AS 58: How Mark Reached 10M Sales Annually, And Now Acquires Amazon Businesses
22 Sep 2016
Mark Hirsch came on the show and shared tons of golden nuggets for entrepreneurs. He is a serial entrepreneur. who was partner in an online financial publishing firm that thrived during the economic downturn of 2008. And as his company approached $10 million in annual sales, it was acquired by the industry leader – and he stayed on with the acquiring company to see the integration through.
Today, he’s on the buy-side of corporate development, leveraging the capital and capabilities from one of America’s greatest digital direct marketing companies to create value by partnering with proven physical products companies. [US]
In his current role as Director of Corporate Development at Qbrands, he identifies and negotiates strategic acquisitions and joint ventures.
He also travels coast to coast speaking with 3P Sellers in an effort to help entrepreneurs unlock value in their businesses, understand the M&A process, and set themselves up for an eventual exit.
What you’ll learn:
- How to prepare your business for acquisition
- Certain characteristics you need for acquisition
- Mark’s journey through entrepreneurial and how he got to acquiring businesses
- The many businesses Mark has been in, ran, how some failed, and some became wildly successful
- How QBrands became what it is today
- How to prepare your business for acquisition
- Investing in businesses
- Decision making throughout
- Growing and scaling your brand to be aquirable
- Making decisions that change the direction of your business
- Strategy, PR, Banking talk
- Differentiating your brand, molds, designs, and products
- Annual revenue talk
- Technical analysis of businesses
- Why the internet is so young
- SWOT Tests, and how to use them for your business
- “Earn outs” based on performance and how you need specific control in your company
- Why lawyers should be used in acquisition
- Understanding the complexity of Earn Outs – payments over time
- Leveraging deals
- Investing strategies
And much more!
http://qbrands.com/ | firstname.lastname@example.org
David Aladdin: Great to have you on the show, Mike. Can you tell us a little more about yourself?
Mark Hirsch: Sure let me start by saying my name is Mark.
David Aladdin: Oh yeah, ok my bad (laugh).
Mark Hirsch: Appreciate the introduction. It’s funny because one of my colleagues almost constantly calls me Mike too. I must have that Mike look. So thanks for having me on the show, David. I appreciate it, and am looking forward to a great conversation.
David Aladdin: Can you tell us about yourself, before everything starts to go crazy. There was a start to your entrepreneurship career. Where did that begin?
Mark Hirsch: Sure yeah, oh my goodness. You could say that I started my entrepreneurship career at the age of five, when my mom would bake cookies and I would say “Gosh, these are great cookies”.I would take them out, and sell them to my friends for a dollar a piece. I’ve been looking to find ways to create value and do things on my own, ever since I was a little kid. But when it comes to actual business, I was involved I guess in the very late 1980s to the early 1990s. I was in the investment banking space as a series 7 registered representative and in that space, I was pretty much doing the same thing. Instead of selling cookies, I was selling IPO shares.I left that business and went into public relations where I was in the industry for 11 years.
I opened up an agency and focused and specialised on broadcast media, and been there for several years until some federal regulations were changed and it kind of closed down the entire industry, and I wound up in the internet market. So it has been quite a road, but I have run several businesses and many of them have failed miserably. Failed to get off the ground, yet put in a lot of money. But others have gone well.
David Aladdin: Let me slow you down. Alright so at five years old, you sold ten million cookies.
Mark Hirsch: No (laughs), I wish I sold 10 million cookies for a dollar a piece. I always have this streak of being self-reliant, and looking for a way to capitalise on something that people want.
David Aladdin: I always thought that the lemonade stands did better.
Mark Hirsch: (laughs) I was very fortunate our house was at the corner where the bus stopped, so the cookie selling turned into a garage-based candy store. At one point, my brother and I had about twenty different candies. We had the garage store clicker in our hands on the bus, when we got off the bus and into our store. We were making about $65 a week. Back in the early 1980s, that was pretty good for a kid of my age.
David Aladdin: Seriously, I feel like that’s how the American dream starts. I think Warren Buffet did paper deliveries to peoples’ houses…
Mark Hirsch: He did, he did…
David Aladdin: You did cookies…
Mark Hirsch: Thank you for putting me in the same category as Warren Buffet. Definitely appreciate it.
David Aladdin: Well, we are going to get into that. You are in the investment side of the whole world. A lot of people that are listening are sellers, so they come in with a completely different perspective of the business world. And so you said you were in public relations for 11 years. When did that start?
Mark Hirsch: I would say it was about 1994 that I got into public relations. And quite honestly, I saw an ad that was an ad for stock brokers, and since I was registered rep, I was looking at ads in that category of the newspaper. It was back before the internet you know was where everybody got a job. The ad read “Stock broker? Feeling burnt out? Beverly Hills PR firms needs you”, I lived and worked at Beverly Hills at that time, and I answered the ad, was hired and what I found was for me at least, I liked PR because it combined the selling skills that were required in being a stock broker, but it didn’t have any situation in which there were individual investors losing money. I was having a real problem working with a firm, that the investment banking firm that I was with, because I noticed that the individual investors were not doing well, whereas the institutional investors were.
I put two and two together just ethically I couldn’t be in that business. So I took the skill set I developed, and went to another space.
David Aladdin: What’s that word? Is like fiduciary?
Mark Hirsch: Fiduciary responsibilities? Yeah…
David Aladdin: I hear that on the radio all the time; we are a “fiduciary”. We don’t make money unless you make money.
Mark Hirsch: Well, it wasn’t that approach really, I mean it was just more so the clients were having the opportunities to buy into IPOs, newly listed securities. Having seen kind of how the game worked, I just got a bad taste in my mouth, I just can’t do this for a living. Even though it was lucrative, I don’t want to be involved in that.
David Aladdin: I hear that story a lot. People they are doing lucrative and doing really well, some of them end up chasing their passions. They might take that pay cut for just that little bit for the dream they always wanted to do.
Around 2006, 11 years later, what do you jump into then?
Mark Hirsch: 2006 you must have my resume…
David Aladdin: I just did the math (laugh).
Mark Hirsch: Well it was actually 2007 I got into the financial publishing space. That was info and data products. I found a very small financial publishing company in Dore Beach, Florida where I am currently residing. It combined my PR background with my investment banking background. Gosh, this was a really interesting company. I joined the company, became a partner and helped to take them from… We were doing about a million, a million two when I joined, to well over nine million annual revenues, and that was in part by coming up with new products.
They have a typical newspaper tipsheet business. They had former traders, former market makers and people that understood technical analysis, that sort of thing. They were writing up daily newsletters and they were basically selling tip sheets. People would do research and the professionals who do research would be paid anywhere from a couple of hundred dollars a year to a thousand a year for those tip sheet.
So I came in and said, what would work really well would be to teach people how to fish. We actually began creating content programmes which were actually a lot like programmes you and your listeners actually listen to in order to get into third party selling platforms like Amazon. So it wasn’t biz op, but it was more so how to do technical analysis, how to trade options, understand the basics of fundamental analysis. I would work with subject experts on creating the product, as well as marketing those products.
We had a suite of maybe a dozen of those educational products, and many of those data products that were associated with them. We were growing when everybody else in the industry was shrinking. At a time in 2008, people didn’t really trust their stock broking firms anymore so they really wanted to learn how to invest themselves. So we were really exploding growth at that time. We caught the attention of the $600 million dollars market leader in that space, a large publishing company. And we were acquired.
David Aladdin: That’s awesome. Let me jump back real quick because I noticed a small golden nugget. You are PR and investment bank, and you combine the two skill sets; so I think a lot of us realized today that we have these skills and we might not be on the actual track that lands us the huge gig eventually. But for whatever reason, these skills might land in the same spot and then it eventually landed you into the financial gig, that financial company got acquired for $600 million. It is cool to see the road map, and what got you to that point.
So when you guys got acquired, did you have a stake in the company?
Mark Hirsch: Yeah, I was a partner in the company at that point. However, we were not acquired for $600 million. The company that acquired us was a $600 million company. If we had been acquired for $600 million,I would probably on the beach right now.
David Aladdin: What is it, a sunset in the back?
Mark Hirsch: (Laughs) Yeah.
David Aladdin: (Laughs) You are from Dore, you live by the beach. I actually am about a min and a half from a beach. Like I could walk there.
Mark Hirsch: (Laughs) By car or by a walk?
David Aladdin: No, I can walk there.
Mark Hirsch: Oh ok, you got me bit. I have a nine minute walk so it is still quite nice and the beach here is beautiful, but not quite as nice as the west coast of Florida.
David Aladdin: No, we talked a little about that in the pre-show. Ok, so are you able to say what you guys got acquired for?
Mark Hirsch: No, I will not be able to say what we were acquired for, but I will say it was well into the seven figures.
David Aladdin: Will you be able to say what equity you have in at that time?
Mark Hirsch: I was a minority stakeholder.
David Aladdin: Ok, now let’s talk about what you do . . . that was in 2007 when did that end?
Mark Hirsch: So I actually stayed with that company until 2011. 2010 was the acquisition, 2011 was when we were done with the integration. I learned some hard lessons towards the end there. The more sophisticated acquirers when they come and dangle a big cheque in front of you, there is a deal that looks like a deal of a lifetime.There could be some catches on a deals like that. So I learnt the hard way on how the deals were structured, and while I certainly got what was written in the contract, they fulfilled it exactly right, I would say that I felt somewhat shinged by the experience. It was really helpful, and opened up my eyes to the fact that I really did not know much about the M&A process. So that was the tough learn.
DavidL Can you tell us more about that? What the miscommunication there was?
Mark Hirsch: The deal was structured as an earn-out. So this is very common actually in businesses where you have a valuation number that is in your mind. Let just say for round numbers, our business was giving $2 million a year in net profit. We have a multiple against that, and there was a certain portion of that which was paid when we signed on closing. And then there was what was known as an earn-out. Which basically means that at a set period of time as long as the business maintains a certain trajectory or certain goals, we would get the larger cheque. So…
David Aladdin: So you expected to get the larger payment except those goals were never met.
Mark Hirsch: Kind of. What’s interesting about that is, when you are in an earn-out situation, not having specific control of things you use to have can actually engineer in a way, a sophisticated buyer can engineer a transaction like that where you will never see the second half of your earn-out.
David Aladdin: Is an earn-out based on like a time, let say, within five years.
Mark Hirsch: It is actually shorter than that, David.
David Aladdin: It is actually good advice for all those listeners to know, because would have been baited by the earn-out. This company is going to make; its going to make the $20 million and within 5 years, you know, they could slow the pedal down, they could turn the PBC down, or the advertising. Whatever metric…
Mark Hirsch: Exactly.
David Aladdin: That looks like what happened.
Mark Hirsch: Yes exactly! It’s very much so. Basically, the rationale behind it was compliance, and the method to be compliant was to stop all marketing. And we were compliant, but when you get into anything legal, when you are talking to an expert in this type of compliance, you can’t use that word. We got to go just shutdown all marketing for a while, change everything. Only amount of time that it took, of course we made the changes, but by the time that was done, the impact of not marketing for several months took its toll.
Like any info products business, if you are not marketing the product…
David Aladdin: Be careful on the earn-out clause. Be careful on the earn-out clause. Be careful on the earn-out clause. Now I won’t forget it, I said it three times.
Mark Hirsch: (Laughs) I will tell what. Earn-outs can work out very well, but it is just a matter of the details you negotiate. Usually, as the entrepreneur selling your business, you can get a higher valuation and more money for the business if you are willing to structure with some type of earn-out or payment that is spread over time. It is just a matter when you are working with you know we were a $10 million company and they are a $600 million company.
As you can imagine the resources that they had to structure agreements, the resources that they had you know on the legal side, as well as the advice side. A lot more experienced than ours resources.
David Aladdin: Really, there was no ultimate size of a company. No matter how big you get, there is always a bigger fish in the sea that could take you out. The $600 million company seems to know their way around the waters with their earn-out clause.
Ok, so 2011, that was all done. What happened after that?
Mark Hirsch: I did have a golden parachute, so I drifted down to route slowly. I started to do a lot of yoga. So I enjoyed maybe 8 months relaxing and figuring out what I am going to do next.
David Aladdin: This is what happens after acquisition (Mark laughs). It is how I imagine it…
Mark Hirsch: It does, it does. You do a lot of yoga by the pool and you like think “what should I do next?”
I actually wound up taking a job doing customer acquisition with another financial publishing company. I did that for a short period of time and then I was recruited out of that business by the company that spawned Q-brands. I was recruited, it was 2013. I got a call, October 2013, from a recruiter and they said “We are conducting a nationwide search and we are looking for somebody that essentially was an entrepreneur that would come into our company”. “It is a platform company. Help us kind of plug in what we do well.” They had certain capabilities. They had cash flow. They had a lot of smart people. And they said what they needed was “somebody that can help us kind of assess the landscape of businesses to get into and kind of help to lead the charge there.”
So for about a year, year and a half, I was the guy on the bow of the ship, with the binoculars, looking at the various islands and saying ”I think that one has coconuts and we should send out a search party” and “I think that one may have fresh water, let’s go over there”. We did that for a while. We began this project. We were actually selling in Amazon through a sister company for five years prior, getting involved in private label.
And so we started testing into private labels with our own brand, and we developed that business and we got into the M&A side of things, we did kind of a high profile acquisition. Right now, one of the things I am doing is reaching out to sellers, because as I mentioned to you earlier in the pre-call, this industry is kind of not yet ripe for lots of acquisition. There are some business that are, but the consolidation will come in, just that for businesses that is within the industry, ripening, maturing. We are out there to help to educate the sellers on what they can do to put their ducks in a row, run their businesses in such a way that when consolidation comes, they can get more value for their company.
David Aladdin: How many private label companies do you guys currently manage?
Mark Hirsch: We manage several dozen brands, and we are continuing to increase that at a pretty rapid rate.
David Aladdin: Is there any business you are focusing on like category wise?
Mark Hirsch: Yes, at this moment we focus on consumer hard goods, basically excluding things such as injustables. We exclude beauty at this point, we exclude supplements.
David Aladdin: So pretty much everything, except…
Mark Hirsch: Yeah, pretty much.
David Aladdin: Is there any strategy? Are you guys going vertical route, like get all these brands which are related to each other? Create synergies between the brands or are you, kind of, just getting the most lucrative one as possible?
Mark Hirsch: It is tough for me to layout the business strategy in a way that I can share with the audience. What I would say is that for us, the reason we get on podcast, is we know in the land of third party sellers, private labellers, there are a lot of great brands being created out there right now by people that may be great at product, great at marketing or both but they encounter invariably the same sort of problems. So what we are doing comes to our acquisition model. We are gearing up in order to consolidate business that have certain characteristics. I can’t say specifically all the criteria at this point of time, but I can say that the minimum size of the business would probably be generating at least $750K per year in revenue at the very least. We like businesses that have, as Warren Buffett calls, a mode around.
If you study Buffett, a business with a mode, in this case is going to be maybe a patented product, a trademark brand, there is a big customer involved, engaged. Or the product may have been differentiated, through tooling or customization. Nobody else can create a product like this. The private labeller owns its actual contract manufacturing. Things like that and other criteria as well.
A lot of those criteria would be how you run the business. You know, profitability is certainly a consideration. You can make a million dollars in revenue but if you are only generating 5% net in the bottom-line, there is a cost structure issue. We are less interested in that business than we would be in a business that is doing $700K, but is doing 25% in bottom-line.
David Aladdin: It comes down to the numbers.
Mark Hirsch: Yeah, it is a numbers game. What is funny David it all depends on the business, because there are so many complex factors in these businesses. There is no blanket that it has to be this way. So in some cases we want to do deals with people because we like the people, or the capabilities that come with the deal.
David Aladdin: Very true. You mentioned these businesses that at a certain stage they have a lot of problems. What kind of problems do they start to encounter?
Mark Hirsch: What I noticed, and this is in speaking with hundreds of 3P sellers at this point, is the common problems are going to be cash flow, working capital issues. As they want to grow their business they are got to come up with more money or working capital in order to invest in their inventory, to invest in launching a new product. So not every entrepreneur understands how to go and put that cash together. Cash flow issues are big common problems.
Another common problem is people just don’t really have a business. They have a job that they think is going to be a lifestyle business, but they are not setting it up that way. They are busy doing everything and they cannot delegate. It is not that they can’t, but it just maybe they don’t want to because the business is their baby or because maybe they tried to work with their VA in the Philippines, for various reasons they are not able to delegate their work out.
So what they have shackled to is a business that can’t grow beyond their capacity to do the work. Those are really two very common problems that we have seen. It typically happens between $2m – $5m. Because to grow the business from zero to $2m it takes an entirely a different skill set, and to go from $2m to $10m, and to break $10m is very, very rare breed indeed.
David Aladdin: Interesting. It seems that you guys figured out how to scale the business when it gets to the two plus million dollar range. Are you able to share some of the things you do at that phase? In terms of like get in those assistance, do customer support, pick up the phone and respond to customers, product design… You guys have got like the whole thing lined up ready as an assembly line? Got another business, let’s put it on the train.
Mark Hirsch: Let me take the first half of your question first, if you don’t mind. The company that recruited me in 2013, you indicated in your introduction, is really one of the great companies of digital response marketing. It was a company called Stroll, and Stroll was very famous for selling online language learning programme, which was the number two language learning programme in the world. They were spending somewhere between the neighbourhood of $3m per month on advertising. All over the place, Facebook, Yahoo you know anywhere you can imagine… You saw their ads and they were generating roughly $120m a year in revenue on that basis.
So the platform company we were buildingour the capabilities on, the cash flow, all of that original company helps on the new venture.
So when we talk about scaling, there are certain lessons that we learn in our sister company. For instance, it started as a dorm room business. One guy in University of Maryland. And it took him 15 years to grow into a size of $120m a year. And that is a very, very rare business online as you would surely know. And it was selling a physical product directly to consumers. He didn’t have sales on Amazon, but it was a small portion, it was seven figures, but a small portion of the overall revenue. Most of it was cold traffic, hitting landing pages.
So in scaling that business, the company developed a lot of things. The analytics side of the business is just crazy, it blew my mind and the kind of analytics. Ultimately it came down to a few things. Financial engineering, and understanding of finance at a very, very deep level. It also has to do with having a great team. People on the executive team have you know backgrounds as Mckinsey consultants, people with Wharton degrees, people with NYU Sterns School of Business, Masters of Business. So really top notch world class talent on the team. You hire great people when you have the means to do that.
So the business had scaled. So in having scale it was a combination of leverage which if you read anything the private equity world, a lot of business are bought out on leverage these days. So their growth was mainly done through mostly leverage and financial engineering. And it was a great business.As that business was running we said “Hey, what can we do with this knowledge”. It is the knowledge and the skillset of the management team that we were bringing into the ecosystem of third party sellers and private labels, and it is a really rare type of team.
So the sort of things that we are able to do today is we are able to plug in a brand new brand and just run with it. Because we got really the detailed processes put into place that enable us on the executive team to just start here and it goes from one end to the other without us doing much anymore. We just observe the workings. We make tweaks. We are very analytical. We find places to make tweaks, improve the processes and optimise.
David Aladdin: I think there is the tonne of golden nuggets there. You mentioned it is the knowledge. I totally agree. The knowledge is everything. It is how you execute on that knowledge. It seems that you guys found the golden key, in terms of taking businesses and consolidating them. Every aspect of business knowledge dictates what you are going to do, moving forward. Particular business or strategy.
We mention it a lot in the podcast. Knowledge is part of us as that is why we continue to train on new concepts and new strategies. We don’t assume anythingworks a certain way, because the landscape is changing so much over time.
Mark Hirsch: It is, it is. We are in a very fast moving industry here. So the things that you do today may not work this time next year. So you got to be constantly on top of changes in the industry. I appreciate the statement you made earlier as well. There is a different knowledge set / skill set required to get skilled beyond a certain point.
David Aladdin: You know I used to play this video game.I know we are side tracking. The game was called “Puzzle Heart”. There was this unique functionality in the game where you can play and earn more virtual currency than the rest of the world. I figure out a way to scale the virtual currency, but it was disappointing because I was thinking why can’t this just be real money. But it is like knowing a certain strategy and executing it within that game made me the best player in the game by far. I could buy anything I wanted.I have hundreds of people working for me, because “here’s like a thousand virtual currency for you” and they would just do those tasks. It equates right back to the real world, you know it is understanding a certain type of knowledge, and applying that knowledge in such a way gives you leverage to do lot of things. That’s like how you guys are having a certain knowledge. Let’s move forward.
Mark Hirsch: Sure.
David Aladdin: Let’s talk about the time you guys acquired a private labelled brand. What do we have to do on our side for the brand to be prepared for acquisition?
Mark Hirsch: A whole heck of a lot, which is why I get out of the sofa to talk to sellers. Most people operate their business in a way like it is a job. And it is not a business that can be easily acquired. So instead of going through the entire laundry list of things that need to be done, I can share with you maybe some first steps that an entrepreneur could take.
The number one most important first step to take is to change your mindset, and stop thinking about your business as your job. You need be thinking of your business like your investment. So what does that mean? It means whether you can walk away from your business for two weeks without lifting a finger, and can it continue to operate the way that it does today? Eventually, most of the listeners say I can’t do that, the business is really dependent on me. So the first step is to free yourself from the business. The way to do that is to put in system, processes and have them all documented. So that you can take either temporary workers who is coming in from an office temps type of jobs locally or somebody that is in the Philippines and give them the rundown in writing step by step, everything you do that is redundant anything that you do that is redundant.
You repeat it more than once, it should be a written process in detail. Once you have that and I would have imagined most of these businesses it would be a binder this thick. You print it out, binder.
David Aladdin: Actually, I have a double layer cabinet and am working on it.
Mark Hirsch: Really, do you! It does take time. OK, that will be the first step, to start documenting your processes. With documented processes you can actually go, and hire somebody to do that work and that free you up from the business. Now you are not the owner operator, you are the business owner. It is a much different position to be in. It also makes your business in asset that can be sold, not necessarily to a consolidator. Having the written processes enables you to have the biggest market to potential buyers available today. Which are not really the smaller mom and pop buyers?
There are really going to be tons more people that would buy a business that are simple to run as following pay by numbers. This is how you run the business. You have the biggest potential buyer. There is where the less sophisticated buyers will be as well. To retire on. I can come in to buy your business, because you got it all A-Z covered in writing.
So the first thing I would suggest there is a great series of books written a long time ago called, “Emyth” And it’s a great series. That’s a good way to kind of get kick off with doing that sort of thing and put the pieces into place.
Its sounds really boring (laugh)
David Aladdin: So I’ve been building the standard operating proceduresfor my current business. I think the strategy is to do them slowly one at a time. As you get them knocked out, it get much easier to focus on the important aspects of the business that the ordering, creating the new product for the product line.
Even that can be a SOP.
Mark Hirsch: Absolutely.
David Aladdin: You mentioned to take yourself out of the business. You know if you want to go on vacation Dore beach or Naples beaches, you could do so for two or three weeks, that would be awesome.
Mark Hirsch: Now that is a business in which you could sell. If it is a business that requires that you’re their everyday or cease to operate, that is not a saleable asset.
David Aladdin: Also it looks really good. If you have all the SOPs in line filled correctly and everything and someone’s interested in buying your business. Take a look at this cabinet, I have got it super-organised. There you go.
Mark Hirsch: And it is going to free you from the business much more quickly. In most cases the buyers is going to insist that you stay in the business for a certain period of time, either as a consultant or in some capacity, sometimes it is close sometimes it is little bit more distant. But every buyer is going to request that. And if your answer to every question they ask you is “Go check the manual pg 36 table of contents” If you can do that, you have an asset that you can sell.
So that is the first thing to do is to get working on, if you have any interest in selling your business in future potentially, you want to make sure that you have an attorney, and a CPA on your team or a bookkeeper. The reason for having these professionals on your team and they don’t have to be full time employees they should just be people that you hire on hourly or rotating basis. Because a lot of the issues that come up during a transactions have to do with the fact that business filings were not kept out the right way or there is something in the books that was not done properly.
So don’t treat your business like it is your personal cheque book, because it is not or least, if you ever want to get value out of it.
David Aladdin: I love that you say that, because I was in a phase where I had a potential person that was trying to acquire the business, and he didn’t want an attorney to come by. I find it was kind of weird. He thought attorneys get in the way of making the deal go through. Every time I had an attorney, it’s never worked out. But it makes you like think twice just like if I didn’t have an attorney, are we sure we are doing it correctly. You know are we doing it by the book and am I getting the most, my fair share for the company and all the things that go along with that. That is awesome advice especially from someone who purchases companies all the time.
Mark Hirsch: Absolutely! And the kind of attorney you would want for business transactions is somebody experienced in business transactions, specifically that sort of background, small companies. There are plenty of attorneys that do that sort of thing. Just have them on your team, go talk to them. What do I have to file, what do I have to keep up? It is the very basics to make sure that your company is structured properly, that you are filing what you need to file.
For instance, if you have a partner, you would want to have an agreement in place. Even if you built a great business on a handshake, things can get messy when there is serious money on the table.
David Aladdin: Let’s talk about serious money. What’s your guys budget year round… I’m curious how many businesses can you guys afford to buy at once. Not allowed to say?
Mark Hirsch: How about I answer that question in this way. That for the remainder of this year we will not be acquisitive. However, we have targets set for 2017 and it is an eight figures of investment capital that we have in mind. To say that we are going to make purchases to that scale, I don’t know. There is much more than just cheque book that goes into buying businesses. You got to find the businesses, you got to make sure it is the right fit, and you got to close the deals. Just because we got money to invest does not mean we necessary make investments. Just another Warren Buffett recommend….
David Aladdin: I feel you like the Warren Buffett comment that I mentioned.
Mark Hirsch: Well yeah, you put me in the category with Warren Buffett. I feel very honoured to be there so I may as well just share a couple pieces of wisdom that I learned from reading the book.
David Aladdin: Do you, out of curiosity, pay a finder’s fee for companies or is it just an equity stake? How does that work? One day, I hope to be buying companies like you.
Mark Hirsch: Well, I certainly can’t get into details.
David Aladdin: It’s classified. By the way, speaking of classified, I looked on you guys’ website. I had it pulled on earlier. I feel like I am on a CIA website. There is not much detail going on here. I would never envision that this company buys hundreds or ten companies a year or twenty.
Mark Hirsch: We have a low profile on the web, but higher profile within the industry.
David Aladdin: We have got about 20min left. What have I missed out in this interview? What are the things you would like to discuss?
Mark Hirsch: Okay. Let’s see. Mind if I go see, take a look at my notes. A suggestion or two. Let’s talk about some of the common misconceptions that we see. We talked about the common problems that businesses encounter. There is one that I would like to talk about in particular and you have not asked me the question which is really surprising.
Most sellers, when I meet a seller at a conference, 80% to 90% of the sellers ask what multiples do you pay for the business.
So that one that everybody asks and it is one that I love to talk about. You remember when you were learning how to do basic multiplication, any number times zero is what?
David Aladdin: Zero. I feel that if I were you, I would pay the brand based on what it values to me, not a generic multiplier. For my brand, I would pay a hundred times what it’s worth.
Mark Hirsch: So if you writing a cheque to yourself from me you would pay your stuff for a 100x? I like that…
So with the multiple questions that always comes up, it is interesting that everybody’s kind of fixed on this. They are thinking my business is generating $10k a month in profit, annualised it is $120K and if I can get 3x multiple on that I am going to get a $360k cheque.
I think that is the simple math that is going around people’s head. It’s just not how deals generally work generated, or even how multiples work, because the multiples can be against so many different things. It can be against your adjusted EBITDA. The very bottom, bottom, bottom line on your balance sheet, it could be against your gross revenue. It could be against what we use which is contribution margin. It can be against what is called net present value of your business.
David Aladdin: A lot of terms, you got to go through these terms.
Mark Hirsch: Nah, my point is that when you think about multiples, it is multiple of what? I am trying to train everybody, to educate everybody in the industry that it so much beyond just a number. There is so much more to the deal. Like what is your involvement? Can you just walk away from the business, or you are going to be tied into or is there going to be an earn-out situation. There are so many things you have to think about because these deals are pretty complex. So when you come over and say what multiples are we you paying, I will say “Multiples of what?”
And if that multiple is you know …
David Aladdin: That is why I didn’t ask that question. You have a good answer, and I knew you were going to own me with it. But in all seriousness, I think the amount you would pay. . . I still think it goes back to square one. It would be Qbrands can see and how you guys can turn it into a significant profit for your company. I mean you wouldn’t do like a 10x multiplier if you couldn’t see that potential.
Mark Hirsch: Yeah, I mean any investment you are going to make you want to make a return on investment. And not just any return, you want to return that you know balances out the risks and rewards. You can always put money into treasury bills and you know you are always going to get a certain return there. And it’s very safe money. And we also don’t want to be in the most risky categories where there is really high return, and there is also a risk of not getting anything like say for example like Forex trading or something like that it is almost binary or all are nothing.
We certainly weigh it out and there is more than just the potential of the business. For us, it has to do with how defensible the business is. Do they have something that nobody else has? Something that is really defensible, protectable. Where else can it be grown? Then there is the second tip that I actually share with sellers, is to not only start to think about your business like a business owner, as opposed to an owner operator. The second thing is to do a SWOT analysis on your business. That is strength, weakness, opportunities and threats. If you are not familiar with SWOT analysis, just look it up on Google.
It takes just half a day to a day to do it properly. Sit down and really actually hash this out. Where the strength to your business weakness, opportunities and threats are the first two are internal, the second two are external factors that could impact the future of your business. And if you are going to put your business on the market, it is very important to know. It kind of gives you the full picture of your business. So you can go to a strategic buyer and say “look, we got strengths here, weaknesses there. Here’s our opportunities and you can lay it out and it helps you to build a case for the valuation of your business.
David Aladdin: This is awesome, really good advice. I need to do a SWOT analysis and put it in a file in the cabinet.
Mark Hirsch: I suggest to do it once every six months. One other big misconception that I see is a lot of people under-estimate the effort that goes into preparing for a sale. You do not want to be a situation where you want to sell your business like 30 days from now, because you will do a fire or sale.
So the sooner you can get going on preparing for selling your business. Doing your policies your procedures in writing, you know having your professionals work with you on your legal and financial side of the business, and do your SWOT analysis. Cleaning up some other things about your business, maybe a less profitable product line in which you can cut out to improve your profitability picture…
But all that takes effort and you want to do that over time. And run your business as if you could sell it tomorrow, no problem. It may take you three to six months to put this all together. And if you try to cram it in in a short period of time, it will turn into a full time job.
David Aladdin: It is a golden nugget in itself. It is kind of like Yahoo right now they are trying to rush the sale of their own business. I don’t know if you have been following on the news on that. The company was worth billions of dollars, and now they are just trying to sell it to the highest bidder and it is because the company is sort of imploding on itself with all other stuff going on. Marissa Meyers…
But I agree that everytime I been in a position of negotiation it has always been a better strength when I was not in a hurry to get a sale done. It was kind of like Mark Zuckerberg was offered a billion dollars by Google or Yahoo to sell Facebook? He was not in a rush to sell it. He had the advantage. He actually rejected it. Look at where it is right now. It is totally different. I guess from your point of view you kind of want the rush sell, don’t you?
Mark Hirsch: Not really.
David Aladdin: It could be a bad sign.
Mark Hirsch: For us we really want to consolidate a large number of these brands in a very short period of time. That is why I am joining you on this podcast because the more successful private labels out there, who are operating their businesses as business owners, have laid the ground work, the more people who are in this industry who are doing the right things to do, it would be more easy for us to go to them and say, “Hey we are interested in your business” “Let’s see what I have got, here are all of my financials. Everything is legally in order. I have got all my procedures. I have cleaned this up. I have cleaned that up. I am all ready to go.” That deal can be much, much faster because we do a lot of due diligence. And we want to see everything.
We want to know everything there is to know about the business in terms of its risk, its position, everything. So the more buttoned up you are, the faster we can do deals. And if we are going after business that is not buttoned up, it is not prepared, it is completely dependent on its owner, we are just not going to be interested in the offer.
David Aladdin: We have got 10 minutes left. We are going to do five quick secret questions.
Mark Hirsch: I hope I can answer all five.
David Aladdin: They are easy questions. You have been killing it so far (Mark laughs)
What is your favourite book? You mentioned the “Emyth” earlier.
Mark Hirsch: I’ll call that one other. That is a book called “The making of a Blockbuster” about Wayne Huizenga who is a south Florida guy, I am sure you know, who at one point owned the Florida Marlins. Wayne Huizenga built not only Blockbuster but also Waste Management. And in some ways that is inspiration for what we are looking to do in the future with QBrands.
David Aladdin: What CEO do you follow?
Mark Hirsch: You know what, I would say I follow QBrands’ CEO(laughs).
David Aladdin: This guy deserves a raise…That’s a good one. But you know you got to choose a different CEO.
Mark Hirsch: That‘s a really, really tough question. I would just say Richard Branson. First one that comes to my mind.
David Aladdin: You ever read his book? It is pretty good. What’s your favourite productivity tool (online tool)?
Mark Hirsch: My favourite only tool is Skype.
David Aladdin: Ever since Microsoft took over it, the server is faster, audio quality is sweet.
Mark Hirsch: I have got global meetings you know.
David Aladdin: We are on States side. I can walk over there…
Mark Hirsch: That’s true. You and I can walk to each other in a day but you know I talk to people overseas. We are headquartered in Philadelphia. We have people from our headquarters. We’ve got people all throughout the country. We’ve got people internationally. You know we just get into a meeting together and it’s amazing.
David Aladdin: I f you could tell your twenty year old self know one thing what would it be?
Mark Hirsch: Wow! If I could tell my twenty year old self know one thing, it would be that I should have squatted on domains when I had the chance.
David Aladdin: Yeah I think about that all the time too… It’s funny you said that. For me, I wasn’t able to do that. But for you, you have no excuses. I was just thinking I was at middle school at that time. Middle school’s don’t buy domains.
Mark Hirsch: I was at the time that ALL the big corporations were beginning to get online, I was doing PR for a TV series that starred Mark Campbell is call dot.com and was all about this new thing called the Internet. This is like 1995. And I was seeing stories on squatting. I was like “Gosh”. Like ibm.com that’s available. Cocacola.com that’s available.
David Aladdin: This is a secret, don’t tell anyone. I still think the internet is just beginning. I think there is only a solid 16 or 20 years of it. Facebook came out in 2004, I think. Feels like it’s been a long time but in human years it is such a short time. So even if a lot of things have been done already, I think it’s just the beginning. And so…
Mark Hirsch: It is just the beginning. Wearable technologies. Mobile, where it is going to go from here it is exciting. Having seen it done from AOL dialup to where we are today is…
David Aladdin: It’s like mail packages that I use to get. They put in like a tin can. The packaging was on point.
Mark Hirsch: It works very well. They were huge. They were the ISP.
David Aladdin: They were so cool. I collected a few of them at a time. I was little at that time. My childhood… Okay. What’s your favourite morning routine? What do you do in the morning?
Mark Hirsch: My favourite morning routine. When I get myself motivated to do is, I go for a run on the beach. Which is really, really hard though, but a lot of fun and some mornings I do yogastill and then I’ll brew some coffee, sit down, have some coffee and start catching up on the news.
David Aladdin: You are allowed on the podcast anytime because we are very big coffee drinkers.
Mark Hirsch: I am a Cuban coffee drinker. I am not Cuban, but I live in south Florida. I like the dark Cuban coffee.
David Aladdin: Awesome. Alright, that’s all there is for this show today. DO you have any closing statements.
Mark Hirsch: Sure I have been promising to begin to do a free Revanar series where I will work with entrepreneurs and walk them through the entire process of getting your business together and what’s involved in a transaction A to Z. Q&A and that sort of thing. I have done it “live” and some Revanars, but if there is interest amongst your audience, and shoots me an e-mail “Hey I want to be part of these Revanars”, I would be happy to do it again.
From my perspective, if the industry is educated and gettingthemselves ready to sell their businesses. When we go and consolidate these businesses a lot faster and a lot more value for everybody.
David Aladdin: Right on it. My audience be ready when the time comes. We are kings.
Seriously, a lot of us are going to listen to this podcast again and we are going to take it to heart and start buildingstronger SOPs and making sure the whole entire business is in line. We do appreciate you coming on the podcast here today, and sharing your expertise Mark. It’s been awesome podcast.
Mark Hirsch: I appreciate the invitation. It is a pleasure to meet you.
David Aladdin: Thank you for tuning in guys. Mark Hirsch. David Aladdin. Out.
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