Selling Your Amazon Business with Kevin Flaherty from Thras.io Deal Team

Episode 59

In this episode, Kevin Flaherty from Thras.io joins us to talk about how his company acquires third-party businesses in the Amazon space. In 2020, Thras.io was named the “fastest profitable U.S. company to ever reach a $1 billion valuation.” Before joining Thras.io, Kevin worked as an analyst at Advantage Capital where he would work on providing capital to both start-up and expansion state companies to create growth and strong returns for investors. 

Let’s listen to Kevin and learn how to have an 8-figure exit by selling your Amazon business! 

[00:01 – 05:40] Opening Segment

• Let’s get to know Kevin Flaherty
• What is Thrasio? 

[05:41 – 14:56] 8-Figure Exits 

• Do you have an Amazon business you want to sell?
• Kevin talks about the huge potential of the e-commerce industry
• Kevin breaks down the Seller’s Discretionary Earnings 

[14:57 – 23:53] Thas.io’s R3

• What are “add-backs” and why should you know it? 
• Want some Amazon refunds? Check out Getida
  • Promo code: FTM400
• Hear from Kevin their criteria in acquiring businesses

[23:54- 34:17] Next Generation Procter & Gamble

• What’s Kevin’s vision for Thras.io? 
• Are you ready to sell your business?
  • Kevin tells us how you’ll be compensated
• Kevin talks about their due diligence process 

[34:18 – 38:17] Closing Segment 

• Let’s commence the Fire Round!
• Connect with Kevin! Links below 
• Final words

Tweetable Quotes:

“I think at the moment…e-commerce is in the second or third inning in terms of a larger game being played.” – Kevin Flaherty

“People can get overwhelmed by the growth or get overly bullish and things start to go sideways from there.” – Kevin Flaherty

Resources Mentioned:

• Book: The Arsenal of Democracy
• Book: Billion Dollar Brand Club

Email kevin.flaherty@thras.io to reach out to Kevin and check out their website or social media pages: LinkedIn,, Facebook, Youtube, and Twitter.

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Kevin 0:00
Whereas now sort of 2.8 to 3.5 times is sort of reasonably acceptable. And there’s, I would say, a large portion of that is competitors being hungry for deals. And you know, just being aggressive in terms of valuations, to get a few acquisitions under their belt, right? I think sort of at the moment, sort of e commerce is in the second or third inning, in terms of, you know, a larger game being played. It’s very early in sort of its lifecycle. And I don’t think that investors or really, entrepreneurs have been super keen to sort of the democratizing power that these asset classes really have, which is sort of why the multiples are where they are. So for us, I would say, you know, Amazon, going forward will be sort of research and development arm of thrash to where we’re able to pick up excellent products who have market validation, and then expanding them across sort of platforms. So we really view ourselves as the next generation Procter and Gamble or CPG company.

Intro 1:10
Welcome, everyone, to the Firing The Man podcast, a show for anyone who wants to be their own boss. If you sit in a cubicle every day and know you were capable of more than join us, this show will help you build a business and grow your passive income streams in just a few short hours per day. And now your host serial entrepreneurs David Schomer and Ken Wilson.

David 1:34
Welcome everyone to the firing command podcast. On today’s episode, we are joined by Kevin Flaherty who’s on the deal team at thrash Co. Now, Ken, we just got done recording this, and I was absolutely blown away about what Kevin had to say, specifically about selling your Amazon business. What were some of your key takeaways?

Ken 1:53
Yeah, absolutely. It was, it was an amazing interview, I’m really happy to have Kevin on the show. I’ve heard a lot about Thrasio, and just kind of what they’re doing in this space. And it’s pretty exciting. You know, he explained a lot of a lot of about how the deals go down. And the acquisition phase and diligence, you know, some of the key key takeaways for me, where it kind of really broke down about exactly what is the net margin that they’re seeing from a lot of these companies that they’re analyzing, and then had a lot of insight. So hey, kind of gives me a marker to shoot for? What about you, David?

David 2:25
Yeah, you know, I personally on my vision board, I’ve got eight figure exit, and I have never exited a company of my own. And so I think Kevin was able to provide really good insight into what happens when you have a successful business, and you want to unload that right, you want to sell it. And so I would say that this is something that only successful entrepreneurs are going to be able to experience. And I think there’s a lot of great takeaways here. Whether you’re just starting a business, or have a business that you’re planning on selling. I think you’re there’s a lot of great nuggets here. And you’re really going to enjoy this episode. Welcome to the show. Kevin,

Kevin 3:01
thank you very much for having me, David. And Ken, it’s great to be here and happy to chat with you both.

David 3:06
Awesome. Well, first things first, tell us a little bit a bit about yourself. And what led you to joining the deal team after Seo?

Kevin 3:13
Yeah, absolutely. So when I was in school, I was a double major in econ and poly sigh with a minor in philosophy. So I was a little bit all over the place. And sort of a little theoretical, I always found myself drawn to entrepreneurship, but also public policy. And that led me to a role over at advantage capital where we were investing, like you had rightly mentioned, in startups as well as expansion stage businesses, typically industry agnostic, so we’re taking looks at everything from a, you know, restart of 110 year old manufacturing business, as well as sort of series A equity investments in edtech, software companies, and everything in between, largely what what our mandate was, is we were investing in underserved areas of the capital markets. So you know, not your Boston’s New York San Francisco is, but largely, it was Midwest and southeast, and we’re investing up and down the capital stack everything from stretching your debt, all the way down to minority equity, non control stakes. And really what I found as I was, you know, both sourcing and then evaluating these different types of investment opportunities was that I was really drawn to the CPG aspects of different companies that we were looking at, you know, different footwear brands, or, you know, oddly enough food brands, things that you could the consumer could touch, feel, taste, you know, resonate with the the marketing and the messaging for each particular project or product, as opposed to sort of investing in a widget that would get you know, put inside of an airplane and you know, no one ever saw it, which don’t get me wrong is cool in its own right and has value in and of itself, etc. But I really liked the different brands and businesses at which you could It really resonate with the products at which you are selling. So I’ve come across thrashy Oh, and really realized, hey, look, you know, these guys are utilizing this unique Amazon platform. And there’s sort of a underlying an underserved market here of third party sellers who are looking to sort of liquidate this nice little asset that they’ve built through their storefront and through their brand. And they’re taking it over and really ramping it. And it’s really focused on the CPG space, you know, everything from specialists, pet deodorizers, etc, which is how I found my way onto the deal team at Thrasher to, you know, finding, evaluating negotiating deals for these types of businesses.

Ken 5:41
Kevin, we often hear about eight figure exits in our industry. And just the stress. Do you guys do you guys evaluate and acquire businesses in that range? And if so, whenever, whenever you’re looking at businesses in that size, is there is there anything in common to like, do you do you look for a specific amount of revenue amount of products? Or what are you looking for there that usually draws that high of evaluation?

Kevin 6:05
Yeah, absolutely. So that’s a that’s a great question. I would say within sort of the FBA space, in e commerce as a whole, there’s definitely sort of, we’re hitting that point where sellers and business owners are growing into that eight figure range. And we’ve definitely seen more than a few of them on our own. And I should also say that we’re probably one of the only wires in the market that has the capabilities to actually get a seller an eight figure exit, just given sort of our lifecycle and sort of the capital that we’ve been able to bring down. And, you know, that’s available to us for allocation into deals, right. What we typically look for at a higher level is what I typically say is strength zone for us as a business that might have 123, maybe four sort of hero skews, so skews that are generating, you know, 70% plus of the revenue, you know, concentrated on the Amazon platform, and, you know, doing 10 million bucks of top line revenue, that’s a down the fairway strike zone business for us. You know, we have capabilities to purchase brands on the lower end, doing a million dollars of trailing 12 month revenue, all the way up to $200 million of trailing 12 month revenue. So there’s just a wide range of brands and businesses that we have capabilities for, you know, to get into your other question of how do you get to that eight figure exit? Typically, I would say sort of what ends up being a strike zone for us is a business that has 15% Plus, and net margins. And, you know, sort of we always value of business on trailing 12 month net profit or EBIT da or seller discretionary earnings, there’s sort of a few different names out there, right. And so it’s typically on a multiple of that. And so to the extent that you can get to a certain level of EBIT, da, then an eight figure exit is absolutely within your reach.

Ken 8:02
Okay, so a quick follow up on that now, this year, we’ve seen you know, it’s just Well, 2020 it’s just kind of all over the board. And towards the end of 2020 s s. e commerce, you know, kind of penetrates into retail more. I’ve heard that valuations are increasing. Now. Have you seen that? And if you have, how much have you seen the the valuations increase?

Kevin 8:26
Yeah, so so that’s a great point. I mean, I think when we first started, just to give you sort of a high level overview of who thrashy Oh, is how we operate, and sort of how we see the market today, because I do think sort of a history of where the market was compared to where it is today is is somewhat important. We started in September of 2018, I typically say, largely with a core group of five guys, our two CEOs are serial entrepreneurs, having started in either sold or taking public, over five different companies in different industries. They really came across the Amazon ecosystem, and e commerce in general, through an investment in a software company viral launch, where they really saw sort of the democratizing power of e commerce and the Amazon infrastructure, as I’m sure you guys know, and I’m sure that your listeners know sort of the barriers to entry to starting your own business from you know, 10 years ago, 20 years ago, 30 years ago, compared to today are just so much lower. And so they also saw the basis ripe for consolidation. Fast forward a little over two years to today, like you mentioned, David, we were able to, you know, raise over $1 billion of growth capital fastest profitable us startup to reach that $1 billion unicorn valuation have over 300 full time us employees over 200 overseas employees, and really have built out different spheres of excellence and expertise, etc. That said, you know, we’re the first to market and we’ve definitely over the last six to eight months. seeing a lot more competitors enter the space and a lot more venture capital enter the space to fund those competitors. And so with more competition, we have seen multiples go up, I would say sort of two years ago, even to last year, we were seeing multiples in sort of the two, two and a half times range. Whereas now sort of 2.8 to 3.5 times is sort of reasonably acceptable. And there’s, I would say, a large portion of that is competitors being hungry for deals. And you know, just being aggressive in terms of valuations, to get a few acquisitions under their belt, right? I can tell you that sort of known within the marketplace has as robust a track record, as us as it pertains to not just acquiring, but also operating and growing these sorts of brands and businesses. So we’ve definitely seen sort of multiples go up, we’ve moved with the market, but I wouldn’t say that there’s, you know, overly egregious in terms of movement.

David 10:59
Kevin, I want to dive a little bit deeper on multiples, and, specifically, but before I do that, I want to explain to the listener who may not be as familiar with this, so I’ll use an example of a company with earnings of $100,000. If they sell at a multiple of three, right, they would sell for $300,000. So that’s just kind of a simple example, to illustrate the point in what we’re talking about here. Now, my background in in my previous life, I’ve worked with a lot of private equity funds. And I would say private equity tends to invest in more legacy industries through SEO is definitely an exception. But I would say, the deals that I worked on, and I probably worked on about 50 were very heavy in manufacturing. And those would typically trade somewhere between five and seven times EBIT, da. Sure. And when I got into e commerce, and I started looking at the multiples that e commerce companies are selling for, I was blown away, they would appear that they are a deal, right? And the only observable difference I’m interested in your thoughts on this, the only observable difference is often it’s not asset heavy. So right, a manufacturing plant is going to have a warehouse, they’re going to have equipment on my balance sheet in my own company, I have my laptop computer, and I have inventory. That’s it. And so anyway, can you talk a bit or speak to that the separation between multiples in your traditional private equity investment in what you’re seeing in e commerce?

Kevin 12:27
Yeah, absolutely. So you know, it’s funny that you say that my prior background over at advantage, we’re looking at, you know, heavy manufacturing and industrials as well. And, you know, we definitely agree, right, I think, sort of, at the moment, sort of e commerce is in the second or third inning, in terms of, you know, a larger game being played, it’s very early in sort of its lifecycle. And I don’t think that investors or really entrepreneurs have been super keen to sort of the democratizing power that these asset classes really have, which is sort of why the multiples are where they are, I should also mention that, you know, we are an operating company, we are not a private equity fund, where, you know, we’ll come in, we take over the brand, the business, we fully take over operations in house. So, you know, unlike a private equity fund, we don’t require any sort of operate that the seller or the operator to stay on for any amount of time sort of post acquisition. And, you know, unlike an opera private equity fund, we are solely focused on optimizing profitability in sort of the larger sense versus sort of financial engineering, I should say. So just one small, small sort of deviation there.

David 13:46
We have talked a lot about sellers discretionary earnings. And for somebody at home wondering what the sellers discretionary earnings of their company is, can you walk our listeners through that process of how they would determine that?

Kevin 13:59
Yeah, absolutely. So let’s assume that you are an Amazon centric business or, you know, e commerce as a whole, typically, the way that we look at it will be, you know, sales minus product costs, minus for a lot of our cases, Amazon fees or other merchant fees, whether that’s Shopify Walmart, etc, you know, Commission’s that they might take just utilizing that platform, minus marketing costs, minus operational expense, and that will come to sort of your seller discretionary earnings. And so it’s a pretty simple calculation. And, you know, as it pertains to a lot of people ask, what about add backs or things along those lines, you know, typically, you know, adding back as a salary or for the owner or rent, if you know, a warehouse or an office is being utilized. things along those lines are more than reasonable for add backs and things along those lines.

Ken 14:57
So Kevin, my background is the network engineering And so, you know, the m&a and the ad backs and all that stuff’s kind of new to me. Right? So, and and also for our listeners, you know, so what, can you please explain an ad back? And can you get maybe two or three examples of ad backs? When you’re analyzing a deal that, you know, you’re just like checking the box? Like, yep, those are definitely add backs, and then maybe some that are red flags for you guys?

Kevin 15:23
Yeah, absolutely. So, you know, typically, an add back might be, I’m looking at a business and looking at their profit and loss statements, I see that the owner is paying himself, you know, $250,000 a year, I look at that, and I say, hey, look, you know, the owner is not going to be staying on, you know, post transaction, and we won’t be incurring that cost, you know, after the transaction has taken place. So what we say is okay, you know, we will add that $250,000 back into the earnings to get sort of a normalized earnings set. And what it effectively does is, you know, it gives the seller more normalized earnings, and, you know, through the multiplier, you know, they’ll be able to sort of get more out of the deal transaction, similar for rent, right, I’m not going to be renting out a particular office space, or, you know, warehouse or things along those lines post transaction. And so it’s reasonable to say, hey, look, we can add that rent back, because we won’t be utilizing it going forward. And it’s not sort of essential to the transaction. And similar thing happens, right? It’s seen the owner benefits through the multiplier effect. And then third, and last, I might say, sort of, if there’s a company car, or, you know, things along those lines, if a seller is running their personal expenses through the business, you know, we can typically add that back, and, you know, have no qualms about it.

David 16:50
If you look at 10 deals, how many owners are running personal expenses through the business? Ooh,

Kevin 16:56
that’s a good question.

David 16:58
It’s super taboo. I mean, no one talks about it. You know what I mean? Yeah, but I can say, my experience, it’s tends to be over 50%, from companies that I’ve looked at. Would you agree with that?

Kevin 17:10
Yeah, you know, it’s sort of so when we will look at profit and loss statements, typically, you know, we have capabilities to recreate them very quickly using Amazon transaction data, and product costs. And so we can take it will say, you know, Amazon sales, product costs, Amazon fees, marketing, and then sort of operational expense. And we can sort of get a quick and dirty estimate of SD, if profit and loss statements are provided, I would probably say that’s accurate, you know, 40 to 50% will have some sort of a personal expense running through, you know, their own, you know, profit and loss statements that they might utilize for taxes, or what have you.

David 17:49
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So Kevin, you had mentioned at the beginning 15% profit margin. And I was that was refreshing to hear. And I’ll tell you why. In a lot of masterminds in a lot of Facebook groups, you hear about people, they’ll talk about like a 50% or a 60% profit margin. And I always ask myself, you know, what am I doing to you know, I would say my own company, my rule is I source products that I can sell for three to four times landed cost. Alright, so if I can source it for 10, I want to sell it between 30 and 40. And after everyone gets paid after PPC after everything, I tend to land somewhere in that 15 to 20% profit margin. But I hear of these stories of people with with much higher and I wonder if they’re inflating it or or if they may be talking about gross margin. And so what do you tend to see, you know, from that net income level, on a good company, what do you tend to see?

Kevin 19:36
Yeah, I would say anywhere between 15 to 35. ballpark is sort of on average, what we’re seeing with I’ll call on average 25%. You know, and it sort of depends on the category set, how commoditize the product is, what the review mode is what the pricing strategy has been. You know how competitive The keywords are etc, you know, the whole deal. But I would say sort of 25 ish percent for a really solid private label business is, is, you know, an average net profit or net income sort of expectation. I would also sort of mention if things have gotten a little funky with COVID. Right. So from I’ll call it April through June, you know, with pricing, you know, going through the roof, and the whole nine yards, a lot of that, you know, a lot of the pricing increases drop straight to the bottom line. So, you know, for that sort of stuff you need to look at and say, okay, what’s a normalized net margin here? Because Do I really think that sort of a spatula is going to be running a 55%. net margin, you know, in the foreseeable future? No, probably not. And so stuff like that needs to be taken into account.

Ken 20:49
Now, Kevin, I want to get into something that you mentioned on the MLS comment, and it was a review mode, can you can you dig a little bit deeper in that and describe what you mean by review mode? And what are some common or, you know, how you accounting for those are?

Kevin 21:03
Yeah, absolutely. So you know, trash-eo has what we call an R cubed philosophy in terms of looking for acquisitions. First is reviews, so does the product, or the hero, Ace and or the brand have a quote unquote, review moat. So you know, if the best seller has 20,000 reviews, and the next best seller is sort of the number two, number three, number four, all hanging out at around, you know, eight to 10,000 reviews, then, you know, it’s reasonable to assume that going forward, it’s going to be much more difficult for the competitors to catch up. Conversely, you know, I get asked a lot, well, what’s a good number of reviews? Depends on the product category and product set. Right, you know, embedding 150,000 reviews, is not unreasonable, I think that the top seller actually has that. Whereas, you know, if you had 50,000 embedding, it’s just not as attractive. Whereas if you had 50,000, for a spatula, you know, that becomes incredibly attractive. Right? And so it’s all sort of relative. Second, I would say is, in our cube philosophy is ratings. So it’s saying, you know, what is the best seller ranking? No, thrashy Oh, is focused on purchasing high quality products and offering them to consumers at affordable pricing, when they see that it’s being sold by thrashy? Oh, we want sellers to know that it’s quality. And so, you know, typically, we’re looking for products and brands that are selling, you know, different products at 4.4 stars and up in the rankings. You know, typically, we like to pick off product category leaders, right. So, typically, in the top 10, within a sub category is what’s attractive to us, what we’ve found in terms of capital allocation, it’s the most efficient way to, you know, acquire leaders and maintain that leadership position, versus maybe purchasing a more mediocre product set or brand, say in the teens 20s 30s in terms of ranking, and try and sort of fight an uphill battle to break into the top 10.

David 23:02
That’s really interesting. And and I, you know, one fundamental piece of finance is buy low, sell high, right, find your your undervalued assets in it, it seems, you know, that review mode, right? kind of goes against the grain of that a little bit, right, you’re buying the winners. But I think in this space that that makes absolute sense. You know, one thing I want to move on to is diversification, so I can look at my own company, and in 2020, about 97% of my sales came from Amazon, the remaining 3% would have come from Etsy, my own website and eBay. And when you’re looking at a company, obviously, your guys’ sweet spot is Amazon. But how important is that diversification in terms of risk when you’re looking at a company just does diversification make that company more attractive to you?

Kevin 23:54
Yeah, so that’s a great question. And I think that that also sort of loops back to your original question surrounding multiples, and why they’re sort of on the lower end, right. You know, there’s a lot of risk as it pertains to Amazon itself on a platform and having that sales risk sort of lowers the the multiple, willing to be paid, as opposed to having other either sales channels, whether that’s retail or marketplaces, etc. We’re selling directly through your own website. For us, I would say sort of sweet spot is 70% plus on Amazon, with having other sales channels. I can tell you that sort of internally, we have specific teams, not just for Amazon, but Amazon International. So you know, the UK marketplace, the EU marketplace focusing really heavily on the German marketplace where you know, we’ve allocated over $200 million of capital to make acquisitions. In the UK we’ve focused over $250 million dollars I believe, of capital to make acquisitions, but also in other you know, sales channels, whether that be Walmart, to a lesser degree eBay, but also building out standalone direct consumer websites. For the brands that we do purchase, and you know, what we do internally is take a look and say, hey, look to the unit economics makes sense for this to be a quote unquote, true, you know, direct to consumer website or sales and transactions are made on that website? Or does it make more sense to revert or redirect traffic back to the Amazon listing at which, you know, theoretically, you should have a higher conversion rate, because people were looking on the direct consumer website, which you know, will improve your bestseller ranking, and the flywheel continues onward. Right. And then lastly, you know, where appropriate, we have a team specifically allocated to get products, where appropriate into brick and mortar retail. So for us, I would say, you know, Amazon going forward will be sort of research and development arm of thrash to where we’re able to pick up excellent products who have market validation, and then expanding them across sort of platforms. So we really view ourselves as the next generation Procter and Gamble, or CPG company, were sort of the things of the past that made CPG companies successful being, you know, owning your own manufacturing, so that you could manufacture one or two skews very cheaply, you know, having a spray and pray model as it pertains to advertising, mostly through TV, and you didn’t really know sort of who your demographics were. And then three having a stranglehold on retail distribution to really get your products into people’s hands, sort of Amazon and e commerce as a whole has really shaped and shifted that model. Now, smaller companies can have nimble supply chains, you can really target your ad spend, you know exactly who you’re hitting. And you can sell directly to the consumer, whether that be through a platform, or you know, through your direct consumer website. And so right now, yes, we’re Amazon focused, but we do have the infrastructure continue to bring these products and brands outward into different platforms and sales channels. And I apologize, I know that was a long winded answer to your question.

David 27:01
I love that. And the comparison to Procter and Gamble really hits home, right that that was, in the 90s. When I was first started following stocks, I was one of the first ones that I started watching, and I really liked that explanation. So thank you for being thorough, cannot kick it over to you.

Ken 27:19
Yeah, yeah, no, I like that explanation in a totally makes sense. But what you know, CPG, for listeners out there, the consumer packaged goods is CPG. Just throwing it out there. Because I when I first heard that, I’m like, you know, what the heck is that. But anyway, so moving on to some more fun stuff, Kevin. So let’s say, you know, I want to get paid. I’m an entrepreneur, I’ve been, I’ve been jamming away for a year, right, like three or four years building my company. And I get to a point where either one, I’m, I’m overwhelmed, or I don’t know how to grow anymore. or two, let’s just say I’m fed up, and I want to, I want to move into something else. And so, you know, I built it up, let’s just say we’re gonna throw it out there to put some real numbers I built up, I’ve got a million dollars in revenue, I’m an Amazon FBA centric business. And I’ve managed to, you know, to grow my bottom line to 25% net profits. And so I call Kevin, hey, I want you to take a look at my business. You look at it, and you’re like, yeah, this is a good fit. So can you then can you walk me through how that would go? How do I get compensated? And that whole process?

Kevin 28:26
Absolutely. So, you know, typically, I would say, this thing, you know, assuming it’s a good fit, nice 25% margin making $250,000 in the last 12 months, you know, our typical deal structure comes in in three different tranches. First, tranche, upfront, guaranteed payment due to the seller on the day that the transaction closes, ballpark range, you’re gonna see us probably be in the two to three times range. So anywhere from, you know, 500 to $750,000. Right? Then, you know, what we’re gonna say is, hey, look, can you know, we love the brand, we love the business, not inferring, that you’re doing any of these things, but I’m sure that you have seen some of the underbelly of Amazon, right, and some of the risks inherent to that, whether that be blackhat attacks, or black hat tactics, fake five star reviews, free giveaways, review, manipulation, etc. You name it, we’ve seen it. So typically, what we do is say, hey, can just as long as revenues remain flat 12 months post acquisition, we’re going to hold back a smaller portion of the deal economics, on average, we have been able to grow top line revenue, over 200% 12 months post acquisition. So largely, we view this this portion of the deal structure as an insurance policy to make sure that, you know, you ultimately have put your stamp of competence on the brand, that under the right care with the institutional infrastructure and resources that we have, it will at least continue on its current trajectory. So ballpark, we’re going to be in the point 152 point three times seller discretionary earnings range in terms of, you know, compensation there. So again, smaller portion of the deal economics, largely an insurance policy. Third, and what you know, sellers find, we find sellers get most excited about is an urn out component ad saying, hey, look, can David, we like the brand, we like the business and you know whether, if not for time capital skill set, quite frankly, interest, what have you, you know, there’s more room to grow here and no obligation from you guys to stay on and continue to operate in the day to day. But we do view all of our acquisitions as partnerships, and do want to allow you to participate in the upside that we’re able to generate. So typically, what we do is we’ll structure an urn out, which says that the salary will be due 50% of all profits over that $250,000 Mark, at the end of year one. And then at the end of year two, it would be 50% of all profits, or 50% of all net profit over that $250,000 Mark again, so, you know, the threshold does not ratchet up, which becomes particularly attractive. When you look at our track record. On average, we’ve been able to grow SDE of brands across our portfolio, over 150% 12 months post acquisition. And to date, you know, we’ve made over 100 acquisitions within the space, and so have the most robust track record in the market to you know, really talk about earnout performance and things along those lines. And so that’s sort of the holistic deal structure that we have in mind, sort of fair market payment for past performance of the brand, but also participation in the upside that we’re able to generate.

David 31:42
Are you guys only making 100%? acquisitions? Yeah, okay. Okay.

Kevin 31:48
So we do 100% acquisitions, and sort of our diligence process lasts around 40 days from the time that a term sheet is signed to the time that the transaction actually closes?

David 31:57
Can we dive into that diligence process? What are you looking for? What are you analyzing, you know, what is a good company look like on the other side of diligence versus what can kill a deal? Yeah, that diligence phase? Yep. So,

Kevin 32:11
you know, I typically say, at this point, having done over 100, different transactions, our close rate, from the time that we you know, signing a term sheet to close is over 95%. So, you know, not like a typical private equity buyer who, you know, can kick the tires, tie up and diligence block at the last minute. At this point, we know exactly what we’re looking for. And our general philosophy is trust, but verify. So the big things is sort of, you know, verifying financial statements through third party verification. Typically, Amazon or, you know, Shopify, or Walmart is the source of truth in terms of financials, as well, as, you know, going through credit card statements and purchase orders and things along those lines, then sort of getting into the weeds of how the owner has been operating the business to date, so that there’s a smooth transition in terms of marketing, transitioning over supplier relationships, things along those lines. To date, I would say, you know, once we’ve done a term sheet, we do have every intention of closing that deal, if we uncover some sort of egregious black hat tactics that weren’t disclosed previously, or, you know, what the seller has represented pertaining to financials, you know, world egregious, that’s something that a larger conversation wouldn’t need to be around. But if everything’s sort of ballpark, where we agreed on the term sheet, then, you know, we have every intention of closing that deal, I would say in terms of sort of what’s been difficult things for us is businesses with a large amount of skews, right, so let’s call it 3000 skews, or 5000 skews. Just from an efficiency standpoint, it’s much more efficient for us to acquire a company that might have you know, 20 skews doing 10 million bucks of revenue, versus, you know, 5000 skews doing 10 million bucks of revenue, right. So you know, businesses with a large skew count become tough for us. Other than that, you know, everything else, for the most part is pretty much down the fairway, we do typically tend to stay clear of the apparel space, just because inventory management can get tough, and have to date stayed clear of the supplement space.

Ken 34:18
So to be respectful of your time, Kevin, this conversation has been going amazing, too, by the way. David, before we get into the fire round, do you have any last last questions? No, I

David 34:28
don’t this has been tremendously helpful. And and one thing that I think Kevin has been able to provide is insight into what goes on when you have a successful company. You know, I have seen the m&a space on the consulting side of things, but I’ve never sold a company of my own. And I think a lot of people aspire right to grow a large companies sell it and knowing what happens during that period of an entrepreneurs life is super helpful. So yeah, let’s let’s get right into the fire round.

Ken 34:58
Yeah, Kevin. Are you ready?

Kevin 35:00
Absolutely.

Ken 35:02
What is your favorite book?

Kevin 35:03
So I would say one of my favorites of the last year would be American man arsenal of democracy talking about World War Two and how the Ford company had to shift over to manufacturing b 12. bombers from manufacturing cars. And it was pretty pertinent to sort of the march april timeframe of shifting manufacturing over to sort of masks and PV and was just a generally a good story that a lot of the stuff that’s currently going on sort of isn’t necessarily unprecedented. Do you see space, I like the billion dollar brands Club, which I recently read, just giving sort of a general outline of how the DTC market has really transformed. So those are two good ones.

Ken 35:44
Okay, what are your hobbies?

Kevin 35:45
hobbies, I’m a huge fan of Providence college basketball. So I am originally from Providence, Rhode Island, still currently live here after moving back from New Hampshire, when I was at advantage and have basically a diehard season ticket holder, and it’s been a good couple of years. So that’s one of my biggest hobbies. Also, I like hiking and skiing for my time in, in New Hampshire.

Ken 36:09
Okay, last one. What do you think sets apart successful e commerce entrepreneurs from those who give up fail or never get started?

Kevin 36:15
I would just say getting into it, you know, right away sort of the act of having some sort of a clear focus in mind and being able to adapt, but also not sort of getting discouraged right away, right. I think with Amazon, and e commerce as a whole things scale rapidly, or can scale rapidly and just having sort of some sort of guide work to one get yourself going and then to manage through the growth. Because what we do find a lot is sort of people can get overwhelmed by the growth or get overly bullish and things start to go sideways from there.

Ken 36:47
Excellent advice.

David 36:49
Kevin, how can people get ahold of you?

Kevin 36:51
Yeah, so they can reach out to me directly, Kevin, dot Flaherty. FLH er, t y, at thrash, th, r Ey, s.io. You also check out the thrash.io website. There’s a contact form there. And you know, you can tell us how you heard about us, you know, specifically this podcast or what have you and always happy to chat.

David 37:14
Excellent. Well, thank you so much for being on the firing demand podcast, and we’ll talk soon.

Kevin 37:19
Absolutely. Thanks, guys.

David 37:21
Thank you everyone for tuning in to today’s Firing The Man Podcast. If you like this episode, head on over to www.firingtheman.com And check out our resource library for exclusive firing demand discounts on popular e commerce subscription services that is www.firingtheman.com/resource. You can also find a comprehensive library of over 50 books books that Ken and I have read in the last few years that have made a meaningful impact on our business, or that head on over to www.firingtheman.com/library. Lastly, check us out on social media at Firing The Man on YouTube at Firing The Man for exclusive content. This is David Schomer and Ken Wilson. We’re out

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