Chad Maghielse treats his two French bulldogs like family. When their breath turned unbearable, Chad invented a breath spray for his pooches. Within three years, he was making over $2 million in online pet product sales at a 35% profit margin which is when he sold Pets Are Kids Too for 3 times EBITDA, 70% upfront, and the balance over 18 months. His secret for attracting an acquirer? Diversifying away from Amazon as his only sales channel.
What is Platform Risk?
Platform risk arises when your business leans too hard on one sales channel. This dependency diminishes your appeal to buyers, and it’s not just an e-commerce headache. It doesn’t matter what industry you’re in. If you’re too dependent on one sales channel (or salesperson), expect acquirers to ask questions.
Adii Pinaar struggled with platform risk when he became over-reliant on Shopify for the sale of his software, Conversio.
How Chad Diversified Off Amazon
Chad initially relied solely on Amazon. Realizing the risk, he branched out to Chewy.com and his own online store, eventually minimizing Amazon’s share of his sales to 65%, while Chewy drove 30%, and his store 5% respectively.
Chad explains his rationale, “If you’ve got a secondary marketplace making up 20, 25% of your sales, you’re more appealing to buyers. It proves you’re not a one-trick pony.”
Former Built to Sell Radio guest Ben Leonard was also obsessed with eliminating platform risk at his workout apparel company, Beast Gear. He went so far as to include a message with each product sold on Amazon, urging customers to post an Instagram photo using his gear and tagging Beast Gear. He then DM’d a coupon for their next purchase on his own website, gradually shifting sales away from Amazon.
Additional Insights from Chad’s interview:
- Negative Reviews: Use them to spot new opportunities.
- Amazon Ranking: Boosting your position
- Building on Facebook: Engage and expand your community
- The Traffic Triangle: Build audience trust
- Earning 5-Star Reviews: Straight path to customer acclaim
🤔 Curious What Your Company Might Be Worth?
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🏆 An Electric Trophy
To commemorate the sale of his company, Chad bought a Tesla, a testament to his success and futuristic outlook.
📈 Deals
- Retail Pro International, a provider of retail Point of Sale (POS) software, is set to be acquired by Nayax Ltd., a global commerce enablement and payment loyalty platform. The deal values Retail Pro at $36.5 million on a cash-free, debt-free basis, adjusted by a $2 million reduction due to deferred revenue. Nayax will pay about $20 million in cash at closing, with the remainder, based on certain earnout targets, to be paid over three years in cash or equity. Retail Pro reported $14 million in adjusted revenue and $4 million in Adjusted EBITDA for the fiscal year 2022. Nayax is valuing Retail Pro at a multiple of approximately just over 9 times its Adjusted EBITDA or around 2.5 times revenue.
- Digital Diagnostics Imaging, Inc. (“DDI”), a provider of outsourced heart monitoring services, has been acquired by Kingsway Financial Services Inc. for $11.0 million in an all-cash transaction. This transaction was funded with $5.4 million in cash on hand and $5.6 million in debt financing. The acquisition is expected to be immediately accretive to Kingsway. Given that DDI’s annual unaudited revenue is $4.2 million, the $11.0 million acquisition price implies a valuation of approximately 2.5 times its revenue.
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