We have a conundrum. Many sellers face e-commerce legal issues that could be circumvented by a little due diligence. Think trademarks, patents, exits, and the like. Many sellers also face the problem of product sourcing: diversification, inventory management, supply chain management, and more. Would it surprise you to know that you can hit 2 birds with 1 stone? Yael Cabilly and Michal Orom of Cabilly & Co. Law and Fortunet talk about the link between effective product sourcing and avoiding many legal issues – and how product sourcing from Mexico could indeed be where the solution lies.
E-Commerce Legal Issues & Exits
Both Yael and Michal provide invaluable insight into the full spectrum of legal aspects. Both co-founders of Fortunet, Yael and Michal are lawyers that bring the investment banking discipline to e-commerce – namely, selling your business either partially or fully. Consider some of the services they’re recognized for:
- Intellectual property
- Trademarks & Copyrights
- Mergers & acquisitions
- Many other e-commerce legal issues
On a recent interview with Amy, Yael and Michal gave some fantastic advice relating to the e-commerce legal issues especially as a seller embarks on a new business sourcing from Mexico – but with one main focus.
- Your product is an asset
- Your supply chain is an asset
- Your suppliers are an asset
When a potential buyer evaluates your business, they consider a bunch of different aspects – but contrary to popular belief, they don’t just look at your product and how “saleable” it is. They also consider the sustainability of your business, and how solid your business is. If you consider your product, supply chain, and suppliers as assets that a potential buyer would consider prior to making an offer to buy out your business, it definitely puts things into perspective. After all, it’s always wise to begin with the end in mind.
Take a look at the video and join Amy, Michal, and Yael in this illuminating discussion:
Intellectual Property, Trademarks, and Hijacking
Yael brought to light an alarming situation. Around 2005, she noticed the hijacking of domain names in China. For example – they would steal [email protected] And then they would send you an email: hi, we’re a law firm, we heard that someone stole [email protected], do you want to buy it? Do you want to fight for it? Ten years after, the same thing happened with trademarks for Amazon sellers. They received similar emails claiming someone registered the trademark in China. The hijackers could therefore prevent the seller from sending the products from, and passing customs in China.
She offers crucial advice: protect yourself first, so nobody steals your trademark. As soon as you’ve identified a country – China, Mexico, India or elsewhere – as a viable place where you’ll conduct business, then register your trademark. First of all, you don’t want anyone to steal your hard work from you. Secondly, you want to protect yourself, so nobody ends up using your brand for their own means. And third, the cost of a trademark is miniscule compared to the legal fees when something goes wrong. Not to mention, these hijackers will put a big pause on any exits you plan to make in the future.
However, Mexico is not China. Most Mexican suppliers aren’t even supplying to e-commerce sellers yet. They’re eager to get their feet wet. Comparatively, Mexico is in its infant stages. What are the chances that a seller would be victimized by a hijacker? Would you be faced with these scams and hijinks?
Yael gives her advice straight to the point: I think you shouldn’t rely on anyone. When you have intellectual property, you should protect it.
The same logic goes for patents as well. Savvy sellers go ahead and patent their unique designs through legal proceedings in the USA. That’s just half the battle won. You must patent the design in the country where you manufacture, as well – and it doesn’t matter whether you’re manufacturing in China, Mexico, India, Vietnam, or even on American soil. Patent in the country where you manufacture.
Suppliers are Part of the Assets of a Business
Michal drops an important bomb: Suppliers are super important. They’re part of the assets of the business.
She explains it this way: a business has two pillars.
- Traffic and market demand, which you manage through promoting your brand, product, and listings on Amazon
- Supply good products to your clients, consumers, and customers.
Without good products, you don’t have a solid business at the end of the day, Michal clarifies. The virtual part of the business meets real life, and these are actual products that someone would enjoy.
We never consider our Amazon businesses that way. Virtual meets reality – what’s that experience like? How does your customer like your product? Does the physical product fulfill all of the promises you made in your listing, your A+ content, your images? This crucial process in the customer journey implies two more concerns:
- Ensure that your marketing actually reflects reality. Manage customer expectations every step of the way. Don’t say anything you don’t actually mean! (Check out Amy’s Top 5 Listing Must-Have’s for a detailed explanation of what this means!)
- Choose a supplier that, in Michal’s words, respects your legal rights, your intellectual property, and with whom you can be safe.
Fortunet has seen its fair share of bad behavior from suppliers – bad behavior that results in poor supply:
- Not meeting timelines
- Prices that change without prior notice
- Low quality that is not as good or is totally not in accordance with the spec that was agreed upon
A good relationship with your supplier is key. You will grow together. The risky businesses rely on suppliers that are not strategic to their business because they are not as committed to them, Michal points out. Imagine how that will look when a potential buyer comes knocking with a possible valuation.
Michal shares real-life examples: If the supplier can back you up, that’s super important. I think that one very good example to have in mind is of a business we’ve sold for cables.
Cables. Not a very glamorous product, to say the least. The only differentiation of this cable company was that the cables came in different colors – because the business owner had such a solid relationship with their supplier, they were able to stay up to date on the latest cables in the market – and to develop those colors that differentiated their cables from every other cable in Amazon. (Incidentally, the supplier was from China!) Once the buyer comes in and says okay, I want to buy this business, if the relationship with the supplier is transferable and well-established, then it’s a great asset, Michal explains.
Needless to say, a solid relationship with a supplier can save you money down the road, as you openly discuss more flexible payment terms.
Amy backs up Michal’s point by bringing to light the nature of Latin American suppliers. Relationships are very, very important in Latin American culture. Many people will contact us and say, why can’t I just have your list of suppliers, so I can reach out to them. And we always tell them, it’s very important in Latin America for you to meet in person and build those relationships.
Thankfully, that’s easier to do when product sourcing from Mexico, thanks to proximity – you won’t have to burn the midnight oil to chat with your supplier, who’s working across the world in a separate time zone altogether.
Go to EvoLatam, and rub elbows with the suppliers. As you walk up and down EvoLatam on February 15-16, 2023, keep in mind that a solid relationship will spell the difference between getting bought out with a positive valuation, or ignored altogether for a less fun product, just because your competition has a solid relationship with their supplier.
If a cable company can do it, so can you.
All About Tariffs
Anything more than 70% Made in Mexico is tariff-free, Amy point out. She recalls a sports water bottle from the last Mexico Trip – which everyone fondly called the Money Slide.
At first glance, the cost per unit of the bottle was slightly higher in Mexico when compared to the same in China. But after careful computations, it turned out that they saved $2 per unit when they chose the Mexican supplier. After breaking down all the costs of what it took to manufacture the bottle in Mexico, and considering shipping and tariffs, it turned out that the overall cost was cheaper in Mexico. Remember, shipping from Mexico to the US is as simple as putting the goods on a truck that will cross the border and get you your product in 48 hours. (Don’t believe us? Ask Dr. Marcella Wilson, PhD; she explains her delight and surprise to receive her sample 2 days after the initial shipping – what a huge change from China!) It’s not like your product will board a boat, which will cross the ocean, then board another truck, to make its way to your door.
Michal agrees: There is another important angle to this, and that is Time to Market. Whenever you have a shorter time to market, (inventory planning) becomes easier to accomplish. You minimize the level of potential mistakes that you can do here, and you’re less vulnerable or exposed to loss of sales because of inventory shortage.
Yael had an important port about the role of tariffs in the overall cost of a unit. We’ve seen cases where, at the end of the road after the tariffs, there was no profit at all, or, very, very low. In fact, some sellers don’t even pay the full tariffs, because they don’t know how. That sort of thing comes up during the exit process. Buyers will take a close look at the numbers of a business before they commit; non-payment of tariffs can be alarming. So, Mexico sourcing – with its reduced shipping times, shortened Time to Market, and friendlier tariffs – is perhaps the solution that many sellers have been looking for.
How Important are Contracts?
So many sellers are intimidated by contracts. Yael dials down on some of the stigma: Most sellers don’t know that an email can be a contract. If there’s an email and there’s an invoice, then in 99% of the countries, that’s binding.
However, if you want to really protect yourself past the basic level, then a more detailed contract is necessary. You’ll also want to translate that into the native tongue of your supplier. Don’t send a Chinese supplier an NDA from a free internet template and assume that will hold up in court, if things should come to that.
Yael shares the results from a survey that Fortunet conducted amongst buyers last 2021 about what increases the valuation of a business. What would incite the buyer to offer a higher multiple? It’s not social media presence, and it’s not brick-and-mortar presence, either. It’s a patent. And, naturally, the contracts that will protect the business – even when you’ve sold it and it ceases to be yours anymore.
Start With the End in Mind.
Avoid the legal issues that plague most e-commerce sellers by starting with the end in mind. A healthy business is a profitable business – one that crosses its Ts and dots its Is, and has a healthy relationship with several suppliers. It’s best to consider diversifying business interests to Mexico, where suppliers are easier to deal with because relationships are paramount. Also, the relative proximity of Mexico to the United States means a shortened Time to Market, which augurs easier inventory management, especially if you somehow face a windfall of sales and need to replenish your stock quickly. Thanks to a shortened lead time for shipping, and easier communications with suppliers that are, practically, just next door, Mexico’s starting to look sunnier and sunnier as a product sourcing destination.
There are only a few seats left! Make sure you grab your chair now at https://themexicotrip.com/product/the-mexico-trip/ – and check out evolatam.com as well to find that supplier that will work with you to build a healthy and profitable business.
Amy: Hey everyone, what’s up, I’m so excited to be here with my friends Yael Cabilly and Michal Oron from well Yael is from Cabilly & Co. law firm. And she’s also the co-founder of Fortunet. And then we have Michal, who is the co-founder of Fortunet. And we are going to talk today, both of these companies, they’re incredible companies. And they’ve done really great things for E commerce sellers. And we are so proud at the Mexico trip and EvoLatam, to have them represented, both companies represented, at both events. So today, we decided to get together and give you guys some great information, some considerations for sourcing, some considerations for your business when it comes to protecting your intellectual property, when it comes to sourcing and selling between countries, excuse me. And then also today, we’re going to talk a little bit about some considerations for building assets in your business to make it even more sellable. So you might not think of your supply chain as an asset. But we’re gonna give you some examples like this to show you how you can make your company even more valuable when you’re thinking about sourcing and diversifying your supply chain. So without further ado, I would love to turn it over to Yael to give us a little introduction and tell us a little bit about you.
Yael: Thank you, first of all, thanks for having us and super excited to go to Mexico, can’t wait. So I’m Yael Cabilly, I’m a friend of Amy. I’m the founder of the law firm, Cabilly & Co., which, which helps sellers on the legal side. So that includes intellectual property, trademarks, copyrights, patents, but also suspensions and any legal issue related to Amazon. I’m also co-founder of Fortunet together with Michal. Michal, do you want to present yourself?
Michal: Oh, yeah, if it’s my turn now. Yeah, I’m Michal Oron. I’m, as Yael mentioned, I’m the co-founder of fortunate and the CEO of Fortunet. Originally, I’m a lawyer too, I served as a lawyer for 25 years, mostly in commercial and corporate law. I dealt a lot with M&A transaction modesl in different places in the world, larger transactions than those existing today in the E commerce space. And by the end of 2018 Yael and I have decided to incorporate Fortunet as we understood that there is a need out there in the market for sellers and other ecommerce business owners to get a thorough representation when it with respect to the sale of the businesses. So we kind of imported into the E commerce space that the investment banking service, which is an end to end service, which is related to the sale of your business partially, or fully. And that’s it, we are
Amy: Amazing. Well, I love to hear both of your backgrounds, because you cover really the full spectrum of legal aspects when it comes to you know, really cradle-to-grave of running a business and these kinds of things come up constantly. I mean, Yael, you mentioned suspensions, and I was messaging you from the last Mexico trip. Naturally we have those e-commerce seller discussions, not only on the Mexico trip do we cover how to source from Mexico and legal aspects and all those things that you should think about how to do business, their culture, all those things, we do factory tours, but we also cover some e commerce topics and we do that at EvoLatam as well. We have one day educating on E commerce and one day educating on sourcing and business in Latin America. So it’s interesting how really the full gamut always comes out. It’s not just one thing we have to focus on. So speaking of legal, let’s talk about intellectual property for a second and, and how important it is. You know, when we’re sourcing from countries like China, which are more common, we do think about protecting our intellectual property, our trademark in both China and America or wherever else we’re selling. What are the considerations for Latin America? You know, for selling in Latin America? If you’re selling in the US, like, what kind of things should you be thinking about when it comes to trademarking and intellectual property?
Yael: Yeah, so I’ll tell you generally about IP and trademark. I think that every seller must always register a trademark, or they sell the business where they sell the products and where they manufacture. So if you manufacture in China, you want to protect it in China, if you manufacture in Mexico and China, you want in both. There’s another component to that. In 2005, I think it was, we saw many kind of hijackers doing kind of hijacking domain names and taking over the domain name in China. So they would steal [email protected] And then they would send you an email. Hi, you know, we’re a law firm, we heard that somebody stole [email protected], do you want to buy it? Do you want to fight it or something like that, then we saw 10 years later, the same thing happening within trademarks for Amazon sellers, they got emails, we heard about someone who registered your trademark in China, that means that they can, they can actually stop prevent you from from sending the goods and passing the customs at China, to the US. So these are the kind of the new hijackers and I’m sure it’s going to get to Mexico and any other countries, you know, where you manufacture. So I think that the what you have to think about one is you want to protect yourself there first, because you don’t want anybody to steal it from you and to take it from you or prevent you from from using your own trademark. And second, you want your own protection so that you can prevent others from using your brand there. So if you’re selling this, if you manufacture in Mexico, maybe not on the first day, once you really see it’s consistent, and you’re gonna stay there, I would definitely be applied, the costs are nothing compared to, to the cost where things go wrong.
Amy: Yeah, for sure. And I know we were talking about this a little bit before I hit the Go Live button. But, you know, we were talking about how we get that question all the time. People say, you know, do I have to worry about my supplier in Mexico stealing my ideas? You know, and I know, we haven’t talked about patents yet or, but intellectual property in general, do I have to worry about my supplier in Mexico? And Mexico is not where China is right? There’s not as many opportunities because most suppliers in Mexico are not even selling in E commerce yet. So they’re curious about it, they’re wanting to learn more, they want to work with E commerce buyers, but they’re not where China is. So there’s not as many opportunists, right, when it comes to, you know, the full out scams, where they’re sending you these emails and trying to get you to protect something that they just set up themselves, right? But in general, when we’re talking about setting up our business for success, our business foundation for success, we should be thinking about, you know, protecting our intellectual property, both where we’re importing and exporting from. As you mentioned, a trademark is a few $100. And so, you know, if you have a problem with it, I would talk to us about that, like, let’s say the scary stuff like what what could happen if if there is a problem. And I know, in China, what can happen is they can prevent…
Yael: It’s the same everywhere. It’s the same everywhere. I think that first of all, if you take your business seriously, your assumption should be that anybody can take your IP anywhere. And I don’t, it doesn’t matter if it’s China, or if you manufacture in Germany or France, I think you shouldn’t rely on anyone. And when you have IP, you should protect it. So you know, we talked about trademark, but you should also talk about patents and design patents. If you designed a product and you have a unique bottle. You want to protect that through design patents in the US but also where you know in the country where you manufacture and other countries you’re going to sell in. So you know at the end, it doesn’t really matter where. To answer your question, when things go wrong. What happens is the following you if if the hijackers already registered the trademark, what you must do is file a kind of cancellation proceeding that can take a year or two depending on the country. The costs are kind of a mini litigation, so of course, usually above 10k 20k etc. Or you can you can buy the trademark from the hijacker and kind of surrender to the attack. We’ve seen that actually at Fortunet, when exiting, sometimes they do that when you’re in the middle of a transaction and then you have no choice but to buy the trademark because you know, you have you have a deal and you have no time. So the best is really to you know, at the end, it’s usually not more than 1000 bucks and you know, and you’re done with it when it comes to trademarks and for patents, it’s, you know, kind of the same.
Amy: And maybe we can, I mean, bring me you just brought up when you’re selling your business, how important that intellectual property is. You sometimes can be cornered in to having to spend that money, but if you have the proper contracts set up with your suppliers and you have protected your intellectual property, I’d love to ask Michal what kind of valuations have you seen, what kind of increases have you seen, or better deals have you seen people get when they set up the proper business organization?
Michal: So first I’ll start with saying that when someone runs an E-commerce business or an Amazon business, then basically it is comprised of two main things. One is the traffic and demand from the market which is generated by many, many ways, but part of them of course is promoting your brand and product and listings on Amazon in this case, and the other side is to really supply good products to your clients, to your consumers, to your clients. Without it you don’t have solid business at the end of the day, you know, that the virtual part of the business meets real life and these are actuals you know actual products that someone should enjoy from. This goes of course with having a strong supply chain and strong suppliers. Suppliers are super important. They’re part of the assets of the business. Part of the businesses do not have them as real assets. So you can see let’s say the more risky businesses would rely on suppliers which are not as strategic to their business because they are not as committed to them, and this can be demonstrated by different bad behaviors, let’s say, which can be seen by poor supply. I mean not meeting timelines, prices which can change from time to time, quality of the products can be not as good or not in accordance with the spec that was agreed with them, and other stuff. As opposed to that good suppliers can be really partners to the business. I’ll get to an example in a minute but just to explain.If you have a good supplier such a supplier would support the product development, right. You need to develop more products. I mean it’s an ongoing developing business. So if you have the right supplier in place, this is your partner to develop your next product. Of course the legal side will not repeat everything that Yael explained, but this is the supplier that respects your legal rights, your intellectual property and you can be safe with. And then of course capacity. The supplier that you can grow with that can can put for your use the required capacity, and again to respect prices that were agreed upon, to be liable in case that something did go wrong and there are claims by clients, then if the supplier can back you up that’s super important. Supplier that is open to changes in your packaging etc. I think that one very good example that they have in mind is of a business that we’ve sold, for cables. And cables are relatively commodity. What is cable? It’s like, maybe the most common – almost no innovation in cables right in this specific business. By the way, the cables were differentiated a bit because they were in different colors. But at the end of the day, it’s a cable you know, you just stick it to some computer on one end and to another I don’t know why device on the other end. But this product this business work with the same supplier for many years for five years in their case, and the supplier was all the time up to you know, very updated on the most recent cables that are coming into the market and, and he afforded this, this business to develop their own colors for for those cables. And the relationship was amazing they met face to face. This was a Chinese supplier, by the way, but it doesn’t matter; they met face to face in China and in the US discussed future initiatives. And this is a huge asset because once the buyer comes in and says okay, I want to buy this business, if this relationship with the supplier is transferable and well established, then it’s it’s a great asset for the buyer because the buyer knows that he can rely upon the continuous supply of the product, maybe one more thing, very good relationship with supplier can also support the cash flow of the business, because then you can agree on better payment terms. And this way actually fuel your business with additional funds. So I like a lot of what you are leaving Amy, putting a lot of attention on sourcing. And as we respect so much any seller that will join this event and look after sourcing in Mexico, of course, it’s very important. I can talk a lot more, but that’s okay,
Amy: I want to just touch on a few things that you mentioned. So first of all, you talked about, you know, the importance of having a reliable supplier and having a really great supplier relationship. And something that people should be aware of when they’re moving from, for example, China to Mexico is that relationships are very, very important in Latin American culture. Of course, they’re important in China as well. But they’re very important. A lot of people will contact us and say, you know, why can’t I just have your list of suppliers, so I can just reach out to them. And we always tell them, it’s very important that you know, in Latin America for you to meet in person and build those relationships. And the good news is, you know, to have a meeting with your supplier in Asia, that’s quite a flight. If you live in the United States, that’s quite a lot. But if your supplier’s in Mexico or Latin America, it’s actually the same time zone in many cases, it’s a very quick flight. And it’s a lot easier to communicate in those ways. And because the culture in Mexico and Latin America is so relationship-based and relationship forward, it really lends well to having a better supplier partnership, right, and making sure that you have that awesome partnership where you’re able to build your business in a great way. So we’ve noticed from our first event, people that are already sourcing, they’re just loving the relationships with their suppliers. And it’s just a wonderful thing. Why do you think and I’ll put this question out to either of you, why do you think it’s important for it–And wait, before I get there, I wanted to mention one other thing. You talked about Michal – you talked about, you know, margin, you talked about getting that extra money in there, right. And the other benefit that we have in Mexico and Latin America is, especially Mexico is that we have that free trade. So we’re seeing a ton of other countries like China, Taiwan, Hong Kong, actually setting up factories in Mexico so that they’re able to take advantage of that free trade. Anything more than 70% Made in Mexico is tariff free. So we had Branded at our last event, and they actually acquired a business that was, mostly based, sourcing in Mexico. And they were speaking about how they moved a sports it was like a sports water bottle kind of like this right from Amazon Accelerate. But they had this like sports, water bottle kind of thing. And it was plastic injection molding, which of course is – Mexico is second injection molding in the world, next to China. So that’s really good to know that we can have plastic products made in Mexico, but they moved to a product like this and it had a cap and the cap was kind of a little bit more fancy it had like a handle on it. And then they had the bottle and the per unit price. And everybody on the trip called this the money slide because they were like, This is what we were here for, right? They broke down all the costs of what it cost them in China to make it and ship it and you know, landed costs all of that with tariffs, everything else. And then they broke down after they made those molds in Mexico, the same costs, and the per unit cost was slightly higher in Mexico. The per unit cost to make it was slightly higher in Mexico. But overall, they save $2 per unit. Because after they added in shipping and tariffs and everything else, you know, now they can get this product in two days, right, because it’s just ground transportation, there’s no boat to put it on, there’s no ship to ship it over 30 days over ocean freight, right, you’re just literally putting it on a truck and sending it through a border, where tons of trucks come through every day, there’s Mexico is a really great supply of highways, everything like that. So when it comes to margins for your business, even though a supplier in Mexico might quote you higher per unit cost, ultimately, you may be really saving. And when it comes to the increased prices, and I’d love to hear from you guys, in terms of you see people trying to sell their businesses right now. And there’s, you know, increased costs and advertising and really, margins are slim, especially with those with the shipping costs and everything that we went through during the pandemic. So margins really matter. And did you guys want to touch on that a bit?
Michal: Yes, so of course, margin matters, because margin, you know, this is part of what sets how much profits you will generate with your business and also the margin themselves, the level of profitability out of out the profit out of compared to the revenue is also very important, because this is what dictates or sets what is the level of the risk of the business and as much as much as the profitability is higher than you are less vulnerable to changes in the market, and you have more ability to respond, and to enhance your business. I think, by the way, Amy, as you mentioned the short shipping time, this relates not only to cost, of course, cost should be observed and examined carefully in each case. But there is another important angle to this, and this is Time to Market. Inventory planning is one of the most complicated niche with any e-commerce and any consumer goods that our business is facing. And whenever you have a shorter time to market, then this mission becomes easier to accomplish. Because the way to correct any mistake in the planning, which is part of life, because you know, predicting what will be in the future is stuff we all predict what’s happened yesterday, then the short time to market, minimize the level of mistake, potential mistake that you can do here. And then you can you’re less vulnerable or less exposed to loss of sales because of inventory shortage. So this is a huge advantage.
Yael: Yeah, last may be about the tariffs because that’s a kind of topic nobody really likes to talk about. But you know, we’ve seen cases where at the end of the road after the tariffs, there was no profit at all, or you know, very, very low. And sometimes some sellers don’t pay the full tariffs or they don’t even know they don’t pay the full tariffs. And during an exit process, that’s something that you can find out because you know, you start to get into your numbers. So in some cases, actually Mexico is the answer. Because when the tariff went up so much, you know, that’s something that buyers are starting to look at and some of the sellers that we’ve been seeing,
Amy: I love how you said in some cases Mexico is the answer, because that’s so true. A lot of people ask us about that. They say well, you know, can I just move my whole supply chain from China to Mexico? And yes, theoretically you could I mean, nearly everything that is made in China can also be made in Mexico. I mean, at the multi category trade show we have metals, plastics, cotton, apparel, plush, wood products, office supplies, furniture, you know, all the things you know, art crafts and handcrafted things, patio and garden, pottery, ceramics, you name it, you can get it in Mexico and in Latin America, even one of our speakers specializes in helping electronics companies move their supply chain from China to Mexico, which is so interesting to me, because I wouldn’t think that Mexico would be super capable with electronics. But big companies like the hard drive company, Seagate, has completely moved their supply chain to Mexico, so tons of capability. But it’s not, it’s not going to be a perfect fit in every case. And when we’re thinking about the value of our business, and making sure that we’re looking after that time to market and developing new products and the right partners, we need to do what makes economic sense, and what makes sense for our customers, so that we can grow our business in the right way. So yes, you’re going to be able to source a lot from Mexico. But should you replace your entire supply chain? Or diversify it completely? From China to Mexico? Not necessarily, right? It might not always be a good fit. But should you check Mexico out? Yes, because there’s so much capability that that is there. And there’s a lot of opportunity. And we’ve covered a lot of this today. I’d like to follow up with a question about diversifying the supply chain. You know, Michal, how you gave this really great example of how this cable manufacturer was a really good partner. But how important is it for people to have, for sellers, of course, and brand owners to have multiple suppliers, or different ideas of suppliers that they could utilize or call upon as their business grows?
Michal: That’s a great question. Dependency upon a single supplier, that’s a weakness. Generally speaking. Of course, if you have great relationship, well proven for the long term, hopefully covered with an agreement, they don’t know if this is something that you can practically obtain with their Mexican suppliers, as opposed to a Chinese supplier that it’s mostly a waste of time to even try, then other than that, of course, you should better have more than one supplier. You should have some redundancy, some ability to not put all your eggs in one basket in this aspect. That’s very important. Whether this should be different suppliers in different countries, yes or no? I don’t know. Not necessarily. I liked a lot your comment that this should be carefully examined on a case by case basis. This should be a diligent decision to be made by any business to replace suppliers, to move to Mexico. But again, if the opportunity is there, and to diversify the suppliers this way too, then, that’s super important.
Amy: Yeah, I love that. And I think the other thing that you mentioned was contracts, right? Setting up contracts with your suppliers is so so important. And when it comes to legal aspects, people are always asking, you know, well, what should I just do an NDA? And my answer is always well, you should do what is legal in the country that you’re sourcing from. So, you know, if you’re going to source from China, and you expect to have solid contracts with your suppliers, then you probably shouldn’t drop in an NDA in English using a free template from the internet, and then expect your supplier to abide by that and expect that to get you anywhere in court in China. Right. So the same goes for Mexico. You know, of course, there’s the same law in Mexico when it comes to contracts. But let’s talk a little bit about that. How important are having those written contracts with your suppliers and service providers even when it comes to sourcing from other countries? What are the considerations there?
Yael: Yeah, it’s interesting, because I think that generally speaking, if you look at 10 sellers, nine won’t have a contract. And it’s not that bad. You know, I think that most sellers don’t know that an email can be a contract. If you and I decide on you know, decide something, and we have a collaboration and there’s an email and there’s an invoice and there’s documentation supporting in 99% of the countries, that’s binding. So the, you know, that kind of covers you on the legal side. But if you really want to get into the details and protect yourself, you know, above the standard, then of course, a contract is the right way to do it. And by the way, you asked earlier about how buyers are looking at it from a valuation perspective. Do you know, IP, and those contracts, do they push the valuation? I mean, I just wanted to mention about that. When we’ve done a survey about I think it was last year, about a year ago. And we asked buyers about what increases the valuation. Almost nothing pushed the needle, except for IP there. We asked, like, if they have strong social media presence, does it, would you offer a higher multiple? They said, No. What about retail with that, you know, push the valuations, not necessarily. And then when we got to it, they said, yes. So I think to answer that question that you asked earlier, IP can increase the valuation, of course, a trademark is the most basic thing and that does not increase the valuation, it’s the minimum, and if you don’t have it, you want to have, you may not have a deal. But if you have patents, not only in Mexico, but generally, you know, in the US or wherever you’re selling in where you’re manufacturing as well, that’s something that they would look at, and that definitely is tracking your brand. So, so all those things, or if we’re on the, from an exit perspective, that that’s something they definitely look at.
Amy: But you love how it all ties together, right? It’s the legal aspects of, you know, setting these things up, but later on, it’s what adds value to your business and started. Michal,, what were you gonna say?
Michal: Yeah, so you know, that’s exactly your comment. So at the end of the day, you know, any legal activity should serve the business. So it’s not, there is no legal aim that stands alone. It is all in the service of the business, and whatever is good for the business, this will create value for the business all together. And eventually it will pay off once one when the business will be sold. So I really want to mention that, of course, trademark, as Yael mentioned, it’s a must, because without them, you may not have a business at all, and you may not be able to sell it at all. But patents, I would look for patents that are really valuable not just to say I have patents, but these are patents that really differentiate my business, really gives me some I don’t know, competitive edge over my competition.
Amy: Yeah, that ties into what you talked about, about products being an asset. So your product development and your products being an asset. And products are only really an asset, if you can protect them from being completely knocked off. Because there will always be somebody bigger than you with more money and more resources. And if you have no ability to defend that, you have no ability to defend your products or your development of them, then you kind of get stuck. And that’s why a buyer of a business would want to see that, because they would want to be able to carry that through and carry that protection through. So I love that. I really look forward to you guys joining us in Mexico and for all of us to really understand what we can do in Mexico, so many opportunities, and so much that we can do to diversify our supply chain, to add value to our business, to shorten our lead times to even lower our costs, but also maintain that, that quality that our customers are looking for. And it’s something that all of us should be thinking about. We should all be thinking about diversifying our supply chain and what is happening in the future. So thank you, ladies so much for being here with me today. And for kind of discussing these aspects. And I look forward to learning more from you both on the trip and at EvoLatam. And I know that our folks will be also. So if you guys have questions here during the live, feel free to ask them and we’ll definitely follow up with some answers. And thank you all so much for being here. And thanks so much for tuning in to this week’s show and our Mexico content here. And yeah, I hope everybody has a wonderful rest of their week and we’ll see you in Mexico.
Yael: Thank you Thanks for having us Amy
Michal: Thank you Amy bye bye