again or with the next business?

I would say the one thing like I said is don't ever let off the gas because when I was full into this for three years, I mean I was full into it. You couldn't take my attention away from anything and let the business suffer basically. The fact that I let off the gas I didn't do anything negative. As I said, I had the virtual assistant running the majority of it but just as the owner, as a CEO or whatever you want to call yourself of a small business like this, a smaller business that's run from home you are the one making all the calls, all the shop. The bigger picture calls. I wouldn't let off the gas until literally that the wire hit my account. Then I might have even renegotiated because there was a time at the very end where the LOI or even though it was like a contract at that point but it expired because the bank delayed that closing date. There came a day where I had to resign and extended basically extended version of one of the pages of the contract. At that time, I probably would have renegotiated because I had brought the revenue back to where it was when we initially listed.those two things really but I don't have any regrets. I mean the fact that I did what I did in such a short time, I don't think it's possible any other business that I have seen in my 35 years of being alive.

Yeah, absolutely. It's a pretty good strategy to just build and sell in a couple of years. That's pretty awesome. Yeah. What do you advise people? Maybe on that trip to Cancun with the MDS guys or in general, when people ask you when they're thinking about selling their business, what advice would you give them other than not taking their foot off the gas when they're in the sale process? Is there anything else that you'd advise?

I think it comes down to also being selective with your buyer's like don't make it all about as we talked about earlier, just the money because you're are going to be tied to this person for a long time and if there is any seller financing or anything like that involved, you trust that person with that percentage of the business that they still owe you and know that they'll take good care of it and know that they'll grow it and know that they have good intentions. Don't just pick the highest bidder. Really look at the whole picture because  you put a lot of blood, sweat and tears into building it and then you're kind of handing it off and you don't want to make sure you get, first of all, like the best dollar amount for it but that's not just the highest bid because oftentimes there's seller financing or there's something else involved or maybe you're just tied to this person for a year because they're going to pay you to consult for them for a fee or whatever it is right there. The deals are always different, but look at the bigger picture and look at the person you're selling to and make sure that the whole picture fits, not just the dollar amount.

Yeah, that's, that's awesome advice. Chris. We often say highest price and best deal terms and we should also add in best buyer because you want to really understand where that buyers coming from. In this case, you mentioned that this buyer had some experience selling on Amazon even though not with private label products. He understood the ecosystem at least and the risks and what you need to do to maintain sales. Especially if there's the rolled equity is a really common structure at many levels and depending on how they're financing the deal, obviously can't do that with an SBA loan but rolled equity is something similar to a seller note. You're tied to this person and their game plan. What's their experience, what's that plan, who can they introduce you to that they've actually done stuff with before. These types of things your advisors should help with but don't rely just on them. Definitely do your own diligence and make sure your comfortable with that buyer as well. You mentioned that you went and met the buyer in person and I think that's kind of underrated. We think that having an ecommerce online business, everything should be virtual, but when it comes to actually getting comfortable with someone to be working with maybe for a couple of years, depending on the deal structure, you really want to be comfortable with that person. Say that. That's a great point.Chris, what are you working on now?

I have started that business right before the Cancon trip or started the paperwork at least. I’m up to launching like 30 skews on that last year. I have that going on and I'm adding more to it. I'm kind of waiting to see what's happening with these tariffs because I have a lot, everything I'm doing now is very customized product and more expensive costs of goods. Higher barrier to entry is kind of what I was trying to do with this business this time around. I'm waiting to see what happens with a tariffs before I pull the trigger on a couple of these new skews. But I have that going and then I am doing consulting for a lot of other Amazon sellers and businesses, but just their Amazon portion.

Oh excellent. How do you typically structure that or is it custom for each client that you deal with?

Yeah, everyone is completely custom. I focus a lot of the majority of my clients, I pretty much to pay per click management for them. I am running everything on their paper, click on Amazon and then some of those I do additional services for. Then others I need and helping a business that has a lot of capital. They do a lot of retail and online arbitrage right now but they've never done private label. I'm kind of helping them launch a whole new private label brand from a to z. It's just kind of like their consultant.

Wow. That's kind of cool. Awesome.you, you must really love this ecosystem if you're a consulting in it as well as jumping back in with another business.

Yeah. It's just, I think it's a shame that if I don't put the foot in what I learned to use at this point and every business, I think there's going to be things that you love and hate about it. I think I'm good at it. Right now all the opportunities still there. Yeah. I want to focus a lot of my efforts on it.

Oh, awesome. And how can people connect with you or reach out to find out more about your consulting or just connect with you in general?

Yeah,they can email me directly, [email protected] and I'll be glad to get in touch with them.

Awesome. Well we'll put that in the show notes and is there anything else I've, I've really enjoyed this conversation. I love digging into the details of deals as you can tell, which is why we call this show Truth About Exits. But is there anything else that either I should have asked you or you'd like to add before we wrap up the show here? I think this was a good episode.

No, I don't think there's anything else to add really.

Okay, great. Well thanks so much for being open about the process and for reaching out to be on the show. Chris, I really appreciate talking to people like yourself that have had a successful exit, but then jump back in and that back building again. I think that's a sign of a true entrepreneur.

Yeah. Well, thanks for having Coran.

Perfect. Thanks Chris.