Adam Robinson: So, guest today, Los Silva, co-founder of PowerHouse Ventures, AffiliateMarketing.com, and DealFlow Brokerage. I’m really excited to have Los on because everybody who listens to this, pretty much all anybody wants to do is sell their business.
Los Silva: I love that.
Adam Robinson: Yeah, we have experienced a very stark correction in business valuations over the past, let’s say, 12 months. I had Ryan Babenzien on last week and we were talking about Jolie, his new venture, and he was actually talking about how with GREATS, the shoe company that he started and sold to Steve Madden five years later, he’s talking about all mistakes he made with GREATS that he did not replicate with Jolie. And one of them was he wished he raised $10 million instead of $1 million after like month six or something because he was underfunded, always sold out of his biggest item and did all the stuff wrong. And he’s like, but that wasn’t even an option right now. He’s just like the capital available to fund direct-to-consumer ventures in general. It’s just like, right?
Los Silva: They’re not valued like softwares now. They used to, which was crazy, right? All these companies had ridiculous valuations. And now, everything’s kind of just more like it getting and regulating and becoming what it really should be priced out.
Adam Robinson: And it’s what? I think Ryan attributed it to was direct consumer was basically they slapped a label on it as a business model and he’s like, it’s just a channel.
Los Silva: It’s just a channel.
Adam Robinson: Right. Totally. So, yeah, I mean, I think, look, I had questions about how you get 360, whatever, thousand Instagram followers or whatever else, and platforms will ever like, I think everybody’s more curious about what you’re seeing on the business selling side valuations and what’s happening right now, right? So, let’s start there, like what is happening right now in e-comm business brokerage? And if you can categorize the size of deals going through also and like kind of how that’s changed in the last 12 months because I think that the listeners are going to want to know, like, okay, if I had this ballpark valuation metric in my head, what is it now and what are some cons?
Los Silva: Yeah, I’ll talk on both sides.
Adam Robinson: Pass it over to you.
Los Silva: I’ll talk kind of like what I’m seeing on buyers that are buying companies right now and sellers and kind of like the mentality of sellers, which I think is flawed, and hopefully, I can give some insight on both of those things. So, it’s a great time to sell your business right now, right? The problem is people think that they have the next Uber and you sell physical products, slow down, calm down. And that’s the truth, right?
So, like, buyers are ready. They’ve been saving, saving for moments like this. And they’re now going out and acquiring brands, either to do roll-ups or to scale out and different things like that. So, the money is there. It’s available for people. People are interested in buying. They’re smarter, right? They’re smarter than others. I’m not going to say the names, but other aggregators that came in before them that just did non-logical roll-ups, had some guys from Goldman, some analysts that were not marketers or new direct-to-consumer or different channels and said, “Hey, this looks good on valuation, blah blah, blah,” but didn’t take into consideration, oh man, we’re going to have to invest in this, this, the average order of value, we’re going to lose money. This isn’t the best deal to get, right? The buyers are a lot smarter than that. And so, that is creating an opportunity for them to get things at a smaller multiple, right?
Like a couple of years ago, if you had a sh*t Amazon business, frankly, that sold like trinkets and spatulas and stuff, but it was doing $5 million because you can do that on just Amazon. You have no other platforms, you have nothing else, you can probably pull them a million dollars EBITDA, let’s just say. You could sell that thing for seven times and like...
Adam Robinson: EBITDA.
Los Silva: Yeah, EBITDA. And to some person, that made sense. I never thought that made sense, but people were buying at that clip. Now, that buyer’s going, okay, well, you just have 60,000 reviews. That’s dope. But if Amazon changes, we have nothing. We’ll give you three. And the seller is like, no, no, no, it’s worth seven. Dude, it’s really not, right? Like, let’s talk about that. Let’s slow that down even. As the seller, you have to think not unlike what you see on TV and what the whole logic is. If you have a million-dollar business and EBITDA, it probably might be less, but like let’s say you do, you’re probably paying yourself $200,000 to $300,000 a year.
And so, you’re thinking, oh, this thing is worth $35 million. I want seven times or 30– like some ridiculous multiple. And someone’s going to come in and be like, “Hey, I’ll give you 4 million bucks for this.” But if you pay yourself $300,000 a year and you’re getting, let’s just go to 3 million, I’m going to give you 3 million for this. I’m giving you 10 years of your business. And it’s an e-commerce business. So, it’s not going to be valued as a software from gross revenue or a subscription food company at like gross revenue, right? That makes no sense because when you’re buying, like the dumb way that I explained that EBITDA thing to people is let’s say you’re a buyer and I’m a seller, and for this scenario, what you’re saying is like, “Man, I want to buy instead of at five at three because it’s dangerous. I have to allocate money for direct-to-consumer, I have to allocate money for biz dev in retail, I have to maybe create new SKUs. I’m going to need that capital to invest. So, I can’t just give you 5 million bucks. I got to give you $3 and save $2 million so I can make this business work.”
And the other person is thinking, conversely, oh, my buddy got this much money a year or two ago, so it’s worth the thing. No, it’s not. Start thinking about it, not as a company, take it more binary and go what’s best for me right now. Because if you know how to build an e-comm business, you can do it again and again and again and again, but now you have $2, $3, $4, or $5 million to do it with momentum and make smarter plays and bigger decisions, right?
And so, that’s what’s happening in the market right now. We see a lot of people in our PowerHouse group. We optimize companies for sale and then our brokerage sells it. And a year ago, people were upset that we bought the brokerage and they’re like, oh, we don’t want to sell the business. And that alone is weird because they’re like, oh, it’s my baby. It’s my baby. Listen, e-commerce is a savings account. It’s not a checking account. You got to get to a million plus dollars a month for you to start making the money you would make with a software or with a service business or coaching consulting. You’ve got to get real money.
And the more money you make in e-comm, oftentimes, the more money you need, more people, more products, more SKUs, more everything, like growth. And so, it’s a savings account. You grow that business, you don’t make the most amount of money from it. But then with the opportunity of an exit, you get it all back, as opposed to a service business where a cash flow is a cash flow is a cash flow, and e-comm business isn’t going to cash flow, right?
And so, people have to really start thinking of it like that. And so, once I started talking to people about their personal and said, “Hey, if you’re making $300,000 or $400,000 a year and I can get you 9 million, 6 million, 7 million bucks, why don’t you just take it instead of working on this for 20 more years where algorithms can happen, partnerships can break, like take it today. I can get this done in six months or four, and then you’ve got your new thing. You know what I mean?
And so, now that they started to understand that we’re selling about 50% of the companies in our brokerage, we got about $300 million in businesses that we’re trying to sell right now, 50% of them are from the group, and the other ones are a little bit more mature. And these are companies doing, on average, $2 to $15 million EBITDA, right? We don’t work with smaller brands. Like if you’re doing $1 to $2 million gross or $100,000, $200,000 net, that’s more like a flipper creative financing. We’re more pocket boutique. We work with investors and aggregators and things like that that haven’t a lot of them out like, hey, I got $30 million to spend with you. I have $100 million to spend with you. And so, we sell them a few, and then we have the rest. And so, we can allocate that capital to the right thing.
But people come to us also for due diligence for decisions like, hey, we think we should buy this. I think it’s a terrible idea. Look at the average order value, look at the market, look at what you’d have to invest. So, we also consult with them on that site as well. And we also support the buyer, the seller by helping them, like this is a great idea. Get off your high horse, get off your ego trip, make things more binary. This is not your baby. Your wife is your baby. Your human being is your baby. Your dog, your baby like take care of you. This business is something that you can just create something different on because you have that skill, and now, you have the money for it. Does that make sense?
Adam Robinson: Dude, I have three things popped in my head as you were talking to there. So, the fact that you can just start another business, so the guy who founded Warby Parker, one of the guys founded Harry’s, and the dude’s f*cking brother-in-law, he had him found Billie, and the guy was not a D2C guy. He was just like a lawyer. And this guy just said over here and told them what to do. And they sold Billie for $400 million. It’s like this skill of doing this is so real. I see to myself, like my business, I share an office with Dave Rogenmoser from Jasper. He literally said to himself, he’s like, every business that I have started has been exponentially larger than the last.
Los Silva: Logically.
Adam Robinson: Right? So, yeah, it’s this game that you’re just getting good at. And I also felt this very strange, like when I started out, there’s this romantic idea that I was doing my life’s work in the SaaS company and it was so much more fulfilling than my trading job where I was just like, getting told what to do and putting a suit on and showing up at work at six in the morning every day. But one thing that I have learned about myself is that I cannot predict how I am going to change with my attitude towards what I’m working on. Like, even on this one, I was going to sell it last February and I was done, I was mentally moved on. I was like the semi-retired, I was going to look at crypto or whatever. And that got taken away, which was devastating for 24 hours.
But then I realized the massive opportunity that like late ahead. And now, I’m like, okay, two years, I’m fully bought into this, but I have no idea how, like we’re going to go from having– we had six employees on October 31st. We have 40 now and we’re probably going to have 200 at the end of two years from now. I don’t know whether I’m going to want to run a 200-person organization.
Los Silva: You’re probably not the one. You might have to hire again.
Adam Robinson: Right, totally. Well, I’ve already got a guy who’s the one to build it to that point because I know I’m not even the one to go from 6 to 200. Now, I’m just doing founder brand content, working on product, providing this energy to the organization that everybody I think gets a lot of, right? But that could not be relevant in– you know what I mean? You got to put your adult pants on when you have 200 people. It’s like you got to start doing stuff this way different, maybe I’m not swearing on podcasts anymore or whatever because we’ll get f*cking sued.
Los Silva: Dude, I went and bought three suits yesterday because we’re the brokerage. I’m not running around in t-shirts with tattoos on. And I know like it’s 2023, but at the same time, I’m talking to a guy that went to Yale and I’m going to a power lunch. And he is going to judge me point blank, period. Let’s just accept it. But if I’m wearing a suit and the brokerage is doing this, this, like if I showed up like this, I’m doing the company a disservice, right? So, you’ve got to understand the pockets of growth and all these things change.
And as entrepreneurs, you change too, right? Like we’ve seen people. I had a guy who sold the company last year. He’s a German guy, sold his company, went to live in Dubai, came back. And he was like, “This is the money that I have. This is what I want to invest in.” I said, “That’s a terrible idea.” Took up another month. We look at other brands. He bought a brand instead and he’s like, “Dude, with the money that I had, I could just buy a brand, and now, I’m moving on to something so much more quicker and more efficient.”
And I think you grow. The kind of people that I think are watching this are in the probably $3 to $50 million or more range, but the thing that they need to understand is I always hear this all the time, someone hits $5 million, the next stop is $10. That makes sense. Once they hit 10th, the next stop is $100. What? Bro, the next stop is literally $11, it’s $11 million and not f*cking this up. And so, people need to understand, like this is, I think the hardest business to build is e-commerce because of the cash constraints and not because it’s hard. It’s actually easier to get it poppin’, but to make it work, substantially, that’s the issue.
And there’s levels, there’s things. And so, I think that a lot of these people that are in the $3 to $10 million range need to look at like what else can I create? Can I aggregate? Can I be a flipper? Then you have this whole other group of people that are like, man, I’m changing the world. You run a supplement company that sells carnivorous stuff and it’s really good and it is helping people, but it’s not Uber, right? Like you’re not changing the way people connect and communicate. It’s not Google.
We make physical products, and at one point, these things will become a logical commodity. And so, I think it’s your responsibility. We get lost. We go from not having money or an idea to building something. And then we really kind of tell ourselves this story because frankly, we have a job and we haven’t really thought about– we start thinking about ourselves. So, we think the business has to do $50 million, whatever million.
I had a guy who lost the $10 million business because of a partnership, trying to get him to sell, didn’t work out. The business went to zero. I was like, “What do you pay yourself in the business?” “Oh, I was paying myself like $250, but I want to build another $100 million business.” I was like, “Why don’t you build a business where you can make half a million or a million bucks first?” Like think about you a little bit more than you think about all these crazy things.
It’s an excuse to not sit down and think like, what do I want with my life? What does my day look like? What is my time allocation to the team, to myself, to my family, or to other things that I enjoy if I don’t have family or whatever the case, right? We get lost in social media and everything has to be big. Warby Parker is over 100, like black rifle coffee. It’s publicly traded, so I’m going to do the same. Most likely, you’re not. Like, why don’t you and do you have to? Is this person happy? The odds of people hitting 100 millions and billions are way less than hitting tens and selling. You know what I mean? That’s, I think, more like let’s just get more realistic and go phase one and then phase two and phase three, you know what I mean?
Where I’m at today is nowhere near, like I never thought in the world that I could get to a place where, by 2026, our brokers, we want to do a billion dollars in sales. Is that outlandish? Yeah. Like two years ago, I would have said it, but if this year we’re going to do 300 or 350, next year, we could do 600. And then even by 2028, the number starts to look real, but you start to graduate your thoughts and with your season changes as well.
Adam Robinson: I mean, all of that resonates so much with me. So, I kind of tell this short, I was a trader at Lehman Brothers for 10 years. Like that is a f*cking grind, dude, and you’re just working for the man and that’s it. And I read 4-Hour Workweek and I read the Rework and Remote, like the 37signals books, and they’re like, extolling the virtues of lifestyle businesses and all of these questions that you’re asking, right? It’s like, how do I set my life up? How I want it to be set up.
And I also was like, I was drawn to that, I was drawn to running profitable businesses also. And only very, very recently when I identified this sort of very quick attack that we could do to try to go unicorn status. Did I gravitate away from that? I was clipping a lot of cash and watching some of my buddies who were just spinning their wheels on this VC sort of thing or whatever, wondering why– you know what I mean?
And I think the dream scenario is if you can do what you’re saying and then get to a position like I was in in the fall where it’s like, man, I have so much dry powder if something comes along that I really want to go for. Like, dude, we hired 25 people between November 1st and November 15th. By December 31st, our annual recurring revenue had grown more than their salaries while we were training them, right? So, they’re not even contributing yet. What happens when they start adding to sales? We’re all revenue employees, right?
So, like, if you can have that position that you described and you get better and better at building products, and ultimately, you have a product that is good enough where it gets you in a position to where you’re so financially strong that you can do anything that you want, then I think when this Warby-like opportunity comes along, you can do it and you don’t have that downside risk. Like if this stops working for us, it’s like, we just sort of cut what we added on and we’re back at the same place. It’s not anything you will.
And then there’s like, the season of my life has changed as well because now I can look at a spreadsheet and I can believe that we can grow 300% next year, which I’ve never done in my life from the highest number I’ve ever been at, right? It’s kind of like what you’re saying, it sounded nuts three months ago, but now, I accept it as a foregone conclusion, and so do all of the people that are working for us, right?
Los Silva: I think a few things, and I get it. Like, we’ve spent almost $1.1 million on domains, and some of them haven’t even launched, but we know exactly what we’re doing with it because it’s the season. I think, two things, one, I think that lifestyle businesses, they got looked at wrong passive income, all that kind of stuff. I’m terrified of lifestyle businesses because then you built a lifestyle and if something goes wrong, you don’t have much more from it. So, it could go away, and now, you’re screwed. And a lot of times in those lifestyle businesses or coaching consulting, little things like that, if you’re not there, like the business doesn’t move without you, I think it’s better to build a business that satisfies and creates your lifestyle. I will invest in stuff and lose money and make it work first, so then that thing is doing something for me. It can’t be the reverse. I’d rather do that forever. It doesn’t have to be you in the course.
And because the structure, it might one day become that, right? But what I do know is that this is fulfilling the yearly and longer-term goal that I have, and that’s why I’m building this thing. And then with entrepreneurs, instead of trying to go like still rocketship, I really feel like if every year, not just financially, but if every year, you’re not changing, you’re stuck. Like if every year you’re doing the same thing and you make more money, but you’re still in the same spot with your brand and you’re this and that, that’s also scary because it means you’re not changing. That means you’re a big fish in a micro pond. I always want to be a minnow that can grow into being a whale, and then find a bigger ocean.
Adam Robinson: Yeah, I love that. I love that. So, can we turn the conversation to valuation? So, just from the SaaS side, there’s like these hurdles that you cross where you all of a sudden are considered derisked and you’re gaining more revenue multiple or whatever. And there’s active season, of course, every situation is different, but for instance, like you’re very risky if you’re $5 million a year in SaaS. I mean there was some crazy stuff going on with minority VC-preferred type things last year, but let’s talk about selling a business that you will get twice the revenue, multiple at over $20 million than you would have $5 million for a SaaS ask company. Is there sort of like levels like that in e-comm? Or is it like more how the business is structured?
Los Silva: There are levels on everything. So, for an agency, if you’re doing $1 or $2 million EBITDA, you’re better off keeping that business and just cash going because it pays you so well, right? If you’re hitting the $5 million EBITDA, you go from selling 1.5 to 2.5, maybe 3, 3 is a stretch to like 4.55. If you’re hitting $8 million in EBITDA, you can sell for 8 to 10 times.
Adam Robinson: That’s great.
Los Silva: But you’re making for $8 to $10 million EBITDA on an agency, you have a massive organization, you have an HR company, like that’s a lot. You know what I mean?
Adam Robinson: Yeah, yeah, yeah, it’s a machine. It’s not a God.
Los Silva: No, no, it’s a whole thing. And so, that’s going to take you a long time with e-comm. Right now, if you’re in one– like we just had a deal, there are no names or whatever the case, but we did about– I’ll change a little bit of the EBITDA. It did like let’s just talk 3.5 and they offered $21 million, that’s a seven times, right? And then after analyzing it again, they were like, “Hey, we’ll give you 18 because you’re only on one channel. There are a lot of risks here. The people were like, no, we want at least 21. And so, that deal went sour. These people could have made 7 million bucks each. And then now they’re working. It was a very difficult brand, like the kind of product only a select kind of people are going to buy that it’s not just about the product. Does it fit? Is that a part of a roll-up, etc.?
And so, if you’re going to want a bigger multiple, the EBITDA is one thing, right? The bigger the EBITDA, the more secure, so the bigger the multiple. But does it have multiple channels? Do you have a recurring revenue? How much of that is subscription that you have inside of that, right? Like what guarantees that you have? Like you have a community, how big is that email list? Have you talked to or are you in talks with anybody as far as like retail? Do you also have an Amazon? Are you in other channels, kind of like Birchbox or Chewy, depending all those other platforms? Are you also on those platforms? What does the team look like? Is it mostly all outsource? Do you have products in-house? Or are you kind of still doing a little bit of like white labeling here and there and dropshipping this? And so, the majority is here. Do you have everything else? Do you have one company that’s about to sell? They have a whole other side that is subscription, but it comes with coaching because it’s a fitness supplement brand. So, that actually helped and it didn’t help because they don’t want to take on that side because they don’t know it. But that’s what really creates the subscription. So, it kind of like flattened out the valuation.
So, the more channels, the more EBITDA and the more SOPs, also something that’ll help you kind of move the ball faster because if you kind of have your accounting in order, 90% of people don’t, right? So, if you have a real team controller, CFO, and you run your books like you’re going to be audited, it’ll save you six months or three months of crazy due diligence because these people are going to come in and do due diligence and audit you just like they were the IRS because they want to know where everything’s going, right? And so, the faster they can get that done, the faster that you can get this thing solved.
Adam Robinson: Yeah, I got connected with this PE guy that I’ve been talking to a little bit just to try to prepare for something secondary in the year and a half or whatever. Not really working with him yet, but he was like, man, there was this one company that we bought one time where it’s like they could read our mind, every single thing that we asked for, they were like, “Oh, we have that spreadsheet already.” “Oh, we have that spreadsheet already.” “Oh, we have that–” you know what I mean? And like thinking about the process that I went through, we spent six months on, it was a disaster. We had none of that. And like we were so far...
Los Silva: It gives you so much confidence.
Adam Robinson: Yeah, it is an indescribable pain in the ass to try to gin it up as quickly as possible at the last minute.
Los Silva: Right, right.
Adam Robinson: So, yeah, I think that that’s fantastic advice.
Los Silva: And that little slip-up gives the buyers opportunity to essentially have you slow down that you’re not on ramp-up, you’re in fixed mode. And so, your numbers, by the time you fix that, let’s say it’s a couple of months, they’re trending down like, oh, we’re a little scared, so we’re going to drop a percentage or a point or whatever the case, right? And like sometimes, it’s actually like a play that people kind of run and people don’t know that because they’re not like in the mix of buying and selling and things like that.
Adam Robinson: Right. Yeah, that’s interesting. So, are there like– I mean, there’s just so many variables with these e-comm companies, but like I mentioned, there was a hurdle at maybe 10 or 20 million in SaaS for revenue. Is there like, at 5 EBITDA, then you’ll get a little more credit at 10, at 50, is there like...
Los Silva: Ten, you’re getting it. At basically 3, you’re getting the least, right? Five, you’re getting a lot more. You also usually have subscription if you’re in the 8 to 10s, like you’re starting usually in the 6 to 8, maybe even 9s, right? Right now, 9 is probably not as aggressive, but 6 to 8 is happening, 6 would be a lowball offer. Usually, 7 and 8 is pretty normal, but I think the bigger the EBITDA, the more you can get away with like no, this is what this thing is worth, right? When it’s the lower the EBITDA, that’s when people are like, there’s a lot of wiggle room and opportunity inside of them.
Adam Robinson: Yeah. And then how would you think about as an operator trading EBITDA for growth rate in this world?
Los Silva: Oh, man, it depends what the goals of the company are because sometimes, you can’t have both unless you hit certain points.
Adam Robinson: Unfortunately, yeah.
Los Silva: Like, if you’re going...
Adam Robinson: What are the certain points?
Los Silva: If you’re going for it, it depends if you want to– say like we have a company right now that’s three different ones, but we’re rolling them up for another company, right? And they have to have a certain amount of EBITDA for them to want it. So they’re cutting staff, they’re cutting certain ads, it’s 80/20. They’re just going for that 20% and sticking in there. Their gross is going down, but their EBITDA is actually increasing on all of these brands. That is that goal, right? There are some that are like, no, we’re just going to go moon rocket and we’re trying to spend everything that we possibly have into new SKUs, new channels, new this, new that. And that’s because they want to get to this trajectory and then start to even out or whatever the case, right?
It might be the kind of brand, like if we were about to sell a food company that did kind of subscription meals, there’s no margin in that. So, they’re like, that’s going to be sold on a gross so they don’t care about EBITDA. They’re just going to go balls to the wall. But the people that we’re working with, they either want good EBITDA because they’re trying to do a roll-up of these or they want good EBITDA because they’re basically optimizing and fixing it and they’re selling it to somebody else. This level is to this sh*t.
Like we pick them up from the small guys, then we sell them to the medium guys, and then they sell it to the big guys. And the big guys oftentimes sell it to somebody, the big publicly traded companies just to make an announcement that they scoop something up and then shut it down or just to get the IP or just to get some people on staff. But it’s crazy, like sometimes a lot of these things, there’s all this effort, and then you see that it goes all the way to the top, and they just shut it down because they didn’t want the competition or they didn’t want someone like be as agile as these people, or they’re trying to make it work and they give it two, three months and it doesn’t work, they just shut it down because of the amount of revenue that those companies have.
Adam Robinson: Yeah. So, like another thing Ryan Babenzien said was during GREATS, he learned all this stuff that he hated about the shoe business and it led him to create this framework that he wrote on a whiteboard. And then he looked at it for two years and he was on the beach on vacation, and he came up with the showerhead. And I forget what the three things were, but it was like, it has to be a habit, something people use every day. It has to not be exposed to trend, right? And then it has to either do with vanity or, he didn’t say addiction, but like something to that effect.
Los Silva: Dopamine?
Adam Robinson: Yeah, vanity or dopamine or something like that. So, the skin was drying out and like, whatever, they made the shower at, right? Good story. But like that, he’s like, and they have a nice subscription model to it. Like he’s doing really well with sort of scaling exponentially, bootstrapped or whatever. And then he’s in this position where he’s thinking, it was more about the framework than the product. He’s like, I built the business, and the product happened, or I had a strategy for a business and this product happened to work for it. You know what I mean? So, like do you have anything?
My question was going to be like, what is your perfect business? If you were to just start something now, to sell it in three to five years or something, are there characteristics you would be going for that you know in any market buyers are going to f*cking love? Like, how would you be setting it up?
Los Silva: It has to have leverage. It has to be able to scale quickly. We’re talking anything, right? It doesn’t have to be e-comm?
Adam Robinson: I mean, the audience is e-comm. So, I think it’s kind of...
Los Silva: Okay. So, if it’s e-comm, I would go more with what I can scale quickly. So, I’ve sold a few supplement companies. I would create a lifestyle. I would either create something that’s a lifestyle brand like clothing or something like that because you can build a community and the community can create that growth for you, right? You can leverage influencers and things like that. I would do some sort of consumable like supplements or something like that as well, targeting women, not men, because men have no loyalty and women do. And women are more on that health and wellness kick than men. Women normally buy things for the guy. The guy buys pretty workouts and things that honestly have no margin. And if it’s got a cool-looking new color or flavor, they buy the next one. They have no loyalty to things like that.
So, I like consumable, I like community, and I like basically women as like my three big things because the majority, every time we sell a business, I always say like, I’m sure that your demographic is 60 or so percent women that shop at Target and Nordstrom and have a household median income of $70,000 to $100,000. They’re always like, “Whoa, dude, that’s exactly it.” That’s the Facebook. So, that’s who we’re hitting. A lot of the people on YouTube, like, that’s who you’re going to hit. So, just stop trying to make like a men’s side of it. Focus on the women for the most part because you can expand to those things a lot. They’re also more apt to be inside of a community. They’re also more apt to fall in love with a woman if you create influencer stuff and things like that. They’re more likely to engage in all of these things.
If I was bootstrapping, if I went out and got funding, I would have to create something that is an outlier, right? Like Josh and I were thinking, we didn’t do this, but we were looking at something that we could invest like a couple of million on e-comm and we were like, all right, we’ll make Liquid IV for pets, right? Something that’s like, you care...
Adam Robinson: Yeah, wild.
Los Silva: Yeah, because it can’t be like just something normal. It has to be something that’s game-changing. Revolutionary doesn’t exist. You’re creating almost a category because if not, you’re just fighting with anybody on anything, right? So, the reality is, how do I make this more about us? And it’s brand and it’s really copywriting because brand gets you to a point. But I mean, if you are a great direct response marketer and you have a great product, then you can use that to scale to 10 million alone. You know what I mean?
The problem is a lot of– it’s weird, like the direct response guys aren’t necessarily direct to consumer. Direct-to-consumer is a channel like Shopify, it’s like buying ads there. But the direct response guys pages and everything, all this long form, all that kind of stuff. It’s totally different, but this guy that just needs to know how to say the words and this person needs to create more of the brand. The answer now is like blending both and hiring some people from here and some people from there, and that’s what makes it the best opportunity.
And also, one of the things now, it has to be an average order value over $100. I wouldn’t do it. I really want to be into like $150. If I can be in the $150 AOV targeting women with some sort of consumable or repeatable subscription, those are things that I would focus on first.
Adam Robinson: How important is gross margin to you?
Los Silva: Huh?
Adam Robinson: How important is gross margin, like COGS being low or whatever?
Los Silva: It’s extremely important in e-comm, yeah.
Adam Robinson: Yeah, man, it’s just crazy.
Los Silva: You’re running...
Adam Robinson: Yeah, it’s so cash intense.
Los Silva: Yeah, I mean like, in e-commerce, it’s one of the most important things. I mean, we’re working with the company right now. They’re American-made. I was like, “Dude, I love this.” And she’s like, “This is what makes us.” I was like, “No, it’s not.” Like 3% of people are actually watching and they really appreciate it. We can save 28% if we go to China, or we found suppliers in Mexico, we can save 33 if we go to Mexico, but we’re not doing right now is making any money because you want to be made in America. If you want to be made in America, just donate more money to America or something. This is impossible. This margin isn’t going to work on the average order. And everything that we’re spending, this conserves, like they’re just destroying us, right? And so, that in e-comm, I think is one of the most important things because it’s how you live or die.
Adam Robinson: And then so sort of flipping back to a previous conversation about EBITDA, like people with a 10 million EBITDA business, are they distributing themselves $10 million? Like are these guys just crushing it? No?
Los Silva: No. I mean, it also depends. I have friends, they’re past $10 million EBITDA and they are printing money, but it depends. At that point, that can be a lifestyle business, right? So, you might be like rip it a lot. And if you look at it like in this Internet marketing world, those guys are probably taking outlandish seven-figure distributions, maybe even quarterly, or at least like two times a year and their salaries probably relax, right?
But if you’re trying to sell to a bigger company, you’re probably treating it like a business. You probably hired C-levels, you’re probably moving into different channels and stuff like that. It all really goes back to the operator, like where that person comes from. And I came from media buying direct response and I’ve moved into brand and more corporate and the startups, the venture-backed, like all those things. They’re two different people. They’re two different people. I think slowly, they’re realizing that like...
Adam Robinson: They need each other.
Los Silva: Yeah. But there’s also an ego of like, oh, you’re stupid. Like, oh, you guys waste money. Like if you can just marry it, you can build machines. And I think that’s what a company like our friends from V Shred, like that’s what they’ve done, they married it. They use the right response and brand and they’re crushing life.
Adam Robinson: Totally, totally. Man, this has been fantastic. That was kind of like everything that I wanted to know about what’s going on in the...
Los Silva: And it’s like.
Adam Robinson: So, is volume lower than last year by a substantial amount? Because there’s this distance– is it like the Austin housing market, like the prices aren’t lower because the sellers want high prices, but the buyers are lower?
Los Silva: So, we have a ton of buyers and we are getting sellers more and more and more. There’s no shortage. And I can’t say to like what it was before because I wasn’t at this level involved. I helped a couple of companies sell by like advising on the connecting of the people, but I wasn’t in this mix. And to me, I feel like it’s crazy because I feel like the ego has dropped a little and they’re like, I want to sell, like this is kicking my ass, even if it’s doing well. And I’m like, dude, I want this money, there’s a time, and these guys have been saving up, they’re like we’re scooping, we’re scooping, we’re scooping, you know what I mean? And their pockets are much bigger than what they’re picking things up for. They’ve waited for a while.
It’s a great opportunity. I mean, in my opinion, on the faces of people, there are some people that we’ve been selling their companies and I’m like, listen, you just need to build a factory of this, like build, sell, get money, do it again, do it again, and be a flipper of $1 to $3, $5 million EBITDA businesses if you can make it that fast, even better, if you can just do roll-ups on stuff like that.
Then there are the bigger people that I’m like, no, I want to get this thing to 8 to 10. And then after that, usually, they’re investing or they’re building something where they’re investing in people or they’re getting advisories and they’re doing that kind of position, right? But the sellers have become more aware of what they actually want instead of like what matters to everybody in a group or event or whatever the case or on TV and social media. And so, there’s a lot more understanding and desire to optimize things for sale and for scale, right?
And then there’s the group that just always is looking for more growth that doesn’t get the ego or whatever the case. They have a vision that they can’t lose, that they’re trying to get funding right now, which is very hard in e-commerce right now to just get funding because we’re not investing in anything but our own companies. We’re not investing it, especially we’re not investing in anything e-commerce.
Adam Robinson: Right. Well, it’s interesting environment. I wonder how long it’s going to take to swing all the way back to the other side.
Los Silva: It’s weird, man, because you hear that you’re in a recession, you hear all these things. Shopify went massively down, but as it should have, right? Like those numbers that spiked in corona were fake. And so, now, it’s really stable. If you look at it in 2017 and you look at it in 2023, it’s about stable, that little pocket of like what’s happening, that’s what spiked it and people are like, that’s the normal, right? I think people need to make more time to read and less time to watch, like read what’s really happening in your sector and your markets, read where things were before and how they’re stable now, read, like everyone looks at brands and they’re like, oh, Shopify is coming back. What does it say about the small business? Well, it can say so much because everyone looks at the stock of Shopify and they’re like, oh, man, all these small businesses are crushing.
What they don’t realize is they just picked up Supreme. They do Kylie Jenner. I mean, there are billion billion-dollar companies and they’re taking a lot of big commerce and blue commerce, enterprise companies, and even headless ones and they’re making a big a goal to go out and pick up like really, really big enterprise companies. So, that’s what’s going to give it the spike. So, you need to figure out where you land in the sector because that’s a publicly traded company that’s going for enterprise now. You’re what started it and supported it, but you’re not who they focus on anymore.
So, where do you need to be in the pocket? What are the tools that are happening over there? What’s happening in your landscape specifically? If you’re just getting started, if you’re a dropshipper, if you’re in the D2C like $1 to $10 million companies, like are you hanging out with these people? What is that? Because that’s the market that matters, right? Economically, let’s just say we’re in a recession, I bet you your friends aren’t and they’ll never even feel it. It’s opportunistic.
But another groups were totally in a recession. Life is the worst thing ever. And we all live in the same place. And so, it’s about looking at the sector that you’re in and studying the sector that you’re in today to see how you can optimize or leverage that, not looking at the macroeconomics of everything because it doesn’t really pertain to you.
Adam Robinson: Totally. I couldn’t agree more. I don’t feel like I’m in a recession.
Los Silva: Right. No, I’m stoked.
Adam Robinson: Everything I put out is like, dude, I’ve never seen anything like this.
Los Silva: People are printing money in our world, right? But like we’re technically in a recession.
Adam Robinson: Yeah, it’s so wild. Yeah, totally. So, another question is, like, let’s say I want to sell my e-comm business in two years, when do I need to start committing some mindshare and time?
Los Silva: I would say now, a lot of people that come to PowerHouse now want to sell. And then we look at it like, no, I was going to buy what you want. We should do a three-year plan and try to optimize this for 24 months to get it looking right to sell. So, I think if you want to sell for your best opportunity, it makes sense to start acting like that and maybe work with us or work with another company that it would be like, hey, in these next 24 months, this is what needs to happen for that to happen, not just to make more money or whatever the case for you to be able to sell this company, like what category is it? What’s the EBITDA? What’s everything looking like? What are you going to do with the members? All that kind of stuff.
It needs to start now, like cleaning up the books, all these things, right? And so, I think the sooner the better. And I think that that’s exactly the kind of mentality that people should have. Like, what’s my intention? You’re not just going to hit up. I mean, some people have businesses, hey, I’m kind of burnt down or it’s going where it’s going and we can fix it in six months. But if you want to maximize it, if you’re not really thinking about it and you think there’s more juice left to squeeze on an opportunity to get a bigger valuation, it’s 12 to 24 months.
Adam Robinson: Yeah. Sweet. I mean, that’s just amazing. Thank you for all of that feedback. I also have this view about my business. It’s like I might as well build it to sell it because then if I don’t want to sell it, who gives a sh*t?
Los Silva: You for sure should build this thing to sell because you’re going to buy...
Adam Robinson: Because it’s like the worst-case scenario is you have this asset that you intentionally created that buyers are going to want.
Los Silva: Yeah, yeah.
Adam Robinson: And then you can keep it if you want, if you’re feeling...
Los Silva: Yeah, I mean, a lot of times, people say, like build a business that you don’t want to get rid of and I think that’s cool, but I don’t think that that pertains to e-commerce. Build a business that someone wants to buy ASAP and get rid of it. Do that. Just I’ll leave you with this because I really try to stress entrepreneurs. I want you to make 100 million. I get it. But we help the company go from $300,000 a month, so $3.6 million a year. The next year, we did $40 million, and Target wanted him, Walmart wanted him. He said no to both. And then I had someone want to buy it. And I was like, “We need to get rid of it.” He’s like, “Brother, you don’t get it. We’re going to a billion.” And I told him, I was like, “Brother, we’re not going to $42 million next year. We’ve hit this cap. It’s the time. It could have best peaked. It was the most beautiful thing that you could have done.” He probably could have got $40 million for that business. That business is now doing half a million a month.
Adam Robinson: Jeez.
Los Silva: Right. You don’t...
Adam Robinson: Timing, right?
Los Silva: I had another guy with a $50 million business. Same thing. Whenever you think, this is the hottest sh*t in the world, go.
Adam Robinson: Totally. And you have to sell when there is visible trajectory left because the buyer is seeing the same thing you are, right? Like, you got to leave chips on the table.
Los Silva: Yeah, when you want to flex and be conceited and brag about this thing, that’s the time you got to get rid of it, like go. Be gone. Be happy.
Adam Robinson: Yeah, that’s human psychology. Maybe I need to sell my thing right now.
Los Silva: I think you still got a little bit left on this one.
Adam Robinson: Yeah, well, penetration is just so low in this world so, or maybe in a year or something.
Los Silva: Yeah, we’ll talk maybe in a year.
Adam Robinson: Yeah, cool. So, the final five, what’s your favorite book?
Los Silva: Outwitting the Devil.
Adam Robinson: Oh, it’s a negotiation book.
Los Silva: It’s Napoleon Hill. It’s the first book. He basically talks like himself, and then he talks like the devil. And then my second favorite book is Leaders Eat Last.
Adam Robinson: Outwitting the Devil, and then Leaders Eat Last.
Los Silva: Yeah, two favorite books.
Adam Robinson: I’m going to grab those two. And then, is there somebody you’re following that you think is worthwhile for kind of listeners?
Los Silva: Dude, I buy a lot of Harvard Business reviews and I read that.
Adam Robinson: Sweet. And relationship status? I mean, I know this, you’re married and have kids.
Los Silva: I’ve been married for 15 years.
Adam Robinson: There you go.
Los Silva: Yeah.
Adam Robinson: Where do you live?
Los Silva: Orlando.
Adam Robinson: Sweet.
Los Silva: The two beautiful daughters and I leave early. A lot of times that works. I can go and watch them go be cheerleaders because I’m a cheer dad.
Adam Robinson: Amazing. What’s the favorite vacation you’ve ever been on?
Los Silva: Favorite what?
Adam Robinson: Vacation you’ve ever been on.
Los Silva: Favorite vacation that I’ve been on would probably be Isla Mujeres, Mexico. It was a trip I did with my family. It was awesome. We went on a catamaran and we got the best time.
Adam Robinson: Awesome. That sounds amazing. Dude, this insight has been incredible. I seriously think it’s going to get a lot of traction.
Los Silva: Thanks for having me, man.
Adam Robinson: In my little community that I’m building. Great fun. And maybe we’ll regroup in six months or a year or something and see how this little change.
Los Silva: 100%, bro, any time. Thanks for having me.
Adam Robinson: Sweet. Take care.
Los Silva: Right. See you.