In this episode, we’re going to talk about how to maximize the value of your eCommerce brand. That’s SDE, which is the Seller’s Discretionary Earnings. It’s a great episode you don’t want to miss.

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Welcome to the 2X eCommerce podcast. This is the podcast dedicated to digital commerce insights for retail and eCommerce teams. On this podcast, I interview eCommerce experts, a founder to digital native consumer brand representative from a best-in-class commerce SaaS product. With a tighter image to give you ideas, you can test a right on your brand so that you can improve commerce growth metrics such as conversions, average order value, and repeat customers. Ultimately, your gross merchant value or sales. We’re here to help you sell more to your customers.

In this episode, all you’re about to read is an interview I had with Josh Dittrich, who’s based in Minnesota as an entrepreneur. This isn’t an Amazon entrepreneur. There are many takeaways you could take from a direct-to-consumer business because he talks about real operational growth efficiencies outside of the marketing arena. Because not much marketing is done in Amazon, besides paying for ads and driving traffic to product pages.

The key conversation he has is, “How do you prep up a business for a potential sale within a short-term horizon?” We’re talking about 12 months or 18 months where you put out a plan from an operational standpoint and from a marketing standpoint to grow a brand within the Amazon ecosystem.

Some of the takeaways here can apply to D2C operators. I’m super interested. He has a phenomenal story, whereby he was working for an eCommerce business that grew from $3 million to $50 million in revenue, and then he decided to go on by himself. He was able to essentially exit one D2C a business that was a small exit. The bigger exits, which were eight-figure exits, were his Amazon business.

While he is in an earnout position for this Amazon business, he realized that there is a gap in the market to optimize SDE for Amazon brands looking to sell within an 18 or 24-month horizon because he’s on a 24-month earnout with a brand he exited. It’s a phenomenal story, and interesting. He is full of operational know-how and operating eCommerce businesses, particularly marketplace businesses.

Given the fact that the market is crazy with aggregators trying to consolidate the role of brands, he’s speaking directly to entrepreneurs and operators out there looking to maximize this potential opportunity while it’s here to stay. It’s a terrific episode. I’d like to know your thoughts on it. You’re going to enjoy it. Thank you. I shall catch you on the other side, people. Cheers.

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Incredible to have you on here, Josh. Welcome to the 2X eCommerce podcast.

Kunle, how are you? Glad to be here.

I’m doing well. We had a chunky, interesting conversation about what you do. I would like to hear from the horse’s mouth, Josh. Could you introduce yourself as well as Branded Seller?

I grew up in a small-town Iowa and have been in Minnesota now for twenty years or so. I grew up building someone else’s business, decided it was a matter of when I left, and I was on the hunt for what was I going to do entrepreneurially. After some dabbling in some fails, I decided to join an organization that was doing $3 million in sales. I helped them grow from $3 million to $50 million.

As I was practicing entrepreneurship, I was doing it on the payroll of another group where I learned all things eCommerce, product development, marketing sales, and fell in love with eCommerce. It gave me enough courage to build my brand on the side. Once I replaced my income by 2 or 3 times, I decided it was time to leave the corporate job and double down on new product development in a private label.

I was an Amazon seller with my brand for several years until we had an eight-figure exit in March 2021. We sold a second brand that we owned in April 2021. Now, I’ve transitioned to taking the DIY approach of building a brand myself. From starting the brand all the way to exiting, it was something I had to do, something I wanted to do, and I learned a lot along the way. I got featured in a Business Insider article about the process of selling my business to an aggregator. I wrote about it in my book, Aggregator Navigator, and now I’m helping other brands maximize their exit with BrandedSeller.com.

Aggregator Navigator is very catchy. I love it.

Thank you.

There’s a lot to unpack from what you said and it’s also inspiring. If we look at the outcome, the eight-figure exit for one of the brands, I believe the second brand was a D2C and the first brand was an Amazon brand. Is that correct?

Yup.

If we track back in terms of your journey, it’s been phenomenal from working for the man, and then getting a side hustle. Eventually, from that side hustle, building something substantial that replaces the income that you exited is phenomenal. I have to acknowledge that. You exited your businesses. If you don’t mind, how did you sell them? Did you go through a broker or did you sell off to an aggregator or directly to an acquisition company?

Last fall, our D2C brand wasn’t large enough to attract an aggregator. The concentration on Amazon was maybe 30% or less. The majority of the revenue came from Shopify but it also had some B2B. It had a brick and mortar retail, and it was a hockey business. It was unique. I attempted to sell that myself to a strategic and after a month or 60 days of little interest, I had a lot of great conversations but no one followed through with it. I decided to use a broker for the D2C business.

After marketing that business, I realized, “I have an Amazon brand that could be valuable to these aggregators I keep hearing about. They’re not a good fit for my D2C brand but I have another brand. It seems like it’s worth looking at.” I use a broker for the D2C but for the Amazon brand, I let it process myself. I didn’t use a broker at all. That’s what led me through this whole journey of unpacking the selling process, what are the do’s and don’ts, how do you maximize the value, and all these things to write the book Aggregator Navigator.

I had no broker but I’d run a process. Meaning, I had an outreach strategy, I had a set of processes, MNDAs, financials, and a package that I prepared. I had a lot of DIY questions that are applicable to the operators that I was working with as aggregators to unpack them. We exited that business in March 2021 without a broker, so I saved roughly $800,000.

I do love brokers. Do not confuse that brokers have value. Most brokers have value for finding you the right buyer or finding you the right seller, depending on which side of the table you’re on. That’s number one. Number two, if you’ve never been in the space, transactions can be complicated so having a guy in your corner is the key, a guy who’s navigated any deal and seen the terms and the strategies deployed to acquire a brand.

First, DIY is not for everyone. That’s why we hire plumbers. In some cases, there are some things we can fix ourselves. It comes down to what level of skill you have and what level of skill are you willing to acquire. That’s my method. It’s whatever case makes sense for your model for you and yourself as an individual.

When you did it yourself with outreach and the like, how long did it take in comparison to your first experience, which is for a broker? Because in context, with Aggregator Navigator, if you’re given a blueprint, you’re caught in the time cycle, the learning cycle for potential entrepreneurs you want to sell. For how long did that process take originally?

The funny part is, we started the process with a broker in October 2021. November went by and then in December, I’d already built a 60-page PowerPoint. The broker didn’t even use it. They rebuilt their own. We lost 45 to 50 days there. Then it got listed, and then we started having conversations in the middle of December. That’s when the light bulb turned on to start marketing the other brand. From the end of December 2021 till January 14th, 2022, twenty-some days, that’s when I did all my outreach. We also were prepared to sell. That’s one thing we can talk about separately. We knew as a matter of when, not if, we didn’t need to sell.

We said, “With the market being as hot as it was, it’s time to explore this. If we get the right offer, let’s do it.” For context, January 14th-ish, we were done. We chose the right group in the third week of January, and then we spent about five weeks in due diligence. We ended up closing, but we waited an extra month so we have February financials on there. The bottom line is the brand that I started after on my own closed before the one that we use with a broker. We won’t talk about any of the details that were ugly quite yet.

What multiples did you sell the second business for?

It’s all over the board. It depends on how you look at it. For us, the first thing was our net income plus our add backs got us to an SDE of $1.63 million, our trailing twelve-month SDE. The cool part was many brands come together with this SDE number, which is your discretionary earnings. It’s a number that’s stated as big as you can make it, hoping that a buyer says, “Yup. I agree with that.” First, we had 6 offers and 5 of them gave us dollar for dollar credit towards the SDE and the LOI. One of them included some working capital adjustments and a discount.

LOI, meaning a letter of intent?

Yup. Our offer letter reflected the SDE number that we started, which was encouraging. They liked our books, they could tell that they were in order. From there, we had cash at a close of about $3.86 million. That’s excluding inventory. Inventory was on top of that, plus AR on top of that. Then we had a 6, 12, and 24-month earn out.

Based on our current run rate and our growth with minor expectations of pushing the bar to the next level, we expect it to be about a seven multiple as we wrap up our 24-month period. We’re coming up on ten months right now. The growth rate is doing better than we thought so we’re on track, which is exciting.

Those are your stop points. In two months’ time, you’re out there and then another twelve months. The proposition for Branded Seller is essentially maximizing SDE for a potential exit. How do you tackle this? Do you tackle it from a marketing standpoint? Do you tackle it from an operational standpoint, which could be quite challenging? Because it’s an Amazon business. Where are these lever points to trigger this growth?

What does it take to be successful? Anything in business. You have a little left brain and a little bit of right brain. You have a little marketing creativity, tied to a lot of data and operational processes. For us, the secret sauce is, are these brands underperforming? The first thing we’re looking at is, can we move the needle in the market share? Market shares are number one. We want to obtain market share. What I mean by that is, every product that you sell has its potential market.

If you’re a private label brand and you sell products in multiple categories, you’re going to be a brand that has a product that competes with other sellers for the same keywords. That would be called a market. For us, brands that have crappy listings and have a good product the world just needs to be told about them. How do you tell the world about them? You drive traffic to the page and you convert more customers.

From our point of view, it has to be first about the market and the product. Is it a good product? Is there marketing juice available to squeeze? Second to that, we see the byproduct of what the opportunity looks like. Has this seller run out of inventory before? Why is that? Is that a supply chain thing or is it a cash thing?

We partner with many brands where we’ve come up with a well-oiled machine using Google Docs. A lot of sellers do not want to get into the weeds of inventory planning. They’re scared to write that next check. Handling a customer service call writing a $50,000, $100,000, $200,000 P&L, you have to have a system in a process. Reorder points, you need to have replenishment points based on supplier lead times. Based on the forecasting of your sales model, how much inventory do you need to have at FBA? How much inventory do you need to have in your warehouse? It can get quite complicated.

When you bring both of those together, we add the most value when you take an approach that says, “Where does the needle need to be moved? How can we move the needle? Is it cash? Is it sweat equity?” There’s a playbook here that we feel excited about working with this brand and taking it to the next level before we market it and sell it.

Do you recommend making recommendations yourself? Or do you put your money where your mouth is? Do you infuse capital into these businesses? What is the play? The outcome is to maximize SDE. What do you get in return? Do you work on a retainer or do you do a profit share on exit? How do you create defensibility for yourself and an income stream, essentially?

It comes down to, at the end of the day, what does the match look like? The levers that the brand we’re working with, what do they have? What are their constraints? For example, if your constraint is cash, it would be hard to work as a contractor and grow your business when you don’t have the cash to invest in inventory or paid search. In that example, it might be worth us taking an equity position and contributing and recapitalizing into a new cap table. Because then we can take on the operation and run the business inside ours and leverage our cash and work it accordingly as opposed to borrowing money from someone and being a bank. It comes down to the give and the take.

Typically, we’re going to find most brands are willing to work with us in either two ways. One is simply helping them make an introduction to exit. If your brand is prepared to sell, if you feel like it’s in a good place, we simply make an introduction and work with you as a seller to see your brand get the largest exit possible. We do that for free for brands because of the relationships we have. The buyers that we work with, the aggregators that we work with pay us to send them qualified leads. Why would they do that? We’re sending them leads that have had a great conversation and understanding from my end. They trust the criteria and the ability to identify that. They’re willing to pay for those leads.

That’s one option. We do it for free, pro bono. It’s simple to start with a call and started understanding where you’re at with your brand, where are you at in the sales cycle. The second option is simply where is your brand right now in terms of its path to grow and see an exit? In some cases, brands need a good fresh coat of paint. We’ll work with them easily, cosmetically to go through the process of updating listings. Maybe you work with them on their ad structure. That’s a simple retainer, or a rev share model to put forth some effort on our end, to see that the brand is going in the right direction.

Are these engagements twelve months long? What’s the typical length of these engagements?

Typically, those relationships are going to be geared towards the goal of exiting. That makes it a little open-ended. The last one we did, we wrote an eighteen-month plan and it auto-renewed. If they wanted to stop paying us for the service, that was fine. We gave it a period of 12 or 18 months that they would pay us to do the work.

After that point, they could stop paying us but we’re still guaranteeing that we would get a payout from the deal. Meaning we had two components of payout. One is our blood, sweat, and tears, trade-off retainer or rev share. The other is the upside, the juicy stuff, the stuff where if we can take a brand that’s worth $1 million and grow it to $3 million, we’ll take between 10% and 20% of that depending on the other side. Depending on how much monthly service fees we’re charging based on the work we need to do.

You retract it. That makes sense. If it was on the lower end of your service fee then on exit, you take a higher cut. We’ve talked about Branded Sellers. Let’s give some free juice to readers in this podcast, in which they tend to be more D2C, eCommerce businesses, but some operators sell on marketplaces and do direct-to-consumer. Question is, what is your opinion are the key lever points for growth? You mentioned two. One is understanding the market share and seeing what you can do to close the gap. The second you mentioned was inventory planning, ensuring that you never run out of stock.

For Amazon particularly, this can be detrimental to your seller rankings eventually. For D2C, you could turn off and turn things off, but at the end of the day, your bottom line will be affected, given the fact that you do not have products people want from you. Are those the only two-lever points operators should consider maximizing the SDE, eventually the enterprise value? Do you have any tips?

Those are certainly huge ones. You have cash and keep inventory flowing. That can disrupt your cashflow if you get inventory out of play. It also is the key lever to sales and on the market share. I would think any seller, any brand that’s D2C, marketplace, whatever, needs to have the best foot forward. The standards have changed. The standards of a good PDP, a Product Detail Page, have changed drastically.

Let’s think about it. If your average conversion rate on an eCommerce site is 1.5% to 2.5% and your conversion rate on Amazon is 30% to 50%, both have room for growth. It’s fascinating to me. From our point of view, there is no one-trick, one silver bullet when it comes to PDPs. We’ve seen time and time again that the bar is raised. Your competitors come out with a new label, a new logo, new images, new enhanced images. Maybe the titles and the content didn’t change because it’s been there and the juice has been working. I’m talking about videos and going through the gamut to improve conversions.

The key piece here is conversions are the dollar for dollar largest return. If you can improve the conversion rate, it’s a direct correlation to your P&L, a lot of times, by moving the needle. You’re going to reduce ad spend by improving your conversion rate. Using tools, it’s been a while since I’ve been in the D2C space, we used to use Optimizely back in the day running good PDP testing. Amazon has experiments now and allows for that.

At the end of the day, you’re competing with small brands that have become national overnight when aggregators are gobbling them up. That’s a huge piece. Even images, as silly as that can be, people want to be able to click through the listing and see the details. Show how the installation works. Show the manual. These are things that every seller can act on to get intimate with the product because the answers to the questions are what people are looking for, and that’s why they’re not buying. If they’re not finding the answers to the questions that they have about the product, your product page isn’t doing enough justice explaining why yours is the better option out there.

We can go on and on with this conversation. Let’s wrap things up a little bit. I want to wrap up with a question around where your thoughts are. I had a call with an operator of the service Amazon brands essentially. They help with optimization a bit, but they’re a service-based company. She had her opinion around the fact that the aggregators have changed the playing field. Incumbent brands on Amazon that could get away with not-so-great product detail pages or product listing pages having to up their game, they’re also having to look at the data a lot more carefully.

For a service provider like themselves, they’re not too happy about it because they’ve had it easy. This thing it’s more difficult. I like your opinion because you’re going against the screen but adding more value and ensuring that these brands have the highest EV, enterprise value, possible. What are your thoughts on aggregators and how they’re changing the game on Amazon? What do you think the outlook in 2022 and beyond will look like?

It comes back to the marketing detail page. That was one thing that I saw in the beginning as we went through the process with our aggregator. They had a massive desire to bring a world-class brand image to the table. I wasn’t just talking about our brand, but even as far as the aggregators’ brand, who they are, what they stand for. Bringing true brand creation comes from not just showing up on a search results page, but creating a brand is about the memory and the impression that lasts. It’s something that doesn’t need to be optimized. It’s a long play.

I do believe aggregators have an interest in creating new epic brands. “How do you know this?” They’re seeing success bringing products that started on Amazon to D2C into brick-and-mortar retail stores and having wild success. Aggregators aren’t the first to do that. We have a little company called Anchor that has been phenomenal doing that as an Amazon brand first, but then available in Walmart. That’s for all of us.

Competition makes us better. If you don’t have good competition, that means the industry’s slow or old school and primed for disruption. We’re coming into an era. Aggregators are probably the first level of disruption on Amazon. If you think about it, the Wild West wasn’t that long ago, where listings, you had to have a few bullet points and a couple of images, and all you’re trying to do is fight for the buy box.

The Targets and Walmarts of the world have set that standard. You can buy a high-quality premium product that’s not a national brand, save money, and have great value. That’s a model we’ve employed a long time ago, That is the new standard. The new standard is a brand that’s differentiated, a brand that gives back, a brand that has a mission that’s greater than just making a widget. All those things are expensive.

When you have capital behind, you can invest in those things more than you ever could before. You’re up against that, which means the budget to create a great product might be 2 or 3 times your budget. The little guy can outwit and outsmart large systems if the groups that are out there running these aggregators aren’t also evolving.

I see what’s happening right now is a big rush for ERPs, enterprise resource planning, inventory management order management systems. I’ve spoken to numerous aggregators about this and many of them don’t have an operational backend. They’re just starting to think about that. You’re going to see brands that operate seller central with no other tools or tech to now running massive ERPs with lots of data points, data warehouses, 3PLs, APIs, data flying everywhere. That is only as good as the plan to use that information and execute it.

My point in saying that is twofold. One is the tables are turning. It’s going to become a massive set of powerhouses that you’re up against. On the flip side, if you stay sniper rifle approach on picking your products and making the best product and making the best experience for the customer, you can do it one product at a time. You can do it and outbeat companies that have hundreds of employees and have thousands of products to manage.

It’s about focus and niching down, getting that precision, building up, and then moving to the next step essentially. Josh, we could go on and on. You have an impressive mind in this space. Essentially, what you do is maximize SDE for an exit for Amazon. For those of us who want to find out more about what you do, what’s the best way to reach out to you?

Find me on LinkedIn. I have a family of five. I love Jesus. There are a lot of things about me that I can relate to. I love meeting people. For two, BrandedSeller.com. There’s a Sell Your Business page at the top. I’m giving away my free book. It’d be great to start there. Honestly, I want to give back. I spent a ton of money on this whole process, this book, this opportunity cost.

I wanted to take this guy that came out of the middle of nowhere in a small town in Iowa, came to Minnesota built a business, and had a life-changing event. I choose to work now. I don’t have to work. The work that I’m choosing to do helps other brands see an exit. I believe that small business operations, individual entrepreneurs, solopreneurs can make a splash of difference in this world. I believe that we can help them and that’s what I’m all about.

Josh, it’s amazing having you here. Thank you. Cheers.

Thanks, Kunle. Have a good one.