Practical Ecommerce

Ecommerce Owner Sells the Business; Explains the Process

Merchants tend to put a lot of thought into starting their businesses, but not so much into leaving. Having a proper exit strategy can allow merchants to sell their businesses much more effectively, as well making the process less emotionally taxing.

We recently spoke with Dale Traxler about his experiences in selling his business. Over a ten-year period, Traxler and his wife, Cynthia, purchased, built, and then sold — in March 2012 — Beaded Impressions, a family of four separate jewelry-related stores.

Traxler has long blogged for Practical eCommerce, at “Evolving eBiz.” Having sold Beaded Impressions, he is now a contributing editor.

Practical eCommerce: How long did you own Beaded Impressions? When did you acquire it and when did you sell it?

Dale Traxler

Dale Traxler

Dale Traxler: “We acquired it in February 2002. It was a very small website called ABeadStore.com that had some traction. It was the days when there wasn’t a lot of competition and it was a very good opportunity for us to get into ecommerce at a very equitable price and see if we could grow the business. We sold it, ironically, March 1, 2012, almost 10 years and 1 month after we bought it.”

PEC: Who did you sell it to?

Traxler: “We sold it to a gentleman who created a new entity. His intention is to grow the business substantially. He was interested into getting into ecommerce. He saw this as a platform for growth and he made the investment.”

PEC: It is another individual that bought the business, versus a larger corporate-type buy.

Traxler: “That’s correct.”

PEC: Did you always plan on a 10 year exit strategy?

Traxler: “Originally, we were thinking more of about a seven-year strategy. We were operating to that path, until the recession hit back in 2008. That took things off the track for us and also for a lot of other ecommerce businesses out there, I’m sure.”

PEC: Why did you sell it?

Traxler: “For a lot of different reasons, some of which will be familiar to other business owners. Cynthia (my wife) and I like to build things, build businesses, and build processes and organizations. We never envisioned ourselves running the day-to-day operations of a business once it reached a certain point. When you go from a start up to something that’s a little more organizational and mature, you bring in different leadership frequently.

“We were at that point where we both needed a leadership change to manage a larger organization, and we also were faced with a point in our growth where we really needed to accelerate the growth again. Every company goes through different stages. We were at a stage where we felt that we needed to add a lot of products to move the revenue stream up to support the cost model that we had. And that was going to require us securing some more funding. What we would have been doing is making another 5 or 10-year commitment to the business, and we just decided that it was time to move on rather than do that. We will go and do our next thing and we moved the business into somebody’s hands. It was the ideal situation for the buyer.”

PEC: Can you please describe the set up of your business, the platform that you used, how you ran your business, and the size of your business when you sold it?

Traxler: “We serviced about 12,000 customers last year worldwide. Many of them were what most sites would think of as retail consumers, although we have a substantial wholesale customer base of jewelry designers. We processed, in a busy month, roughly 2,000 orders. We had a substantial run-rate of products and customers. A lot of customer loyalty built up over 10 years.

“We ran a small staff. We only had a few people full-time, and then we had several part-time people that were based on the volume of the business. So we had a strong infrastructure and it allowed us to leverage that and not have to have a lot of employees.

“We sold jewelry supplies, primarily. We sold beads as the original starting point, but as the business grew, we added more and more jewelry — binding and stringing materials and things like that. So our target customer makes jewelry, either as a hobby, as a craft or for professional purposes.”

PEC: You carried the inventory and fulfilled the orders yourself?

Traxler: “That is correct. We bought and inventoried all of our items and did all of our own fulfillment. We ranged between 3,800 SKUs and 5,000 SKUs at various times through our lifecycle.”

The Beaded Impressions home page.

The Beaded Impressions home page.

PEC: All of that was out of Boulder, Colo., where you are located. Could you describe the business selling process to us? How was the price determined? Did you receive the money up front?

Traxler: “If anybody is considering selling their businesses there are a number of things you need to think about and hopefully you’ve thought about it in advance. We actually had the thought of an exit strategy many years ago when we started the business.

“One of the key components that we invested in, as a part of our exit strategy, was a strong infrastructure. We felt that we needed to grow the business to a point where it was really — to use the term loosely — a turn-key business that we could sell to another business owner, and the processes were robust enough that other people could learn them, that the vendor relationships were established, the infrastructure could manage the customer relationships, had all the data necessary to support customers, vendors and all those types of things. That is why we invested in NetSuite, the hosted ecommerce platform. We had been thinking about an exit strategy for a while and we knew where we thought we could point to core valuations beyond just the pure cash flow of the business or the seller’s discretionary earnings, as some people refer to it.

“Last May, my wife and I were discussing getting some more capital to dramatically expand the business, and we both said, ‘That is just not what we want to do so let’s figure how we are going to sell this beast.’ In many instances people look to their competitors as what is the most logical place to do an acquisition and we felt that that was the last place we wanted to go because the valuation would be the lowest. We buy from the same people. We all know everybody and we didn’t really see that there were any vendors in our space that were looking to grow through acquisition. We’ve never seen it happen and we just didn’t think that was a viable alternative.

“So, we decided to engage with a business broker. We went to BuySellEbiz. We had decided that we didn’t want to do it all ourselves because the process was going to be very complex. You know filtering through qualified buyers, evaluating their funding situation — it is very awkward for the seller themselves to do all that. So, we ended up picking Manny Shah, who actually blogs for Practical eCommerce, and who exclusively represents ebusinesses. We spent some time talking to him about his process and how he would do a valuation. Then I spent the entire month of July — and I mean that literally, I did many iterations — writing a prospectus for the sale of our business and also a very, very detailed operation guide that we would give people as we move them through the cycle.

“I ended up with about a 40 page prospectus and another document of a similar size that went into the operational details. That became a huge differentiation through the process because we were very transparent and we did a lot of the upfront work on paper instead of having to get involved in conversing with every single buyer who was a prospect. We went on the market sometime in August.

“As far as the valuation itself, Manny did a lot of research and since he only sells these businesses, he has a good pulse on what the sales ratio is in the marketplace today. Unfortunately it is not all that great. It is somewhere between 1.5 and 3 times annual cash flow, which is also called ‘discretionary earnings.’ We ended up at the higher end of that, in the process that we did, but a couple of years ago it was 5 or 6 times your discretionary earnings. What we focused on was justifying our seller’s discretionary earning, justifying the higher sales ratio because we had more of a turn-key business than many operations do.”

PEC: So the range there was based on cash flow of the business, and the valuations range from 1.5 to 3 times the annual cash flow. Is that what you are saying?

Traxler: “Yes, the 3 times was at the very top of the market when we started back in August. There was a lot of pushback but we were patient and we stayed with it. We actually ended up with three written offers in early January from different types of buyers, different types of offers and we had to then sort through the best buyer for us that would minimize our risk, as virtually no one will pay all cash for a business today. Any deal that we were presented with had some kind of an earn back or a carry back. So you had to evaluate at least what’s the likelihood of this as well as what the price of their offer is and things like that.”

PEC: Do you still have a role with the business?

Traxler: “We are transitioning out. We are out of the day-to-day operations pretty much now. We are doing some other projects for the new owner. We may continue to do some work in the future if he decides to do certain types of expansion, but we’re drifting out of it.”

PEC: What is your next move?

Traxler: “I am not 100 percent sure at this point. In between things that I have done in my career I have done a lot with strategies for startups — especially around the area of go-to-market strategies and those types of things, growth strategies. I’ve done that for several companies and I enjoy doing that. I like working and learning a new market or a new business and help people grow. I am actually talking to a few people I know here in Boulder and we’re considering an ecommerce consulting business. I will leave it at that for right now.”

PEC: Let’s discuss other merchants, as they contemplate selling a business, and address the emotional issues of walking away. Those issues are not discussed enough for business owners. We suspect Beaded Impressions was a big part of your life for a decade. Now you’ve walked away from that, and we suspect there is some emotional toll there. Can you share that with us?

Traxler: “You get an emotional pull in a number of different ways. In the process itself you are going to engage with buyers who are going to low-ball you, they are going to criticize you, they don’t get it and you don’t understand why they don’t get it. I think we were fortunate to have a relatively quick sale cycle. We were effectively 6 months to an offer. Manny Shah did a great job of screening out most of the non-qualified buyers, but you still end up talking with some people that kind of waste your time. And you have to be willing do that and fight through it and grit through it.

“When you finally get offers is when it really starts to become emotional, because the potential buyers have a strong feeling about what your cash flow really is or they may have a strong feeling about why they shouldn’t pay you the asking ratio that you are looking for. It can get pretty emotional. We did. It was a very stressful four-week period as we sorted through these various offers. They’ve got to get financing and you are not sure if they are going to get the financing. You are trying to bring everybody to the finish line at the same time. So if you ever get into the sales process and are fortunate enough to get multiple offers it is extremely stressful.

“Then you get into the whole detachment part. We were fortunate enough to have a business that the buyer hired our employees. One of the buyers was not going to. So I was faced with having to terminate employees who had been with me for many, many years and figure out how to compensate them fairly and things like that. We ended up not having to do that but it is certainly a real issue that you may be confronted with as you go through this process.

“Now that we are out of the business, it’s very strange — having a new owner come in, work with employees, start to reorganize the company and hire new people. I moved out, just so I wasn’t in the day-to-day operations. It is best to pull yourself out fairly quickly.”

Practical Ecommerce

Practical Ecommerce

Bio   •   RSS Feed


email-news-env

Sign up for our email newsletter