In this episode of the Domain Magnate show, Michael speaks with Mark Doust, the CEO and founder of Quiet Light Brokerage. They speak about Mark’s journey into Quiet Light Brokerage, how it grew, and is thriving to this day. Plus tips and perspectives for buyers and sellers in the acquisition business.
Mark Daoust is a business owner, guest author for numerous publications, and frequent presenter at top conferences. He is the CEO and founder of Quiet Light Brokerage. Mark started an online publication before Quiet Light Brokerage and has experience in growing a six-figure subscriber base. Since 2007 he continues to help multiple small business owners achieve their goals and is currently still expanding his own team today.
SKIP TO THE GOOD PARTS:
- 0:09 – 8:05 The beginnings of QuietlightBrokerage
- 8:06 – 14:12 Mark recounts the biggest deals he’s made
- 14:13 -21:23 Potential pricing and Commission structures
- 21:24 – 23:12 Mark shares his main source of clients
- 23:13 – 30:55 Michael & Mark talk about entrepreneurial burnout
- 30:56 – 41:44 Referrals and changes in the industry
- 41:45 – 47:16 Advice for new investors and buyers
Michael Bereslavsky 0:09 Welcome to this episode of the Domain Magnate show. We have Mark Daoust, the founder of Quiet Light Brokerage. Hi, Mark. Thanks for joining,
Mark Daoust 0:20 Hi Michael. Thanks for having me.
Michael Bereslavsky 0:21 So, tell us a little bit more about Quiet Light Brokerage. How long have you been around? How big are you guys in terms of the team sizes?
Mark Daoust 0:34 Sure, sure. Yeah, so Quiet Light Brokerage, I started Quiet Light Brokerage in 2006. But it was the very tail end of 2006. So I usually say 2007 just because that was our first full year of operation. And I started after going through the process of selling a business on my own and then a good friend of mine wanted some help exiting his business. So I helped with that. As Quiet Light Brokerage that was the first deal that we closed. Today, obviously things are much different. You know, last year we closed, right around $70 million of transactions on behalf of our clients. We have 10 advisors total, including myself. We’re actually adding one right now. So we’ll be up to 11. But unlike a lot of other firms, our model is that each of our advisors, we’re all entrepreneurs, and frankly, my advisors’ resume’s speak for themselves and kind of put my own past to shame compared to what they have on their resumes. So they’re all entrepreneurs, they’ve all sold and bought businesses. independent of Quiet Light Brokerage, I have a lot of firsthand experience in that space, and are now working in an advisory capacity to help entrepreneurs who are looking to do the same. Using some of that first-hand experience but also the best practices from the industry. This year, we expect to do over $100 million in acquisitions on behalf of our clients. And that’s the short story.
Michael Bereslavsky 2:11 Okay, that’s some impressive numbers. So I definitely agree it’s great to have brokers and advisors who are experienced entrepreneurs themselves so that they can actually understand the nature of the businesses. And you mentioned some numbers. So I’d like to dive a bit deeper into that. So you mentioned that you’re expecting to about $100 million dollars in transactions this here and it’s 70 million last year. And we are recording this now. middle of June 2020. So what is your current total number of transactions with you completed so far since 2007?
Mark Daoust 2:52 Sure. So right now we are right around 23 million year to date for transactions and you might be thinking well, how do you get to $100 million when you have $23 million and close to date? Well, the way our field works is pipelines are where everything is at and taking a look at what we have in our pipelines. We have a close, I believe, close to $150 million in our pipeline for near term closings. Now the nature of this is not every one of these larger transactions will close. So we discount that’s what for our targets. And obviously, we could miss or we could far blow that number out of the water. So today, we’ve done 28 transactions we’ve done for total deal value of $23 million. I know that numbers light because I know that we have some deals where we just haven’t filled out the report yet. So it’s actually probably closer to $26 million.
Michael Bereslavsky 3:49 Is that from the beginning from 2007? Or is that okay?
Mark Daoust 3:55 No, no, no, that’s for 2020 only.
Michael Bereslavsky 3:58 Okay, yeah. I meant, overall like the total amount from since you’ve started brokering businesses.
Mark Daoust 4:06 I wish I had that data. But when I started Quiet Light Brokerage probably the first four or five years it was more of a part time sort of situation for me. And so I didn’t have an eye towards the, you know, keeping track of those early years. My estimate of what we’ve done is about $300 million on behalf of our clients. And again, you know, a big chunk of that came last year. So we went last year we did $70 million in transactions a year before we did around $50 million the year before that we did about $40 million in the year before that we were on $20 million. So we’ve been growing fairly rapidly, both in the number of deals but also, more importantly the deal size right and that makes a big difference. Last year, we closed an eight figure transaction. This year we’re looking at closing multiple eight figure transactions and those change those numbers rapidly. A lot easier to get up to $100 million, if you have a $20 million transaction on the books, or $40 million transaction on the book versus $41 million transactions. That said, I think if you were to ask any one of my team, what do they love doing? I think everyone would say the one to $10 million deal range is just phenomenal to work in.
Michael Bereslavsky 5:21 Yeah, so this is some impressive figures. At our firm Dealflow Brokerage, we’ve closed just about over $50 million so far in transactions in the past seven years. So over $300 million definitely surpasses us substantially. And it seems like you’ve had stable growth over the past few years. And so it wasn’t kind of like a jump. And was it stable growth like that since the beginning? Or would you say there are some things that really contributed to getting more deals?
Mark Daoust 6:00 So for the most part, we’ve had steady growth from the beginning or just steadiness, even the down years weren’t really down, they were more just flat. And the reason for those flat years you can point to the recession for sure, that was a significant concern, right when we hit the great recession that didn’t help business at all. And the other elements that would have been for those flat years or contributed to those flat years was going through a different type of team makeup. Early on, I didn’t have this model of only hiring successful entrepreneurs. That came, frankly a little bit by accident before became by design. The growth over the past four years has largely been associated with me getting a bit out of the driver’s seat in every aspect of the company. I brought on Joe Valley as an equity partner. He helped quite a bit in expanding the business, both through outreach and being out in the community working with people through mastermind groups and small conferences, but also by just adding to our team opportunistically. We have a lot of people who reach out to us wanting to join our team, and we’re fairly selective in who we bring on. And frankly, there are some really good people that we’ve said no to, or just can you please wait, you know, that that I think would do very well. But oftentimes, these people bring their own ability to expand and build that network on their own as well. They aren’t necessarily sourcing their own leads, but they are…they are available for speaking or they do come with a reputation, which certainly helps as well. So the growth is, I mean, I just like anything. It’s kind of like baking. You don’t bet bread with just flour you need other ingredients as well. And we’ve had a lot of ingredients that have led to this growth.
Michael Bereslavsky 8:06 Yeah, absolutely. I like how you mentioned that having a great team is a big driver. We’ve certainly seen the same thing with Domain Magnate and our other businesses that it’s just all about the people after you reach a certain size. It’s just all about getting the best people to come and join your team and you have to be extremely selective to be able to maintain really high quality of service to clients. And we have 20 people currently at Domain Magnate and we have at Dealflow Brokerage we have about five people and also some that are part-time. We are looking to grow it but it’s a bit different because the main thing we the DomainMagnate is buying and managing our own businesses. While for Dealflow Brokerage, we, we also broker businesses. So this is very different type of people that we would be looking to hire for each. So what were your biggest deals so far that you’ve completed?
Mark Daoust 9:16 Well, again last year, we close an eight figure transaction. And when you get to that deal level, that deal size, the total value becomes somewhat tricky, right? Because I liken it to a sports contract not to be your stereotypical American male. But I liken it to a sports contract where you hear about the athlete who gets the $100 million contract, but then you realize that a certain amount of that is, is made up and guaranteed monies and certain amount of performance bonuses and other sorts of compensation. So I would say that the total value of the contract was about slightly over $15 million. The guaranteed portion was over 13 on that contract, but we have other transactions in process right now, which would certainly exceed that dollar amount, multiple transactions above that dollar level.
Michael Bereslavsky 10:16 And how long did it take to complete from the moment of first contact with the seller?
Mark Daoust 10:26 How long did that take? That took about nine months, I want to say.
Michael Bereslavsky 10:33 Nice. So it’s pretty good. We just had Eric from Business Brokers, who also mentioned a similar low eight-figure deal, that was the biggest deal that they’ve done. And he said it was a peculiar case because it’s a bit different like you are dealing with different types of buyers. And different types of sellers. And often it would be found or it would be a private equity firm. And the decision-making process is a bit different. Have you encountered similar as well?
Mark Daoust 11:12 Yeah, absolutely. In fact, I advise sellers, now fairly regularly to think about the size of their exit because it changes the structure of the deal. And if you’re looking to exit for $5 million, you’re probably looking at a transaction, which is fairly clean with a clean break, where you’ll be able to move on and do whatever you want after the fact. If you’re looking at an exit for $15 million, you’re probably looking at a situation where you’re going to take some equity in the new company, or have some obligation beyond just a regular training period. And I know for a lot of entrepreneurs in this online space, that’s just not of interest. You know, we don’t we’re not looking to do that. And so it’s important to to understand how that works. If you’re looking to exit and pick that point, I think entrepreneurs I don’t know if you see this Michael with over at Dealflow, but I think entrepreneurs often pick a number because it’s a nice big round number. As opposed to having a plan to say, I need a million in order to have enough runway to get my next idea off the ground, or I really need 5 million in order to be able to retire early. And I have some funds set aside to mess around if I want and try different ideas. And that’s not to say that I you know, I don’t want to say that that having a number for, an accomplishment isn’t a bad idea. It’s not. But I think there’s just more levels that you can get into besides saying 5 million sounds nice as opposed to 1 million so I’m going to make that my goal. So anyways, the nature of the transaction changes for sure. At the larger dollar amounts, and as you scale up you see that pressure for different type of transaction. The buyers are nicer to work with, in many ways, in my opinion, not that I just like working at the smaller levels, but the buyers tend to be more efficient in many ways just because they’ve, they’ve done this a lot more. And so there’s some benefit there as well. So different betters probably the wrong word different and feels different than, say doing just a million dollar transaction.
Michael Bereslavsky 13:34 Make sense. So do you only represent sellers so do you also work with buyers as your clients?
Mark Daoust 13:41 Right now only sellers however, we are piloting a biocide program. It’s not officially launched yet. And we have not taken on any clients yet. But I would anticipate in the next few months we will take on a pilot group of biocide clients, and for that it’ll simply be a search service. thread will be out there actively searching for clients on behalf for sellers on behalf of some buyers where they’re looking for specific criteria, and it will also provide advisory services through that transaction as well.
Michael Bereslavsky 14:13 And so for your potential clients listening, what is the minimum amount of revenue or the minimum amount of the new potential price that you’d be looking for? And also, what is your current fee commission structure for sellers?
Mark Daoust 14:30 Yeah, no, the minimum, we actually don’t have minimums, but we do have a minimum commission. So if you’re willing to pay the minimum commission will sell any size business but of course, there gets to be a point where that just doesn’t make sense. Our minimum commission is $25,000. The structure of commissions is 10% of the final sales price up to a million dollars. After a million dollars we hit what is called the modern layman scale. Those listening know that there’s a lot have different layman scales, right? There’s a single layman scale, double layman’s scale, we often joke that we base our commission on a firm that nearly wrecked the economy in 2009. But the modern layman scale simply works 10% on the first million 9% on the second million 8% of the third, you get up to $7 million. And the different strata, the million dollar breaking points are at 3%. We bought them at 3%. from there on out. So you end up getting a blended commission rate moving up that way, and that’s we have that published. So that is the rate we don’t do negotiations on that. It’s it is what it is. We’ve tried to keep that firm. We found you early on. I know it’s it’s a practice and I’m sure you’ve seen this as well, Michael that that some firms out there charging 15% on deals unless you object to it, in which case they might negotiate down to 12 and a half percent or they might negotiate down at 10%. And the result is you might sell business For $500,000 and pay 15%. But the same person or another person who sold almost a similar business might just pay 10%. Because they were better at negotiating, that we’ve tried to take a no negotiation stance on that just to just to let even the playing field a bit and make sure that people aren’t getting treated differently.
Michael Bereslavsky 16:17 So even if you have clients that come to you, and tell you we want to sell 10 businesses with you, you would still not negotiate the deal at all?
Mark Daoust 16:27 No, it is what it is. I mean, I feel like our rates are one of the more competitive rates in the industry. And at the end of the day, obviously we love repeat clients, but I want somebody to choose us because they are the most comfortable working with us. And they understand the extra value that we bring, right? And if price is going to be the only objection point that’s fair, and somebody has every right to go with another advisor and pay a little bit less if that’s what they need to do and if that’s what makes sense for their transaction. The fact is with our mode, there’s two different models in a space that I’ve seen. There is the model that we have, which is our advisors, work with you from beginning to end, you know, you’re in the trenches with that advisor. They’re there as your ally, advising, helping you through the process, trying to be that neutral source that can help you objectively take a look at the transaction and get a sense for it. That’s, that’s a model we follow. The other model would be more of an assembly line approach. We have somebody who’s specialized at valuations. And then we have somebody who’s specialized at putting together packages, and then we have somebody who specialized at mining our buyer database. And this approach is more of a factory sort of approach, which allows you to scale quite a bit better. Frankly, I think, you know, if you want to scale and do 200 transactions a year as opposed to the 70 that we do, you can you know that that model works. With the model we have, there’s a real limit, right? an advisor that’s in the trenches with you might be able to have five clients, maybe eight, right before their time is completely taxed. And so when you have a situation where somebody is getting a discounted rate for that advisor, there’s a real opportunity cost for them. And although we would like to say it doesn’t enter into the conversation, or into our psyche at all to say, Well, yeah, this person sold 10 businesses with us, so I’m fine with giving him you know, a significant discount. The fact is, it does start to work into the calculus of that advisor and how they’re going to spend their time despite even the best intentions. So I know this might sound like a very kind of political sort of answer, but we want to keep the rates consistent. We want to keep them fair from the beginning, so that we can focus on the service and I want somebody to choose me for 10 businesses, because they trust me over anybody else and they know that we’re going to give them the best price possible and most importantly, and look, this is where we made our bread and butter will tell you the truth. Regardless of whether or not it helps us or hurts us, we’re going to tell you the truth. And for me, that’s worth when I’m working with somebody that’s worth pain, whatever the fee is, and I hope you know why the clients that I’ve sold multiple businesses with us. That’s why they do so. So sorry, that was a long answer. Michael, I I know you guys like to have conversations, but it’s a topic that I have obviously, some stronger feelings of.
Michael Bereslavsky 19:29 Yes, that’s a good point. Yeah. And I like how you mentioned there are different models out there. And so so we’ve had Blake from Flippa, for example. And this is a marketplace so they see themselves as a software company in general, like they’re running a marketplace and we’ve had Joe from Empire Flippers and several other people from different companies and they might have something close to a conveyor belt model that you mentioned. So they would have different people doing different things and, and doing marketing and doing this and moving businesses.
Mark Daoust 20:01 Yeah, I mean, Joe from Empire Flippers is a great example. Right? I think their model is great. It works really well for what they do and how they do it. So I don’t have any dislike necessarily for one model over another. We’ve chosen our model because the value that we offer is in the people that we have, right? It’s in the fact that I have a walker diable, who is the author of a best selling book on Amazon about acquisitions and has personally overseen and handled $7 million acquisitions personally, it’s that I have a Brad weyland, who has done close to 30 transactions personally. For acquisitions. It’s that I have an Amanda Rob, who was featured on Time magazine in Time magazine for her work and personally navigated the sale of her business years ago. These people have experienced that is really hard to capture in any sort of process. And I think there’s a place for both you and you might have a very standard business. You’ve set up where it’s not a very complex transaction, in which case, yeah, going through that assembly line approach might make sense. But for anyone that was looking for that little extra hand-holding, I would argue our model works better. And I’m sure Joe would have arguments against and that’s fine. Joe and I are friends. And we enjoy a good healthy debate and discussion like this. So both have their merits.
Michael Bereslavsky 21:24 Yeah, absolutely. So what would you say is the main source of leads of clients for you right now? Is it mostly for brokers, or is it like organic for search or for paid advertising?
Mark Daoust 21:38 It’s referrals. Frankly, it’s people that have used this before, either on the sell side or on the buy side, and they see the difference. And, you know, it’s the difference in the quality of work that we do upfront, but it’s also in the fact that they understand that they get the sense very quickly that built into our DNA As a company, we’re not just chasing that commission. At the end of the day, we want to do great transactions for our clients. Even if that means that we’re not selling your business today, the vast majority of people that come to us, we recommend that they wait, because there’s opportunities for them to add value to their business. We’ve had multiple situations in which we’ve had offers on the table and been going through due diligence. And the recommendation has been, we should probably actually wait because the business is growing and is now more valuable. You know, that obviously, from our standpoint doesn’t really work out in our favor in the short run, because that means that that advisor has done a bunch of work and is not going to get paid. But that level of trying to first care for the client, the entrepreneur, because we’ve been there in their shoes, we know what it takes to build a million-dollar asset. You know this is a difficult process. That’s where the model really starts to bear fruit. Is that you’re not chasing that the Commission and trying to just do right by the client. Now this all sounds like sales speak. And so where does most of our clients come from? It comes from referrals from the people who have actually experienced and see that it actually works.
Michael Bereslavsky 23:13 So I know that you guys also do quite a bit of SEO and paid traffic as well. Right. So is that also a substantial driver of affiliates currently?
Mark Daoust 23:25 We’re just a little bit better. You know, that the SEO side, we’ve just benefit from being on the first in the game with SEO. So that helped quite a bit and then I don’t…I’m sure you’ve experienced this, Michael, just the entrepreneurial burnout, right. I’ve been doing this since 2006. And my thought for anyone that is acting in that first-hand advisory standpoint is that burnout starts to happen between years five and eight, where it becomes more and more difficult to do this and I joke with Joe often that you know that you’ve received burnout when somebody approaches you about selling their business, and it’s a million-dollar business and you just think, Okay, let me see if I can get the energy to do it. That’s the time to take a step back. Right? Do you need to take a step back? So the way I took a step back, as I wrote, I wrote a lot of blog posts for quite a bit of time. And that really helped on the SEO side. And that definitely drives some business. But the market today is competitive. I’m sure you see this with Dealflow. I mean, clients that are coming to us today, have talked to Empire Flippers, they’ve talked to you, they’ve talked to other people out there. And so you need to have some distinct distinguishing features, that’s how you out above the rest. And so I’d say again, the number one source is definitely the referrals and people that have worked with us in the past and understand, understand the nuance that transactions require, and what can be provided by somebody who has that first-hand experience.
Michael Bereslavsky 25:04 Yeah, that’s great. And yeah, like you mentioned the burnout. So I’ve been personally in business since 2005. And that is pretty accurate about the year five and eight surprisingly accurate. And for myself, I’ve personally also seen that the only way is just to build a team and to really transition to a more of like a founder role, rather than just keep doing everything yourself. And also, because as my industry is getting more competitive, like as a single person, like there’s just not as much you can really do. So you really have to have some people around you for sure.
Mark Daoust 25:49 Yeah, that’s our focus this year. I mean, I believe in simple analysis of companies. I really love just taking a simple approach and I think something that you can do with anything companies take a look at your income statement, your profit and loss statement. And if you’re using QuickBooks, you can easily break down the percentage of expenses per revenue, and just sort your expenses by percentage of revenue. And you’ll quickly see where your values are in your company. Right, based on that, you know, what are you spending the most money on? Where are the hubs. Another way, if you’re really keeping good books is most of us will keep subcategories and how fleshed out are your subcategories, right. So for a really robust marketing firm, they might have a marketing category and have a lot of different channels or a lot of different vehicles underneath that marketing category. And you’ll see that the marketing expense, while it might be efficient, is going to be a good portion of what they’re spending money on. And everything associated with any design creative people, you know, agencies that might be helping out. So for quite late this year in our, if you were to look at our income statement, the focus is on the people right, we pay a really good to our people, because that’s where I see our value. But this year, the focus is building out the technology on the data side, we have really good data, it’s just not organized at the click of a button. So it requires some manual work in order to do so we’re really building that aspect out this year, and then also building out more marketing efforts. So you’re right, I mean, just transitioning to that, that ownership role. And I kind of look at it as if you’re an entrepreneur you get antsy, you want to do different things. And so why do you have to start another business, you can do different things within your own business, you know, hire some people that can help out with the stuff you’re burned out on. And then go apply yourself to another aspect of your business. Maybe that’s just being the founder role and overseer, maybe it’s like I really want to explore PPC and I’m going to be the one that lives in the Facebook ads account in the Google AdWords account for the next year to two years and really master that skill. I think both are fine approaches.
Michael Bereslavsky 28:01 Yeah, what would you say is something that’s been really challenging and in building out and scaling the company, and specifically in brokering and assisting and selling businesses that our listeners might not really know about? That is a bit unexpected?
Mark Daoust 28:19 Well, for our company, it’s a different structure, right? I mean, so most companies out there are these top down sort of structures where you have your founder or your CEO. And they set out the processes that the people follow, right? And to a certain extent, the CEO can say, hey, we have to do it, you know, in the order of A, B, and C. Well, I have entrepreneurs and you can’t tell entrepreneurs what to do. If you have 10 entrepreneurs in a room, you have 100 of the best ideas ever made, at least according to them. And so it’s a balancing act on our side, right. I want to make sure that I’m allowing that flexibility on the part of my team to be able to really leverage the creative abilities that hey have. And, frankly, the fact that they know how to get stuff done. This is why I love working with entrepreneurs, right? I don’t babysit my team, the people that I’ve partnered with, they are capable of doing things on their own without me babysitting them. And that part’s great. But the cohesion side can be difficult, right? So if we, if I need a piece of data to be recorded, trying to get this out to the team and say, look, can we start recording this piece of data? And it’s been able to say, can we work this into your workflow, which might not benefit you directly, but it benefits the company as a whole, or vice versa, just consistency from maybe one experience to the next. You know, Brad might do something one way and Amanda might do it another way, because that’s what really works for them. And so sometimes you get a little bit of lumpy experience when working with us because people have different approaches. Both are good. We’ve run into a number of issues where different approaches are equally good, but just different. And so when do we come in and say we need to, you know, make this more cohesive versus just allow for that freedom to, to occur so that that’d be the biggest challenge for our side. And as we scale, it just becomes more of a challenge. And there will be a limit to what we do. And I think it’s important…we have no designs on being the largest company out there. Like, I am totally happy to hand that that ground to I don’t know, Empire Flippers, or are you right? You go off and be the largest company, I’m fine with that we are totally content not being that large, we want to be the ones that are providing certain Platinum level of service that is consistent. And so we’ll reach a scaling point where it doesn’t make sense to scale anymore. We’re not there yet. But that’s the real limit, just by nature of our business model.
Michael Bereslavsky 30:56 And so you mentioned that a lot of your business comes from referrals would be mostly people that come to work with a specific broker, specific consultant? Or is it mostly people coming just for your brand? And for yourself?
Mark Daoust 31:11 Yeah, both. I mean, Joe gets a lot of people coming to him directly, because he does a lot of our business development work. Right. He’s out there in the mastermind groups giving the presentation, he’s been doing presentations at conferences or meeting up with people. And you know, I get a lot of people coming to me directly, because I’m the founder of the company. And so I have a name out there that people recognize as well. And then Walker gets a lot of people directly as well because he wrote a best selling book. And naturally, I can’t do all of those deals on my own. I actually don’t really do that much advising on exits anymore. I might take on a client, maybe two at a time, no more than two but but right now I have zero and I haven’t had any clients in three months, four months. And that’s intentional. I I think It would be better for a lot of clients to work with the advisors because they have their ear to the ground more than I do. I’m really overseeing the company. So a lot come to us for the brand. But I’d say we’re a personality driven company. The good news is, is that when we do hand somebody off to another advisor, the level of expertise there is extremely high. Right. So I don’t worry at all about handing somebody to Chuck, because Chuck is really good, really good at what he does. And he has a lot of that first hand experience to rely on. So that’s a good question. That’s a really good question.
Michael Bereslavsky 32:42 So Mark, what are your thoughts about the market? The industry changes that we are likely to see in the next few years, because it seems that the industry has been growing so rapidly in the past decade or two. And it seems that some parts of consolidation might have already happened. I’m curious what what I expectations and that?
Mark Daoust 33:04 Yeah, I think predicting is really hard. That’s my thought initially. And you know, I said it earlier, I don’t have designs to be the biggest company out there. So I haven’t been as concerned with that said, what I’ve seen from the day I started Quiet Light Brokerage up till now is a continual maturation of the industry where more serious investors have gotten into the game, seen as as a viable vehicle for investment. And as that continues, I think the pressure on advisory services like us, like both of us are to continue to increase the quality of what we’re putting together, continuing to learn about how we can do better by our clients to educate the marketplace more on how to build for an exit if that’s what they want to do. I think what the future holds is going to be a lot more active tivity I think online businesses…I hate to just have a rosy scenario here. But I think online businesses are the future for what we’re going to see if we take a look at I think the last numbers I saw was that ecommerce made up about 10% of retail sales altogether, I think it’s really safe to say after this pandemic, that number is going to be much higher. Right. And I think it’s really safe to say there’s a lot of room for continual growth in the e commerce world. And that’s just e commerce. We’re not talking about all the different SaaS products out there and the next generation products that are incredibly intelligent, that will be able to work into our daily lives to sort of work into our business lives as well to make our lives easier. So what do I see from the future, I see a lot of growth. I see a lot of room for expansion. And as that happens, the acquisition field is going to be continually more active stuff. I don’t anticipate it to die down for the next five or 10 years or level often anyway, for the next five or 10 years, I think it’s going to be really active. What do you think of that? I mean, you’re you’re just as involved in this industry as I am. I’d love to know what you think.
Michael Bereslavsky 35:14 Yeah, we are mostly in a different industry. So we are our main businesses in the private equity fields. So we are mostly focused on buying businesses. And we look at the market from the buying perspective, from a perspective of looking where the good deals are, and how can we get some better deals? And like what is the best way to really go and buy and manage businesses, which is slightly different from the perspective of someone who’s looking to sell. And I’m seeing some interesting trends, I’m glad you asked. I’m seeing if you trends that are overlapping. Here, of course, the industry is growing and they’re going to see more more deals, more buyers, more sellers, more and bigger investors entering and I think was going to happen is a process of more organization, more consolidation, the margins are probably going to shrink for everyone. So the when we were when we first started buying online businesses, like more than a decade ago, there were no established brokering agencies. We’re now marketplaces. So and now it’s also well organized. And I think it’s just going to get them in a more organized. And also, one thing I’m seeing is an oversupply of lower quality businesses for sale now, compared to sound that the high quality and often that’s not reflected in price. So I think as as we have more and more just like you mentioned more and more educated buyers, there would be a big cap and price. For the low end of the market, like the really high risk businesses within us that are that have some potential serious risks versus businesses that are well established. We fill diversified sources of traffic of client acquisition and of revenues.
Mark Daoust 37:19 I would agree with it with the divergence between low price and high price. Do you think, you’re on the buy side. One thing that I’ve seen historically especially around the time of the great recession was almost as over attachment to multiples. You know that multiples we’ve had a hard time getting above three times earnings and when we put something up everyone thought you’re absolutely insane. What are you doing? You know, we have right now a business listed up at around a 10 time multiple. We’ve received some feedback on it saying, what are you guys doing? But if you knew the business, you would understand this is really unique, right and phenomenal. phenomenal opportunity. What do you think about and more importantly, and this is I think, where things really matter. We’re getting responses, right. And we’re having serious conversations with buyers on this business. So I think, you know, a buyer can look at different multiples and understand, it depends on the quality, right? a 10 time might make sense for a business that can really grow rapidly and has some staying power. What do you think about that aspect of it? With just the quality? I mean, in the attachment to multiples Do you see? Do you see that being more fluid in the future? Or do you think the multiples are just going to settle in on a predetermined range where working outside of that is difficult?
Michael Bereslavsky 38:42 Yeah, that’s a good topic to discuss. I have to say we actually have sold some businesses for 10 year multiple or even higher, but it was only in cases where it was just an amazing kind of market fit where the buyer was just a strategic buyer and they were able to immediately input it into their business and just monetize those leads much, much better. I think we are going to see less of that. I think it’s, it’s gonna be more standardized, like when you look at the industries when you look at real estate, for example, there is not as much of the range like you would look at a house and you can pretty much know quite precisely what the expected prices but at the same time, I have to like as buyers as well, we are seeing a really wide range. So we’ve actually acquired businesses for even less than a one year multiple, because the new and higher risk so that’s definitely not uncommon. I think…it’s difficult to say what’s going to happen like on average for multiples, but the thing was definitely going to happen is it process of buyers becoming more educated, and prices began getting much closer to the actual intrinsic value of the business compared to the risks and the opportunities it represents. Would you expect something similar to happen as well?
Mark Daoust 40:18 Yep. Yeah. I think what you said there about buyers becoming more educated is is exactly. That’s the trend that been happening over the past 10 years, right is buyers becoming more educated. And the good news with that is fewer buyers are losing their shirts after making an acquisition. And you know, that’s something none of us wants to see. So, be that general education is good, and it supports the opportunistic acquisition that might be above what you might think is just a regular market rate, right? You can look at the business at a five or six x multiple and understand that, that’s the multiple being asked for on a trailing or backward looking basis, but the forward looking basis under your own assumptions might have that been effectively, you know, a two x multiple or one and a half x multiple based on what you can do with it. You know, and that’s, that’s what’s really important to be able to understand and predict. And more so than just, you know, the wish and the prayer, oh, man, I really hope I’m build this business and grow by four times within the first year. You know, that’s a wish and a prayer. But being able to say, I know what we can do with this. And we know with these metrics that we can put in these assumptions, and this is what is going to happen. That’s what’s going to support, being able to make more opportunistic buys, and frankly, opened up some better businesses to the marketplace that otherwise wouldn’t be available for sale.
Michael Bereslavsky 41:45 Yeah. So what would be your advice for all the new investors and new buyers coming to the market, especially now in light of the financial crisis and the pandemic, people who are looking to acquire business that would provide them an extra source of income especially people who are not really experienced in buying or managing an online business what would you advise them how to get started?
Mark Daoust 42:11 Sure. So my first advice to buyers is, “Always understand your strengths and look for a business that has those weaknesses.” This is business acquisitions 101 here but I can’t really emphasize how important this is. You know don’t make the mistakes I’ve personally made in the past where I bought a suite of e-commerce businesses while ago and I know myself and I know that I am not somebody who enjoys logistics and so this was an absolute nightmare for me personally, right because what I acquired it we were selling gun safes and fire-rated locking cabinets is really big, heavy items. And we had to calculate the shipping based off, are you taking this downstairs? And if so, how many stairs or do you have a lift gate if it’s a business, it was a personal nightmare. Know your strengths and buy a business that has those weaknesses. That would be point number one. Point number two, especially in light of the current pandemic, I’ve received and fielded many calls from buyers who are now looking for the deals right there. They’re calling in saying I’m ready. I’m ready to go. We have a financial crisis. And remember what happened last time. We’re not seeing it. I really wish we were for the sake of the buyers. I’m glad we aren’t for the sake of the sellers. But we’re not seeing it outside of some very specific industries that are kind of in the crosshairs of the pandemic. And these industries, you probably wouldn’t want to touch otherwise. That could change. Obviously, we have a long ways to go before we really see just what impact pumping a few trillion dollars into the economy actually has long term. I think, you know, there’s some risks personally. But if you’re looking for that, that steal and just looking on the numbers side, look deeper would be my other bit of advice. A lot of these companies have been permanently I’ve seen structural shifts in the demand for their industry. And there’s question as to whether or not that’s going to go away, or what’s going to happen afterwards. For example, the pet niche. Man, the pet niche has done really well. People used to go into stores to look at the pet products to buy them for the pets. Now, people are shopping online. Will it continue to do that when the pet stores open? Time will tell. Right. But once people get used to shopping online, how much do they stay shopping online? So for the most part, the online businesses that we’re dealing with, have seen a bump and increase in sales and sometimes dramatically so. So I would say, for buyers looking to get into this right now. And kind of looking at this as an opportunity. I think there actually is opportunity on a forward-looking basis. I think it’s somewhat speculative. But I do think the opportunity is there in a forward-looking basis. But if you’re expecting that you know distress sale of two time, multiple on earnings, There’ll be some businesses out there, but I’ll be very careful about those. And know what you’re doing. If you’re going to be hunting the bargain bin, I would be much more inclined personally, to acquire something at a higher price point that I know the future of is permanently structured in its favor, which is what I think is happening right now. But that’s my crystal ball. We’ll see.
Michael Bereslavsky 45:23 Yeah, good point. Yeah, I agree that certainly, people should look more on on the quality and the long term. We actually take the opposite approach. But we really focus on on understanding the market and looking at deals and focus on doing due diligence well, and we have a large part of our team basically focused on risk looking at different deals and analyzing data. And I think, unless you have the kind of experience you definitely should not be going and looking at the higher risk deals. So that’s great advice.
Mark Daoust 45:56 You have a team as well, right? I mean, this is a big difference, right? You’re able to process how many opportunities would you say you look at per month right now?
Michael Bereslavsky 46:05 Yeah, we probably look at hundreds of deals and and we buy maybe just like one or two out of a few hundred. So we are really very selective as well.
Mark Daoust 46:19 Sure framework out assume for what is going to make it past your initial…Right and developing that takes time as you know. So for a new investor, you don’t know what you want necessarily it takes time to develop that.
Michael Bereslavsky 46:33 Absolutely, the framework, it also consists of, of having some criteria, some checklists, but also having the experience because often, sometimes, someone experienced who has been doing many deals like us, we just look at some data at the deal and just immediately know that there is something wrong through something that doesn’t add up. And for someone who is new, they might never be able to find out about that so that really comes into play a lot as well. Well thank you Mark. It was really an interesting conversation so how can our listeners find out more about you and Quiet Light Brokerage and how can they contact you?
Mark Daoust 47:17 Sure. So just quietlightbrokerage.com if you want to reach out to me personally, it’s [email protected], that’s Mark with a K. Also, we have a podcast like you it’s the Quiet Light podcast, we talk about this, all this stuff, and it’s got a little bit of a tilt towards buyers because I think that’s the more attentive audience but we talked about buying and selling and we talked to some previous clients as well. So appreciate a subscribe there. If you’re interested in this material and want to add to it, that would be a good cap, but [email protected] if you have any questions or want to reach out to me directly.
Michael Bereslavsky 47:53 Thank you, Mark, and have a good day.
Mark Daoust 47:55 Thanks.
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