What I Ask When Scouting 6-7 Figure Online Business Acquisitions
For this episode of The Exit presented by Flippa, Steve McGarry sits down with Shakil Prasla, the founder and CEO of SZ Ventures, a successful investment firm specializing in acquiring, managing, and growing eCommerce companies using digital marketing expertise. Prasla described how SZ Ventures look at buying and managing businesses all at once and how he has scaled up to its massive size right now. From the company’s nitty-gritty diligence process, this feat is indeed a treat to those who want to collect million-dollar in a one-person business like how Prasla did.
Where it All Started – A Work From Home Job
Shakil Prasla shares how his journey started in 2014, as he was looking for a “career-change” when he had no idea what to do. Searching at google.com for a comfortable home-based job, Prasla, going into the rabbit hole, came across a few links talking about selling products online and how it could import stuff, which he found interesting. This idea of working in the comfort of home prompted him to visit the world’s largest trade show – the Canton Fair in China.
While in China, Prasla decided to start a business by importing fashion jewelry and accessories from China to Elance-oDesk (now known today as Upwork) and hired contractors afterward. Even without any background knowledge about Black Hat SEO (set of practices used to increase a site or page’s rank in search engines), Prasla pulled off himself to build his website and started driving some traffic. Having amateur knowledge about eCommerce, Prasla took a lot of time to research and bought some useful courses, self-educated himself, and took notes from top competitor companies. With a mentality of “This or Nothing” and utmost determination, Prasla just went with the flow and continued to work hard. It took about a year when Prasla had made his business profitable despite some backlashes from others until he achieved the comfortable lifestyle he was aiming for since then.
“Okay, I’ve done it, so what’s next?” Prasla asked himself just as when he achieved his goal of living comfortably in his home. Prasla thinks that what he accomplished is still not enough, so he sought a new journey and started other ways to grow his business. Until Prasla bumped into a brokerage company called Quiet Light Brokerage that sells online companies, and he ended up buying his first eCommerce company. In just six months, Prasla gained his capital back, making him start to take an interest in this business. He noticed that this company mainly got all their sales on their website organically, but only sells using their website. In 2015, Prasla thought of upgrading the business’ publicity by bringing it into Amazon that made profit more quickly than before. Prasla realized the un-necessity of fancy ways to sell products online, like website redesign and repack, where other companies might make these mistakes.
From Prasla’s first-ever company acquisition, his company now has over a dozen acquisitions, ranging from six figures to seven figure-mark now. His company has now grown into 80 employees: 40 based in the US and 40 based overseas, with a streamlined process to hire CEOs to manage each of the companies they acquired. Due to the tough competition in eCommerce businesses, Prasla also created a back-office that works as an agency for paid advertisements, content, and optimization for every company’s sites they own. Prasla and his partner give guidance to those CEOs in growing their businesses online.
Prasla’s funds for acquiring companies came from his savings and bank loans, although it may not be recommendable for others. Prasla started by himself alone until he realized that he needs a partner who would help him take care of the risks and liabilities present in the acquisition processes. He found his partner on a Facebook group who taught him how to acquire stuff quicker. He also began to know the importance of meeting as many people as you can who are more knowledgeable in the industry, as self-studying does not suffice. This testament proved that people do not need to spend money on finding competent partners at online investing sites and real estate circles.
Buying and Selling eCommerce Businesses
A company owner’s excitement feels as he witnesses his business scaling up should still keep and maintain the team’s management quality across all contractors under a one equity firm. Prasla shared how the process of acquisition works and how they prevent their system from mishaps. Every day, Prasla initially seeks new companies to purchase using alerts setup from brokerage company sites that notify him about updates on the eCommerce market. In every 100 prospectuses, Prasla took ten of them, until it remained up to two small companies that piqued his interest. He will then analyze and study those companies for acquisition and send fifteen burning questions to his chosen sellers via email, which he perceived to be a more comprehensive method than phone calls. The assessment consists of inquiries regarding those companies’ previous statuses, mostly about issues that can cause a red flag.
Good Relationship with the Seller
If the red flags are manageable for Prasla, he will instigate to build a good relationship with the seller. It might be easy to knock down or destroy someone’s business, but Prasla resorts to being empathic with the seller when buying someone’s business. Prasla emphasized that the buyer should always understand the seller’s perspective, as his/her company is like a baby to them, and frame questions that avoid bashing the company. Prasla advised saying encouraging words like, “Great job on building this company! I’m interested in carrying on your legacy. I saw a drop on this, could you tell me what happened?” Buying a company is like detecting what has gone wrong in the past years in just 30 minutes or so. After a series of negotiations, if everything went smoothly at the end of 30 days, Prasla and the seller can sign an agreement that would satisfy both sides.
Hello and welcome to The Exit presented by Flippa I’m your co-host Steve McGarry. And this is a 30 minute podcast featuring expert entrepreneurs who have been there and done it. They’ve bought businesses. They’ve sold businesses and they’ve operated dozens of businesses all at once. But before we dive into this episode, definitely be sure to check out my interview with Judd Armstrong. On the previous episode, wherever you’re listening to this podcast, whether it’s on Spotify, SoundCloud, or even on YouTube, you can definitely check out the link to that previous episode. You don’t want to miss that. So for this episode, I have the honor and privilege to sitting down with, sitting down with Shakil Prasla, the founder of SZ Ventures. We cover a ton in this interview and Shakil was really, really great in describing exactly how SZ Ventures goes through their diligence process. So the general theme of this was really diving into the nitty-gritty of how they look at buying businesses.
And you’ll notice as we go through the conversation, he really starts talking about how they’ve scaled to this really pretty massive size that they’re at right now, which is quite impressive. I want to leave it as a treat. So definitely stick around through to the end of the interview all the way through, because he gets to the point where he’s talking about the scale of SZ Ventures. And no matter what stage you guys are at listening to this podcast, it’s going to be a really impressive feat here. So definitely stick around to the end. And let’s dive right into my interview with Shakil Prasla, the founder and CEO of SZ Ventures.
What is up guys? I am here with Shakil Prasla from SZ Ventures, the founder, as we just discussed of SZ Ventures, how you doing, Shakil?
Hey good, Steve, how are you?
I’m doing good. I’m doing good. Thanks so much for coming on the show, we got a lot to talk about. I guess, to kick things off, let’s start with your story. Like what brought you to start SZ Ventures?
Yeah, so my journey started in 2014 when I was looking for a career change and I had no idea what to do. So I went on google.com and I started looking up jobs to have from home. I just wanted to work from home and I came across a few links talking about how you could sell products online, how you could import stuff. And I went down this rabbit hole and I realized that this is kind of cool.
I want to start something from my home. I want to work from my pajamas. I want to wake up whenever. And so I actually packed my bags and I went to China. I went to the Canton Fair, which is the world’s largest trade show. I didn’t know what I was doing. Honestly, I had no idea. I just knew I wanted to live in comfort. And so I walked the aisles of Canton Fair for a few weeks, decided I want to import jewelry, like well, fashion jewelry for men, men’s accessories, came back, started importing that, went on oDesk, which is Upwork today and just hired a bunch of contractors. At that time I knew nothing about Black Hat SEO. I didn’t know anything about how if someone guarantees easy rankings, it’s probably Black Hat. I just said let’s just go with it.
I built my website then and started driving some traffic. The way I learned was I would look at my competitors. I would look at companies that are doing well. And then I would really just research. I bought some courses and I just self-educated myself. But the main thing was that you have to go all in and you have to go with the mentality that it’s this or nothing. And I knew that I wanted to just kind of live in that comfort lifestyle. So I started Pro Cups back then. Took about a year to make it profitable. A really long time because again, you’re just… People forget knowing your numbers. And when you come from not really building any PNLs and stuff, you kind of just keep doing things, not looking at your bank account. And I knew it was kind of dwindling. But finally, after a year I made it profitable.
I was living that comfort lifestyle I wanted to do. And I was sort of at a crossroads again. I’m living comfortably, but it’s not enough. Some people live the four hour workweek and they’re like, “Okay, I’ve done it. What’s next?” So I went on this journey of trying to live a four hour workweek per company at that time. That’s what I wanted to do. And so I went on Quiet Light Brokerage, which is another brokerage company that sells online companies. And I bought Mr. Cold then. I bought it at a 1.5X multiple, and I was actually able to make my money back within six months. And one of the ways I was able to do that, this was my first acquisition, but this company was only selling on their website, not on Amazon.
And this was 2015 when private label was just picking up steam, but it was still relatively easy to list things online on Amazon. So I just took the products from Mr. Cold and started selling them on Amazon. And that’s it. I didn’t do anything else. I didn’t do any other fancy website redesign, repackaging, anything. I just made my money back in six months. So I figured I’m onto something. There has to be other sellers like this that could be making this mistake of just not utilizing technology.
So fast forward to today, we’ve done over a dozen acquisitions ranging from six figures to seven figures. We’re focusing on around the seven figure mark now. And we have 80 employees, 40 in the US and 40 overseas. We have a streamlined process with each company where we hire a CEO to run each of our companies for us. We have a back office, by call that site that works as an agency that does paid advertising for all of our companies. There’s content, there’s optimization, there’s conversion rate optimization. So we have a whole team that does kind of everything to agency. I like to say me and my partners act like the chair person and sort of sit up at the board level and give guidance to our CEOs.
Nice, nice. That’s a pretty substantially large team, 80 people all across the world. That’s impressive. So in terms of scaling, I think that’s, because that level of growth is amazing. I mean, being able to do a seven figure acquisition is pretty, that’s a larger size acquisition. So what was that process like? I know that if you were to kind of slowly, you built it profitable after a year you mentioned, and were you actually using your own cash reserves to do these acquisitions? Are you doing financing? How are you guys kind of, how was that process of getting into those bigger acquisitions?
Yeah. So I am not backed by a PE firm. I’m not like [inaudible 00:08:05] a bunch of money thrown at you. This is from my savings or bank loans or Solar Financing or performance holdouts. There’s various ways to get to financing, but yeah, I take on all the liability and maybe it’s not the best way, but this was a way for me to make sure that, well, my skin’s in the game and I do a good job running the company. So yeah, this is all of our savings or liability that we take on to buy these businesses.
Got it. Got it. So when you were first starting, did you bring on a couple of partners? Did you bring on like a couple co-founders, were you just kind of solo with contractors on Upwork at the time? How was that process for you?
That’s an interesting question, Steve. When I first started, I was by myself and after the third acquisition, I sort of kept hitting roadblocks and it was because of the knowledge that I had. I was becoming the bottleneck. And as much as you learn, you’re not, you try to be good at everything, but it’s hard to be good at everything. And so I realized at that time that I needed a partner that could take on some of the risks, some of the liabilities, some of the work.
I was getting burnt out after those three, four acquisitions. So I ended up meeting my first partner through a Facebook group. And when people tell you, go network, go to conferences, do this, do that. It’s really valuable, I think. If you’re looking to buy companies, if you’re even looking to do anything, I would definitely encourage people to meet as many people as you can. In today’s age, you get random LinkedIn requests and stuff, go do that, go meet new people. But yeah, I met my partner in a Facebook group and that helped propel quicker acquisitions after that.
Nice. Nice. Meeting a partner in a Facebook group. I love it. And that’s a definitely a testament to all those Facebook groups out there, I’m in quite a few of them, just with not only website investing, but real estate and stuff like that. So that’s really great to hear that you actually met a successful partner that you guys got along with, you work well with. That’s really, really inspiring that you could pull that off. So you met your partner, you started scaling up, now you’re at 80 people. What is an example of one of the sites that you would be looking at? You mentioned that now you’re at the seven figure mark, which is kind of, that’s not kind of, it is beyond a lot of people’s reach I think. Just the average person that’s kind of getting into buying and selling.
So in terms of the excitement in the team, the scaling in the team, the keeping the quality on the team, the managing all these contractors, you’re hiring CEOs, you’re putting them in to manage the companies, walk us through one of those acquisitions on the front end, where it’s clear you have this amazing back office and this backend set up. What is it like when you’re going through the diligence of a business? Are you asking for PNLs? I know you’re digging deep. And you mentioned before we jumped on the call, you have a pretty clear process now. Can you share something about the process that you go through for buying one of these seven figures?
Yeah. So every day I’m actively looking at businesses to buy. I have alerts set up and you can do that with any brokerage company, just sign up through their email list or go to Centurica.com or BizBuySell.com and just set up an alert. You’ll see new listings every day. So that’s my initial processes. If I see a listing I’ll ask for the prospectus. Typically for every hundred prospectuses, I’ll see maybe 10 I’ll dig into further. And of those 10, maybe two I’ll place an offer. So it’s a very small group. And I’ve sort of learned that along the way, what I like and what I don’t like. And so once I realized that this is a good company, the prospectus looks nice, I usually send like 15 burning questions to the seller.
I typically do it via email. And it’s because I’ve realized sometimes I’ve seen you get better clear answers via email versus the phone, because I ask typically data back questions and over the phone, you may not have it. So via email, they’re able to do it. So once I asked this 15 questions, typical question, maybe, “Hey, I saw there was a drop from June to July, and you haven’t had that in previous months. Why?” Or the average order value is going down or your gross margin is going down, or your net profits going down. Anything that would cause a red flag. Those are some questions I would ask. Once that looks good to me that, hey, those red flags aren’t a big deal. I can help solve those problems. I get on the phone with the seller and the broker.
And typically this is where you want to build your rapport, your empathy, and a good relationship with the seller. It’s easy to knock down a business and rip it apart. But look at it from a seller’s point of view. You are bashing their baby that they’ve built, you want to frame questions in a way where you’re not bashing on, you could just say, “Hey, great job on building this company, I’m interested in carrying on your legacy, but I saw a drop in this. Could you help explain why that happened?” So I typically like to come up with more questions. You want to play a detective. You’re sort of playing a detective role right now and trying to learn about the business. You’re lifting the hood up. If a seller has been running this company for multiple years, you’re trying to learn all that in 30 days or 45 days.
That’s a lot to learn and you have to ask a lot of questions, ask more questions than less. Be curious, just because you have a background in software, you’re a content writer, still ask those questions. So once I have those two rounds of email and a phone call, typically I’ll write up a letter of intent. It could be as simple as, you could use a template. You could look up LOI templates or you could do it via email. And I’ll typically give the asking price or a little bit lower, but if I really liked the business, I’ll give the asking price. But if I feel like there’s some negotiation, I’ll give about 15% less. You want to gauge where you stand by asking the broker as well. “Hey, broker, I’m really interested in this business. What do I need to do to win the business?” It could be as simple as that.
So let’s just say the business is going for $100,000 dollars, I’ll offer $85,000. And I’ll also ask the seller on the phone. Will you take any type of seller financing? Are you open to any performance holdouts, right? With seller financing, it allows you to put up less, but allows them to collect interest. So they’re still making some money over the course of the next few years. Performance or holdout allows the, you to obviously pay less upfront, but allows the seller to make more on the backend. If they believe that you can sustain or grow the business. And we can talk about kind of different things later, but that’s what I’ll do. If I feel like there’s seller financing available, I’ll put that into the LOI.
Remember if there’s multiple offers, typically a seller usually accepts the highest offer unless they really like you. And so that’s, it comes back to making the seller like you a lot more than other people. Once the offer gets accepted, you are officially in the due diligence phase. Typically those are anywhere from 14 to 30 days, unless there’s bank financing, then it’s longer. But during the due diligence, I like to go deep into four categories. That’s financials, operations, marketing, and kind of the technology aspect of it. And so I break it down into those four categories.
I play a bigger role in financials because the business is valued on the financials on the seller’s discretionary earnings, right? There’s a multiple tied to it. So you sort of want to remake the PNO. And so I’ll ask for the authorized [inaudible 00:17:58] statements, credit card statements. If you’re Shopify you want access to Shopify, if it’s Amazon, want access to Amazon, if you’re affiliated, I want access to ads. I want access to everything that will verify money coming in and money going out.
It’s a lot of work. And if you don’t want to do all the work, there’s companies out there that offer kind of doing due diligence for you, but you just don’t learn anything along the way. It’s okay to fail. And it’s okay to ask for help too, but try to learn on your own as you go. So during sort of this discovery phase, I’m learning, but I’m asking questions. At the end of 30 days, if everything looks good, that’s when you sign your official agreements. The asset purchase agreement, the bill of sale, if there’s a sale consulting agreement. Typically what I like to include in my consulting agreement is I want the seller to stay on for at least three months.
You usually get the first month for free or 40 hours for the month. I usually like to keep the seller on for longer than that. It comes back to the transfer of knowledge. And this is where I see people messing up often is you take over a business, but now you’re left alone and the seller may be available, but if I have that in contract, it gives me a peace of mind. So I’ll keep the seller on for three months. Asset purchase agreement is usually straightforward. If you have, if it’s the same as the LOI offer. And then you go through, you wire the money to an escrow, you get all the assets and the money gets released to the seller. And now you own your own business. The first I would say 30 days, I do not make many changes.
I want to get used to the business. I want to get used to the employees. I want to let the employees know that, “Hey, I’m the new owner. I’m not looking to do any changes right away.” And a lot of people depend, their families depend on this job. And when you get a new owner, a lot of anxiety blows up. So you want to talk to employees directly and get to know them. But yeah, for the first 30 days, I don’t make any changes. From days 31 to 60, I’ll identify two or three quick changes that allow me to make a little bit more money. Maybe it’s negotiating on suppliers. Maybe it’s reducing a certain expense. So just some low hanging fruits I’ll do in the 31 to 60 days.
And after 60 days, at that point, I have developed kind of a year long plan and a three-year goal and five year goal. And so that’s what I start hitting on. But yeah, after that, that’s typically how we do it. Along the way of my due diligence. I forgot to mention this, but we start looking for a CEO as well. Typically I’ll ask my network, I’ll go to Indeed, LinkedIn. I will hire recruiting agencies to go out and they look for someone as well, but we do look for a CEO during due diligence process.
Got it. That’s a solid way of going through and getting access to everything from pretty much end to end right there. So you touched on something that we talked about briefly before the show, which was the failures. And I think that that is very important for all of the new, both buyers and sellers out there that are listening. What would an example of that be? And what would you give somebody advice that, let’s say they buy an e-commerce business that was overly exposed to Facebook ads and their algorithm and changing and rates and whatnot. And they get the business, it completely flops because they’re not good at Facebook ads or somebody is too expensive to hire to run Facebook ads, making it unprofitable. What would you give somebody advice in terms of if a failure comes around?
Yeah. That example you gave Steve, happens quite often, right? I think if you look at today’s day and age, just COVID happening, people losing their jobs, e-commerce is getting, more and more people are shopping online and stuff. People’s ears raise up. And they’re like, “How do I get part of this?” And they may look for businesses for sale. And people realize that, “Oh, you can buy businesses for anywhere from two times multiple to four times multiple. That’s a cheap investment.” I think when people realize that. If it’s a 2X multiple, that’s a 50% ROI on your money, even if it’s a 4X multiple, that’s a 25% ROI on your money, right?
So I think people get excited about that. And when you get too excited, you start having blind spots, you start accepting red flags. And that’s where I tell people to just stop, do not buy your first deal. Don’t even buy your second deal that you look at. Look at it as a way that you’re going through education. You’re sort of learning along the way.
I always say to de-risk yourself and [inaudible 00:23:46] the highest probable ability of you having success in your business, make sure that the flaws in the business or the strengths in the business can match your skillset. Right? And the example that you gave, if it’s heavily dependent on Facebook ads, and you don’t know jack crack about lookalike audiences, well, don’t buy the business. I mean, really, don’t buy the business or partner up with someone that knows Facebook ads. Maybe you’re good at operations. Look for someone that may be good with Facebook ads. The last option is agencies, but agencies, I’ve had multiple times where we worked with agencies and the person I was working with was super good, but they start getting recruited by other agencies. They may go do something else and you lose that person as well.
So yes, you do have that option, but definitely match your skillset. If you’re a good graphic designer, look for a website that’s crappy, that has a low conversion rate, that you think you can improve the conversion rate on. If you’re a content writer, look for companies that offer [inaudible 00:25:09] websites, but that’s doing well. I don’t even know what my specialty is, but I just like trimming the fat of businesses. So if I see too much spending going on, I just like to cut it in half and start tweaking it from there. And yeah, some people are really good at Amazon. Some people are really good at Facebook ads. Some people are really good at Google ads. Find those voids in the company and then buy that company. Don’t get paralysis by analysis. You will end up failing.
Well said, well said. So the finale question that I ask everybody is knowing what you know now, what would you tell Shakil 10 years ago? It’s an open-ended question.
Yeah. Honestly, I’m running multiple companies, having a big team is fulfilling. It matches sort of my, I guess, personality of doing multiple things at once. If I were to do this again, I would take two or three heavy swings instead of a dozen or so doubles. It gets exhausting. It’s great right now, but if I were to do this again, I’d probably buy two or three larger companies. And I’m sort of heading towards that path anyways, as I sell through my smaller companies. But I think that would be one thing.
And then two is, I sort of stated this before, but just be super curious in your journey as you go acquire companies. I wouldn’t say sellers do this intentionally, but if you don’t ask a question, you won’t learn and many sellers just want to sell their business, right? I’m sure there’s some red flags. There’s some flaws. You’re not going to find out if you don’t ask a question. So just be a reporter or whatever, ask a bunch of questions.
Nice. Nice. Well, that’s all the questions I have for you, Shakil. Thanks so much for coming on the show, man.
Hey, thanks for having me.
If you guys are listening on iTunes or Spotify or watching on YouTube, check the links in the show notes to check out all of Shakil’s social media and his business. Thanks again, Shakil.
Thank you so much for listening to this episode of The Exit podcast. If you’re listening in on Spotify, SoundCloud or YouTube or iTunes, definitely check out the show notes where you will see all the links that Shakil mentioned in the interview. And definitely don’t forget to leave a subscribe and a like. If you’re feeling extra generous today, definitely leave a comment on SoundCloud because you’re definitely not going to want to miss this next episode that’s rolling out here shortly. So definitely smash the subscribe button and I will see you guys on the next episode here on The Exit podcast.