This episode of the Ecommerce Coffee Break Podcast features a conversation with Thomas Smale, Founder, and CEO of FE International. We discuss what entrepreneurs should keep in mind to succeed.
On the Show Today You’ll Learn:
- How does a business become sellable?
- The characteristics that make a business owner or entrepreneur successful
- How can a merger acquisition work for small and medium businesses?
- How viable is it to sell a business now? Should entrepreneurs wait until the economy recovers??
Links & Resources
About Our Podcast Guests: Thomas Smale
Thomas Smale is the Founder and CEO of FE International – an M & A advisory services consultancy for mid-market SaaS, eCommerce and content businesses. Thomas is an authority source on e-commerce, SaaS, and content and in fact established the very category of M&A advisory for online businesses.
He began building and selling online companies in his early 20s as an interest. When he proved to have a natural talent for increasing the value of these businesses, this became his full-time career. He has consulted hundreds of internet entrepreneurs on exit strategy, growth and business development.
Over the last 12 years since its inception, Thomas has grown FE International into an award-winning global M&A advisor of e-commerce, SaaS, and content businesses, completing acquisitions for thousands of founders, owners, and acquirers, and advising on over $1B in lifetime acquisitions.
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Claus Lauter: Hello, and welcome to another episode of the E-Commerce Coffee Break. A lot of our listeners are merchants, are entrepreneurs, are solopreneurs, and they have a idea in mind where their business should take them. So today we want to talk about the topic, what entrepreneurs should keep in mind to succeed as a guest on the show today, I have Thomas Smale with me.
He is the Founder and CEO of FE International – an M & A advisory services consultancy for mid-market SaaS, eCommerce and content businesses. Thomas is an authority source on e-commerce, SaaS, and content and in fact established the very category of M&A advisory for online businesses.
He began building and selling online companies in his early 20s as an interest. When he proved to have a natural talent for increasing the value of these businesses, this became his full-time career. He has consulted hundreds of internet entrepreneurs on exit strategy, growth and business development.
Over the last 12 years since its inception, Thomas has grown FE International into an award-winning global M&A advisor of e-commerce, SaaS, and content businesses, completing acquisitions for thousands of founders, owners, and acquirers, and advising on over $1B in lifetime acquisitions. So let's welcome Thomas to the show. Hi Thomas. How are you today?
Thomas Smale: Hey Claus. Thanks so much, To invite me on.
Claus Lauter: Yeah, you're welcome, Thomas. Succeeding in the business, specifically in a very competitive market with e-commerce. It's not always easy. So you have tons of experience over the last 12 years on seeing businesses that have succeeded and that have a successful strategy on their business.
So give with enough idea how you got into this and , then we take it from there.
Thomas Smale: Yeah, sure. So, 12 years ago when I started, , f e International, , if you had a successful online business, , so for example, an e-commerce company, and you wanted to sell it, there was no way you could really go that specialized in helping small businesses sell.
If you had a billion dollar business, you could call a large investment bank like [00:03:00] JP Morgan or Goldman Sachs that everyone knows and they could help you. , if you had something very small, so maybe worth a hundred dollars or a thousand dollars, you could sell it on a marketplace like e. . But if you had a million dollar business, 10 million business, a $50 million business, , there was no one that specialized in helping people sell those businesses.
, I started out like most people buying and selling online, very small things. , so back then, if you wanted to buy and sell, , domains and small websites, which is why I started out with you, were selling them on eBay, , and other similar marketplaces. So I spent a couple of years doing that in the early.
, I then wrote , a book or a course about how to buy and sell websites , for money, but it was essentially how to turn a hundred dollars into $500, how to turn a thousand dollars into $2,000. , wrote a book about that. It got quite a lot of traction back in 2010. Cause like I said, there was no one really talking about , this stuff.
It was very much an underserved market. people who took the course, there's a lot of successful business owners who took the course. Read the book, , had a bunch of [00:04:00] other materials , you could go through as part of it. , and they started coming to me saying, Hey Thomas, I read your book. , I own a business.
Can you help me sell it? , so that's where I kind of spotted a market opportunity. And as a, at the time, a student with no money buying businesses is quite difficult if you don't have money. So I figured I could use everything I'd learned, help people sell their already successful businesses. I could get paid without having.
Kind of cash out pocket other than my time and some other like, materials beyond that. And then it's really compounded from there. , now we're over 50 people. We do over a hundred deals a year. , like you mentioned, it's over a billion dollars in total transactions. , but very much started off small, continue to grow it from, day one.
industry's, , the industry's completely different today. So in 2022, , most people probably know someone who sold a business. Like in the e-commerce space, who started a successful business back then? We were very much in the early days of e-commerce software and all of that.
Claus Lauter: Okay. A lot of entrepreneurs, they start or come from different angles when they start their businesses.
[00:05:00] The startup usually has you a long term strategy and they have an exit strategy in mind when they get started. Or they also, you have the so entrepreneur or the side hustler who just do what they love. They wanna make some income, and over time the business grows. And as they grow, they might get an idea, maybe I can sell this at some point.
Now for mergers and acquisitions, there's a lot of things that one needs to keep in mind when it comes. What actually makes a business sellable? Tell me a little bit more about this.
Thomas Smale: When you're starting out, the first thing you should do is just worry about your business growing and making money.
You shouldn't plan an exit before you started making. , , when it comes to selling and some things you need to think about is firstly, particularly in the current economy, buyers are, and particularly with an e-commerce business, and we work on a range. So e-commerce is just part of what we do. , being profitable is very important, , but you don't necessarily have to be profitable from day one when you're starting out.
You probably have to invest in a lot of things. , that may be like one time expenses that won't happen in future, cuz you [00:06:00] don't. packing materials, the machines you might need, you don't have designs, all the different things you might need , to build your business. So starting out, don't worry about profitability from day one.
Worry about your business being good. You have to have a good product or a good range of products, a good system , to launch more, , good marketing channel or channels. Whether you are selling on your own store, Amazon, Walmart, there's hundreds of different places you can sell products.
It doesn't really matter from a buyer perspective. If you're making money, there's gonna be someone out there who wants , to buy your business. , but you do need to make sure that the unit economics work. There's a difference between not being profitable in the short term cuz you have to invest in your business and it being impossible to be profitable in the long run cuz your gross margins don't make any sense.
, the unit economics don't work. So it is important to focus on something that actually makes money and is profitable rather than, I think what a lot of people make the mistake of starting out is they sell things cuz they find them interesting or they like the product or whatever. But on paper the numbers actually don't really [00:07:00] work at all.
, and to your point, there's people who start small business for some side income or a little bit of extra money and there's some people who start a business cuz they wanna build it and be big. . , I think even if you're gonna be building a side business, it's still important to build something that's profitable and can be profitable in the long run.
And the big advantage of that is you can one day sell it. Whereas if you have , the big difference between running your own business and having a job, even if you make exactly the same amount of money in your job and running a business, is you can one day sell a business. Even if you're making exactly the same money, you're building an asset, you can.
, so always like think about profitability as you go. That doesn't mean you have to be from profitable from day one, but the numbers do have to work long term. Beyond that, there are hundreds of different ways to build a successful business. There's not necessarily a right or wrong way to do it, but if it is profitable, there'll be someone out there that wants to buy it and probably multiple people out there that wanna buy it regardless of the size.
Claus Lauter: No, I think it's an no-brainer. No one wants a business that is making a. Now you have seen a lot of businesses over the years [00:08:00] that were sold, and as we are talking about what entrepreneurs should keep in mind to succeed, is there any specific characteristics that you see in the business owner or in entrepreneurs that made them
Thomas Smale: successful?
probably one of the most common trait is they've always just focused on building a business consistently. What a lot. Entrepreneurs do is they start making a little bit of money with one business, then they go launch so else, then they go launch so else, and then they do so else. The boring part of running a business is doing the same thing over and over again successfully.
So the most successful entrepreneurs we work with, once they figure out how to sell something, once they then build a process to sell it 10 times, a hundred times, a thousand times the least. Successful entrepreneurs, relatively speaking, Once they sell one or two of a a product, they then go find another product and try and find how to sell one or two of them.
And then they have 10 products they sold one time, whereas the person who's focused has by then sold a thousand , of one product. [00:09:00] So I guess that's just a very basic example, but focus is important and building , particularly in e-commerce, , if you're gonna build a multimillion dollar business, you're gonna be with almost any product category, selling thousands of product.
Per month , or per year. You have to build consistent, scalable processes and you have to focus on that. , that doesn't necessarily mean you have to do all the work yourself. The important thing about writing out processes is then you can hire people to come in and, help you, whether that's someone like in a warehouse with you or whether that's like a virtual assistant you've hired who's offshore.
There's, again, no right or wrong way to do it, but you do have to build those processes. The most successful entrepreneurs. Do that and they focus on what they're good at. , and for most, that isn't usually processes. Most entrepreneurs hate the idea of actually operating a business day-to-day. They wanna be doing marketing, they wanna be coming out with new product ideas.
, they wanna be being interviewed on podcasts, all sorts of different things. They don't actually wanna be the one sitting there writing out processing [00:10:00] orders, all of that kind of stuff. , so if that's not what you wanna. , what some people do is they , just stop and they say, oh, , I didn't like doing that, so I've stopped.
But the most successful people realize you can hire people to do that same work. Lots of people who are usually not entrepreneurs in a day job, they, they want to just do the same thing every day. They want it to be predictable. They want know that their job that day is to come in, pack a hundred units, send them out, and then they can go.
, for, whereas for many entrepreneurs, that's their worst nightmare. They don't wanna do that. The most successful entrepreneurs focus and they kind of do the boring stuff on a consistent basis over and over again. , being an entrepreneur often sounds glamorous, but 99% of the work people don't see is the boring stuff that has to be done.
What people see on the outside isn't really the stuff that makes a business truly success.
Claus Lauter: No, I see. We're absolutely on the same page. I'm an entrepreneur for the last 20 years and you're rights, doing the same thing would kill me. , but I'm also a strong believer that as an entrepreneur you have to do every task in your business, at least in the beginning for yourself to [00:11:00] understand the process.
And then I always say is that then find someone who's better than you.
Thomas Smale: And what you find as you grow, I'm at this stage now in my business when I started. I had a bit of an ego and I thought I was the smartest person and I was the only one that could [00:12:00] do everything in the process, everything in the business.
Now, today in, like I said, we have about 50 people in our m and a business. Every single one of those people is better at their job individually than I would be doing their job individually. , but that only comes if you're willing to actually let go hire people, remove some ego from. Remove some profit as well.
Cuz a lot of people say, well why would I hire someone because then I have to pay them a hundred thousand a year or whatever it is. I can just do it myself and make an extra a hundred thousand. , but when you realize if you start reinvesting into people that will start compounding over time, you should never really be hiring people who just cost you money.
Those people should be helping you make more, helping a business grow. So I think that's an important. Mindset shift that every entrepreneur has to go through. Fortunately today, 12 years ago when I started out podcasts like yours didn't exist, so you couldn't get good advice. When you're early on now, there's lots of great podcasts such as yours to get really good information.
, so you don't [00:13:00] necessarily have to be in the dark. And you can hear mistakes from people like me and things that I wish I knew 12 years ago, but it took me a lot of time to figure. No, I think
Claus Lauter: there's very, very good advice in there and, , I've been on the same route it can be scary to hire people that are smarter than you in a specific field, but you need to let go.
Now, coming back to the topic of building a sellable business, , People or companies who buy businesses, they're looking obviously into the numbers. At what point does a business become interesting for them, not only being profitable, but also other points? What can you tell me
Thomas Smale: about that? firstly, it depends on the buyer.
We've spoken to hundreds of thousands of buyers over the years, what's the most common thing they all want? , you would have hundreds and hundreds of different answers. Everyone wants something different. So some buyers will. I'm only interested in a business if it makes at least a million dollars in revenue per year and it's profitable.
Some buyers will say, who might also be smart people might also say, I'm only interested in businesses that make less than a million dollars a year , in [00:14:00] revenue. , some people want, or some buyers want businesses that sell just one product and they love the idea of just having one SKU that sells a million units a year.
Other buyers will. Absolutely not. I only wanna buy businesses with at least a thousand products. one, One thing I've learned over the years is I used to think that was like a formula for building a perfect business. The reality is if it's profitable, if it's growing, you have good systems and the business isn't completely reliant on you.
There's someone out there who will want to buy your business. One of the things we do as an m and a firm, our job is to find that one buyer who wants to buy your. , the idea of building a business is not that when you are thinking about selling it, it's not that a thousand people will look at it and be like, wow, this is a fantastic business.
I love it. I think this price is quite reasonable. I'm gonna buy it and make an offer. Our job is to find multiple buyers, but not 1,005 or 10 buyers who really like the business. Are willing to make an offer. That's how you maximize valuation, and you don't have to make changes in [00:15:00] your business based on feedback from one or two buyers.
So like I said, some people will say, having over a thousand s skews is terrible. You shouldn't do it. And no one wants to buy your business. Other buyers will only buy your business if you have that. So you should avoid listening. individual people with or individual buyers with their opinions on what's good and bad.
Cuz everyone has their own criteria. Everyone has their own strategy. Like I said, most buyers want businesses which are profitable. There are some exceptions, but ultimately you'll make the most if that is how your business is structured.
Claus Lauter: Now, mergers and acquisitions for small and medium enterprises might sound very, very far away in a complicated process.
Now I've observed a merger acquisition just recently with a former business partner of mine, and usually there is a lot of things that go in there and that might keep the entrepreneur in the business for at least some time. Can you a bit of an example on how a merger acquisition can work for small and medium
Thomas Smale: business?
if you are thinking about selling a business, [00:16:00] then you can create an exit plan for yourself, which a big part of it. You can sell your business, yes, but you also need to be removed from the business after the deal, or all you've really done is sold your business and then inherited a job.
Some people, and particularly when we work on, medium size transactions, so for us that might be 10 million to 200 million valuation. Sometimes at that level, the founder or the founders in the business want to stay for a transition period. They're making life changing money. They don't have anything else going on after a deal, and they want to go work for the acquirer a couple of years.
On smaller deals, it doesn't really make sense for you to sell a small business and then continue working , for the owner. So a lot of it is building an exit plan, , to get out of the business. So there's some of the things we've already been speaking about. processes and team are the most important if you build a business.
You can go on vacation or holiday for a week and [00:17:00] you don't really have to do anything. Then you almost definitely have a business that can be sold and you can exit on day one. We see that all the time. A small transition period to handover important things like accounts and stuff that only you have access to.
, and then you can leave. If you have a business where you could never take a vacation because the business has relied on you to. , all of these different decisions. You are the main designer, you are the one ordering products, all of that. , then it's gonna be difficult. So your two options are either sell the business and accept a job with a buyer or a transition beard, which is gonna take some time, which is possible just most people don't wanna do it or plan in advance to remove yourself by hiring people, writing out processes.
Then when you sell your business, you can have the shortest transition time. . , again, both of those options are possible. The vast majority of people we work with want to get out of their business when they sell it, which is why they're selling in the first place. , so you just need to [00:18:00] think about it a little bit in advance.
, the vacation test is a good one. If you can take a week away from your business without really having to do anything other than maybe checking your email once a day, probably relatively easy to exit if you can't take a vacation. Doing every single call, meeting, whatever you have to do internally, , or the business won't be running without you, then that's gonna be harder to sell and transition out.
, but both options are possible.
Claus Lauter: Okay, so bad news for me, A podcast is not sellable,
Thomas Smale: is a good one. , cuz podcasts are often , great for business. So generally what , we say, if someone has a podcast, They should bring in a, co-host before they think about selling the business.
So the listeners get used to hearing the co-host, and then when you eventually sell the business, you exit out and then maybe some episodes will just be with a co-host. , and it will go from there. I've seen other podcasts do that successfully over the years where there's desired to been just one host who have added someone and then removed the original.
I [00:19:00] guess no different from like a TV show, like people have their, like favorite presenters or whatever, but it's not impossible for a TV show to last many, many years and, and be very popular with a range of different hosts. So I think actually a podcast is a really good example. Interesting. ,
Claus Lauter: I have no plans to go anywhere, so I will be around for a while anyway.
When it comes to mergers and acquisitions, , what is the, timeline when somebody approaches you, , fe inter. and from a first contact to Rele exposing the deal and getting out of the business.
Thomas Smale: Yeah. So firstly, it does depend a little bit on size of business. So if you have a business worth a million dollars, 10 million or a hundred million dollars, the timeline's gonna be slightly different.
But let's talk about averages just for the sake of, setting some expectations. , so the first thing we do is put together a free valuation. , , that generally takes a couple of days. , assuming you have access to all the information we need. If you don't, it's gonna take as long as it takes you to get the information.
, but it's important to get it [00:20:00] right upfront. If we don't have the right information, valuation can't be accurate, and then we could be out by kind of a huge margin needed direction. , if you get an evaluation, you're happy with it and you want to go ahead and work with. It generally then takes two to four weeks to get the business ready for sale.
, again, four weeks if it's a large business, two weeks for a smaller business, , or somewhere in between. For the majority. Assuming you're organized, you can provide us with what we need. , the sales process from there varies in timeline, again, depending on the size. So I'd say smaller businesses. You might be looking at a 30 day process looking for buyers.
We do a huge amount of outreach for every business we represent. So we're reaching out to lots of buyers, having lots of different conversations. The larger the deal, the more time that takes cuz you're more likely to have, , accountants involved, lawyers involved to hold teams involved. There might be, , like a C E O or c f O or c m and at a board looking at a business, they can't make decisions [00:21:00] same day.
Smaller requires. It might often just be someone like you or me. We don't need to speak to anyone else to make a decision. So a million dollar deal can move much faster than a hundred million dollar deal. So 30 to 90 days. , and then generally the same period again, depending on the size, , for due diligence, which is where the offer is already agreed.
But you work through verifying that everything is accurate and as what is said, , you negotiate a contract to complete the deal. , and then it's. The range keep anywhere from two months to six months depending on the size of the business. , most are somewhere in between.
, and my caveat is that's how our process works. , we're pretty quick. You'll often hear of people who have, done deals privately and they can take a couple of years. , but if you're organized, , and follow a good process, you can get it done much faster. Okay,
Claus Lauter: now you're putting a lot of work from your side in there and a lot of expertise helping the entrepreneur to sell the business.
What's your pricing
Thomas Smale: structure? We have a structure, again, depends a little bit on the size of the deal, , but it tiers down as a percentage. So we generally only charge you [00:22:00] when the business sells. , in some examples I'll be a retainer, so like a, . Monthly fee, which is deducted against the, the final fee, particularly for larger and slightly more complex businesses.
, cause like I said, I have a hot team. , most of our team are sat in an office in New York. , most of 'em have worked for other investment banks or accounting firms, depending on the department they're in. , so they are well paid. It generally costs us the majority of businesses we represent. It costs us six figures.
Overhead and other expenses , to market that business. , so we do recover our fees on the backend, but only when the business sells. So it's always a percentage based model and generally speaking, the percentage gets lower, , as the business gets bigger or we don't necessarily have a, fixed pricing structure cuz it does depend a little bit on the, business or the business model cuz we work on quite a few different types of businesses.
Claus Lauter: Before we come to the end of our coffee break today, one more question. Right now the economy is a little bit of an a downhill and, , is there still a market to sell a business? Or should entrepreneurs wait it out until the economy [00:23:00] gets, gets up again? , what's your take on that?
Thomas Smale: I don't think many people listening do, or you probably shouldn't be listening to us.
If you have a billion dollar business, then the market's definitely got tough recently. So public companies, a lot of those deals aren't happen. Small acquisitions. So like I said, most our deals below 200 million in valuation. There's actually quite steady demand at the moment. , often people buying businesses at that level are private equity funds who already have capital raised from investors and need to invest it.
, when a economy is bad, like locally, people who invest for a living still need to invest. People don't. Stop investing entirely. , some people might, but to my point earlier, like our job is to reach out to thousands of buyers. If we reach out to a thousand, maybe a hundred of them have stopped investing or they've slowed down their investing, but there's still 900 people who wanna buy a business.
Now still a good time to sell a business. , there's still lots of demand out there. , lots of sellers are maybe. choosing to delay cuz they've got misinformation about the market. [00:24:00] So actually if you do sell now, it can be a good time cuz there's a little bit of a scarcity of good deals out there.
, so if you have a good business, there's never a bad time to sell a good business because , buyers recognize what a good business is. Okay,
Claus Lauter: very good tip. Where can people find out more about F Fe International and your service?
Thomas Smale: Best thing to do, if you go to the f fe international.com website, we have a bunch of free resources for people thinking about selling, building a business, resources on how valuations work, case studies of businesses we've sold.
If you want to get a free valuation, more than happy to give you a free valuation for your business. If you're thinking about maybe buying a business, you can also have a look at businesses we're currently representing. , , if you just wanna reach out and have a conversation, we're quite active on lots of social media channels as well, so feel free to reach out.
You can talk to the team even if you're not necessarily thinking about selling today.
Claus Lauter: Sounds great. I will put the links in the show notes then you just one click away. Thomas, thanks so much for us an overview of merger and acquisition and how that works and what you need to cut, keep in mind to succeed.
Thanks so much and have
Thomas Smale: a great [00:25:00] day. Sure. Thanks so much.
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