Winning eCommerce With A Long-Term Mindset with Alexej Pikovsky

Andy Splichal 0:00

Welcome to the Make Each Click Count podcast. This is your host, Andy Splichal. We're happy to welcome this week's guest to discuss today's topic which is winning ecommerce with a long term mindset. This week's guest is the founder of Alphagreen Group, a digital house of health and wellness brands, with over 15 VC-backed startups scaleups. Alpha green uses a long term mindset favoring strategies such as SEO, and acquiring profitable brands and scaling them to enter new geographies and unlocking new growth channels. A big welcome to Alexej Pikovsky. Hi, Alexej.

Alexej Pikovsky 0:35

Hi, Andy, excited to be here.

Andy Splichal 0:38

And we're excited to have you out a lot of stuff to talk. Why let's start with why do you focus on long term strategies such as SEO, rather than shorter term, mediate client acquisition strategies such as Google paid ads, or Facebook paid ads?

Alexej Pikovsky 0:57

Yeah, yeah. That's a great question. And you kind of said it already in the when you actually asked, asked me that. So long term, SEO is a better strategy. Because long term, it is something like capex where you invest in your growth, versus Google ads, and Facebook is short term. And while you can get great results, initially, your competitors will see what keywords work, and what creative works, and they will replicate it. And with SEO, you can actually start decreasing your customer acquisition costs over time. And that's why why we focus on that having said that, for example, on Amazon, we actually do use pay per click as well, because

Andy Splichal 1:46

Using the Amazon pay per click?

Alexej Pikovsky 1:48

We do. exactly because actually, their pay per click enhances the organic as well, because the more reviews you have, the better your rank. And in order to get more reviews, you obviously need to spend more money on ads as well to get them faster. So but when it comes to Google and Facebook, we are when it comes to Google, we do invest much more into SEO than we do ads. You know, you

Andy Splichal 2:14

brought up an interesting point. And many listeners might not know that, that there's a big difference between the Amazon ads, and the Google or Facebook ads in that Amazon ads, the traffic and stuff all helps your organic placement, your free placement. While Google ads are completely separate, they don't help at all. Now, a lot of companies do both, right? They invest in their in their SEO, especially on their own websites or Shopify sites, etc. There'll be investing in their SEO. But they don't have can't don't have the luxury of the time, I guess, to wait to generate those sales and want sales right away. And they use Google ads and Facebook ads. But you you don't do that.

Alexej Pikovsky 2:59

Yeah, well, we as I, as I mentioned, we usually focus initially on SEO. And then we do ads as well, from time to time, but depending on the product, depending on the vertical. Yeah, as is just something we don't really like doing.

Andy Splichal 3:18

And that's such I mean, I are working on something else is just such a unique approach. Because almost everybody who wants to grow runs ads. Is it because it's just, you know, you feel it's too expensive. You you feel it's just not worth it in the short term. It's not profit. I mean, what what is the reason for?

Alexej Pikovsky 3:38

Yeah, you're right, the majority of players out there, especially DTC players use use ads to grow or let's say used ads to grow until they went bust or ran out of money, which is currently the case. So the reason we kind of like stay away from Ads is we are trying to stay away from Google, pay traffic as a platform, right. And that's why we focus so much on Amazon as our first channel when it comes to profitable Roth with SEO on Google as a second channel. And then we are trying to always look for other channels, which are less mainstream. So for example, it could be certain out of home strategies, it could be inserts, it could be driving traffic from Pinterest, it could be adding our products on other marketplaces such as Etsy. So various strategies which are slightly less crowded, and therefore we don't need to prioritize ads on Google or Facebook.

Andy Splichal 4:47

Now, the focus of your of your brands, the different companies all they appear to all be in the health and wellness space. Why is that? How did you get into health and wellness. And do you believe those strategies such as not using Google, I mean, is that because of health and wellness? I know that's a really crowded space? Or do you really think that that most people should be kind of following this path?

Alexej Pikovsky 5:17

So yeah, I guess to answer the question we need to start three years ago, and three years ago, the whole business strategy was to build a CBD marketplace with the aim to then add THC products, with the aim to obviously benefit from legalization, legalization around cannabis, initially in the US. And then later, let's say in the UK, in Europe, and a legalization didn't actually happen on a federal level, nor did it happen in the UK or Germany on the national level. And secondly, when we were building the CBD marketplace, we were not allowed to actually run Google or Facebook ads.

Andy Splichal 6:05

But you're still you still can't.

Alexej Pikovsky 6:08

You still can't. Exactly, exactly. And that's why we became so good in SEO. Exactly. And then I guess how we got into this health and wellness space, and became more a group and an operator and aggregator of certain brands rather than just the CBD marketplace was by launching an agency focused on SEO on the back of the marketplace, let's say success we had in terms of organic traffic, and then a lot of the brands on our marketplace asking us to help them on their own domain. And the own SEO, we launched the agency with agency, we saw that we can scale brands actually easier than the marketplace. We then got clients we're not in CBD, we realize it's even easier to scale where where you don't have so many challenges. And then we acquired a scented candles brand in January, this year, which was 100% on us Amazon. And we acquired it for a two times profit multiple making $340,000 in sales. And we tripled the sales since while keeping the profit margin close to 15%. So that's how we kind of ended up doing what we're doing now. Right? It's not that we one day woke up and said, Okay, we have to focus on wellness. Having said all of that, I used to play second nationally, water polo in Germany, and then I always was super into, you know, kind of healthy living. healthy foods. And so thinking about, Okay, what kind of brands do we want to own, we want to own, let's say, brands with a purpose. And I think being in health and wellness is a bit easier to actually have a brand with a purpose. And again, health and wellness for us also includes certain areas of beauty, certain areas of fitness. It's not just let's say food and supplements, and let's say creams, right?

Andy Splichal 8:12

Yeah, that's a great story. So really, you developed SEO, because that was the only option. I mean, you couldn't run ads, and then you got good at it and said, Hey, why should we pay for ads for anything? I mean, this is working, and it's a lot more economically feasible. Now, when you start with a new brand new company, let's take that candle company, what is the first thing that you do to start driving more traffic? And is that something that that a listener could also do?

Alexej Pikovsky 8:46

Yeah, well, the first thing we do is to optimize the listing. So this is again, very Amazon specific. But inside Amazon, you have the concept of SEO as well. It's slightly different. It's not about the amount of content and backlinks it's much more about, have you written your listing in a proper way covering all the keywords you want to rank for have you created kind of a plus content which means really good quality of pictures and just kind of like structure again on the of the store storefront. So this is kind of like let's say, the lowest hanging fruit and this is where we start from followed usually by adding way more well paid campaigns and basically also putting more budget into it. Because as I mentioned on Amazon, because it's still not as crowded, it got kind of crowded, that say in the in 2020 and 21 with all the aggregators coming in, but again, most of them are in financial distress now, so But initially you had kind of like customer acquisition costs, buying data to be honest, they are still super super low compared to Google Facebook, and so running ads on Amazon is actually still a very profitable strategy.

Do you also sell stuff on, I mean, I assume the CBD you have to write you can't really sell that on Amazon. But like the candle company, are you selling it on your own website? Or is it 100% on Amazon?

So when we acquired the brand, there was a website, but it was an affiliate website. So it was just redirecting, once you clicked to the Amazon page in the US. So we are about to launch a new DTC page, multilingual with also German language there, because we receive Germany as kind of a third market after the US and the UK. And what kind of like launching, you need to see presents, that was not a top priority of, let's say, kind of one of the biggest value levers was to actually launch Amazon in the UK first, then launch Amazon, in the EU. And then it's launching Good to see and starting the SEO game there.

You know, I'm kind of curious, off topic a bit, but then you're in Germany, I've, how is I mean, I've always heard that there is opportunity outside of the US. And that actually, if you look it, there might be a lot of opportunity, because the the actual cycle I've always heard is about five to seven years behind as far as ecommerce growth and and that might have changed with COVID. But you know, when I when I drive around the neighborhood in Southern California, an Amazon truck is stopping at every other house, right? What is that, like in Germany? Is it that same kind of proficiency? Or is it just is it catching on more? I mean, where is it in Europe?

Yeah, you're right, it is still fairly behind, I would say probably four or five years behind, so people still prefer to go to the physical store. And they would also prefer and we talked to probably a breath, one two brands a week. And we've recently talked to a German brand, we're kind of looking at as a potential acquisition candidate. And what's interesting is that the owner was saying, look, a lot of our customers, once they buy a product on Amazon, they never ever buy it on Amazon again. And they always go directly to our website, and the website looks really, really bad. But they basically want to not give money to Amazon, right, which is very different in the UK, and, and the US where, you know, Amazon will do prime delivery. And if you don't like it, you can return it. And you don't have all this headache, as you know, compared to an if you do it directly with the with the with the brand from the own website, right. So it's still a very, very different attitude. Well, having said that, again, the competition is much lower. So even though the market is is not there yet, and it is picking up, but again, it's slow. The competition is much, much slower. None of the brands attracted any of the funding they did in the US, a lot of the US brands are not focusing on, let's say local markets in Europe, because they're just tiny compared to the US. And then that applies across all the different growth channels, including SEO. I mean, the keyword difficulty is much, much lower in Germany. But yes, the search volume is much, much lower as well.

You know, that really, I mean, it's a great point, you need to know where you're selling, right? Because hits different. I mean, I think that's fascinating that the German market, they'll buy once but then would rather go straight to the retailer's website. Yeah, that's a great tip for people selling in Europe. Now, talking about acquiring customers, what would make a good fit for your company? What would make you interested in acquiring a company to add to Alphagreen?

Yep. So we are looking at a few criteria one of them is recurring purchasing. So there should be some sort of element where product is being purchased every month, for example. So for that

Does that have to be does it have to be on like a subscription style or just that? Um, the normal the normal purchase about a month?

Yeah, it could be it could be a normal, obviously subscription rate, but then again, they might Not trade at a lower multiple, which we also have is kind of a create key criteria. So I would say just the ability for the customer to to continue buying it every month for example, such as a scented candle, or I don't know I patches or whatever manuka honey or matcha, tea, whatever, rather than a one off purchase, such as, let's say a piece of fashion, right. And that's just because the lifetime value of the customer is so much higher if there is this recurring element. And, you know, it might not be obviously 100% subscription. But usually you might have 10 to 20%, subscription, or recurring purchase, even though there might not be a subscription. But you can then also increase your revenue always buy really effective email marketing, giving people the ability to purchase that item, again, maybe over certain holidays or during certain seasons. So that's like one really important thing for us. The second is, the brand has to be profitable. So we obviously seen, especially this year, but it kind of started at the end of last year, that growth at all costs is not really the way to go. And everything is kind of going back to how things were in the past, which is all about k profit actually does matter. And sustainability and cashflow are important. So we are trying to only look at profitable brands. And then ideally, it's not too complex. So for example, there might be only a few products, and there is room to develop more products. So we would probably look at a brand which has 50 different products that could be obviously two different products. And then each product has five or 10 different variations, a different sense of flavors. But we would try not to acquire brand with a lot of different products, because that obviously adds a lot of supply chain complexity, which will a add more to hold you diligence efforts. And then it will also just take longer to really integrate the brand and kind of like have that transition completed.

Well, I mean, that sounds great, right? You have a profitable company whose customers are buying frequently, and they're not very many products to manage. But why I guess why would a company sell? It? It sounds like that'd be a perfect company to have.

Yep. Yeah. And look, it's it's I agree. I mean, a lot of people ask the question, of course, when we approach them, like, why would they sell? And the answer is, you don't need to sell. But for example, let's say you're really bored. And you've been doing Amazon for the last five years, and you can't just you just hate looking at the same. I don't know skincare product you've been doing for the last five years. And therefore you might want to sell equally you might have, you might want to retire or you might want to buy a house and you know, it will take you three or four years to get that house if you wouldn't sell but we could actually pay you the same amount of money today. So

What is what is that? What is the multiple?

so we again, we acquire the sound accounts right for two times for of multiple, which is let's say the law range of all the multiples are there, I would probably say we could go up to three and a half times multiple if we have some sort of earnout in there as well. Look, it's not a high multiple. But again, we are only bidding usually on brands who just have an Amazon listing. They are not brands with a massive DTC presence with a massive email marketing list with amazing UX UI, right? So it's more that we build that multiple and then we put all the other things in place to actually grow that brand beyond just as Amazon presents.

Now if you are a business owner and you you know you're tired of looking at your products every day you wanted to change what what kind of actionable advice would you give that person? What do they need to get in order before they would be ready for somebody to purchase their company.

So having really good documentation and accuracy in your financial numbers and your processes and all the material you usually use helps a lot. So being very professional basically and prepared. Probably not having any issues or any pressure to sell. So it's almost better to have conversations when you're not even looking to sell. And that will a allow you to start getting into the mindset of what are potential buyers looking for? How could you optimize your brand or your company to be worth more. And it also allows you to actually build relationships with certain people who get might not be the guys paying maybe the highest multiple, but the certainty of them actually closing the deal. And not trying to screw you is for example, higher, right, like in my kind of previous life as a private equity investor, we looked, and we knew most of the companies who were coming up for four exits, and two years in advance, right, especially in kind of large cap and mid cap private equity, you don't have as many first time, let's say, foreigners, or whatever foreigners exiting the business, but it's a lot of like other private equity funds or small private equity funds, keeping the businesses and then trying to sell them three, five years down the line. And kind of you already know what's coming to the market, you already start positioning yourself, you start conversations, both the seller and the buyer already talked a few times. And then when the moment is right, and the seller wants to sell, the seller almost knows who he can sell that target to.

That's some great advice. Now, if you were looking forward, you know, 12 to 18 months, in the e Commerce Industry. You know, I guess in Europe, that's where you're got most of your products. But even overall, what what do you see happening with the E commerce industry over the next year to year and a half?

Yeah, well, first of all, 96 law of 90% sales are in the US. Oh, it's okay. And we just launched the UK two months ago, and Europe will will probably launch it after q4 now. But yes, of a green i o the CBD sales are in the UK, mostly. But look, I would say, you know, 12 to 18 months, I mean, given the world is changing every six months at the moment, it's difficult to predict, right. But what I can say is that you are seeing discretionary consumer demand going down, which is a result of increase in inflation. And equally, this whole like geopolitical and just economical uncertainty, right. And so people are starting to spend less. And also one has to actually say that during COVID, from let's say, after the bounce back and spring 2022, summer 2021, you obviously had massively inflated sales numbers in the first place. So one can almost argue that current currently we're just normalizing to how things would have been if there would not have been a pandemic. So looking at the 12 to 18 months from now, I would say we'll just continue to be kind of flat slash a bit negative. And then at some point, hopefully, more on the kind of 18 months plus mark some sort of recovery.

Now let's let's talk about you and personally have there have been any business books that you can attribute to your journey as an entrepreneur.

Yeah, so So I'm a really big fan of Howard Marks, who is the founder of Oaktree Capital. It's a large private equity slash credit asset management firm. And one of his books is called Market Cycle where he basically talks about cycles and the world and they're very cycles. But as we can see, now, we entered a new cycle, which is not really this growth cycle anymore. That is important because when you're building a business, you're building it for the long term and it's also more a marathon rather than a sprint. So thinking about cycles and timing certain decisions around cycles and timing, such as, for example, fundraising. But also, yeah, acquisitions is really, really important. The second book I really like is the almanac by navall Ravi Kant and maybe probably read it as well, I've heard about it, but he's the founder of AngelList. And he talks, he tweets a lot. And that book is kind of like a collection of all his tweets, but in a in a kind of nice storyline. And so he also talks about how one shouldn't really be trying to aim for one big success, which will give you all the money, but should really try to build up, you know, over a long term, you know, and building things and then kind of like having them compound, which then ultimately gives you the financial freedom you want to get rather than basically, every time go for all or nothing, and then ultimately not having anything at the end.

You know, that makes sense with what you're doing with the conglomeration of companies. Now, with that, I mean, is there a favorite success story of one company that you guys purchased and how you were able to grow it after purchase that you'd be willing to share?

Yeah, yeah, absolutely. So it's the scented candles company called 96. North, it's 100%. natural fragrances, organic soy wax. Yeah, we basically acquired it. And initially, we actually struggled with inventory quite a bit, because we, we are, what we put the order, it's basically the supply chain is based in China. And so we acquired a brand in January. And then in February, it is Chinese New Year. And so we even though we placed the purchase order for new inventory, before February, something got messed up in China. And so they basically put everything after Chinese New Year. And that basically resulted in the product and the inventory arriving in the US for months, literally later than we expected. Because there was a massive backlog of again, the pandemic and new changes you are etc. And so we started actually really, really not not great. But we ended up doing extremely well. We were 3x revenue up now and keeping the margins the same. And launching new products. We're about to launch Reed diffusers, we're about to launch tonight, new scents for the center candles, and we're about to come out with a black colored center Canvas collection. And finally, we are now also in discussion with a few big content creators to launch collections with them.

That's amazing. So you are selling this in the US on Amazon. Correct? Are you doing you're doing FBA with us, Fulfillment by Amazon, and you're having it sourced in China, and you're managing it from Germany?

I'm managing it from London actually

London. Me and technology is awesome. Um, where do you see Alpha well, going in the next two to three years.

So we would like to acquire probably two or three more high quality brands and scale them. Yeah, 10 plus x. I think in three years 96. North will be probably 10 to 15 million brand. And if we can have Yeah, two, three, similar to that, that will be really nice portfolio of profitable brands just from let's say Amazon. On top of that we obviously launch omni channel and expand globally. And then on top of that, we own our Yeah, SEO Agency in new optima. We currently have 18 venture backed clients and we expanding we actually also we just got our first US customer as well, which is funny enough a cannabis company. And we are basically looking to expand also to the FinTech and b2b and SaaS channels on the SEO front. And yeah, we have really good case study. So we're kind of looking to grow that agency arm as well. And then I don't know maybe we carve this out at some point. At the moment. Obviously, the cash generated by the Agency helps us to roll and acquire brands without going to going out to race. But at some point, once there is more scale on both fronts, we will definitely a carve out agency as well.

And how can an interested listener find out more about Alpha Well, brands.com or working with your agency? How can they get in contact if they want to learn more?

Well, they can go and reach out to me on LinkedIn Alexej Pikovsky on Twitter. Again at Alexei Bukowski there. And yeah, obviously they can also just visit our site and you can email us at Alexej@alphagreen I need to actually change my email. So the off all brands were that I'm being too lazy.

Well, this has been great. Is there anything else you would like to add before we wrap it up today?

No, thanks so much for having me. I really like your show, Andy.

Great. Well, thank you once again. For listeners remember if you liked this episode, please go to Apple podcasts and leave us an honest review. And if you're looking for more information regarding connecting with Alexej, you'll find the show links in the show notes below. In addition if you're looking for more information on growing your business check out our podcast Resource Center available a podcast.makeeachclickcount.com we have compiled all of our different past guests by show topic completed each of the contact information case you would like more information or any services I have discussed during previous episode. Well that's it for today. Remember to say stay safe, keep healthy and happy marketing and I will talk to you in the next episode.