Josh Hadley 4:15

yeah that’s that’s amazing. How was it you know doing a deal with Robert and what kind of his involvement then since you did that deal with him?

Pat Yates 4:24

Well the deals that you do on Shark Tank in our in our definitely theory and practice things you know, one of you come up with a deal and then it closes or it doesn’t I mean a lot of people that I’ve talked to and I’m involved in a pretty deep Shark Tank Group. You know most of those deals don’t close as you see them and really truly most deals don’t close period. You know our deal we did not do the financial terms we show on the show we just did a relationship and we didn’t do any kind of money transfer just a small equity portion to be able to help so the relationships and more just assisting in anything that I need over the last few years and I really don’t utilize Robert for a whole lot of things other than big things you went to DreamWorks with me, he went to Disney with me. So really just for higher level things, and I can work with his team on a regular basis, but I don’t have to utilize them very much anymore. We stay close enough to keep a touch point is pretty much where it’s at.

Josh Hadley 5:14

Interesting, interesting. Yeah, I’ve had other friends that have been on Shark Tank. And yet, they say the experience that you see, you know, just on the on the TV episode, that eight minutes is really, you know, just a brief glimpse, and not the reality of what happened during that hour plus, that you are actually there.

Pat Yates 5:33

It’s definitely not indicative because you don’t get any restroom breaks, no drink breaks, don’t nothing, you’re standing there. And it’s you, those five and all these cameras and producers, it’s, it’s, it’s more and more intimidating than some people would think. Plus, it’s cold as hell in there, because it’s huge soundstage. And it’s just not the easiest thing in the world to get through. But if you get through, and if you look good on TV, that’s great. But, you know, as you can see, there’s a lot of people that don’t come across that way either. And it’s kind of difficult, like one small thing people don’t realize is you have to sit with a counselor after you’re done. I’ve heard varying time amounts, but I was told it was an hour, I was in there for an hour that you have to sit with a counselor and you can’t leave. It’s like even if you say I’m in a great mood, you have to do that hour, you can’t leave, because they don’t want you to be depressed about something that went on it, obviously. And you know, there are people that come out of there thinking their business can be ruined. So it’s a really interestingly controlled environment. It’s fun, it’s it’s different. But it’s, you know, the PR that you get out of it, it’s worth its weight and go typically, if you will, and

Josh Hadley 6:31

that’s fascinating. And that’s what I was going to actually ask you there. Did you see as soon as your episode aired? Did you see a lift in sales on your website?

Pat Yates 6:40

Oh, yeah, I mean, everybody gets that lift, we did several $100,000 in sales in an off portion of our season. So it was a really big hit of sales continues to be when CNBC Rivieras it not as much as it used to be because the traction just isn’t there as much anymore. But we definitely saw a huge uptick in sales based on the 8 million people that watched on TV especially we got the rerun, I was one of the few people that did Shark Tank beyond the tank and the update. So I did all three okay. And you know, not very many people have done all three. So the production time it took for beyond the tank was way deeper than Shark Tank. And it was a terribly, it was canceled, like three seasons in is one very good. But I did that one as well. So I put spent a lot of production time on that show truly

Josh Hadley 7:21

interesting, very fascinating. You know, one thing I mentioned is we dive into this, you know, the slipper business Happy Feet started more as like a mall kiosk business, right? And then you kind of took it into the E commerce world, and has since continued to grow it they’re one of the questions they asked you, they’re on Shark Tank, and Kevin pointed out, there’s nothing proprietary about your business. I’m gonna go create my own slipper company tomorrow and just knock off all of your designs. At the time, your responses, like nobody out there in the market was trying to knock you off. Since that time, what have you seen in terms of, you know, people trying to knock you off? And how have you been able to protect yourself because Happy Feet is still you know, slippers is still a growing business.

Pat Yates 8:10

I mean, you know, I think our business is really kind of segmented like if you go to Amazon and you look at our Disney slipper listing, all of our products are somewhere between 29 and $45, which every other Disney slip, you’re gonna find there’s 15 bucks 12 to 17. And we’re way priced higher than most everything. I think when we when we charged to try to look at Happy Feet for as a brand and what we made the comment no one else was doing it. There are people that sell animals slippers and other things. Now what we needed to do was build a higher quality product that, you know, we think is something people enjoy, it’s more fun looking. And then we took the licensing to try to drive traffic and build a brand. And I think when it comes down to it, there’s a confidence level in someone that has seen a name and a brand before so that differentiates it a little bit. But again, you know, like slippers isn’t someone something someone wakes up one morning and says, Hey, I just got to be in this business, because it’s actually kind of an afterthought in a lot of situations because it it gets lumped in with the shoe licenses when we’re in licensing. So sometimes you get the same people that are doing shoes that have slippers, and they don’t even make slipper. So it’s an odd space because it’s seasonal. And it’s a lot of skews and it’s not one that many people want to be in I think that’s part of the protection. But for us, we just tried to really be different. And we just tried to do fun things like I’m in the process. Last year was the first time in many years, I’ve actually done a ton of new styles. And we did that because we’re trying to flip up the look of the standards, flip up the look on the animals and change what we’re really about. So I think that we don’t ever really have the goal to be a massive, you know, private equity level firm, our company, we just want to be a great novelty business that that, you know provides a good product and service that people have fun with. That’s really the biggest thing. So what’s the what is the reason that people haven’t gotten as much into it? It’s probably just based on the space but you know, we still have a very solid A

Josh Hadley 10:00

brand. Yeah. And I think that’s what’s so important. Obviously, you’re selling on Amazon and a lot of our listeners sell on the Amazon platform. And one thing, especially for our brand, as soon as we launch a product, it is no more than six months to a year after we launch something new, that there are knockoffs from overseas competitors that are trying to replicate something, granted, the quality is a little bit less, and you know, their price is drastically cheaper than what we’re selling ours at. But how does a an E commerce business owner protect their brand going forward, like the things that you mentioned, from all of those knock offs, when you don’t have a utility patent or even a design patent on something like that.

Pat Yates 10:48

I mean, it’s extremely difficult to acquire, at Quiet Light we talked about making sure that you, you know, have your trademarks in your patents and everything in place. The reality is, a patent is only as good as the patent is if someone goes around and does something slightly different there, they’ll be in the market. So sometimes it’s a little more difficult, but I want to make sure that your legal is in his best condition it possibly can, especially with the brand name, because at the end of the day, most of the people they’re trying to knock you off are also going to do search around your brand name. And you can sometimes find ways that people do that, like I found people last year, they’re advertising with our brand name, they’re going to be hearing from me, that’s the thing you have to do, you have to be vigilant in defending your trademarks, and your patents and make sure that people understand if they’re going to come in and they’re gonna try to do that you have to be able to call them on it. If not, they’ll just continue to do it. So defensibility is really important in it. And patents are sometimes really expensive to defend the trademarks are a little easier to defend. So I would just try to keep those in line and make sure that you’re doing the best to make the best product you can at the best price.

Josh Hadley 11:47

Yeah. And I think that’s great wisdom, that’s something that I’ve done is well, you know, over the first couple of years of business, you know, we would launch products. And again, we’d have knock offs shortly thereafter. One thing that’s changed for us is we did partner with, with an IP attorney that focuses on doing our copyrights, our design pads, our trademarks, and shout out to Rich Goldstein, he’s the guy that we’ve partnered with, and he’s been on the podcast in the past. But we finally started taking our IP seriously. And it wasn’t just a matter of like, hey, we have a copyright or a design patent for this product. Now, what we have to do now is I have a full team where on a day daily basis, they are going in Amazon, and they are looking for those knockoffs because if you can catch somebody the day or the day after they’ve launched something, and you’re immediately, you know, sending them a cease and desist notice, or you’re filing that IP infringement claim against them on Amazon, those people are going to see oh, these people actually protect their brand. And we’re just going to start avoiding this brand moving forward, there’s a lot of other easier targets to go after than this brand that actually is taking things seriously. So definitely a shout out to what you just talked about. of you’ve got to protect it, you’ve got to use the manpower behind it to actually start enforcing it and having a team member that’s dedicated to it.

Pat Yates 13:18

No, I mean, there’s any more you find so many people that can ship products directly from China that they’re knocking off, they don’t have to have a significant investment in product to be able to try to knock you off. And sometimes they’re just looking for a reaction. And if they put something up and you never defend the trademark, then it’s worthless. That’s why you have to make sure that especially with Amazon that you’re going in and doing.

Josh Hadley 13:38

Yep, totally agree. So, Pat, I’m curious with Happy Feet Slippers, what percentage of your you know revenue, if you’re allowed to share it comes from Amazon versus your own website sales versus other channels that you’re selling into just to kind of give us a lay of the land of what different channels you’re selling your slippers,

Pat Yates 13:59

it makes sense. You know, we have a very mature website from the direct standpoint and like we love when you’re on Shark Tank, and everyone goes to your direct site, very few people. I mean, people found us on Amazon, but the lion’s share of the sales were on the direct sight because they want to see other things. We built a huge following there. We did a license with Snooki we’ve done so many things that we built a big following on our site. So our sales are around 5050 Amazon probably edges a little bit ahead. Used to be more like 7525. But we put a lot of time and effort into our our our direct site. Plus we also had an issue with the NFL products on Amazon due to some restrictions the NFL that knocked us down a little bit in our Amazon sales, which is a whole nother story. But it’s it’s one of those things that right now we’re about 5050 Normally we should probably be like 7525 And most times you’d like it quiet like when aggregators are buying business. They really would like it to be at 20 but I don’t really think there’s any magic to 8020 versus 6040 It’s more semantics to me.

Josh Hadley 15:00

Yeah, very interesting. Yeah. And I remember on your your Shark Tank episode they, you know, you had talked about, you had partnered with Snooki even before she became famous, is that correct?

Pat Yates 15:11

Well, I guess it’s kind of cool or coincidental with her being famous. It’s she this the the short note of the cliffnotes of the story is this, you know, Snooki had bought our product, she was a fan of the product, she bought it. And she threw it in her suitcase to go to the show when she started wearing it on the show when they were taping. And we had no idea like I say this passionately. All the time when I speak is my son walked into my room and said, Dad, snug, he’s wearing your slippers on Jersey Shore, I said only have two questions who’s sneaky and what started to shore, I had no ideas. I’ve never seen the show ever. And I walked in, and he rewound it, and there, she was wiping up something in our pick of white slippers off the floor, we got all these emails, all this social attention. So I knew there was something there. Everyone that I knew, told me not to do anything with her. They said it, she’ll end up doing something stupid, and it’ll reflect on you. And you don’t need to do that. I signed a big dollar licensing deal with her in 2009. Before she really became, you know, the 8 million or six, 7 million Twitter followers, she only got about 800,000 or a million I say only. But we did that deal with her. And it’s always been good for us. Our leopard has been one of the top selling items we’ve ever had. And I listen to other people. And instead of taking my instincts, I wouldn’t have done that deal, which would have been a mistake.

Josh Hadley 16:20

Interesting. Tell me more about how that conversation went with Snooki. How did you approach that conversation with her and set up that kind of licensing deal with her? Was it for you know, did she have any stake in the rest of your other products that you’re selling? Or was it just catered to one product that she was going to be promoting? Tell me more about that? Yeah, that’s

Pat Yates 16:43

a great question. I reached out to her management. And actually her her top agent, actually out of Buffalo, New York has a really close friend of mine. Now, we didn’t know we just met through that. And he had an agency or a group in Chicago that was handling all of her licensing deals, which they’re since gone from her group. And I drove to Chicago, like three days later, right after I wasn’t gonna let this get cold. And we did a print, we did a pitch them or what we thought we would pay to be able to do it, which was a lot more money than we probably should have at that time. But I had a feeling that it would really launch us and get us a lot of media attention. So within a week, I’d walked up and done deal terms with them over a dinner. And we ended up signing the deal the next day. And the whole idea was for her to build her own line, complete designs, whatever she felt would be cool for her. And then she would send those out on our social media. And surely the first time that she sent one out, she crashed our site with a million cables that went that fast. And we we were ill prepared for that amount of traffic, even though I thought I knew I didn’t. So it took a few hours to get that back up. So the first time was a little weird. But that’s kind of how it was. So we had her develop her own line, we wanted to put her touch point on it. So she wouldn’t be in a position to where she could talk about and build the products that she liked versus what we saw.

Josh Hadley 17:53

Interesting. Very interesting. And I’m sure that that do you continue to work with her then does she continued to drive traffic?

Pat Yates 18:04

Yeah, we don’tdrive as much traffic straight to biography.com, we put them on a site that she sells her own clothing on, she has some clothing stores. So now we sort of morphed into, she can sell them on her site. And she makes a little bit more margin on it than what we do in the licensing fee. And that’s pretty much where she sold. So, yeah.

Josh Hadley 18:21

Fascinating. And that’s kind of I would like to kind of pivot our conversation more into this licensing opportunity. You know, with a lot of sellers on Amazon and even e commerce businesses, a lot of them, you know, go create this private label product, right. And they find some success in a specific niche. And one of the things that I admire about what you’ve done with Happy Feet is all the licensing deals that you’ve been able to create, because I think it’s been able to help grow your brand that much faster, and allows you to differentiate yourself. So you want to talk about how you compete with people trying to knock you off. Well, you get licensing deals that they’re never going to have access to. Right. That’s another moat that you build around your business. So Pat, why don’t you tell us like from your standpoint, how important has licensing been in the success of Happy Feet slippers?

Pat Yates 19:20

I mean, obviously, we’ve gotten a lot of attention on a licenses licenses are kind of a double edged sword. Really, you have to think about them deeply to make sure that what you’re going to do is fiscally responsible for your business from many standpoints. Truthfully, it’s like, I’ll give you great examples. Number one, the Snooki deal was really one of the first ones we did that was kind of out of the box and that was more of an internal thing. But we did colleges for a long time. A partner of mine that I have out in Nebraska has always held those licenses. We’ve been the only ones really selling those kinds of tennis shoe style slippers to colleges other than really one group and they don’t do direct to consumer stuff. The NFL we’ve always done a subcontracted license through Another company, it’s not held by us, but it’s subcontracted and work through us, we’ve been making those same slippers for over 12 or 14 years. It’s a little bit of a volatile situation with the NFL. Now, because Fanatics is really working with the NFL to do all the direct online sales, which sort of segments the market. And that’s one thing we’ve had a little bit of an issue with. Our Disney deal we originally did in a partnership. So sometimes when you think about developing a big license, we knew that the development of Disney the way we wanted to do it would be a long trek. And it really really was it took us like a year to build the line. But we partnered with a company who made plush toys. So the character look in the faces and things like that, that they had already built in approved by Disney, we adapted that to the slipper business, which gave us a huge leg up and development. So when I was doing the development level stuff for Disney, it was great to partner with a group. Of course, Disney, I mean, I can talk all day about how poor I think some of the things no offense is handled at Disney, some of the licenses that they do is just awful. The way that they go about this, and they did not renew it in 2020, after us getting in 2018. But now I’m partnered with another company that because Disney has five, slipper licensees for five. So now I’m partnered with one of those groups and we’re working develop and we’re continuing the line and even developing it better. So that one is subcontracted. So sometimes I think you have to think about in licensing, what’s going to be good for your brand and go after those actual licenses. But you also have to remember a couple things. Number one, you’re gonna be paying a huge license fee, you know, if you’re going into to Disney thinking that you’re gonna write a check for eight or $10,000, you’re gonna be shocked. I mean, it’s it’s a six figure number, and it’s significant, to be able to get the rights to be able to do the brand, then you have to take the characters, and you either have to adapt them, which is the development cost and time suck for a year, whatever it’s going to be. And then you have to pay for the product, which in my situation, one item is four or five sizes. So your if you do 50 items 250 to 300 SKUs, that you have to buy enough to be able to do it. So it’s a massively high amount of investment from a standpoint of inventory as well as commitment of capital that you would have in the licensing situation, not to mention the amount of time that it takes to be able to get it to market, which is not an inconsequential amount of money because it takes you away from other things. And I think that anytime someone thinks that there’s a way to get a license that can help their business and that think they should go after there’s a massive licensing show in Vegas that you can go and see any license or in the world. So if you felt like there was something like as an example, we’re doing a lot of print slippers now and I thought Jelly Belly would be a great opportunity, we can do an all over print with all their different colors, we talked to them, it’s kind of like cold. But I think if you think outside the box, you never know what you can find for your product, you know, and I would go after any of those opportunities. But I would just make sure it’s done in a fiscally responsible way. Because a lot of people go really wide with licensing and spent a ton of money. And then in reflection, they realized they got hosed on the deal. Because, you know, it’s kind of a race, you know, like Disney, you know, you’re talking, if you’re talking to a six figure investment for a two year period, you know, you gotta get traction in your first year. And you got to scale it in a second to be able to make it work. So it’s not the easiest thing in the world. But you should look at your product and analyze it and say which license would be best for

Josh Hadley 23:05

Interesting. So you’ve given us a great lay of the land at a high level of licensing, and I’d love to dig a little bit deeper into some of these. But first off, Pat, my question for you is what type of business is licensing right for? Do you have any recommendations or advice to say, Hey, I typically see going the licensing route as a good option for these type of businesses.

Pat Yates 23:35

That’s a good question. I’ve never really thought about it from a product level standpoint. I mean, I think that Licensing can help anyone it’s like Robert said it on one of the videos we did we did a behind the business thing for like Deluxe Corporation of video and he talked about how licensing is being able to rent someone else’s brand to grow or rent someone else’s name to grow your brand. I don’t know that I would have one specific to any industry. I think colleges always, always translate because, you know, you can do anything for a college that a fan will buy a thing NFL becomes more niched. You know, even though it’s catching up from a women’s standpoint, you’d have to think about the product and whether it is something like that if it’s kids driven, you know Disney can be there but that’s a really really expensive lift. So I That’s a great question. I never really thought about it from a product standpoint. But if you can loot your product and say I’m going to put it in this influencers hand, what industry are they in is the biggest question. And what industry you know has products that are already there. We like don’t try to recreate it like with the NFL, you can look at designs on you know, on nfl.com to see the kind of things you’d want to make with your product. If you have a towel. Let’s say the NFL can be a great way to license that towel, but you want to look at prints some things they already have. And I would also be careful to make sure that there’s not multiple companies working in that because you know, the guy that I did the license with that we partnered with a company that had the plush toys always said that Disney Like the splices, he liked that word. And splices meant, they would have five different groups doing the same product competing against each other. And that’s really good for Disney. But it’s not great for the company. So you need to be very careful where you’re position and whether or not there are other people in your industry that are already doing this, that they have a five to seven year deal with Disney that they’ve been renewing every two or three years, you know, that they have a vendor that’s been successful, so you’re gonna have to be as successful as they are?

Josh Hadley 25:25

Yeah, very interesting. So, Pat, if somebody like myself, you know, we have an existing we have an eight figure brand. We sell, you know, we have 1300 different skews, I clearly see an opportunity for us to add licensing into our products, to be able to help take us to a whole nother level. And there’s really not, you know, for example, there’s a lot of people looking for, you know, Disney Princess, or whatever, on Amazon. And there’s nothing in the market on Amazon right now for it, because the people that have those licenses, they’re not selling into Amazon, for whatever reason right now. So, Pat, what’s your recommendation for somebody like myself that’s interested at getting into licenses? What’s the first step I take? And where do you go? You talked about a licensing show. But how do you get the ball rolling to make sure that you’re talking to actual decision makers? And what do I need to have, from my business standpoint to make sure all my ducks are in a row before I do approach, a licensing conversation?

Pat Yates 26:31

Yeah, that’s the dates on that just so I can, it’s June 13 to 15th, at the Mandalay Bay Convention Center, people can look it up. It’s called Licensing Expo licensingexpo.com. That’s a great place to start. If you think I just want to go learn about it, I want to find some, some people that I can put, you know, use their name on brand, or whatever it’s going to be, then I think that’s the first place to go, I would go and investigate their investigate online, the first steps have to be to find the right type of contact, like I would network anyone that you know, that’s done that you might even go like on Amazon and say, Okay, here’s a product, I think is, is different, but similar, they have Disney licensing, and I’m going to find out who this is. And I’m going to contact them and see if they have any contacts and get there. I think you have to network to be able to find the right person. But I think some show of show like that the licensing show would be a great place to start because you can walk it and see all the vendors that might fit within what you’re at. And you may be able to either get meetings or cars while you’re there. Other than that, it’s going to be just networking someone or emailing that licensor straight through.

Josh Hadley 27:32

It’s interesting. And how do you tell me more about the different types of terms that you’ve seen? With licensing? You’ve done DreamWorks? You’ve done NCAA? I know, you probably can’t get into the specifics. But what have you seen a variety of things? Like, I guess it sounds like with Disney? It’s a six figure licensing fee for about two years. It sounds like are you paying any type of royalty on each of the individual unit sales on top of that six, six figure investment? And maybe they changed for some of the others. But can you give us a lay of the land of the different licensing structures that you’ve seen?

Pat Yates 28:12

Yeah, I mean, most of them are pretty similar. You’re going to look at a two year deal. Sometimes you can ask for more. With our licensing deals, we oddly tried to get what we called like, we would always sign ours in, let’s say you sign in September, and it was two years September, let’s say 2022. That would expire in September of 2024. But we try to do is go to January of 25. So we get another holiday season. So we did like 27 or 28 month deals versus 24. But that just fill that, you know, you want to think about your busy season, make sure that you don’t cut yourself off at the end of a busy season. If you’re a spring driven product and yours ends December of 2024, spring of 25 It’ll be sort of empty. So try to think about your selling season when you go in to negotiate it. First of all, most of these licenses are going to be less expensive than what Disney was Disney’s one of the few that is in the six figure range. If you’re doing it depends on the business, obviously, it could be much bigger, they have you estimate your sales, and then they estimate exactly what the license fee is going to be. But the way it breaks down is this, let’s say you had a license just for the sake of saying that, that is $50,000. Let’s just say that’s the number. And that’s for two years, that’s $25,000 a year. And let’s say that the royalty percentage that you have to pay is 15%. Let’s just say that for the sake of saying it. If you pay, if you pay $50,000, and you’re paying 15% of your sale, and it’s a $20 item, let’s say that that it’s on the retail number, that’s three bucks a unit, you don’t pay the royalty on the three bucks a unit until you’ve sold you pay the company the $50,000. So in that example, let’s assume that it’s like, let’s assume that it’s if it’s 12% and you do $500,000 in sales in that quarter, then you’re going to owe the company $75,000 But you already paid 50 in so you pay the $25,000 difference. So that transactional amounts of that 12 to 15%, whatever the number isn’t, it varies a lot of companies is covered by the royalty upfront amount that you pay until you pass that as license fees. And then you pay a transactionally, every month or quarter year, whatever they set up to pay it on. And that’s how you do it. So you really have to think about how that capital is going to tranche in. So if you’re lucky enough to be able to pay it quarterly versus upfront, then it might be a little more palatable. So that’s kind of how it works. But whatever your base royalty is, and your percentage, you can sell up to that, that upfront royalty without paying another dime after that, you just pay

Josh Hadley 30:35

the percentage. Interesting. And then with that, are they requiring audited financials to make sure that you know, whatever you sold your they’re actually getting that cut? How does that work? And

Pat Yates 30:49

marketing, you’re gonna have a marketing percentage you add on top of it, so might be a couple of percent. But yes, I mean, as far as auditing, they can come back. And Disney did do that to us, they came back and audit our entire contract for every sales dollar, which I’d like to make a comment on how I felt about that, after only two years being able to put together but I’m going to reserve my comment, that’s probably the nicer thing to do. But yeah, they can definitely come back and you’d have to open up your books, you need to document it very well, you need to, you need to make sure in your CIP in your accounting system, or your CRM, or your inventory management system, that you have reports that you can use to back those numbers up, catalog them the whole way through. So if they come back, you have the ability to show those sales, they definitely can audit you and be sure that you’re being all right, correct about it. Because if they come back and audit, you lose, that is a massive penalty. That’s a lot of money. So you need to make sure that your numbers are are fairly straight.

Josh Hadley 31:40

That’s interesting. And when it comes time for renewing a license, how difficult is that? are they judging it based on the success that you had over the last two years? Or how does that work?

Pat Yates 31:54

I think it really depends. I mean, with ours, I can look at it many different ways. Number one, DreamWorks we ran it for two periods for years. And it just didn’t hit as much as we wanted. So we sort of trailed off on that license. And we have the ability to still make them to subcontract the thing that I have, which is nice, because we can keep it going. But then I think that on renewal with Disney, it really wasn’t even given an opportunity because they didn’t feel like that the sales numbers were at the level they want, which is the most short sighted thing I’ve ever seen. It’s like Disney would rather someone sell a million dollars in wholesale to someone that they make 150,000 on than to sell 350 or 400,000 of direct e-comm that they make 225,000 on, they look at a top end number they want to see this glitzy 10 to $15 million sales number, which is not the number that anyone should be concentrating on in licensing anymore, that you should be changing their eyes to look at a direct consumer who’s getting the right engagement who’s getting right conversion rates, who’s adding value and who’s growing as a vendor, because it takes time to grow a DTC brand, it doesn’t take as much time to do something that would be b2b, and then reselling, or whatever, it’s going to be on wholesale, you can get a big hit right away and sell $2 million. But if the sell through those stores is crap, then it’s not going to be any good. So I think it depends on the license, which way you do it. But as far as renewals, stay in touch with that person, make sure they’re giving you what you need, try to make sure that your growth is good, and then go back and be in a situation where you look at the numbers and reflection and hopefully renegotiate it, or resign it. I think it’s always just depends on the individual. But I would work interactively with your person at that licensing agency throughout that two year period to show what you’re doing and make sure if it’s on the fence and you want to renew it, that they still are willing to give you the chance to continue to grow it. And I think some people just have to change their mentality on licensing and how that, you know, it impacts their bottom line because Disney looks at the wrong way.

Josh Hadley 33:39

To me fascinating. Do you are there any licenses that you have not renewed then?

Pat Yates 33:50

It’s a good question. Um, you know, DreamWorks, we can subcontract and now and Disney subcontracted as well as the NFL. So I found partner companies to work with on this, which is great, because then you don’t worry about the upfront and you’re working on someone who already has products. It’s easier for development. So I don’t have any that left. But they transition I guess was way to put it and we’re still working with the companies but it’s through someone else.

Josh Hadley 34:11

Yeah. Can you explain the difference between having a subcontracted license between and you going directly to Disney or to DreamWorks and having your own license what they

Pat Yates 34:22

basically think of it this way? If if you’re if you’re thinking that Happy Feet slippers needs to be the brand on the slipper. That’s not going to happen if it’s subcontracted the subcontractor license will be another company that’s larger than us like this company this larger NUS is a is a massive manufacturer into a big retail stores and they don’t do direct to consumer. So we came in utilize Disney to make the products we make and selling direct to consumer. So it’s a win win for both sides. They make the margin on it up front and they pay Disney and we do the licensing stuff through them. So we don’t pay the upfront we just pay the percentage as we go through transactionally it’s cleaner easier and it actually might be better for Disney in hindsight. So I think that it would be like thinking about are you signing a deal to do a Disney deal right in front of Disney, or going to someone who already signed that deal and saying make it but they end up having to have their name on it because the tag as the CO manufacturer, but we use our brand.

Josh Hadley 35:13

Interesting, okay, so they’re gonna have a different, there’s gonna be a different brand name, I guess, on that product, then,

Pat Yates 35:20

on one of the white sill tags, that would have to say that the license was manufactured under this, it doesn’t have to be prominent, but it has to be on the tags. It says, Okay, if you’re trying to track back this licensing is to XYZ company, not happy feet slippers. That’s basically what needs to be on there. But that can be very small on the packaging anywhere just has to be stated.

Josh Hadley 35:39

Okay, so you’re just stating. So if you’re subcontracting that license out, you need to state you know who that parent company is, I guess that you’re subtracting.

Pat Yates 35:48

In that example, if XYZ Corp is the one that holds the license with the company, they’re the the tags need to show my label with my trademark, but then manufacturer with this company and their trademark, so it’s, it’s not a, it’s not a difficult situation at all, we’ve been doing it for a long time. And it’s great to try to find it, if you can find those partnerships, it’s a great way to bring a product to market without having to pay the upfront. And a lot of times, companies are really small, and they need to test it out. So like, if you do an NFL license, you might only want to do the top five teams, because if you go deep on 32, you’re expanding your your skews. And as you’re testing this, you might need it to be smaller. So a subcontract company be a great way to do it. And maybe they can help you in the development of it. You need to find manufacturers that already have that licensing. So it’s sometimes it’s hard to find. But if you do your research, you definitely find it.

Josh Hadley 36:32

Would you advise if people do want to go that subcontracting route, which sounds like it may be a better alternative is still going to the licensing Expo probably the best step to take there, or is it really just digging into your network and trying to get contacts because those subcontractors really aren’t showing up at that.

Pat Yates 36:52

I mean, the licensing shows gonna be if you do stuff direct, like if you wanted like in my example before, if I want to go see Jelly Belly, I want to go sit with them, take their license and negotiate the contract and sign it myself and pay the upfront. That’s what you would find at the licensing show. If you’re going to find other products, you know, I go to regular trade shows and like, in my example, go find trade shows where they’re showing their slippers that they make. And then see if you can make something that’s customer or piggyback their manufacturing, it’s a little bit harder to do that way, the direct way is going to be the best way for a company to do it. But if you don’t have the resources, then subcontracting is a decent idea. It’s just harder to find. In a net, you’re going to do some research for that. But truthfully, you think about if you’re trying to do NFL just going to fill out comm search a product, see if you can find something similar to what you make, like, if you’re making a sweat suit, a company that makes a hoodie is probably a great company to talk to. And then you may call them and say have this different hoodie, and it’s proprietary. And I’d like to be able to make them an NFL can can you get these approved, and sometimes they’ll help you you never know because they’ll make some, you know, ancillary licensing money on it to plus the markup to help manufacture but they probably have to control it. That’s the difficulty is that you are you’re really turning over control of manufacturing, even though you have input to another company.

Josh Hadley 38:02

Interesting, okay. And with the sub contracting, they’re gonna make a little bit of money, maybe that 15% royalty fee becomes 17 18%. Right, and they’re taking 3% off the top.

Pat Yates 38:15

It’s gonna be I mean, somebody’s gonna manufacturing, they don’t want to wholesale it to most of the ones that I have. There’s, you know, significant markup, it’s not a few cents, it’s a few dollars. Because you mean you have you have your licensing group that has to you that goes to work for you in their offices, development people, there’s all kinds of behind the scenes costs. So they need to make sure that they do it. So you’ll definitely see a markup. So like, it wouldn’t be shocking to me, if you had if you made a $10 item, if it wasn’t 13 or 14, by the time it’s done or more. Just because they have to pay, you know, their licensing people the license itself, the people in their office, all that markup to be able to manufacture it’s kind of like a more like a wholesale distributorship type of model.

Josh Hadley 38:57

Okay, so you’re literally giving up all of the manufacturing then for your specific product, right? And then turns it over to the sub who you’re subcontracting that license from, because they have to have a

Pat Yates 39:10

times it’s gonna have to be that Yes. Now if you have a manufacturer that you’re already using, they may go in and vet that factory and place the orders, but understand the order would have to be placed by the vendor that has the license, and the import duty and tax and the tags have to match that it’s okay to have your brand and okay to take possession of the goods and it’s just like any other wholesale sale, so but I would I would try a lot of times to use your manufacturer but many times you’re gonna have to use theirs.

Josh Hadley 39:36

Okay. That makes a lot of sense. Sounds like we could spend another few hours I think digging into the weeds of licensing there’s there’s a lot to pull back there.

Pat Yates 39:45

First, definitely a lot. I mean, you’ve got a lot of advantages, a lot of disadvantage, a lot of concerns, things to think about.

Josh Hadley 39:51

Yeah. Pat as we begin to wrap up, you have a lot of experiences and m&a advisor they’re at Quiet Light brokerage Is there any advice that you would give to established, you know, seven figure ecommerce brands that are looking to grow their business and hopefully exit that brand? Are there just some quick pointers that you would give to people to say, hey, here are the things you need to start considering now, if exiting is something in your playbook down the road?

Pat Yates 40:21

Yeah, that’s a great question. I mean, obviously, one of the reasons I’m at twilight is I built and sold multiple businesses. My first business I started was I was 22 years old. And it was actually a service based business a coffee service, actually in Columbus, Ohio, and I had that have sold companies national that I had, and other businesses and obviously still on Happy Feet. So I’ve got a lot of entrance and exits. I think the biggest thing is, you know, when we talk at Quiet Light, I mean, obviously, people know, quiet light pretty well, if you read the EXITPreneur’s Playbook, you know, there are four pillars to to a sale, you know, there’s there’s risk, growth, transferability, and documentation. Risks comes down to many, many things, it could be making sure that your sales are consistent or growing, you want at least a little bit of an uptick. It doesn’t have to be 30 40 50% a month, but you need to at least be on a smooth or slight uptick in your revenue. That’s really important to find the right time when your your your business is looking it’s best. If it’s on a downturn, you have to explain that there’s all kinds of reasons why. So make sure you’re on a growth trend. That’s first thing, risk wise, you need to make sure that your products like you’re at 20, let’s say that you don’t have a product that’s 25% More of your sales, you need to make sure it’s less than that your top product, because that introduces a lot of risk. When you look at possibly being deactivated. on Amazon, let’s say they lose that one product, and it’s 50 or 60% of your sales, you can be out of business in two months. So I think to make sure that you have the right amount of skews in your business transferability is usually not an issue because these Amazon stores transfer pretty easily. If someone has a Shopify store, it’s pretty simple. But some of the things you want to do in transferability is document your SOPs, I think people should have an SOP doc up all the time. So if there’s one little process, you can put it on an SOP doc, so you can explain to someone what you do. Secondarily, I think people should use loom or some other kind of recording thing to actually document that is simple stuff. It’s if you go into ShipStation, to do orders, how you process it, where you send it, what you do, if you videotape those and catalog it, when you sell, it’s gonna be much easier to explain how the business is run. And they’ll have reference points on that. But really, the final one is going to be make sure that your financials are in good order, you know, you need to make sure you’re on accrual basis accounting, not cash. And some people don’t even understand the difference of that cash basis is on the p&l that month, I put the amount of product that I bought. And accrual is on put the amount of product that I shipped to customers against the landed cost of goods sold. Most people don’t know the difference in that. And if you don’t, we’re happy to help you acquire light, but you need to make sure you’re on accrual, that the only thing that’s in the cost of goods things are are things you ship that month to a customer, not what you purchase, make sure that you’re looking at the landed cost of goods sold, the cost of the item, the shipping to get in there, any offloading costs or whatever adds up to your landed cost of goods sold, that needs to be multiplied out by the unit you sold every month. So your financials are Attra are good. So the biggest thing you can make sure that you do is that if you get into diligence, someone’s not going to say what in the world is going on here, your numbers don’t match your tax returns. If you have personal stuff running through there, like you’re doing little Johnny’s daycare or whatever it is, get out of it, don’t put it in there, make sure that you don’t have things in there, you would have to explain don’t have commingled businesses in there. If you have two businesses, and there are two brands, let’s say I’d split them off, immediately, I get the books separated. So if you can sell one and hold the other, you don’t have to explain it. So we’re always happy to talk to people about how to prepare. But I think the biggest things that I find people need to do is make sure that they’re financially prepared. And the other thing you really need to do is get a baseline of where you’re at, because you don’t know a goal until you know where you start. And the truth is we’re happy to run your financials tell you where the valuation is now. And if you’re gonna run it for another year, that’s great. You know, quiet light is all entrepreneurs, we’re just different. We are not employees, we’re not in any hurry. To get your listing, we want it to be right for you. Most people we turn away from listing their business immediately when they come in, because it’s either not ready or we need to make sure that they take the time to clean up the things you want. So I think there’s a lot of things that go into it. But what we like to do is to do a baseline valuation based on your financials, that they give you guidance where you want to go as you’re waiting that year to be able to get prepared, if that’s what you want to do. Because smart money comes in and prepares before they don’t come to you and say hey, I’d like to list in the next two weeks. That’s never a good process. They’re never truly ready. So I would just make sure that you do that. And most of the stuff that needs to be cleaned up is all financial. That’s that’s really the biggest

Josh Hadley 44:45

Yeah, makes a lot of sense. And on that point of the financials and also growing you know, you want to see a steady growth rate. I know with a lot of E commerce businesses in 2020 and even into 2021 There was a boom to e commerce. Right? But then that started to trail off towards the end of 2021 and into 2022. Right. And so there could have been a downturn as somebody that’s looking to acquire a business. How far back do they want to see perpetual growth? Right? Is it I want to see five years of constant constant growth, or are they looking at the last two years? Or is that the last year? Any rule of thumb that way?

Pat Yates 45:28

I think the most critical is your trailing 12 months. I mean, we basically base the business price on trailing 12 months, which is your profit. What we call SDE seller discretionary earnings seller discretionary earnings is, is that you get a bottom line profit straight off your p&l, but we do add Max things like owner payroll, owner cell phone, internet access, meals and entertainment travel consulting, our I’m sorry, not consulting, but like trade shows, things like that, that you do. Those are at allow the add back. So we just add that back to your profit to get an actual adjusted seller discretionary earnings. And that’s how we price the business based on that last four months, I would try to see if you can have consistent growth for 18 to 24 months, it’s going to be what you really want the most recent. And if you have slight downturns during that but upticks sometimes people understand that there are cyclical things that can happen, you know, everyone’s talking about COVID normalization when they had hard high numbers during COVID. And they dropped off. So there’s always gonna be an explanation. But you need to make sure that that that explanation is something that you can give a buyer, we’re seeing a ton of businesses come in right now that are on declining trends, probably because the economy in most cases, and it’s an unfortunate time to have to sell if you’re forced into doing that on a downturn.

Josh Hadley 46:41

Yeah. What do you see in in regards to the market for E commerce businesses right now I know the multiples were really high and 2020 2021 with all the aggregators. You know, we saw high multiples, what multiples are you seeing now? And you know, do you see that changing, you know, in the future, and is your advice to maybe wait for a couple more years and let the market play out a little bit more favorably?

Pat Yates 47:07

It really depends. I mean, there’s still a market to sell businesses, there’s still buyers out there. And no matter what anyone thinks, even if you have a little bit of a downtrend, we should talk about it. Because there are people out there that look for value. It’s just like the stock market, if a stock goes way down, some people see an opportunity there, it doesn’t mean the company’s doing better. But they see an opportunity to get a value, they can actually, you know, get get taken to it. So I would encourage anyone to take a look at there’s still good buyers out there. But they’re mostly looking for really good businesses. And that’s where we’ve seen a little bit of a drop is the quality of business coming in most level or downturn potentially, if they are on an upturn, then you know, my multiples have been good, if I have to guess, I think they’re probably off a quarter to a half point of when we were really busy with relation to those. But a lot of that was pushed because aggregators were just basically trying to outbid each other, which now in for selection, we can all see how that worked out, which is clearly not well, you know, you if you overpay for businesses and think you can normalize them into 15. Other companies, you’re going to have a difficulty integration side to begin with. And I think that’s where a lot of aggregators have slowed down. It’s not that they’re not looking at deals. They’re just trying to onboard and make everything that they already bought go better because they it was a race to get going. And some of them had issues because of that, and some are selling off assets. And some are trying to retrench and be able to figure out how to operate it. So I guess the biggest thing that you want to do is just make sure that when you’re coming in and you’re doing your sale, that it’s just the right time. And that’s why talking to an advisor like someone acquire light is really big, because I’m able to look at their things, their financials, like I looked at one the other day that I was a little surprised X our advisors, I asked my advisors after I ran it showed where the SD was and they gave me a multiple they thought was higher than what I thought. So I think the market can still be good. If the business is great. It just needs to be the right timing based on your financials.

Josh Hadley 48:52

Yeah. Makes a lot of sense. And, Pat, that’s that’s a great summary. And I think a great way to kind of cap off everything that we’ve been talking about that the best thing you can do is be building your business for exit, even if you’re not going to exit next year. But begin building your business for that exit. And even if that doesn’t come for five years or another decade, your business is going to be that much further along because of those good practices that you’ve put in place. Pat, as we round, it’s all about preparation. Yeah, totally agree. And, Pat, as we wrap things up, I love to leave the audience with three actionable takeaways from each episode. Here are the three takeaways that I noted. Pat, let me know if you think I’m missing something here. All right. So number one, the first thing that we kind of talked about was if you have a product that you feel like could be knocked off the or you don’t have a utility patent or a design patent, right. One of the things you need to do is get serious with your IP protection and go get the design pack ads if you can, or at least copyright them, but having boots on the ground of somebody that is actually looking for those copycats, and wherever you see any type of infringement, you know, going in and filing those cease and desist or those IP infringement claims against them and taking it seriously. I think there’s a lot of business owners that also hesitate, that they may be scared of some type of retaliation. And I think that’s a mindset shift that people need to have, because you need to protect the unique ideas that you bring into the world. So that’s, that’s advice. Tip number one, I would give action item number two, is going to be seeing licensing, determining if licensing is a good play for your business or not, we went into a lot of the details of licensing and there’s even more to unpack as it relates to licensing. But it can be a really good way, I love that you referenced what Robert Herjavec said, you know, you’re renting somebody else’s brand, to kind of you know, amplify your own brand. At the same time, I think that’s a beautiful way to see it. Now, can it be expensive, you know, paying 15%, royalty fees, most people in the Amazon space, you’re lucky to have a 15 to 20% margin, right. But at the same time, you know, you’re going to need to price your product at a premium when you do have those licenses to take those type of things into consideration. But if you’re serious about building your brand Licensing can and truly be a good play for you. But it’s something that you’re going to need to look into specifically for your business. Yeah, and then last but not least, Pat, you covered the four different kinds of pillars of building a better business to exit. So Advice number three, and action item number three, is start creating your business today, for the business that you want to exit, don’t save, you know, getting into financial shape or trying to really grow your numbers in you know, in three years, when you plan to exit, start doing those things now, because relating to, you know, documenting your SOPs, that’s going to be super important for your business today, heaven forbid one of your your team members leaves, well, you should have those SOPs in place that you could plug somebody else in tomorrow. And they can start executing. And so a lot of those, find those principles that you covered, I would definitely recommend everybody go and and take an analysis of where your business is at today, and start implementing some of those best practices now. And whether you exit next year, 24 months from now or five years from now, your business will be 10 times better than what it would have been had you not done that today. Pat, is there anything else that I’ve missed that you think we should give as action items for this episode?

Pat Yates 52:59

No, I think I think you’ve covered a lot. I think that people have to take their business and as they’re trying to grow it like I’ve had conversations with an entrepreneur here and in Kentucky that the main meeting that we were going to have was trying to figure out why our advertising isn’t doing well. Well, it turned out one or advertising turns out, it’s probably a price thing. And it’s a conversion thing that was bigger, I think you have to look at your business, analyze what’s working well, what’s not reach out to people that can help you with that, whether it’s ground level advice on licensing, which you know, we’re always happy to give and I’m sure you’ll find other people, make sure to reach out and find that and make sure you’re getting books in place. And all everything else will fall together. And when you’re ready to exit, you know, when we talked about a whole lot of things, just make sure that you’re reaching out and understanding what’s needed to be done six to nine months to a year ahead of time because you need to do a lot of preparation. And that’s what we try to be as much more educational and Twilight. We judge ourselves by the quality and number of conversations we have not number of listings, it’s not even close to the number of listings. It’s about making sure we’re adding value along the way. So you can exit the business in the right position at the maximum value. That’s really what portlights all about.

Josh Hadley 54:03

I love it. That’s great. Pat. Pat, I like to ask each guest three final questions to wrap it all up. So I’m gonna go through these. Number one is what’s been the most influential book that you’ve read and why.

Pat Yates 54:18

Oh, that’s interesting. I’m actually you know, I think I do a lot of reading online, which is kind of like not reading a book. But I’ve read Buy Then Build by Walker Deibel from Quiet Light as well as expert to replay what I did have someone say this is a good book that I just bought. So I’m looking forward to reading it, which is the what’s the fish that ate the whale? I heard it’s really, really good. I’m anxious to read that, but I don’t have any that I recommend other than those other two.

Josh Hadley 54:47

Awesome. I haven’t heard the fish that ate the whale. So

Pat Yates 54:50

it was just at a trade show. So the books phenomenal.

Josh Hadley 54:53

Interesting. Very cool. All right, Pat, next question. What’s your favorite product? Have a new tool or maybe a new software tool that you’ve been using in your business that you think can be a game changer?

Pat Yates 55:06

That’s interesting. I don’t really, I’m so tied into different systems like my e-comm I have so many different things. And in quite light, I have several different things. I don’t know, I guess, I guess this is kind of an odd answer. I like sending loom videos versus emails. I don’t I don’t love sending emails all the time. It’s too redundant. So I like to in greetings at times and quite light, I’ll send in video just kind of get a touch point with someone. So I guess loom might be it. But as far as productivity, I mean, I’m pretty simple. My systems are real simple. And they’re all tied into custom work. I guess.

Josh Hadley 55:39

That’s a harder one. I love it. loom is one of my favorite tools that we use in our business as well. I feel like I can explain things much better and being able to like visually share the screen at the same time. You know, yeah, and

Pat Yates 55:53

also, my days kind of chaotic. I don’t want to find things that makes it smoother. I mean, I gotta have a chaotic day with all kinds of tabs everywhere. You know, it’s like these OCD stuff.

Josh Hadley 56:03

I love it. All right. Last question here, Pat, who is somebody that you admire or respect the most in the E commerce space that you think other sellers should be following? And why? Wow,

Pat Yates 56:15

that’s a really good one. You know, we have 16 great advisors, the Quiet Light, I respect all of them. So I think any of those people would be easy. Outside of that, I had an opportunity to talk with Mike Munoz, who has bought a bunch of companies from quite light. He’s one of the best operators of e-comm that I’ve talked to extremely amazing guy. A we did a quiet giants on him at. It’s on our YouTube page, if you want to say about his exit. I think he is probably as grounded and smart as any guys sat and talked with on e-comm and a long time.

Josh Hadley 56:49

Awesome, awesome, great recommendations. And yes, all of the quiet light advisors, they come with a wealth of information and knowledge and actual experience running their own businesses. And I think that’s the value that’s unique. With quiet light is each of you are day to day operating your own businesses and not just sitting on the m&a advising side. So, Pat, thank you so much for your time. If people want to reach out to learn more about your journey or reach out to you maybe they’re interested in selling their business. Where can people reach out to you at

Pat Yates 57:24

They can reach out to Pat@QuietLight.com. Q U I E T L I G H T dot com. Pat@quietlight.com. I’m always willing to help and if someone has an interest in exiting their business, any questions, it’s not going to be a salesy talk, it’s only going to be about you. There’s no ego in those conversations. It’s about positioning you well.

Josh Hadley 57:43

awesome. I definitely recommend people reach out to Pat if you have any questions and interest in exiting your brand. He’s got a wealth of information to share as you’ve heard today, and Pat, we appreciate your time.

Pat Yates 57:55

Appreciate it. Thanks for having me.

Outro 57:57

Thank you for listening. Visit eCommBreakthrough.com for more information. If you’ve enjoyed today’s episode, the best way you can show your appreciation is by clicking the subscribe button and quickly leaving a review see you again next time.