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On today’s episode, we will be talking to Jock Purtle from DigitalExits.com. This is the eCommerce Marketing Podcast episode 4.
Robert: Hi on today’s episode we’ll be talking to Jock Purtle and he’s the CEO of DigitalExits.com, it’s a full service website brokerage, they help online business owners find a buyer when they want to exit their company, he personally exited his online business in 2013 and Digital Exits is actually on track to facilitate over 25 deals in 2015 of which 50% of those are E-commerce businesses. Thank you Jock for joining me today.
Jock: No worries
Robert: Okay so since you oversee or you handle transactions between the buying and selling of businesses, can you please first tell us what makes a great business?
Jock: Great question, a great business has really strong, key drivers and what key drivers means is the strength and repeatability of sales, so the business is driven by some type of unique selling point whether that’s some type of unique position or some type of external force that gives the business strength. So what I mean by that is… two things firstly let’s take a brand for example, a brand is a really strong key driver or for example like a government regulation is also a key driver for the business. So… the business has strength based on the reason why it makes sales.
Robert: And the whole point I’m trying to get at or trying to ask is because a lot of our listeners are running businesses and I want for them to get a clearer picture of the people who buys businesses, since these are people you work with and the people who sell businesses. From your experience and your insider knowledge, out of all the businesses that have been bought and sold, what have you seen has been the major fact that has made this business is a great business, I’m going to buy it or this is just an amazing opportunity for people or an opportunity and niche for investors and buyers and what really attracts buyer to certain businesses?
Jock: Sure, okay probably the first and the major reason that someone buys a business is the return on investment, like it’s an asset that they want to invest money into and then get a return, so that’s the basic, fundamental reason that someone is going to buy a business and then what makes one business better than another is going to come down to more personal, preferences of the buyer. So for example it might be based on what market that they want to move into… however let’s probably not go as detailed, let’s probably go back to high level. A buyer wants a business that’s growing, so that they can see that they’re going to make an investment and it’s not going to tank. A buyer wants a business that has a lower level of risk, so that means like a diversified revenue sources, diversified traffic sources and just diversification in general, so the business might be reliant on one source of traffic and that traffic dries up over night, you know basically you don’t have a business anymore. Other factors that go into it… transferability and verification, so is the business easily transferred or can you hand it over easily and verification means, let’s say you claim that you made a million and a half in revenue last year, the ability to say alright here are the bank statements, here’s the merchant accounts, all that kind of stuff, that’s something buyers look for in terms of proving that the business is worth what they think it’s worth… what else…
Robert: Actually that’s great and now we have a better idea and a better picture of what buyers are looking at when they’re looking at businesses and when they’re valuing businesses and with today’s topic, we want to see how can any business or any listener grow their business into a million dollar business or a business that can actually get that type of valuation if they were going to sell or just for their own business, whether they’re selling or not, how can they get that million dollar business and valuation. So what are some things you think people need to do to grow their business into a million dollar E-commerce business?
Jock: Good question, first of all they need to have probably at least $300,000 in their profit, or a round about that… the main reason is a business trades on a multiple of earnings and what that means is that someone is going to pay like 3 years of this, like 3 times of this years profit and the reason that they do that is, they’re looking for that return on investment again, so 3 times earnings is 33% return on investment right so if you look at real estate on average it’s going to make like 3- 10% return on investment, depending on what type of real estate you buy and so the reason that the return on investment is higher is obviously there’s more risk than traditional real estate however the rewards are a lot higher as well… so at least $300,000 in net profit which is giving you the multiple, that’s probably number 1, what else might say million dollar E-commerce business, it’s growing so it’s in the growth phase so, you know a buyer can see that they can make a return on an investment in the future, it’s in a market or a niche that is sustainable in the future for example if you were selling CDs as an example, that’s an outdated product right and the market is in decline, so a business in that market isn’t going to fetch a higher evaluation and purely because there’s no more growth left in the market. Older businesses generally sell for more, you’re probably looking at at least 2- 3 years worth of being in business before you hit that million dollar mark, having good systems in process and staff in place is another important factor to make a million dollar business, having good financial is another factor, so being able to prove that you’re actually making that money. those would probably be the main things that make up a million dollar business but if you put a percentage on each element, the main thing is that profitability in sales.
Robert: And from your experience, how have you seen businesses increase their net profit, what are some types of strategies that some businesses, you’ve dealt with have increased their profits so they can get a higher evaluation?
Jock: Just say that question again for me?
Robert: So in order for any business to increase their net profit, are there some strategies or ideas you have that you think businesses can do, like do they need to reduce their cost, do they need to sell more, do they need to get more product? What are some types of thing businesses can do to increase their profit?
Jock: Gotcha… focus on higher margin products… whatelse…
Robert: And when you say higher margin products, what do you mean?
Jock: Alright so a treadmill might sell for $3000 but there’s only $300 worth of margin in the product, whereas… a T-shirt might sell for $50 but it cost $3 to make.
Robert: Okay, so something that for the expense and the overhead is really low and then you can sell it high price, so that you can get a higher profit?
Jock: Yes so the cost of goods compared to what the selling price is, is very low.
Robert: You want to sell a product that has a high margin of profit once you do you your Math you subtract the selling price and the cost of the goods, you want something that is going to give you a better return so that’s one strategy.
Jock: Yeah so it’s more profitable to sell X product therefore… you’re going to get more profit like that’s the main reason why whatelse to improve profit… ask your suppliers to decrease the cost simple things like that, try and decrease your fixed costs, try and be really smart with your advertiser dollar in terms of exact spend… whatelse… profitability… you know just increase your gross sales.
Robert: Getting more customers
Jock: Yeah basically improve the top-line, if you improve the top-line and you control your cost etc, you’re going to improve the bottomline.
Jock: So that’s another thing…
Robert: Another factor that you mentioned when you talked about getting a high valuation or actually becoming a million dollar business, E-commerce business, was processes and the business that you’ve dealt with with your experience what are some things that you can tell a growing business, what are some types of processes that they need to focus on, that’s going to help them scale faster like… in your own experience, what have you seen as fast processes, like from businesses that are getting bigger what can they do to scale a bit faster than just taking the time and making mistakes.
Jock: Good question, hiring really good staff, that’s a big one… what-else… just actually like there needs to be this type of system that type of system but actually having the mindset of… we’re going to put systems and processes in place and then outsourcing, no not outsourcing like delegating those specific tasks to an employee or to a sub contractor or to a company or something, that’s the main thing that’s really going to make the difference.
Robert: Okay…So with processes you just want something that’s repeatable, something that can be repeated since in your experience and form your industry when buyers are acquiring businesses, they want something that they can easily learn, give it to somebody and it’s repeated and so they want a process that’s really being drilled down and that’s working and easy to adapt?
Robert: Okay so you need the profit, you need great processes, what about marketing, does marketing count in a business’ brand is that something that our listeners need to be thinking about with their goals of growing, do they need to be focusing on creating their brand, do they need to prioritize on their marketing, does marketing really even factor into all of this?
Jock: Yeah they do and the reason why is… direct sales, so I did a valuation on a company the other day that had 25 % of their sales because of the brand because people knew about the product and that… increases the valuation of the business purely because it goes back to what are the key drives of the business and so having that product being known in the market is a strong key driver, so when I say key driver, I mean what is driving the sales, so like 25% was from the brand, 25% was from Google Traffic, 15% was from like ads and stuff that I was doing, so there was a good breakdown between all of what was driving sales for that business… so it is important to build your brand but branding doesn’t mean like spending silly money on advertising, branding means developing a good product and getting a good name for customer service, those types of things.
Robert: Okay and when you say customer service, I’m trying to think what is it called the one report that business’ can use to see if a customer is likely to refer them, there’s a name for it, is it net refer report, but there’s a survey that business use to see if customers are actually happy with the product and service and they can use it to refer other businesses, there’s a name for it, do you know the name?… net, it’s escaping my mind I can’t get it but basically what you’re saying is when these buyers are looking at a business, they want something that… they want those multiple streams of customers, so they want like you said they want a percentage coming form Google, some customers coming just purely because it’s a good product, some customers coming because it’s a great brand. Is that correct, is that the correct summary?
Jock: Yeah so there’s multiple reasons why the product is selling not just because they’re spending a buck load of money on Google ads, there’s diversification between where the sales are coming form, what source.
Robert: Okay and if we were to basically drill down from all the factors that you’ve actually mentioned, what are the 3 you think that are the most important factors a growing business has to work on if they want to get that million dollar valuation and get that 300,000 in net profit, what are like the 3 main factors that you think actually will hold the business to that million dollar level?
Jock: Great question… finding the right niche that’s growing… having a good product and time, time is a big thing… it’s going to take you years to get to the million dollar valuation, those are probably the 3 you’ve seen.
Robert: So a niche, product, time and a great product. So a great niche, a great product and just the time it takes to get to that million dollar number?
Robert: Okay are there any other resources you can share with us that can help businesses, E-commerce businesses or just any business, grow?
Jock: Yeah there’s a couple of good forums for E-commerce businesses like E-commerceFuel.com… what else… Ezra Fire Stone has some good stuff. Purely I think a lot of success is based on you know who you hang around with the most, so if you’re hanging around with million dollar E-commerce business owners, then you probably either already… you’re either already a million dollar E-commerce business owner, or you’re on your way to become one.
Robert: Okay so just surround yourself with people who are on that level where you’re trying to get to?
Robert: So thanks again Jock for everything that you’ve shared with us today, Jock Purtle again, he’s the CEO of DigitalExits.com. You have a podcast, you have a lot of resources that deal with the buying and selling of businesses, can you just go into what people can get form your website?
Jock: Sure, the podcast is at DigitalExits.com/Podcast and then we interview people about buying and selling online businesses, we have a blog where we update regularly with articles, tips and tricks, we also have a few guides that you can download and we’ve also got some free guide. We’ve got 3 guides, one is called ‘The Ultimate Website Selling Guide’, one of them is called ‘The Ultimate Website Buying Guide’ and then the other one is called ‘The Ultimate Website Valuation Guide’. so plenty of stuff to check out.
Robert: Okay again thank again Jock for everything you shared with us today, listeners you’re taking notes and will go ahead implement the strategies that Jock shared with you and once you’re at that level of a million dollar company, make sure to call on Jock at DigitalExits.com, so that it can handle that whole buying and selling process for you. Again Jock we appreciate it, thank you and we’ll talk to you later.
Jock: No worries, pleasure to be here.
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