How To Buy A D2C Startup For Cheap and Sell It For Millions

Weight Watchers Private Equity Deal

This section discusses the successful private equity deal involving Weight Watchers.

The Best Private Equity Deal Ever

• The private equity deal involving Weight Watchers is considered one of the best ever.

• Over 19 years, $226 million was invested in Weight Watchers, resulting in $5.37 billion in returns and $4.7 billion in realized profits.

Introduction of Guest Maytab

In this section, the host introduces his guest, Maytab, who has helped him with his DDC brand.

Introducing Maytab

• Maytab is a friend of the host who has provided helpful tips and tricks for his DDC brand.

• He regularly listens to the host's podcast and sends him interesting stories to talk about.

• Maytab is knowledgeable about business hacks and strategies.

Talking About Interesting Stories

This section covers interesting stories that have been shared between the host and Maytab.

Sharing Interesting Stories

• Maytab has sent the host interesting stories to talk about on his podcast.

• The host gained confidence from these stories and began discussing them on his show.

• The host refers to a phrase he stole from Maytab: "beat with the ugly stick."

Shower Podcast and Darmesh Pod

This section discusses podcasts that both the guest and host listen to.

Listening Habits

• Both the guest and host listen to podcasts regularly.

• They discuss how popular podcasts can get millions of views on YouTube.

• They mention specific podcasts they enjoy listening to: "Shower Podcast" and "Darmesh Pod."

Using Chat GPT and Internet Marketing

This section covers topics related to internet marketing.

Internet Marketing Strategies

• The guest's fiance was caught using Chat GPT after the host mentioned it on his podcast.

• The guest implemented strategies he learned from Darmesh Pod, such as buying ads and responding to comments.

• They discuss how small details can make a big difference in internet marketing.

Tactical Details

This section continues the discussion of internet marketing strategies.

Devil is in the Details

• The guest shares how Darmesh Pod gave a detailed list of internet marketing strategies he was testing.

• The host mentions that they don't do much of this type of marketing for their own podcast.

• They agree that paying attention to small details can be important for success.

Vocabulary and Age

This section covers vocabulary and personal information about the guest.

Unique Vocabulary

• The host pays attention to unique vocabulary used by people in different industries.

• They discuss how certain words are more commonly used in specific fields, such as "ebitda" in tech.

Personal Information

• The guest is 29 years old.

Introduction

In this section, the host introduces the guest and explains that they will be discussing ideas from the guest's business world.

Guest's Business World

• The guest is part of a business world that is less familiar to the host.

• The guest's holding company buys distressed or underperforming D2C brands and makes them great.

• They are an independent sponsor who does everything on a deal-by-deal basis.

Portfolio Companies

In this section, the guest talks about their portfolio companies.

Core Platform Companies

• The core platform companies are in the mid-eight-figure range.

• There are three platform companies, including a succulent company, Solo Wood Flowers (a wood or fake flower company), and an apparel company.

• The Flower Company (Solo Wood Flowers) is slightly smaller than the Succulent Company but has more room for merchant expansion.

Minority Equity and Debt Positions

• There are eight to ten minority equity and debt positions in addition to the core platform companies.

Origin Story

In this section, the guest shares their origin story of how they got into e-commerce and entrepreneurship.

Diagnosis at 17 Years Old

• At 17 years old, the guest was diagnosed with spinal stenosis and degenerative disc disease.

• This meant that doing anything physical for work was out of the picture.

Starting Out in E-commerce

• The guest started by creating a Facebook page called Guitar Porn which gained traction due to organic reach being high at that time.

• They then transitioned into doing guitar runs with big brands where they would partner with a retailer dealer before eventually becoming retailers themselves.

• This venture made low seven figures.

Men's Hair Product Company

• The guest then started a men's hair product company with one of their best friends, which also made low seven figures.

• This was ironic because the guest is sick and doesn't cut their hair.

Conclusion

In this section, the transcript ends with the guest's story of how they got into e-commerce and entrepreneurship.

Starting a Business and Partnering with a Grammy-Nominated Guitarist

In this section, the speaker talks about how he started his business and partnered with a Grammy-nominated guitarist.

Starting a Business

• The speaker partnered with someone who had experience flipping guitars.

• The products were good, and the speaker had over 30,000 posts in guitar forums by the time he was 18.

• The speaker dropped out of college because it didn't seem like the value was there compared to the opportunities available in business.

Partnering with a Grammy-Nominated Guitarist

• The person the speaker partnered with was a Grammy-nominated guitarist who played for a band called Periphery.

• The partnership went well, and both businesses were flowing well in terms of cash small opportunities.

Private Equity Style Investing

In this section, the speaker talks about private equity style investing and their investment thesis.

Private Equity Style Investing

• The speaker became interested in private equity firms during the Great Recession when he read about firms that made money no matter what happened to companies they invested in.

• Their investment thesis is based on investing on how much liquidity or cash a company can generate in a short-term basis.

• They focus on pulling most of their cash out within two or three months to reduce risk.

Investment Thesis

• They focus on liquidity rather than equity appreciation like most business people do.

• They are okay with holding for long-term if it makes sense but sometimes they are more of a short-term partner.

• They invest in companies that can generate cash quickly and aim to buy them for one-sixth times profit or cash flow.

Sample Deal Economics

In this section, the speaker talks about a sample deal economics.

Sample Deal Economics

• The speaker invested in adult health and had a situation where they bought the company for one-sixth times profit or cash flow.

• They were able to pull most of their cash out within two or three months, reducing risk.

• It's not uncommon for a software company to sell on the low end for three times revenue and on the high end if it's fast-growing 10 times revenue.

Investing in Distressed Companies

In this section, the speaker talks about investing in distressed companies and how they got involved with a company that was struggling.

Investing in Distressed Companies

• The company was distressed due to bad margins, too much inventory, and debt problems.

• The speaker invested in the company at a far below market valuation because others were unwilling to invest in it.

• The company was originally a drop shipper doing around six million dollars a year.

• The speaker helped the company improve their margins by transitioning from a drop shipper to holding their own inventory and booting up operations.

• They sold their equity through five secondaries to a VC firm that invested later.

Finding Deals on Reddit

In this section, the speaker talks about how they found initial deal flow for investing in distressed companies.

Finding Deals on Reddit

• The speaker started posting on Reddit to find initial deal flow.

• They met their co-founder through Reddit and also met someone with a traditional background in private equity who taught them a lot about private equity.

• The community on Reddit is low quality compared to other private forums like EO IPO or Twitter.

Under the Radar Companies

In this section, the speaker discusses under-the-radar companies that are worth investing in.

Under-the-Radar Companies

• The speaker has a list of under-the-radar companies that are worth investing in.

• One company on the list is a flower company that is doing well but not getting much attention from investors.

• Another company on the list is a software company that helps businesses manage their online reviews.

• A third company on the list is a consumer goods brand that sells products for people with disabilities.

Josh's Frogs

In this section, the speaker talks about Josh's Frogs, a company that breeds and sells exotic frogs and their food. The speaker discusses why he likes the business and its defensible operating mode.

Characteristics of Josh's Frogs

• Josh's Frogs is a company that breeds and sells exotic frogs and their food.

• They breed their own frogs in-house in Michigan and ship them to customers.

• The company has scaled cleanly without external funding.

• The price of a frog ranges from $60 to $400.

Defensible Operating Mode

• The physical nature of breeding frogs makes it difficult for typical e-commerce companies to compete.

• Shipping live frogs from overseas is not viable, making it difficult for foreign competitors to undercut the business.

• As a result, the company has a strong operating mode that is highly defensible against competition.

Valuation

• The speaker estimates that Josh's Frogs could sell for 8 to 10 times its EBIT due to its defensible operating mode.

Under the Radar Businesses

In this section, the speakers discuss under-the-radar businesses that are not commonly talked about in Silicon Valley.

Defensible Business Models

• The speakers discuss how some businesses have defensible business models that make them less vulnerable to competition.

• They use the example of a company that sells live frogs online and how it is difficult for competitors to replicate their business model due to shipping constraints.

• The speakers note that this type of thinking is less common in tech where the focus is on growth and becoming a unicorn.

Fast Growing Trees

• The speakers talk about Fast Growing Trees, an online retailer that sells trees and seeds.

• They note that the company has grown significantly since its inception and estimate its revenue to be around $150 million with net margins of 20-25%.

• The speakers find it surprising that a company selling trees online could become so successful but note that it has a defensible business model due to its unique offering.

Betty's

• The speakers briefly mention Betty's, a company they plan to discuss further in another section.

Duvet Cover Company

In this section, the speakers discuss a successful bootstrapped company that sells duvet covers. They highlight the importance of having a killer product-market fit and a strong IP mode.

Attributes of a Successful D2C Company

• A great software company that scales has good net retention and can afford to hire a sales team.

• For building a D2C company, particularly in manufacturing, it is important to have something that can be made in America with lean manufacturing principles.

• The most consistent mode for their business is operating mode, which requires physical manufacturing in the US or Mexico.

Acquiring Customers for Recruiting Companies

In this section, the speakers discuss how some agencies are heavily focused on Southeast Asia but there is higher quality talent in places like Mexico. They also talk about applying successful customer acquisition strategies from D2C companies to recruiting companies.

Customer Acquisition Strategies for Recruiting Companies

• Historically, some recruiting agencies have done a poor job of acquiring customers.

• There is higher quality talent in places like Mexico compared to Southeast Asia.

• Applying successful customer acquisition strategies from D2C companies could help improve customer acquisition for recruiting companies.

Starting an Agency Focused on Talent in Mexico

In this section, the speaker discusses the benefits of hiring talent from Mexico and expresses interest in starting an agency focused solely on talent in Mexico.

Benefits of Hiring Talent from Mexico

• The speaker highlights that hiring talent from Mexico has several benefits, including being able to visit them in person, which leads to higher retention rates and better quality work.

• The quality of applicants is also much higher in Mexico, as evidenced by the example of a former Uline director who was hired for customer service at a reasonable salary.

Starting an Agency Focused on Talent in Mexico

• The speaker expresses interest in starting an agency focused solely on talent in Mexico due to the high quality of applicants and benefits mentioned earlier.

Site Speed: A No-Brainer Product Idea

In this section, the speaker talks about site speed as a problem faced by many e-commerce businesses and proposes it as a product idea.

Importance of Site Speed

• Site speed is crucial for e-commerce businesses because slow loading pages lead to loss of traffic and customers. It can also affect Google ranking negatively.

Challenges with Improving Site Speed

• E-commerce businesses often install multiple apps/plugins into their Shopify stores, which inject code into their pages. Even if these apps are deleted later, the code remains.

• Despite hiring three different people to fix site speed issues, none have been successful so far.

Product Idea: Site Speed Improvement Service

• The speaker proposes a product idea for improving site speed that involves making small changes to improve site speed, such as changing the order in which pixels fire for Google Analytics and Facebook Ads.

• The product idea is portable across different companies and can be applied at a product display page level or wherever reviews are present.

• The speaker suggests acquiring new customers through cold emailing businesses with meaningful revenue and traffic. They also offer to be the first customer and help acquire the next 10.

Conclusion

In this section, the speaker concludes their discussion on starting an agency focused on talent in Mexico and proposes a product idea for improving site speed.

Final Thoughts

• The speaker reiterates that starting an agency focused solely on talent in Mexico is a no-brainer due to the high quality of applicants available there.

• They also encourage anyone interested in creating a site speed improvement service to reach out to them as they would be interested in being their first customer.

Site Speed Graders and Balancing Time

In this section, the speakers discuss site speed graders and how they could offer an agency service to fix website speed issues. They also talk about balancing time between different business ventures.

Site Speed Graders

• The speakers discuss site speed graders that are available for e-commerce sites.

• They suggest that these companies should offer a button to fix website speed issues as an agency service.

• The speakers believe that this idea has potential and could be scaled quickly due to their network.

Balancing Time

• One speaker mentions that they spend about 15% of their time on investments and managing equity and credit positions.

• The rest of their time is spent on their floral business, which involves setting up a manufacturing base in Mexico to increase revenue.

• The other speaker comments on how the first speaker plays the game on hard mode by doing distressed turnarounds of D2C businesses.

Language Skills and Blogging

In this section, the speakers discuss one speaker's language skills and blogging abilities.

Language Skills

• One speaker compliments the other's language skills, particularly in writing blog posts.

• They mention that the blog posts are intended to give distressed e-commerce heavy businesses with 10 to 15 million in revenue a high-level overview of turnaround management basics.

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Introduction

In this section, the speaker introduces himself and his company, Ice Trends. He explains that they invest in non-control opportunities and are responsive to clients' needs.

Company Introduction

• Ice Trends is a company that invests in non-control opportunities.

• The team is responsive, discreet, and avoids pointless formalities.

• They understand the criticality of speed in turnaround and high-growth environments.

• They can tell you within 24 hours if there's a fit.

Writing Skills

In this section, the interviewer praises the speaker's writing skills and asks about his reading habits. The speaker talks about how he got into copywriting and mentions some of the books he has read.

Reading Habits

• The speaker learned copywriting from a friend who was into it.

• He read random books on copywriting, including a compilation of 100 all-time best sales letters.

• Corporate Turnaround Artistry by Jeff Sands is one of the greatest books he has ever read.

Writing Skills

• The speaker cites many books in his writing.

• His language is crystal clear and direct but not rude.

• He explains complex things well with good rhythm and vocabulary.

Corporate Turnaround Artistry

In this section, the speaker talks about Jeff Sands' book Corporate Turnaround Artistry. He describes Sands as an absolute beast who can turn around any operation within six to twelve months.

About Jeff Sands

• Jeff Sands is an absolute beast at turning around distressed companies quickly.

• He has turned around large nine-figure industrial companies such as bakeries, lumber mills, etc., within six to twelve months.

• His book Corporate Turnaround Artistry gives valuable tips for turning around any company even if it's not distressed.

Jeff Sands' Approach

• Sands is very fast at making decisions and taking action.

• Running a turnaround is like running a startup; you don't have the benefit of sitting around to make decisions.

• He doesn't hold back in making decisions and takes action quickly.

Why Invest?

In this section, the interviewer asks the speaker why he invests in non-control opportunities. The speaker explains that it's satisfying, repeatable, and requires less equity to keep scaling.

Reasons for Investing

• Investing in non-control opportunities is satisfying and repeatable.

• It requires less equity to keep scaling.

• You can buy a relatively distressed brand doing 100 million for maybe 10 to 15 million in equity.

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