In this episode, Josh interviews Pat Yates, M&A advisor at Quiet Light and owner of Happy Feet Slippers. Pat shares insights from his Shark Tank experience, discusses the realities of TV deals, and explains the complexities of licensing with major brands like Disney and the NFL. The conversation covers the importance of intellectual property protection, strategies for evaluating and managing licensing agreements, and actionable advice on preparing an e-commerce business for a successful exit. Listeners gain practical tips on building value, protecting their brand, and planning ahead for future business transitions.

Chapters:

Introduction and Guest Background (00:00:00)
Josh introduces Pat Yates, his background, and the episode’s focus on licensing and business exits.

Shark Tank Experience (00:02:06)
Pat discusses his Shark Tank appearance, the process, and what it was like pitching on the show.

Reality of Shark Tank Deals (00:03:36)
Pat explains how deals on Shark Tank often differ from what is shown, and his ongoing relationship with Robert.

Behind the Scenes of Shark Tank (00:04:45)
Pat shares details about the filming process, post-show counseling, and the impact of the experience.

Licensing Audits and Financials (00:05:44)
Discussion about licensing agreements, financial audits by licensors like Disney, and the importance of accurate documentation.

License Renewal Challenges (00:07:01)
Pat explains how license renewals work, what licensors look for, and the challenges with companies like Disney.

Transitioning and Subcontracting Licenses (00:08:57)
Pat describes how some licenses are transitioned to subcontracted arrangements and the benefits of this approach.

Direct vs. Subcontracted Licensing (00:09:18)
Explanation of the differences between holding a direct license and working through a subcontracted licensee.

Branding and Labeling in Subcontracted Licensing (00:10:27)
Clarification on branding, labeling, and legal requirements when selling products under a subcontracted license.

Actionable Takeaways for Business Owners (00:11:42)
Josh summarizes three actionable tips: IP protection, evaluating licensing, and preparing your business for exit.

Final Advice on Business Growth and Exit Preparation (00:15:11)
Pat offers final advice on analyzing business performance, seeking help, and preparing early for a successful exit.

Episode Wrap-Up (00:16:13)
Josh thanks Pat and encourages listeners to reach out for further advice on exiting their business.

Links and Mentions:

Consulting and Strategy
“Ecomm Breakthrough Consulting“: “00:00:00”
“Email for Strategy Audit”: “00:01:08”

Shark Tank and Related Experiences
“Shark Tank“: “00:02:04”
“Robert Herjavec“: “00:02:15”

Licensing and Partnerships
“DreamWorks, NCAA, NFL, Disney”: “00:02:31”
“Licensing and IP Protection”: “00:12:04”
“Consider Licensing”: “00:13:12”

Intellectual Property
“IP Protection”: “00:12:04”

Transcript:

Josh 00:00:00  Today, I’m speaking with Pat Yates, an M&A advisor at Quiet Light and owner of Happy Feet Slippers. And today we’re going to be talking a lot about licensing and preparing your business to exit. This episode is brought to you by Ecomm Breakthrough Consulting, where I help seven figure companies grow to eight figures and beyond. Listen, Pat, I started my E-comm business back in 2015, and it took me seven years to grow it to an eight figure brand. There were a lot of times that I struggled with the challenge of knowing whether my business could actually succeed financially, or if my brand could actually become a real well-known brand, or even myself as a leader. Whether I had the abilities and capabilities to lead a team and actually manage a group of people? Sure. For our listeners that have had similar experiences or hit similar plateaus, go to Ecomm Breakthrough Comm and that’s ecom with two M’s. And you can learn a little bit more about how I can help you. And to our listeners, this month I’m giving away one $10,000 comprehensive business strategy audit session at no cost.

Josh 00:01:08  All you need to do is email me at Josh at Ecomm breakthrough.com. And in your subject line just say strategy audit and then tell me why I should choose your business as the business to do the strategy audit for this month. And don’t worry if you don’t win this month because you’ll be entered to win for future months to come. But I’m super excited to introduce you all to Pat Yates. Pat, as a seasoned entrepreneur with a focus on eCommerce, in 2014, he struck a deal with Robert Herjavec on the Emmy Award winning show Shark Tank. Pat grew a single slipper kiosk business into a multi-million dollar, e-commerce focused business. During that time, Pat has done licensing deals with Dreamworks, the NCAA, the NFL and Disney, and in 2015, he struck up a relationship with Mark, the founder of Quiet Light Brokerage, and continued, eventually leading him to becoming an M&A advisor. So welcome to the show, Pat.

Pat 00:02:04  Thanks. I appreciate you having me.

Josh 00:02:06  Pat. I watched your Shark Tank episode and loved, you know, everything you kind of went through in that episode.

Josh 00:02:15  You ended up doing a deal with Robert who who first kind of went out pretty early on, at least in the episode. And then he comes back in and kind of swoops up the deal. And at the last moment, how was that experience being on Shark Tank and going through that?

Pat 00:02:31  Yeah, it’s something I’ve talked a lot about it over the past few years because, as one of the people that likes on the speaking circuit with me likes to call me the one of the OGs in Shark Tank because I’m on season five. They have so many seasons now, I’m like, I can’t be old at everything. I hate that, but, I mean, it’s it’s a difficult process in the very beginning. You have to submit several videos and a lot of written documentation, a lot of due diligence. And, you know, I was turned down in season one or season two or something like that. And then they called me back as season five was coming because they were ramping so much, and I was one of the people that came down to the very end and had to fly out there and do my pitch in front of the producers to even see if they could keep me.

Pat 00:03:09  So, I did that. And then it aired in 2014 and it was awesome. I mean, the show was going, I mean, my, my time was going poorly in there for like 80% of it. The, you know, you’re in there like an hour and 15 minutes. Most people don’t realize that. And it’s cut to eight. So for most of the time it wasn’t going very well. But the end was pretty good. Yeah.

Josh 00:03:27  Yeah, that’s that’s amazing. How was it, you know, doing a deal with Robert and what kind of his involvement been since you did that deal with him?

Pat 00:03:36  Well, the deals that you do on Shark Tank and are are 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 talk 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.

Pat 00:03:55  you know, our deal. We did not do the financial terms we saw 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 been more just assisting at 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. He 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 to keep a touch. Point is pretty much where it’s at.

Josh 00:04:26  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 were actually there.

Pat 00:04:45  Yeah, it’s definitely not indicative because you don’t get any restroom breaks, no drink breaks, no 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. It’s just not the easiest thing in the world to get through. But if you get through and 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 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.

Pat 00:05:28  And obviously and, you know, there are people that come out of there thinking their business could be ruined. So it’s 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 is worth its weight in gold. Typically if you do well it’s interesting.

Josh 00:05:44  And then with that, are they requiring audited financials to make sure that, you know, whatever you sold you’re they’re actually getting that cut. How does that work in terms. I mean.

Pat 00:05:56  You’re going to have a marketing. You’re going to have a marketing percentage you add on top of it. So maybe 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 audited 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 it together. But I’m going to reserve my comment.

Pat 00:06:17  That’s probably the nicer thing to do. but yeah, they could definitely come back and you’d have to open up your book, so you need to document it very well. You need a, you need to make sure in your, 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’t audit you. And be sure that you’re being correct about it, because if they come back and audit and you lose, that is a massive penalty. It’s a lot of money. So you need to make sure that your numbers are are fairly straight.

Josh 00:06:48  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 00:07:01  I think it really depends. I mean, with ours, look, I can look at it in many different ways.

Pat 00:07:05  Number one, Dreamworks, we ran it for two periods, four 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 shortsighted thing I’ve ever seen. It’s like Disney would rather someone sell $1 million in wholesale to someone that they make 150,000 on, than to sell 350 or 400,000 of direct e-com 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. They 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.

Pat 00:07:58  It doesn’t take as much time, to 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 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 reassign 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, to 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 that the wrong way to me.

Josh 00:08:47  Fascinating. Do you? Are there any licenses that you have not renewed then?

Pat 00:08:57  It’s a good question. you know, Dreamworks, we can subcontract it now. And Disney is subcontracted as well as the NFL. So I’ve found partner companies to work with on this, which is great because then you don’t have to 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 of that I’ve left, but they’ve transitioned, I guess just way to put it. You know, we’re still working with the companies, but it’s through someone else.

Josh 00:09:18  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 with them?

Pat 00:09:29  Yeah. I mean, it’s 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 subcontracted license will be another company that’s larger than us.

Pat 00:09:40  Like this company that’s larger than us is a is a massive manufacturer into big retail stores. And they don’t do direct consumer. So we came in utilize Disney to make the products we make and sell in direct consumer. So it was 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 transaction. It’s cleaner, easier and it actually may be better for Disney in hindsight. So I think that it would be like thinking about you signing a deal to to do a Disney deal right in front of Disney, or going to someone who already signed that deal and saying make it. But I they end up having to have their name on it because the tag as the co manufacturer. But we use our brand.

Josh 00:10:20  Interesting. Okay. So they’re going to have a different there’s going to be a different brand name I guess on that product.

Josh 00:10:27  Then on one on the the white.

Pat 00:10:29  SIL tags, it 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, it’s 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. It just has to be stated.

Josh 00:10:47  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 not tracking.

Josh 00:10:55  So in that.

Pat 00:10:55  Example, if XYZ Corp is the one that holds the license with the company there, the the tags need to show my label with my trademark, but then manufacturer with this company in their trademark. So 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 that. If you can find those partnerships, it’s a great way to bring a product to market without having to pay the upfront.

Pat 00:11:15  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 SKUs. And as you’re testing this, you might need it to be smaller. So a subcontractor company would 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 sometimes that’s hard to find. But if you do your research you definitely find it.

Josh 00:11:39  Yeah, I totally agree.

Josh 00:11:42  And 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. 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 or you don’t have a utility patent or a design patent, right.

Josh 00:12:04  One of the things you need to do is get serious with your IP protection and go get the design pants 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.

Josh 00:13:12  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 kind of pillars of building a 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.

Josh 00:14:17  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 those principles that you covered, I would definitely recommend everybody go in 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 ten 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 00:15:11  No, I think I think you 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 in, in Kentucky that the main meeting that we were going to have was try to figure out why our wire advertising isn’t doing well.

Pat 00:15:24  Well, it turned out it wasn’t our 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 everything else will fall together. And when you’re ready to exit, you know, why don’t we talked about a whole lot of things. Just make sure that you’re reaching out and understanding what’s needed to be done 6 to 9 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 quite like. We judge ourselves by the quality and number of conversations we have, not a number of listings. It’s not even close to the number of listings.

Pat 00:16:06  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 it’s all about.

Josh 00:16:13  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 00:16:24  Appreciate it. Thanks for having me.