161: Scale Your Retail Brand on Amazon with Allan Marshall

Allan Marshall is the CEO of Upexi Inc, a publicly listed investment platform that acquires profitable, data-driven Amazon and eCommerce brands. We discuss ways to scale your retail brand on Amazon, how to invest in an eCommerce business, and the right ingredients for launching an online brand. 

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Scale Your Retail Brand on Amazon with Allan Marshall

Our guest is Allan Marshall, the CEO of Upexi Inc., a public-listed investment platform that acquires profitable, data-driven Amazon and e-commerce brands. Upexi injects resources into the business to improve operations, product offerings, and advertising to quickly scale revenue and increase profitability. Alan, welcome to the show.

Thanks for having me today. I really appreciate it. I look forward to discussing our business and a great conversation.

I think you have a unique business, and we don’t get a lot of people who are investing in businesses. So kind of it’s a business that invests in businesses, an umbrella type of business. So tell me your journey, how does one end up running an investment platform, buying other businesses? How can one even get there?

It was a long journey for me and actually not really what I anticipated. I’ve always been in logistics, shipping, trucking, transportation, warehousing. Started a company in Canada in the early 90s and sold that when I was pretty young and moved to the US. And after that started another kind of shipping, logistics company that was sold to a NASDAQ company. So I kind of learned a lot about investments and the opportunities being public and some of the way that’s laid out. And which led me to what I thought was my final business.

I started a company called Segments Inc. which we grew that company substantially and now it’s XPO Logistics, which is one of the largest kind of logistics companies in the world. So I kind of took a step back in 2007 and 2008 and started doing investments into small companies, really looking at management teams, early stage capital, meeting with companies from all industries. I mean, I invested in software, I invested in crypto, I invested in even marijuana, like not directly, but technology related to how they track that data.

And then a couple of years ago, I saw this company that had a small brand in the CBD space, which I really liked, ended up investing enough money to take control of it. So, and when we kind of saw that business, and I saw the margin in the business, and how fragmented this whole space is, we ended up selling off the CBD assets. But in general, the industry we’re in, and seeing how to make an investment, I think I just got excited about building another company.

So that kind of got me here. I mean, everybody’s journey is obviously unique, but I never thought I would understand the business the way I understand it now, coming from a totally different industry. But to me, business is all the same, right? It’s putting together the best teams, building out your model, building out your future plans, really just paying attention to all of the details that it takes to be successful. So that’s how I got here. You know, I’m sure, again, there’s a lot of ways to get to a certain place, but, and interesting, I never thought I’d be back in a public company, especially, and working on a NASDAQ and with a company that’s so regulated, but here we are.

Business is all the same. It's putting together the best teams, building out your model, building out your future plans, really just paying attention to all of the details that it takes to be successful. Click To Tweet

So it sounds like you went from a vertical, maybe a niche, which is logistics, and then you build that up. And then you, as an investor, you had an opportunity to dabble and then now discover a higher level concept that allows you to be more focused with your investments, is how I understand it, maybe incorrectly. So how do you actually define that market that you say was fragmented and you saw this high margin opportunity. What is that market that you are basically consolidating with what you do?

So what I saw was a lot, you know, Amazon and e-commerce created this huge opportunity for anyone to launch their own little small business or become big businesses in brands, in products. And having, you know, I didn’t even buy into Amazon’s theory for a while, I was like probably the last person to order something on Amazon. But then as I started realizing, you know, what they were putting together and this e-commerce platform that they had built, really laid out this opportunity for anyone to launch a brand as you’ve seen, right? Or not only just a brand, just a single product.

But what happens over time with all businesses like this is they become very competitive, right? So if you have a successful single product, multiple product on Amazon, it’s not long before someone else is competing with you and driving down your sales or driving down those margins. So the way I saw it when I saw this kind of business is there’s a lot of opportunity to purchase those brands, inject capital, inject talent, resources, R&D, launching new products, and then scaling outside of just Amazon into direct-to-consumer, and then even over time into larger retail opportunities.

So when I looked at it from that point of view, it just made sense to try to bring those brands on board, make the investment in the future, bring those owners on board, work with them to help, you know, build that brand, but do it under an umbrella. And there are a lot of holding companies or, you know, companies that own multiple brands, you know, or, you know, that trade publicly. So I really saw the opportunity to try to do that again. And that’s where we are today, really, you know, we own like seven or eight different brands just getting started on this journey and more and more opportunities we see every day.

So listening to what you say, I have mixed feelings because on the one hand, I feel like this is great. I start a company or I start a brand on Amazon and although it’s very competitive but there are resources out there that can kind of turn the tables on my competition. I can tap into something like what Upexi provides, you know, the people and the talent, the R&D and the capital and the, you know, operations know-how, and I can be competitive. So that’s kind of a positive side. The other, by its mixed feeling, is that it feels like it’s for an entrepreneur to bootstrap a business is becoming really, really hard on a platform like Amazon. So does it mean that entrepreneurship is kind of getting disrupted in some ways? It’s becoming too high, the barrier of entry is becoming high for entrepreneurs to gain traction on Amazon?

I think it’s definitely harder than it was, you know, competition, but, you know, the entrepreneurial spirit and people, especially, you know, in America are so resilient and so brilliant when they decide to do something and very dedicated. So I think there’ll always be, you know, success across whatever vertical they operate in. But it’s definitely harder now and competition comes in much quicker, but that’s not, it’s always been that way, it’s just more relevant on Amazon because everyone’s on one place.

Like in transportation and logistics and whatever it is, whenever we used to think we launched a new service or a new product offering or a new lane or a new, it’s only a matter of, when it becomes very profitable, it’s like, takes six months for other people to figure it out and try to duplicate it and step into your space and try to compete with you. So I think I don’t think that’s changed Amazon still is a great platform and there are other platforms, too I keep saying that but you know I mean walmart.com you can start your own thing get your products on there if you can get them approved there are a target there are a lot of opportunities out there and I Have so much faith in you know that the American entrepreneur that it’s, I think they’ll always find a way.

Okay, so what are the critical ingredients for starting and then scaling a brand? 

I mean, so we like to let the entrepreneurs start and scale the brand, and then we like to step in when they get to a certain point, because those are really, there’s so many that get launched that don’t make it. Well, if you’re launching a full brand, it’s very expensive. If you’re launching a single product, it’s much more, I think it’s probably the best way to start if you’re starting a business today. Find a single product that fills a space, build out your supply chain, making sure you can buy it at the right price, making sure you don’t overstock the inventory. Then getting your listings live on the multiple sites out there that are available.

Find a single product that fills a space, build out your supply chain, making sure you can buy it at the right price, making sure you don't overstock the inventory. Click To Tweet

Partnering, when you’re first starting, you’re going to have to partner with a good agency or a good ad team because really you can’t afford to hire all those people. Same with copywriting for your copy and your ads. Each thing needs to be well thought out, and really it’s the story, right? Here’s my product, why should you buy it? What’s my competitive advantage? And what benefit is it for you to buy it from us? Like you have to answer kind of really basic questions every time you launch something.

And if you look at some of the most successful brands in history, like half the time, it’s just the story that gets them there. They’re no better than every other product. So how do you build out that story? How do you build out that sense of urgency for someone to spend their hard-earned money on it? So I think that’s really the process that takes the most amount of time for people and finding that, and it’s very difficult too.

So how do you know that a brand carries the potential that you want to put your money in, you want to support them? What are those critical factors that you’re looking for as an investor?

So in our industry, we try not to, for us as a holding company and buying other brands, we try to let the entrepreneur reach a point. So we like, they’re almost our test, we let them be our test project on that. So if someone launches a brand or a product and it gets to prove out its theory. They’ve proved out that the first part. One is it’s saleable. One is there’s enough people interested in the market. The product is growing and there’s a reasonable margin there. When they reach that point, we’re more interested, than just an idea. Being a public company, our goal is to build the overall company as quickly as possible.

And as we get bigger, we need larger partners, right? So in the past, our first acquisition only did 3 million in revenue, and our last acquisition did 30 million in revenue. So we’re also scaling up as we go. for what thought they put into it, what opportunities they have laid out for the future. Can we inject capital to help them get bigger, help that brand get bigger? Would they benefit from having a full advertising team like we have? Would they benefit from having a full dev team to help dev out all of the work that needs to be done to build out their own website and their presence. And if the answer to those questions are yes, and it’s scalable, then we’re interested in buying or injecting capital into that business. 

Very interesting. It’s a great checklist. Do you have to look at, I mean, kiss a hundred frogs before you invest in one? How do these brands show up on your radar? 

You know, we have a decent name in the industry, so people are starting to understand what we do. We go to a lot of trade shows, we go to industry specific for us. Like, we’re really stuck in that health, wellness, pets, that kind of stem educational toys for kids. And we’re stuck in those industries for a reason. But we continue to see multiple opportunities. But yeah, a lot of times it’s not that they’re frogs or it’s just they don’t fit our idea or our opportunity. But we see, right, we see a different opportunity.

I’ve seen so many great businesses outside of our space that entrepreneurs have come up with the most unique opportunity. It’s just for us, we try to stay focused in our industries. One is they’re very robust industries. They have great compounded year-over-year growth opportunities and really great margins. We see that as the opportunity to build our overall company over the next couple of years. We’re staying there.

What’s the blueprint? In this podcast, we always talk about the management blueprint. So what’s a mental model that you use to actually make sense of a business opportunity and to maybe help you or other people understand something, make it clearer, or make it simpler, or maybe a recipe that you have developed that helps you invest and grow the businesses that you work with?

For me personally and our management team, we stick to a couple of things, right? How big is the opportunity? How good is the talent you’re getting when you buy a business? Because that’s important. Like when we look at it, does it have a great manager? Does it have a great ad exec? What are the strong points the business have? And then do we have overlapping, you know, or add value to that business with other strong points? So how do we fill the gap on that team and make that team more complete? So those are like the first two things we look at.

Look at profitability, we look at competitiveness, you know, is the market expanding? Is the pricing going to decrease? There’s just a, and there’s also a feel of what do they do wrong? And what would you do differently? And if you’re strong in that point, does that increase that business’s opportunity, the profitability? So it’s really analysis of everything that’s going on currently, and everything we have going on currently and how well do they mesh, right? I’ll think about it like, think about all of the best sports teams, right? Coming down to that trade deadline.

Like they say to themselves, “Where do we have a gap that we can fill?” And they go out and try to fill that gap. So when I look at a business, I think, “What are their strong points and can we fill that gap for them? Do we have that free agent to put in that place? And if we do that, how big could that business become?”  So I kind of look at it with that kind of analogy. And then overall, the metrics on how much it costs to buy it and the overall return on equity we get for our shareholders, that’s the second part of that. Because if the first part, the answer is yes, then you can look at the second part.

I love that analogy. You have the free agent that will make this team a championship contender, basically. I love it. I love it. So you mentioned a couple of industries here. You said health, wellness, pets, educational toys. So what connects these industries, if anything, what’s the commonality in these industries and why do you believe that these are the industries that are worth investing in?

People spend money. And where do we not pull back first, right? Like there’s certain everyone has the same tendencies on where they spend their money so as we know in America people spend a lot of money on their pets and their dogs and they spend as much money on Their children and then the last part is they spend a lot of money on their health and their wellness. Can I look younger? Can I feel better? Can I have more energy? All of those things. And the thing about those industries is they’re growing year over year because populations are growing.

So every year you’re getting older, you actually want to spend more money on your And since COVID, now like 35 million households have at least one dog and a lot, multiple dogs. So what a great industry to be, you know, to be investing in since anyone who has a dog knows you love your dog, you’re getting another one for sure, you know, and you’re going to spend whatever it is to make sure it’s healthy. So we really focused on what we talked about earlier.

Where are the opportunities? How big can it be? What’s your market like? And how dependable is that market? I don’t find the same, I don’t have a lot of enthusiasm when I see a company that comes from anything that makes patio furniture, garden gnomes, or whatever it is. No matter how busy or how much they sold last year, I always think to myself, I don’t understand that market. I don’t know, it’s like an impulse buy. We’re really looking at that staple kind of buy.

So, impulse is unreliable?

It is unreliable. To me, it feels unreliable and not something I want to build a foundation and a business on. And the other side is we think, if you think about like, are the data part of our business, if you’re buying your wellness products from us or your health products, and you know we have, and you enjoy that product we sell you, and you get the best service, and you get the best price, and we offer the dog supplements, or dog products, or pet products, you’re certainly gonna give us a thought.

Impulse is unreliable and not something to build a foundation and a business on. Click To Tweet

If we make good products there, you make good products there. We have this large amount of data that we’re building over time of consumers that purchase in these industries. For us, it makes sense to stay in those industries, build more data, and have more customers inside our own brands. That’s why we’re super focused on staying in our verticals at this point in time.

That makes a lot of sense. Obviously, you want to be in reliably growing industries, which you know the demand is going to grow, population is growing, it’s aging. It’s two forces that actually both amplify each other. It’s a great thing to have in the back of your sale. It makes sense. So on the other side, for those entrepreneurs that maybe would consider you as an investor, what makes you attractive? What makes you, Upexi, as a partner, more attractive than going out and hiring those agencies for advertising, for development, and maybe tapping into venture capital or crowdfunding. So why would they come to you rather than try to kind of assemble their own team?

Well, usually it’s capital, right? And then one is, we’re more, when we invest, we try to most, well, I don’t think all the time so far, we’ve taken a majority stake in the company. So we control the future, but then we also, so for certain owners, that gives them the ability to sell, you know, say a good part of their business, take some risk off the table for them. And then also participate with us on our equity going forward for maybe even a bigger payday in the future. I think that all of these, what we’re seeing is as competition comes in to your market, you have to reinvest the capital.

And as small businesses grow, there’s really a negative cash flow effect that happens on every small business as you grow. If you did $3 million last year and you made, just say you made $300,000, the problem is you invested $2.7 million over that year for your inventory and all your costs, and next year you go to $5 million. Now you need $4.4 million and you don’t have it. So you’re constantly turning that capital, and there’s always a lag on you getting paid because you’re buying your inventory up front. It’s standard business problems. But I think that they get worn out a little bit there, and they don’t really have the money to reinvest for a team.

A great dev person, I mean, if you could have a dev, an ad person, a copywriter, you could have to spend $400,000, five, $600,000 a year for three or four good people. And you can hire agencies, but they, one is I don’t find them to be as effective as, you know, they’re managing 20 clients. They don’t care about, I’m not saying they don’t care, but your product is not their only focus. So you’ll always do it better when it’s your only focus. That singularity is super important. And they’re not cheap, right? So they still charge you a management fee whether they’re successful or not.

And the truth is, if you think about it, they get paid on how much of your money they spent, not on how much more of your money they convert. So sometimes I’ve never, we personally have not had the best success. We still use them and we have some good ones. But in general, we’re always looking to do that. So a small business owner can say, well, “I’ve been really successful. I get a chance to join a bigger organization. They take some of the stress off of me or all of it. I get some of my money off the table. And if we’re all successful, they get to get paid a second time as time goes on.” I think that’s a really attractive opportunity for a lot of them, especially in today’s markets where capital is just not really available. And as of recently, banks aren’t lending. So that’s where we sit today.

Ok, I get that. Now, how do you engage your entrepreneurs? I’m always I used to be an investment banker. So I’ve seen a lot of deals where we would represent the seller, the entrepreneur, and most of the cases, the entrepreneur was out of business within two years. And I know that some investors are able to engage the entrepreneurs and keep them in the business and keep them being fulfilled as being part of a bigger business. So is there a recipe to do that? How do you do that? How do you keep them engaged and not lose them? 

I think you’re always going to lose them. I mean, they sold for a reason. So one of the reasons we’re very selective on our businesses is not only we evaluate, we talked about, do we have, you know, that free agent to plug that hole? And we think about that with the owner. So we structure our payments so they have to stay for that timeframe, that two or three years, keeping them involved. And really that timeframe for us allows us to make sure that we have the proper free agent plugged in each of those spaces to maintain that business. So we understand that’s a part of doing acquisitions. I think a lot of people don’t really go through that.

One of the reasons a lot of the big aggregators had problems is that they didn’t, they just assumed they could write checks and own a business and they would all equal a bigger business. And what they’ve equaled is a big problem. So we don’t think about it, or I certainly don’t think about it that way. We’re very, very systematic in our process, and each transaction we do, which hasn’t been a lot, is planned out for the worst case scenario instead of the best case scenario.

So we go into it that way and look at what, you know, our risk is the most important factor for us. But we have a plan and we know what we think, okay, we’re buying it here. If they left, we would lose this, this, and this. So, this is the net business we would gain. Is that valuable? So far, we’ve been very good at that. Like, we purchased Vitamedica two years ago. The business was doing just under 3 million a year. Last quarter, it did 1.9 million in a quarter. It’s just one of our businesses. So it’s grown substantially. The owners are still with us. They bought into our theory. And I really do focus on creating that environment and the opportunity inside our business as one big team. Can’t say family, but we do work together, spend as much time as we can, keeping everybody happy and giving them a recipe for success. 

So if someone would like to, maybe they’re building a brand, maybe an Amazon brand or some kind of retail brand, they have a product, it’s scaling, it’s got the margin, it’s growing. Maybe the competition is coming up as well, and they would be interested to explore the opportunity to join forces with Upexi and maybe talk to you. Where should they go? What’s the first step for them to learn more about your process?

So if they want to submit information, like we have a pretty easy spot on our website at upexi.com. You can submit your business, your revenue, you know, just basic information, and we’ll evaluate that and get back to you on whether it fits into our model and spend some time if it does. And then if people are just looking for, you know, information on the company, they can, under U-P-E-X-I or the SEC site, they could find out any information about the company itself and the brands we have. You know, pretty easy to find. We make it as easy as possible. We do get submissions every day on there, but we go through all of them. I see most of them.

Okay, awesome. So if you’re growing a brand, check out upexi.com. It’s a NASDAQ listed public company. So you can look it up, you can submit your information. Alan, I think you’re not that easy to reach on LinkedIn.

I still think social media is a fad so I don’t participate in it but I was wrong.

It’s a great time saver to not to be on social media it definitely is 

It is, I know 

It’s your time is short then maybe that’s not the first place to go all right so Alan thank you very much for sharing your view of Amazon as a platform, as the retail opportunities and how you can support these companies, the right companies with capital, with dev resources, advertising, very, very interesting model. Thanks for coming on the show and I wish you continued success.

All right. Well, thanks for having me. I appreciate it. Have a great day.

 

Important Links:

• Pinnacle: Five Principles that Take Your Business to the Top of the Mountain
• Stevepreda.com
• Upexi.com