In this follow-up episode, host Josh welcomes back Scott Deetz, founder of The Northbound Group, to discuss strategies for successfully exiting an e-commerce business. Scott highlights common seller mistakes, such as poor risk mitigation, lack of transparency, and neglecting post-sale obligations. He emphasizes the importance of professional advisory support, staying involved after the sale to secure contingent payments, and planning thoughtfully for life after exit. Scott encourages entrepreneurs to leverage their experience to attract investor capital for future ventures, helping maximize exit value and ensure long-term success.
Chapters:
Introduction & Scott’s Background (00:00:00)
Scott Deetz is reintroduced as the founder of The Northbound Group, with a focus on e-commerce and SaaS business exits.
The Importance of a Proper Exit (00:01:06)
Scott emphasizes that most of the financial reward comes at exit, not during business operations.
Risk Mitigation Strategies (00:02:21)
Discussion on identifying and mitigating risks, such as stock outages and maintaining business stability to maximize exit value.
Transparency and Caring About the Brand’s Future (00:04:26)
The need for transparency during the sale and caring about the brand’s ongoing success with the new owner.
Managing Post-Sale Obligations & Deal Tracking (00:05:27)
Importance of tracking post-sale obligations, contingent payments, and using a deal tracker to avoid costly mistakes.
The Value of Professional Advisory Support (00:07:54)
Why having an experienced advisory team is crucial for managing the complexities of a business sale.
Staying Involved After the Sale (00:08:34)
The benefits of remaining involved post-sale to ensure contingent payments and business success, and how this role can be less demanding.
Mindset Shift: Long-Term Involvement (00:11:26)
Encouragement to stay invested in the brand’s long-term success rather than immediately disengaging after the sale.
Planning for Life After Exit (00:11:57)
Advice on taking time to plan the next venture, leveraging new status and opportunities in the entrepreneurial community.
Leveraging Investor Capital for Next Ventures (00:13:23)
Encouragement to use investor capital, not just personal funds, for future ventures, and to consider new business directions.
Summary & Final Advice (00:16:24)
Recap of the 12 mistakes to avoid, urging listeners to proactively plan for exit and maximize business value.
Contact Information & Closing (00:17:23)
Scott shares how listeners can reach out for advice or support regarding business exits.
Links and Mentions:
Strategic Finance and Advisory
“Northbound Group“: “00:00:00”
Deal Management Tools
“Deal Tracker”: “00:06:23”
Contact Information
“Scott Deetz” on LinkedIn: “00:17:25”
Transcript:
Josh 00:00:00 Today I am super excited to introduce you all to Scott Deetz. We’ve already introduced him because he’s been on the podcast previously, so he is our first part two guest that we’ve had. So you know, Scott, there’s there’s your award of the day already is, you’re our first part two guest. but I am super excited. This is something we didn’t have enough time in episode number one, and Scott has taken a lot of time to develop and actually prepared a presentation that he’ll share with you guys today. about this kind of part two. But here’s Scott’s bio. Scott is the founder and CEO of The northbound Group, a leading strategic finance and corporate development and sell side M&A advisory firm focused on Amazon and e-commerce, physical goods and SaaS businesses. Northbound has more than 30 full time team members dedicated to the mission of helping ecommerce entrepreneurs achieve life changing events. So with that introduction, welcome to the show again, Scott Deetz.
Scott 00:01:04 Hey, Josh, how you doing? Know, it’s great to be back.
Scott 00:01:06 And, this was a lot of fun for me to work with our team to put the content together. So I’m looking forward to sharing it and, and hearing your thoughts on it. And obviously, part of my own personal passion is I want to help every sell side entrepreneur, get what they deserve, for their businesses. As you said, you work years and years. and as I always like to say, you work years and years to build a company. But if you don’t do the last step right of exiting that company, you’re oftentimes leaving more than half of your money, you know, on the table because, for many physical goods and other sellers, the money they actually take home from their business is, the bulk of it comes more than 50% comes when you exit. Not the entire time that you’re running the business because you’re always reinvesting back in the business. So, real, really looking forward to sharing the content with you and everybody else and, and getting your feedback.
Josh 00:01:59 Scott, do you have any specific examples that you might be able to share? That might be like what types of risks, right.
Josh 00:02:06 We talked about Amazon account health risk. Right. That’s one thing. We talked about not having your trademarks and things like that. But what are some of those other like risk factors that you feel like sellers could be actively trying to mitigate?
Scott 00:02:21 Yeah. So I’ll give two answers to that. One general and one specific. The general rule of thumb is that every new question a buyer has to ask when you explain your business to them, the price goes down. So you want to think about being able to explain everything upfront so they can see the whole package and see what it is. And I’ll give you a great example of risk if you are thinking of exiting in 12 months from now, making sure that no matter what, you don’t have any stock outages and you get the capital financing in place to show the run rate of the business while it has stock in place. Because every time there’s a stock outage, a buyer has to ask the question, why did that happen? And it either happened because you didn’t plan accordingly, or that this business is so up and down and volatile that it’s going to be a lot to handle.
Scott 00:03:16 So buyers love boring businesses. And so being able to show the ability, I kind of say that in jest, because everybody wants something that’s kind of fun, but flashy and volatile is not what buyers are looking for. So if you just think about the risk of your business, demonstrating that you’ve been able to maintain a similar price for a longer period of time, demonstrating that you’ve been able to maintain a, a stock in inventory, demonstrating that you’ve been able to maintain rank. So the way to think about it is just to look at your PNL and look at what are the numbers that could change, that a buyer would be most afraid of them changing, and then designing a risk mitigation plan that shows them demonstrated evidence of why they don’t need to fear those things. And that’s in addition to all of the compliance things that we talked about before. But those are some specific examples of making sure to show that your business is not risky. And then also from an ownership standpoint, making sure that you have all of your, you know, documents in order, all of your suppliers are people that you’ve worked with that are reputable.
Scott 00:04:25 those types of things.
Josh 00:04:26 Awesome. Yeah. Scott, I think overall, like as we go through these mistakes, one thing I see a common pattern and trend of is that, look, when you’re trying to exit your business, this isn’t you saying for the most part, this isn’t I just want to sell my business and just completely walk away. I’m just not interested in the rest of this. And there might be some dead bodies here or there. I’m not going to disclose those. They don’t need to know about these. It’s all good. They’ll be able to navigate around this. Like when it comes to exiting a business, you need to be transparent. You need to be at like actually care about the success of your brand. Moving on with the next buyer. typically you’re going to have, future upside, or you should. with whatever deal you structure or some stability payments as well, that you should be incentivized to see this continue to succeed. So it’s all kind of just best practices like actually care and show up.
Scott 00:05:27 Yeah, absolutely. And and many people I like to bring these up because a lot of these, when you hear them, they sound obvious. But if you aren’t told them, you have, like you said, this, this thought of, oh, I can sell. And then I, you know, I want to I want to kick back because you will be tired by the time you get through a process. But the, you know, the concept of think under is that if you think with their lens in mind, you’re also helping yourself. And if we go to number ten, then a lot of people, once they get the initial deal done, there’s a lot of legal documents moving around, and they don’t create what we call or what we can build for our clients. It’s called a deal tracker. It’s a simple spreadsheet that gives the dates and the amount of money that you expect when you’re going to get things to do what I call project manager deal after it’s completed. So in almost every deal that you do, if you’re in physical goods, you’re going to base the the value of the company on what’s called estimated inventory.
Scott 00:06:23 But you are going to then reconcile it with the actual inventory because it’s a moving target every hour. Obviously, as you’re selling products, there’s going to be a future contingent payment in six months, 12 months or even two years later. And there’s going to be things like, when do my general promises about the businesses expire? Do they expire after a year or after two years? Well, it’s very critical to know that because that’s when you know that you’re sort of in the clear. And then there’s a number of things in the in the purchase agreement that are specific things that have to happen by specific dates. So for example, if a buyer doesn’t true up to actual inventory within 60 days, but you think that they underreported it and you don’t take the ten days that’s in the agreement to dispute what they sent you. You literally create what I call a foot fault in tennis, where you can no longer fight on that particular term. So it’s absolutely critical that you work with your advisory team to understand the deal and think of it just like any other project that you project manage.
Scott 00:07:28 This one probably still will have hundreds of thousands or millions of dollars at stake. It’s worth it for you. and, you know, one of the things that I say when you when you work with northbound, we ride along and stay with all of our sellers well, after their transaction to help them with this area, because it’s so critical that you get it right. And otherwise you can literally have one little thing that you, misstep on that can cost you hundreds of thousands of dollars.
Josh 00:07:54 Yeah. Scott, I think this goes back to the earlier point in the mistake when people try to do it alone. Could you imagine tracking all of the tiny little details in your purchase agreement and, you know, make sure you’re chewing up inventory after you have ten days to come back to us with any feedback or else it’s it’s history, right? There are going to be so many little nuances like that. Try you know, imagine trying to track that. So again another. Another reason to have a professional team on your side that’s been through this process.
Josh 00:08:25 They know what to look out for. They are going to help you stay on top of those things so that you don’t lose out on, again, hundreds of thousands of dollars.
Scott 00:08:34 Yep. Absolutely. okay. Number 11 then. Not staying on board to make sure you hit your contingent payments. And now this one’s going to be a little bit controversial because everybody has in their mind that the thing that they’re going to go do after they sell their business is I always say go hit the beach. Okay. Now, the rule of thumb that I always like to do is if you have a two year earn out period, you want to make sure that you’re around and involved on some level for one year to 18 months, or 50 to 75% of the time that you have money coming in. And the reason is, and I’m sure there’s a lot of people out there that are listening to this that heard about somebody that sold to a buyer or an aggregator, that then the business went down and they didn’t hit their turnout.
Scott 00:09:22 Okay. Now I’m happy to say at northbound, we tend to negotiate things a little bit differently that we’ve really been able to mitigate that issue by using a different types of transaction structure. But the reality is, is if your business doesn’t continue to succeed, you’re going to find that you’re losing money along with your buyer losing money as well. And the second point here is that most people think that they don’t want to stay around because they’re imagining their life like it is today. I call it the you’re the do everything entrepreneur working 60 to 70 hours a week. But what the buyer wants to do, remember, it’s not what the seller is selling, it’s what the buyer is buying. They want to buy your strategic brain. So imagine if you could design a role to where you can continue to be the strategic leader of your brand for some period of time. You have more capital than you’ve ever had available to you, and you could get off all of the things you don’t like. Like maybe managing logistics, managing Amazon cases and a bunch of other things.
Scott 00:10:23 It’s a really unique time to ensure that you get maximum value for your company, but don’t. Most of the time, people don’t want to do it. Is their thinking that I’m going to work 60 hours a week? Oftentimes, you’re maybe only sticking around for ten 15 hours a week, but just by staying involved and making sure that the buyer doesn’t, make bad decisions, but be that they continue to see the opportunity. And every business has a scarce amount of resources, so the more you can be the squeaky wheel to get more good things going for you, it’s worth it for you and it protects you. And it’s oftentimes a very different experience because they know if they ask you to do everything like you’re doing today, you’re just going to up and quit. So think about it in that light and recognize that if you have money on the table, it’s worth it for you to stick around 50 to 75% of the time, if not 100%, but a lot of times if you’ve got a two year turnout or a year, earn out by month nine or month 18.
Scott 00:11:20 The cake is pretty much baked. If you really do just want to get out of, you know, having to work full time.
Josh 00:11:26 Yeah. Scott. Again, I think that’s another big mindset shift for people when they’re exiting a brand, not just seeing like, hey, I walk away and the next day I’m just at the beach, like you said, right? That’s that’s not the best way to go about this. And it’s not the best way to approach exiting your brand. Again, be invested in the long term, be invested in the success of that buyer. And again, everything will just grow to a much better fruition if you continue to stay involved.
Scott 00:11:57 Yep, absolutely. Which brings us to the last of the Dirty Dozen, number 12. And this one is the most personal, of all of them. And it’s not taking your time to figure out your next adventure. and the solution is, is you need to recognize that you’re now going to be seen in a new light in the entrepreneurial community.
Scott 00:12:18 so you need to take some time off to enjoy your accomplishment, and many sellers will jump right back into something familiar. I hear it all the time. Oh, I’ll start up another Amazon Bryant, or I’ll start up another e-commerce brand. And the thing that you want to think about is, that you are now a is that you consider in the last point, you’re a proven commodity. And many investors like to bet on the jockey, not the horse, is the analogy. And so most people will think that they need to take their own money and start up their next venture when they don’t need to. When I started up my next venture after I sold my first company, it was a software company, I was able to bring in seven figures of capital into my company, even though it didn’t exist on anything other than on paper, because I found an investment partner that wanted to invest in me, because they know that I knew how to build a business toward an exit. And so it’s very important to me that everybody, you know, doesn’t just jump back into the first thing, but take some time.
Scott 00:13:23 I see this mistake all the time as you go right back into something familiar. You think you have what’s called the Midas touch that you can never fail. So you put all of the money that you work so hard to get into your exit, to put in your, your bank account or your investment account. And now you’re putting that money right back out again into your next venture, which might be risky. So really think about whether or not you want to even use your own money, or you bring in an investor into your next idea because you’re now the brains, you can partner with the money and make sure that it might be something completely different. I was in the the B2B software, business, and then I shifted to B2B digital marketing, and then I shifted to being an Amazon seller myself for three years. And now I’ve shifted into helping achieve life changing assets, for people, very different businesses, but each one has gotten more rewarding than the last one because there are new challenges in life.
Scott 00:14:23 And if you only have so many years that you want to be an entrepreneur, don’t just think that your job is to be successful at four e-commerce businesses. Now, maybe that is your path, but do it consciously and take enough time and meet with enough people. you’ll be in a different community or sphere once you have capital, and you’ll be meeting with different types of people. Take advantage of that and don’t jump too soon right back into something familiar.
Josh 00:14:50 Scott, I love that. For me, I just experienced a mindset shift to when I consider exiting. It’s not, hey, now I’ve got all this money that I could go invest in a new product brand or something like that, or go start a new business. I love that analogy of like, hey, you’re the jockey, right? And they want to bet on you, right? You could go find investors to go fund your next deal. Let your money that you just earned go work for yourself. And that that now becomes a super high floor for you for the rest of your life, right? That you don’t need to work the rest of your life if you don’t want to.
Josh 00:15:27 But hey, obviously you find a lot of passion through work, so go do that through other people’s money. And again, you’re you’re hanging out in different groups after you’ve probably exited a business than you had before. And so the amount of capital that you can have access to is much greater. Scott.
Scott 00:15:45 Yeah, we we help to sell our last. To put a fine point on that, we helped a seller rather than owning 100% of their business, they owned 85% of the business, but we helped them get $1.5 million of capital to grow it. Well, I’d much rather not have to put the 1.5 million in myself and own 85% of something than have 100% of it, and have to put all of that money back into your next venture. So yeah, that’s a very real life example. And so for everybody out there, I’ve really enjoyed going through these 12. And if you think about these solutions you’ll be a smarter seller. Cellar and on your way to getting a premium valuation for your company.
Josh 00:16:24 I love this, Scott. Scott, this has been amazing. You have shared some fantastic strategies and insights as it relates to exiting a brand. I think this brings it all full circle here. You should take these 12, you know, mistakes that other people have made when exiting their business. And you need to consciously plan them into your business today. Right. Start from number one and start mitigating your risk. Start with number two and continue. Not only is that going to help you build a better business overall, but it’s going to help you have a much greater exit. And again, if if you are not actively doing something every week to exit your brand, which is going to be your biggest liquidity event in your life, then you’re making a mistake right there. So, Scott, if people want to reach out to you, they want to learn more. They didn’t get enough from this podcast and they need to ask you some extra questions. Where could they find you at?
Scott 00:17:23 Yeah, absolutely.
Scott 00:17:25 as I hope everybody can tell, this is my life passion. I want to help every entrepreneur get what they deserve. So if you have individual questions, you can go to our, you know, northbound group is our website. Northbound group. Just all three words together. And if you want to reach me specifically or if you’re interested, we do a lot of exit strategy planning work with people. well, before that, they’re thinking of exit. If you want to have any discussions around that. Or maybe you just are stuck and you’re in the middle of a deal and you want to have a second input, I’m always here. and reach me at my first name, Scott, at northbound Group com. and I’ll make sure to, you know, hear what your situation is and, you know, I’m here to help as a, as a resource on your side. Or if you’re thinking about, exiting now or in the future, we’re here to help you as well.
Josh 00:18:16 So, Scott, thanks again for your time and coming on the show today.
Scott 00:18:20 Yeah. You’re welcome. Josh, it was great talking with you. Take care.
