The pros and cons of taking on private equity

0:09Hello and welcome to the Modern Retail Podcast, our show that covers the ways the retail industry is changing and modernizing. I am senior reporter Gabi Barkho. For many founder-led brands, the transition from a scrappy bootstrap startup to a major retail player is the ultimate test of sustainable growth. For some, that means taking on more debt or venture capital, while others bring on private equity investors to shoulder the costs. Today, I'm joined by Andrea Faulkner-Williams, the co-founder and president of baby care brand Tabi Todd, to discuss her strategic decisions behind that evolution.

0:48After years of building the brand through direct-to-consumer, community-driven approach, In 2022, Tuffy Dodd sold a majority stake to private equity firm NextFace Capital. Since then, the co-founders have remained in leadership roles and continue to grow the brand in retail, most recently with a Target launch earlier this year. And so today we're pulling back the curtain on why the founders chose this specific path and how that capital has fundamentally altered the way that they operate strategically. With that, Andrea, welcome to the show. Hi, thank you so much for having me, Gabby. Yeah, I'm really excited to talk today because I feel like you have a very strong take on how private equity can fit into a startup's journey, whether it's from day one or whether it's a strategic acquisition later on.

1:46And so before we get into all of that, why don't you just give us a little bit of background on Tubby Todd, because you actually were founded all the way back in 2014, which in startup years is like a million years ago. And then, you know, it wasn't until 2022 that you really took on like major outside investment with the, with next phases entry. Yeah. So I was raised by entrepreneurs and my husband and I had the goal of always owning our own business together. It was something that was just always on our radar, always looking at different products and categories that we could go into. We had a small marketing company where we were running while my husband had a day job of working for formulators, manufacturers.

2:27And during that time, we had a first child back in 2010. We were like, oh, it'd be really cool. Around 2012, excuse me, it'd be really cool to be able to create a product for our little one. So we started working with formulators that we reached out to. And eventually our second child was born during that time who had really terrible eczema. And then our goal to create awesome products with clean ingredients, clean beauty existed for adults, but didn't really exist for children at the time. We wanted efficacious products that also had great ingredient decks that we felt comfortable using in our home and they were actually fun to use.

3:08So we had the second child who had eczema and then we also wanted to have this sensitive skin issue dealt with as well. So we had a few things we were trying to do in creating our first product, our hair and body wash. And by the time we were done developing this product, we ordered 750 bottles to our home, our garage. And we had a few friends that had Shopify sites that were selling products specifically in the baby industry. And we were like, we're not ready to place a huge check and try to get into retail because we had seen so many indie brands move on and off those bottom shelves at retail during the few years of formulation we were doing and development.

3:43we were like, what if we sent it to people we knew influencers weren't really a term, but mommy bloggers were like people who had a following on their mommy blogs and Instagram was just getting going. And we could see if they would start to talk about it. Um, we didn't know because people didn't really send beauty products at that time to influencers or mommy bloggers. And what we found is everyone we sent it to, none of them we could offer to pay because we don't have any money. Um, they were so excited about it and they wanted to share it with their community. And from there, the Tubby Todd mom community, our Tubby Todd families were born.

4:14And this really became a community-driven brand. Everything coming from word of mouth marketing. It was three years before we took on an official board. My husband was able to quit his day job, come work full-time in the business. We set up an office and my dad actually purchased 25 % of the business at that time. And he historically in his career had sold two businesses to private equity. So that really built a structure within Tubby Todd where we were building a brand that maybe if we wanted to, one day we could sell because we were working with people who had previously sold businesses. So they knew operationally what that needed to look like.

4:56Yeah, which is to me a pretty different approach than the sort of what's become the standard, like venture backed startup direct to consumer model. And, you know, for the most part, private equity does get a bad rep because they have historically, you know, they're kind of known for coming in and breaking brands apart, selling them off for parts, et cetera, et cetera. And so for you to kind of come in with that foundation and knowing that this is the exit strategy you want eventually, I would imagine that mindset put you on a different path, right? I mean, did that sort of just alter the way you even built the company from day one?

5:39Yeah. Private equity groups, typically if they're acquiring a founder-run private equity group or a founder-run business, they're going to look for something with a healthy EBITDA, right? Not always, but the type of deal we were looking for, we knew we needed to have a healthy EBITDA, which really, I mean, that changed our entire marketing strategy because we weren't dumping money in paid ads. We were really using this community model that we had found in the first few months of sending the product to people, we doubled down on that and found that that like growth hacking was the most cost-effective way and honestly helped us disrupt an industry of just strategic players who had dominated it for, I don't know, a century.

6:21I mean, a long time, right? And so to have us come in without huge VC-backed brands and to not be, you know, getting huge shelf space on Target or Walmart or at CVS, but really just mom to mom on the internet, people sharing what was changing their child's skin and their experience postpartum with Tabby Todd was, it was a completely different way of doing things. And it all stemmed from us wanting to be profitable, right? So that we could eventually be marketable to sell. And we didn't sit down and say from the day one, we're going to sell this business. The first goal was to, just to be able to feed our family, right?

6:59The first goal was for my husband to be able to quit his job. And then the next goal was to be able to make sure that we were like secure as a family and we could get health insurance and those types of things. And then as our team grew, the next goal was, well, what can we do to offer opportunities to our team? What type of benefits? And then as we started to really grow, we thought the best opportunities for our team will come if there is an acquisition, right? Because it will give them more career opportunities. It will give us an exit. so our family is secure financially. And it will also be secure for our Tubby Todd families because we are now running a business.

7:33We sell a Tubby Todd product every 12 seconds. That's a lot of product, right? That's a lot of families that we're touching, millions of families every year and having more quality control on the backend, making sure that we're doing things correctly so that our customers can continue to get the quality of product that they deserve. Even with that, from 2014 to even 2022, to continue to just operate direct to consumer at a profitable rate is really interesting. I mean, I know you mentioned community-driven approach, but I mean, how are you able to navigate a lot of those challenges? And the fact that even after Next Phase's involvement, you still waited to launch in Target or in retail in general.

8:19Yeah, can you give us a little bit of context of that and whether that fits into this bigger picture? Yeah. So it was 10 years before we sold anything on Amazon. And then it was almost 11, 12 years before we went onto Target shelves. That was only at the beginning of this year. So it really was, we waited a really long time. And again, that goes back to just like the profitability of the company being so important to us and never compromising on quality. When we originally developed our product, we said to our formulator, develop this product, not thinking about MSRP, what it's going to look like on the shelf, the price, but just what is the best product for a baby's skin?

8:57And that is how we've developed every single one of our products. We have a higher price point product, right? And it's about 30 % higher than your premium product you're seeing at Target. I will say that you use a lot less of each of those products. It lasts sometimes twice as long. And so in the end, parents end up actually saving money, especially if they have a child with sensitive skin and ends up saving on waste and reordering, et cetera. But all of this waiting for Amazon, waiting for retail had to do with two things. When you have a DTC brand, you can build a community and have so much fun.

9:35You get their emails, you get to do marketing campaigns, you're connecting on social. To me, that is what lights me up. And I love a DTC brand for that reason because you have a personal relationship with your customer in a way that retail doesn't allow you because you're not touching them at every single point of the purchasing experience, right? The next thing was just profitability and safety. And that is just, again, a huge concern to us. I take my team members' jobs and their livelihoods really seriously. And if we aren't profitable on the bottom line, maybe they're not going to get their bonuses.

10:12Maybe there's going to be cuts in our budget in one way or another. And we have been able to slow our growth. We've still grown 30 % every single year over the last five or six years. But the slowing of the growth has allowed us to do things really carefully and safely. There was a payoff for that because when we launched in Target this year, we immediately became the best-selling baby brand at Target. So we were given space on an end cap, being the first baby brand awarded an end cap in baby skincare. And also we were, within weeks, the best-selling brand there. So I think we waited a long time and we earned that.

10:53And we had our community show up for us. But it was all in the name of community building and safety. Yeah. I mean, do you want to tell us a little bit, I guess, about how that slow burn approach prepare you up until that 2022 acquisition? And then, you know, how, how did things transition since then? Yeah. So the first thing that was really exciting was being able to interview different investment bankers. And I would say to anyone who is bootstrapping a small business, who's trying to get to a place where they will have an acquisition to build to a place where you can engage an investment banker that will be really helpful to you.

11:34We loved our investment banking group, and I'll say their names intrepid, Lauren and Steve Davis, Lauren Antion and Steve Davis. They were lovely and really helped us as a team package. Think of it as like a real estate agent coming in. They're going to hate that I'm comparing them to that, but I love real estate agents as well. Coming in and staging your home, right? Like they're coming in and helping us package the business. To be fair, they had a lot to work with because we were somewhere around 25 to 30 % EBITDA at that time, right? So we had steady growth. What people are going to look for in a private equity team that's going to give you and empower you to continue to run your brand, if that's what you want to do, is that you can maintain a steady growth and also a really healthy bottom line.

12:17And we were doing both things. So when we had the acquisition in 2022, we were able to partner with NextBase. And they were really confident in our ability, not just Brian and I, my husband and I, who he's the CEO, I'm the president, but our entire team, because they had been successfully running the brand and they did not want to interrupt that. And I know that that is not speaking to every single private equity group, but I do think working with an investment banker will help you interview the people who are buying you. Because if you want to stay with the brand. It's not just them interviewing you.

12:57It's you interviewing them. And we really did that. We met with 11 different private equity groups. We were so, so lucky that that many people were interested in us and that it was a good time to sell the business. And they gave us really competitive offers. And they really not only encouraged Brian and I to stay, we never signed a contract to stay, but we wanted to because we were encouraged to in the incentive programs and also encouraged our executive team to stay, which encouraged their teams to stay, right? And they did not interrupt the flow of the business. Now, if you're an entrepreneur who starts your own business, it's probably because you don't like working for other people.

13:33So the main problem with private equity groups and entrepreneurs, I think the main crux of the issue is that people who start a business are people who don't like working for other people. And so of course, it is going to be a shock to work for someone else again, or to work with someone else. But if you can enter into a partnership and view it that way, it's a completely different story. And that's what it's felt like for us. Really, they're just our partners. We have weekly calls, monthly check-ins as a board, and then extended board meetings quarterly like typical boards do. Yeah. And then I imagine, you know, are there certain expectations that are set or the fact that you do have maybe some metrics that you are hitting to continue that sort of profitable path?

14:18as you're, let's say, ready to launch into mass market? Yeah, I think they were really impressed by our slow growth and they wanted that same type of slow measured continued growth. They weren't looking for a one to two year turnover and to push us into retail before we were ready. So from that perspective, we were a perfect partner because they were working with us as the way that we'd always done things. So the acquisition happened in 2022, but it wasn't until 2025 that we actually went onto Amazon. And when we initially went onto Amazon, to give you an idea, we didn't want our EBITDA to dip because of the Amazon margins.

15:02And so what we did is we only offered bundles and higher price points on Amazon. Now that we have the scale there, we're able to offer more individual products. And they were completely supportive of that because we have the same goals as far as top line and bottom line goes, right? And then they trust us as a team to execute those goals. So I think that's really what my best advice would be is find an investment banker who's gonna help you find the person who has the same goals as you for the business. I was talking to one entrepreneur and she said something once that was like, I couldn't see the business past$10 million, right?

15:38And I think, I don't think that that's bad to be able to say out loud that you can't see your business pass a certain amount of money. I actually think that's the smartest thing that you can do is see the threshold of where you can really see the growth of your business and then decide what partners you need to bring in at what time in order to be able to see the bigger picture. It doesn't mean you're not needed anymore, but it means you just need more brains in the room to be able to see the bigger picture of the brand. Right? Yeah, for sure. I want to maybe talk a little bit about the fun part.

16:09I don't know if that's the right word, but you know, I mean, well, I don't know. I mean, I'm sure there's perks, right? Like there's the safety net, of course, that you've talked about. But I imagine, you know, after years of grinding away, I think having, yeah, a partner like NextPhase probably brought in a lot of resources, obviously capital, all that to set you up for this NextPhase. So I don't know if you have any interesting examples for other founders. Oh, I will say this. I've never, and I've said this before on an interview and it has nothing to do with Next Phase, but I've never been more unhappy at work than in the first few months after we sold the business.

16:48And it had nothing to do with Next Phase because we love them. It had everything to do with we were working so hard to get to this end milestone and then I had not looked past that, right? And so those first few months after, I was bummed. I was kind of depressed and I I really felt like my baby had gone to college. That's like the weirdest way to describe it. Because Tubby Todd is my, I have four kids of my husband and I, this is our fifth, you know? And I felt like, I felt like I'd given it up. But then I realized I just wasn't thinking big enough. And I kind of pulled it together, stopped feeling bad for myself.

17:24Because I turned to my husband, I was like, you sold our baby and like kind of got mad at him the day the deal closed, which is, you know, you'd think you'd be celebrating that someone just gave you a lot of money. So that's the irony of that. I mean, what a gift to be able to have a security nut financially. Yeah, that's a huge gift. There's also, I think, great responsibility that comes with that that I'm not going to complain about. It's not like it's an endless amount of money, but it's more than we thought we'd ever have. And so we are being very thoughtful about that as a family. you know um and i i don't know that we're doing everything right but here's what we're focusing on now i will tell you gabby and this is what this is the fun part to me is thinking bigger and that's where next phase comes in is now that we have next phase we were able to get to amazon we were able to get to target and we possibly could have done that on our own um could we have done as successfully as we've done it no i don't think so at all i think that the accountability that they've given us on the weekly calls and holding us true to what we said we were gonna do is the best thing that a growth partner gives you is like it keeps you accountable at every step and they've done a fantastic job in doing that.

18:33So a lot of the decisions or ideas have still come from inside what we call the tub hub, but as far as accountability and like the consistency and just thinking of like all the risk and stuff that has been really taken care of by them. So in that way, we're great partners. But our goal originally was to be the best-selling baby brand in the United States and we hit that goal. And we've seen over 15 % of our reviews are used by adults. Like people are grabbing these products because they're just incredible products for themselves. And so now our goal is to be the best selling sensitive skincare solution for families in the United States, like for all ages.

19:07And that's fun to be able to expand your goal. And the team has expanded. And that's the most fun part, I guess. I want to talk a little bit about how R &D is impacted because you do have a lot more skews now. But I feel like another thing with private equity is you see it a lot in the beauty space, which is that, you know, consumers, whether it's, you know, accurate or not, you know, I usually concerned or feel that, you know, oh, is the formulation going to get cheaper? Is it going to get altered? Are these, you know, is it all going to change soon? And so I'm kind of curious, you know, what you were able to sort of stand your ground on and, you know, keep investing in that way because it is a very, no pun intended, like sensitive space, right?

19:54Like parents are very picky famously and they want to invest in a product that works and is continuously going to keep that quality control. I mean, well, first off, nothing is more vulnerable than putting yourself out there as the face of the brand and saying that you use the products on your own kids, right? So that has always, I've always never taken that lightly. And since the beginning, That has been the basis of Tubby Todd is that we had a problem in our own home with eczema and sensitive skin, and we created problems to solve that. So I have been very passionate, as has my husband and our entire team, about keeping the integrity of the products the same.

20:32The great thing about today is that I think it's way harder to dupe the customer than it has been ever. People have way more access to all types of information about products, which I think is incredible for the consumer. There has never been more active Reddit feeds and AI information coming in for people. And I mean, the only thing that's hard as a brand is a lot of misinformation is out there, right? So no, I mean, again, this just goes back to the partner that we've chosen. We were never encouraged or asked to reduce the quality of the product. We were only ever encouraged to maintain that and also add more quality controls as a brand, right?

21:12just because I, like I said earlier, we are now sending the product to more and more people. It's touching more and more people. What can we do to make sure the product is the highest quality and not just from the packaging to, um, the ingredients that are in there. So we've actually had more resources than ever to work with more quality assurance and quality control groups. Um, so that hasn't been a problem of ours. And I would just say to consumers out there, where you are empowered like to do your research and like what a great time to be a consumer like to know that you have the most information we've ever had in the history of products yeah and i mean with that it's um brands have to face more scrutiny right so and they should and we should be held accountable yeah especially 100 and like there's like the best thing in the world is working with a new family a new parent specifically a new mom because like she's up in the middle of the night doom scrolling while she's nursing on like what type of ingredients are going to harm her baby.

22:12And not only do we get to be there to create products that will give her assurance that she's doing the best for her baby, but also maybe encourage her and like have a fun Jacob Elordi meme at the same time, you know? So like we're trying to hit her on both levels, like the assurance, but also maybe something to take her mind off of it. Yeah. No, that makes sense. Well, with that, Andrea, I'm kind of wondering, you know, what this means for the future. Like, what is this next phase of the company's growth? Where do you see it going with, you know, next phase as partnership? Yeah. Anything you can tell us about the future of Tubby Todd under this new structure?

22:52Yeah. we're really looking to not just live in the baby aisle because our, our original heart and soul of the brand is creating products for children. And that will always be the thing that built Tubby Todd. But we know that so many of our full families are using this product. So to be able to grab your favorite dream cream or all over ointment, um, and other aisles of your favorite retailers is what we're looking towards. And we're also looking towards a possibility of another partnership. So moving on from next phase, which is the goal with these middle market private equity groups. And I think that's great.

23:27They're trying to prepare you somewhere between the bootstrapping to the growth to eventually a possible larger private equity or strategic acquisition, which is what our goal has always been. So that looks like a publicly traded company that will be able to come in and like I said, just add even more quality controls, more opportunities for our team, more opportunities for placement and retail across the world. We're typically just a United States brand. We would love to live in every country that is ready for Tubby Todd and more opportunities to give back. Honestly, we've always given back 1 % of our top line of what we made.

24:07Next Phase has been very supportive about that. It's called our Tubby Cares program. And the more product we sell, the more we get to give back to families in need. And that is so exciting to me. So that's what we're looking forward to. Great. Yeah, a lot more to come, it sounds like. And then, you know, anything you want to go out on, you know, misconceptions or advice, whether for founders or executives on, you know, around private equities involvement? Yeah, I would say the first thing is, even prior to our partnership with Next Phase, when my dad sat on the board, we had weekly board check-ins for an hour where we checked in on the priorities of what we said we were doing as an executive team.

24:51I think, again, entrepreneurs, I can say this because I'm the most squirrely of all of us, are easily distracted and don't like to be told what to do. But without that accountability, it is going to be impossible to move your brand or service forward in the way that you want it to be. So don't fight against people who are trying to help you be accountable to each other. And those are just weekly check-ins for an hour. You can do that for an hour of your week and it just keeps everyone focused and moving in the right direction because it can be so easy. Distraction is the biggest obstacle for all small business.

25:25That's the first thing I'll say. And the second thing I'll say is just empowering people to think more creatively of their marketing spend. I was recently talking to a group of entrepreneurs at my alma mater at BYU and I was like, no, you guys are too young and attractive to be doing paid ads. Like you should all have huge Instagram following. Like, no, get on TikTok, whatever your services, reach people that way or your product. And I know the professor was teaching them to do paid ads and he should. And that's awesome. And I love meta. Oh, Google. Great. That's fine. But let's get creative. Let's build communities.

25:59Let's connect people. Like you can do things differently than how things are being done and that's how you're going to find your community. That's how you're going to find your market. And until you hop in and do that, it's a lot of work. It's more work. That's why other people aren't doing it. You can't AI that. You got to do it on your own. That's going to be an idea that comes up on your own. Until you do that, you're not going to break the mold in any industry. You're not going to be disrupting anything. So you can do that. All right. Well, thank you so much for joining us. This has been so fun.

26:37I know it's a topic you're very passionate about. So I really appreciate you joining us and just breaking it all down. Thank you for having me. And everyone can connect on Tubby Todd. We would love to have you follow us there or Andrea Falconer Williams on Instagram. We'd love to chat there.