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Learn from Fast Growing 7-8 Figure Online Retailers and eCommerce Experts

EPISODE 376 56 mins

eCommerce M&A Specialist, Chris Shipferling: Why You Should Not Sell Your Company



About the guests

Chris Shipferling

Kunle Campbell

Chris started his career in CPG, having worked for companies ranging between 20-500MM as a Sales & Marketing Executive. Leveraging his experience, he has consulted all types of digital and omnichannel brands. As a co-founder of Global Wired Advisors, they have closed over $1 Billion in transactions.



On today’s episode, Kunle is joined by Chris Shipferling, Co-Founder of both South Col, an accelerator program that incubates retail business, and Global Wired Advisors, an eCommerce M&A firm that helps business owners sell their businesses.

With the pandemic and recession happening hand-in-hand, Chris and his founding partners at Global Wired started to notice changes and slowdowns in the macro and micro-economic trends. Escala, a Tel-Aviv-based business consulting firm, presented the idea of incubating businesses to which later on, they created a joint venture and started South Col.

With its name taken from Mt. Everest’s final base camp and known to be a No Man’s Land, South Col stands for the journey and hardships that businesses face, especially during a time of pandemic and recession. South Col provides that nudge to finally be at the top. With Escala’s systematization and South Col’s planning and strategics, retail businesses are “car-washed” to raise their value and create a better exit for its owners.

It’s an enlightening episode as you’d hear Kunle and Chris talk more about South Col’s brand diligence, growth strategy, investment criteria, channel expansion, macro, and micro-economic trends, as well as different perspectives on the state of businesses during the pandemic and through a recession.

Here is a summary of some of the most important points made:

  • South Col is selective as to what business fits with their accelerator program. Their main focus is on retail CPG.
  • SouthCol is geo-agnostic.
  • “We’re geography agnostic because, in this day and age, you can be.”
  • Working with South Col “is a marriage where every single one has a prenup.”
  • “When you’re at the bottom of a recession, that’s when the M&A activity starts to go back up. The reason for that is it’s a leading economic indicator, which means that it’s always looking into the future.”

Covered Topics:

On today’s interview, Kunle and Chris discuss:

  • A Brief Recap on Chris and Global Wired Advisors
  • The Link Between South Col and Global Wired Advisors
  • South Col Investment and Equity
  • South Col’s Growth Team
  • Handling Objections and Decision-Making
  • Macro and Micro Trends in the Digital Retail Space
  • A Geo-agnostic Company
  • The CPG Side
  • The Business Perspective in 2022 and 2023
  • Escala’s Systematization and Process Extraction
  • Brand Diligence

Timestamps:

  • 06:13 – A Brief Recap on Chris and Global Wired Advisors:
    • Global Wired Advisors help broker or facilitate the sale of a company.
    • “If you have a business and it’s successful, growing, and got great tenants, we will help you find a buyer.”
  • 07:11 – The Link Between South Col and Global Wired Advisors:
    • Global Wired Advisors’ founding partners are all bulge-bracket investment bankers.
    • Chris came from consumer products which are baby products and toys.
    • Global Wired Advisors is a pre-aggregator company.
    • While working for Global Wired Advisors, they started talking to Escala, a business consulting firm based in Tel Aviv. They created a joint venture which they called South Col.
  • 14:23 – South Col Investment and Equity:
    • South Col has five companies under LOI and one under active investment.
    • One of South Col’s investment criteria is brand. Another is growth or product development.
    • “The type of company we like to look at is, does it have a product roadmap? What’s the level of innovation that you can deploy into the products of the company?”
  • 20:14 – South Col’s Growth Team:
    • South Col’s first move is to outline a business plan for the next two years, next is they’ll start diving in and understanding the business in bite-sized pieces.
    • They will also break down your finances and create strategy.
    • They will build out resources that are category-specific.
    • “We’re doing a SWOT analysis as I said earlier. We’re doing strengths, weaknesses, opportunities, and threats. We’re looking at every single function and we’re breaking it down into bite-sized pieces”
  • 26:54 – Handling Objections and Decision-Making:
    • “The business owner is still the business owner, their majority, and they have the final say.”
    • “At the end of the day, the risk is on us because the business owner could say, “No, I don’t want to do any of this.” That is our risk.”
  • 31:20 – Macro and Micro Trends in the Digital Retail Space:
    • “Macro-wise, the balance sheet of a consumer is still fairly healthy. Debt on the consumer balance sheet is starting to grow.”
    • “The biggest problem that a lot of folks are figuring out is no one knows where the bottom is.”
    • “There is going to be easing and when easing happens, we get back to where we were, which is a cheaper cost of capital. The consumers start to feel more confident in purchasing, sliding away from the staple, going back into discretionary, and inflation starts to go down.”
  • 35:46 – A Geo-agnostic Company:
    • South Col’s first investment is Australian.
    • “We’re geography agnostic because, in this day and age, you can be.”
  • 38:00 – The CPG Side:
    • South Col is not into food and bev or consumables, in general. They are into more durable goods within specific categories.
    • They work with categories like pet, home and kitchen, juvenile products, and outdoor.
    • They are not so much into supplements for a few reasons like the level of competition, low-entry barrier, trademark difficulties, and concerns with proprietary product development
  • 41:06 – The Business Perspective in 2022 and 2023:
    • “If you’re in the business of acquisitions, it was not an easy year. If you were in the acquisition space selling lower-middle-market traditional businesses, it was a good year for you.”
    • “What we’re also going to see in 2023, in this particular space, we’re going to see a lot of capital flow back in. It’s going to be more on professional capital.”
  • 48:14 – Escala’s Systematization and Process Extraction:
    • An Escala works on about a 3 to 4-month engagement.
    • When extracting, what happens mostly is showing a business what to do and that gets included as part of the investment fund.
    • “It’s molding things to a general bias or consensus around a certain category.”
  • 52:48 – Brand Diligence:
    • Because of Global Wired, they became pretty good at brand diligence.
    • Usually, the process takes about 60 days.

Takeaways:

  • South Col spends a lot of time doing their diligence with business owners and knowing the company to make sure that they are both aligned.
  • “We’re geography agnostic because, in this day and age, you can be.”
  • Working with South Col “is a marriage where every single one has a prenup.”
  • “Not everybody can grow a business and that was part of the farce. It was part of the fallacy that arose through the pandemic.”

Links & Resources:

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Transcript

The three ways to grow an eCommerce brand are through marketing, channel expansion, and product launches. In this episode, we’re going to show you exactly how to go about it. It’s a great episode you don’t want to miss.

Welcome to the 2X eCommerce podcast. The 2X eCommerce podcast is a podcast dedicated to digital commerce insights for retail and eCommerce teams. Each week, on this podcast, we interview a commerce expert, a founder of a direct-to-consumer digital native brand, or a representative from a best-in-class eCommerce SaaS product.

We give them a tight remit to give you ideas you could test right away on your brand so you can improve commerce growth metrics such as conversions, average order value, repeat customers, audience size, and ultimately your gross merchant value. We are here to help you sell more sustainably on this show.

Speaking of which, this particular guest, if you’re a regular on this podcast, needs no intro, and he is Chris Shipferling. He is the Co-founder of two companies, South Col, which we’re going to be talking about, and Global Wired Advisors, they’re a more eCommerce M&A firm that essentially assists sellers in selling their businesses. They’re digital native sellers. Whether you’re a SaaS, an eCommerce, or you’re an eCommerce SaaS tool, they will help you, and take your brand to market.

This conversation I had with him is speaking to the current state of the market at the moment in general, the eCommerce trends, as well as what they’re doing in South Col. South Col is more like an accelerator program. Some of you may need help. Let’s say you’re exclusively selling D2C and you’re looking to expand to Amazon and you need partners. These guys are like equity partners that would help you get the maximum potential from Amazon. Let’s say you’re looking to move to retail, these guys would help. Let’s say you’re right for retail. They are geo-agnostic. Whether you’re in Europe or whether you’re in the United States, they will assist.

It was an interesting conversation I had with Chris Shipferling. He has a strong leadership team. We talked about process extraction. We talked about what it looks like and what it means to grow a brand rapidly within a 24-term period. Enjoy the interview. You might hear a message from our sponsors right after that. For now, I shall leave you and I’ll catch you on the other side. Thank you. Cheers.

Chris, welcome to the 2X eCommerce podcast. You are a guest that needs no introduction. You came in in season 6, episode 8. At the time, you were and still are a managing partner of Global Wired Advisors, which is more of an acquisition company. You’re more like brokers or investment banks.

To put it in simpler terms, yes. We help broker or facilitate the sale of a company. If you have a business, it’s successful, it’s growing, and it’s got great tenants, we will help you find a buyer. We will run a process to find you a buyer for your company and make you lots of money. That’s the simplest form.

Do you want to speak a bit about South Col? Let’s step back a little bit. For the sake of people who haven’t read that particular episode, if you could introduce yourself and link what you guys are doing in Global Wired, South Col, and seller funding, let’s start there.

By our careers, my founding partners are what you call bulge bracket investment bankers. They worked at Deutsche, Bank of America, and Wells Fargo. They worked there for a long time and worked their way up to important positions and roles within those investment banks and hedge funds where they worked at. Big financial engineering careers. I came from consumer products.

In a succinct way, I worked in baby products and toys, which is antiquated yet a lot of fun. It took them a while to catch up to the digital age. I worked in that industry. I worked around a lot of folks that came from Unilevers, J&Js, and Kimberly-Clarks. I worked with a lot of P&G-ers as well. While never having any type of classical training inside of those larger CPG companies, by osmosis, I learned a lot almost through all functions but I focused primarily on sales and marketing, product development, etc.

When we started Global, it was with the idea that there’s a lot of digital-first eCommerce. We were pre-aggregators, we have to go ahead and say that out loud. We’ve now made a distinction between people who are post or pre-aggregators. We were pre. We came in and we saw an opportunity to help eCommerce-centric consumer product companies when it comes to selling their business.

We analyzed what options they had when it came to the process and we said, “We can bring an institutional level process, something that’s thorough and detailed that can put your company in front of a wider base of potential buyers. Also, bring that down to what I would call the lower middle market, businesses that range anywhere between $1.5 million, $2 million, or $10 million EBITDA.” That’s Global Wired. We did that and we have been doing that.

Over the past year and a half or a year and some change, as anybody who studies macroeconomic trends or even micro-economic trends, we started to notice a pretty big slowdown in terms of liquidity capital flowing into these vehicles, aggregators, and even private equity funds who are already skeptical about buying an all-Amazon business, buying a business that, frankly speaking, didn’t have all of the traditional tenants of being a true CPG company. We saw that slowdown. We felt it.

Aggregators, of course, we don’t have to get into it. We already did it on the last call. From that time until now, it’s slowed down dramatically. Lots of capital has stopped flowing into those vehicles in terms of acquisitions. Some are still buying. On the whole, most of them are internally focused now trying to grow those companies.

Over a year and a half ago, we first started talking to Escala about this. Escala is a business consulting firm for eCommerce-based businesses. They do a lot of business process mapping, SOPs, and future state-of-the-company optimizing the operations of your business. ESCALA is Spanish for scale. They’re based in Tel Aviv. Two great guys, Yoni and Eli. They also own MultiplyMii, which is a geo arbitrage HR placement company.

We were talking and they came to us with an idea that said, “What this space need is something like an incubator, something like an accelerator program where we can take companies, put them through what we would consider a strong “carwash.” Turn these businesses into a fully optimized state to then go off and to sell their company.” We started to have that dialogue. I was having a dialogue with sellers funding around the same time and then we all three said, “Let’s talk about what this could look like.” What does a growth fund potentially look like where you’re pulling capital from sellers’ funding so you over-capitalized the company?

You’ve got the operational improvements and optimization from Escala and you’ve also got a syndicate of strong resources to then deploy into the company and watch it thrive and grow. Instead of putting pressure on the business to sell now where you’re going to run into lots of dead ends and brick walls because there are not as many buyers as they as there were before. Let’s grow the company. Let’s turn it into something that you know lots of buyers would want and sell in less than two years. We said, “This is a good idea.”

We started a joint venture and that joint venture is called South Col. South Col is named for the final base camp where you rest prior to hitting the top of Everest. It’s a bit of an analogy to say, “You’ve come this far as a business owner. We’ve got the last few miles here. Let’s accelerate you to the top.” We’ve got an investment that used a business broker to take their business to market, it didn’t catch hardly any bids.

The best bid that was received was what I would call mediocre. This asset now is a phenomenal company and it is going through what we would call the carwash to help improve both operationally from a sales perspective and marketing perspective. In less than two years, we’re going to take that business out and we’re going to be able to catch a much stronger bid from corporate strategics, private equity, etc. Because it’s going to be a company, we’re developing the company into something we know that a larger swath of buyers would appreciate. That’s a little bit about South Col.

How are things going at South Col now? You’ve been around for over one year. How many investments have you made? What equity position do you have in most of the investments?

Like any good ideas, you will know. It’s been over a year but we just went live in August 2022. Lots of talking, lots of planning, and lots of discussion. How are we going to make this successful? Not wanting to rush it but, of course, wanting to time it correctly for the market. We’ve got about five companies that are under LOI and we’ve got one active investment.

Like any good ideas, you will know. Click to Tweet

Our pipeline continues to grow every single day. This is not for everybody. We’re not trying to make it for everybody. We have lots of different conversations with a lot of different folks. We’re not an aggregator trying to get our hands on every single person. It’s selective in the sense that it’s got to have a certain look and feel to the business in order for us to say, “This is a good fit for the South Col accelerator program.”

What’s your investment criteria? What’s the typical DNA of the firm?

It’s got to be a brand. We could spend five podcast series on defining what does means. Anybody who’s reading has at least some level of understanding that when I say it needs to be a brand, it can’t just be product profit. We’re not going to invest in category add. We’re not going to invest in things that you can tell were purchased for the sole sake of driving up as much volume and then if it fails, I’ll go find the next product.

The type of company we like to look at is, does it have a product roadmap? What’s the level of innovation that you can deploy into the products of the company? Genuinely, I’ve been to a lot of conferences and product development is the one function that no one wants to talk about. When I was working in CPG, it was the only thing you talked about. We did budgets and sales forecasts and tons of sales and operational meetings and demand planning and etc.

Our calendar year was predicated on product and innovation we would bring to retailers for line reviews for them to put you on the shelf because that’s how we drove everything, that’s how we drove all of our revenue no matter where you’re selling. You got to have at least some level of, “We could deploy good product innovation. We can develop. We can professionalize the product development process.”

We also want to see growth. As simple as that sounds, everybody’s like, “Duh.” We need to see growth. We’re not looking for distressed assets. We’re not looking for even distressed situations. We want to be able to come in and, as we like to say, we want to be a helper and not a hero. You own a company and you’ve run into two problems with your business that are hindering faster growth. One is capital, as you well know. You and I’ve had this conversation before. The other one is resources.

A sole proprietor, a founder-owner, if they’ve taken the time to go find all these great resources for the company, something suffered and usually, it’s revenue. They haven’t been focusing on the company, they’ve been focusing on the resources for the company. Finding that inflection point where the company needs capital and then we put the capital to use through strong resources by looking across all functions.

When we’re doing our diligence, we’re looking at it from a specific point of view. We’re looking at every single function like the supply chain. You’re looking at logistics. You’re looking at product development, sales, marketing, etc. We’re looking at it from a specific lens to go, “What’s the strength here? What’s the weakness here? What’s the opportunity? What’s the threat?” If we deploy this cash with this resource, we’re going to amplify the strength and we’re going to fix the gap and the weakness. That’s how we’re looking at things.

Going back to what I said, it’s a selective program for a reason. We’ve got to be good at choosing who we invest in because it’s a time clock. We’re looking to go to market in the next two years. Every subsequent brand that comes through the South Col carwash as I like to say, it’s a two-year process at that point. We’ve got some that we’re looking at that might go a little bit further than that.

We’re blunt with folks too, which is great. They might say, “I’m looking out for a five-year plan.” “Awesome. Let me help you find some resources but you’re not a South Col fit. Let me work with you on identifying what you may need. Let me make introductions to our network. We’ll help you find capital but we’re not your guys.”

There’s an important point you made there. First, the two-year sprint. In my opinion, it’s a sprint, and the fact that you’re helpers and not heroes. The other point I wanted to make is growth. You mentioned product development. What I keep on preaching is that there are three key ways of growing a business and one is through your brand and marketing, the other is channel expansion, and the third is having a product development roadmap, which you alluded to.

Going underneath the surface of what you guys are doing at South Col, what is your growth team look like? What are you planning to achieve? Let’s say we come to you with $10 million in revenue and the EBITDA is about $2.5 million. We’re at South Col now and we want to get to the summit with your help through your carwash. Where are you going to take us to? Who would we be working with? What is your growth team look like?

The first thing we’re going to do is we’re going to start to outline a business plan for the next two years. We’re going to align and agree on where the company needs to go before we all decide this is when it’s time to go to market. A lot of that feedback is coming from Global Wired. If you’re already at $2.5 million and $10 million, you’re in a good position. Around that $10 million and $2 million mark is when private equity and larger more sophisticated capital providers will look at your company. Anything less than that, they see it as being too small and it’s not worth their time. You’re already starting in a good position.

Secondly, we’re going to start diving in and understanding the business in bite-sized pieces like I was describing. You’re going to be working with our internal partner team. We’ve got two other people that work with us inside of South Col. We’re always going to stay small. I call it employees or full-time people inside of the fund because we’re building up a syndicate of strong resources outside of our fund. We’re going to look at every single function and we’re going to break it down.

We’re going to break down all your financials. Do you have a good picture of liquidity? Do you have a good picture of cashflow modeling? You might tell me, “I want to get into retail,” that’s great. We can help you get into retail. We can create a retail strategy, do all the hard work to make sure that you are retail-ready, and understand if you are, from a cashflow perspective, ready for retail or if we have to allocate the use of funds by overcapitalizing the business towards a retail path. As you well know, it’s not a cheap endeavor. Wanting to get into retail is an expensive path but it’s a high reward.

You would be working internally with us and we would build out a business plan. Once we get through all the diligence, we agree on a business plan. From that point, we’re executing the business plan together. Prior to that, on day one, we’re going to start deploying resources. For instance, let’s say you come to us. At around $10 million, you’re going to be good at 1 or 2 things. You’re not going to be good at all things.

You might come to us and we picked on retail but you might say, “I’m only 98% direct-to-consumer. I need to expand into the Amazon channel.” What category are you? Are you in beauty, pet, or baby? Going down the category list, if you’re in beauty, great. I got three agencies we’re going to take this to and we’re going to get an audit done and we’re going to get feedback on what they would and how they would create a plan of attack to then grow your business specifically through Amazon.

We’re building out resources that are category-specific. We’re getting laser-focused here. It’s for a reason because we don’t have time to throw it towards a friend or we don’t have time to pick some random agency. We need to find efficiencies and shortcuts. You might come to us and say, “I’m amazing at Amazon,” but your direct-to-consumer is super poor. It’s a weakness of the business but you want to expand into that channel. You’re in beauty, great. I got two digital marketing agencies that have lots of beauty customers or clients. Let’s now go to them. Let’s talk to them. You see my point.

Effectively, what we’re doing is when we’re building out the business plan, it’s going to tell us everything we need to know. Within that business plan, I’m not just using businessy words but we’re doing a SWOT analysis as I said earlier. We’re doing strengths, weaknesses, opportunities, and threats. We’re looking at every single function and we’re breaking it down into bite-sized pieces to go, “What needs to be deployed? How do we all agree that with this business plan, it’s going to get from 10 to the agreed-upon number?”

You might say, “I wanted to get to $5 million of EBITDA,” and we agree and say, “At $5 million, we think we can get $35 million to $45 million or maybe $50 million for the company depending on what it is. Here are our reasons why we believe that.” Now you’re talking about you’ve got to grow from $10 million to $20 million. We’ve got to sit there and build out a two-year business plan that shows us how we’re going to go from $10 million to $20 million.

Even through recessions, you still have growth. You still have brands that grow. Click to Tweet

We got to build out all the infrastructure from a financial perspective with you to show that margins aren’t going to get compressed. You’re going to keep gross product high. What’s the product roadmap that’s going to drive us there? Do you see where I’m going with this? I’m giving bullet points but behind each bullet point is a ton of work and a ton of discussion. What do you get out of South Col? You get the strongest advisory team that is also hands and feet you could possibly find for your business. That’s what you get.

What do you guys get? Is it a minority stake in the business?

It absolutely is.

How do you make decisions? There would always be kickbacks from founders, especially founders that are emotional about their businesses as most founders are. How do you overcome those objections if you’re a minority stakeholder in trying to implement growth or affect growth?

We have some things built into our operating agreement around capital use and some restrictions around some of the capital use. The business owner is still the business owner, their majority, and they have the final say. For us, it’s not just about finding the right business. If we found the best business but the business owner isn’t aligned with us both the personality perspective and cultural fit, we know that we’re going to work well together. There’s a lot of diligence around the EQ and not just the IQ.

We spend a lot of time with the owner, not just 1 or 2 phone calls. We spent a lot of time before we start signing paperwork because it’s super important that we can all line together and make decisions and trust one another. At the end of the day, the risk is on us because the business owner could say, “No, I don’t want to do any of this.” That is our risk. In general, I agree that there are a lot of founder owners that don’t want to give up, they don’t want to give up the final say, and we don’t want them to give up the final say but we do put some restrictions around the capital use and that’s about it.

Let’s step back a little bit. You did touch upon macro and micro. What macro trends are you seeing in the digital retail space? I don’t want to be specific to D2C or Amazon. You guys have come across a lot in Global Advisors and South Col.

Macro-wise, the balance sheet of a consumer is still fairly healthy. Debt on the consumer balance sheet is starting to grow. The average consumer’s debt load is starting to go up. They are starting to get squeezed when it comes to discretionary purchasing. It’s flowing into staple purchasing so they’re paying more for gas, food, and staple items. Discretionary tends to then get scrutinized by the consumer. When we’re seeing any type of slowdown in sales, it’s because of that. It’s coming from that perspective.

Unemployment is still low, at least in the United States, I can’t speak for the UK. In general, unemployment is pretty low, which is still driving the consumer to have a healthy balance sheet. More and more CEOs are talking about the recession in 2023. Recession, of course, as we unfortunately know, drives up unemployment. You start to have a massive tightening of the belt pretty much across the board. Discretionary tends to go way down. You always get through a recession.

We’re making the assumption that in the next 6 to 9 months, it’s going to be fairly harder to grow but that’s not going to peanut butter and apply to everybody. Even through recessions, you still have growth, you still have brands that grow, etc. Coming out of that 6 to 9 months, I’ll speak from an acquisition perspective, M&A is a leading economic indicator. It always bounces back. When you’re at the bottom of a recession, that’s when the M&A activity starts to go back up. The reason for that is it’s a leading economic indicator, which means that it’s always looking into the future.

The biggest problem that a lot of folks are figuring out is no one knows where the bottom is. We haven’t felt it yet. We’re feeling it. Everyone’s feeling like, “We’re getting there. It’s coming close but we’re not there yet.” It’s going to take a minute to get there. Once we get there, M&a starts to come back. From that perspective, everything else tends to follow. You know what happens next, they’re already talking about it. They’re tightening all of the monetary policy right now.

We’re going through QT. There is a QE that will be coming, the easing, sometime in Q3 of 2023, which some economists are starting to predict. Who can you listen to these days? Every economist has an opinion. I won’t go there but you don’t know who to listen to anymore. There is going to be easing and when easing happens, we get back to where we were, which is cheaper cost of capital. The consumers start to feel more confident in purchasing, sliding away from the staple, going back into discretionary, and inflation starts to go down.

You start to feel that new normal of what gas prices look like, wages start to go back up, and all that good stuff. We’re definitely in that. Have you ever been caught in a bad thunderstorm and before the thunderstorm happens, you can feel it almost in your bones, the barometric pressure? You like, “Something’s about to hit.” Everyone’s feeling that moment.

Before it starts to pour. I was at an event and I met someone who works in M&A at Goldman Sachs and he echoed your sentiments. He’s like, “Nobody knows where the bottom is. There are several people who claim to know.” Looping back to what you guys are doing, I could see the appeal on an entrepreneur. Interest rates are higher. Sometimes you can see 5% or 6% in the United States with good credit. In the UK, its base rate is still about 3% and it’s been capped. I don’t think they have any plans to further increase it but it might be 3% for a long time.

With that, I could see the appeal. If you partner up with partners like yourself, like South Col, you’re getting an infusion of capital with zero interest. You’re giving away some equity. The upside there is growth. You mentioned the $10 million to $20 million. Not to say that is a typical deal structure but there’s that growth. I’d rather have a percentage of a much bigger pie than the whole pie of a smaller situation.

Also, the company. There’s nothing like rubbing shoulders and leaning on domain experts to navigate and guide you in a particular pathway. It’s an interesting proposition. There’s a UK business doing something similar to what you guys are doing. Are you strictly US? Do you cover just US North America?

No. Our first investment is Australian. We’re looking at somebody else who’s based in the UK. We’re geography agnostic because, in this day and age, you can be.

When you define CPG, are you speaking specifically to fast-moving consumer goods or are you speaking broader to consumer goods in general?

Broader but not. We’re not into food and bev. We’re not into a lot of consumables. We’re probably into more durable goods within specific categories. We love pet and baby. Home and kitchen is okay, it’s good. Juvenile products being baby so toy plays a role in there too. Outdoor is another one, we like outdoor a lot. Supplements, not so much. We’re not from a growth fund perspective. On the global side, we’ve taken several new businesses to market and we’ve sold them. They’re not typically that exciting on the growth fund side.

Many underwriters don’t want to fund. I’m talking about it from an acquisition loan perspective or acquisition debt. They don’t want to finance vitamins. Is it because it’s high-risk? Do they perceive it to be a high-risk category?

It’s a lot of competition. It’s heavily concentrated. The barrier of entry is quite low. It’s hard to trademark and it’s hard to get proprietary product development inside of supplements and vitamins. You either have to have signs. You’ve proven to whoever’s purchasing the business, “I can go from X to here quickly. People love my brand. People love my product.” You have built a real community. Off Amazon, that tends to be a much stronger appeal. You know where I’m going with this. I’m not talking about a whole lot of companies. It’s mainly on Amazon. That definitely dings folks. It’s hard to rotate off Amazon. 85% of supplements online are sold through Amazon so it’s hard.

Literally speaking, selling supplements should be a supplement to your core products. Let’s say you’ve done well with a proprietary product. Let’s say you devise something in the tropic space. It’s good. You’re doing D2C and it’s great. You have a core base. You could stack it up with some supplement as additional SKUs but I don’t going straight for the supplement as your core business, “We’re selling supplements. We’re selling all the supplements in the world.” It’s Interesting.

I agree.

We’re coming to the end of 2022. On reflection, what would you say about 2022, good, bad, or ugly? What are you most looking forward to in 2023?

If you’re in the business of acquisitions, it was not an easy year. If you were in the acquisition space selling lower-middle-market traditional businesses, it was a good year for you. There are a lot of seniors here in what they call the silver business. There’s a lot of seniors here that are retiring, Baby Boomers that are retiring and looking to sell their companies. They’ve built big plumbing businesses and big HVAC businesses, and electrical companies. For traditional businesses in the lower-middle market, the stats, it was a good year.

For consumer products, it was a challenging year. For digital-first and eCommerce-first companies, it was a challenging year. That would be my word, I would use the word challenging. I’ll speak now to the space of the ecosystem of aggregators and all that liquidity that ran up pretty quickly that developed its own ecosystem. It went to here in 2020, it went to here in 2021 pretty wide, and then it purged. It then contracted in 2022. It got rid of a lot of con artists. It got rid of a lot of folks that came in, saw quick money, and realized that when things got challenging, they didn’t serve any purpose here in the space. From that perspective, that was good.

2023 is a rebuild. Click to Tweet

What we’re also going to see in 2023, in this particular space, we’re going to see a lot of capital flow back in. It’s going to be more professional capital. They’re going to be looking for good businesses. They’re going to want to invest stronger into the aggregator funds that survived through all of this. Aggregators aren’t going away. Aggregation has been around for a long time. It’s not a new or novel concept and it’s here to stay. You’re going to have the strong survive and you’re going to have a lot of capital flow into that in 2023.

2023 is a rebuild. 2024 and beyond is what we would consider, taking from Dr. Fauci, the new normal in what we would see in the space. You had a quick and almost anomalous event and all this run-up of cash to go and gobble up a bunch of Amazon-centric direct-to-consumer businesses during a time period where all of the money flowed to eCommerce because we’re all in our houses. When that stops, what’s the new buzzword you see on LinkedIn? It’s not D2C, it’s omnichannel.

That’s true.

By the way, It’s been a buzzword for a while. It’s been a buzzword since I started back in 2003 than consumer products. It’s not something new under the sun. You’re going to start reaching a level of maturity and ‘24, ’25, and ‘26 within this digital-first eCommerce-centric space. Challenging is what I would say about ’22.

I agree with you. The opportunity I’m seeing in this chaos, more or less, is brand owners putting their heads down and trying to cross that $10 million chasm. All of a sudden, they’re attracted to private equity. A lot of the time, when you’re there, they’re not necessarily giving you multiples based on EBITDA. They might do it on revenue or they might give you high multiples in, the new normal, 2024. That is a challenge now for everybody to see how can we rapidly grow our brands, not take much out of it, and put a lot of resources in to growing it and attracting high-end buyers.

I agree. On that same note, with a lot of business owners and a lot of folks that you both hang around as your peers and consult in your own business, what happened was it’s almost like the teacher in grade school. Whenever they would do a learning curve, whatever the top average was, everyone got an extra 10 or 20 points if more of the average was 85 or 90. The point of saying that is we went through a time period when a lot of people got a lot of grace and forgiveness for mistakes, for not having great companies. Is it high tide lifts all ships? It was the pandemic.

If had inventory and you were selling online and you had something decent, you saw some good success. We saw that with a lot of our clients. Now, you’re reverting back to, “No.” You got to be a real company. You got to grow your brand. You’ve got to have a real sales and marketing plan. You’ve got to have that roadmap. To your point, it’s exactly what you said earlier. Not everybody can grow a business and that was part of the farce. It was part of the fallacy that arose through the pandemic, “I can grow. Everybody can do this it seems like.” It’s not true. It’s hard. Out of 100 businesses that start, 98 of them fail. The pandemic gave a false reality. People are now starting to feel that.

God bless the people who cashed out on pandemic profits.

I helped a lot of them.

Talking about selling high.

We’ll finally meet in person. We’ll share it with you.

Another good point about Escala is systematization. Going back to South Col, what do you do in regard to process extraction? How deep do you go? You have a 24-month sprint, it’s not much time. What is your approach to extracting systems knowing what’s going on, getting that single source of truth, getting started, and creating a plan?

An Escala works on about a 3 to 4-month engagement. Giving Escala 24 months is giving them a lot of time to work. You get a dedicated consultant from the Escala team. These are all X, Deloitte, EY, and KPMG. These are the top four types of mentalities. We have 24 months then to do everything you said, all the above. The difference is we do the normal work and then we are involved in the execution with the owner.

When you’re extracting, it’s more than just process and finding the bottlenecks. What happens is, in a true BC type of engagement, it’s, “Here’s what the future state of the company should look like. Here are all your inefficiencies. Here are your bottlenecks. Here are your new processes.” It’s a lot of like, “I’m showing you, and then I’m going to show you what to do.” In this case, you get all of that included as being part of our investment fund. That’s all included.

You also get the hands and feet to then say, “We’re not leaving you here like we normally would. You are going to get an execution on all of these things to make this company much better and more valuable in the future.” If there are specific gaps in terms of workflow and need for actual human capital or people, we can pull from MultiplyMii and put all the right workers in place to make sure that we can fill in all the different gaps.

The other thing on a Global Wired side, on an investment banking side, you talk to any investment banker and ask them, “What do you prefer out of a client? Do you prefer working with them where you get their business ready in three months and then take them to market? If you have the opportunity to work with them for 24 months, would you do that?”

100% of the time they’d say 24 months because we can get in early, we can take our time, and we can start to guide and steer the company in the right optimized direction. We’re telling all the functions and where to go based on what we know from the capital world. We can start having discussions with potential capital providers a whole heck of a lot earlier to get some good feedback.

We might go to some private equity funds and say, “I’m not going to name names but here’s the company. Here’s what it is, here’s what it represents, here’s what it’s doing, etc.” They’re then going to start giving you feedback on things they like and don’t like based on other portfolio companies that they have, their experience within that particular category, and things that they’re looking at. It’s molding things to a general bias or consensus around a certain category.

These are all super helpful things to then optimize your multiple. People always talk about this in the space, “Here are the things you can do to optimize your multiple.” They’re like, “You need to have better profit. You need to have better this.” It’s like, “No.” If I can get in there and start to see the guts and the inner workings of the company, I can start to shape and mold this thing into knowing what these people over here are telling me is good for a business that is in your category.

That’s what starts to affect multiples when you can start to affect change a lot earlier. All around, the hands and feet aspect of this growth fund is big. The thing that we bring to the table that, frankly speaking, we have first mover advantage on is the capital. You’ve got all this great stuff that comes with sweat equity. We’re like, “We have working capital we’re bringing to the table as well.”

How long does it take to diligent a brand?

The good news is we’re pretty good at it because on the Global Wired side, we’ve been doing it for over five years. My partner, Jason, who’s involved in South Col with me, has been an investment banker his entire career. We’re good. Our CEO, Nick, the same thing, he started as an investment banker. He has owned and sold multiple businesses of his own. He’s on boards of fifteen different companies. He’s got a good eye. We have a great eye. Escala comes in and does their work, pre-Escala work, which is most of our diligence from an operational perspective.

We’re pretty good at getting in there and getting our hands dirty and discovering quickly if this is an opportunity or not. That shortcuts a lot. We move about as fast as the client can move. Like anything, you want it to go as fast as possible but it’s usually about a 60-day process. We try and fast track that but we don’t want to sprint. We want to know that we can get along with the founder and the owner and everything that I’ve said earlier. We don’t want to miss anything. We’re not just buying the business like an aggregator. We’re getting to the operating agreement with somebody. You know this. You’ve got lots of business partners.

It’s heavy.

It’s a marriage where every single one has a prenup.

We could go on and on. I love this stuff. For those of you who want to find out more, it’s SouthCol.co. South Col is an accelerator fund partnering with successful eCommerce founders to eliminate the trail and traverse it together like the Sherpas of Everest culminating in an optimized exit value in 24 months. Chris, it’s been an absolute pleasure having you again on the podcast.

Thank you as well.

Thanks for also turning up at the Commerce Accel conference we concluded in September 2022. Thank you. Do you hang out on any social media? You’re active on LinkedIn, aren’t you?

I’m pretty active on LinkedIn. South Col has a LinkedIn. We’re working to get more active there. All of us are busy. I’m active on LinkedIn, for sure.

Will connect your social handles. Thank you so much, Chris. Cheers.

Thank you so much. Cheers.

About the host:

Kunle Campbell

An ecommerce advisor to ambitious, agile online retailers and funded ecommerce startups seeking exponentially sales growth through scalable customer acquisition, retention, conversion optimisation, product/market fit optimisation and customer referrals.

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