The macroeconomics behind selling an Amazon brand today ⎜ D1 Brands ⎜ EP 133

Ryan Cramer: What's up, everyone? Welcome to my corner of the Internet. I'm your host, Ryan Cramer, and this is Crossover Commerce, presented by PingPong Payments, the leading global payments provider helping sellers keep more of their hard- earned money. Hey. What's up, everyone? Ryan Cramer here with Crossover Commerce. Thanks for coming to episode 133 of Crossover Commerce, presented by PingPong Payments. You've made it. You've made the destination. We're excited you're here. Thanks for joining, whether this is your first episode or your 133rd. I know there's a lot of groupies out there. I'm just going to give a shout- out to you, so thank you for tuning in. This is my corner of the Internet, where I bring the best and brightest in the Amazon and e- commerce space to my corner of the Internet, where, again, we're going to be talking about anything from logistics to supply chain to optimization of your product listings to even acquiring businesses and brands on Amazon. That's what we're going to be talking about today. Yesterday, if you tuned in, we actually had Olsam Brands on from the UK, and they were actually able to talk on it. Believe it or not, how the schedule worked out, we have another, quote- unquote, aggregator in this space doing some really exciting things, one of the very few businesses to have now raised over$ 100 million in equity as well as in debt equity just to acquire brands for their businesses. I'm really excited about that because they have walked the walk and talked the talk. We're talking, of course, about D1 Brands and Yaz and his team over there. The exciting thing about that is we have him live. Believe it or not, before he could protect himself, he was locked out of his office, why we're running a little bit late today, but I appreciate everyone tuning in today. But, of course, Crossover Commerce is presented by PingPong Payments. Let's get into that real quick. PingPong Payments has actually helped over one million customers worldwide and now has produced over$ 90 billion to date in cross- border payments. That means if you're paying your VA, your supplier, your manufacturer, which is super important to date, you can pay them in local currency with a very low cost ability to do so instead of doing it through international wires or through other third- party platforms. Go ahead and check out PingPong Payments in the show notes below. You can actually sign up for a free account today and start using that as soon as 24 hours once you're approved, so go ahead and check that out or mention Crossover Commerce when you talk to somebody here at PingPong Payments. That being said, the show is not just about me. It's about my guests, who are awesome to come on today in their busy schedule, and this person is no exception to the rule. His name is Yaz. He has actually helped co- found D1 Brands, he and his team, actually. He went to the University of Massachusetts as well as a bunch of other prestigious things. He's actually sold on Amazon with him and his team and have leading brands in the Amazon space, and that's anything from baby to home goods to all sorts of categories. Let's bring him on the show. Welcome, Yaz Malas of D1 Brands. Yaz, thanks for hopping on Crossover Commerce. How are you doing today?

Yaz Malas: Good, good. Really excited to be here. Thanks for having me.

Ryan Cramer: Yeah. Apart from getting locked out of your own office, which is a terrible prank to pull on the CEO of the company, right?

Yaz Malas: Turns out office security works both ways. If you don't have your key, you can't get into your office.

Ryan Cramer: No, that's no problem whatsoever. So, yeah, your offices are where at? Because you're in New York, correct, or New Jersey?

Yaz Malas: Yeah, we're in New York. Our primary office is based in Boston. We have a few warehouses-

Ryan Cramer: Oh, nice.

Yaz Malas: ...sprinkled around New York and New Jersey as well. But most of the team works out of Brooklyn.

Ryan Cramer: Nice. Okay. So are you originally from Brooklyn? What's that background for you as a person? Did you grow up in Boston or...

Yaz Malas: I grew up in New Jersey, so I was always staring across the river at New York and imagining the great possibilities for me. The way the world works, I ended up going to school in Boston and staying in Boston for a few years before starting D1, and then I ended up coming to New York.

Ryan Cramer: Okay. So is this the first business venture that you actually did coming out of college, or how's that work? What's that background before you'd gotten to D1?

Yaz Malas: Yeah. After I graduated college, I went to work at a large investment management firm, where my job was basically to look at companies and talk to CEOs and understand their businesses and their business models and then make a decision if we wanted to invest in them or not. I did that for about six years. I got to meet thousands of some of the best CEOs in the country and CFOs and COOs. Eventually, I got really tired of sitting across a table from somebody who I was really inspired by that had built something incredible, and I started to say to myself, " Hey, maybe I should try to do that." But going back a little bit further, growing up, my inspiration to become an entrepreneur... This is kind of what this conversation's going into. My inspiration to become an entrepreneur actually started a lot earlier. My dad was a first generation immigrant, kind of classic story, came to the US with a couple dollars in his pocket, lived in an eight- person apartment in New York City, and eventually started building his own business and started selling chicken on the street. Then he eventually did a textile factory and a run of other startups. Our dinner table conversations as kids was always about this business or that business or this business model or that business model, and so I was always inspired by entrepreneurship and the idea of building something myself for a very long time. I got the courage to do it after seeing so many successful people do it, people that I know. Then, fortuitously, I came across the Amazon opportunity probably like a lot of people do, an Instagram ad, Facebook ad, " Make$ 50,000 a month and change your life."

Ryan Cramer: You bought that course, didn't you?

Yaz Malas: Yeah, yeah. Yeah, he suckered me in. The clickbait was real. Then I started doing more work on the Amazon opportunity. I started to go to meet- ups. I started to meet really successful Amazon sellers. Then I started to really think about, " How can I combine what I've been doing on the investment side and what looks like an incredible entrepreneurial opportunity to go build brands?" Then I met my co- founder, and he had been selling on Amazon for eight years. He started in late 2012. He was one of the first in the FBA wave, and he told me about his success. This is that he had scaled four brands, launched over 300 products, very high rates on this product launches, had scaled his team to hold almost a dozen people. He's like, " There's a real interesting opportunity to start acquiring Amazon brands." He had initially tested the hypothesis a couple of times, but he realized he was missing a core skillset. When we met, it was like destiny was telling us that we should do this. That's really how we've been able to take D1 from a 10 person team to start a year and a half, two years ago, with just four brands that we had built, essentially, to today, where we have around 20 brands, 76 employees. We've raised$ 120 million in capital. Yeah, and we're just really excited about the opportunity in front of us.

Ryan Cramer: That's amazing. I don't think there's any other businesses out there that actually have started the aggregator that acquires base or business built around their own central brands because either they've sold them off and they're like, " Hey, I can do that, I think that there's an opportunity there"... You actually, at the core of it... And I didn't know this before you were talking about this. At the core of it, you actually built your business model around what already success you'd seen on Amazon. Is that the best and fair assumption that we can say of what D1 brands is?

Yaz Malas: Absolutely. Yeah. I mean, what really makes us special and the reason we had the confidence to go after this market is because we still believe and, at the time, we thought we had the best team. The best team to us is people that just understood and could empathize with Amazon sellers. People that have inaudible who have Amazon operational knowledge and deep experience in it. Those are the people that should be the ones that give sellers the opportunity to exit because they're going to be the most empathetic buyers, right? I got into the Amazon space two years ago, but my co-founder's been doing it for a long time. I've heard all the war stories, and I've felt a couple of the war stories ourselves. When we first got started, one of our primary accounts got suspended for 21 days. We were all running around with our heads on fire, and it was the worst feeling in the world. We used a lot of bad words when describing Amazon, but we developed a strategy, we implemented it, we got things figured out. But I know how that feels, and I know how to solve that problem. Now, we get product suspensions... Every seller has product suspensions on a regular cadence. We have a system of SOPs and POAs built to handle those issues. But that's just one example of Amazon is... There's unwritten rules and written rules on Amazon, and there's a lot of ways to lose, and the things are constantly changing, the ways you can lose can constantly change. The most important thing is experience. If you've dealt with it, you know how to deal with it going forward, and that's really what we bring to the table when we're talking to sellers. Because the last thing you want to do is you're in the middle of diligence, you're under contract, you're really excited about closing, and then something goes wrong. There's a product suspension or account suspension, and the buyer gets spooked. We don't run away from the fire. We run towards it because we know how to extinguish it.

Ryan Cramer: Interesting. So because of that, you would rather be able to help coach them through, " Hey, it's okay, this stuff happens." We had the unique conversation yesterday of the shelf life of a product, right, or just accounts in general. What actually is the longevity of an account nowadays? There's only been so long that FBA has been... And Fulfilled by Amazon for those who don't or are listening to know what FBA stands for. The possibility of a third party selling online, I think the max is maybe eight years, maybe even longer than that, to date that they've been able to do that. So, with that being said, an account being suspended along the way, there is a possibility of that. It's probably pretty decent a possibility for whatever reason, going against TOS, on purpose or accidental. So you're saying that if you encounter something like that as a buyer of brands, is that an instant turn- off, or is that something you empathize with in that regards and you're like, " Hey, it's no big deal. What's the reason?" You kind of do due diligence. Is that a fair assessment?

Yaz Malas: That's absolutely true, yeah. I mean, there are products. There are account suspensions that happened in the past. We'll start talking to somebody who's interested in selling their business, and then we start to learn about the history of their account. Okay, it was suspended for this reason. It was shut down for this reason. We dig into it, and we'll make a determination if that's an ongoing risk, if they dealt with the issue, or if that completely changes the way we think about this account. For the most part, there's only a few account suspension reasons that would really turn us off, and a lot of them you can fix. Some of them you can't. Heavy review manipulation, where a big base of your reviews have been influenced by certain things that are currently not TOS compliant, would be concerning. But there are a lot of reasons why you might get suspended for the right reasons or the wrong reasons that don't necessarily fall into that bucket. So nine times out of 10, I would say, an account suspension is not a deal- killer for us, and we can understand the issues. For other people, an account suspension is one big broad brush, right, just bad. But, for us, we can take a more nuanced view and understand the issue.

Ryan Cramer: Interesting. So what would be the one... What's a major thing that you look for that's a major turn- off besides, obviously, their sales threshold, that has to meet a certain requirement for you and the team to invest in that? What's the major turn- offs in that regard? So if I'm a seller and I approach you guys and I say, " Listen, this is what happened," and you're looking into the nitty- gritty and the dirty books of everything, what are those red flags that you as a buyer and that sellers will do in order for you to say, " Not even going to happen," it's like, " Case closed, thanks for shopping with us and coming by?"

Yaz Malas: Yeah. Yeah. There's not a lot of things. I'll be perfectly clear. I think a lot of things are solvable and a lot of things we could figure out in structuring and mitigate those risks. But if I had to think of one or two things that would be deal- killers, quote- unquote, probably shouldn't be saying on this call, but-

Ryan Cramer: Well, I was going to say, is there an example you can give us, or is there a topic we would approach that you wouldn't have to give a specific? You don't have to be as specific in that regard. I didn't know if there was something that is a complete... Whether it's a category, " Hey, that category's very"... Let me rephrase everything. Is there a category that you guys won't touch, just because of the competitive nature of it, it's too much spend, there's too much to play with, you can't really break outside the boxes? Is that maybe where you guys go, instead of black hat tactics or anything like that? We can separate that from this conversation.

Yaz Malas: No, no, crosstalk-

Ryan Cramer: Is there a category that you would rather not touch?

Yaz Malas: First thing you got to understand about me, Ryan, is I am super, super honest and super frank, even if I shoot myself in the foot. So there is no questions you can't ask me. I actually like the hard questions. I think that's what makes it special, when you answer the hard questions. I do want them.

Ryan Cramer: Sure.

Yaz Malas: Yeah. I mean, just going back to the black hat thing, so black hat tactics we generally don't like, but everybody uses a different flavor of black hat tactics. You can go back five years almost. A lot of Amazon sellers were doing something that would be considered gray or black. The really bad stuff is you're selling through 20 accounts. You're selling through 20 different accounts and you're swamping listings between each one. One goes down, and then you take the listings and you swap it to another account, and then you just present us with one of the accounts that it never had any historical account health issues but it's attached to or related to all these other entities and other accounts that have had significant account health problems, from account suspension to massive product suspensions. That's really hard to untangle for us. It's something that we've figured out is pretty hard to do, and Amazon keeps getting smarter and smarter and smarter about how to relate those issues to related accounts. So that's one of the big things that's really hard for us to overcome on the black hat side. In terms of general criteria, we're pretty agnostic, so we'll look at almost anything. Everything has a price. Some categories are better than others. Some products are better than others. Some marketplace mixes are better than others. So it really just depends. I know that's the worst possible answer. We've done deals in electronics. We've done deals in baby. We've done deals in sports. The only area we haven't really done a lot of deals is apparel, although... And the reason for that, really, is just apparel... The fads change a lot in apparel, and they change really quickly, and a really big part of there being a win/ win outcome for both the sellers and for us is the brands that we buy, we want them to be around for a really long time. That's how we build our entire operating strategy, is how can we make long- term investments to make sure that the brands that we acquire continue to grow and grow and please customers for a decade- plus? Because we believe in Amazon as a platform for multiple decades, and so that's the frame of mind we're operating in. With apparel, it's a bit more challenging for us because it's hard to know how long will people want to buy LuLu leggings or how long will people want to buy blue blouses? That's really challenging to us.

Ryan Cramer: Yeah. That was the question I asked yesterday with Sam over at Olsam, is what's the projected shelf life of a product that you might be acquiring or a brand? Because the data out there typically would suggest that if it's a fad, for example, like a fidget spinner or something that has just this credible sales through velocity, it's more kitschy, but, hey, for a year or so, it was a strong seller, that your due diligence is that, actually, at that moment in time, you can look at historical history, but it's really in the forecasting for the future, is this going to actually maintain, grow, and still be viable in Amazon or just online in general? So that actually makes the question continuously profitable in terms of if I'm a person in your position, how do you forecast either trend or viability of product for, like you said, hopefully decades? Is there that mix that you have to be strong and you know, " Hey, this is going to be consistent," like kitchen tools or, like you said, baby gifts or baby toys? What are those categories that you feel like have that strength to continue to have longevity down the road?

Yaz Malas: Yeah. Absolutely. You tell me if I'm wrong here, but I think that there isn't a lot of great empirical data with a large sample set available to answer that question, and it is the most fundamental question in our ecosystem. You can be like, " You guys are crazy to do this without knowing the answer to that," and I would totally agree with you if you said that. A big part of our tech strategy is around building the data tools and the data lake and the data infrastructure in order to answer that question at some point in the future. But like you said, if you just take the raw ingredients, most Amazon FBA businesses were started in the last five years, most of them. The ones that were started before that, they're$ 100 million, $ 200 million revenue plus businesses, and they've been launching products and losing products over the course of their history. So even if you asked one of them, they wouldn't be able to really tell you what's been the... They've been around for eight years, but the mix of listings inside of their portfolio has changed significantly, and they don't have more than two years of data to work with either. Then you go back to the point that most, 80%, really started in the last five years. I mean, how much history do you actually need to be able to answer the question of, okay, this is the churn rate? I would argue it's probably closer to 10 to 15 years. You actually have to go through a full economic cycle in order to be able to answer the churn question with a high degree of confidence. So the short answer is I don't know.

Ryan Cramer: Hey, you're honest.

Yaz Malas: Yeah. I don't know, and I think anybody who says they know, I would challenge that. I try to approach it from different perspectives, and I try to talk to people who might have more data than me, in particular, the lending providers in the Amazon ecosystem. They've actually been around longer than all the aggregators. They've been looking and collecting data on a lot of Amazon businesses for a lot longer than pretty much anybody else. You could probably say some of the advertising platforms as well. You could probably talk to them and ask them the same question, although I don't think they've been as focused on that data point. It's like how many businesses fail every single year in your portfolio? They will tell you the churn rate, but they won't actually know the death rate, which is really what we care about. And if you ask the lenders, you'll get some interesting answers. Lenders, the way that they make money is they borrow money from somebody else, right? Maybe it costs them 15%. Then they take and then they say, " We want to earn a seven percent spread on that money. Oh, but, by the way, we have to factor in the likelihood that you go bankrupt." So, basically, your cost of capital, which is how much money the lender borrows from their investors, plus the profit spread minus their default rate is how much money they make. So I bought inaudible 15, I lend it out at plus seven. That's 22%. Then I have a two percent default rate, so I make 20% on every single loan that go out over the course of time. So it's really important for the lenders to know what that default rate number is, and that's the first question I ask all lenders, " What's your default rate," because that will tell me what the failure rate is of an average Amazon business. When you ask them that, they'll give you the number. I don't want to say it now, but it's higher than most banks and not as high as you would think, I would also say. But then the follow- up question I always ask is, " Okay, what are the businesses that are actually failing?" The answer I've gotten a couple of times is you want to buy stuff that's on the first page. If it's not on the first page, the failure rates start to accelerate pretty significantly. So first page is 44 spots, right, organic and sponsored.

Ryan Cramer: Right. Give or take, yeah.

Yaz Malas: Give or take, right? So if you're 40 in the subcategory, I consider that a pretty durable listing. Now, obviously, there's a ton of nuance to this. If you have 30 competitors that have 10,000 reviews and you're the bottom 10 and you have 1000, that's very different than if everybody had 5000 reviews in the top 40 subcategory, right?

Ryan Cramer: Exactly.

Yaz Malas: So it's more nuanced, but that's generally speaking how I've been thinking about it.

Ryan Cramer: Interesting. Well, I like that concept, too, because... So I've been having conversations with people like you who are running these businesses probably since September, and everything has completely changed. The amount of money has raised. It's incredible, the amount of money that's coming in. A lot of people continue to say they're hedging bets. Businesses either will be successful whether they offshoot or become niche- focused and only work on specific products or categories, they are all- encompassing, or they take the most profitable businesses out there, they've built those out so that they have the most longevity possible as well, or they're acquiring just data in terms of customer information, so then you can start pushing out those businesses, the operations component aspect of it, or just really building out something so that they can curate their own brands. You already have your own brands that you're facilitating, still operating. I'm assuming that you've kept somewhat separate under maybe D1 Brands... I won't ask you how all that encompasses. But as that continues to play out, is your projection to either buy up and hedge those bets, or is it to inevitably just have those logistic chains so that you can start playing with capital to grow out your own brands, or is it more of building and acquiring customer data so that you can make the right decisions moving forward? Because, like you said, these products may not last 10 years. They might have a shelf life or you have to get rid of them entirely. They just don't have the sales through that you and your team projected. What's the money that you're betting on essentially day- to- day?

Yaz Malas: Yeah. That's a great question. It's a bit of all of those things, I would say, but it just depends on how you want to sequence it. I actually think the end state for a lot of aggregators is the same, so it just depends on what you want to do first, what you want to do second, what you want to do third. What we want to do first is buy fantastic brands that'll be around for a really long time because if you do that, you'll have the profits to invest in a bunch of different things as the ecosystem evolves. Whether that means you should prioritize product development, whether you should prioritize in- sourcing your logistics infrastructure because it gives you an edge in doing oversized fulfillment where nobody else is competing, there's strategic offshoots of every single of those decisions you make that play into what do you want to do, and the value of those things changes year to year. That's not a great answer, but that's very simplistically how we're thinking about it. I think the capturing customer data component is a really interesting angle to product development, and it really feeds the product development cycle on Amazon. So capturing customer data, you have to use Shopify to do that. That can be helpful on your Amazon marketplace, and then it's also obviously helpful if you want to take your product from Amazon and take it DTC. Take your product from Amazon and DTC, that's not a near- term priority for us. It's something that's probably a year or two out for us. But that doesn't mean that we don't set up Shopify sites, start doing email distributions, start creating content and targeting customers and retargeting them, and then using them to tell us what the next product that we should launch in that brand is. That's really valuable. That's something we've already started to work on and is in the game plan for the next six to 12 months. But the thing is there's a lot of alternatives to doing that, too? You could just use PickFu, right? Take your product, put it on PickFu, crowd- source some feedback, and then figure out how you want to iterate on your product or on your brand. So there's some utility in that, but not a lot of utility in that. The other fundamental belief of ours is that there actually isn't a lot of value to being in one category, unless you're going to be off Amazon. So there's not a lot of value in owning pacifier clips, pacifiers, baby cribs, baby bottles all in one category on Amazon unless you can take it off Amazon. There's a lot more inaudible potential off Amazon than there is on Amazon. On Amazon, what really matters is... I mean, your brand is important on Amazon. Some brands have higher branded keyword searches than others. That's how you can really tell brand value, in our opinion, and that varies from five percent of keyword volume to 20% of keyword volume. That's pretty significant. But the real value of having a cohesive portfolio in one category is off Amazon because then you can sell to the same customers over and over again, and you can't really do that with the information you get from Amazon, as you know. So... Yeah.

Ryan Cramer: Yeah. I was going to say, that sounds like, to me, that can either go one of two ways or maybe both ways of how you described that. That can go down, like you said, direct to consumer, or that can even go to wholesale play to retail stores and whatnot. So I feel like there's multiple different paths you can journey down. There's no wrong way. I would say that there's lots of options for acquiring brands that are being successful on Amazon and then, obviously, pushing them and kicking that down the road to see what other paths you can take on top of Amazon, of course. What's the nightmare scenario that you play in your head as you wake up in the morning or go to bed at night, Yaz? Is there something that the volatility of Amazon in how much control they have over every single brand, or is there another thing that you are fearful of, worst- case scenario, besides getting yourself locked out of your office? I mean, that's key. We've already gone through that today, so worst- case scenario, that's gone through.

Yaz Malas: Yeah.

Ryan Cramer: What is that for someone in your role on a day- to- day basis?

Yaz Malas: Yeah. That's a great question. I'm really afraid... So the things I worry about are obviously Amazon changes the rules of the game on aggregators because one or two of them get really big and Amazon gets scared they have too much negotiating power. That would obviously meaningfully change the business model. I get-

Ryan Cramer: What would they do? What would that be? Amazon just says aggregators can't exist anymore? How does that become separate if I'm your own brand and I just want to start launching products? Is that everything becomes inaudible or everything switches to that model and they have to sell directly to Amazon? Is that how that changes?

Yaz Malas: It's more-

Ryan Cramer: I'm trying to think, how would Amazon be actively affecting that in my crosstalk-

Yaz Malas: Yeah. Yeah, we'll-

Ryan Cramer: I'm trying to walk through how that looks like.

Yaz Malas: Yeah, no. That's a great point. That's a great question. I agree. I actually think it's not a very rational fear, if you think through it a bit more. But if one of the top guys at Amazon is like... Let me tell you why I think it's a fear, and then we can go into how they'd actually enforce it.

Ryan Cramer: Sure.

Yaz Malas: So why I think it's a fear is, right now, the top aggregator is, I don't know, probably less than a percent, maybe a percent of Amazon's total GMV, which really isn't a big problem. The way I think about a lot of Amazon sellers and aggregators is we're basically franchisors to Amazon, sorry, franchisees to Amazon, and they're the franchisor. If you look at a lot of other franchise systems like McDonald's or Burger King or Wendy's, most of their franchisees don't make up more than... One individual franchisee doesn't make up more than five percent of sales. In some cases, it's been closer to 30 or 40%, and that's where you see the franchisor push back hard by either buying their brands from them or buying back their units or systematically trying to essentially make them break up and sell to other people. So I think that that might be what happens here, is a few guys get a little too big, Amazon gets worried, and they encourage you to break up your business or they systematically target you. I think it's unlikely that they systematically target you because it's very hard on Amazon to punish one person without punishing the other people on the marketplace.

Ryan Cramer: That's right.

Yaz Malas: So I think that's how it would manifest itself. I actually don't think it would really affect other Amazon sellers. It would probably really focus on people who are aggregating. Now, that would have a knock- on effect on Amazon sellers looking to exit because if the entire industry was taken down or a couple of big players were taken down, that might spook investors. It might mean that less capital comes in the space, and that may mean that there are less exit options for sellers. So that's how it would impact the everyday, average Amazon seller. Do I think that's a likely outcome? I don't think so. So Amazon, as we all know, they just punitively punished a lot of really big Chinese sellers that haven't been following TOS for a long time. A couple of those sellers were one percent, two percent of GMV. I think in aggregate they were one or two percent maybe, or one of them was one percent of GMV. So that's five to six billion of revenue. I don't think there's an aggregator that big yet, so we're really far away from that, and that didn't really bother them, so...

Ryan Cramer: Yeah. Because of when you say they get too big, I'm trying to think of... There's so many different names that get thrown around in the space, right, in money, and you're, I'm sure, 100% aware of all those numbers. It's super fascinating to see how fast the growth is happening, but it's also fascinating to see at the rate of which they're closing deals. So I think the number one in this space would be... In terms of money raised, it would be by far and away probably Thrasio.

Yaz Malas: Oh, sure.

Ryan Cramer: I think when I saw information at Prosper, just through pictures, it was one of 10 products delivered on Amazon is a Thrasio product, which seems like... I would call it 10%. They're acquiring a business, one every... I believe the stat was one every seven days. So if you're looking at 52 brands, theoretically, in a year, that doesn't seem like too terribly a lot. If I'm walking through numbers, the amount of product, yes, but if you're looking at brands in general, that doesn't seem like the overarching amount of fear of businesses being bought up and brands on Amazon being only ran by, what, 25 different companies potentially. That wouldn't be my thing. I think the number that scared me, not scared me, really stood out was the one in 10-

Yaz Malas: Yeah, that's crosstalk-

Ryan Cramer: ...which is kind of crazy. I think that's the stat. And, again, if you're listening to this and you saw that at Prosper Show, let me know if I have that wrong, but I believe that was the stat that they're emphasizing, which is really fascinating to consider that in terms of market volume, in terms of how many products are going through FBA. So I think that's super fascinating as well.

Yaz Malas: That's a really interesting data point, and I want to dig into that a bit more. I did not see that data point. I have heard they're buying one a week, which is really impressive. Those guys, obviously, hats off to them. They're really good operators, and they have a great brand. I think they've done great things for the entire industry. But one in 10 does seem a little high, I'm not going to lie, so I'll have to dig into that a bit more.

Ryan Cramer: Thrasio, I know, had Casey Gauss, who was my former CEO at one point, and then I know he's VP. Casey, if you're watching this or listening to this, you need to let me know what that stat is because that's a crazy stat. I'll need to go and look, and if any other friends in the space happened onto that, is that a statistic that was being touted? If you have a picture, I would love to see that. But in that case, I would think, yes, of course, that seems like a lot being ran through one major corporation, and you've seen them make plays at other things. Is that a business you look up to, or is it more like you would rather be more heads- down, do our own thing, and not worry about other people in the space and what they're achieving or the news that's going on there?

Yaz Malas: Yeah. I mean, I think that this is a market, and I think if you talk to just the people at Thrasio, I think Carlos has even said this, but I fundamentally believe that this is a market big enough for a lot of different buyers to win and to thrive in. That's why there are so many aggregators, and that's why a lot of them have been successful thus far because there's a lot of market potential here. Because of that, I don't focus as much on them as I do on us and our own path and our own journey. You'd be surprised. You probably find this hard to believe, but we actually don't run into them a lot. I know that's kind of crazy, but that just goes to show you-

Ryan Cramer: You're talking about negotiating for a brand?

Yaz Malas: Yeah, exactly, when we're both... We don't really actually bake off with them a lot on brands. Yeah, you don't always know who's on the other side of the table, but sometimes you figure it out. In most cases, it's not them. I think that's just because, again, the market's just massive. They're also maybe more focused on some bigger stuff, but they also do a lot of small stuff, too, so they're kind of all over the place. But, yeah, crosstalk-

Ryan Cramer: Is there... Oh, go ahead. Go ahead, Yaz.

Yaz Malas: Yeah. But for us, we really try to focus on what makes us different and what makes us special. For us, it's a little bit different than the Thrasio model. I don't want to speak for them, but I guess our model and how we think we're a little bit different is we feel really strongly that the most important thing is making sure that sellers have a fantastic selling experience, which means that we give them a fair price, we give them a great price, we have high professionalism, and there's a very high degree of trust. But the most important thing about trust is that they actually feel the trust, right? The selling process is really scary. It's really complicated. There's a million questions. Some sellers, they feel bad asking too many questions. They don't want to seem like they don't know what they're doing. So the way we've been able to solve that... Sometimes, they're not even using brokers, which we encourage because... And we can get into that conversation. The way that we solve for that anxiety is by just trying to build a lot of trust, and we do that by having our team spend a lot of time with sellers. So we're very, very high touch. We don't characterize ourselves as a machine. We're happy to go a little bit slower to make sure that the process, the selling process, is exceptional, it's the best that they've ever had end- to- end. It's the fastest, it's the smoothest, it's the most transparent, it's the most trustworthy, and every single one of our deals we've put under LOI is closed, we've closed on. That's another thing we have a lot of pride in. We-

Ryan Cramer: 100% close rate, that's amazing.

Yaz Malas: 100% close rate. That's the brand that we really are trying to build and that we have built thus far. So we're okay to sacrifice a little bit of growth. We don't need to grow the fastest. What we want to do is make sure what we say is what we do. So we do a lot more work up- front. We might take an extra week to give you an offer. If the process is moving too fast, then we're going to be too slow for it. But we want to make sure when we give you an offer, you can go to your family, you can go to your wife, you can go to your kids, you can go to your husband, and you can share the success and it happens and it's going to happen. So we invest a lot in making sure we bring the best people and we invest in a lot in making sure that we're setting up meetings at a good time, we're making the process frictionless, that we have senior people on the calls when you talk to us, that you're talking to me, you're talking to our head of M& A every single time, not just some junior M& A analyst, and we do all of the work.

Ryan Cramer: I like that. Well, and that's the thing, too, I notice from 10,000 feet, is everything's being promoted as it's a quick close process. It's fast, it's quick, you put your name on paper, you submit it, and all of a sudden your process has begun. I feel like that's an anxiety- inducing experience because, as a seller's perspective, and maybe I'm speaking not for everyone, but I would think that to go and rush through everything without due diligence, that's where mistakes are made, whether it's for a brand that is acquiring or that they look at something, they don't put the numbers together correctly, and they could either get more money out of a potential buy- out or there's a better deal to be had based upon terms and achievements that is negotiated at the table. So that's why I think it's very fascinating to understand the rate at which the speed is being marketed instead of the due diligence and the ability to... " This is what we're getting out of it. This is what you get out of it. Let's educate through this process." Is there that gap in the market of why it seems like a very rushed process, or is that just because businesses have to be purchased because of equity they're taking on so there's benchmarks that need to be made? What's that philosophy behind that?

Yaz Malas: Yeah. No, that's a fantastic question. I mean, I definitely think that, to answer the last question, there's definitely a race to scale. There's a ton of capital that wants to be deployed in this ecosystem, and so there's a lot of pressure to do deals. But, eventually, we think that's going to work against you, and so we've taken the opposite approach. On the due diligence piece, absolutely. Now, I just want to be very clear, just some facts. Our average close time is 29 days.

Ryan Cramer: Which seems fast to me, yeah.

Yaz Malas: Yeah. I mean, we're really proud of that, and we work every single day... We were trying to get it down to 21. That's our goal. That's our benchmark. We have a very thorough due diligence process. I think where people run into trouble isn't how fast we can do it and it's not the fact that they don't have all the boxes to check. I think some aggregators, at least most of the good ones, they know what information to collect, they have a process for it, and a lot of them can probably plug holes within 30 or 40 days. The issue is when you try to do too many deals at once and you don't appropriately resource it. Then that's when things just start to break down completely. You end up doing everything just mediocre instead of a few deals really, really well. That's the approach we've taken. It's like, "We'll just do a few deals really, really well instead of doing a lot of deals mediocrely and having a really crappy due diligence process where you're not checking all the boxes," and then you get to the end of the process and then, all of a sudden, one of the head decision- makers is like, " You guys didn't do half the diligence in buying this business. We don't really understand it." Maybe sales are down a little bit, and that spooks them, and since they didn't have a complete process, they're like, " Ah, forget it. We just won't do that. We have another 20 in the pipeline anyway. It doesn't really matter." I don't know if you've noticed this, but recently we've also noticed this. It's like we have a lot of people where we moved a little bit slow because we wanted to do a lot of work up- front or we moved just as fast as the other guys, we just came in a little bit below on the offer, and they went with somebody else. Then, two months later, they come back and they say, " We'd love to revisit a conversation. The process we just went through fell through." The prevalence of that has grown significantly in the last few months. I don't have a lot of data on that because I think brokers are probably the best person to ask in this, but crosstalk-

Ryan Cramer: Right. Well, that's a fascinating point, too, because I think, from what I've heard just behind closed doors, there's a lot of people that over- promise and under- deliver in that regards, or there's something that crops up and it's not being transparent along the processes. Is it more of that? Are people sharing with you that information, or what's that... If you had to guess, what's that reasoning?

Yaz Malas: Yeah. I think more recently what's happened is I think some people got... Some aggregators got a little bit aggressive on pricing to win deals. Diligence is a 30- day process, right? I think in the last few months, everybody's seeing a slight slowdown in organic traffic post- pandemic, and so you have these aggregators that came in really strong in January and February with offers. Then by March and April, numbers were down five, 10% month over month, and they were spooked and they pulled out. Then I think there's another bucket, which is they did really sloppy diligence up- front. Diligence is just about figuring out what the right price for a business is. That's all it is. It's rarely, " I won't do a deal," or, " I'll definitely do a deal." It's usually like, " Okay, let me collect all the information and then take it to develop an offer that is fair," right? But if you don't have all the information and you only collect the good information, you don't collect any of the bad information, your offer might be well above fair, which is also fine, but if you go into diligence and then you pick up some of those nuggets that you didn't pick up up- front when you made the offer, the bad stuff, like, for example, the seller wasn't paying their full customs bills, they were under- reporting their products to customs, and their customs bills end up, so there's a lot of back taxes they have to pay to customs, that's a liability tail that wasn't factored in up- front because you didn't ask the right questions, and so now in diligence you have this$ 100,000, $50, 000 liability. You don't know how to deal with it, and maybe you go back to the seller, try to recut the deal, they're not happy, they walk away, or maybe you just try to blindside them because you found a bunch of other stuff, too, and you're just like, " Ah, screw it, we're just going to walk away." So those are the two scenarios that I typically see, and then a third, actually, is also we don't have the money. That is what happens, too. It's like they thought they were going to raise the money, they didn't raise the money, and that's more the case for newer aggregators. So I think it's really important to ask questions and validate and try to do reference checks on aggregators.

Ryan Cramer: When you say that, I hear a bunch of good data points, too. A lot of those key components, it's all the same data that everyone's collecting, right? If you're, quote- unquote, shopping your brand, you're going to it, it's all the same data in theory that you're going to be sharing with it, but that algorithm changes as this formula I'm sure you and your team have... Once you put in these things, the negatives are going to be things that take away from that offer being so high. It almost seems like the more in- depth that your algorithm gets or your sheet that you're basing these offers off of, it has to be a ton of data points, right? It can't just be 10, like what's your sales year over year, what's your revenue, what's your profits, what's your net margins, your cost of goods, all these different things. It has to be more than that, right? Like you said, what are your taxes? Your books, are they clean or not? Have you paid your VAT up-front or a GST? How many marketplaces are you selling through? What's that growth factor? There has to be all these different data points, and you as a numbers person, how long is this data sheet? It has to be super intuitive, right, in order to make this investment, like millions of dollars of investment?

Yaz Malas: Absolutely, yeah. That's a great question. So there are the quantitative stuff, and then there's the qualitative stuff. The quantitative stuff, it's a pretty long list of items. I would say there's probably 30 or 40 data points, quantitative data points. A lot of that we extract straight from Seller Central, so part of our diligence process is to hook up Seller Central before we make an offer and we can-

Ryan Cramer: The AWS, basically?

Yaz Malas: Yeah, exactly. Exactly. Yeah. So it doesn't take a lot of work on the part of the seller, but that's how we get all of our information. The things we're looking at are a lot of the things you just said and then some more nuanced things, like branded keyword searches, return rate, average ASP, obviously, conversion rates over time, by month, by week, seasonality, Q1, Q2, Q3, Q4. Is it standard seasonality or non- standard seasonality? Are they trademark, or are they brand registered? Is it BR 1.0, 1. 2? Is it A + EVC? Do they have A + EVC? What are the listing images? Is it 4K? Is it eight images or lifestyle images or not lifestyle image? I mean, there's a lot of those things that we look at, and it's a 50- point checklist that's very quantitative. Then there's the-

Ryan Cramer: I felt like I just drank from a hose right there with all the data you just threw at me. Oh, man, that was a lot.

Yaz Malas: Yeah, I mean could keep going. Honestly, I could keep running through it, but I think I might lose some people on this call.

Ryan Cramer: Sorry, we lost our listener. No, I'm just kidding.

Yaz Malas: You see the number of the competitor. That's-

Ryan Cramer: No, but that's a lot. Well, this is the expectation, right? As a business, this is a nuanced way of doing business, right, Yaz? This is not new. This is not different. This is not some revolutionary business model. This is real life, but it's actually transitioned to just Amazon or just online assets, or it can be assets that are strictly ran online. This is just taking retail out of it or physical assets besides your goods, right? This is not labor. Your labor's all in- house, theoretically. All this stuff is all in- house, but the model is still very much the same, and a lot of people just think it's a new way to do business. It's not, and that's what probably people like yourself who can raise this capital... It's like we understand it, we know what to look for, it's not rocket science. It's how you operate efficiently and how you become more effective in that regards. Not everyone has that touch. This brand may not have that touch. You guys can. So, therefore, you just take it over, you instantly become more profitable. It'd be like before Coca- Cola got big, Pepsi's like, " Well, I know marketing- wise you have all these assets, we can do it better," and they take over this asset that they know is good, and they just take it on and grow to a behemoth.

Yaz Malas: Exactly.

Ryan Cramer: I don't know if it's something along this context, but you're just doing a little bit less of a scale. Is there a brand that's too big to acquire in this day and age?

Yaz Malas: I don't think so. I think-

Ryan Cramer: I don't even know what the top... Of the top 100 or top 1000, how many people have exited? I don't have that stat point in front of me. But, yeah, I was going to say, can someone be too big for them to be acquired?

Yaz Malas: No. I think that just thinking about... I'm being very honest. So the key constraint for most buyers is going to be their capital providers, their investors. If you look at a lot of the capital that's invested into aggregators, giving them money to buy businesses, most of them have some stipulation as to the size of the business, of a business you can buy at once. Now, but that can vary very much from buyer to buyer, from aggregator to aggregator, I should say. On crosstalk-

Ryan Cramer: So you think, " Here's a pot of$ 100, 000." You can tap into that if you need it, but otherwise it's... They flush out so much ahead of time, and then you can tap into it ongoing? Is that how that works?

Yaz Malas: It's usually like... Yeah, exactly. Exactly right. Here's your 100 million bucks, and any time you have an acquisition, you can draw a certain amount from it and use it to finance the acquisition. But there's a limit to how much you can do at once. I think that, generally, that limit is probably 25 to 50% of the total you've raised. Some people can probably get away with just doing the whole thing if they wanted to. But if you rate a billion dollars, I'd probably say 250 million, half a billion is probably the limit. But it's also, obviously, a lot more nuanced than that. But I would say that's probably the way I'd think about. In practicality, there really aren't that many businesses that big on Amazon, and so I don't think a lot of people are going to even run into that problem. I think if you look at the top 100 sellers on Amazon, Utopia's number four, number three. I'm not sure what they do in sales, but I think it's probably, I don't know, close to a billion. The bottom rung... You can get this information on Marketplace Pulse, by the way, you can just inaudible into it. The 100th top seller on Amazon, I think, is doing on average$ 100 million of revenue. So it's not going to be a problem, really, because generally speaking, by the way, just for everyone's context, if you're doing$ 100 million in sales, the average, multiple we've seen now, that can change... It's very nuanced here. In general, you're doing$100 million of sales, you're probably getting acquired for between 70 million and 150 million. It could be a lot higher than that, for sure, depending on your business and the brands that are in it. That's, generally speaking, the range. So unless you're a top 100 seller, you're probably not going to run into this issue with anybody not being able to acquire you. There's enough capital in the space where an aggregator can acquire you. If we raise$ 120 million, I think our deal size, the max right now, is probably 25 million. That is going to change in the near future, but for now that's pretty much our cap.

Ryan Cramer: I'm going to hold you that. No, I expect big things because they're constantly, quote- unquote, raising money and capital, and even this past week, we saw it with Elevate Brands, we saw it with Foundry. They're raising a $ 100 million... And I have great people and connections over at those brands. It's actually fascinating. The one that actually did stand out to me was, and I'm curious on your take, was the aggregator aggregating the space, and I think that was Perch who acquired for$ 100 to $ 200 million brands that were under this one umbrella, and I think the seller had 20 brands. Again, I'm making the stats up as I remember. But I forget if it was MSS. There's an acronym of what they were doing, but they have warehousing along with all this acquisition. That, to me, seems like where this can potentially go into the next six months if not year of brands like yourselves either saying, " Hey, you have a book of business of 20 brands, that looks good to us. Hey, let's all fold into one business." Is that something you're either excited about or are you afraid of?

Yaz Malas: I think it's eat or be eaten, I agree, in the next one to two years. We want to be one of the people that eat, not get eaten, obviously. I think it's a race to scale to do that, but we want to do it in an intelligent and sustainable way. We're not going to grow just because we don't want to get eaten. We're going to grow the right way. We're going to stick to our brand. We're going to do it in a sustainable fashion. If we ended up getting eaten because of that, that's okay with us. If we become the people consuming others, we're okay with that, too. I think either outcome is good for our employees, and it's good for our brand owners, and it's good for all the sellers that have sold to us, either outcome.

Ryan Cramer: Last question, Yaz, before we let you go. What does D1 Brands stand for? D1, I think Division I, like a sports acronym.

Yaz Malas: No, crosstalk-

Ryan Cramer: What was D1?

Yaz Malas: Yeah. Actually, before I started this business, what I did was I read all of Jeff Bezos' 20 annual letters from'96, or 14 annual letters from'96. He ends all of his letters with the same thing, which is, " It's always day one."

Ryan Cramer: Gotcha, Day One Brands. Got it.

Yaz Malas: Day One Brands. I really resonated with that. I thought that was a fantastic ethos and a culture that has been able to... It's allowed Amazon to constantly innovate over the last 20 years. I wanted to embody that in our company, particularly because we are building a business on Amazon, and so why not be culturally aligned with Amazon? That's why we named it D1 Brand. Actually, our logo is a calendar. It's the first day of the month, so-

Ryan Cramer: I love that. That's really cool. You're almost like FedEx, where you have the arrow pointing forward and moving forward. I like the nuances of that. There you go. Well, that's really cool. So, obviously, the next step is obviously in space, so I'm assuming there's a rocket ship being built.

Yaz Malas: Yeah, I can't tell you about that. That's confidential.

Ryan Cramer: Maybe right behind you. I don't know. Yeah, that's to be determined. Secret under wraps. No, but, hey, Yaz, that's fantastic, and, obviously, if you're listening to this, it's going to be in the show notes, but you can check out more about D1 Brands if you have a conversation you're looking with your brand to have those conversations to be acquired. But what's that next six months, Yaz, for you guys and your team? Is it growth? Is it focused on Q3, Q4, and making that first calendar year turn, if you will, profitable as much as you can? What is that factor for you guys?

Yaz Malas: Yeah. I think we're accelerating the pace of our acquisitions, so we want to do another 20 deals before the end of the year. So if you're interested in selling your business, please reach out. We essentially have a fresh round of capital, and we have a lot of money to deploy, and we're really excited to... We've beefed up our team as well to maintain that quality of service and quality of experience, and we're really excited about the rest of the year. In terms of operationally, yeah, absolutely. We're really focused on making sure that we get through these supply chain issues that everyone's feeling, and we're really being creative around how we can do that. We're also really excited about our product development opportunities. I think that's something that not a lot of people talk about, but we started off as sellers building products, and we keep doing that. We haven't changed doing that. We do that for all the brands we acquire, too, and that's what's really allowed us to drive incredible performance in the brands that we acquire. Because if anybody's a seller who's listening to this, and you all know this better than I do, the best way to grow revenue is by launching products. I will tell you that you're probably not going to hear that a lot of other buyers are going to invest more capital into new products after they acquire your brand, but we feel that that's the highest ROI and best way to grow, and we're really good at it because we've been doing it since 2013. That's a big part of our growth strategy. So we have a big slate of product development launch we're super excited about. We're working through the supply chain complexities, and we have a big goal of acquisitions that we want to meet for the rest of the year and a fresh round of capital and new heads that want to do it.

Ryan Cramer: Man, there's so much. I have to have news alerts out for all of y'all brands because it's constantly just ebbing and flowing, which is good and exciting because I know you guys have so many great things that you want to do as a brand and that's what makes me excited to be in this space, is just the innovation that will come from this, whether it's tools to help sellers grow or just the opportunity for other businesses to either exit some sort of business model that online has provided, which is really cool. So I'm excited to see all these kinds of innovations happening and get announced. Congratulations, again, on the capital, and we'll have to keep our ear out for the news that's coming down the pipeline here hopefully shortly that'll be announced. But, Yaz, thank you so much, again, for hopping on from D1 Brands. You can connect with you on LinkedIn, or is there any other places that they should reach out to you directly?

Yaz Malas: Yeah. You can find us on LinkedIn. We have an Instagram. Best way to reach us, though, is through our website. There's an info grabber. You can put in your name, your email, and a quick description, and we'll reach out to you immediately, and we'll have a conversation. You'll probably be talking to me or our head M& A because we always have senior people talking to sellers. So thank you so much, Ryan.

Ryan Cramer: Look, man-

Yaz Malas: Really appreciate-

Ryan Cramer: ... thanksso much for the time. Make sure we bring our keys everywhere we're going for the rest of the day-

Yaz Malas: Yes, absolutely.

Ryan Cramer: ... andwe won't have to worry about that the rest of the time. But, hey, thanks so much for hopping on Crossover Commerce. We appreciate your time today.

Yaz Malas: Thanks a lot, Ryan. Have a good one, man.

Ryan Cramer: Awesome. Thanks, Yaz. Awesome. And thank you, again, Yaz from D1 Brands. He just bolted real quick because I know he has different meetings he has to go to. But, everyone, thank you so much for, again, hopping on another episode of Crossover Commerce. This is presented by PingPong Payments, and, of course, if this is your first episode or if it's your 133rd, what have you been doing? You got to be joining more episodes of Crossover Commerce. That starts with subscribing to our channels on social media but also on all the audio formats that we produce as well. That's going to be on Amazon Music, Spotify, Apple Podcasts, even Google Podcasts. No matter where you download those podcasts that you listen to on a daily basis, make Crossover Commerce one of those as well. But I'm the host that goes live constantly as much as I can with the great leaders in the Amazon and e- commerce space just like Yaz and D1 Brands. Like I said yesterday, we had Sam from Olsam Brands, and they had great stuff to talk about. But, obviously, you can see the different nuances and the different sides of businesses in terms of the acquisition space and where people come from, what's important to them, what's not. It's super fascinating for me as a host and as a person who works in the e- commerce space. But let us know what you think. If there's a brand or aggregator that's doing really cool and competitive things that's not getting a lot of attention, let me know. Go ahead and drop me a note. You can connect with me on LinkedIn, Facebook, or even Instagram, or just you can email us directly as well. But that being said, this has been another episode of Crossover Commerce. Thanks for, again, tuning in, everyone, when we go live or if you're downloading this on all of our podcast platforms as well, thanks so much for listening to us. Let us know what you think by sharing this episode and giving us a nice little rating as well. Give us your honest feedback. We always want to get better and better with each new and exciting episode. That being said, we'll catch you guys next time on Friday as we talk with Payability. We talked a little bit about the financing side and investment side of things. We'll talk with Payability and Jacob Schwartz over there as well. I'm Ryan Cramer. Thanks, guys, for tuning into another episode of Crossover Commerce. Take care.