Photo courtesy of Ben Leonard via LinkedIn
Ben Leonard founded Beast Gear in 2016. It was a strength and conditioning DTC (direct to consumer) brand that sold via Amazon and their own website. He exited in late 2019, to the tune of roughly $2.7M with 20% of the amount held in an earnout. Happy ending, right? Not quite.
The acquirer was a company called Thrasio, which had the idea to acquire a number of smaller e-commerce businesses, aggregate them together, and thereby create a portfolio of greater value than the businesses would be worth individually. The usual playbook of using economies of scale, creating efficiencies, cutting costs, etc. would be used.
Beast Gear was the first European brand acquired by Thrasio, and the acquisition is a bit of its own story as Ben had listed the business on a site that focused on e-commerce businesses. But at the time, the site really only offered the most basic of valuations: pull reports from Amazon and Shopify into a Google sheet and then decide a valuation. When Ben checked the numbers later on with his accountant, he saw that the valuation was off significantly. He went back to the website and explained the error they had made and said that we are listing this at the proper price and we are reducing your commission by this amount for this error and the listing website agreed. This is a good reminder not just to make sure your valuation is correct, but to make sure you have the right advisors beside you.
Clueless
Because Ben loved the company and was working on an earnout, he could see how the company was doing, and it wasn’t doing well. Any of the things that had made the brand a success in the first place were either stopped or changed. One example of this was the excellent photography and branded content on the Amazon listings, which were just changed out for terrible substitutes. Another? They turned off the DTC website. And if you can believe this, they deleted the email list which drove 30% of the revenue.
In Ben’s words, they took a nimble speedboat, took off all the passengers, and put the cargo onto a cruise ship that couldn’t maneuver very easily and was run by a crew of people who didn’t know too much about speedboats.
The Year One target for the earnout was hit because of a combination of Covid (people were staying in and working out) and because a lot of what had built the business was still working. By Year Two it seemed obvious that the target would be missed and Ben recorded a long Loom video documenting his discontent, and because Ben was a brand ambassador of sorts, the company paid his Year Two earnout anyway, probably to try to keep him onside.
End of the Line
Things continued to get bad not just for Beast Gear but for the many brands that were acquired by Thrasio and Ben started to push, via posts on LinkedIn, to get his brand back. They didn’t want to sell only one brand back, but a group of twenty or so. As it turned out an aggregator in the space (who actually did know e-commerce), was open to acquiring a group of brands, including Beast Gear, and Ben came along on the journey and currently owns 50% of the re-acquired brand.
Lessons
Ben is now in the midst of rebooting the brand. He has reacquired the name and is relaunching the business and is documenting it along the way. If he had to do it all over again, here’s what he would have done differently:
- Negotiated harder at the outset. He was new in business, didn’t have an advisor at his side, and effectively took the first offer that came, after he had done his own work to get a better valuation than the listing website originally offered.
- Entered the US market before selling. Beast Gear was launched in the UK and it would have taken very little effort for a lot of reward to launch in the US and then the company would have been worth even more.
- Put more safeguards in place. While he did get paid most of the money upfront, part of his earnout was tied to launching new products, but there was no obligation for Thrasio to launch those new products…it was a point that Ben had missed in the contract.