At Website Closers, we’ve brokered the sale of businesses anywhere from $100,000 in revenue to hundreds of millions of dollars ARR. But typically, buyers are looking for a company with a few million in revenue and an upward growth trend. And if you’re in the low 7-figures and kinda stuck, that might be what our guest Nick Weiksner refers to as “No Man’s Land”.
Nick Weiksner is the CEO of South Col.
This episode of Deal Closers is hosted by Izach Porter, brought to you by WebsiteClosers.com, and is produced by Earfluence.
Nick Weiksner – 00:00:04:
You need to know your customer. In this world, what websites are they going to? How are you reaching them? What messaging are you doing? How are you telling them what your brand solves? Are you messaging to the right people? What are you solving for them? What are you making them feel good about? In order to survive long-term, you have to know the person who’s buying and what they’re getting. And if they’re not getting value from you, you’re in a short term relationship. And we want long term relationships.
Izach Porter – 00:00:43:
All right, you’re listening to the Deal Closers podcast brought to you by websiteclosers.com, a show about how to build your e-commerce business to be profitable, scalable, and one day even sellable. I’m Izach Porter, and on the show today, we have Nick Weiksner, who is the CEO of South Col. South Col helps e-commerce companies evolve from the dreaded no man’s land into the coveted sweet spot. At Website Closers, we’ve brokered the sale of businesses from anywhere between $100,000 in revenue to hundreds of millions of dollars in revenue. But from my experience, it’s much easier to sell a company when it’s on a strong upward growth trend. And if you’re in the low seven figures and kind of stuck in that spot, that might be what Nick refers to as no man’s land. But let’s find out from him and more importantly, let’s find out what South Col does to help. Nick, welcome to the Deal Closers podcast. Thanks for being on the show, man.
Nick – 00:01:41:
Thanks, Roger. Glad to be here.
Izach – 00:01:42:
So I guess to start off with, can you just tell us about your journey personally and why you started South Col?
Nick – 00:01:51:
Yeah, absolutely. So I came to this. Sort of e-commerce business in early 2010s. With an early company called DC. They were what would now be called an aggregator, but back when that word didn’t exist, raising the fund to buy a suite of Amazon businesses. In the process of doing that, got really in depth with a bunch of E-commerce companies that we were looking to buy. In doing that, came across a company called Sellers Funding, which is now Sellers Fi, and invested in them and joined the board. Of Sellers Funding, Sellers Five. And after being on the board for three years, Ricardo Perro and Fabio asked me to come aboard operationally. So I came aboard as head of sales. And then after a year of that, transitioned to CFO because we were raising a large new debt fund and a Series A and expanded the business to lend out. $350 million in a year. Was very different business than when we started. And they had a loan book of 30 companies. For $100,000, which is a very big growth during that period. When I was there, I realized that Seller’s FI does an amazing job for companies that are looking to grow. If you want working capital to assist in buying stuff from China and then paying for it when it comes back, it’s a great way to grow your business and they do a great job. But we were actually, I saw there was a hole in the market where we actually said, look, if someone could get longer term capital and a deeper relationship in a more meaningful way, you could really scale them up. And so decided that we had two companies we worked a lot with, Ascala and GW Partners. And GW Partners is a boutique investment bank, Ascala is a process management consultancy, and we saw that there’s like this real efficiency if we all came together. And so we formed a joint venture and that’s South Col. So, I left Sellers Fi to run and start South Col. And I always start with the name South Col actually really tells you a lot about what we’re about. South Col is the final face of Everest. It’s a bit technical and you’ve already climbed all the way up Everest and this is the last ascent to get up to the very top of the world. And that’s how we view ourselves. We are the people that are gonna try to help you. You’ve only built a business that’s already doing amazing things, already profitable, already growing, doing a lot, but you wanna get that huge exit. We wanna partner with those people to give them resources both in capital and intellectual and strategic and advisory, all of those sorts of things so that when they go to sell, we can efficiently get them to double or triple evaluation where they are today. We always look at an 18 to 24 month roadmap. So that really sort of tells you what South Col’s about and all of us, the five founders, we’ve all been involved in e-commerce for anywhere from eight to 10 plus years. Each of us individually, a lot with the CPG, a lot with brand building, a lot with the functional D to C side, the Amazon side. We’ve seen many life cycles of this and changes and we enjoy partnering with amazing entrepreneurs and these men and women are doing a great job and we just try to help them get to where they wanna get to.
Izach – 00:05:14:
So South Col is providing growth capital to accelerate the growth of these businesses 18 to 24 months before they sell. So operationally, logistically, and strategically, what kind of things specifically are you helping the businesses do?
Nick – 00:05:31:
Here’s, I’ll give you an easy example. So we were just working on last week, just as a point of example. So we have a portfolio company that is in the fresh food business and is considering going to a 3PL. And so we actually went out and our operational team. So when South Col gets involved, to us, capital is just one of like 20 things we provide. So yes, it matters and capital helps, but we have portfolio companies where the capital side of it was not the most important side. The strategic resources are far outweigh. So for example, with this company. They wanted to transition from something, everything at their location, original location, everything being done out there, to having things processed at a 3PL so they don’t have to cut off marketing. Because they ran into a problem where they were so desired, they had to cut it down because they couldn’t supply all that orders because.
Izach – 00:06:16:
Yeah, I’ve seen that happen many times.
Nick – 00:06:17:
Capacity, right? It’s just that’s what it is. So we went out and we met with six different distributors. We narrowed it down to three. We met with the company to look at what the different contracts were for these companies, what the benefits were for them. We met with the CEO and the COO, and we talked about what the positives or negatives for each one of these. So we were in the weeds as we make the strategic decision because when we make this transition to a 3PO, we’re just doing it now and it’s going live. It’s so you can only do it once. You can’t get it wrong. And so we were there to provide all of these guardrails as we went through it to bring up the right people, ask the right questions, dig through and find what the differences were. And now that we’re launching it, we actually are working with the company and doing all the test orders, making sure we’re stress testing it. We’re making sure they can handle the schemes, make sure the ordering system works. So like those are the things that you’re not gonna get just from, if you just get capital, right? If capital is money, you use it to buy things. We’re there to like say, this is what you should be doing. In addition, we do like another company that we just started with. We do process scripts. And what those are is each sprint will analyze an area. So for example, in this company, we looked at marketing. How can they do marketing better? So we looked at like what they do now. We mapped it out and said, here’s who handles this. She does this. He does that. Duh, duh, duh, duh. If you want to grow. Here’s the way you should look. Here’s what you need. And humorously on this one that I’m talking about, this specific one that we just did, there actually was, we went to the CEO and we said, you actually need to bring in a chief marketing officer and the person you have running marketing will be better on brand side. That she’s just really good at building brand, but you need someone that’s a CMO that has a different accountability and different sort of structure. And so we went to her and said, you know, do you think we want to be cautious that we didn’t want to make? An employee of theirs feel that we’re bringing them down or not giving them enough to grow or. You know, any of that. And then it actually turned out that we sat down with her and she was excited because she wanted a mentor. She said, look, I love the brand side. I’d love to have somebody come in who has, you know, 15 to 20 years experience and learn what he or she knows about marketing to help me grow and develop. And I want to focus on brand. And right now I’m doing a lot of stuff that isn’t that. And so I love the idea that you’re gonna build an organization, where I get to do what I want to do as opposed to these other jobs that she was doing because she had to, right? Because like everyone works in these companies, right? You grab a shovel and you dig. And so it’s one where we were actually able to make. The employee very happy. Obviously we were cautious and we would never sort of like jump in and just like say this, but you know, in floating it up, we’re like, hey, let’s talk. And it turns out that it made everybody happier. So those are the types of things that we would do operational. As we get into a company. We’re big believers in, we document everything. So when we go to sell a company, we literally hand over accountability charts, process maps, financials, and honestly, a strategic buyer, they deeply value the fact that they could take this book and basically start running the company that day.
Izach – 00:09:29:
Nick – 00:09:30:
No sort of like, what is the SDE or EBITDA? What is, you know, how do you put an order, you know, through and what happens when it goes wrong? Those sorts of things.
Izach – 00:09:39:
Got it. So from an org structure perspective, I guess, are you in the equity then? Are you taking an ownership stake in these businesses that you’re incubating? How does that work?
Nick – 00:09:49:
Great question. So, without getting too specific from sort of the top level, what we do is We go to the owner and we say, what do you think your worst tip? Okay, let’s say, let’s just take an example. You’re doing 10 million. You’ve got. You know. 800,000 in EBITDA RSD. And yo. You think you’re worth five times that. We all get cool. You’re worth four million. We’re going to inject in some venture debt. So that’s that capital. We’re going to bring in all these resources that we are applying to your company. And that’s our operations team meets with your operations team at least once a week. One of the founders sits on your board. They meet with you once a week and anyone else for strategic. And in addition, we do all of these other things that we like list out. We think are paramount to like having a successful exit two years later. So we come in and it’s like this laundry list of stuff. We then say, okay, when we go to sell, we get a piece of the excess above four million because you’re saying we’re four million today. We’re going to increase that value. We want to increase that pie.
Izach – 00:10:51:
This is a hundred times.
Nick – 00:10:52:
But let’s talk realistically. We want to increase it four or five times. Yeah, we’re getting a slice, a piece of that value creation. So we’re taking the risk right alongside you saying if we don’t create value, we’re not going to get it.
Izach – 00:11:05:
Yeah, I get it. That makes sense. Yeah, you’re participating in the upside that you helped to create.
Nick – 00:11:09:
Izach – 00:11:10:
And how big is that piece in general?
Nick – 00:11:11:
20 to 30 percent is going to depend on the size of the company. It is a lot of variables that go into what it is.
Izach – 00:11:18:
That’s pretty cool, man. I like that. That seems like a good deal. It sounds to me like a kind of a PE management model without having to sell the whole company to get it.
Nick – 00:11:27:
That’s right. That’s the way we would look at it. And it’s a way that the capital that comes in does come in as debt because it’s insured against it. So, so it’s like, it balances out all of the, cause a lot of these companies, it’d be very hard for them to find equity. There’s not a lot of equity investors that want to invest in this size of company, right? Because minority state,
Izach – 00:11:45:
Especially non minority investors, they’re, they’re, you know, there’s a lot of majority deals that get done, but, but very few minority deals in the lower middle market space, right?
Nick – 00:11:54:
That’s right. Cause it’s like, look, I don’t want to buy the whole thing or majority side running. But like coming in where, cause we also understand we see all management decisions to manage. They run the business. We’re not telling them how to make widgets. We come to the table with ideas and do that. And like our screening process, if you ever go through it is heavily on like, do you, like working with us and we really value the people we work. You know, we want them to be people that care about things outside of their business. Like have a passion, you know, for me, it’s, it’s public education. It’s a huge passion. And I spent a lot of time on it. We look for people that have like those varied interests and things that. We want to work with because we get involved with the company. It’s a marriage and we need to sell the company and do well. And we want to make sure we’re partnered with people that we value and respect and that they value and respect us. And it leads to a very productive portfolio that all of our portfolio companies are.
Izach – 00:12:54:
I think even more than access to capital, one of the biggest impediments that I see from my clients in growing, scaling and kind of breaking through that seven to eight figure barrier. And above is management expertise. It’s like, how do they build out the right team? How do they get the right, hiring the right people is super expensive once you get to that level. Cause to get good people, they’re very expensive. And then if you hire the wrong person, it’s very costly.
Nick – 00:13:23:
Yes, and can set you back. It’s not only just the money, right? Like I always tell entrepreneurs, time is an incredibly valuable resource where if you blow six months trying to train somebody up, working with them, to try to get them to do a better job. I have very few entrepreneurs who aren’t so passionate about their business that they think they could get someone who’s not working, they’ll get them to work. And they’ll put all this energy and time into trying to get this employee to work, which is great. Cause like they want everyone to succeed. But the problem is if your business has those things, that entrepreneur then isn’t spending the time developing the new product or launching the new product or accessing another channel to sell on. So like all of those things they were doing in lieu of that are what you’re losing value. I’m like. Yeah, you got to bring on human capital and human resources. That’s very important.
Izach – 00:14:13:
Got it. That’s helpful. So what are some of the biggest mistakes that you’ve seen e-commerce entrepreneurs make? And I’d kind of bucket this maybe into two categories of, because I’ve got a perspective on this as well from what I see in my side of the deal flow, but for people who decide to work with you and then maybe folks who don’t, what are mistakes that are made and how do they overcome that or not?
Nick – 00:14:33:
Yeah, all right. Well, I’ll hit and anyone who’s heard me before, like, look, as a former CFO, like, obviously, I care deeply about the financial. I worked as an investment banker. You know, I live and breathe inside of financial modeling. And One of the things I always say is like the real world’s not excel spreadsheet. Like, sure, I can add and do multiply previous month by 1.1, growing at 10% and stream that across 18 months and you have incredible growth. That’s not how the real world works. You’ve got to actually produce more, sell more, have customers who want to buy more. It’s a lot more complicated than that. But the one part I do put a deep value in is. There are many entrepreneurs, I’m talking about good ones. So I’m not talking about, look, we could all, we’ve all seen people out in this field who maybe aren’t that good. But I’m talking about people who really are running a good business. They don’t necessarily understand at the deepest level what the profitability of each of their SKUs are to produce the value of what they produce. They haven’t gotten down to the fully loaded cost of producing this widget, putting it in the customer’s hand, and how much of that value then comes back to them, and how they spread their operating costs over SKUs. We’re not just talking about the cost of buying it in China, shipping it over. Most people know that at least, or have an idea about it.
Izach – 00:15:52:
Nick – 00:15:52:
But there’s more than that. If you have five employees, how are you spreading their wages over your skews?
Izach – 00:16:00:
Yeah, you’re talking about attribution of overhead expense to the skew level.
Nick – 00:16:04:
That’s right. And then the reason you do that is you then need to understand these 10 skews are money losers, but we need them because they get people in the door. So we’re okay because they’re lost lives, right? Like we could all think of all the stories we know about, you know, what people do with lost lives, right? But like, fine. Maybe they’re like to make your brand have enough value excuse that you can cover the Amazon. You need to have enough offering. But you need to understand your profitable ones. And then how can you ramp up sales of the ones that are most marginally beneficial for you? And how can you produce more that produce more marginal value? Those should always be the thoughts of an entrepreneur of like, that’s what they’re doing. And they need to have it that intimate to like, I ran a retail chain and it was photography studio. And it was for pictures of babies. And then also like high school seniors and families, right? And we were very high end. And I used to walk with my CFO and I was a CEO and we’d walk in the mall and we literally could see we mostly had women were our buyers and we could see the mothers and we’d be like, that person would spend 500, that would spend 900, that would spend 1200 because we could just see what purse they had, what clothes they were wearing, what stores they’re going into. Like you need to know your customer. In this world, what websites are they going to? How are you reaching them? What messaging are you doing? How are you telling them what your brand solves? Are you messaging to the right people? What are you solving for them? What are you making them feel good about? What are you doing for the person who is buying your good? That satisfies it because if you don’t know that, I would say to you, you might be able to be making money now, but long-term I don’t believe it because in order to survive long term, you have to know the person who’s buying and what they’re getting. And if they’re not getting value. From you. You’re in a short-term relationship. And we want long-term relationships. We want companies where we have a crafting company and you just see the number of repeat customers because these parents value that they’re doing this craft for juvenile girls. They value it and they want really good high quality ones. And we provide really good high quality ones. And like we wouldn’t let bad ones out there. Like, but that’s different. There’s other companies that don’t have that. They’re just spewing out whatever they think will sell. And then on to the next thing, right? We all see it.
Izach – 00:18:28:
Yeah. And that’s, that’s somewhat of the difference between a brand and a product.
Nick – 00:18:33:
Right? Yes, exactly.
Izach – 00:18:34:
You can start a business and have a, have a profitable product without actually having a brand.
Nick – 00:18:38:
That’s right. And there’s a lot of them, a lot of those people that they look.
Izach – 00:18:41:
A lot of those out there. Yeah.
Nick – 00:18:42:
They go on Helium 10, they find out what’s selling X million a month. How much can they get in there to get 1% of the flow? Can they get it cheap and can they sell it? That’s fine. But to me, that’s very it’s a different business. We’re in the business of like, I always use ones people know, you know, Nike, right. But like, obviously, these aren’t Nikes. I fully understand that. But in a smaller sense, they are Nikes. Because the people go, we value what they stand for. We see what this is. And it’s a smaller community. Nike obviously reaches the whole world, but our brands reach the community of people that value them and have high quality reviews, high quality sort of. Thought because they produce a very good product. Our entrepreneurs are passionate. About what they produce. They don’t want anything bad to go out and they feel terrible if any. Obviously. If any mistake happens, which always does in any business, and they jump in and solve it. That’s the other way you can solve, like see if a company’s good. Whenever there’s an issue, how do they deal with it? Like, again, going back to my portrait company. We really had great photographers. Every once in a while, we had a terrible photo shoot. And anytime I would see it, I’d have him come in and I’d give him $300 of free portrait. Because it happens so rarely. I can give them a huge payout because I was telling them, this happens so rarely, I can have you come in here, here’s $300 of portraits, I’m sorry. And then sometimes those customers became our biggest advocates, they’re just like, here it is, and obviously every company has a different, what your cost of marginal goods are and all this stuff, which is a different, you have to sort of think about what it fits in, but that passion of saying, we’re proud of what we do, we stand behind it, and we’re gonna show you we stand behind it when it’s hardest to do that. But moving back to your question, so I apologize, I got a little off, which is.
Izach – 00:20:28:
No, that’s okay, that’s an interesting point because I think making a mistake in business can be an opportunity to create loyalty if you handle it correctly. Yes. Because you have the opportunity to interact with the customer more deeply. The problem becomes if you’re making the mistake all the time, you can’t afford to fix it. Like you’re saying, if it’s a rare occurrence, then it actually becomes an opportunity to create somebody who’s loyal. Man, these guys really made this right and I love the brand.
Nick – 00:20:53:
That’s exactly right, but it’s happening every third order.
Izach – 00:20:56:
I’m having every turn order, you’re just screwed.
Nick – 00:20:59:
You gotta rethink it, you know? It’s that adage, right? Doing the same thing and expecting a different outcome is the definition of insanity. But, you know, getting back to your question, which is like, what do they not do well? So I said, like, one of the things is really understanding the marginal value of every skew. What its profitability is to your overhead.
Izach – 00:21:17:
That’s hard to do. There’s systems and infrastructure that you have to have in place to do that correctly. Because you need to be able to attribute people’s time on campaigns and there’s not a simple plugin for that. You’ve got to have some resources and some know-how to get to that level, but then it can drive a lot of value once you do it.
Nick – 00:21:34:
That’s exactly right. And then we have some systems that actually do make it a little bit easier. So it’s one of these ones where people, sometimes they look at the whole mountain, and that’s used mountain analogies all the time, but they look at the whole mountain and they won’t take the first step up. It’s actually, it is something that takes a process, but like, for example, the attribution, you can do some simple things, just do percentages. Look at an employee and say, about half their time is spent on new products. We split it over the, you can do some things that are steps in the right direction that often do the old 80-20, 20% of the work and get 80% of the value. Like, sure, there’s a lot of little things you can do, but the first, which is what I was gonna circle to, is getting out of cash accounting. Like, you just, if you’re running a company.
Izach – 00:22:12:
You gotta be out of cash accounting, right? Yeah, you gotta be out of cash accounting. I see so many companies on cash accounting and it’s, I actually see deals go to market on cash-based statements and then I, you know, you look at the balance sheet and they’ve grown a million dollars in inventory over the last year and it’s like, man, you just left a million dollars of cash flow on the table and, you know, on a four or five X multiple, that’s real money.
Nick – 00:22:33:
That’s real money and it goes both ways, right? Like you see it both ways, and it also doesn’t necessarily accurately reflect how your business is doing because it can go, again, cash accounting can go sort of both ways. Not that cash is an important, cash is king, but again, I then do accrual accounting when you look at the cash flow statement. And that’s how, when you’re in five ways, you get both worlds. You don’t ignore one, but I always say to entrepreneurs, it can be painful to move, and it’s so boring. Like, I’m sure people have seen me, like, I get it, but like, it’s worth it and there are people who can do it. Like, we know we have some very trusted, fractional people that you can bring on. Aids, like, if you get the right one.
Izach – 00:23:13:
You and I could geek out on our spreadsheets for a whole day and figure it out. And you know, a lot of people don’t want to deal with that.
Nick – 00:23:17:
That’s right. It’s totally reasonable to outsource. And I say that to people, don’t worry, you don’t need to do the heavy lifting. You have people who can do it, but it needs to be done because it’s going to defect your value. Like you say, when you guys list companies, they need to have books that are understandable that present the true value of them both ways because they don’t want to leave money on the table.
Izach – 00:23:37:
And the way I always think about it when we go through a sale process is I want the SD or adjusted EBITDA that we’re representing to be consistent with the expectation of cash flow that the buyer should have going forward if the business maintains at a steady state. Meaning, if the business stays what it is, the number we represent should be the cash flow that’s available to the buyer on a forward-looking basis. And that’s ultimately what they’re paying for is their expectation of what that cash flow is going to be in the future. And then, of course, they want to grow that to add value. And that’s what you guys are focused on. That’s right. Around that growth concept, what’s some low-hanging fruit that, you know, what are some things that our listeners can do over the next 90 days to six months to improve their business valuation or just their business in general? What are the easy things that people can do on their own?
Nick – 00:24:27:
So, doing their own, number one, I go make sure you’re thinking about all the different channels that you can be in. And what I mean by that is saying, if you’re on Amazon, think about what it would be to be a D2C, to have that channel of sales. Think about maybe going wholesale depending on what your product is and doing that. I will caution that you need to make sure you have capital resources and know how because wholesaling is very, very different and there’s big traps in there that can boomerang back on you. So don’t.
Izach – 00:24:54:
I’ve got I’ll tell you a quick story on that where I’ve seen it go wrong is We had a client who was doing great. They went into wholesale, got in store with Walmart. And all of a sudden their AR explodes, right? Receivables explode. Walmart, they’re out 90 to 120 days from Walmart and they did not anticipate the fact that they had to then cover that cost of all their Walmart products that they sold for, you know, three to four months. And it almost put them out of business. We were able to get some financing in place and they got over that hump. And then once the cashflow cycle adjusted and they caught up, but it, but the business had to be capitalized entirely differently, entirely different.
Nick – 00:25:34:
And you have to be able to stock that. You also have to be able to build up the inventory that if you’re going to go onto a thousand shelves, you have to have a thousand shells of all of those skews.
Izach – 00:25:42:
And then the other thing was they, they, they had sent inventory to Walmart and then they didn’t have enough inventory. They were out of inventory on. On their Shopify site, which was where their highest margins were, you know, because the wholesale margins are lower, it’s much higher, bigger order values, but that can really get sticky quick if you’re not. Doing that with somebody who’s kind of been there before.
Nick – 00:26:05:
And then let alone if they push product back to you, when it doesn’t sell through fast enough, and then all of a sudden, you’ve got, hey, come pick up six truckloads of whatever your skew is wait a second, I didn’t want to do that. And then some wholesalers make you buy out whatever shelves you’re buying. They’re like, look, you want to have two feet of shelf space, fine. You’ve got to buy out this $50,000 of skew to get that clear, that shelf off for us.
Izach – 00:26:30:
Petco does that. Petco is like real hard to work with that way.
Nick – 00:26:34:
AutoZone does it, the auto companies do it too. All those stores, you have to buy your shelf space. So anyway, there are all these things. So that one I always put with a caveat, like make sure you partner with someone who’s done it before. Bringing resources before you. But again, it’s a sales show. And like you said, lower margin, but bigger sale and simpler. And I’ll throw it back there, when you get a customer like Walmart or Costco or Target or any of them, Home Depot, whatever. There are PO Financers. And so like, you know, whether it’s Sellers Fire or any of another dozen that you can go to. You can finance that. So if you have that problem where you have that cash flow difference, when you have a PO from a top rated company, you can actually sell that PO to the PO company and pay, you know. 8% interest. So not nothing but better than you can factor it, right? Yeah, exactly. And because they know they’ll collect it and they’re willing to get the interest rate because they know Costco will pay or Walmart will pay.
Izach – 00:27:30:
Those are quality receivables. It’s just a timing difference. The other thing that this brings up in my mind is another reason why the skew level skew level profitability becomes so important because if you’re wholesaling a product, especially if you’re just wholesaling one skew, a lot of your overhead costs for that product may go away. So your margins actually might be somewhat better than your, I mean, your sale price will be lower, but you’re not gonna have the same customer acquisition costs, you’re not gonna be doing the same amount of advertising for those products that are gonna be sold on retail store shelves.
Nick – 00:28:00:
Exactly, and that’s exactly right. That’s where you need to understand each channel. Cause like beyond just SKU, we actually make our portfolio companies, it’s SKU by channel. So what is this SKU and Shopify? What is this SKU and Amazon? What is this SKU?
Izach – 00:28:13:
That’s a great point. Yeah, cause Amazon also is a different margin profile with PPC and then the Amazon fees. That’s right. I’m a big Amazon proponent, you know, that’s I think still the lowest customer acquisition cost channel out there, but you have to understand the differences. So that’s exactly. Yeah, that’s really cool.
Nick – 00:28:30:
I always say that to DTC cause like I go to people, I go, you have people who are like this big DTC, like this is the best. I’m like, I love it. Love DTC. Amazon’s the best. I hate DTC or vice versa. I look at you both, look, they’re just different. Where like Amazon is basically like renting, like I was a mall based business, right? So I have a little bit of like analogy here, which is like we were in high traffic malls cause we wanted these, you know, well to do.
Izach – 00:28:52:
It’s a great analogy. I love that. Yeah, that’s what Amazon is. It’s a digital mall.
Nick – 00:28:55:
It’s a digital, all of these eyeballs are going to be coming across your SKU. Now when you’re a DTC, okay, you’re an outball. You’re an outball. You’ve got to bring the customer to you. They’re not coming there naturally. There’s not 50 other stores that are bringing them in so that they can see your storefront and move in. You’re bringing them into you, which also can be successful. We had plenty of outflank businesses that we were able to attract to that customer and say, they came solely to come to us. That’s DTC. So then your money, instead of paying on rent, you’re paying it on this customer acquisition. But the answer is it net net is often within pennies of each other, you know, in terms of places where you’re spending is different than the last part of saying like, whether or not you own your customer, right? That’s the best part about DTC. Like, look, you own your customer, but you gotta know what you’re doing with that customer. Like. If you own that customer, don’t do anything with it. What does it matter? But if you know what you’re doing and you’re able to then say to that customer, here’s other ways I can expand my relationship with you because I understand you. Then it’s incredibly valuable.
Izach – 00:29:51:
Absolutely. Yeah. So one of the things I saw on your website was talking about EBITDA and SDE optimization. What are some of the things you guys look for in order to optimize? Free cashflow in the businesses you’re working with.
Nick – 00:30:07:
So huge, I mean, probably if it hasn’t come through, I’m a big advocate of, I was in investment banking during 2000 and 2001 and the internet craze. And We had all these companies and I’ve always been someone like, you’ve got to be making money. Now, a lot of those companies proved me that wrong because they were not making money and then they made billions on valuation.
Izach – 00:30:27:
Including Amazon during that time, right? Oh yeah.
Nick – 00:30:29:
Amazon, they were a bookseller.
Izach – 00:30:30:
They didn’t make money for a while.
Nick – 00:30:31:
They didn’t. They didn’t. Did not make money for a while, but when they started making money, it was enough to buy a 300 foot yacht. So like it’s a, you can make a lot of money in a short time and do it right. But that’s a very hard, that’s a high risk. Right? So we like to look at, when we say even to our cashflow optimization, we look at everywhere where, where can we expand the margin? Right? Because there’s, here’s different ways you can do it. One, you raise prices to your consumers. Consumers don’t like that. If they used to pay 20, they don’t want to pay 24. They want to pay 18. So that’s one way, right? Two, you lower your costs. So you look at where can you lower your costs? Where are your largest costs? One is your customer acquisition or your advertising on Amazon, which we’ll call that the acquisition. So we’ll go in there and go, are you optimized to this? Are you most efficiently attracting people to your website? Most efficiently bringing them to your Amazon storefront? Are you doing all of the steps in there? Because we have a lot of best practices about making sure we’re bringing outside traffic into Amazon. All the different things that you can do to make sure that you’re performing the highest you can perform. Then you look internally and we go, is everybody inside the company producing at the level that they want? And is the reason because everybody’s in the right place or do you not have the right people? Right? There’s a difference. Sometimes you have the right people, but they’re just not in the right place. So, we come in and we’ll go, sell, she’s great. She should be over here working on this.
Izach – 00:31:59:
Not here. And so that was kind of the example you had with the CMO versus like brand building versus content production, right?
Nick – 00:32:07:
That’s exactly right. Sometimes it’s as simple as that. And then sometimes you have to have the hard conversation of. I know Jack’s been here for a long time, but we need somebody else that this isn’t the right role for them. And so we don’t take it lightly because that’s never a fun decision, but we have to run a company. And so we have to sort of say, what can people do? So that’s one level. And then another one is, we always are looking at the other big costs is your cost of goods. Are there ways to order more? If we bring more capital to the table and put a larger order, larger guarantee with your manufacturer. It’s not always just switching manufacturers. I think that has a lot of risks. So to me, that’s a last resort. Like sure, we would switch manufacturers, but it doesn’t tend to me there’s a lot of bad outcomes in that and a high risk.
Izach – 00:32:54:
But quality issues can come up and everything.
Nick – 00:32:57:
Every sort of issue.
Izach – 00:33:00:
Timing issues can be a problem, right? But higher MOQs can get you lower unit cost a lot of times.
Nick – 00:33:05:
I mean, if you’re not doing that, you always want to do that. You always want to put that phone, put it to you because we’re just not shy. We’re going to go, hey, how about if we do this? How about if we do that? How about if we pay you in this currency? And it comes direct. It’s not in dollars anymore. You get it in whatever we could do to move the needle. And there’s lots of things. And some, you know, sometimes they might only move the needle 2%. But I always say, look, if we can get two more pennies on everything we sell a few times. Had up.
Izach – 00:33:29:
Especially when you’re dealing with companies doing 10 million or more in revenue. I mean, 2%, you can see it on the bottom line.
Nick – 00:33:35:
Yep, you see it.
Izach – 00:33:37:
And like you said, you do that four or five times and all of a sudden, you may have doubled the profitability of the business.
Nick – 00:33:42:
That’s right. And then we always reinvest. That’s one of our key tenets. It’s like when we come into a company, all the cash that’s produced in the business goes right back into it. And we tell them that we’re very upfront with them. We’re like, look, for the next two years, all we’re doing is taking all the cash this putting it back at the top of the machine to produce more cash because we’re going to get paid on how much cash it’s producing when we sell it. And so the more we can do now, if you look at our timeline, we have this whole theory that like the first three months, we have to understand the business. That’s we do all the process mapping and all the accounting and all the sort of blocking and tackling the stuff that like we have a list of 30 things and we haven’t seen a company that doesn’t need 15, if not all 30. So we’re just coming boom, boom, boom, boom, boom. We’re banging those. Then we’re learning the company. Then at that three months, we go to the board meeting and we go, here’s the six month, nine month, 12 month, 15 month, 18 month. These are what we need to hit at each one of these. And if we don’t have these executed by the 12 month period, we’re not going to have year over year comps when you go to sell. So everything we’re doing, the value we prioritize. We go, look, you’ve got to do this first because we want year over year comps on this. And it’s going to take us six months to launch it or to do it or to open that channel or to go to the EU or whatever it is that we’re doing that’s a strategic that’s going to move the needle. Like people always go, like I say, and people may have heard me say this, it’s like an entrepreneur should always believe their business is going to triple. They should believe that in their heart. They should always believe it. Good. When we believe it, we look at it and go, okay, you’re gonna grow your existing products by 50%. That’s one piece of it. But that’s only a small piece of it, right? We’ve got to do that a few more times. Where are you doing it? What big things are gonna change this to actually allow you to triple the valuation? And that’s what we have to see. That’s what we look for. We go, okay, we see it. You’re gonna do this. You’re gonna launch in the EU. You’re gonna move to a 3PL so you don’t have to cut back that fourth quarter marketing. You’re gonna go wholesale and you’re gonna launch into two, okay, good, we’ve identified three big things as well as executing the business that are gonna make you get there. Then we believe. Then that’s where we see success.
Izach – 00:35:49:
Yeah, makes a lot of sense. So, this is maybe a little bit of a tangent, but does the South Col then take a board seat on these companies as well?
Nick – 00:35:56:
Yeah. So we have a board seat. So one of the five founders, there’s two founders of GW Partners and two founders of Scala and myself from Seller’s Five. So one of the five of us will sit on the board. We all talk about all of our portfolio companies because we all care deeply about every one of them. But we always put the one who has the most direct, relevant knowledge. And then we always pull in our partners. You know, Chris Shipfurling is one of the partners and like he has an extensive background in even flow and CPG. So if we’re like going into store, like we bring him in because he’s done it with all those products. And so we make sure that we get all of his knowledge, his context and all that, or, you know, if somebody’s doing, you know, something that like fits into my wheelhouse, of course I’m going to jump in and like do what I can to help it. But yeah, we sit on the board and we have, like I said, our system is we have an ops team. Our ops team meets with the portfolio ops team at least once a week, if not more, if there’s a project, maybe it’s more, but at least once a week. And then we meet with the board member meets with the entrepreneur and maybe like the COO and depends on the company once a week at least for a strategy to make sure that we’re hitting. Because we really sort of like, Look, every week we’re like, guys, we have 100 weeks to make this work. That’s what we have, man. That’s two years, 100 weeks. So if we miss a week, we’re down a percent, man. And like, that’s not good. So every week we’ve got goals. We’ve got, you know, things we want to have accomplished. And if they’re not, we go, what’s the impediment? How do we remove the impediment? What do we need to do to get rid of it? How are we solving this? Because we don’t want another week to go by. Cause Lord knows then we’re 2% buy, then we’re 3%. Like, and let’s, let’s not get it. Let’s get ahead. Let’s get this launched because we want to launch by first quarter. And you know, the way the system works, if we get backed up now, it’s going to pack us up later and that’s not what we want. So how do we go off?
Izach – 00:37:39:
What do you think is the most successful outcome you’ve had? Give me an example of your best case.
Nick – 00:37:47:
My best case, well, so obviously we just launched this year. So we’re still in the growth phase for our companies. But we have a company that’s seeing 60% year over year growth. I would say that’s incredibly successful. All of our portfolio companies are doing well. And so like for the top end, I mean, really what we’re seeing is the removing of constraints on the business, especially one of them we’re about to have, there’s like three huge, that will just game break the company are being finalized. That we came in and we’re trying to connect them to new channels that they didn’t have before. And if they get in there, it’s instantly gonna double or triple their revenue just on a single line. So those would be our biggest wins. But again, I always stress we’re working with companies that were growing before us. We do add a lot of good value and I think we’re incredibly valuable. But we’re coming into situations with incredibly good entrepreneurs. That are in incredibly good companies and that are growing up into the right already. All we try to do is steepen the curve, steepen that curve to go up more. So it’s not like all that growth is on our backs. It’s we just tried to put hot air into it and jet fuel into that growth and make sure that they didn’t trip. Because we’ve seen from my side, I did minority investing. So you talked about like people coming in and investing in minority. So I ran a private equity fund of my own. Which is how I did solvers funding. Was through that vehicle. And minority investing is its own niche thing because.
Izach – 00:39:16:
You got to get your shareholder rights, right?
Nick – 00:39:19:
And at the end of the day, you’re still a minority. You’re a minority. Like even if you have rights, the point is you don’t get the decision-making power. And that’s the one thing you have to learn that you need to be able to present facts and ideas, but it’s up to the entrepreneur just to agree. And do well. And no shareholder rights give you the right to tell that entrepreneur what to do. And so for me, that’s the fun part, because I love that. I love listening to them. I love learning. I learned so much from every one of our entrepreneurs because they’re such smart men and women, and they just are so passionate about what they do. And I love it. So that’s for me the best part of my job, which is I learn so much from them and just anytime I can add value, I love it, it makes me happy.
Izach – 00:39:59:
Awesome. I didn’t ask you this at the beginning, but are you a mountain climber? Have you climbed Everest?
Nick – 00:40:03:
No. Hilariously, my wife wrote a book about mountain climbers. Bolt from the blue, which is about a lightning bolt that goes through nine uh, blade people on a, on a mountain. And the Rangers helicopter in short hauling. And pulling and rescuing them. And I went to Jackson Hole to meet all these rangers, they happened to all be men. Holy cow, the heroes. I mean, these guys are like the coolest of the cool. I just was in that room like, wow, these guys are so, so awesome. They’re just like, you know, in a ton of them have climbed everest, as you might expect.
Izach – 00:40:34:
And that’s what these guys- There’s some really, really technical climbing in the Tetons there.
Nick – 00:40:38:
Oh, the grand, actually they say it’s, a lot of them say it’s harder. Who’ve done both? I’ve done neither, so, so.
Izach – 00:40:43:
Yeah, I’ve done neither either, but I’ve been there and looked at it. Man, that would be hard to climb.
Nick – 00:40:48:
That’s, I, same as you guys, the guy looked up and was like, ooh, that looks tough. He’s like, oh yeah, I free climbed that.
Izach – 00:40:54:
Give me a helicopter any day.
Nick – 00:40:55:
I’m out. But yeah, they say a lot of it is more technical. So, no, just tell us, it was a brand story thing, which is just, it’s trying to connect what we do in the name as we went through it. And you know, that was what we came up with. We like it.
Izach – 00:41:07:
I like it. No, it makes a lot of sense. Yeah, technical climbs at the peak, man. It makes a ton of sense. It’s very, very cool. And hey, so Nick, how can our listeners connect with you or South Col?
Nick – 00:41:18:
Easiest is www.southcol.co. It’s S-O-U-T-H-C-O-L dot C-O. So just C-O. And so southcol.co is the easiest way of altering information. And you can always email me. And my email could not be easier. It’s [email protected]. Email me. I answer any one I get. I’m happy to talk to any company. I love, I spend my days talking to entrepreneurs. I love talking to them. We know what we’re looking for, so we’re very upfront, but I love learning and meeting and doing that. So I’m happy to entertain anyone. I’m happy to answer questions too. We love what we do. And we think that there’s a tremendous amount of value to be shared. And we just like to partner with people that see that making the pie bigger is great for everyone.
Izach – 00:42:11:
Alright. That was Nick Weiksner who you can find at southcol.co. That’s S-O-U-T-H-C-O-L.C-O. Thanks everyone for listening to this episode of the Deal Closers podcast brought to you by websiteclosers.com. If you like the show, be sure to rate us, write a review, press the follow button and share it with your network. And of course, if you’re looking for help selling your e-commerce business, be sure to visit us at websiteclosers.com. This episode was edited and produced by Earfluence. I’m Izach Porter, follow me on LinkedIn and we’ll see you next time on the Deal Closers podcast.