Ecommerce Exit Blueprint: Decoding Aggregators and Industry Landscape with Expert Yoni Kozminski (part 2)

Episode 188

On today’s episode, we continue our conversation with Johnny Kozinski. For those of you who missed it, tune in last week where we talked about the state of e-commerce, the state of the aggregators and a lot of really good conversation. In this episode, we’re going to get into the Roadmap to Exit, and Johnny has a lot of great things to share onto the episode.

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00;00;24;04 – 00;00;49;07
Speaker 2
Welcome, everyone, to the Firing the podcast. On today’s episode, we continue our conversation with Johnny Kozinski. For those of you who missed it, tune in last week where we talked about the state of e-commerce, the state of the aggregators and a lot of really good conversation. In this episode, we’re going to get into the Roadmap to Exit, and Johnny has a lot of great things to share onto the episode.

00;00;49;14 – 00;01;06;06
Speaker 3
Like I said, I’m going to go and search and here I have, I found it. So one of the first things that we do when we’re bringing on a brand, once we’ve gone through that audit, we really understand we break it up effectively into into these five buckets, right? For those of you who are listening, I’m just going to talk through it as well.

00;01;06;07 – 00;01;25;10
Speaker 3
You can you can very easily understand what I’m what I’m not talking about here. So we look at products, we look at brands, we look at marketing operations and business management. And on the back of that, what we’re effectively doing is there’s these boxes that effectively drive towards smaller and smaller boxes. It kind of looks like a spiderweb, if you will.

00;01;25;10 – 00;01;44;25
Speaker 3
We’re looking at these six month increments where we’re putting in things that we know take time and effectively are the goals that we have over this six month incremental journey over this 24 months to exit. So we’re setting our metrics at the start. So what are our metrics look like today from a revenue perspective? How many products do we have and what does that distribution look like?

00;01;44;25 – 00;02;03;06
Speaker 3
Oh yeah, you know, a purely Amazon brand, Do we have a DTC wholesale retail? Where do we sit? So we’re making all of that down and then we’re sitting and we’re saying, right, what do we expect that exit our revenue to look like? Our product, our distribution? Obviously, it’s not written on this version of it, but we’re we’re always focused on margin as well.

00;02;03;06 – 00;02;28;28
Speaker 3
You know, it needs to that’s you know, for those of you who don’t know, when we talk about, you know, exit valuation, it’s typically on the EBITDA and it’s a multiple on the baseline of that. So margin is really, really important. If you listen to this podcast, you already know that ultimately we work our way through. When we look at and we say, you know, what products do we think we can take to market knowing the time dependency in how long it takes to actually iterate, You know, is there any level of pray protection that we can put towards it?

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00;02;28;28 – 00;03;01;07
Speaker 3
So effectively, what this looks like, I might have a vision. So I have like a mock version that I’ve pulled up here where the typical one looks a lot more robust than this. I remember when I was trying to put an example up, I just threw in a few very simple to digest examples that what you’re looking at now is in in the first six months build roadmap to 15 products, explore five new manufacturers, you know, the next six months, engage product design agency, finalize IP protection plan we’ll work our way through and will commit to these goals across each of these six month periods.

00;03;01;07 – 00;03;19;24
Speaker 3
And like I said, our management consultants sit with the team and sit with the founder or the key personnel inside of the brand. We’re actually making sure that we’re aligned, that where we’re delivering and if there’s issues we’re working through. Right. So for example, am I going through something like this? If you don’t have a Shopify agency, we’re going to help you source that agency.

00;03;19;24 – 00;03;39;19
Speaker 3
We’ve pretty vetted each of agencies from Amazon Brand Management, IP and patent law manufacturers, supply chain logistics, staples. So we’re actually coming in here. And I think one of the big material differences coming back to the aggregator space here is that we’re saying, particularly in this instance, we’re not trying to own and operate this brand and grow it.

00;03;39;19 – 00;04;05;25
Speaker 3
What we’re trying to do is we’re trying to bring high value Boltons to free up a founder to focus on the 15 products they’ll look to bring to market and explore. And exploring is 15 manufacturers. And we’ll have an agency handle a lot of these things because ultimately it doesn’t matter who acquires the brand. They’re either going to absorb that and bring it in-house for, you know, if they have that infrastructure or they’d likely just continue to leverage the resources given the, you know, the margin makes a lot of sense.

00;04;05;25 – 00;04;13;19
Speaker 3
So again, I’m going to stop myself because I can clearly talk forever. I just hear from you guys. If you have any questions, if you you’re going to pull this down a bit, you guys.

00;04;13;19 – 00;04;37;06
Speaker 2
Yeah. No, I really like this one thing that is standing out to me as we look at this example is remove all nonperforming SKUs and simultaneously build the roadmap for 15 products. And so I think that let’s talk about nonperforming SKUs for a little bit. How would you define that and at what point at through like a launch do you say this this product is non-performing, we’re going to trim the fat on our catalog?

00;04;37;07 – 00;04;56;21
Speaker 3
Yeah, that’s a great question. And I would say from my lens, like I haven’t operated an Amazon brand myself for probably close to five years, so I’m not going to get into the nitty gritty details specifically around a particular SKU ascend and say like, Hey, this is exactly how I would look at it because I’d be out of my you know, I’d be out of place sharing that.

00;04;56;21 – 00;05;20;18
Speaker 3
What I would say, though, and one of the things that we realize inside a scale is that what you’ll typically see with many brand owners is that they’ll have let’s give the example brand, and it has 30 SKUs and you’ll typically have one, two, maybe €3 products era SKUs that are operating well. And you’ve got these 27 other ones that are going on and they typically don’t get the same love and attention as those top three hero SKUs.

00;05;20;18 – 00;05;37;25
Speaker 3
You’re always saying, well, you know, that’s the cash cow. Let’s make sure that it gets all the resources. Is new photography products. You know, let’s evolve the packaging, let’s make sure the listings are optimized. All the keyword research, like invest heavily on the PPC campaigns and all of that, and all these 27 SKUs really get left by the wayside.

00;05;37;25 – 00;05;54;23
Speaker 3
And so what we immediately look to do as sort of that first 90 days before we get to this roadmap is we’re actually looking at, well, why are these current product SKUs performing or not performing operationally? Are they getting the same love and attention? Can we build a operational plan where they all get the same love and attention?

00;05;54;23 – 00;06;13;21
Speaker 3
And, you know, it’s an even disbursement of how much creative each listing gets. And every now and then, let’s say it’s a it’s a purely focused Amazon brand. And based on the back of that, based on the back of now actually looking at and saying we’ve actually tried to give it the same attention, the margin isn’t there. The level of competition continues to to grow.

00;06;13;21 – 00;06;36;01
Speaker 3
We don’t really believe like this is something that six and 12 months from now we can actually compete with. And I’ll give you the example of we’ve even that one of the brands that we’ve invested in, they’re incredible brand owner, incredible business owner, someone I really respect and just think they’re honestly a creative genius in how they approach product development and they just understand their niche so well.

00;06;36;01 – 00;06;57;08
Speaker 3
It’s scary. It seems to happen every year that product is brought to market becomes $1,000,000 SKU almost overnight and within the space of a 12 to 18 month period, you get Chinese competitors coming in selling very similar products at a lower quality for half the price. And all of a sudden that million multimillion dollar SKU starts to dwindle and that’s become a repeatable thing.

00;06;57;08 – 00;07;27;07
Speaker 3
But that SKU doesn’t mean we’re going to kill it because it’s now doing half million dollars or million dollars. It was doing $2 million. We’re just looking to evolve and bring more products to market, knowing that if we can free up their time, we’re able to actually bring more price to market. So it’s really long winded answer for you, Dave, in that we’re really saying to build the important metrics attached to the SKU and looking at have we done everything that we can do, we see that when we look to sell this products or rather this brand in 12 months, 18 months from now?

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00;07;27;08 – 00;07;44;00
Speaker 3
So we really see that as something that is performing at a level that’s not going to harm overarching EBIT of the business and is something that that is meaningful. So that’s that would be the removal of nonperforming SKUs and we’d be looking to build some financial modeling against that and really understanding, you know, what does that look like?

00;07;44;00 – 00;08;05;17
Speaker 3
Also incorporating like the PPC spend and everything that goes into understanding that the true profitability of the SKU. And I think for a lot of sellers, Amazon doesn’t want you to know exactly how much you’re actually taking home. That’s counterintuitive to that business model. But if you can get to that degree of clarity, then ultimately it’s going to help you make much better decisions for the viability of your business performance in general.

00;08;05;17 – 00;08;27;28
Speaker 3
And obviously as a as a pretty big implication on the ultimate exit, if that’s your goal. I think one important thing also to note, because we’ve been talking a lot about what I’ve been doing, most of talking about this whole model is very much predicated on exit. I’m escaped my screen here in a couple of places. I don’t think that with businesses in general, there’s necessarily a need to exit, which might sound somewhat controversial here, but we’ve got a business predicated on it.

00;08;27;28 – 00;08;51;16
Speaker 3
But my point what my point in all of this is that, you know, with e-commerce businesses, sure, it’s it’s expensive to grow. You know, you’re as as you grow so too does your inventory and media spend. And it’s a really cash intensive business just in general and how it’s built. But if you could build that from 20%, you know, a dream 40% margin and you really get you know, get your your metrics right.

00;08;51;16 – 00;09;17;19
Speaker 3
And there’s no reason why you can’t just sit on that for the next five or ten years and just bank that cash and and diversify your investments. So I just I just always feel sort of compelled as well in sharing with people that, you know, while exit is definitely a very exciting opportunity and something that is sort of material, there are businesses that make sense to just be absolute cash cows and start to diversify your investment and create a portfolio of other opportunities as well.

00;09;17;19 – 00;09;23;06
Speaker 3
So yeah, I somehow got to a very, very far away from the point here. But no where it hope it’s helpful.

00;09;23;07 – 00;09;42;11
Speaker 4
Yeah. Yeah. No worries. And so, so Jani, a couple of follow up questions here and then for the listeners, if you’re not able to see the Yanni screen, Yannis by his, he’s going to send us the link and there will be a downloadable in the show notes. And so when you get home, when you’re are if you’re are home and you’re listening to this, just go to the show notes and download that sheet because it’s got it’s got a ton of information on there.

00;09;42;11 – 00;10;18;10
Speaker 4
And it was kind of broken down into multiple sections. What brand product operations, marketing and each one kind of blended together, which I really like. And so it was a very thorough roadmap and breakdown of, of how all of those blend together and to an exit. And so two questions, two follow up questions. One, there was a lot of a lot of expansion, and I saw in there European marketplaces for Amazon, Walmart, DTC or Shopify, lots of expansion that takes lots of cash flow as well as it’s like a machine when you when you get to this big snowball going, snowball gets bigger and bigger as you go.

00;10;18;10 – 00;10;35;25
Speaker 4
And so you had mentioned a point and I’m just kind of curious on I know this is kind of early on in the venture, but I guess the question is when, as this is this goes when when you’re prepping for an exit, everything is about the margin, right? EBIDTA we want we want trailing 12 months. Usually that’s how everybody is doing that.

00;10;35;25 – 00;11;00;11
Speaker 4
And so with all of this expansion and all of these expenses piled up now do you like land for on that, going back on that or like letting it go to the ceiling and seeing what happens and then maybe just pushing it out month by month? And then a follow on to that. Is there a clause in there if the operator, like you had mentioned, hey, what if this thing is just a cash cow and we’ve and we were able to squeeze it up, can we pull out of that and do that or how does that work?

00;11;00;11 – 00;11;18;21
Speaker 3
I’ll start with the second one first, because that’s that’s an easier question. I’m more in my wheelhouse, just given, you know, how we built the agreements our model is predicated on on the exit. You know, we now have been operating with a handful of these brands. You know, the earliest one we invested in was probably eight or nine, nine, ten months ago.

00;11;18;22 – 00;11;39;02
Speaker 3
Right now, we make nothing. So we’re very aware that at the start of this journey that, you know, west, we’re looking to sell this brand in two years. The founder has to have exit in ten. Otherwise it’s not it’s not a set because that otherwise there’s a shift. Now on the other side, if the business is going to plan or going better than hoped.

00;11;39;03 – 00;11;58;15
Speaker 3
And we want to push that out because we say if we can grow it another 10%, 20% over the course of the next 3 to 6 months, let’s do it then. That’s a conversation that we can obviously strategically have. But, you know, we couldn’t we couldn’t all of a sudden flip the script and say, no, let’s just hold onto this the next ten years, because ultimately, you know, it just changes that operating model.

00;11;58;15 – 00;12;15;26
Speaker 3
I would say that’s our current state, you know, where it’s hatched, you know, a credit facility, who knows what the future holds. And if we do the things that we hope to do, then ultimately that might shift. And as that becomes true venture and you know, who knows where the actual capital comes from, maybe the model starts to evolve.

00;12;16;04 – 00;12;36;24
Speaker 3
I would say from my personal perspective, South call or not, what we’ve built inside of a and multiply me is effectively that the building blocks to facilitate a business like south call. But for me I see so much opportunity beyond that and just coming back to sort of my philosophy as Scarlett can understand, fix and build any business that exists.

00;12;36;24 – 00;13;03;25
Speaker 3
And we focus on e-commerce today, but we have dabbled in a few other areas and seen some pretty good successes. We’re starting to work with some B.S. you know that VCs that have, you know, a host of portfolio companies and sort of moving into more of a scale up phase. And, you know, we’re looking to explore that market and multiply, make and find high value, low cost talent so we can effectively strategically scale the business and create efficiencies and reduce the operating costs, both from an operational perspective and a staffing perspective.

00;13;03;25 – 00;13;28;03
Speaker 3
And for me, when I meet founders that are as passionate and motivated as I am, I wish that I had the resources that I have today. Four years ago, it would make a world of difference to sort of how I would operate. So I would say on a personal level, I’m very open to looking in time at investing in companies and, you know, injecting our resources that we have inside of a and multiply me and South coal is one example of that that requires an exit.

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00;13;28;03 – 00;13;47;19
Speaker 3
But I’m you know, I guess my point of all of this is that I really believe in this type of model where we can really help people grow and hit that potential. And I don’t think that forcing them to exit is, you know, the long term strategy here. It just makes sense when we talk about ecommerce businesses, how capital intensive they are and how our capital structures are created.

00;13;47;19 – 00;13;51;04
Speaker 3
So that’s second question. First question, you’re going to have to remind me.

00;13;51;04 – 00;14;06;23
Speaker 4
First question is there was a lot of expansion and a lot of plans, you know, six months, 12 months, 18 months. And so yeah, EBIDTA Trailing 12 months are we are we make that shift there on on the cash flow piece and to squeeze into squeeze for exit or opt. I’ll say optimize for exit.

00;14;06;23 – 00;14;25;06
Speaker 3
Yes. Yes. So I dropped that little nugget earlier on and let me preface all of this was saying I’m not the investment banker. You know, Jason and Chris, Jason, who’s been doing it for 25 plus years, so many, many companies. And Chris, who is his business partner, you know, that’s that’s really their shtick and that’s that’s what they do.

00;14;25;06 – 00;14;48;08
Speaker 3
But the nugget that I dropped earlier is that I think there are ways in which you can alter the perception and look more at the upside potential of the brand. Like I was saying, I’d be the future 12 months and the upside potential of what that looks like is what we would be going for. And again, I don’t know how they work their magic, but I’ve seen it happen and I understand that there’s definitely, you know, a million different ways, especially coming back to it.

00;14;48;08 – 00;15;12;12
Speaker 3
I would look to find a great investment banker or broker to sell multiply me or a scholar if and when that day came and I would say they have a very fine art around it. Now, I would definitely say that we are trying to frontload a lot of the work that’s done here. So, you know, when it comes to the heavy investments and things like that, I don’t see us burning the candle at both ends and trying to, you know, blow it up into the very last minute.

00;15;12;12 – 00;15;36;02
Speaker 3
You know, it’s got to hit some degree of steady state. But one of the things, obviously, that we bring to the table and I heard this analogy today and I loved it and I really think that it’s a it’s a strong understanding about the value proposition of Escala. And what we’re effectively doing inside of South Co is that, you know, when you look at the market and you look at I was saying I was having a chat with Chad Reuben, if you know Chad prophecy, he built Shabana as well.

00;15;36;02 – 00;16;01;23
Speaker 3
Great dude. Anyway, he was saying that, you know, he was asked the question, you know, did does he invest in property or is renting his thing? And he’s like, well, I’d prefer to invest in in, in, in property. You know, it appreciates it adds value and and that’s great. And he said, well, when you look at a company, right, when you’re looking at a company, effectively what you’re doing is you are renting the talent until they leave and then they go on and you lose it all unless you have processes attached to it.

00;16;01;24 – 00;16;18;21
Speaker 3
And that’s where you really the asset that is the business. So the brand. And so what we’re looking to do here as well is we document all of the processes that happen inside of the business and create a much more valuable asset when it comes to exit, because any potential buy it and look under the hood very quickly and understand exactly how to run and operate this business.

00;16;18;21 – 00;16;37;18
Speaker 3
And, you know, sometimes we’ll even build in how to scale it. So coming back to the question, we definitely would frontload components of it. I think there’d be an element where we’re trying to actually sell on that future upside potential. And the last point about it is that we’re talking about, you know, at this point larger brands, brands that are likely going to go to a strategic or PR firm.

00;16;37;18 – 00;16;50;00
Speaker 3
So it’s going to make a lot more sense to them than, you know, a typical aggregator that two years ago was just a bidding war for who would pay the most for the exact same thing because it made sense at the time. That maybe makes a little bit less sense today.

00;16;50;00 – 00;17;11;15
Speaker 4
Yeah, just one comment, as I think, you know, having having everything like multiply media scale, having everything involved there. So when you when you do go to market, someone looks under the hood, they’re going to see like a nice structured. I think that just elevates it even more as a buyer look shopping around it, I saw that, Oh, wow, this is like crucial especially, you know, going to be strategic where they’re going to put something in place.

00;17;11;16 – 00;17;16;06
Speaker 4
Cool. Sir David, any any any last questions for Johnny before we run him through the fire round?

00;17;16;06 – 00;17;24;18
Speaker 2
No, This has been an awesome discussion. Really good to learn more about South Call and everything that Johnny’s been up to and I think it gives a lot of our listeners.

00;17;24;21 – 00;17;25;11
Speaker 3
Some.

00;17;25;11 – 00;17;39;19
Speaker 2
Things to be thinking about. Whether they’re going into an exit, thinking about an exit, or maybe are just on the front end of building a business that they eventually want to exit. So a lot of great discussion here and yeah, awesome episode. So let’s get in the fire.

00;17;39;21 – 00;17;41;01
Speaker 4
Absolutely. Johnny, you.

00;17;41;01 – 00;17;45;10
Speaker 3
Ready? I am. I hope I have the same answers I gave last time. I can’t remember what they were.

00;17;45;12 – 00;17;49;04
Speaker 4
I don’t either. So we’re on the same page. All right. What is your favorite book?

00;17;49;04 – 00;18;10;15
Speaker 3
Favorite book would be trying to think of things that I’ve read most recently. I’m reading a book right now, I think it’s called The Founder’s Dilemma, and it’s an actual study that’s done on about 10,000 founders. And just really interesting to see, like all of the things that you might think are like unique to you and the stages of your business.

00;18;10;15 – 00;18;30;24
Speaker 3
And like, do I give out equity or what does it mean to have an effective partnership or how do I pick my business partner? All those types of questions they’ve done like a real study. So I found that in my most recent raids, I’d say that’s pretty, pretty good. But I don’t really look past books like Traction iOS and you know, from a professional standpoint and multipliers buy list wise.

00;18;30;24 – 00;18;32;24
Speaker 3
But I mean, you know, let’s stop there.

00;18;32;27 – 00;18;37;09
Speaker 4
Yeah, those are all great books. So Founders Dilemma. Excellent. What are your hobbies?

00;18;37;09 – 00;18;49;13
Speaker 3
I’m big into my weight lifting. Big fan of my a dog over here who’s a slayed a lot of time together. Yeah swimming pretty active pretty pretty active guy and genuinely enjoy reading.

00;18;49;13 – 00;18;53;12
Speaker 4
Okay. Excellent. What is one thing that you do not miss about working for the man?

00;18;53;12 – 00;19;13;00
Speaker 3
Having to put together an entire strategy piece and presentation, Having to think like my boss’s boss and how she thought about a situation and trying to reverse engineer it so that I could play the whole corporate game. As to this has there’s no value in what I’m delivering, but I’m delivering it to a pays everyone else. I do not miss even one second of that.

00;19;13;00 – 00;19;23;07
Speaker 4
I love that answer. Yeah. Being more agile, right? Quicker. Quicker. What last one. What do you think sets apart successful e-commerce entrepreneurs from those who give up, fail or never get started?

00;19;23;07 – 00;19;44;12
Speaker 3
Focus. I think focus is absolutely everything and being very intentional and sticking it out. And even if you don’t get it right the first, second, third time, I think that it’s absolutely key. But coming back to those that don’t start, I mean, you got to be in it to win it and your worst possible outcome is probably a nice salaried job working for the man.

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00;19;44;12 – 00;19;46;06
Speaker 3
So what have you really got to lose?

00;19;46;06 – 00;19;49;29
Speaker 4
Yeah, I love you also. David, over to you to close out the show.

00;19;49;29 – 00;19;59;06
Speaker 2
Absolutely. Jonny, If people are interested in getting in touch with you, whether that be through a Scala by me or Southcorp, what would be the best.

00;19;59;06 – 00;20;18;29
Speaker 3
Way you can find me on LinkedIn? Jonny Cause. Linsky I’m relatively active there. Jonny Add multiply me, am I or we are Scala or South Chalco. I mean, all of those will hit me. So yeah, always happy to help give any unsolicited advice. It’s usually terrible. But yeah, that’s, that’s really where you find me.

00;20;19;00 – 00;20;22;29
Speaker 2
Thank you so much for being a guest on the Firing podcast and looking forward to staying in touch.

00;20;23;04 – 00;20;24;05
Speaker 3
Thanks for having me, guys.

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