£1B Ecom Operator Shares His Best Advice (What e-com founders get wrong)

0:00Private equity is optimized for private equity. It's not optimized for founders. Founders, it's one in 1 ,600 that get a decent sized exit done.

0:15Welcome back to another episode of DTC Diaries. Delighted today to be joined by Paul Gedman. Thank you for coming on, Paul. Thank you, mate. Appreciate it. I think you're probably definitely the most experienced and probably one of the older DC operators we've had on the podcast. I love it. Both wise and many, many, many years in the game. So very excited to dig into your journey. And obviously from the Huck Group when you first started in 2009 all the way through to eComplete and what you guys are building there. Now it's really exciting to dig into that and hopefully a lot of value for the audience to be extracted.

0:53But yeah, with everyone, we like to start an episode by just giving a bit of that backstory. So I'd love to hear a bit about your journey. Yeah, like it. Very generous way of calling me an old, old geezer. Yeah. And it's funny, right? Like the wisdoms, we've got plenty of scars on our backs from being in, you know, this DTC world for, you know, 20 years. The wisdom bit's interesting because everything changes so much. How wise are you? so you just got to be wise to know that things move really quickly constantly learning right constantly curious and that's the beautiful bit about it that's what maybe you know makes me feel younger than uh you've told everyone that i am but uh yeah i suppose the the most notable experience um was my time at the hook group so that was in 2009 i went in there when there was 40 employees and we were in CDs and DVDs.

1:49And the goal was to get out of that category, really. But I was thinking loads of good learning in that because you were getting beaten up every day by playing Amazon. You were buying product that devalued quite quickly. So you were on the clock just to not lose money, which is very different from the positions we put ourselves in now. So going through that experience was really interesting because you had to really try and survive around AmazonPlay.com and they were massive in comparison. So you were really trying to operate in the edges and by the edges in that world, you would start making money at 7pm on a Friday when Amazon sold out and then Play had sold out, but you had to be on the ball to then put your prices up while you still had stock.

2:31So you just had to always operate in the edges. So we were always in the data early from that experience. And then I suppose the intentionality is really important too. We made these steps to go into other categories because we knew you were just working your backside off for nothing, just trying to not lose money. So we spent a bit of time studying other categories and we ended up getting into beauty and sports nutrition with acquisitions. I ended up heading up that beauty division, which started with that 20 million acquisition of Look Fantastic, which was flat, making a little bit of money, felt very profitable compared to the CDs and DVDs.

3:10but going from competing with Amazon and Play to competing in beauty felt like the easiest job in the world, to be honest. And you weren't competing with brands then. There was not much competition. And it was really that shift we were benefiting from, which was offline to online. And so we started making the most of that. And then we also started to make the most of price arbitrage in international territories. Interesting. I actually didn't know the history of, even before this episode when doing the research, the play.com and DVD era. I guess I'm going to talk a lot about arbitrage in the subsequent sections of this episode because I think every DTC era is almost categorized by an arbitrage opportunity.

3:57It sounds like that was maybe a smaller arbitrage opportunity that was more technical and harder to extract. And then you moved into beauty, which was meta, like, Google, like, distribution arbitrage, I guess, with these early platforms coming around. Yeah, and global distribution. Yeah, just not many people playing in that game at all. Surprisingly, not many at all. What did the business look like when you joined? Like, how many people? Yeah, so 40 employees. I think it was around 50 million revenue, something like that, 50, 60. So Beauty, the part I looked after, went from 20 million acquisition to 600 in my time there.

4:37so you know loads loads of mistakes loads of learnings loads of scars on the back but actually it was a really it was a good time you couldn't repeat exactly that again with all the learnings because the world has just changed yeah um so you know timing's everything and kind of having that intention to to make the most of time in is really key i think in in business and e-commerce and then group wise andy who is the co-ceo of e-complete with me andy duckworth he was doing the same job in the hook group on my protein so you took that from 30 to to 350 in his time so we had a really good experience together over you know nine years um of going from that 40 million to a billion of revenue um internationalizing you had to do everything yourself back then because everything was so inexpensive if you outsourced it um so yeah really really interesting time those foundations that have been in dvds and cds and really operating in the data really helped us makes sense and you did 10 acquisitions through that process of 20 to 600 um you mentioned look fantastic was the first um and you also mentioned the intention behind it was that was that very much the strategy from day one of going into the company and being intentional with rolling those businesses up towards a valuation target quick word today from our sponsors saffy the problem

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7:05Paul Gedman:Go to mysathy.io slash demo to book a walkthrough now. What was really interesting there, we were trying to build a big business. So the intention was like, let's create value and build something big. So we liked the categories that we ended up being in, sports, nutrition and beauty. there was a huge opportunity at that moment in time to disrupt um and then it was like it was building the model so every time we came against a barrier for growth it was like what's the best strategy for us to it to unlock that so a lot of those acquisitions probably you know four out of six of them were buying distribution in other parts of the territory so we could do what we did quite well which was internationalized but we could do it legitimately because we'd acquired a business that bought those brands legitimately in that territory so you couldn't just ship everything from the uk because brands had different distribution agreements in europe and usa etc makes sense i guess that was an element of complexity like the licenses almost for the brands yeah right selling too so you you had that bit as you know how do we how do we keep the momentum of the opportunity that we found on international and then like a lot of learning from what andy did in sports nutrition started to vertically integrate so how did that how was i going to improve my pnl and there was more competition coming brands were you know potentially going to give you less support so you were in a you were in a pnl where you were buying product from someone else you were at best making 40 margin and there was no real way out of that unless you went and acquired your own brands and did the vertical integration of your own supply chain.

8:47So we ended up buying brands then and manufacturers. I know you bought Glossy Box as one of those that was a strategic decision. What was the key reason for, say, using that as an example? What were the key rationale for that purchase? Yeah, and quite a lot of them were opportunistic and felt quite well-priced. So that was a model that we felt like wouldn't really survive on its own. even though it had really good growth it was going to struggle to be profitable and we felt quite strongly that it should be part of a group broader network yeah and then you get the benefit of it you know you know and that compounds across the other parts of the business um so for us it was strategic and tactical of discovery being able to give brands an alternative to just writing them a check you know because writing them a check is great they love it but but then you start coming under pressure for pricing and discounting and campaigns.

9:43So actually that was nice for us to go and say, okay, well, we're going to incubate your brands as well over here and help with the discovery process with consumers. But it was the lessons you learned in it. It was a low average order value. You started again every month with a product. You didn't tell customers what it was until day three of the month. And then usually I had half your products left, so you could start then trying to tell them, but you had to be really quick with that content to get it out. yeah it's a tough tough model yeah quick turnarounds like everything's like a bit that feels like you're in a bit of a treadmill and then it stops yeah we're going to come on to imagining all all the lessons and challenges and mistakes and learnings in general from that process of acquisitions and how that shapes your view of the market but i wanted to touch firstly on that d2c evolution because obviously you were there from 2009 to 2020 was it is that correct uh yeah at the hook group 2009 to 19 uh 19 19 yeah what drove you to step away firstly um it was just um family really you know it'd been like been nine and a half years um and you know it was definitely time for a change as well but like forced by a bit of guilt of having to give a bit of time back to the family um achieved some of the goals that i wanted to get to you know i really wanted to be part of that you know getting to a billion of revenue um and it just felt like the right time yeah it makes sense i feel like nine and a half years in any econ business is like a lifetime lifetime with how fast it moves and from the point of entering to 2020 which was i guess the start of covid sort of era around then wasn't it yeah yeah it was i feel like that was like entering into that second era of d2c categorized by like just a massive shift in another massive shift in consumer behavior away from retail forced online the funding landscape that sat behind that with the massive surge in like pvc funding into assets that they broadly didn't seem to understand and then didn't generate a return from and then we've moved into this like new landscape today which is i i've started to call like d2c 3.0 which is this high levels of competition consumer confidence issues especially around online but just generally at the moment slightly higher barriers to entry um lower margins through like cost compression and then the big increase in and rollout of ai and how that's sort of facilitating those businesses but how have you seen that sort of shift play out from your perspective um living through that those areas it's um i think you've got to start by saying i feel really lucky that we are here in the game at this point in time yeah um so yeah barriers have been reduced loads more competition but the ability to do more quickly is super exciting so you know when we started you were kind of having to build websites yourself and hire devs you didn't really know you know who you were hiring what they were capable of doing and um and it's like we are in we're really fortunate when you talk about technology as well we're in like we're in the cutting edge of what that technology actually means and definition of technology is like something that makes things quicker faster cheaper the best example i you know use is it took google five years to get to 100 million active users per month it took facebook four and a half years and it was amazing you know people were blown away that that came quicker then it took instagram two and a half years then it took tiktok nine months to get to 100 billion and then chat gpt did it in two months yeah so i just like that as a it's a good reminder of the old days when it was all google yeah um And over that period from one to two to web three, like you say, that sums it up really for me where we are now.

13:48Everything's just quicker, faster, better. But it does mean there's a hell of a lot more competition, so you've really got to differentiate. And then you've got to think about more and more, your longer-term plans have got to be much more flexible because things change so much. So, you know, if you think about consumer, really when you think about three years, who knows? Who knows how we're going to be running these e-commerce businesses? We know we're going to be doing it. We're going to be doing more with less people.

14:22And all you can really start to think about is what are the really important things to consumer that are going to remain? And those things are product and the product working. And then I also feel like it's going to be communities. So I think there's going to be a load of brands that are lost in the middle where the product's okay. and they are competing like everybody else, you know, and it's probably too reliant on meta, I think those are going to struggle. I think probably products where there's, you're doing your own manufacturing or you really, you've got some, and there's not really much IP that exists anymore in consumer products, but the product has got to have something special at that one end.

15:00You've got to be really close to the supply chain. And then the other end, it's going to be people who can build communities. So I think there's going to be, you don't want to be in the middle. Yeah, it's interesting. I definitely agree on that compression of OPEX, like people being able to just be more efficient. We're seeing this at the moment. I was playing around yesterday and you can pretty much one-shot funnels with Claude perfect, which would have taken dev teams eight to six weeks to build a quiz funnel. And you can literally turn it around in like an hour if you've set up the right system.

15:32Yeah, it's wild. And you're seeing that's really lowering that barrier to entry. Even AI content creation, it's like whether you use it in your brand or not it enables people to launch brands for what would have cost thousands for yeah for pretty much nothing yeah there's too many negative stories that get out there versus all the positives yeah that you see um and that like i you know if if people are going to take away things from this chat we're having if you're not spending at least the percent of your time on ai now and implementing that in your business to save time and hours you're really going to regret it in two or three years like and it's realizing the moment that you're in like this is a phenomenal moment and you've got to keep celebrating all those those little wins and pass them across the team and and keep doing more with it um especially in e-commerce because it's a big we've talked a lot a lot about this in our business it's harder as an agency to become data first or date like really mature from a data perspective than i think in an e-commerce brand because an e-commerce brand is just a lot of data it's a data business really in a way that a lot of traditional offline and things will find much much more difficult um but i 100 agree i think you've got to be curious testing tools building those foundations building for we could say like build for the slope not the intercept so like try to build for where tech's going to be in like six to twelve months not where it is today over commit on contracts on technology and you know it's all going to change stay flexible exactly which is difficult but i think it's that's if you are doing that i think it is super exciting for those like early to mid-stage brands that are able to be a bit more like nimble flexible versus the incumbents those larger businesses that are traditionally a bit slower to adopt right they're a bit more risk reverse and yeah you're right we're lucky in e-com because a lot what we do is data and the integrity of that data is really important so we started by like yeah you've kind of got all that data and you're tagging it up and you can do some really cool things with it then we started thinking about actually we've got to have some unity in the stacks in these business so we're using the same technology um you know just to make sure you've got some efficiency building that database you then kind of go into that next stage of okay well what is business really if you break it down especially d2c business it's just a series of tasks you know and processes and if you do them quicker and better than your competitors you win so it's it's prime for ai it's prime for us being able to put that data into a database and start utilizing it for you know efficiencies on our analysis then we start to think about well we've got to make sure there's a stack not just for the tech but for our people as well so that we can make sure that you're effectively building a database of everyone's data touch point in the business you know just emails that doing fire fireflies notes um i'm trying to like use less whatsapp and you know use more slacks and and um teams just so you can consolidate all that information because we've seen some amazing things i had something the other day that really made me think on it which was we're all getting these benefits and our weekly updates we get from all our teams we're asking people to call out how many hours to save in on stuff so we keep that in our mind um and we're seeing that come through really well but actually yeah it was it was listening to someone saying no one's seen the benefit of having one of the most powerful models think on your business for a year you know because it's changing so quickly so then if you're gonna if you're gonna allow some superhuman brain and you know this advisory you've got to give it access to all of your information in the business and you've got to let it run for how powerful is it going to be when it's run for a year yeah so all we've done we've seen these we're in these really short circles i've seen cycles I've seen some really cool stuff when it's been two or three months.

19:46But how much better does your business get when you've let Fable run everything for 12 months? Because that should really start to compound and compound and compound. So I still don't think we understand the benefit of these models at all. But it's really good that in your business you're sharing these case studies. but all I know we're going to keep getting more and more surprised and enthusiastic about what we can do yeah 100 % I think if you just think about like 12 months ago and I wasn't using Claude 12 months ago you probably were either thinking about that that just sounds stupid because I use it so much now I was still using ChatGPT and the output was just nowhere near as good it didn't have the sort of context and quality so if you fast forward 12-18 months and we're using it piecemeal for these little tasks help me with that but if you can put it across everything and get that compound effect we've also found it's and this might be just me but I've never loved the HR side of you know like PDPs and sitting down and giving people that feedback I like doing it just every call every day when you're speaking to people rather than this big um and then you you get in this like position where like people can be quite defensive and you've got to go and think about all the things that have happened in the last quarter and talk to people about how they can improve and what they did well and the much better way of doing that is your Claude understanding this is your role in the business and these are the objectives that you've got to deliver this month for us to you know all achieve that goal together and having that to-do list every week but i report back to you on what you didn't do and where you're spending time on so i do it to myself and you know i'm probably not um i'm not amazing at taking negative feedback like you know i'm quite defensive i'll i'll pile in but every day when you get in that well this is your to-do list and you 70 % of it you didn't touch yesterday and you were on these calls and these meetings that you didn't need to be on like that kind of like even though it feels like it's quite intrusive and hr should be about you know people and listening and talking i think there's some features that are going to really help people perform better in businesses and then also management identify the incremental work that other people are picking up that's not easily identified yeah i think that's really interesting i've run a similar process to you and lucas we've talked about this on the podcast of like as a founder you do get a lot less feedback yeah yeah so having like an objective view and having a mechanism to deliver that feedback to you on like time allocation how you handle difficult conversations how you're thinking about strategy i think is a positive i also think it's positive executionally like you mentioned but also like management so like managers it's often quite hard to give managers feedback or that's it's quite piecemeal you have to have like a people person sitting on a manager review but it's like building that engine yeah just things that are just difficult to do if not very scalable i guess without without that that tool you might have caught something that's a bit of an unfair reflection on them and but if it's there every day and it's like there's there's no real emotion with it it's just hey we're all going in this direction we committed to do this and these are the hours like spending that aren't helping us so yeah it's going to just keep infiltrating more and more of the stack 100 % and I think you mentioned a minute ago the view of like DTC being a matter of doing many tasks many processes faster and better over time and I think you've seen some of these brands that have come out of the gate enabled by these tools create crazy outcomes you've seen IM8 go from nothing to 180 mil plus run rate in 18 months you've seen gruns i saw mars of men the other day and in the u.s that just a lot of that just wouldn't have been possible without these tools with very lean opex and teams um i wanted to segue more from the ai towards like uh the state of the market from like an exit perspective off the back of that you've seen gruns exit for like a billion plus yeah i had dr squatch noted down wild last year i saw miss mouths in america which is like a spray brand go for a crazy multiple road 80 people on yeah like so much it feels like we're into like a resurgence of exit activity over the last 12 months like last six months six 12 months of compared to the previous yeah couple of years when it really was like tumbleweed out there for for deals um what are your thoughts on that and how what what the landscape looks like currently yeah like there's loads of interesting things to cover here because um you those really premium ones go for really premium prices as well asop's another example of that i think they sort of yeah asop but i would say asop was like a proper business you know it was in multiple territories multiple you know had a really good store footprint yeah true um so like much longer journey but staying on top for a long time which is super impressive um would have been really de-risked versus some of these others yeah um makes sense so these like the market being open it's like the ipo market for spacex it's like it opens for the really premium ones and the competition at that and it's like i say surprisingly high surprisingly high in terms of the outcome of a of a multiple you know that competitive tension just keeps you know increasing on those top ones so you saw it even a couple of years ago with like a medicaid yeah that was like a really really strong business it was ticking every box and that got away so i'm it's good to see it i don't necessarily think it helps for a lot of entrepreneurs and people building businesses.

26:00I think it sets some unrealistic expectations on outcome and on pricing. And I don't know those businesses really well. Grunz is interesting because when you talk about that, that was set up with the intention to exit, which is, I think a lot of people miss that. He brought in a very, very competent team from day one. had done the journey previously before himself as a founder. So I think you could see the intention behind it with how heavy they went. I think IM8's another example of that. Like they came out the gate a bit different because they're already public, but intentional, knew that they were going to run aggressively into the red to then play the model out over like a year's time.

26:45And both in really good high growth categories. Yeah, yeah. Still really, you'd say both of them are quite early on the beach, you know, catching those waves. in the you know respective um positions for those two so i i do think it is you know signs of life in the market are great um but i do think it doesn't help a lot of founders really because you think right that timeline's so short and that exit's so big um i think the landscape today like we're saying we're so lucky that we're in this environment now but with that you've got loads more competition there's the barriers to entry are gone for e-commerce so you've got to do something pretty special but i think there's a um like technology being just speed and low cost and and all those great things it is allowing people to build businesses and get to 10 million on a few meta ads and a decent product, you know, and a TikTok and a DC store.

27:53So, you know, if you go back in web, in web one, that would have been like a head of growth. Somebody who's just brute force, good at selling, you know, but probably didn't tidy up well after themselves. Or dropshipping in a way. Yeah. Some founders are doing that. You can see some dropshippers just still creating crazy short-term outcomes. And you get these businesses that might be like 10 million making two. And then any day that kind of a business has sold over the last 10 years. But actually when you look at it, what are you buying? You're not really buying much and there's not been the time and the effort to build out a proper business.

28:32So I think you've got this area where people are, you know, entrepreneurs are building revenue really quickly. And kind of, you know, maybe they're building brands, you know for a you know a segment um but there's not enough building of businesses that have got real sustainability and durable growth over a three year period too narrow too narrow on products too narrow too narrow on channel but again like you you get to those outcomes and you think this is the way yeah and you kind of you'd see like you'd see i'd rather i'd rather see a business rather than you know giving up to an exit that's making 10 million and optimizing ebitda for that exit i'd rather see a business be investing for the future at the point of exit in case it doesn't happen but i think you're also one more likely to get a deal away and you're more likely to get a higher multiple in terms of having a strat like a three-year plan having a team that can support that next stage of growth thinking about new channels thinking about international expansion yeah and being being in there rather than just kind of putting on a deck and thinking about it yeah like a track record of setting out a strategy and doing it if you business really is you know a few things and it's all those series of tasks and doing the better and quicker but i actually think by the time you get into year four five six seven eight nine ten it's really about how you deploy capital and can you deploy that capital better than the stock market would and that's that's building a business um and i just don't see i think you know it's like the attention span now like it's really easy to go and build something quick but how durable is it and i think there's definitely some education that needs to happen for founders and entrepreneurs because it doesn't happen in a deal process until the end when a deal doesn't happen you know and then it's kind of too late I think I want to dive through some of those elements of like why a deal may fail but just to set the scene for people it's like people watching like successful exits are the minority of the minority of DC businesses right yeah so if you go through like helping people understand how hard it is you know and that that gruns example that is one in well you know one in eight billion people have done it yeah it's the the outlier of the outlier the top 0.001 but if you go if you go to the uk there's like three to four hundred thousand new businesses every year yeah which is great you know actually a pretty solid country for um people starting new businesses um 5 000 them roughly are in d to c consumer beauty and nutrition so we go to that 5 000 because that's the space we we want to look at um and then out of those 5 000 the amount of businesses that get to 10 million and we just said it's easier and it's a lot easier than it was but that's under one percent yeah so So, you know, if you start in that DTC business, you know, 99 % chance you ain't going to get to 10 mil.

32:04One in a hundred thousand founders, right? Yeah, which is like, you only think, you know, one in a hundred is not that bad, but, you know. And maybe it's not the goal for everyone to get it to 10 million. And that's over a five to seven year period as well. So, you know, you're giving it old school time. and then businesses that exit doing 20 to 30 million of revenue where a founder gets out more than 50 % of their value that then goes to one in 1 ,600 people there's more chance of a academy footballer at the age of 12 being a professional footballer than you starting a DTC business that's going to get over 10 million revenue and have an exit where you can extract 50 % of the value of it yeah that's crazy when you pay hopefully that doesn't dishearten anyone watching don't turn on down tools I guess that just paints a realistic picture of just how hard it is to do right and how much intention I think you've said intention a number of times intentions i think the gruns example is intention you mentioned hook groups intention of their strategy um i think a lot of it does come back back to that right that having a real intention in the way you operate towards an outcome yeah i do think so and it's like what it what that message should do is realize that when you get there it's rare so enjoy it yeah but also like when you're on the path to getting there knowing it's rare means you have to prepare for it it It doesn't happen that often to that many people.

33:45So it's really the message for me there for people to take is that, okay, you get the ability to get there. So one in a hundred will get to the point of 10 million. So what's the disparity between that and there only being one in 1 ,600 that gets an exit when it's over, you know, in that 10 to 30 million range where they get more than 50 % out. So there's a few more steps in that because most often the time people will take 30 % out. so that that 1 600 means you've probably done two p exits so it's really really rare but it shouldn't be as rare as it is and i believe it is as rare because people don't prepare to get through a process and people don't also understand how the game changes when they go into that next step when they have taken on investment the game really changes yeah we love love some sports analogies don't we have already used a football one but i really feel like it's like going from five a side football when you're running the business on your own you can be really impressive you have this winning team you know you're not losing you're banging loads of goals you've got this team that's doing all the different bits you've really worked well together when you go to take that p funding in and go to that next level it is like straight where you go into 11 a side so very often those players won't be able to play in the same positions there's double the amount of them so the communication is different you've got instead of just a ref who's you know you can get away with a lot five side you've got a ref two lines but you might have var as well so it's all these constraints the big guy watching it watching over yeah and it just slows you down right yeah yeah so it's there's something in that um there's something in it it's not that the you know it's not that it's like impossible to get to i think there's a lack of a conversation and there's a lack of preparation for helping businesses to get there probably even an awareness around the changes that are expected yeah and what what looks what's coming post acquisition i think there's also a lack of awareness of like what's how you really capture value on an on an acquisition like i think a lot of people think you get 100 of it up front and not that most of it is earn out over a period based on performance with more oversight you've obviously done many processes like been involved in many processes on like uh the buyer side through hook group and also more like recently in e-complete what what would you say is like the the big pitfalls or like blockers that founders hit um when trying to complete a transaction successfully and realize full value i guess not just get through it but actually get the outcome they want yeah and there's definitely a few parts to that this there's there's a load of look look and timing unfortunately like yeah it's very real um so and you can't control that and some people get really lucky with the timing like we've seen businesses sell and just be like well done you got the timing right that would not have happened on you know um yeah 51 other weeks of the year but so timing and luck is is still important no matter what but it's this um performance but you can never plan performance to an exit because you don't know what the timing's going to be you're not you think you're in control of the timing but you're not you know you can set right we're going to get we're going to go to market you know we're going to prepare for it we're going to we're going to exit the business in q1 next year like you're just not you can make the best plans but you're not in control of that process so what you have to do is make sure you're dedicating enough time to the performance of the business being sustained and it's so hard you know when you've got this you know when you've got a business where you're the founder you might have four five six great people around you but actually a lot of it's on you it's really hard to plan to go through a process, prepare the business for that and keep performance flying.

37:54And it's really hard with a lot of businesses we see today where they've got one channel, you know, or like two overexposed on one skew, you know. So again, it being early, the technology, the ability to launch and get 10 million revenue under your belt is great, but it's almost misleading in the fact that you're building a proper business that will get through a process. So making sure performance, that the business is spending enough time and effort to guarantee the performance keeps coming through because if you miss that exit and you come back in 12 months time if you've took the eye off the ball on the business because you've been going through the process you're going to feel it six months later yeah and that goes for business even getting through a process you often see the first six months being tough because there's not been enough time and energy spent spent on the business um so it's there's no absolute slam dunk but prioritizing performance making sure you're not too overexposed to people or channels before you go into a process but i think i tell people it needs to be a two year plan when you're thinking about it it needs to be a two year plan and they the first bit of that plan needs to be have we got the right team to deliver a strategy that's going to keep delivering us the growth that we need and have we got enough growth leaders that we're trying because you know the only way we do it we if we're looking at a business we want to buy it and we think there's 20 growth levers in there well we just half the growth that we think it's going to be and half those growth levers because just things go wrong yeah it takes longer costs longer so more complexity as well yeah it's not it's not addition it's like multiplication isn't it adding more channels more yeah you can't run that on one or two channels and so so yeah there's no i would always love there to be this like you know much better answer and like you know just just engage with these people they'll get you a deal done that you've got to be realistic on price the number one advice i would give people beyond those points is you have to have competitive tension if you've not got competitive tension in a process then you are you know you're at the mercy of somebody else and private equity is optimized for private equity it's not optimized for founders founders you know it's one in one in 1600 that get a decent size exit done how many people do that twice not many so anything that's anything that's like it's like buying and selling a house what a painful process it is because you don't do it often so when you don't do things often you know it's only optimized for the process that happens often so it's optimized more for PE yeah the only thing that keeps PE honest and not screwing over founders there's a lot of great PE firms out there I don't want to say like everyone will try and screw you over but the only thing that stops you getting the wall pulled over your eyes is competitive tension and having a couple of people in there.

41:04But that is not a given. It's hard. Makes sense. Obviously, PE are always trying to de-risk, aren't they? Just try and decrease valuation in any way possible. So that's like a multiple side. And like you mentioned performance PE, but from like a, I guess, more like admin best practice, like what things do you think founders need to have in order? It's like a bit of a checklist to ensure that they can go through that process efficiently, quickly, without getting halfway through and it just falling off the table.

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42:39Paul Gedman:They're also going to handle the whole migration and onboarding process for you. Go to mysathy.io slash demo to book a walkthrough now. Like your starting point is you've got to be impressive with those kind of KPIs that people expect to see. Yeah. You know, just like your GP, your EBITDA. And all the trends, we do this kind of, we call it a North Star. So as soon as we get into a business, we then say, right, what does this need to look like in four years' time for us to maximize the exit? Half of them are hygiene and boring to talk about even. Half of them are around performance and like revenue growth, EBITDA, your marketing cost of sale and discounting.

43:22But it's all the trends of these things because when someone's going to buy it, they're going to kind of, they'll look back at the last three years, but they want to know what the trends are because they will just model stuff out for the next three, four, five years. So your business could be great. We've seen positions where people have done the right thing, but it's been negative for the business on valuation, such as load of stock that's not moving and they've just discounted it. And, you know, three months before the end of the year in the DD, GP's gone down, discount's gone up because they've been solving a problem.

43:56Yeah, I think that's so common. The gap between gross and net revenue. Even when you extrapolate out, for a lot of brands we audit over a three-year period, just discount rate is just like up and to the right aggressively over time. And you could have done the right thing and go, do you know what, that stock just didn't work, get through it. Cash flow. Actually, for these guys, you might have been better writing it off on your P &L than selling it through some bulk. But it's almost like you should keep doing the right thing, but in that scenario in the data you should make it really clear and present it and because what people will do is if you're if you're discounting was 10 % gone to 15 to 20 they're just going to assume it's 30 40 % in a few years and they'll value the basic business based on that and it probably won't let you get a deal away so again everything's intention of all those you've got to think about all these kpis and how they trend on a graph and they need to be flat or increasing because if they're going down you're going to be punished for something that might not materialize I guess in that sense, I've heard people say this, you want to get your skeletons out of the closet and own the narrative around them.

44:57That being an example, you're better saying it was a strategy and intention and owning it than just presenting the numbers to leave it open to interpretation. You can only do that if you've dealt with it. So again, giving yourself a period of time where you can deal with those is you need that time to fix those problems. But then the other half are, they are hygiene. So trade, you know, trademarks, where are they? You know, IP, just product, like IP, product compliance. They need to be, from the moment they're done, you need to treat them as one day you're going to sell this business. So create your data room now.

45:47And put those in a place where you can reference them and everyone knows where they are. you want to have three years solid um financials you want to have two years of board packs that like the really the more wiser or wiser than me the more older than me would tell you actually the best ed is in last two years board packs because there you're seeing well fine in an im there's a story and they told you the story which fits because you're looking at it retrospectively and it's going to fit the future but those board packs will tell you what the intention was and what happened um so again when you're doing your board packs you've got to always be thinking about them as okay well we're doing these for the intention of an exit and again you've got to be honest um and people seeing you deal with problems in those scenarios also yeah you know that's the best dd because then in the team you know you're seeing people being able to deal with durable can deal with like changes and fluctuations

46:48it makes a lot of sense like it builds confidence in the leadership team right that's going to stick into the business you want to be able to see that they can deal with challenge not just especially if they've been in like a rocket ship for a few years can you rely on these guys how do they deal with problems and then it's team team as well and like that growth strategy and you've got to leave things on the table for people so you know whatever stage you're at most often than not we will be in the space of 20 million to 100 million that'll be our sweet spot hopefully and when you're exiting you've got to think about who you're exiting to and what they're going to want to deliver on growth levers so even though we're d2c you know through and through like omni channel is really important in retail and being able to demonstrate that this business can sell in retail but you want it to be 10 percent of revenue growing really fast so someone can look at it and go okay this is our loving episode we know how to deal with this and but the team the team is super important and having management schemes in with the team is really important because people will be like a buyer will be looking at all those kpis first so that's gate one has got to get you through like does this business look attractive but the bulk of the dd is done around people and the hygiene of the business and skeletons in the closet yeah that p deal with de-risking that by putting in um you know just conditions around if you don't hit those growth metrics then you will lose part of the business so again like bit of a negative but it's better people thinking about this way if you sell vapes and your business to p you're better thinking about it as you've sold 100 you've got paid for 30 and you've got to go and earn the other 70 the other 70 again it's a different mental model a different framing to keep you keep you um on track and sharp to it that makes sense how many businesses that you encounter for your bursar would you say have the majority of those in place yeah not many not many yeah and we're we're kind of shopping if you like in that space where we're okay with that because as an operating partner as well we don't mind if there's no finance function say that you'd much prefer this to be a reliable finance function but as long as we can get comfortable with the numbers then we can build out that team we can do the compliance catch at work as long as we know there's no risks on that product and there's this kind of debt that a lot of these businesses have which is almost I hate the word professionalising because it just seems like you're going to bring consultants in but in your first six months you'll lose a lot of time to the debt from the catch up of a lack of professionalisation being in that business so you've really for us we're okay with it but you've got to we've got to remember that actually that first 12 months is going to be slow and a bit painful because actually there's a lot of catch up to do setting like the foundations for that future growth in key areas and it goes to price by the way so people should do it they should prepare so again like you know if you want people to take anything away from this chat it would be give yourselves two years and prepare very thoroughly and very well and don't rely on don't rely too much on a sell side advisor to get you through a process because they'll be getting you through a process they won't care about what the business looks like after that um so yeah we don't see enough businesses that have got the depth of channel and de-risking and product and territory we don't mind putting that into businesses but it does cost you time yeah and we'll pay you know you'll be paying somewhere between four and six times ebitda for those kind of businesses where actually for the businesses that have got all that in place and have invested they'll have a lower EBITDA but they'll be getting 8, 9, 10 times and just you're better off 10 million quid business that's not done all that work on professionalising and the right structure and the right team and it'll be 10 million EBITDA and they'll get 6 times EBITDA for it whereas a business that's done the right thing and invested they'll get eight times EBITDA so you know if they're at eight you know you're making more money anyway so that EBITDA multiple is what you should think about more than preparing for a higher EBITDA multiple is what you should think about rather than having as much EBITDA in the business as you can because you very often get a lower multiple but the main point on that is because you might say well I could get 60 mil or 64 mil well actually it's going to be quicker and easy to get a 60 in but actually you've got in my view a 50 chance less getting the deal done yeah if you're on that other model than this one and you're gonna and the you can forego so much time getting it done that you lose valuation over time and your business isn't performing when you come out the other side of that process you're like scratching your head and i think not enough people talk about that i think everyone thinks of valuation outcome purely through the lens of like maximize EBITDA, get a multiple on that value rather than like what's the broader picture and how does that support de-risking them?

52:16I guess it's just de-risking it to the buyer, isn't it? Believing they can take the structure and 2x the business without having to spend a lot of blood, sweat and tears and putting that in themselves. Although it's negative saying it's only 1 in 1 ,600, I say it because it should make people realize about the preparation that's required so if you are going to get there it's in that upper echelon to you know it just doesn't happen that often it's the equivalent from every 12 year old kid in football academies today making it to pro like it that is the equivalent you know in the math so how much preparation does that kid put into becoming a pro and the team and it's um so it's really about making people aware of how rare it is not to put them off doing it but just to make sure they're preparing adequately for it yeah i think you could change that number i was going to say i think having more awareness of what great looks like through the process more intention you could probably double the amount of those outcomes that we're seeing on a yearly basis 80 of processes fail yeah so just half in that number is going to transform yeah you mentioned pe um briefly and um i know as e-complete as a business like you're very much trying to like redefine the way the market works from like a exit and a value creation lens within e-commerce and sort of positioning against the more traditional pe model um what what what are your beliefs on on where maybe pe gets gets things wrong yeah in the category and you're right like i appreciate you saying it that way we're trying to redefine it slightly because i used to you know early on i was quite bullish right we're going to get into pe and you know we're going to like smash it to pieces because these guys are you know don't know what they're doing and you say pe was broken but it's not broken because it makes a hell of a lot of money for people and it's that um it's optimized for pe it's not optimized for founders and for people in the business you could argue that by being optimised for PE it has to be optimised for the business so therefore it's good but I think PE is we're lucky we've partnered with some I'd say like the best you know we've not been there a long time so how do we know what the best looks like but we've partnered with some really good people who I would say the best I've come across but it's more understanding like what our skill sets are better suited to as well.

54:52Because PE's great, makes people a load of money, it serves a function, you know, it gives liquidity to some people, not enough, not enough people get through it. But it's more, we say we have one foot in the operations and one foot in PE, but actually like if you look at my day, I've got two foot in operations and one like little toe in, in the PE bit. um so we are trying to we're trying to compete with private equity and we think we've got enough reasons to be able to win in that space and we're also trying to create another model which is almost like pre-pe um and you know it's not not vc but it's almost helping businesses get through a process do what we've just talked about yeah we've seen great businesses that you can't buy because they can't get through a process so how do how's this hybrid model where we can come in slightly earlier partner as an operating partner have the ability to write a check still and help them on that exit um so it's a shorter time window for us so your upside potential is not as as great but you're really de-risking it because actually you're in that business you're helping them you there's no skeletons in the closet yeah so there's you know where this is this is evolving you know the last couple of months for us but we think there is got to be a better way to get more liquidity for lots of great businesses but that just don't top tick all these p boxes yeah makes a lot of sense i think you've obviously got the domain expertise and you mentioned a couple of the pieces that you guys sort of specialize in which you would say internationalization is one marketplace another team people yeah um i think operations are like we're quite like all the operations that um like and the infrastructure and getting into territories really efficiently and yeah you know yeah definitely the data side the tech side we're not a bunch of people full of you know like brand creative that's why we work with you yeah um but yeah that that kind of like yeah that operational knowledge i think is so things that when you're found a head down in a business that's squirreling really quickly you it's almost like feels like a nice to have until you get into that point of wanting to go on that larger journey so i can see the value of going in and just being able to sort of piggyback off your expertise and create that that next step in value i also think that that like 10 to 20 mil to 100 mil is i think is like a real valley of like death for quite a lot of brands where the complexity becomes so difficult get a higher wrong get a channel expansion decision wrong you've not got that much cash still and it can kill you if you do if you make the wrong decision and if you're relying on meta you're very often just reinvesting it back in meta yeah you know to service that growth and um yeah and that's why you think there's a lot of businesses that could go on to do more that fail and i suppose it's experience right like and he always says it best you know we talk about international it international is one where it's like still yeah i don't want to be like too critical but it's still surprising that so many people like fuck it up yeah you have to believe me out mate i don't know if it's not but and it's like this again a lot of these things are just model shifts where someone's got a business to 20 mil in the uk it's doing really well and they're going to go to the usa because english speaking and then you go well actually when you look at the data it's eight times more competitive and 13 times more expensive yeah that is the whole and beauty right yeah it's really hard so if you're going to spend marketing money you're just going to get blown out of the water for a while um but it's what territories do you go into and why but it's also going well actually people too often start exporting the 20 million pound business because it's great you know they're doing really well so what works today in the UK they try and export that it does mean you end up going in very often with too many too complex like too much marketing budget too many people almost like too many ideas as well biases towards like what's worked previously maybe doesn't translate yeah that's a really important one but what you've got to do you've got to go back to day one so in every new territory you're not spending any money you've got to get into that territory really efficiently you know you've got to like take the knowledge of what what's worked but not what's working now what was working back then and the lessons of the five-year journey and they don't all have to be like day one lessons because you know some of those lessons should have compounded and you'll make better decisions but you see people just trying to export what's working now and that's the wrong it's it's starting again every new territory is a startup and we're just we're just fairly good at getting in there very low cost and having an approach that is well let's learn from the data let's not be let's be patient you're gonna have loads of patience your first six months are learning testing you're going to be gifting product you're going to be using influencers you're going to be doing the hustle that you did for the first 12 months when you were getting the business up up and running so yeah despite us being maybe you know we're talking about professionalize in businesses a lot more and get them ready for exits that drive you know to go and win in that territory and don't bother competing until you've got your shipping your compliance right a lot of people still ship from the uk yeah and you know any money to spend on marketing half of it's wasted because people are going to get to you you know your payment time and cost and not check out yeah mate definitely seen that play out I remember just on the point of like risk and failure I think it was Sean Frank from Ridge you know Sean Ridge the US brand I think he said on a podcast like if you give Econ founders long enough they'll usually fuck it up it's like bringing someone it's like they're going to fail if you just let them continue or a lot of them so like bringing someone in on the journey can help them not make those mistakes right it's so different that zero to ten to going forward and he always says it best you know when you're just that point of experience pays you know and the scars on your back you know if you work with us we've made all the mistakes in international so but he always just says it's like going to the pub the first time and neither of us drink we never go to pub so we should use something else but it's like going to the pub for the first time you've never been you know and you walk you're wondering what where is it you're walking around it's changed now you know with your phone but the first time you go somewhere you've not got a clue you're guessing at every step when you've done it once it's so easy so like it's a really simple one but actually then the amount of steps that you can get wrong versus just being using someone's experience that's on it before journey yeah it's it's the easiest investment you should make every time but people don't do it enough 100 so in terms of the e-complete journey how what's that look like over say the last couple of years and what what's the goal for sort of the next 18 months at the top level just to wrap up yeah loads of loads of learning really really interesting really understanding that p side because you can look at it from afar and you know it definitely it looks easy but then it looks easy because there's a lot of kind of high failure rates so you think if you understand these businesses it's you know we'll avoid all those failure rates so loads are learning for us there on on structures and how we set ourselves up to maximize the benefit of the operation side of e-complete we we got a really compelling proposition with founders because we've been in you know their shoes we've been in your shoes we know what it's like um so i think we resonate really well and we can compete definitely with private equity which that's what we wanted to make sure we could do can we get outcomes yeah like we can get outcomes um so you know why are we doing it all we're doing it for outcomes and to create wealth for We haven't even touched on current body.

1:03:28I was going to mention that right at the start, but that's a perfect example of an outcome. You can't really get better than buying a majority stake and taking it public. Yeah, no, that was phenomenal. And yeah, you keep drawing lessons from that experience, you know, now. So for us, we want to get to 10 assets that we've got under management. That's our goal. How do we get there? quickly it's fairly hard raising money um i would say we've done pretty well at it but it's definitely not our skill set so we're trying to get better at that we're bringing in people that can help us um but we're really we've rewrote everything ai first over the last 12 months so you know when you think the world's great and you know you can start focusing on deals and then you you get excited to rewrite everything because it's given us a 10 times better outcome and it's 78 % less cost.

1:04:24So that's been really enjoyable actually. And just every time you talk to the team, you talk about exciting stuff. So we're really enjoying the journey. We've got a great bunch of people around us. We're trying to refine the model of how we compete with PE always. Just simply like, you know, when we have our process for identifying businesses, you know, we change that every couple of months. We were probably quite heavily weighted. We got 36 different data points. So as soon as an IM lands with us, and we've seen 62 IMs, this was probably until the end of April, actually, so it'll be a bit out of date now.

1:05:05But previously, we were spending two or three hours per IM for someone to take that information and put it into our scorecard. We've now, we've automated all that. So we've seen 62 businesses, but we take all the data points. we've automated the communication between our agent and the sell side advisor pretty sure they don't know either pretty good um and uh you know so getting information that we've not got so that's fully automated when we when we looked at the end of april we worked out that it saved us a month of someone's time doing that you know in that first three months so two-thirds of the time brilliant um but we're always changing like the weighting so we were quite heavily weighted to revenue growth but then we start just as you get more experience and knowledge we say okay well what's the supply chain like if the supply chain's all uk you know you can get products in europe and usa it's locally sourced and you're manufacturing it fine but actually if you're china supply chain you've got to really you've got to downweight that revenue because you're going to have some some issues so we're always tweaking our model to hopefully keep getting better so our outcomes will be better um we're definitely thinking about a hybrid model as well of how because loads of great businesses fail in processes so 80 fail yeah we think there's gold in that 80 um so we're thinking about this hybrid model that we're going to run through with a few businesses see how that goes but yeah just keep we're we're keeping having fun we want to make sure that we're we're making money because you know we're all spending time away from our family and you know we're all we're all making sure we'll be chosen to be on a playing board which is going to reward us so we're going to make sure we get that reward um but just keep building keep learning um yeah keep having fun nice love it i think that that model you mentioned at the end there is super exciting for anyone watching who's maybe thinking of trying to go on that journey of of exiting try to go on that journey over a couple of years of selling maybe get in touch with paul on the team and see if they can help you on that on that path um and come on that journey with you yeah but yeah appreciate it perfect thank you for coming on where can where can people find you if they want to reach out or connect or him or yeah so um i'm like yeah i'd say linkedin but i'm useless on linkedin responding i'm a younger on linkedin yeah she's rmd uh but uh yeah like we we've got a website you know we've got a little inbox there we get quite a bit coming through to us that's interesting so always always checking that out but yeah ecomplete.com and uh finding anna younger on uh on linkedin perfect we'll put the put the links below but yeah thank you everyone for watching thank you for your time paul yeah cheers mate it's been really good catch you on the next episode cheers cheers mate