In this episode Michael chats with founder/investor/podcaster Michael Michelini about building and selling an Amazon FBA business, joining the acquirer company, as well as advice for those who are thinking of selling an online business. Michelini is currently the Director of Business Development at Alpha Rock Capital.
GUEST BIO:
American social media & e-commerce specialist in China since late 2007, Michael Michelini is passionate to help companies do business in China leveraging the power of social media and e-commerce. He hosts a weekly podcast GlobalFromAsia.com to help businesses understand how to grow their business in China and other parts of Asia.
SKIP TO THE GOOD PARTS:
- 0:38 – 0:49 Michael M. tells how he describes to others what he does
- 0:58 – 1:18 Michael M. describes how he started, grew and sold his business Sissetonel
- 1:26 – 1:43 An explanation of the deal to buy Sissetonel and the how Michael M. was compensated
- 1:52 – 2:15 Michael M. talks about his first job and how he eventually ended up going out on his own
- 2:19 – 3:46 Why Michael M. decided to sell his business
- 4:12 – 5:31 Michael M. describes the process of negotiating when he sold his business
- 5:42 – 6:32 Michael M. explains his role at Alpha Rock Capital and he also describes Alpha Rock and what they do there
- 7:14 – 8:36 Michael M. talks about Alpha Rock’s fund, it’s minimum contribution amount, and how investors are paid
- 9:02 – 9:24 Michael M. talks about why they focus on Amazon FBA acquisitions only
- 9:24 – 9:47 Michael B. explains the advantages of focusing on one type of acquisitions
- 9:47 – 10:33 Michael M. talks about the type of Amazon FBA niches they look for when making acquisitions
- 10:33 – 10:41 Why Michael B. and Domain Magnate like the “boring stuff”
- 10:41 – 11:04 Where Alpha Rock finds deals and what their general price range is
- 11:11 – 11:52 Private deals vs. going through brokers and why Michael M. finds private to be trickier/riskier
- 12:01 – 13:50 Michael M. gives his advice for first time sellers
- 14:07 – 15:07 Michael M. talks about the advantages that Alpha Rock Capital and the team bring to the table when buying and managing FBA brands
- 15:16 – 15:41 Michael M. explains their growth goals for acquired businesses
- 15:41 – 16:42 Michael B. on Domain Magnate’s goals for newly acquired businesses and their consistent track record for the past 15 years
- 16:42 – 17:32 Michael M. about the important of deal flow
- 17:32 – 18:27 Michael B. talks about how they’ve had to reject investors recently because of capacity
- 18:27 – 19:58 Michael M. on combining multiple acquired businesses to build bigger brands
- 19:58 – 20:35 Michael M. explains the type of risk that Domain Magnate needs to mitigate for with it’s content sites
- 20:35 – 22:11 Michael B. talks about potential risk in their business and how they utilize separate seller accounts toe mitigate those risks
SHOW TRANSCRIPT:
Michael Bereslavsky 0:12 Welcome podcast listeners. Today we have Mike Michelini joining us to discuss his sale and transition to a different role. Hello, Mike. So tell us first, then people ask you what do you do? What do you respond?
Michael Michelini 0:38 I am a creative creative person, but, ecommerce cross border business between you know, Asia and the overseas market is usually the quick answer.
Michael Bereslavsky 0:49 Nice. So you’ve had an FBA business. Can I tell me when that started and how big did it get?
Michael Michelini 0:58 Sure. Sure. So I was actually doing e commerce before Amazon was so big but for this one it was Sissetonel, it’s a brand it was…we started on my podcast on my blog. We started it in 2017 about April and basically we grew it up just about two years, sold it for six figures.
Michael Bereslavsky 1:18 Nice and I understand that with this sale you also transition to in euro with the company that acquired this can you tell us about that?
Michael Michelini 1:26 Sure, sure. So part of the deal…we had a few partners in Sissetonel with the coffee accessories and everyone else of course was a pure play investor, cash or equity option. I took equity and I joined on as active partner at Alpha Rock Capital where biz dev and content creating…
Michael Bereslavsky 1:43 Was that the first time that you took a job that took a position in another company or have you had a traditional jobs before?
Michael Michelini 1:52 My first job was out of college. I mean, I thought I had to do the job before I can start my own business. I worked on Wall Street. Deutsche Bank from 2003 to 2007. And then, basically, maybe, I guess since then it has been on my own. But you know, I guess I’m an employee, but I’m also I’m a shareholder partner. Well, yeah, it’s basically maybe the first time since stuck in the US.
Michael Bereslavsky 2:15 And so how did you decide to sell the business? Why did you decide to sell it?
Michael Michelini 2:19 Sure. So I think it was planned from maybe even the beginning with starting the brand. It was a case study on the podcast to start something with the community. And there was a few factors, actually, I even wrote a book about it. I call it the e commerce Gladiator. It was a part of the podcast series. Well, honestly, I think there was a couple of reasons. One reason was I got to become to actively managing it. We went through a couple of CEOs sort of doing it, I was more than just like now I’m the content creator on the blogger on the biz dev connector. We had some turnover with with our CEO or our active partner. And there was also great opportunity Alpha Rock, actually Alpha Rock was a shareholder in the brand I had known mark and the other partners since Alpha Rock existed and we were always talking about working together. They were also on my email list and they were following the journey. So it was it just looked like it made more sense to join forces with the current management and scalability. You know, I think with your fun too, is sometimes when you do one on your own with one single operator, I know there’s lots of listeners and lots of people you know, Asia, around the world that are single owner operator businesses, of course, I have my VA and my team, but I really believe in the ability to roll up and scale and especially Amazon FBA, but like you do content sites, I think scale is is where the real leverage is.
Michael Bereslavsky 3:46 Yeah, absolutely. And so we often talk about negotiations and about deal making on this show. And I understand you cannot share any details, but I’m curious to learn about how the deal was negotiated. So he received some equity and probably some cash. And how long did the negotiation process take? Or how was it kind of discussed?
Michael Michelini 4:12 So, honestly, since Mark joins us…he was already doing his other Amazon businesses. And the idea was even brought up the year before. Honestly, I don’t think that’s normal, of course, probably for for most cases, but it kept getting brought up more often. I think it really only was really intense discussion for two or three weeks in July of this year with all the partners with the different negotiations of how much cash or equity and then the conversions and evaluation, the multiple, the terms. But yeah, I would say, I would say maybe really just a few weeks. I think that’s one of the nice things about Amazon FBA, maybe also with your side too, but we’re really just looking at the Amazon data you can audit pretty easily by logging into the Amazon Seller Central, we actually use a third party tool called seller board.com, which is a paid service where we just basically say, sign up for seller board, sync the data, share it. And then you can see that the revenue you can see the Amazon costs, basically then you have your SD, of course you have to know the product, supplier costs, but you look at the invoices, you get an idea of maybe some of the other fees. That’s kind of what a lot of investors like about Amazon is it’s pretty transparent and vanilla for the books.
Michael Bereslavsky 5:31 Yeah, it’s more straightforward than than most businesses for sure. And so what is your role now at Alpha Rock Capital and tell us a little about Alpha Rock Capital?
Michael Michelini 5:42 Sure. So you know, I’m I’m doing what I like to do content creation. We did a webinar yesterday for current investors so they could see more what was happening inside the business. I also have a podcast there, we can get you on. I ‘m doing a couple of different email newsletters, funnels, I’m still helping with the Amazon brands, advising and strategizing on content and the marketing and conversions, as well as I bring in both tools for us to use it in the Amazon side, or new team members, new investors like business development, and then about Alpha Rock Capital. It’s a US registered, I don’t think I can say fund. We’re filing suit with the SEC to be a formerly a fund. We’re calling ourselves an acquisitions firm for Amazon FBA companies. And what we do is we raise money to buy more brands. And right now we’re doing all at one top level holding company structure in the Delaware and then we have registered back office in Manila, Philippines where the majority of the team is operating. We have a studio there for the content with Virtuous Graphics, which we bought and we also have our investment side there. So there’s about 35 people in Manila, and that’s the quick, the quick one.
Michael Michelini 6:32 And how does it work from the investor side? Like, what is the minimum contribution? Or can you tell us about the equity profit share model?
Michael Michelini 7:14 Sure, sure, sure. So we could go lower, but I think there’s paperwork. So we usually try to do a minimum of 50,000. us. There has been some exceptions to that if if there’s some strategic purposes, or if they want to maybe start smaller, but there is an accredited investor requirement if you’re a US person, if you’re a non us is so much easier. I think you might know that too. And then the way we do is monthly reports, which we’re actually trying to do with these kind of like live webinars for investors only so they can talk to the partners taking ask questions. We’re trying to be as transparent as we can. There’s no dividends. I know some investors and potential investors want cash flow from it because it is a cash flow business, but we decided to roll everything back in into growth or future acquisition. And the exit strategy is we’re planning to do a sale of the whole fund to a larger fund in a few years and cash out, but the investors will already be a minority. We’re also opening up a slack group totally dedicated for the investors to ask questions and know and be transparent. And that’s that’s the current structure. But yeah, there are a lot of people that do want dividends, and we maybe have lost some opportunity. But we’ve stuck with our strategy of using that to reinvest back into acquisition.
Michael Bereslavsky 8:30 Yeah, sounds good. And how many investors do you have now? How many have you accepted?
Michael Michelini 8:36 Sure. So we’ve raised 1.4 million us right now and we have 12 to 15 investors total. Of course, they’re spread out around the world, Asia, Europe, US mainly. And then we have 10 brands under Amazon.
Michael Bereslavsky 8:54 Sounds good. So does Alpha Rock only focus on FBA and Amazon businesses? Do you also do some other acquisitions?
Michael Michelini 9:02 We did one affiliate site, honestly, it’s not our strengths. It’s a different type of work, so we actually recently sold that just to focus purely on Amazon. I think you might agree. I think that’s where the value can be had for the investors or for the fund is having a core strength and due diligence and deal sourcing and everything.
Michael Bereslavsky 9:24 Yeah, you have to you have to have the focus. And then you can develop advantages around a specific type of business. But that’s what we’ve learned as well. That’s why we primarily focus on content sites. So how do you guys do due diligence when it comes to your property review and indifferent Amazon brands and businesses to buy? Do you have some criteria that you can share?
Michael Michelini 9:47 Sure. I think the easiest is what we don’t buy. We don’t buy like supplements, electronics, fast fashion, like trends…
Michael Bereslavsky 9:55 So like short term businesses, basically.
Michael Michelini 9:58 Yeah, because nobody in our team is industry expert in those, plus the other reason is those also have a lot of blackhat sellers that do whatever it takes to get to the top of Amazon so usually in the more boring evergreen kind of home and gift and garden kind of is where we’re at you know, like my, my brand I brought into the team was coffee pots, coffee accessories, it’s always triggered Amazon I can’t share the exact niches but you know, like kind of the boring stuff actually that’s what Mark, you know the president of the company says, we like the boring stuff that makes money.
Michael Bereslavsky 10:33 Yeah, we like the boring stuff too, going into highly competitive niches is very different.
Michael Michelini 10:41 Yeah, it’s high risk. Yeah…And then basically we do a lot, we do buy a lot of course off of Empire Flippers we have some other brokers are also not going to big that’s another thing I should bring up. We’re buying into 200,000 to 1 million valuation range with two to three times yearly STP and we do that because we feel the private equity and business Investors are going a million plus. So we want to kind of go into smaller side.
Michael Bereslavsky 11:04 So do you mostly just buy from brokers by existing deals? Or do you also try to find some private deals?
Michael Michelini 11:11 We are learning how to do our own deal flow, it makes some of our brokers nervous. But I guess of course, that’s always a competitive advantage. You know, that’s why we’re starting to put out some content and, and trying to get more active in the community. But I would say over 75% has been through brokers, I’ve been also trying to bring in some deal flow, but it’s trickier. I feel like it’s riskier. I feel like the broker does kind of vet a lot of these people because I’ve, I’ve talked to people like, Oh, I want to sell my Amazon business. We want to invest because they hear about it and they want me to buy it and then I look at it and you know, it takes a lot of time. But of course we want to try to grow that and consider that but for right now we’re primarily buying brokers.
Michael Bereslavsky 11:52 Cool. Sounds good. So what kind of advice do you have for people who are looking to sell their Amazon business or considering to Sell the Amazon business.
Michael Michelini 12:01 I guess there’s a few things to think about, maybe why you want to sell? You know, obviously buyers always ask why? You should have your answer ready and hopefully be consistent and hopefully be honest. But I don’t think there’s anything wrong with saying you know, you’ve grown to a certain level and you’re kind of bored. I don’t think we mind like Alpha Rock, if people say they just want to start…they, there’s a lot of sellers it just like the whole, the beginning, right, the entrepreneurial hustle. So that could be a reason. So just have some reason of why. I think try to show some opportunity for improvements. I think I think I even read it in one of your pieces of content. But yeah, of course the buyer wants to see what what they can fix, what’s their opportunity for upside. So you know, I’ve noticed that a lot with the good sellers, they say, Oh, I didn’t do good on this, this would be a good way to improve the business and this would be a good way, of course having your financials but honestly, we don’t really dig into like your hotel fees and your airplane fees. That’s that’s after..that’s after what we care about. We do asset buys, we’re not buying your liabilities you know you don’t got to worry about that side especially but definitely try to have a brand we want to buy brands I mean we have bought some they’re just listings in a sense but we of course always like to buy one Brand Registry or us trademark or in the US so us trademarks. I think those are the key ones but I think showing some kind of opportunity for growth, try to sell when there’s a little bit at least maybe at least flat or up a little bit obviously agree you don’t want to show a downward start trend surprise sell into some strength and also you got to prepare for it you know, at least six months I was used a lot of people say a year but I think you don’t need to think wait a year or think about it for a year but don’t go too crazy. If you’re trying to sell don’t don’t cut your costs so much you know, because you still want to operate the business and and keep it profitable.
Michael Bereslavsky 13:50 Yeah, good advice. So prepare up front. Give your numbers your honest be upfront about things and show some opportunities. And from your side when you buy Amazon businesses where do you try to improve it? What are the advantages that you bring to the table to be able to manage them better?
Michael Michelini 14:07 So I mean, I think there’s a lot I mean, I don’t want to make fun of digital nomads. I mean I kind of am I don’t know if I ever really was but you know…we all love Tim Ferriss, and we all love The 4-Hour Workweek. But we put a lot of time into this. You know, our advantage is that’s that’s where the roll up comes into play. We have a team in place that has SOPs and processes, we have people in China are in different markets. We have factories we buy from India, now Thailand, China, you know us we have the people in place, and then we also have the systems we also have money. I didn’t really mention that reason to sell but usually we get bigger and Amazon you gotta buy more. So you finance it or something, so we make sure to pump money into inventory. We have of course, capital and access to capital because we love it when we see a seller that’s just been running out of stock a lot. So we finance the inventory. We also try to add some variations to the listing, different colors or sizes to try to boost that sale. And those are things maybe the seller knew about, but they didn’t want to finance that inventory.
Michael Bereslavsky 15:07 So then when you do that, how much do you try to increase the business? How much they’re trying to grow it like in the first half a year or so, can you double the revenue?
Michael Michelini 15:16 We have a case study that basically we try to double it in a year, is our goal. So we have a good case studies. I would say that’s kind of our goal. We’re still new honestly, we’re only like less than a year old. It depends on we see the beginning is but so far, we’re about 100% right now, in the last year. So we know we can’t get that lucky forever. We don’t want to promise that but we’re trying to go for a 20-30% gross yearly.
Michael Bereslavsky 15:41 Yeah, that’s pretty good. Yeah, we’ve had really similar structure. So we are trying to get 100% return. And we’ve been successful in that so far in the past 15 or so years, the content sites but it’s definitely different once you start to scale things up. So I’m honestly not sure if that kind of hold. But the differece is, we also invest a lot more effort in to building our private deal flow. Because I found that there is a huge difference. I don’t know about FBA. But when it comes to content businesses, there is a huge difference between what you can get from brokers and what kind of deals you can find privately. Mostly because there is just such a huge demand among buyers. So then you go with brokers, it’s really difficult to find good deals, there are so many buyers who are just snap them up quickly. I wonder if that’s the case with FBA businesses, have you been able to like buy some good deals before they also buyers and clearly go and quickly snap up some deals? Or what’s your strategy in that?
Michael Michelini 16:42 Yeah, honestly is still only been a few months for me to be part in the team and maybe that’s something I’m helping with a little bit. But I think it will be true anywhere whether it’s FBA or content if you can get your own deal flow because you always worried with the brokers are you going to get the first dibs. How are you going to get access to that or see opportunity? So I think that is critical. Is to have more deal flow. Although if you look on our site now, we’re not like a two sided we’re mostly looking for raising investment money on the website, we have a sell your business page kind of hidden in the footer, but we’ve been overwhelmed. We talked to even some investors and they even told us to focus on some commerce calls. So for right now, we will look at it but we’re not actively seeking deal flow because everything is a process and everything takes a mindset and focus.
Michael Bereslavsky 17:32 Yeah, we are in sort of in a similar situation, we’ve had to reject so many investors recently, just because we don’t have the capacity to buy as many sites as the market kind of demands. So we are slowly building out the team, slowly building up the resources and everything, because it’s really it’s it’s kind of scaling like you know, if you’re managing downside so that’s one thing, but if you want to go and finish 20 sides, you pretty much need a lot more people capacity. So that becomes different, absolutely. And yeah, I think that trend in the industry as well as to try to go and get some bigger deals buy bigger businesses or try to combine some of those smaller ones, to, you know, to kind of combine several businesses in the same niche. I’m curious if you’ve been able to do something like that, by way if you have brands that are in the same niche or able to kind of promote them together to run them together?
Michael Michelini 18:27 Yeah, one thing it’s still having to implement it, we talked to other sellers that have done it. We bought some that don’t have a brand and then we have some that have a brand. And we put them together so that we can make it bigger brand.
Michael Bereslavsky 18:40 That’s nice.
Michael Michelini 18:41 Yeah, we’ve seen some opportunities in that. So that’s definitely one opportunity. But for right now, I forgot literally, I was just talking to somebody the other day. They say if you wait to find everything to match, sometimes you can’t match everything in a niche you just kind of got to get the opportunities that are there. But of course, we some that are somewhat similar and we’re trying to figure out how to either make a new super brand and link them all together or to take some this to stronger brand and merge them. I’m not sure if you’re familiar with Seller Central accounts and Brand Registry but there’s some back end and you can kind of merge listings into different seller accounts. So we’re kind of deciding how big does one seller account get before you go into another? How many listings? How many brands? So sometimes we buy a company, our brand and it has a seller account but we don’t use that one. We merged the product into another one. And we’re just trying to figure that sweet spot of size of account and listings and brands. Yeah, you know, we have 10 brands and it’s a lot to manage you know content and, and all the different work you’re doing so maybe making it I don’t know about one super brand, but maybe you could bucket some of those like you’re saying you know and find synergies right, by just having them all under one umbrella or a few umbrellas.
Michael Bereslavsky 19:58 How do you guys manage risks? So when it comes to content businesses the biggest risk is usually…we’ve got penalties. And you know, we’ve had some of those and like, we recently had a bounty on one of our businesses and it lost like 80% of the traffic. But then we were able to fix everything and the traffic came back mostly. And that’s something that happens quite often and in Amazon, I would imagine the risk is just getting some problems with your account. And I see quite a lot of cases where Amazon accounts get closed. Have you experienced something like that?
Michael Michelini 20:35 Yeah, so that’s obviously probably a top question we get from investors potential or current investors. So we’re not hiding from Amazon that we have multiple Seller Central accounts, they know we have it and we are…we’re at least not trying to anything black hat purposely in order it can be some unexpected issues where either be dirty with your competitors or it could be something you didn’t even know or Amazon pops out of nowhere, some weird update. It is a risk with we told our investors but we don’t want to say that it’s a risk. We’re diversified a few Seller Central accounts, you know, we have different brands. And there is a difference in Amazon between a brand and seller account. A lot of people think of them as the same. But the seller doesn’t have to be the brand owner. So you could have multiple sellers on one listing. Of course, we want private label and we want to own the listing. But worst case, there’ll be some inventory issues depending how much stock you have Amazon, but we’re really investing in brand. That’s why we want to have Brand Registry, we want to own the listing. But I guess my answer is we have multiple seller accounts, we have multiple brands, that’s where we get less risk. Because if you’re one seller with one brand, like I was doing, you know last year, that’s where you’re more nervous, but you’re bigger. Of course, it would be horrible if we lost a brand and we lost the seller account and inventory but it wouldn’t destroy us completely. So that’s where bigger is better and scaling and then of course we can have more resources to we don’t have that yet, but we should have soon to be a bigger like a full time compliance kind of person. That’s like dealing with TLS, I’m sure we’re gonna have to deal with that as we get bigger. So that’s what I want the advantages of having a bigger team.
Michael Bereslavsky 22:11 All right, that makes sense. Well, thank you, Mike. So how can our listeners contact you or contact Alpha Rock Capital to learn more?
Michael Michelini 22:20 Sure, basically as alpharockcapital.com is an easy one to remember. And then that’s the best place to find out about what we currently are. What we’re currently raising. For me, I still am a blogger at global from Asia, you were on the show it was great to have you as a guest. That’s more about cross border ecommerce in Asia, Amazon business. So those are two best places.
Michael Bereslavsky 22:47 Well, thank you, Mike. pleasure to talk to you. Till next time.
Michael Michelini 22:50 Thanks so much Michael.
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