Considering an eCommerce business

November 22, 2024

by a professional from Northwestern University - Kellogg School of Management in Southborough, MA, USA

Hi

Im considering an eCommerce business that white labels its main products. They do about $15mm in revenue and are making $3mm in EBIT

Competency is in supply chain and marketing. It feels fragile and tariffs are a concern here.

what else should I be thinking about before making an offer? All sales are online at this time, about half on amazon

Also, what does a great operator / CEO look like for a company like this to bring it to the next level?

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Reply by a searcher
from University of Washington in California, USA

Here are a few thoughts I have after leading finance for a CPG in the 8-figures as well.

1/ Beyond just the unit economics mentioned already, what about the working capital needed to support the business? I assume with a potentially more aggressive tariff environment as you mentioned, the need to have more inventory state-side would mean potentially needing a larger line of credit or asset-based loc just for business as usual, let alone expansion?

2/ What is your hypothesis on getting to the next stage of growth? How will the distribution strategy look? If we unpack the revenue share, 50% Amazon and 50% pure DTC. I assume Amazon is nearing its category TAM. I also assume the DTC channel is a loss-leader relative to Amazon. So where are you going to grow, DTC by fueling higher topline for a compressed margin? Is there any wholesale opportunity with your product?

3/ What does the future relationship look like with the manufacturer? I'm guessing there's little redundancy, and you're at the mercy of demands. Does the business have any ability to get the products elsewhere?

4/ How large is the team and the dynamics of the team? How involved in operations was the former owner? Were they also covering the same areas you feel strong in?

5/ Are you buying from the "founder" of this brand and did the founder have a strong presence in the brands's community? Not to say it's impossible, but if they're ok social for the brand, then itll take time for customers and the brand community to get used to you. If the brand is led by a "faceless" owner then your bigger worry is the likelihood of replacement in the market.

Reply by a searcher
from University of Massachusetts Amherst in Saddle River, NJ 07458, USA

I built, scaled and sold an Amazon roll-up called D1 Brands. We acquired about 30 Amazon businesses, deployed $100m of capital and diligenced about 1000 Amazon/dtc e-com businesses from###-###-#### What I learned through lots of mistakes is that if not a single one of these characteristics are present in the busines then the probability of success is quite low over a 3-5 year period: (1) product IP (brand or design/utility patent, (2) vertically integrated manufacturing/sourcing scarcity, (3) captive off-amazon audience. If none of these things are true, it's essentially a race to the bottom on Amazon, and the primary way to create value is to add new successful products faster than the legacy products die. This is how most large, successful Amazon sellers have built their businesses....they have created a product development engine that is high ROI and high win rate. Over time, they try to build a brand / capture a captive audience off-amazon. For this business, I'd want to understand the off-amazon sales/traffic better. Where is it coming from? How sticky is it? How scalable is it? Is there a real brand? Generally speaking, you want a CEO who is product-driven with a track record of creating and launching physical products successfully, ideally within the same vertical (i.e. Pets, baby, fitness, home, etc.).. Happy to chat more -- hit me up @ redacted

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