Strategies for Preparing an e-Commerce Brand for Exit With Yoni Kozminski

Intro (00:09):
Welcome to Innovations and Breakthroughs with your host Rich Goldstein, talking about the evolutionary, the revolutionary, the inspiration and perspiration, and those aha moments that change everything. And now here’s your host, Rich Goldstein.

Rich (00:33):
Rich Goldstein here, host of the Innovations and Breakthroughs podcast. I feature top leaders in the path they took to create change. Past guests include Kevin King, Rick Cesari, and Brandon Young. This episode is brought to you by my company, Goldstein Patent Law, where we help you to protect your ideas and products. We’ve advised and obtain patents for thousands of companies over the past 29 years. So if you’re a company that has software or product or a design you want protected, go to goldstein patent law.com where there are amazing free resources for learning about the patent process. And you could contact my team@speaktolarry.com to explore if it’s a match to work together. You could also check out the book I wrote for the American Bar Association that explains, in plain English how patents work. It’s called the a b a Consumer Guide to Obtaining a Patent. Returning to the podcast today is Yoni, Kazminski. Yoni is the founding partner of Multiply Me, Alala and South Cole, all of which help e-commerce businesses to grow. He is also the host of the Top 2% podcast Successful Scales. So I’m very pleased to welcome back here today, Yoni Kozinski. Welcome, Yoni

Yoni (01:42):
Rich. The pleasure and honor is all mine. Thanks so much for having me back on.

Rich (01:48):
Absolutely. And because I know there’s a lot to talk about. Uh, I mean, you’ve always been involved in helping businesses to scale, um, like the different companies that you, you have with and with Escal and Multiply Me, you’re really about helping people create processes and to create team that they need to, to make their, their companies more valuable. Um, and now you’ve also launched South Coal and I mean, let’s just talk a little bit about South Coal and what, um, what you do there.

Yoni (02:18):
Yeah, absolutely. So South Coal is really the evolution, like you said, of a couple of the other businesses that I’ve been involved in, in Multiply Me where we help find high value talent. And with Es Scala, where we help build systems, SOPs org strategy and structure, and actually help companies grow, you know, or scale rather than just grow. And that’s always been a really driving underlying focus of mine. And, and of Lippy, my co-founder, and we’ve also brought in a third partner, Brandon. And on the back of all of that, we’ve come together with G w Partners, formerly known as G W A, they’re a premier investment bank in the e-commerce space. They’ve done well over a billion dollars in transaction value and sellers, five formerly sellers funding who have, you know, hundreds of millions of dollars out in loans to e-commerce businesses, helping them grow.

Yoni (03:10):
So we’ve brought to the, the three parties together to create a joint venture called South Coal, where what we’re effectively doing is we are injecting capital. So we have a $50 million facility to invest in e-commerce businesses to grow them to exit over a two year period. And it’s a, a unique offering in that what we’re doing is we’re saying, founder, you are the most integral part of the business or senior leadership team, depending on the size of the business we’re investing in. We want to accelerate your growth. We wanna accelerate what that multiple is gonna look like. We’re gonna help build that exit roadmap with you and then hold you accountable, holding your hand and providing resources and services every step of the way, all the way through to exit. Obviously GW Partners, that is what they do. So I mean, that’s, that’s really the, the, the short of it Rich, that’s, you know, in a, in a very, very succinct definition, that’s what South Coal is.

Rich (04:01):
Got it. So it’s kind of a, it’s kind of like a natural extension of the work that you’ve done with Escal and multiply me, um, where, um, you know, in essence, you’re putting your money where your mouth is, right? Like you, you know, how to help businesses increase their valuation, so now you’re actually directly investing in them because, you know, it works <laugh>

Yoni (04:23):
Spot on. And, and what’s more is in our model, we take a minority position on performance. So if we’re not able to achieve a material growth and success in the business, then we see nothing. So we’re really putting our money where our mouth is. Right. And because, you know,

Rich (04:42):
Because you know, you can, you know, you can get it done, right? And so you can do that. I love that. Abso

Yoni (04:48):
Absolutely.

Rich (04:49):
Yeah. Um, so like, um, there’s so much to say about how you, um, how you increase the value of a business, but, um, like, like what, like what are the things that you see or that, you know, regarding preparing, um, that go beyond what most people do when they’re just preparing for exit?

Yoni (05:09):
Yeah. So especially if you look at sort of the years gone by and the rise of the aggregator, there’s been a lot of talk about, you know, exit preparation. How do you make sure that the numbers look right? How do you make sure that you’re in the right position, that you actually hand over the business in a state that makes sense, and that you can, you can actually build a, a sellable asset. And what we feel, and, and a big part of our thesis is that, you know, a lot of it was focused on that backend of just let’s get, you know, to put it bluntly, to put a bit of lipstick on a pig, send it off and, and sell the thing, and, and off you go, package it up. And where we saw the gap is that to have material impact on a business, it can’t be achieved in a three month period and often not in a six month period.

Yoni (05:57):
And for those of you who, who don’t know, you know, businesses, especially in the e-commerce space, are typically sold on an EBITDA multiple. And to have a material difference on that number on what your profitability looks like inside of a three month period, it’s, it’s pretty challenging, especially if you haven’t really planned for it. So when we talk about getting ready for exit, we’re talking about how do we grow that ebitda and how do we grow that multiple, how do we have create multiple expansion over the course of a two year period? And I mean, Rich, I’m happy to jump into all the ways in which we look at the equation, but maybe I’ll pause, take a breath and ask if that’s what you’re looking for, <laugh>.

Rich (06:35):
Yeah, no, no, perfect. I just recap a couple things and, and we’ll continue on, on, on that road. So, um, so first of all, like what you’re saying is that typically when, when a e-comm business sells, there is your profit, your ebitda, and then there is the multiple. And, and most of the time when people think in terms of preparing for exit, they’re looking at like, well, okay, how do we make sure that our numbers are a little bit better so that we could influence the value that way? Because it’s like, you know, if you say like, oh, you know what, we’re spending too much on P P C, like, let’s see if we can get that number down a little bit. And so then we can increase our profit a little bit so that we can maybe, um, show a little bit better number that is then being multiplied by a certain multiplier.

Rich (07:22):
And that multiplier has to do with how attractive the business is overall, right? So you, you are talking about, it’s kind of like if you were selling a house and you said, well, you know what, we, like, we wanna flip this house, why don’t we just go and, um, um, we, we’ll clean it up real nice, maybe we’ll, we’ll do a paint, maybe we’ll paint the porch. Um, and, um, so we’ll just increase it a little bit versus like, Hey, you know, what, if we, um, if we, if we put it in a new kitchen and we took down this wall, um, then investing just a little bit, we’ll get a lot more for this house. So like, it’s like that doing the work is kind of what you’re talking about. Um, so yeah, I i, if that, if that resonates, then just, you know, let, let’s go with that and tell me a bit more about how you do the work.

Yoni (08:09):
Absolutely. Absolutely. So that resonates. That is absolutely spot on, and I love that analogy because ultimately it is about, you know, coming back to it, it’s not about putting lipstick on a pig, it’s actually making this thing much more attractive for when you’re looking to sell your house. You know, you’re, you’re getting the paints of co you’re doing the landscape and you’re doing all of the things that you know, are actually gonna have a material impact on that upside potential. And so when we look at it from an e-commerce perspective and how we can actually maximize exit value, you know, it’s not just about financial cleanup is a really common thing and something that I think in a lot of ways can be done in that last three months. But to actually build the right financial engineering and to, you know, and to make a material shift and work toward an actual goal, a profitability goal, that takes time.

Yoni (09:00):
You know, when we talk about things like product pipeline, you know, you can’t do that in, in three months when you’re saying, right, prospective buyer, let’s talk about, you know, coming back to like the aggregators for a second, a lot of the challenges that they had was that they were buying these businesses where they were taking the most valuable thing out of that. And that was the founder that had all the ideas on how to expand the products. And in 30 days, the founder was gone. Now, if you can actually build the roadmap for the next 10, 15, 20 products to continue to build that brand and launch a few of them, and then sell that asset with that upside opportunity, you know, anyone who’s looking to potentially acquire the business is looking for how can they turn that acquisition into dollars as quickly as possible, pay it off, and then continue to grow that asset. So things like building out that product pipeline is really integral. Um, you know, outside of compliance, where if you don’t have that in the right place, obviously legal, and very importantly, your IP law and all the IP that you have embedded inside of that is critical. You know, I can say from my standpoint, and, you know, I don’t wanna step not step on your toes here, Rich, but I don’t want to talk out turn, just knowing that you are the,

Rich (10:09):
I’d love to hear

Yoni (10:09):
Subject matter expert

Rich (10:10):
About IP and its VA and its role and exits,

Yoni (10:13):
But, but ultimately, I mean, when we look at it from the south coal investment standpoint, if there’s no defensibility, so if there’s nothing that is particularly unique to that brand or that product, and to be really blunt, blunt, if someone in China can just knock it off and drop the price by 50%, 70%, and there’s no defensibility around it, then that business is, is way too geared toward a, a degree of risk that from us, when we talk about a two year roadmap, so much can happen in that timeframe, we’re not gonna take on that risk. So making sure that there is some form of trade or design pattern, making sure that there is something that actually we can turn around and say, no brand registry, we own, we own this ip, this is our own it’s critical. And I would say for anyone looking to build for exit, you know, if you are at that point and you don’t have that built into your business, you know, you should look to find a way. And, you know, again, I don’t know all of the intricacies when it comes to actual technical IP law, but you know, I think that’s one of the things when it comes to IP law that you really need to pre-think these things through well before exit. Because, you know, I’d love to actually hear you, correct me if I’m wrong here.

Rich (11:24):
No, you’re not. I mean, it’s, it’s like, um, you, you, you, like, you don’t need to know all of the details of how it works. It’s the, the important thing is that you know that it’s important, you know, that if you are looking at a business, seeing if they’re a good candidate for you to want to get involved in, you’re looking at IP and you know that other people are looking at it, so you know that it’s worth the look. And that’s half the battle is just knowing like that this is, it’s worth the look and it’s worth, um, trying to maximize with, you know, with the right people that can help you do that.

Yoni (11:59):
Absolutely. Absolutely. It’s, it’s integral and it’s, you know, it’s part of our framework and our roadmap when we’re building for exit and building our two year acceleration timeline IP is, you know, there’s literally a section that is all dedicated to ip, so it’s critical. Another, another area that we look at as well is, is it’s operational excellence. So if you are selling your business and you are, you know, you are the individual that has all of the ideas and all of that IP up inside of their head around how things operate and what’s happening, then you are an absolute key man or woman risk to the business. And for any perspective buyer, making sure that you have every aspect of the business well documented so that there’s a degree of clarity does a couple of things for your business. On one hand, it makes any prospective buyer or, or rather opens up the prospective buyer, Paul, because all of a sudden, rather than having to get on a call with, you know, 100 companies, they could have a snapshot and a look at some of the clear processes and how the operation actually runs and what are some of the key process maps and components that go into running this business.

Yoni (13:12):
And they can understand pretty quickly how simple or technical the business is and what that looks like. So working on that operational ex excellence, it’s, you know, it absolutely grows that s d E and can have multiple expansion implications. Again, when we talk about who’s buying it and, and what that bidding wall may look like if there are enough interested buyers. So it’s a really, really important, um, I’ve got a few more for you, Rich, if, if you’re looking.

Rich (13:38):
No, absolutely. This, these are all helpful insights.

Yoni (13:42):
So, you know, another couple of areas we look at are marketing optimization and, and branding as well. I know one of the big things that we’ve seen as a shift coming back to sort of two and three years ago where it was, you know, somewhat of the wild west in the e-commerce space, we, you know, covid hit, there was a massive growth component. You know, people were no longer spending their money on travel and activities. It was all purchasing of home goods. There was no more travel. And so we saw this explosion and you know, I’ll never forget early on, we were already sat firmly in the eCommerce space, and that was where we cut our teeth and everyone was saying, you know, we we’re five years into the future now, you know, in, in a matter of months in terms of the investment and the growth, and there’s been this covid hangover, and there’s definitely growth.

Yoni (14:29):
E-commerce isn’t going anywhere. But I think one of the really important shifts that we’ve seen is that people aren’t just buying any brands anymore, or rather any product based, you know, quote unquote brands. They’re now really looking to invest in people that have invested in building out their brand and having real marketing. And coming back to the IP piece, you know, it’s not just about what you can defend from a legal standpoint, but it’s also what does a, you know, what does your ideal client profile, what does that potential customer or client, what do they see and feel, and what is the, what are the intangibles about your brand that you’re building that draws them to it and makes it valuable and says, I will spend, you know, I think a really good example of this is, um, hydro Flask for example. You know, you have brands like Hydro Flask, and I forget the other, the, the Tumblr, I think it’s, they had a patent on for like 15 years, it just recently expired.

Yoni (15:24):
And so loads of people are now building out these things and these tumblers and these like, you know, heating, cooling drink bottles and they’re, you know, maybe five, 10 bucks, they’re landing, they’re landing ’em for selling ’em for a very small markup. You’re still buying hydro floss, which is effectively the same product at a 40 or $50 shell out because they’ve built such a strong brand behind them. So, coming back to my point, and my very long-winded point here is that investing in brands is paramount for what the prospective buyer is gonna look at and what you’re actually selling.

Rich (16:00):
Yeah, no, absolutely. And um, and, and it’s like you want to anticipate what, what it is that they’re investing in and what they see and, um, and what, um, what makes it positive.

Yoni (16:14):
Absolutely. Absolutely. And then like, the last, the last, and in my personal opinion, but that’s just how I operate. The, the last important and less sexy component here is everything that relates to supply chain and logistics optimization. So, so really investing in understanding what are the level of efficiencies that can be created, especially as you continue to scale and grow the business. What are the thing, what are the levers that can be be pulled? Because when that starts to become, you know, from 10,000 units to a hundred thousand units to a million units, you know, being able to shave 10 and 15 and 20% off make a tremendous difference.

Rich (16:54):
Yep. And it’s also with supply chain in it that that’s another, um, potential risk, right? There’s, there’s risk to a buyer depending on how you, um, have your supply chain set up. And so, um, the extent to which you kind of find those potential problems and and solve them ahead of time is, is de-risking and that it makes it more valuable taking out the, taking some of the risk away.

Yoni (17:22):
Absolutely. Absolutely. So that, that’s definitely like some of the ways in which we approach it and we look at it, um, you know, one of the ways in which us as South goal gets started after we go through our diligence phase and, and really audit and understand that this is the right founder that we wanna invest in, you know, we’ll build this two year roadmap. And inside of it, we have almost like, it looks like a spider web in terms of how we lay this out, where we look at products, brand marketing, operations, and business management. And we, we block them in six month increments where we’re looking at, you know, what do we expect to achieve in these six month increments across each of those five categories that I just shared, being realistic and front loading, the things that are gonna take time, you know, if there’s a heavy investment, let’s say, into global expansion, and to find the right three pl and freight forwarder and setting up v a t and compliance into Europe and things like that, that’s gonna take time.

Yoni (18:17):
That’s not a three or six month execution. And then that’s on top of it, having to actually sell and start to see that thing turn a profit. So we’ll plot this whole thing out, and we’ll work with the founders of these businesses that we’re invested in to make sure that they’re actually hitting these goals. And we deploy management consultants in. And, I mean, I could keep talking about the business until the cows come home, but maybe I’ll pass it back over to you, Rich before I go on too much about it.

Rich (18:45):
Yeah. And so, um, you know, I, I guess in terms of, of, of all those things that you look to create, um, in terms of shifting the processes and such, um, it takes time and a lot of people that are looking to exit their businesses, they, they’d be surprised by that, um, recommendation that they spend, um, you know, six months, a year, maybe more, to be able to position the company, um,

Yoni (19:15):
For

Rich (19:15):
A better multiple, to get more money.

Rich (19:18):
You know, there’s a, there’s a, there’s a expression in business planning world that I love, which is that a good exit strategy is just good business strategy. So it’s kind of like they, they might be, um, you know, they, they, they might be, um, looking at it like, wow, we’re doing all this stuff to get more money to get a better exit, but you’re just building a better business. Like by focusing on these things, you are, you’re making a stronger business, whether you exit or not, you’re making a business that that has less risk and has more staying power. What do you think of that?

Yoni (19:56):
I think that that’s exactly that’s exactly it. Um, I was, when you were, when we, when you were sharing that, I couldn’t help but think about, um, Mike Tyson’s line, <laugh> of everyone has a plan until they get punched in the face, they’ve got punched in

Rich (20:09):
The face.

Yoni (20:10):
Yeah, yeah. But, but it’s kind of the same in that you shouldn’t be thinking just about the strategy for exit in a three or six month or even 12 month or two year period. It’s, it’s build, you know, build the business as if it were a sellable asset today. And if that opportunity presents itself, fantastic, but you’re never actually gonna go wrong unless your business, you know, there’s, there’s nothing bad that can happen in the statement that you just shared. And I, you know, it really resonates with me. And I think for, for all of us founders out there, you know, that’s, that, that should be what you live by is not, let’s wait for some sort of event to say, right, I really, you know, I wanna buy that dream home, or I want to do, you know, I wanna drive toward this, really invest the time to make it as close to quote unquote perfect as you can. And, and when that opportunity presents yourself, you’re always ready for it.

Rich (21:06):
Right, exactly. So, like let’s just, um, get to, um, pragmatics here, um, e-commerce business kind of, um, wondering where do they start in terms of, of just doing the right thing by their business to help it be scalable and ultimately exit able? Like where would you, where would you start with something? ’cause I, I know that like, say even the, um, even the, um, businesses that you have gr like a approach, um, a approaching e-comm business from different standpoints, like on the one hand building teams on another hand building the SOPs and processes on the other hand, getting directly involved to help them grow it. So like you approach it from different angles. So if you are an e-comm seller, just wondering like, where do I start? Like, what’s the best advice you can give to them?

Yoni (22:03):
So I would say that that ultimately depends on what stage of your journey you’re on. You know, I would say if I were to look into someone who’s never sold online in their life and we’re looking to build their first brand to decide what their first product is, I think it stays true at every step of the journey. But make sure that there is enough margin inside of whatever it is you’re building for it to make sense. Because the second, particularly with e-commerce, the second that it doesn’t, you know, that becomes a, an unsellable asset, unsellable brand, you know, unless you are sort of sitting, I’d say at the minimum 15% profit margin, but, but realistically, you’re gonna want to hit sort of at least 20 is where things start to get really interesting. So I would say that that would be the first thing.

Yoni (22:50):
Make sure that what you’re building toward actually has a future from an exit standpoint. And, and maybe that’s not necessarily the same for every single business and every single vertical because, you know, I would say there are businesses where they cashflow, you’re not gonna have such big problems and you might just wanna hold onto it. And that’s a beautiful thing. But specifically for e-commerce, it is a cash intensive game, and it’s something that if you don’t build those things in, you don’t have that liquidity event, you know, it can go it can go pretty awry, um, pretty quickly.

Rich (23:25):
Yeah, absolutely. Um, let me just go in, in a different direction here, like, um, as a, as a final topic. And so, um, you know, everything we’ve been talking about here today in terms of, um, increasing value have to do with kind of processes and ways in which you work on the business, um, and and set things up.

Yoni (23:48):
Now at the same time though, you and I know each other from attending, um, like Amazon events, like, like networking events, so, you know, unexpectedly, um, with a business that’s so much about like, um, you behind the computer and creating processes, et cetera, et cetera, um, it matters quite a bit. Like who you know and like who you get to know and, and and the community that you have around you. So I just, I, I’m curious from your standpoint, like, like how does that, how do you see that, um, is important to sellers in terms of net networking and community and, and such?

Yoni (24:22):
Well, you know what they say, Rich, your network is your net worth. Mm-hmm. <affirmative>, and uh, look, I’m a big believer in that. Um, it might just be ’cause I’m very extroverted and I love to be around people <laugh>, but, but I think in reality for me on a personal level, you know, I find myself in places meeting with really interesting intelligent people. You know, just before we even started this call, I was asking, Rich, what’s up and what’s new? And he had so much to share about just all these new initiatives and, and educational experiences and communities that he’s touching on. And if I didn’t have Rich as, you know, a friend in the space and someone that I can sit and pick up the phone to and chat to every so often, you know, I wouldn’t have learned something that, you know, who knows we could get on this podcast a year from now and it’s a material step change in my entire business.

Yoni (25:11):
And it was all because I decided to ask Rich, Hey, what, what, you know, what’s, what’s been going on in your world and what’s new? So, you know, I’m, I’m just really sharing with you that I think that it is such an integral part of my personal and professional growth and development. You know, I also think that, you know, us in the e-commerce space, it’s almost, it’s a privilege that it’s not just people that, that I’m doing business with, but it’s people that I genuinely like to hang out with. I’ve gotta say for anyone who is listening today and does get to Prosper getting to Rich’s event every year, it is the classiest event in Vegas. So I, you know what, I’m gonna give you a plug here, Rich. And he is not paying me for this, I promise you, but every year they do it at the M G M it is in, I didn’t know this until last the last event that I was at there, um, but it was Barbara Streisand’s room that when she was, when she had residency, it’s the only one on the floor that hasn’t been converted.

Yoni (26:08):
And the first like two or three years, I was like, why do they pick this? You know, why, like, why this room? I’d been to other floors and someone, one of the bartenders, I think it was at the high-end tequila bar upstairs. Yeah. Again, see nothing but class here. Um, he was explaining to me that actually it stayed exactly the same. So, I mean, that event, I get so much value out of just the people that Rich has inside of his inner circle and, you know, it, it’s definitely, it’s had a material impact on the relationships, the learning, and, and I would say just as well, like even new business opportunities come on the back of building these relationships. So, you know, I’ve very long-winded answer, but I, I think it’s really, really important and I think more people should, should invest in it and invest in themselves and enjoy it while they go through it.

Rich (26:56):
Yeah, absolutely. No, I love that answer. I love it. Every bit of it. And um, and if people wanna learn more about you or get in touch with you, how do they go about doing? So,

Yoni (27:05):
Yeah, you can find me at any of my websites as in yani@multiplyme.com. We r s scarlet.com or south cole.co. I’m pretty active on LinkedIn, so Yani cos Minsky, you know, that’s, that’s probably the easiest way, even though it’s a hard name to remember. Um, that’s probably gonna be the, the best way to get me.

Rich (27:26):
Awesome. Well Yani, I really appreciate you taking the time to come back to the, to podcast and talk about exits and everything that you’ve been up to. So thanks so much for being here.

Yoni (27:39):
Thanks for having me, Rich. It’s always a pleasure.

Outro (27:46):
Thanks for listening to Innovations and Breakthroughs with your host Rich Goldstein. Be sure to click subscribe, check us out on the web at innovationsandbreakthroughs.com and we’ll see you next time.