w/ Greg Elfrink, Empire Flippers
"Buying a business is so much faster than building one and so much safer if you buy big enough."
Also on YouTube: youtu.be/BuDtoDsC4tA
Get the inside scoop on buying and selling Shopify stores from Gregory Elfrink at Empire Flippers. From the highs of a $13 million payday to the lows of emotional burnout, Gregory spills the secrets and dirty truths of the business game. Gregory, with over eight years of experience, shares valuable insights on the benefits of acquiring an established business, essential steps for preparing a store for sale, and key factors influencing business valuation. If you're ready to play big and cash in, this episode is your backstage pass to the raw, unfiltered realities of the e-commerce hustle.
Kurt Elster
Today on the unofficial Shopify Podcast, we're gonna talk buying and selling businesses, yeah, ideally Shopify stores in this case. Because in a recent episode, uh Drew Sanaki told us Hey, you know, the thing I wish I knew was buy a business if you can, because that's the shortcut as opposed to building a business. You know, there's a years of figuring stuff out that you could just skip when you buy a business. And if you have built a business or acquired and scaled a business, certainly you think about, wow, what what it would be like if you could get that big payday of selling a business. And so we've got someone with us today who's going to talk us through it, who's going to talk us through the ins and outs from his perspective because we're joined. by Gregory L. Frank from Empire Flippers, who has helped sell quite a few businesses, uh, many of them Shopify stores. To date, I'm your host, Kurt Elster. Tech Nasty. And this is the unofficial Shopify Podcast. Greg, how you doing?
Gregory Elfrink
I'm doing good, man. I always it's always a pleasure being on someone's podcast with a soundboard. I think it's the like most fun thing. I wish more people did it. I should do it.
Kurt Elster
Oh, I totally when I got this thing, it was like an entire year of me abusing it. What?
Gregory Elfrink
I just it's just so much fun. The disc chalky of the nineteen eighties, you know?
Kurt Elster
But okay, focus, focus. Alright, so people for people who aren't familiar with Empire Flippers, what is it?
Gregory Elfrink
Yeah, so my 30 second elevator pitch is We're the largest curated marketplace in the world when it comes to buying and selling online businesses. So uh we've sold affiliate sites, e-commerce stores, SaaS businesses, you name it, even weirder businesses like Kindle Publishing uh businesses, which are More esoteric than those, I'd say. Uh but yeah, I've been with the company for roughly eight years, a little bit over eight years now. And We when I first started, our biggest business we ever sold was like w $150,000, and that was like the big business, right? Uh I remember my CEO telling me like it all changes at this valuation and Uh as uh I think I told you offline, but uh about I think it was about two months ago we just sold a uh thirteen million dollar Shopify store, so times have changed.
Kurt Elster
So what's your background? How'd you get here? What led yeah where'd you come from? What led you to Empire Flippers?
Gregory Elfrink
Yeah, yeah. So uh I started uh my career in marketing, uh as many do as an oil-field roughness up in Alaska. Who uh say what so I I grew up in Alaska and I got into the oil field and worked worked there on many many different rigs and across many different oil fields. And I did not like it, was not a fan. So I taught myself internet marketing. I still remember being in my Halliburn Reds, which are really browns if you work in the oil field, 'cause it's just you're always covered in mud. And uh had all these Halliburn uh notebooks that they would give me. It's like one of the perks. They they gave me free notebooks. Uh and I had all these ideas of different ways of learning internet marketing, different funnels. uh from the stuff I was learning from like YouTube and forums and courses and stuff like that. So uh I eventually got out of the oil field obviously. I learned internet marketing and origin originally I joined EF as just the guy who wrote the blogs. And uh now fast forward all this time I'm the head of marketing.
Kurt Elster
Hmm. That is quite the journey. Uh how many years did that take?
Gregory Elfrink
Uh to get out of the oil field?
Kurt Elster
Yeah, from when you left the oil field to now, how many years is that?
Gregory Elfrink
Oh, it's eight years. Yeah.
Kurt Elster
So EF was uh how I got out of the oil field.
Gregory Elfrink
So Uh funny uh fun story. Uh one of what I told this story to a guy and he told me uh I suddenly like a got like a a softcore version of of Goggins. I had no idea what Goggins was at the time, so I researched it and I was like, oh yeah, this guy's way more hardcore than me. But uh when I was working in the oil field, I got I had this like gritty determination where I just like, you know what, everything I've tried on the internet has failed. But one thing I am really good at is writing fast. And I know all the SEOs of the world absolutely hate creating content. And like I write poetry and books for fun. So like all my other internet marketing uh ventures that failed at that point. So I just winged all the Facebook groups I could find with SEOs and undercut every single writer. I was charging like half a cent a word. And that's how I really got my uh portfolio started in the internet marketing world. And I remember one of my clients, I I was writing all these plumbing in Ohio uh articles for him. He's an SEO agency in Ohio, right? And uh he found I was still working in the oil field. I was like, yeah, man, like after my twelve, thirteen hour shift, I go to the one part of the room in the in the camp. Where uh the Wi-Fi connection connects with the rest of the world from the Arctic. And I write your plumbing in Ohio uh articles. He's like, man, I I'd be so burned out if I were you. Like, dude, I've been burned out for years. Doesn't mean you get to stop. You know, you still gotta pay your bills. Uh so that that was how I started. And very funny, uh later on in my career in eHap, I started meeting a lot of the gurus in the space and they would have these sites or stores that they wanted to sell with me. And I knew the stores because I wrote all the content. So they had hired this content agency for themselves who had undercut themselves by forming it out to me. So I actually wrote all these people's stores and content sites that that eventually ended up selling their businesses, which I thought was quite funny. Hmm.
Kurt Elster
Small world.
Gregory Elfrink
Yeah, it really is.
Kurt Elster
So in your experience, what are the of the stores that have sold well on Empire Flippers of the Shopify businesses, what are there commonalities there to the stores that tend to sell well?
Gregory Elfrink
There is, and what I'm going to say is going to sound like a lot of common sense because I mean to be honest, it is if you really start thinking about it from a buyer perspective. So This is really business model agnostic. So if anyone in your audience is not just Shopify, they're like consultant agency or whatever, this applies to them pretty much too. Uh when it comes to selling a business, like The key is how do you de-risk it and how you de-risk it is by looking at what are the critical points of failure in this business. Like I'll give you an example. Like let's say I'm a Shopify store. And a hundred percent of my traffic is coming from Facebook ads, which is quite common with a lot of people in e-commerce. Like all all their ads are meta ads, right? Instagram and Facebook. So what happens if your Facebook ad account gets banned and you can never get it back? Like, well, you don't really have a business, at least not for very long. So you want to diversify multiple uh traffic sources, right? And ideally you want to diversify with multiple products where it's not just one product that you're selling. Now you can get away with one product. I've talked to I was just talking to a lady uh a few weeks ago. You know, she has like a three-four million dollar Shopify store with one product. And that's great, but I wouldn't recommend it because it makes everything a lot riskier. So she would be in a much better position if she was more than just organic traffic, which is what she's getting right now, uh by adding like TikTok ads, uh like TikTok shop that is blown up right now. of her own meta ads, and she would be much better off having multiple SKUs. And that also increases the average order value, right? So a lot of the stuff that we do as entrepreneurs uh to try to make our own businesses safer for from our perspective. is actually some of the good stuff that buyers also want and they're willing to pay a premium for that.
Kurt Elster
So when someone's trying to get listed, they want to sell their business, they want to list it on Empire flippers or you know, for sale somewhere. What do you think are are some of the challenges in getting prepped for that? Where do they What are the stumbling blocks?
Gregory Elfrink
So the biggest stumbling block, and this comes from a lot of experience. So I've you know I've sold over 2,000 businesses at this point over the years, and the most common stumbling block Is really the seller themselves. And what I mean by that is not like some you know personal development woo-woo type of stuff, but instead what I mean is sellers have what I call emotional equity So most of the time, unless they've sold a business or bought a business in in the past, this will be their first real exit. And usually that means this is their first real business, like but when big and big enough where they can sell it, right? And so they the seller overvalues their business because they have all this emotional baggage with it, like this is what allowed me to quit my job, travel the world, spend time with my kids, you know, do do a a pretty crazy life in comparison to most like nine to five people, right? So they overvalue their business. And when they come to or if they don't use me, if they just go directly to the market and go to a buyer, often they get like extremely mad or upset, like I can't believe this buyer offered me such a low ball deal. But what they don't realize is that buyers valuing their business on a much colder arithmetic because they don't have that emotional equity, right? Like your PNL is the PNL. Like that's what it is to them at the end of the day. And now there's arguments for audience, building and you know integration, all that kind of stuff. But at the end of the day, they just don't have that same emotional equity. So if a seller comes to me, that's one of the first things I talk to them through to make sure they have realistic expectations of what they're worth. And once if they can get over that, then I can help them become a millionaire, right? Uh like that like that's the good side. Once you like come down to reality, like, well Yeah, you're not worth seven million, but you can still get five million, which is quite a lot, right? Uh so that so valuations is the first big stumbling block is uh finding out what you're worth.
Kurt Elster
And so, all right, walk me through then this process of getting a store listed for sale with you
Gregory Elfrink
Sure. So if someone wanted to sell with us, the process is pretty streamlined. So what do you do? Do you just go submit your store for sale with us? You go to empireflippers. com, right? And you'd submit it for vetting. And at that point you sign nothing with us. What our team will do is go through your entire books. We'll rebuild your PL because that's off that's another stumbling block a lot of e-commerce entrepreneurs have, as you might imagine. I think we actually talked about that uh offline a bit, but PLs is often a struggle. Uh entrepreneurs said to be creative and all over the place and thus not the best bean counters. So we do that for you and make sure everything is in the right format. present the business, give you the valuation. And if you like the valuation, if you like what you see, great. That's when you come onto our marketplace. We only have two months of exclusivity. So if we don't sell it within two months, you're you know more than welcome to take it off and try somewhere else. But i in most cases, uh like if you have a good business, if you're not sold by the end of two months, then you're having like really good conversations by the end of two months in my experience. Uh so from there, our once you're on the marketplace and my team markets uh to our whole list, right, and to uh all our channels, uh our sales team will come in uh to help you negotiate with a buyer. And That's like a big part of our of our thing is we try to make up like win-win-wins, right? We want the seller to walk away with life-changing money. But we still want the buyer to walk away getting a good deal where they didn't like just give the guy life changing money and they win in massive amount of debt, right? We don't want that. Uh and which ultimately lets us win because both sides win. And our sellers often become our buyers once they get that liquidity and once they get paid out. So it's very common for say, let's say you sold a two million dollar store with me. to take a million dollars and buy one or two stores from me to grow your own asset flywheel, which is what I call the strategy after watching a lot of my customers do it over the years. You basically just build up a business, sell it. buy a couple more from me, build those up, sell it, and keep the process going, right? Uh but yeah, so that that's kind of our goal. We want everyone to walk away feeling like I am so glad I did that deal on on both sides of the table
Kurt Elster
All right, I got well I wanna hear more about you know what people do after they sell, um, and as well as like you know, what the experience is like for people who buy. But I think first We got to talk about valuation. That's probably the thing people are curious about. You know, what factors are critical in the valuation and then what are typical multiples.
Gregory Elfrink
Yeah, so this is I I always uh stumble on converting it in my head from uh annual or from monthly to annual because like EF, we do uh monthly multiples. It's kind of like a legacy thing. So if I say something like 36x, I'm really meaning three X. So just for your audience out there know about selling for 30XX uh annually. It comes from our uh way back in the day when we used to sell like three month-old websites, you know, where you couldn't value them at uh uh by uh by a whole annual eBIT up. So now it's funny in the industry when anyone says 36 X like ah they were raised on the EF content. Because no one else does this but me. Um but yeah so in terms of valuations It's really like there's two things that a a seller needs to know. One, your business is ultimately worth what anyone's willing to pay for. So like all valuations are are guessworks at the end of the day. Even more so than say like real estate comparables, because every business is quite unique. So keep that in mind. Like uh if you are selling to a buyer that is another entrepreneur like you, then they're going to be a lot more pragmatic typically in how they value your business. If you're selling to someone who I say has a swimming pool for a PL, like say a multinational public company, then your little million dollar business might not even be a blip on their radar. We're like, yeah, yeah, sure, whatever. Right, like stuff like that happens. So keep that in mind for the uh the sellers out there. But when it comes to your evaluation, the biggest thing that we look for is your SDE, your eBITF. Like I I I'm sure you've been around this crowd as well, uh, with you being so entrenched in the industry. But, you know, I've been around a lot of Shopify store owners where there'll be like, Oh yeah, you know I'm making like two million in Rev, like they're they're like, you know, acting like the really big stuff, but then you find out that their net m net profit, like they're barely breaking even. Like they're they can barely pay themselves their own salary. Because they've just said their whole unit economics are messed up, right? So that's not a good sign if you're a salary. You need to have a good unit economics, right? So all all valuations, at least in our area, in S Bs. are going to be valued on that SDE and EBITDA. Like what is your actual net profit after all is said and done? And we look at your 12 month average as your kind of like your baseline for that. And then we also look year over year, like are you growing? Are you stagnating? Are you declining? Uh you can sell a business in all three scenarios, but your multiple is going to be drastically different in all three scenarios. Uh speaking of stumbling blocks, this is another issue that uh uh people get into. Like, let's say you have a Shopify store that's growing rapidly year over year. And you want to sell the business, like that's your goal, but you keep saying, and this is a very common line I hear a lot of entrepreneurs say at every conference I go to, that you will hear the entrepreneurs say, like, well, there's more juice for me to squeeze before I sell the business. But this is a massive mistake in my opinion, because if you're growing very, very fast, that is the best time you'll ever have to sell your business. If you reach a peak, like uh that you reach the top of that growth, Really what that peak represents if you can't keep growing is at the period of stagnation where your business has now grown to a certain point where you've got to start pivoting and reworking everything so you can get to that next peak of growth, right? Because uh your business is just reaching one of those natural bridges in his in its growth cycle. So if you sold the business on the way up, not only would you be w it'd be way easier for you to sell the business, but you're going to get a better multiple too, because buyers They want one end, they want to buy something that is less risky, but on the other end, they want to buy growth. So if they see something that's growing, they're like, oh, I better do this now because I want the growth that this trend line is pointing pointing out, right? So that that is another thing we look at. So those are the two big things is like your profit and what scenario are you in broadly speaking? Your your growth, stagnation, or
Kurt Elster
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Gregory Elfrink
Pretty big ones for their multiple. So there's a bunch of other stuff that goes into it too, but these are the broad strokes. Like if you fix your profit and you fix your growth, most of the other stuff that affect your multiple is you're probably also doing it right. So like other stuff that uh affects your multiple, what I talked about earlier, product diversity, revenue diversity, right? Not everything is one product. Like if your hero product makes up like 50% of your store, hey, that's fine. But if it's making up like 80% of your store, and say you have like 30 SKUs, that's a lot less fine, because that's a lot of sitting inventory probably, right? A lot of dead inventory happening. Uh same with traffic channels. If you you want to have a diversity of channels, I recommend two. Most entrepreneurs I see struggle to even do two, like most businesses we sell are one channel. Uh to be honest, so like I'm not saying you can't sell a business like that, but if you want to have the best multiple, have two to three pretty profitable built-out acquisition channels as well.
Kurt Elster
So I want diversity in my catalog. I want to be showing year over year growth. And I want multiple acquisition channels, multiple traffic channels. It can't just be like only or geek Google, only Facebook.
Gregory Elfrink
Yeah. I'd also uh sorry, I I just real quick, I'm sure I'm going to bring it up again, but I also highly, highly recommend for everyone listening to this. to really focus on your email list. That is the m some of the most valuable, like the most valuable asset. Like if you only focus on one thing, like if you want to add a second uh you know, marketing channel, acquisition channel, make an email because Email does a lot of different things for your multiple. It's traffic. It helps your conversions. And you can use that data to bring in other traffic through, you know, look-alikes or just understanding the psychographics and demographics of your audience better, right? So email is like also a big, big, big cornerstone. It's great for launching products or even launching new marketing channels like your own YouTube channel or whatever if you have good engagement on social, right? So email is also uh what I consider a key pillar for your evaluation.
Kurt Elster
The all right, so that's four things I got to. Because my question is gonna be what are the top three things? If I want to maximize that selling price.
Gregory Elfrink
Emo kind of fits like all of them because it's like it does so many different things for you. So I always like to pull pull it out separately a little bit.
Kurt Elster
Okay. And yeah, that that make a lot of this is like just generally good business advice in addition to being that's what I mean.
Gregory Elfrink
A lot of it's common sense.
Kurt Elster
Um you know not long ago we were in a position where we were discussing uh an acquisition. And in going through that process and that preparation ended up falling in love with my business all over again. Do you see this where people like, they're like, all right, I w thought I was gonna sell it. Yeah, now that somebody's interested, it's mine, I want it.
Gregory Elfrink
There's this common joke that a a MA deal dies three times before you actually get it done. So it's either the buyer or the seller that's gonna kill it on that first time. And then they kind of killed together on the second time. And then maybe the original buyer who who had died on the first time, he comes around and then the source like, no, no more. You know, uh so this is like quite common. Uh because One of the most interesting things, I think, is as an entrepreneur, like you're in your business all day long, right? And there's a certain bit of myopic, like tunnel vision that happens to you where you don't see all the great things that your business has anymore because you're too busy in the weeds fixing all the holes in the ship, right? by trying to make it run better. Uh so when a buyer comes in and they're a little bit more uh glassy eyed if they really like what they're seeing, that can really inspire you to go forth and rebuild your business. Now, I'm not saying there's anything wrong with pulling out a deal like that. Like I think Settling a business is a very personal decision as well as an economic decision. Uh it's one of the biggest personal and biggest economic decisions you'll make in your career as an entrepreneur might be So like I'm not saying that like that's a wrong thing to do, but I would recommend like you really do some soul searching before you decide to go sell your business because it's it's not necessarily an easy process and uh it's a small world out there, but You know, i you want to keep buyers happy because a lot of times buyers and sellers end up becoming business partners after the deal too.
Kurt Elster
So tell me about how the the purchase is structured. Like often um There you could have an earnout deal where you're really g it's like, oh I you know, I got this multiple million offer, but it's it's really paid out over like three years. Um What are these, you know, what what are terms of a typical sale like?
Gregory Elfrink
So it depends on the size of the deal. So Uh if you're a very small e-commerce store, say underneath 500k valuation, you could expect majority of that all cash or completely all cash up front. Now the where the deals become trickier is when you get uh I say the hardest area to sell an e-commerce business is 500,000 to a million in terms of your valuation. Because it's just slightly too big for a lot of the like upstart entrepreneurs to just like go lay down that kind of capital unless they have other businesses already kind of firing off. Uh and it's too small for a lot of what I call the financial wizards, which are the private equity and the strategics to come and look at you. So uh most real deal structuring happens above the seven-figure range. And if you are like say low seven figures, your deal structure will probably be pretty simple. Like you can expect 80% up front, 20% paid out, usually over a two-year period. Uh it depends on how they pay it out, but usually it's going to be like quarterly payments. So uh or sometimes there's not even an RNA, it's just seller finance. So those two things sometimes get confused. Uh so seller finance is usually you're giving the loan to them at either 0% interest or very low interest, and they're going to pay you no matter what happens. business right earnout on the other hand like the business must grow at a certain pace in order for you to get paid out. Now most of the time earnouts are very reasonable. So most of earnouts I have seen have gotten paid. But my advice to any seller, whether you use me or you know, go off your own or someone else, like if you get an earnout deal, make sure the upfront amount is what you're happy with. Like You should walk away with that money and like, I am so glad I did that deal, even if this other stuff doesn't come through. Now the other stuff probably will come through, like it usually does. But you'd never want to do a deal where you're unhappy with that upfront amount because you never know. There's never no there's no guarantees in business, right? Uh I've seen a guy, he bought a three million dollar business for me, and now in this case The seller or I think it was a two million dollar business. The seller was pretty happy because he got his whole payment, but then the buyer, for whatever reason, like just put the website under construction and the website never got out of under construction. It's been under construction for like five years. Like who knows? What happened? Who knows? Uh the seller got out fine, but it wouldn't if that was an earnout. Probably wouldn't have been so fine, right? So you never know what you're gonna get. Uh now I say like I want to preface that because sellers might hear that, like I'll never accept an earnout. And I was just talking to a guy he had a five million dollar business and he was telling me that. I was like, okay, well you'll never sell your business then. Like which is better? Zero or three and a half million right now? Like with the potential to make it with another one and a half million over two years, right? Like, because if you do no earnout, then you also get no money. You have no liquidity. So the choice is kind of yours. You gotta remain flexible but stern, is what I always tell my sellers.
Kurt Elster
I do like that advice of like be happy with that first earnout amount. Because that was the the advice I got too was like, hey, often those earnouts don't come to fruition. You know, 'cause you don't know what's going to happen. And so you better be able to rely on that initial payment. Are there any other red flag sellers should look out for to ensure a a smooth ride?
Gregory Elfrink
Sure. Uh so on earnouts in particular. Uh this happens it once you get above like the low seven figures, say you're like a three, five million dollar plus kind of uh business, or like that 13 million one sold, right? Uh that's when structures start getting more complicated. And I we personally had saved a seller. He like really fought us on this. Uh and like makes sense why he would fight us on this. But We had this deal, uh, I think it was a $2. 8 million deal, and he got this earnout and the earnout looked really, really good. So one of the things about earnouts is if you hit the hurdle, like the that they set for you, you can make more money than what your business is actually worth. So in his case, 2. 8 million, he would really make like 3. 5 if it hits all of the earnout targets. Great, right? But the thing is, he was dealing with very savvy like private equity types, and these guys have an unfair advantage on sellers. Whereas the seller is selling their first business ever, that private equity guy, like you're just like the business of the week for that, right? Like they do this all the time. So they're just a lot more skilled. Which is why I always, you know, shameless plug, I would use a broker to if you'd never sold a business, just to watch out for these traps. But we realized that earnout Like the growth rate was so extreme. Like this business, no way is it gonna uh make it, right? And so we told him, like, don't accept the deal, and gladly he didn't, and we were able to restructure the deal. So That's the one thing to watch out for on these structures is what is the wording, what percentages are we talking about, when is the payout? all that kind of stuff. And if you're not using a broker, I highly, highly recommend that you use a lawyer that's familiar with MA transactions so they can like dispel the myth uh of like what is actually being said in the contract and break it out into you in latent term.
Kurt Elster
And okay, I want to swe you we've been talking almost entirely about if you are selling your business. I want to switch gears to advice for buyers. Uh any similarly What advice would you give a Shopify merchant, someone who has experience, looking to buy, they want to expand, they got some cash on hand, and they're looking to buy another Shopify store that I'm gonna apply my learnings, I'll scale this one too.
Gregory Elfrink
Sure, yeah. So uh what you said earlier, I 100% agree. I think buying a business is so much faster than building one and so much in a lot of ways safer if you buy big enough. So I'm a big fan of buying. Uh in terms of Things to think about as a buyer. So you think you would have all the power because you have the money, but an MA is actually the other way around. The seller of the high quality business is the darling at the ball. All the buyers want the good quality business. They're all gonna come competing. This is a big reason why big buyers don't like using brokers because we do create a marketplace of competition, right? So like they know that they're going to have to pay uh a fair market wage or above fair market for that business, right? Because of the competition. So as a buyer, you gotta remember you are the salesman that in the deal. Like you need to sell the seller on selling to you. Like because money is just a commodity. Everyone has money. And more people have more money than you, no matter how much money you have, because Like we've dealt with private equity that have holdings in the billions, right? Like very few people have that kind of dry powder sitting around, right? So knowing that, you need to win the seller over. And how you win the seller over is find out what they want. Like if you talk to a seller, like why are you selling the business? Like, oh, I have another project. Okay, but why are you really selling the business? Like, oh, I'm just like, you know, emotionally burnt out. I can't get it out of my head, even though I'm like automated this business. Like where it takes five hours a week on on my part, but I'm always thinking about it constantly and I want to think about this. Like, great, well what do you need to stop thinking about it? And you get like you drill down. It's the why, why, and why. Like find out the real reason why they are selling and structure your offer to meet that why. Like, okay, this is my minimum I need to meet. in order to get the seller to say yes to me, right? So like that's how you start structuring your offer. Now you when you come out with your offer, you don't want to go to the max of what you're willing to pay. You still want to try to get a good deal. But you want to bring like like the buyers instead of buy as low as possible, right? But at the same time, you need to meet what the seller wants. So you can give that deal and see what the seller says. You'll probably go back the counter offer, which is very, very common. Usually I see between three to seven rounds of counter offers or just going back and forth like, no, I want this. No, I want that. Okay. This. Okay. Okay. All right. And then there's the compromise, right? Uh so that that's a big thing. Uh when you are negotiating, I always tell the I tell this to sellers too, but it's even more important for a buyer because buyers are the salesmen. In this in this case, uh, you need to approach all negotiations as a collaboration, not a showdown. This is not like an old cowboy movie who can draw the pistols the quickest, right, to get the best deal. Like your goal is to give the seller what they want in such a way where you can get what you want. And that that's often done in deal structuring, which is a big reason why it's so common. above seven figures 'cause if you think about it from a buyer perspective, like if they paid you paid that guy like five million dollars all up front They're basically just buying a the honor of losing five million dollars if it all goes wrong, right? So so like that's a big part of why they do these kind of structures. And if you want to be a master buyer, become really good at negotiations, really good at giving the seller what they want and understanding all the different types of deal structures. that can facilitate what the seller wants, right? Like for example, we had a guy, he bought a business from us, and the seller's price was just unreachable by the buyer. Not by a lot, by a little bit. And so what the buyer did, he noticed like, okay, well, you have all this debt inventory. So if I give you this money, like, you know, he was thinking inside, if I give him this money, I can liquidate this section of his inventory. And then uh I forget the second thing he did with the inventory, but basically made up more or less the difference. And he made a deal with the seller, like, look, I'm not going to pay for the inventory uh up front. I'm just going to pay for it as we sell it. So like that was his other thing. So that way he didn't have to lay out all the capital and the sellers like, well that's reasonable, you know? Uh so you're always looking for ways to compromise. So as a buyer, you know tons of different ways to get a deal done. That also means you know tons of different ways to get the seller what they want. So you
Kurt Elster
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Gregory Elfrink
So your red flags as a buyer is if a business is growing too fast and too short of a timeline. Like Growth is great, but the uh biggest killer of businesses in a lot of ways isn't so much not making money, but having too much revenue and not enough profit, right? So you're growing so quickly in a short time span, that could be a fad, right? This is another reason why having uh diverse products is good. Uh another red flag is buying too small. And this isn't necessarily a red flag. It's just a cautionary thing you should consider as a buyer. So if you're looking at buying a business that's lower than say $500,000. This can still be a really, really good business. It could be great, but it's a very fragile business because it's very small. So if a storm happens to it, it will be harder for it. to kind of like pivot through the hurricane versus like the big cargo ships of the industry, right? So that's another thing to consider is size. Uh one thing is if anything is wrong with the PL, the profit and loss statement. If something is wrong here, and this is why I tell sellers to get a bookkeeper who understands e-commerce or or use us, whichever way you prefer. Uh but if something is wrong with your PL, or the PL of the business you're looking at rather, then this is a giant red flag. Like this should be the most important document in the entire business. like profit and loss statement, the cash statement, all the different financial statements, right? There's something's wrong here. And they're trying to sell the business, which so they should be even more incentive to for it to be correct. Like you need to double check everything. So how you do this is you make sure uh if you're not using a broker, how you do this is you want proof of earnings. And now the a proof of earnings report is pretty expensive. So Again, if you're buying a smaller business, it's often not even worth to get a proof of earnings statement. So other ways you can do it is actually looking at their bank statements to making sure that the money that they are saying that's coming in is actually coming in on their bank statements. So that's another way looking at their actual taxes, which is often not very helpful because a lot of entrepreneurs do a bunch of different stuff and minimize their taxes, which leads to SBA often not being as good of a vessel uh vehicle as people think. Because if you try to buy a business with an SBA and the entrepreneur is like a cunning uh tax minimizer, the SBA alone's not gonna work out unless they reconciliate their taxes, which is a whole other uh issue. Uh but those are some of the big red flags. So anything that the seller tells you, even like if you get the best impression of the seller, and most of the time the seller's not being nefarious. even if there is a mistake in their PL, it's just so so many different things going on. It's easy to miss something, right? So the seller's most likely not trying to pull a fast one on over you. But they might not even realize that they did pull one over you because they think the business is doing this too, and then they're proven wrong, which so is something that's happened to us. So like we'd get uh A lot of these Amazon FBA businesses come to our marketplace and they would go through our vetting process and they realize, oh shit, I'm not making nearly as much money as I thought I was, because they weren't as clued into their books as they thought they were until we started looking at it, right? So th those are some quick red flags to consider. Okay.
Kurt Elster
It you're in an interesting position where you see a lot of these sales happen. And so you're kind of privy to to market trends. So what trends are you seeing currently um in in regards to selling Shopify stores?
Gregory Elfrink
Yeah, uh so this is interesting. So we led the trend on the FBA aggregators, right? Like I often joke that the Amazon app FBA aggregators were like our stepchildren because we were the Very first broker to sell FBA businesses before Amazon even knew you could. Like we used to have to call up Amazon and tell them, like, no, you legally cannot stop this entrepreneur from selling their business. Like, oh right.
Kurt Elster
Well they tried to stop you?
Gregory Elfrink
Oh yeah, yeah, yeah. So What was happening was they have that policy against selling uh FBA accounts and what their language there what the context of that is is like fraudsters who are doing like a bunch of blackhead shit on Amazon where Like they need to go buy a new account because they keep burning through theirs, right? And that's what they really meant about not selling it, but the low-level uh customer service, they didn't have no idea about what we were talking about. So we had to go up the chain, get these written letters of approval. Before we even started the transfer process with FBA, we pioneered the listing transfer, we pioneered the account takeovers. Uh like it got to a point where like I all I came so close to getting a guest post written on Amazon's blog because I had worked so closely with them at this point, which was really, really cool. Unfortunately it didn't happen. That would have been a great backlink for SEO, but Uh but yeah, so in terms of answer your question, yes, so I've seen a lot of this stuff and a lot of the the hype, uh the or not the hype, I should say, the hunger for businesses has moved away from FBA and with good reason because what I mentioned earlier, the risk, right? Uh like with Amazon you have a m massive platform risk, right? Great businesses, but the a lot of those businesses They only sell on Amazon. They only have one marketing channel. So if somebody averaged a marketing channel to Amazon, they could be screwed. So what I'm seeing now, is buyers are extremely hungry for high quality DTC businesses because the the secret is like all those aggregators they bought the FBA businesses thinking that they could build a direct-to-consumer brand using those products. by taking it off of Amazon, but it doesn't really work that way. It works the other way around. Like if you build a successful direct consumer uh Shopify store, it's much easier for you to be successful on Amazon with that same product than it is the other way around. And you've already figured out the hardest part, which is those direct funnels. That's the thing that uh Amazon FBA people just don't know how to do as well because they have the uh the spoils of Amazon's traffic, but they also have the chains of Amazon, right? So I that's the big thing I'm seeing is high quality Shopify DDC brands with good funnels, good traffic. And a lot of these buyers, what they want to do is they want to come in and acquire that. and then use their connections with say like retail distribution to open up a bunch of other channels as well, in addition to just, you know, natural scaling through economies of scale. So that That's kind of like the that and marketing agencies are like the two things I get asked about the most right now.
Kurt Elster
What's the question about marketing agencies?
Gregory Elfrink
Oh, same thing. Uh buyers love them. So it's funny, uh marketing agencies are kind of in a place that affiliate sites were back in 2016 where no one thought you could sell an affiliate site, and you know we've sold hundreds of them. Uh and now a lot of my agency owner friends, like I just gave a speech uh here in my hometown at the Saigon SEO Summit where I was talking to my affiliate friends to become my e-commerce friends. And a buddy sent me a message on LinkedIn like, ah, I'm too late to build out an affiliate site with all this stuff that's going on with uh Google search. And now I see this e-commerce slide. Like I'm too busy with my agency. I'll never be able to sell a business. Dude, just sell your agency. Like agencies are great. We've sold many, many of them. So uh a lot of agency owners have no idea they can even sell, it seems. So that would be my next like bringing the good word to them.
Kurt Elster
I assume because it's yeah, it's a service business, that's the thing. They're like, Oh, you can't sell that. And of course you can.
Gregory Elfrink
Yeah, the the issue is uh Like two founder dependent, not a big enough team. So team is really important with agencies. You gotta be at a certain size to make it worth it, too. Like less than seven hundred thousand dollars is very hard to sell an agency. You want customized or not customize a productize services, not customize. You want the opposite of customize. So you can sell your services almost like an e-commerce store uh would in that similar style. An acquisition channel, ideally, that doesn't rely on the founder, and fulfillment that doesn't rely on the founder. You do all that, you have a big enough redundancy in your employee pool, very sellable business.
Kurt Elster
So okay. Uh uh talked about e-commerce. Do you have any future predictions? You've been doing this a long time. Where do you see E commerce heading or or Shopify or this market. Look in your crystal ball, make a prediction.
Gregory Elfrink
E It's been a rough last like four years to make a prediction. I feel like there's been four Black Swan events since we start doing more podcasts. So let's see what great could come off the magical elf. What predictions I got. Um So in in all seriousness, I think e-commerce store owners are in like so the agency owners that have it figured out and e-commerce store owners that have it figured out. I think are the most sustainable and scalable and sellable business probably for the next foreseeable few years, like probably three to five years that will be the most sellable businesses, even more so than SaaS, in my view. Uh and the reason why I say that is because AI is destroying everyone. Like it's coming it's coming for everything, right? So like my affiliate site friends, like a big part of why they're feeling so much pain is because of AI. It's destroy the Google algorithm as Google's like panicking to catch up with open AI. It was just chaos and blood on the streets if you're a affiliate site owner. And when it comes to SAS, uh the same pain that my uh affiliate friends are feeling, I think they're gonna feel that pain too, probably towards the end of next year, when a lot of the informational queries from SEO start disappearing or becoming more threatened by AI. And because AI is just going to start creating SaaS businesses out of thin air now. Like they don't need a coder. Like the thing that was your moat that you needed all this VC money. Now a guy just like sitting in his room can make it an afternoon using ChatGBT or Devon, right? So in terms of sustainability, I think e-commerce and agencies are in a very luxurious position because when a new AI tool comes out, the e commerce entrepreneur, all they have to do is like, hey, call up their customers and support, how do I import my all my data over to that new tool? The best and brightest tool, right? So e-commerce stores and agency owners get to use like all the best tools are going to be coming out of year versus the other business models. I I think they were they're going to have a harder time with it.
Kurt Elster
Well, I hope you're right. Um just that there's a AI, you're right. AI moves so quickly and there's just a lot of anxiety about it. And I viewed it as like, hey, it's another tool. So, you know, stay on top of your tools. And then, you know, you then could take advantage of that. Like, why do you have to be the one who gets punished by it? You could be the one that takes advantage of it.
Gregory Elfrink
I have friends. Uh so we had this meeting with with uh other higher ups over at EF like why d why aren't we focusing on marketing on AI? And like look, I will sell an AI business. It's like the easiest one to sell right now. This is so hyped up. Like I l I like we got a two million dollar one embedding right now. But I don't want to build any marketing around it because it's just not sustainable. Like I have a friend last year who built a chatbot company on AI and on OpenAI's API, right? Built one man show, $25,000, like basically pure profit. I think he's spending like maybe five hundred bucks as expenses, like next to nothing, right? And then OpenAI came out with uh their their custom GBTs and chatbots started his business overnight. Like what are you gonna do? Like how are you gonna compete against this multi-billion dollar Bahama?
Kurt Elster
It's gonna yeah. I mean it when it something moves that quickly, it could cannibalize its past successes, it sounds like
Gregory Elfrink
If the best tool last year was Chat GPT, but now it's, you know, Claude or perplexity or whatever for the thing that you want to do, as an e-commerce entrepreneur, you can be agnostic. You can just switch the label to whenever the other one is better. Like that's one of the great things about e-commerce and being an agency owner. You're not or agency owner depends. Like my friend, he got screwed, right? But if you're agnostic with this stuff, Like you can just keep using the best of the best and not have to worry about this extremely brutal red ocean that these SaaS and uh AI people are going to be dealing with in the coming months and years. So that that's what I mean about e-commerce. I I I'm pretty bullish on e-commerce overall.
Kurt Elster
All right, before I ask you some personal questions, I saw that there's an Empire Flippers app for a Shopify app. Tell me about this.
Gregory Elfrink
Yeah, yeah. So uh I'm pretty excited by this. It's something I wanted to do for literal years. So we finally got it done. Uh it's a Shopify app. You can go to the Shopify store if you just search like Empire Flippers Valuation Tool, it should come up. And uh basically what it does is sits inside of your Shopify dashboard and you can enter in your profit margins and a couple other numbers. Then it's pulling in your real revenue numbers combined with our valuation to API and it gives you a rolling rough estimation of what your business is worth every single day. So it's updating constantly as you grow. Yeah. Uh and like as I said earlier in the show, like valuations is like one of the hardest things for sellers to overcome and really understand, right? So here you have a free valuation and it's based off 2,000 businesses we sold.
Kurt Elster
At the start of the show, you said you had you were doing this SEO writing business and you were burned out on it. But you're like, what choice do I have? You just keep going. And do you experience burnout now? Are you happy with what you do?
Gregory Elfrink
It's a tough one to answer, man. I think the last couple years has been tough because the MA market's been tough, to be honest. Like You know, we saw the billion dollar aggregators crash and burn, which had a uh massive ripple effect across everything. Uh I'm saying I'm too busy right now, which isn't great. I just hired a guy to help me. Um probably going to hire another guy soonish to help me further. But in general, man, like I used to work eighteen hours a day across North Dakota, Alaska, Gulf of Mexico. Like the guy I replaced, so when I was eighteen when I got on an oil rig, How I got that job was the guy who I was taking over lost the lower half of his body in an auger. Like he wasn't that much older than me. He's like two years older than me. In North Dakota, I I was on the rig where this happened, but the driller, he was high on asset and ran this guy through with a 5,000 pound top drive, which is the giant thing that holds up the drill pipe, right? I almost lost this finger in the oil field saving this uh newbie guy from almost getting his hand completely chopped off by a piston pump. Uh so Like when I think about the oil field versus when I think about today, like yeah, I'm busy. Like it's tough, but it's fun tough. Like versus that is like this is nightmare tough. Like this is scary shit. Uh like my dad is an entrepreneur and my dad is my hero. Uh so I kind of feel like I'm helping versions of him like get like really level up their own life 'cause w the moment you exit your business, like joke, it's uh the start of your real business. Like If you suddenly have been spending you know you've been spending years working on this thing and you it's not like just because your business is five million dollars, like you're a millionaire, like you're putting all this money back into the business, right? Though he had this buyer, he always joked, I love all these e-commerce entrepreneurs. They're all young and really rich and broke as hell because they're just reinvesting constantly, right? So we when you get to sell that five million dollar business, you are a millionaire now. Your life changes. Like do you have whole new questions that weren't even possibilities as questions, just moments before that. And I think that is just a wonderful, wonderful thing to do. So I love it.
Kurt Elster
I'm so glad I asked that question. Alright, where can we go to learn more more about you and and selling a Shopify business on uh Empire Flippers?
Gregory Elfrink
Yeah, so uh I have a niche site blog called Empireflippers. com. Come check it out. So uh if you want to sell your site, we have evaluation tools and sell your site, or you can register for our marketplace. and check out businesses if you're more on the buy side. If you if you want to reach out to me personally, it's just Greg at Empireflippers. com or you can find me on LinkedIn.
Kurt Elster
Uh this has been informative and helpful and inspiring, and I am so glad you were able to join me today. Uh Gregory L. Frank, EmpireFlippers. com. Thank you so much.
Gregory Elfrink
Thank you so much for having me, man. It was a pleasure.
Kurt Elster
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