Damon Chlarson·March 23, 2023

How to Automate an Online Wholesale Business | Damon Chlarson Interview

Damon Chlarson bought Pacific Insulation Supply, an online wholesale drop-shipper of insulation products, for $1.1 million (roughly 3x normal-year SDE of ~$375k) using an SBA loan at 85% LTV. The business operates with zero inventory — Damon advertises online, captures contractor leads, and routes orders to national wholesale suppliers for fulfillment. His second appearance on Acquiring Minds is a candid look at a rocky first year: Q3 2022 saw a ~70% drop in leads due to interest rate hikes and the loss of a key Washington state supplier, forcing him to take a W-2 job to cover the loan. The hard year pushed him to build tighter systems — a Philippines-based sales team trained on closing, siloed lead tracking by phone number, QuickBooks-integrated quoting, and live chat — reducing his time commitment to under 5 hours per week. By the time of this episode the business had rebounded strongly, but Damon's bigger takeaway is that he doesn't enjoy the solopreneur lifestyle; he plans to hold the business for 3-5 years, grow it to $3-4m in revenue and $300-400k in SDE as an automated side income, then sell and redeploy capital into more passive investments.

Deal facts

purchase price: $1.1m
multiple: ~3x normal-year revenue; ~2x boosted 2021 revenue
sde ebitda: SDE ~$350k-$400k (normal years); ~$600k (2021 boosted year)
revenue: $1.8m-$2.2m (2018-2020 normal); $3.3m-$3.5m (2021 boosted)
financing structure: SBA loan at ~85% LTV
notes: 2021 revenue was boosted by one very large customer the seller explicitly flagged as unsustainable; multiple was applied to normal-year cash flow. 2022 actual revenue ~$1.7m, net ~$250k-$275k.

Why this business

It was B2B, could be run remotely, and had very low capex — no inventory to carry since orders are fulfilled through national wholesale suppliers. Damon had been wanting to buy a business for many years (most people he knew growing up were business owners) and had looked at 40-50 deals through brokers; this one fell into his lap through a broker relationship and checked his key boxes.

What's working

Fully remote, asset-light drop-ship model: Damon takes orders online and passes them to national insulation suppliers who fulfill — no warehouse, no inventory
Philippines-based sales team handling leads, quoting, closing, and follow-up, allowing the business to run on under 5 hours per week of owner time
Sales team training on closing techniques — adding urgency and follow-up steps — improved conversion meaningfully
Streamlined quoting and invoicing by migrating all products into QuickBooks, cutting order processing time significantly
Strong SEO provides organic lead flow as a backstop alongside paid ads
Siloing lead sources by phone number lets Damon track ROI per channel quickly
Live chat installation generated $25k in sales within 6 days of launch, improving conversion
Q4 2022 and early 2023 saw a strong rebound; business described as 'booming' again
Book of ~5,000 past contractor customers as low-hanging-fruit recurring revenue targets
Favorable payment terms and sales spiffs tied to recurring orders to incentivize loyalty

What's hard

Q3 2022 was extremely dry — a combination of interest rate hikes, fuel/material cost increases, and loss of a major supplier in Washington state caused lead volume to drop ~70% and forced Damon to take a W-2 job to cover the SBA loan payment
One major 2021 customer that inflated revenue at acquisition dried up, creating a painful transition
A key supplier in Washington state dropped them right after acquisition, wiping out that state's volume for ~7 months
Expansion into drywall failed after 3-4 months — no volume discounts with new suppliers meant they couldn't compete on price with big-box stores
Business differentiates primarily on price, making it non-sticky and requiring constant advertising spend
Discovered he didn't enjoy the solopreneur/work-from-home lifestyle and found it less productive than a structured work environment
Wasted significant advertising dollars before honing in on winning states (CA, CO, TX, WA) and ideal customer profile (small contractors with 2-3 crews)
Construction cyclicality means the business is tightly correlated to housing/renovation activity; interest rate sensitivity is significant

Notable quotes

I regret it every day and I'm grateful for it every day. It's the most hot and cold thing I've ever experienced. There are moments where I think man, I have mortgaged my kid's future for owning a business and all of the stress, and then there are moments where I'm like look at all those QuickBooks payments coming in, this is amazing.

I thought I was an installation business for a long time and finally I realized we're not — we're an advertising company. That's all we do. We run ads and we get orders that way.

What's more valuable to me — devoting all my energy to this business trying to get it to five million, when some parts of it I don't know are scalable to that point anyway — or build a well-oiled machine that does between two to two and a half million a year, maybe three to four hundred thousand in SDE, but you don't ever have to work on it?

Yes they are a fraction of the cost of a US employee, but their life is not a fraction worth less.