#306 – Being Bigger Is Not Necessarily Better – Matt Howitt Breaks It Down
In episode 306 of the AM/PM Podcast, Kevin and Matt discuss:
- 01:12 – Two Guys Living In Austin, Texas
- 02:00 – Kevin King Story: Business Ventures While Studying At Texas A&M
- 06:00 – An Entrepreneur His Whole Life And Never Made A Resume
- 06:50 – Getting To Know Matt Howitt And His Backstory
- 09:15 – How Did Matt Got Started In The Amazon Space?
- 11:00 – Buying Amazon Businesses That Are For Sale
- 14:30 – Being An Aggregator With One Business
- 16:20 – Why Amazon Is A Massive Opportunity
- 18:30 – How Matt Started Building His Team
- 20:50 – Hiring Office-Based Versus Remote Employees
- 22:40 – How Does Matt Find Quality Employees?
- 28:30 – Raising $53 Million Of Capital
- 31:00 – Advantages Of Being An Operator Instead Of A Finance Guy
- 33:30 – The Macroeconomic Factors Affecting The Aggregator Space
- 38:00 – Where Matt Thinks The Aggregator Industry Is Headed
- 41:55 – In Amazon, The Competition Is Brutal
- 42:30 – Are All The 17 Businesses He Bought Successful?
- 47:20 – What Are Aggregators Looking For When Buying Businesses?
- 50:25 – Matt’s Advice To New Amazon Sellers Looking To Exit In The Future?
- 53:41 – How To Get In Touch With Matt
- 55:19 – The Golden Nugget Tip Of The Week
Transcript
Kevin King:
Hey there. Welcome to episode 306 of the AM/PM Podcast. My guest this week is Matt Howitt. Matt heard about selling on Amazon four or five years ago from a buddy of his, it intrigued him, ended up buying an Amazon business, then bought a few more, and now he’s got 17 of them. In fact, he would be classified as one of the aggregators that’s in the space. We’re gonna be talking about his journey and what he’s doing to give his company a better chance of survival in space. That’s had a lot of ups and downs over the last few years. Enjoy this episode. Matt Howitt, how are you doing man? So happy to have you on the AM/PM Podcast. Welcome my friend.
Matt:
I’m doing well, Kevin, thanks for inviting me on. This is a lot of fun.
Kevin King:
Now we’re doing this remotely, but we just live a few miles from each other. You’re just down the street here in Austin for me, right?
Matt:
That’s right. Yeah. I live in West Lake. You live downtown and you’re cool. I live out in the burbs. But yeah.
Kevin King:
You live in the rich zip code. I look at the zip codes in Austin, they come from the Austin business journal. Here’s the zip codes with the highest household income. And I think that’s the zip code you’re in. I might be downtown, but you’re in the rich area.
Matt:
That might be true my friend. But yeah, I’m a long-time Austin like you are, right? I know you, you did your world tour there for a number of years, but your base has been Austin for a long time. I moved here in 1997, which, but I think you’ve been around almost as long, right or longer maybe.
Kevin King:
Yeah. I came to Austin after I graduated from Texas A&M in 1990. So I came to Austin in 1990. My dad was very disappointed with me. I came with a marketing degree and I slept on my buddy’s couch for a year, actually a house up by, over close to UT. And actually, I slept on his couch for about a year or so, right in front of the TV. So I had to wait for everybody else in the house to go to sleep. There are like seven guys living in this house and we sold t-shirts actually on the UT campus. And so I used to get a lot of flack from people at A&M like, what are you doing? You graduate from A&M and then you’re going over there and selling t-shirts on the UT campus.
Matt:
I feel like this is the greatest marketing degree you could have possibly gotten. First, first, you got a marketing degree at Texas A&M, which might in fact be borderline useless at this point, then you spend year marketing t-shirts to UT students. That’s probably the most valuable marketing experience you could possibly have at that age.
Kevin King:
Well, what’s it just UT students that year, UT did really well in football. You’ll like this, I mean, we, one of my friends were still in college at the time in the engineering school. And so we got special permission to set up little tables on the corners around UT that were high-traffic walking areas. And we, and right then the song from MC Hammer, U Can’t Touch This. This was like a hot song. So we took the U and the T and put those in like orange and they can’t touch this and did this sign.
Matt:
Oh, very smart.
Kevin King:
Cool little thing and set these tables up everywhere to actually sell. And we got permission because we were giving quote-unquote, a percentage back to the engineering department, or some fundraiser kind of thing, which I don’t think we ever paid anything, but we got permission and then we would do game days. You’d have back then the stadium I think was smaller, 80, 90,000 people back then coming on a game day, we would set up and sell these shirts, but nobody could see us. Nobody, you have masses of people walking into a stadium. And the only people that can see your little table are the ones that pass right in front of you. And so my buddies that were doing this with, they were like, we gotta fix this. So they built this catapult system. So they built this like takes these two by fours.
Kevin King:
It painted ’em black and like put all the hinges on ’em. And so they would fold down flat. So you could put ’em in the back of a station wagon, and we would take ’em out and we would unfold ’em, It’s kinda like a picture of unfolding a beach chair or something we’d unfold this beach chair. And they would pop way up into the air and we’d hang these shirts off of a clothesline, way up like 10 feet in the air. So you could see ’em from above the crowd and everything. And we would sell $40,000 to $50,000 worth on a game day. You know, when you’re 22 years old and getting $40,000 to $50,000 in cash and splitting that among three partners every game day. Yeah. You’re riding pretty high.
Matt:
This is such a Kevin King story for so many reasons. But my favorite part of it being a Kevin King story is not that you’re making $40,000 or $50,000 a day, but that you were making $40,000 or $50,000 a day, but still sleeping on a couch. That’s my favorite part.
Kevin King:
I was sleeping on a couch,
Matt:
Dude you can afford a much better bed than a couch when you’re making, you know, I guess it’s what, only four or five, maybe six home games.
Kevin King:
Yeah. Six home games, I think. And we did like making about $10,000, but I was buying nice stereo stuff. And, but I did, I moved out a year later into my own little apartment and, you know, I had the nicest TV and I had all that kind of stuff. But so yeah, it was good, but we actually took that. And then we actually went on the road. We’re like, this is kind of cool. Let’s go hit all the spring break spots. And that’s where we lost the money. We actually went to take a station wagon full of shirts, not UT shirts, but other stuff we just did, and tried to hit all the beach towns from Padre Island to Florida and try to sell shirts to the beach shops. And that was a cool trip. A lot of good beer drinking and having fun, but we didn’t make too much money off of that point.
Matt:
I was gonna say, I think it was enriching in other ways would be my guess
Kevin King:
Exactly, but yeah, it was a good time. So, yeah, I’ve been in Austin a while. I’ve been an entrepreneur my whole life and that’s where a lot of people, always ask you when you get into this business what’d you do before? I like sleeping on a couch and like I’ve never worked for anybody. I’ve worked for some, I’ve had two jobs where I had to fill out a, what do you call the thing, a W-2 where I had to fill out a W-2 that was McDonald’s and pizza delivery.
Matt:
You fill out the W-4, but the W-2 is how much they pay you.
Kevin King:
Okay. That’s what it is. See, I don’t even know the name.
Matt:
There you go. Yeah. Yeah. Right. W-2 is what you got when you actually got paid that’s your annual income.
Kevin King:
I’ve actually never made a resume. Actually, I think I had to do, I had to do one in college, for a class or something, but I’ve never actually made a resume, but speaking of resumes, your resume is impressive. Your resume, it’s a Harvard grad, what’s your background? The old story background.
Matt:
That is that’s correct. I graduated from Harvard in 1997, and as I say, moved to Austin right, right? Thereafter and worked for, you know, a string of high-tech companies here in Austin for many, many years before becoming an Amazon entrepreneur. We don’t have to talk about my resume. But definitely cut my entrepreneurial teeth working for the sort of different than so many other entrepreneurs in the Amazon space in the sense that almost all of them are bootstrapped as was your t-shirt business for sure was bootstrapped. But the companies that I worked for always had some sort of institutional backing, some sort of venture capital type investment from really when the time I got outta college. And I wasn’t the founder of any of those businesses and a couple of them, I was like the first employee that the founders had hired.
Matt:
But I didn’t find any of them, but I worked for a string of companies here in Austin, I guess five total before starting Profound Commerce. All of which, you know, through some combination of luck and good, but I think more, more luck than good had you know, successful outcomes for their investors. So I got to sort of over the course of the first 20 years or so of my career, just see how that was done. How is institutional capital raised? How is a story told about what the company’s gonna be and how it’s gonna evolve? How do multiple rounds of financing work, hiring, et cetera, you know? And so I’ve worked for, I have had quite a few jobs. I’ve written my resume quite a few times. And in total, before founding Profound Commerce and becoming a CEO myself, I worked directly for five other CEOs.
Kevin King:
When you got into this Amazon space, what actually lured you there? I mean, you said you had a side hustle and you were doing stuff, but I remember when I first met you, I think it was at the Billion Dollar Seller Summit you came to one of those a couple of years ago and then we had I think launch afterward, cuz we were both here in Austin and you’re telling me a little bit, but you were still working at that time for one of these companies and you were doing the side hustle on the side with the Amazon. So how did this Amazon thing lure you in?
Matt:
Totally, well, you know, Austin is a very vibrant community of entrepreneurs and all sorts of people doing things. And it’s one of the reasons it’s so fun to be here. It’s such an interesting city with such interesting characters and culture and people. And I had a friend of mine who had gotten involved in the Amazon space and he and another guy and I would meet regularly and we would talk about what we were all up to. We were friends and work colleagues as well at various companies over the years, we’d just hang out and he would come in and he would tell us about what he was doing in the Amazon space. And I couldn’t get enough of it. I kept hearing what he was up to and sort of the results he was getting.
Matt:
And I was just like, this is really, really fascinating. And he’s like, yeah, it’s pretty cool. Isn’t it? I’m like, no, man. It’s like really cool. And he was like, yeah, yeah, I guess so like whatever, I feel like I was more into it than he was. And so that’s sort of what kind of got me started. And I was like, well, I’m pretty interested in this. I should like to look into it. And I thought to myself, well, I could start one of these businesses on Amazon and I didn’t know anything about the tool sets back then. I didn’t know how to use Helium 10 to, you know, find the right keywords and find a product that is low competition, high search volume, all these kinds of things. So I didn’t know what to do there but what I did have some experience with previously was buying other businesses.
Matt:
I had done that as a side hustle. I’d bought an internet site from a broker and I thought, well, interesting, let me see what I can find. And then I started to look a little bit and I noticed that there were like, and this was in spring of 2018, maybe. It turned out there were a lot of Amazon businesses for sale. Of course, there became a lot, a lot more over time into 2019, 2020, 2021, and now in 2022, but even back then, there were at least a handful of businesses for sale. And I looked at a couple and I thought they were pretty interesting. And I just sort of like on a whim decide to buy one cuz I was interested
Kevin King:
That was with your own money or did you raise money to buy that business? It
Matt:
It was a combination of my own money and some friends’ money. Those two guys I was talking about, kicked in some money. We found some other folks that I knew it wasn’t institutional funding by any stretch of the imagination, you might call it angel investing, but it’s probably really just like friends and family. There, there was no actual family involved, but just friends and each of them cut me a check for either mid-five figures, a couple of them, or six figures. And we went off and bought these Amazon businesses for about $800,000. And so, and, and I didn’t know what I was doing at all. I just thought this is cool. I’m gonna figure it out. This guy’s figuring out all these other people are figuring it out. Some of them are getting really successful.
Matt:
It’s, it can all be completely time-shifted. Like I can talk to the suppliers in China at night. I can do almost all the work, not outside the normal office hours everyone loves that aspect. I think being an Amazon entrepreneur, it does give you a lot of time flexibility. You certainly have to work hard. But you can kinda work at all sorts of hours and from all sorts of places and be successful. And so I was like, oh, well I’ll just work my day job. And then I’ll work on this and that’ll be cool. And that’s what happened. And when I got into it, I didn’t really think that it would ever become anything as big as it has now become for me. But I really got more and more hooked over time.
Matt:
I thought it was interesting when my friend was describing it to me and then it just got more and more and more fascinating once I actually was in the business of operating and growing one of these businesses, myself, and I think I bought the first Amazon business I ever bought, I bought it in like September of 2018, I guess. And then, you know, we went through the whole holiday peak season. The business was growing very rapidly when I bought it. It was like growing at almost a hundred percent year over year, just sort of organically. And honestly, it was easier back then, as we all know on Amazon, with less competition, lower cost per click, all sorts of things that made it easier, cheaper supply chain cost, you name it.
Matt:
So took the business through December and into January. I was just looking at the results, like how much did I pay in September? How much, you know, revenue had we accumulated over those four months, how much profit had we made you know, how much time had I spent working on it? And I remember just thinking in January of that year, so January of 2019, just like, this is so cool. I wanna do more of this. I wanna do a lot more. And I’m excited about the one I own and I wanna own more. And I, you know, maybe this is like a thing I could do as a real job as I could, I could build a company around this. And at the time, so I was like, at that point I was an aggregator with one business.
Matt:
And so, I thought to myself, and I kind of knew about aggregators that were out there. Like we, you had the URR aggregators, the proto aggregators were on the scene by that point, like Thrasio, as it turns out, bought its first business in June of 2018, I think is the right, right around that time. And so we, you know, profound commerce bought its first business. And by the way, it wasn’t even called Profound Commerce, which is of course the name of the aggregator that I now run and or founded in that run. It wasn’t even called that back then didn’t even have a name basically. But we bought our first business in September. So we didn’t quite go as fast as Thrasio. I always like to joke about it, but that model was coming on the scene.
Matt:
There was a lot of people talking in the buying and selling community at that point about, Hey, there are some people who are now becoming like repeat and multiple buyers, like brokers like quiet light or, you know website closers like they were seeing the same guys pop up over and over again, looking to buy these businesses, even though sort of the aggregator model hadn’t launched yet. So there was Thrasio then of course there’s Richard Jalichandra’s company who you also know, cause he’s an Austin Guy, which is 101 Commerce which of course eventually sort of merged with another aggregator and I’m not even sure what fully is going on there anymore. But there’s a couple of guys, couple of companies doing something like what I was thinking about doing. And I just thought that this was a really good entrepreneurial opportunity, which was just, you know, the Amazon don’t need to tell anybody on this podcast, but like the Amazon market is massive.
Matt:
E-Commerce is massive. You know, Amazon is the single greatest aggregator of consumer demand for physical products that the world has ever seen. And we all know that by like the incredible search volume that Amazon has for every keyword you could possibly think of on the planet and many, many more that you could never possibly think of. And so all of a sudden, it just looked to me like an amazing opportunity. Like, can I buy more of these businesses? Can I pay the right amount of money they’re growing really rapidly. Can I put together you know, a team of people who know how to do this well, who know how to find good businesses, but more importantly than that, and this is I’ve always had the mindset of operator first.
Matt:
And so it was always for me like I wanna buy these businesses cause I think the brands are cool. I think where the products they sell are neat. I see an opportunity to sell more products to this customer base roadmap, expand them in all sorts of different ways, do brand building, marketing, and all the things that we do to make our businesses more successful over time. I wanted to do all that. It wasn’t just about buying the next one. For me, it was about finding the ones that I really wanted to run. And so back to the origin story and I looked around for a couple of things first. I wanted to look at more businesses, but I also needed more money. Like I had essentially, you know, tapped out the network of friends at that point.
Kevin King:
Cause you went from one to four fairly quickly.
Matt:
I went from one to three in about
Kevin King:
To three?
Matt:
One to three in about three months. And the fourth one took us another like nine months. And so, but by basically a year and a couple of months later I was running a small aggregator with four different businesses.
Kevin King:
How many people did you have working for you at that point? Cause you were still doing a lot of the daily stuff.
Matt:
Yeah, absolutely. And I mean, even to this day, I’m still super hands-on, even though Profound Commerce now owned 17 of them. But you know, back then we had so, you know, putting the team together, I eventually convinced a really good friend of mine who became a co-founder of profound Nirav Bhagat to come on board. So it was Nirav and me, and then we had like one or two us employees and we started building in the Philippines really early. So by the time we even had three brands, we had a team of four people that we’d never called VAs. We’ve always just called them our Philippines team, but that’s conventional.
Kevin King:
Some of those came from one of the guys you bought, right?
Matt:
That’s right. So as many of you know you know, Mike Jackness is a podcast e-comm crew is very well known and he talks about his business Colorit that he sold, which was in the spring of 2019. He sold it to me or to me and my company, Profound Commerce. And Mike is a great guy and actually is now an investor in Profound Commerce. And he had also been building in the Philippines for a long time, even before I got to know him or got to know Colorit the business. So he was helpful in helping me sort of seed our Philippines team over there. Some of the folks who worked on Colorit for him in the Philippines, came over to work for us as part of that acquisition. And that really got us started.
Matt:
But we’ve scaled significantly since then. That was like four people and now we’re at 45 in the Philippines. So it’s definitely been extremely helpful for Mike to sort of bootstrap us over there. And we have always had sort of like, that’s just an extension of our company kind of mentality with it. And so now we do an incredible number of things in the Philippines and we’re hyper-efficient from the US perspective. I think that’s one of the things about profound. That’s different than some of the other aggregators who just seem to hire so many, but today, we still only have 25 US employees and, you know, we’re managing 17 brands with those 25 people and another 45 from the Philippines.
Kevin King:
Is that working in an office or all remote?
Matt:
So it’s a hybrid. We have about 12 people here in Austin and we do have an Austin-based office. And then we have another 10 of those people who are US employees who are spread around the country. We sort of have look, we did it, the pandemic obviously completely changed the game in terms of how office versus remote work really was done and how it was accepted. And I think from my perspective, as CEO and founder of a company we need to get the best talent that we can to make the company successful and the best talent isn’t necessarily in Austin and doesn’t necessarily want to come into an office every day. And so we have a very flexible policy. It’s interesting we have people who really do wanna come into an office every day and they do I work out of our office only two days a week, Tuesday and Thursday.
Matt:
And then Monday, Wednesday, and Friday, I’m at home. You know, we’re doing this chat on a Friday, I’m working from home today. And we have a very flexible policy and it works really well for us. And I think it’s great at attracting talented people because we give them the flexibility that they want and you treat them like adults assuming that they’re gonna get work done. And by the way, like have a great culture have, you know, meaningful work to do that makes people wanna work. And it also makes them wanna work hard and work smart. And so that’s sort of like my mantra. I don’t need to be making sure that they’re in their seat at 9:00 AM at my office in south Austin, I don’t care. I just want them to be kicking and making the company more successful. And however, what works best for them is what’s gonna work best for us overall as a company.
Kevin King:
So how hard is it to actually find these people though? I mean, a lot of aggregators have had trouble finding quality people that know this stuff. I mean, you might be able to get someone that graduated even from Harvard with a degree in business or marketing or whatever, and they come into this space. Yeah. And they’re like totally lost. So how do you find those people?
Matt:
It’s a different animal? I sometimes relate Amazon to almost being like a trading desk. Like you’ve gotta be on your listings, on your competitor’s listings, you’ve gotta deal with negative reviews and hijacks and all sorts of crazy stuff, right? In a way that is, I think very differently than conventional businesses. The Amazon marketplace is a whole animal in itself. And it’s different than selling onto your, your website and B2C business. It’s different than selling it retail. It’s just a very different animal. And so, you know, when we first started Kevin, like there weren’t, nobody knew it very much reminds me actually of a different place in my career. You know, when I had just graduated from college and the internet was substantially disrupting the world, it sort of the first version of it was beginning to disrupt everything.
Matt:
And one of the things that it was disrupting was also like employment in the sense of you had all these internet companies that were trying to hire people who knew how to do stuff on the internet, how to build things. And, here was a huge industry of that now, obviously, but back then, nobody knew anything about how to build anything on the internet. And I think we were all like fumbling around trying to figure it out. And I felt like Amazon, you know, when, when we were first getting started in 2018 and 2019 is the same way. Like you couldn’t hire anyone who knew anything the people who knew stuff were working for themselves and maybe they were working at agencies. But it wasn’t like, you know, Amazon Seller Central experience was a resume item.
Matt:
If you will, that, that people, you know, put on their resume, if anything, they were like me doing side hustles where their day job was at the top of their resume and their Amazon business was not mentioned at all. You couldn’t find those people. And so yeah, you know, at first it was really hard and you don’t necessarily hire based on the people’s experience or their specific skills, right? You hire more on their ability to learn quickly and to be a culture fit and to assimilate into your company, et cetera. I mean, I’m sure many, many people have had the experience where you hire someone who’s supposed to be an incredible expert. And then but they don’t are compatible culturally in any way, or they think that their previous context is the same as this context.
Matt:
So, you know, every problem that they solve at your company is, well, we did it this way at my last company. So that’s where we should do it here. Really? Maybe not. Maybe things are different here in some set of ways that make that solution invalid. Maybe it’s good. Maybe it’s bad, don’t know, but it’s so you sort of getting into this mode of like, you know, experience people might not always help you. And then the flip side of that is like, sometimes you hire someone who’s inexperienced, who’s super motivated, great learner. And you’re like, I can’t believe how impactful this person is. I can’t believe how quickly they’re picking all this stuff up. I can’t believe the value they’re creating for me and my business. And so, you know, the people that we hired at the beginning, they were just smart, motivated, eager to learn and they cared.
Matt:
And I think that goes a really long way and it’s a developing space. And what that means is the companies are developing, they’re all immature in their process and in their leadership, et cetera, the people who are working there are immature not like in a personal sense, but they, you know, they’re, they’re not experienced, they haven’t been doing this for 20 years because this hasn’t been something that you can do for 20 years. So I think when these, you know, when all these companies launched, when we launched, you know, yeah, there was no one to hire. And the difference in terms of whether you did a good job or not was whether, like you found people with the appropriate skills, but if previous experiences, et cetera, but more if you found the right people who were able to learn, fit the culture that you were trying to build, et cetera.
Matt:
And so I think if you have a lot of experience doing that, you know, building companies from, you know, small to bigger, like I did in my previous roles, working for this different startup, like companies for about 20 years, you’re at a real advantage. As you’ve been hiring forever. And I was hiring in the early days of the internet when no one knew about the internet. And then I was hired in the early days of being an Amazon aggregator when nobody knew anything about Amazon. And so it was fine, but now it’s sort of an interesting different ball game. Like over time, we’ve accumulated, and now this has been around for a few years, right? Like most of the bigger aggregators launched in the summer of 2020.
Matt:
So, we’re past the most of them are now at least two years old. And what that means is that you have people who have worked there for two years, who now have two years of experience, it’s definitely an evolution in terms of what skills are available and how you think about constructing a team that can go about and, you know, accomplish the objective and be successful. But yeah, it was hard in the early days, but I felt like I had some experience not specifically hiring for Amazon, but experience hiring in this sort of context where no one knows anything, and it’s an emerging market.
Kevin King:
So you went from these three, four companies, and then you decided, Hey, we’re gonna really blow this thing up. And you went out there and you used your knowledge from your last several companies on raising money and you raised north of $50 million. Is that correct for Profound Commerce?
Matt:
Yeah, so that’s correct. So yeah, the total amount of money that we raise is 53 million, and that is spread across equity and debt. But yes, we were fortunate. We spent a long time looking for the right partner. I mean, I can’t describe to you how weird it was for me and my co-founder Nirav in the summer of 2020 when all of these companies started to launch when perching and Hey, well, purchase a little earlier than, but would say like, Hay day and elevate and cap hill and, and a number of them, all of whom I now know the CEOs and some of the employees of those companies. But, you know, I think it was, we had the same experience that I think all of these other Amazon sellers had. I mean, at that time we still had four businesses.
Matt:
And you’re hearing about these people that you’re hearing about these companies that you’ve never heard of before, who suddenly are saying, putting out press releases that are saying we raised a hundred million dollars to buy Amazon businesses. And you go to their website and you look at there, the people on their website on there, about page. And you’re like, I’ve been in the Amazon space for two years. I’ve never heard of any of these people who are they, right? Like, I think that was the reaction that the entire Amazon seller community had when aggregators launched, who are these guys, like, it wasn’t anybody you’d ever met at a conference before, but it was so interesting, right? They had a skill set that was pretty much fundamentally different than Amazon sellers. Right. They could go out and tell a story and get institutional capital.
Matt:
What Amazon sellers could do is find an amazing keyword with search volume, find a supplier by hook, by crook, and get a good product or a decent product built. It depends on what era you in either grab the product on Alibaba or just throwing it up on Amazon. Or maybe later on like actually do some innovation, et cetera. It was a little harder. But they had a very specific skill set. There was almost no overlap between those two types of people. And so it was just like very strange. So when that started happening to us, it wasn’t like we had never had the idea either to try to raise more money from outside investors to invest in more of our businesses. It’s just when we would go talk to them, most of them weren’t that interested.
Matt:
And so, but then all of a sudden, all these guys who9 and we see ourselves as operators, not finance guys, but then all these finance guys are out there raising hundreds, literally hundreds of millions, and then eventually billions of dollars to, you know, prosecute this thing that we’ve already been doing for two years. And so when that started to happen, we were like, well, we should get our own, like, how do we, how do we get that check? Like, and we kind of think we know what we’re doing, right. We’ve been doing this for two years. At least already, we bought four businesses. They’ve been successful. We’ve put together a team. It’s not a big team, et cetera, but it’s a team that knows what it’s doing, hired a few people in the US, hired more in the Philippines, et cetera.
Matt:
And we went and knocked on the doors that all of these different guys had knocked on. They were like, yeah, you know, that’s cool that you have four Amazon businesses. These guys are gonna have 50 in like a week or something they’re gonna buy 50 in the next month. That’s a much more interesting model to us than you’re four. I’m like, well, we could probably buy some more like, but we need more money. And they’re like, yeah, well you’ve only bought four and it’s been two years. You’re like, you guys kind of suck. And I’m like, oh man. So, we eventually did find a great partner which is Ally Capital Management is who our investor that invested 53 million dollars. And it took us a long time. It took us almost well from start to finish. It took us a year, but like we sort of started talking to them may be in the first six months, and then it took another four to six months to put the whole deal together.
Matt:
But Ally Capital Management has been, I mean, I tell everyone this and they’ve been really, really good to us. They’ve been incredibly supportive from the moment we met them. I think there was some really, you know, good alignment in terms of how we view the world and how they view the world. And so we spent some time it took a long time to hammer out the deal as I was saying, but, you know, by the fall of 2021 is when they gave us, we finished all of the documentation and the legal workaround actually raising that financing. So we started thinking about that in the summer of 2020 when all the other aggregators started launching, but then it took us another year to actually find the right partner who we wanted to work with and who wanted to work with us and find that mutual fit was, was difficult. It was a great move for us and it’s been a great relationship. So, yeah.
Kevin King:
Do you think you have an advantage because you were more of an operator versus a finance guy? Well, all these others were more finance guys and just seizing the goal rush versus you were a true operator before you were really expanded out.
Matt:
I hope that is the case, Kevin, and I can tell you that now, as we think about, you know, raising more money for the company and continuing to try to expand, that is a big piece of what we talk about when we talk to investors and we have some great proof points you know, in terms of like the growth that we’ve been able to achieve with our businesses, sort of the discipline we’ve had financially in terms of how we’ve scaled our own, you know, corporate expenses, the number of people we have, how we’ve sort of used the Philippines in a very leveraged way where, you know, for essentially for every one US or Western country employee, we have two Philippines people that not like they directly support each one of those people, but we have a very different ratio than most folks have in terms of like us to low-cost geography head count.
Matt:
So yeah, we talk about those things and I think it does give us a real advantage. I think the other thing about us that is advantageous is those guys scale way too fast. You know, it’s not necessarily clearer that more is better in this space. Like, are you better off with 250 Amazon accounts than you are with a hundred or 50? Sure, you might have more revenue, but does that mean you’re gonna be more successful as a business? And I think that that is, you know, at first, this space was all about just buying as many of these things as I possibly can, as quickly as I can continue to escalate the amount of money that I’m raising and put out more and more press releases about how much money I have and how many businesses I own.
Matt:
But at the end of the day, I think you kind of has to ask yourself, so what’s like once you buy a hundred businesses, a hundred Amazon accounts, is it really better to buy 200 Amazon accounts? And if you’re to then buy another hundred and have 200, and if you’re going to market either to attract capital or to go public or to sell, you know, to some other entity, are you really better off with 200 versus 100? I mean, you’re a more attractive company, the bigger you are, but that doesn’t mean that operationally you’re able to manage, you know, that many. And I think from my perspective, the aggregators that scaled the fastest and were the best at attracting capital and then putting it to work are actually the ones that at least sort of from a rumor mill perspective are doing the worst, right?
Matt:
Like who is in the most trouble. And I think, last year and I’m stealing this from Ryan Nisani, at Elevate. So I need to properly credit him before I do it. But like we were all running this race and everyone thought to buy faster buy more, raise more money. And because there was a perception that the longer you wait, the more expensive various businesses got the more likely the good businesses were gonna get snapped up by a competitor, all these sorts of things. And, you know, in 2022 that has completely changed because the world has changed significantly from an interest rate outlook from, you know, inflation, which is why interest rates are rising because, you know, the government is trying to combat inflation. We have a war between Russia, and Ukraine, in 2021, we’d had millions or bill trillions of dollars, I should say, injected into the economy because of COVID. It was a very, very frothy environment in 2021, and now things have really turned around and changed. And you can just check your stock portfolio to sort of know how difficult that’s been sort of what is now compared to what it was in 2021.
Kevin King:
Even some of the people at some of these big ones, like, you know I just saw equities then someone from Thrasio is selling their shares at an 80% discount over the last valuation. The last valuation was 7.3 billion. Yeah. And they’re selling at an 80% discount to the last valuation, just dumping. So there’s a lot of loss, faith in a lot of the aggregators and you’re seeing a lot of them are consolidating or the bigger ones are buying the little ones and some of ’em are gonna probably go out of business. So where do you think this is? This is headed in this space.
Matt:
My perspective is that this is still at least to some extent, a grand experiment to figure out if these models work and actually let put a different way. I think this model does work, but that doesn’t mean that all the companies that have given all of this capital figure out the right model. Right. And I think, you know, there are gonna be some set of winners in this space. I firmly believe that there are gonna be companies that figure out how to operate successfully. They grow and have, you know, sort of meaningful returns to their investors, you know, create meaningful value for their employees, make their customers happy, all the stakeholders. Right. But I think like in any sort of frothy market or mania or whatever you want to call it gonna be a lot of losers.
Matt:
And in fact, there’ll probably be a disproportionate number of losers relative to the winners. And so I think we will see some amount of consolidation in the sense of aggregator X will buy aggregator Y and, but I think that what the issue with that is that bigger may not be better. And that a measured pace to grow. Sometimes the tortoise really does win the race. And it’s just not entirely clear as in the next few years develop here that the biggest guys who grew the fastest are gonna be the actual winners. And I think, it’s possible that they find a way, they’re the ones in the most trouble, from what we can tell in terms of just like how difficult it is to manage their businesses now. But it’s possible they’ll figure it out, but I think it’s also maybe smaller companies that scaled faster, like us wind up being the ones that are actually the true long term winners in the space.
Matt:
And so, that’s the bet that we’ve always made. And it’s funny. I didn’t really choose that bet. I just am it like, I didn’t, I’m not a finance guy. Like I couldn’t raise a couple hundred million in the summer of 2020. I didn’t know how to do it. And so I didn’t choose to be the tortoise. That’s my skill set, if you will. And so, but it might just be, a lucky tortoise if you will, and that it could work out for us, relative to some of these other guys who, you know, not like we didn’t have similar ambitions, they just had the ability to execute it much faster, but perhaps not better. So but the story is still to be written in this regard. As I said, I do think there eventually will be winners in this space, but, you know, it’s, it’s not just like a manic buying spree.
Matt:
You really do have to build, you really do have to operate. And I think that a lot of folks got into this thinking that it was easy money like make a fast buck and they always go up into the right and, you know, they were just going to grow forever and you don’t have to worry about competition and like your garlic press is always going to be superior to the next guy’s garlic press. And the fact that you got 10,000 reviews on it, it’s gonna be very, it’s gonna sell, it’s gonna continue to grow forever. And anyone who’s been playing the Amazon game for any period of time knows that is not how it works. I, you know, one thing I always like to say is all real estate on Amazon is fleeting. You don’t own your keyword.
Matt:
You don’t own your search rank. You have to earn it every day. And there are people out there who are trying to knock you off your pedestal, right? Take away your Best Seller badge, take away your top three rank, etcetera, et cetera, let alone all the things like how Amazon’s making it more and more expensive to operate. Don’t even set all that aside, right? The competition is brutal. It’s one of the purest markets out there. And the idea that you can buy some business. It doesn’t matter what you pay for it. And that it’s just gonna have those returns or better forever with, you know, sort of minimal investment. So you can just kind of ignore it and move on to buying the next one. That’s not how it works. That’s not how any business works. And I don’t think the laws of physics have been changed by the Amazon seller third-party marketplace. You still have to, and if you don’t do those things well, you will not win.
Kevin King:
I agree. I agree. So if any of the 17 that you’ve bought so far just turned into be a mess. It wasn’t what it was cracked up to be or what it looked like once you got truly inside of it.
Matt:
I mean, I think we, we make mistakes all the time. Like we are not perfect. Like everybody else there are a couple of those 17 that we bought that I wouldn’t say there was fraud or that we were misled or anything like that. But we made a set of assumptions that have proven to be bad, you know, in certain cases, like we didn’t fully understand the impact that COVID had had on the business. And we thought it was smaller than it was, and it was actually much larger. We didn’t really understand how COVID had impacted it. And then another year goes by, they’re like, wait, the business is very different. There are a couple of businesses like that. There are a couple where we have one business right now that’s linked to housing.
Matt:
And you know, the environment that the business was purchased when we bought it was like the housing market was extremely frothy. Basically, interest rates were low. I mean, everyone can look at their real estate values over the last few years and see this enormous increase. Right. And so I think we underestimated how much this business was benefiting from that very competitive home buying market that was out there home buying and selling market. And so there are things like that. So I would, you know, look, we have more, we have many more wins than we have losses. And that’s the value of portfolio management, right? Like you have a series of businesses, you’re not just dependent on one company that sells aprons. Like our original purchases that do good. You have many businesses across different sectors in some are going up and some are going down hopefully many more are going up than going down. But the idea that you could make 17 purchases like we have, and not make any mistakes and not have results that you didn’t expect and not overlook things, it’s insane. Of course, that’s gonna happen.
Kevin King:
What’s one of the ones that you’ve bought that’s just taken off? Like you’ve just like 5x or 10x, or do you have something like that as well? Or are they just a kind of steady growth?
Matt:
We don’t, we don’t have any that we’ve 10x. We do have some that have doubled or tripled and, you know, in a short period of time in a year or two. And yeah. And so, you know, you know, we have one business in the medical space. You can see our website called patient. That’s been an incredible purchase and we’ve doubled its revenue easily and grown its actual profitability even more than that. And so that was a really big win. And there were some interesting things there, they were doing a lot of FBM tripping when we first, you know, got involved with it. We changed everything over to FBA. Most of the listings doubled their conversion overnight when we did that, a bunch of the listings was really crappy. We improved them a lot.
Matt:
We got better photography, etcetera, all the things that aggregators do, we ran PPC smarter, right? All of those things, you know, added up to a, almost a triple now I think I have lost track a little bit, but yeah. So look, we have our shares of wins. We have our shares of losses. That’s gonna be true for any portfolio that you’re managing. I think the key bit is right. Is to be a good picker, like pick businesses that have great potential, which I think, you know, when you’re trying to buy 250 in three years, inevitably, you’re gonna make more bad choices. You’re gonna feel rushed to pick if you will. So be a good picker. But then after that, like be a good operator, right? And so, you know, you put those two things together and we think we’re good, pretty good at picking.
Matt:
We work really hard to be good at operating and, you know, go from there. But back to the question about what happens, look, Amazon is gonna continue to be an incredible opportunity for entrepreneurs. And some set of people will figure out how to build scale companies that are good at being Amazon sellers. And some people will not. And I think, I’m hopeful that we’re one of the winners in this space, but we don’t know yet. We’re pretty optimistic about it, but I don’t think that anything is inherently impossible or broken about the model. But I do think it is a heck of a lot harder than people thought. And I think you have to show up every day and have real expertise and really care. Just like making any company successful. This entrepreneurship is no different than any other entrepreneurship. It takes grit, it takes hustle, it takes brain power. It takes capital. And it takes some luck and you put all those things together and sometimes you win.
Kevin King:
So if I’m looking to sell my business to someone like you, what is a few points that I need to keep in mind when I say, Hey, I’m ready to exit my business now, Hey Matt, would you take a look or are you maybe interested? What are some things that you like to see?
Matt:
Yeah, I think one of the things that’s interesting is what’s happened in the market, you know, as you get bigger, whether you’re Profound Commerce, whether you’re Thrasio, whether you’re anybody else, the bigger you get, naturally, the more you wanna look at bigger deals because you have accumulated a bunch of revenue. So you’ve got a hundred million in revenue, a 1 million deal just isn’t that interesting anymore in terms of like moving the business forward, right? All of a sudden you’re thinking like I need to buy at least 10 million more in revenue that adds 10%. But if I buy one, 1 million business, that’s like only moving,1% increase. And I think that that’s something that entrepreneurs need to better understand, not better, but understand is that, you know, as aggregators get bigger, they’re gonna increasingly wanna do bigger deals.
Matt:
And so, if your business is a few million in revenue, couple hundred thousand in profit, there isn’t the same market for that, that there was at the beginning. And now if you’ve got a 10 million business, that’s throwing off 2 million a year in profit and is still growing rapidly, that is a very, very interesting business to people like me and many others in the space. And so I think that’s one thing to keep in mind. I think another thing to keep in mind is that, you know, I was talking about how last year it was like a race and everyone was trying to move as fast as possible. People are saying that 30 or 45 days closes and we can get your money in five minutes and we’ll give you a Tesla to in the process.
Matt:
Right. I think those days are over. And it doesn’t mean that your very good business can’t command an attractive valuation. But what it does mean, I think is that the process is gonna go slower and it’s probably gonna take longer. There’s gonna be greater scrutiny on the front end than there was previously a year ago. And so I think that process is very difficult for an entrepreneur, right? Like selling your business is time-consuming. It was expensive. It’s obviously emotionally difficult. And the process is now, it’s more of a buyer’s market now than it was a seller’s market a year ago. And buyers can be more selective. They can take their time. They can stretch the process out even more. And so I think entrepreneurs sort of need to understand that new reality that where they had a lot of leverage a year ago or two years ago. That is, that is a bit different. Now, now that doesn’t mean that we’re gonna be jerks about buying your business. And I hope that’s true of all the other aggregators, honestly, but it does, but the market is different and sort of your expectations of how this transac you as a seller, your expectations of these, how these transactions are gonna go, it’s gonna be different than it would’ve been last year. It’s two things that come to mind.
Kevin King:
So if I’m new or just getting started in this business, and I just went through the freedom ticket, or I just found out about this and I’m listening and trying to gather as much information. You said it earlier, the days of just going into Alibaba and sticking your name on something and selling the next garlic press are pretty much over, what do I have to do if my goal is to exit in a couple of years from now, what do I have to do to make my now to make myself attractive? Do I have to be truly innovative and come up with some brand new design and brand new thing? Is it about my marketing? Is it about being off of Amazon and having diversification? What, or having just built a true brand? What do I have to have an audience? Or what did I have to do?
Matt:
Yeah, I think it all works together. Honestly, but if I had to pick any of those from the list, I would say branded audience, what you’ve ended on I think is actually the most important piece. And it kind of gets back to something I was talking about before, how every piece of real estate on Amazon from my perspective is fleeting. You never own your keywords. Doesn’t matter how many reviews you have. You can always be displaced. But from my perspective as a buyer, long-term value is in the brand and in the audience. And so, you know, the brand is your story. How you talk to your customers, certainly your visual look and feel, but it’s really what you stand for, right? When someone buys your product, what does it mean to them? And then also on the audience side, you know, your audience is your tribe, right?
Matt:
The people who are your raving fans, who, you know, who love you, who love your product, and who love your brand. And they even like love you as an individual entrepreneur. And so those things brand and audience, I see those as being much more permanent than your search position on Amazon. And so if you’ve got an attractive brand where you can innovate and create new products and introduce those, and then you’ve got an audience that you can sell them into, that is something that is sustainable and durable and is worthy of someone buying your business and continuing it forward. If you just have a product that you’ve plucked off Alibaba and is essentially a commodity, and might even just be a little bit better than the previous garlic press and say it accumulates a bunch of reviews and a bunch of cash flow or revenue, and then cash flow.
Matt:
At the end of the day, you’ve got revenue in cash flow, you have something, but what do you have of sustainable durable value that is gonna be worth something to someone, not just in the next five minutes, but in the next five years? And I think that it is not the same environment as was where like, oh, that that product has a lot of revenue in cash flow. I want it as a buyer, it’s more about like you building something that is interesting and differentiated, you know, has a brand that some set of people care about and has an audience that you can continue to mine and, and get harvest value out of over time.
Kevin King:
Awesome. I can’t agree better, Matt, I really appreciate you taking some time today and sharing with us your journey and your thoughts about everything. It’s been awesome. I’m sure we could sit here and talk for another two or three hours. And if people wanna reach out to you and, and get ahold of you, what’s the best way to learn more or to reach out?
Matt:
I mean, it’s mhow@profoundcommerce.com email address feel free to reach out. We also info profoundcommerce.com more general list will get to more people. But you know, my personal email is mhow@profoundcommerce.com so happy to engage with anyone and everyone about this space and share our knowledge and importantly also learn from you so happy to chat.
Kevin King:
Well, I appreciate it, Matt. Thanks again for your time today.
Matt:
Great, Kevin, thank you for having me. This was a lot of fun.
Kevin King:
As you can see, Matt is passionate about this business in super smart. If anybody can make this work, it’s gonna be Matt. Don’t forget, also, if you’re trying to make your business work, you need to sign up for the Helium 10 Elite. Every single month, I bring on three guests and I also speak myself with my seven ninja hacks. It’s something you don’t want to miss. Plus we have round tables where once a month, we all get on a Zoom call and we just help each other out. We talk about whatever is happening in the world of Amazon e-Commerce. If someone’s got a problem, the group tries to help them and give them direction. It’s a great opportunity for you to really advance your business. Plus, as a Helium 10 Elite member, you get access to some special tools that nobody else has access to.
Kevin King:
You get to come to the quarterly in-person meetings that happen in Irvine, or sometimes in other places. There’s actually one coming up in Las Vegas just before the Sell and Scale Summit that a lot of Helium 10 Elite members will be at. And you get to go to those things for free. So check it out and hopefully you will join us there before we go this week. I just wanna leave you with a few words of wisdom. This is something I really believe. And part of this is, I’ve traveled quite a bit, and this kind of goes with travel. It kind of goes with almost anything really, but it’s better to see something once than to hear about it a thousand times. I really believe that it’s better to see something once with your own eyes than to hear about it a thousand times. I’ll see you next week on the next episode of the AM/PM Podcast, take care.
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