Archive for category: Case Studies

In 2013 Kate Field was living in Washington, D.C. working for a nonprofit when she discovered kombucha. Five years later she was pitching a home kit kombucha company on Shark Tank and two years after that she sold the company she bootstrapped, The Kombucha Shop, for just under $2M. Her sale of the business during the pandemic and her refusal to take on Shark Tank money are only two of the interesting twists in this fascinating story.

The Home Brew Niche

When Kate discovered kombucha it had not gotten popular or scaled yet so bottles were often $4 a pop. Friends tipped her off to brewing her own at home, which only involves the cost of tea, sugar, water, and the bacteria starter, called a scobie (think of the “starter” in a sourdough loaf), and often you can get a scobie free from a friend. Once she had gotten set up she offered to help out a friend who had asked about it, but the friend had already “bought a kit online.” 

Intrigued, Kate searched online and found some hippy-marketed kits, but nothing with the clean and trendy branding that her own millennial segment would be drawn to. There was an opening!

With $800 she bought glass jars, sugar, tea, PH strips, and a logo courtesy of a student designer and made 20 kits. She launched a Squarespace website just before Christmas and sold out those 20 kits just on word-of-mouth marketing. She took the profits and washed, rinsed, repeated. Before too long she had a business on her hands.

Shark Tank Calls

That regular word-of-mouth marketing is what Kate and her team stuck with and the company started to see hockey-stick growth, with $800k in sales in 2016, and $1.2M in 2017. Shark Tank came calling in 2018 and after three months of preparation and a lot of nervousness, she pitched.

Inc. ranked it as the second-best pitch of that season, and she consistently got praise from Mark Cuban during the pitch, but ended up doing a full-valuation deal with Sara Blakely and Barbara Corcoran. That deal valued the company at $3.5M, almost triple her trailing 12 months revenue at that time, but all the advice she had going in was to go high as the Sharks would inevitably try to take bites out of whatever number she came up with.

As it turns out, the deal didn’t end up being a fit (over 50% of the deals that “close” on the show never make it to the finish line) for various reasons, and all the parties were okay with not moving forward, but the entire diligence process only pushed Kate towards selling, as she was starting to feel that solopreneur burnout.

One Week From Closing

Getting on Shark Tank will get you a fair amount of interest when you take your business to market, and Kate met with 5-6 buyers before settling on a buyer who had grown some businesses in the past, wanted to give Kate a board seat, and give her an earnout over seven years that could lead to $2.7M in total earnings, but he only wanted to give her $1.5M upfront. She got along well with the buyer and despite some reservations about the earnout timeline, she decided to move forward.

One week before closing, on March 13th, 2020, she got a call from the buyer. He told her that there was going to be a global pandemic that would shut down supply chains for years and that he just couldn’t go through with the deal. Though she understood conditions were unprecedented, Kate was distraught and her husband suggested that they take a bike ride out to clear her mind.

But instead of clearing her mind, Kate got into a serious bike accident. Yet this only made her even more eager to sell: life is short, your health can be tenuous. 

Her broker got on the phone to people who were hoping the deal wouldn’t happen so they would have a chance and as she was going into surgery she gave a verbal okay for an LOI with one of those buyers. He had his own reservations about the international state of affairs (it was March 2020, keep in mind!) and so he shaved some of the value off Kate’s desired price of $2M to mitigate his risk: they ended up agreeing at $1.85M.

Lessons

There are so many wonderful lessons from this first-time entrepreneur pulling off a 7-figure exit in the middle of a global pandemic, but we’ll focus on three:

1. Build a better mousetrap. Kate didn’t hit on a world-changing idea. It was simple, and in fact, there were already players in the space. They just weren’t marketing to people like Kate, and she jumped on that opportunity.
2. So what if you “don’t know.” Kate didn’t know how to build a business, she just went for it. She did a test run, sold out, then just iterated from there. So many businesses would never have been built if the owner had let “I don’t know how to do that” stop them.
3. Turn down money sometimes. While it’s definitely easy to get star-struck by the idea of working with Sharks, there’s no point in taking money if you don’t need the money. Venture money always comes with strings, and sometimes those strings pull you right out of your own company.

We helped shepherd many transactions during the pandemic and have continued to do so as the panic from that time period has subsided. We’d love to work with you. Give us a call.

Anna Maste didn’t originally set out to build a business.  Her mom had already created some travel guides for the RV community that were selling well when a discussion between the two of them led to Anna pitching the idea of using that customer base to build a website.  Anna then spent a lot of her maternity leave (with free babysitting from mom) using her computer engineering background to create a basic website that allowed people who wanted to allow RVs to spend the night free on their property to advertise (and allowed those looking for free stays to connect with hosts).  Boondockers Welcome was born.  At first more of a monetized hobby than a business, the website took 7 years to grow to $100k in Annual Recurring Revenue (ARR) but thanks to an offer that made her reconsider everything, two years later Anna and her mom built the business up to $500k in ARR, leading to a healthy mid-seven figure exit.

What Changed?

Anna and her mom had been happy as 50/50 partners (despite the challenges that can exist in family businesses).  But at some point Anna’s mom wanted to enjoy her retirement a bit more, not just in less time spent on the business, but in a possible liquidity event that would allow her to splurge a bit more on some trips.

Anna used a broker to take the business to market informally and found an offer with a respectable 3.9X multiple on her ARR.  But at a conference where she shared the idea of an exit with some people, she found support and encouragement to build a bit more and get a bigger exit.  The big changes she made when she came back from the conference included:

• Hiring a replacement for her mom, dealing with one of the issues that her mom had a challenge with
• Taking a salary for herself, potentially improving valuation
• Overcoming imposter syndrome, in which she told herself that she was an employee-type and “didn’t know how to manage people”
• Raising prices, while grandfathering in all current customers, as long as they kept renewing
• Hiring a customer service person from the membership (she got over 200 applicants for that role!)
• Adding a weekly newsletter that highlighted new hosts 

The loyal following they already had kept spreading the word and unsurprisingly, the business grew.

The Exit

The pandemic crippled many businesses, but not those catering to RVs.  Many people started to realize there were alternative ways to live, and not having a permanent residence was one of them.  While Anna maintains that the “lifespan” of an active RVer is roughly two years (after which they feel like they’ve “seen everything” and are ready to be off the road), there was a massive influx of people willing to try it, and the host community of former RVers only grew exponentially from these new inputs.

Anna looked at the remarkable growth over the two year period, powered by a pandemic but also by smart changes she and her mother made.  Two concerns plagued her:

1. What if this is peak RV?  The last thing Anna wanted to be was the last person in the casino, not knowing to cash out when the getting was good.
2. This is my Mom’s nest egg.  Her mom had now pledged nine years of her time and treasure into this business and was getting on in years.  It would be a good time to reward her investment.

The buyer who ended up acquiring Anna’s business was Harvest Hosts, which partnered with wineries to bring in extra income and awareness among the TRV community.  Anna was promised that her brand would stay separate but would be part of a community of brands that Harvest Hosts used to promote RV hospitality and partnerships.  She got her exit, only having to stay on as a consultant for six months.

Takeaways

Three lessons to take away from this story:

• Your side hustle can become a real business.  Often the missing ingredients are what Anna experienced: limiting beliefs, intentionality, and paying real salaries. 
• Manage family with care.  While she had a decent offer originally, and even considered buying out her mom, she realized that it wouldn’t go down too well if she had a massive exit a few years after paying her mom a fraction of that price.  Manage family relationships in business with care.
• Know when to get out.  While RVs and #vanlife are still very much a thing, Anna didn’t try to keep riding a rising tide: she put in the work and got out with a major upgrade from a previous offer only a couple years before.

Are you looking at getting out of your business in a two year window?  Follow Anna’s lead and start planning now.  We can help.

Things were looking bright for Calvin Johnson and his single-source office supply business Lykki in early 2020.  While he provided traditional office supplies, the fastest growing part of his business was in office coffee: he had even started roasting his own beans to keep up with demand (and maximize profits).  At the end of 2019 he signed a contract with 50 banks, which meant buying a bunch of equipment to put into those banks.  Then March 2020 happened.  This is the story of how Calvin salvaged his 23 years of hard work and pulled off a sale in one of the most challenging times for businesses like his.

Why Choose Lykki

Small businesses often don’t realize that buying office supplies from one vendor, kitchen supplies from another, and coffee from yet another one isn’t just a poor use of time, isn’t just more labor for the accounting department, it’s often more expensive.  Lykki was able to save its customers time and money and make accounting’s job simple.  

This was something they also believed as a company, as “creating happier workplaces” was a part of their mission.  While they had started in the office supply business first, they naturally grew into helping their customers with everything else they might need, from water, to coffee, to food.

A Tale of Two Businesses

Even though Lykki made ordering simple and seamless for their customers, the two divisions of the company couldn’t have been more different.

The office supplies business represented 20-30% of their topline revenue, yielded a steady margin in the high 20s, and offered 30,000 SKUs using just-in-time logistics, meaning, no inventory.

The rapidly growing food and kitchen supplies business represented 70-80% of their topline revenue.  This required a warehouse for food that needed to be tracked towards expiry and, as we mentioned already, even featured their own coffee roasting, allowing them to take advantage of integration and make even greater margins.  On this side of the business blended margins were in the 40s.

What Changed

Calvin had his 50th birthday and reflected on where he was in his life and felt that it was time for a new chapter in his life, but having consulted with friends and mentors, the $7-8M in topline that Lykki was doing wasn’t going to attract the big national players that could give him a valuation he wanted.  He would need to drive it to $10-20M to do that.

While he obviously pushed his team to grab some of that necessary growth via sales, he also tried the acquisition route and found that people weren’t interested in selling.  Turns out that a lot of small office coffee business suppliers were running nice little lifestyle businesses and weren’t interested in giving those up, thank you very much.  So, at least for the moment, acquiring his way to that revenue wasn’t going to happen either.

Prepare For a Sale

So, while he let his team push growth and accepted that the market wasn’t ripe for a roll-up, he got to work doing what he needed to for a future sale:

• He found an M&A team to help him with preparing for the sale, and he placed particular value on his M&A accountant and lawyer, both of whom had experience with deals of this size
• He built out his data room for future due diligence
• He explored the benefits of a share sale vs an asset sale

Pandemic Pain

As many other business owners did in March 2020, Calvin felt like he was in a bad dream.  Customers told him that they were closing offices and might revisit that decision “in January.”  Sales dropped by 85%.  As for that coffee deal he had just signed with the bank, the business model for office coffee always implied free usage of the equipment, assuming a certain minimum order.  But with no in-office workers, many businesses simply told him he could “pick up his machines.”  He did.

While the Canadian government helped Calvin and his employees survive most of 2020, via 70% subsidies of his rent and 75% subsidies of his employees’ pay, when January 2021 rolled around those programs started to expire and many customers were not coming back.  He realized his options included bankruptcy or selling.  He looked at bankruptcy and saw that it could be expensive and complicated too, so he just decided to throw himself into a sale, realizing that it would be smart to split the company in two.

Through his network he found out that a certain company had a war chest and was making acquisitions in his space and he gave them a call.  The potential buyer was willing to hear him out.  Calvin reasoned that at some point the numbers would come back (he was roughly at 50% of his former level of business) so rather than look at the growth curve pre-pandemic, he simply looked at the historical numbers from 2018 and 2019, reasoning that at some point at least those levels would return.  The buyer agreed and accepted the price Calvin offered with no counter.

The office supplies business was harder to move, but Calvin did manage to land a deal that was 50% upfront and a 50% earnout (an earnout he is currently in the middle of).  In both sales the buyers wanted an asset sale instead of a share sale, which left Calvin to figure out different tax-advantaged ways to get the money out of the company.  But that’s the sort of problem he was happy to have.

Takeaways

You can’t help but admire Calvin, who managed to pull off not just one, but two sales, when he could just have easily had none and faced bankruptcy.  Three key lessons:

• Follow your customers’ lead — the office coffee market exploded during Calvin’s time and he leaned into that trend, growing his company’s revenue and market share.
• (Have your broker) pick up the phone — while the narrative of “the business will come back” was a bet on Calvin’s part, it was a bet the buyer was willing to take as well; if you stand behind a narrative a buyer may have confidence in it as well.
• Don’t lose heart at the finish line — we always say that buying and selling a business is a process, and you need to trust that process.  Calvin didn’t give up when confronted with devastating numbers, and his perseverance paid off.

Are you considering buying or selling a distressed business?  We can help!  Give us a call.

It was 2017 when Josh got a call from a fellow Milwaukee business owner about CBD.  Josh was already in the supplements space so he already understood how to build and market products to customers online.  He just needed to take a crash course in CBD.  Six weeks later he launched Fab CBD and three years later he sold his business for 10 figures in cash and stock.  Here’s a brief look at his story.

Affiliates

Have you ever done a search for “best mattress” or “best grill” and come across what looks to be a blog or a personal website?  Chances are those sites are being paid a commission for any sales (or even traffic) they send to the companies whose products they are creating content about.  Some of these affiliates work on a one-time basis, or “Cost per acquisition” and they normally demand 50-100% of the first order as a commission.  They receive nothing afterwards.  Josh and his Fab CBD team preferred for everyone to have some long-term skin in the game and hence would give 20-25% of the first order, but then 15-20% lifetime on the backend.  That meant that even after customers had entered the company funnel and were now responding to the marketing and tactics paid for by Josh and his team, the original affiliate was still being rewarded.  

On the strength of his affiliate marketing and organic SEO alone, Fab CBD kept doubling in revenue.  It ended 2018 on 2.5M, 2019 on 5.5M, and 2020 on 11.5M.  

Wait, What’s CBD?

If you are unfamiliar with the product, it comes from cannabidiol, which is one of 113 cannabinoids in cannabis plants.  It was discovered in 1940, but has most recently been used to help treat anxiety, depression, PTSD, and insomnia.  It’s non-psychoactive, meaning you get the benefit of the plant, without a high (or the munchies).

The oil itself has to be mixed with flavoring, hemp extract, and MCT oil, which acts as a carrier for the compound.  In 2017 when Josh started the business a kilo of the oil cost $16k.  That same oil now costs $2k.  But because of strong demand, most of the big players in the industry have not dropped their prices, which means there’s been a world of margin that opened up from when the company first started buying the oil.

“I’m Not Romantic About CBD”

From the start Josh wasn’t romantic about CBD.  He didn’t go to sleep or wake up thinking about the product.  It was just something helpful that he was delivering to consumers while also building a big business.  That meant that when he was at a certain level, he knew he would be objective about selling the company.

In 2020 he knew he had hit the numbers he wanted and with a goal of getting 6-8X EBITDA he went to various companies in the industry looking for a deal.  Given that some of the bigger players were doing $5M EBITDA on $30M in revenue and Josh had the same EBITDA on $11.5M in revenue, he was an attractive target, and unsurprisingly he had seven LOIs on a deadline day he had set.

Cash and Stock

Josh ended up taking $13M in cash and another $8M in stock which he is currently holding (his acquirer is listed on NASDAQ) and is optimistic it might double.  But in a sense he doesn’t care, because he sees it as a bet that he’s involved with: he’s still working with the acquirer and is helping to make sure that stock price grows, underwritten by a strong ecommerce pedigree.

When he reflected on why he waited for a certain number before cashing out, Josh was clear that he wasn’t interested in something like $5M or $6M when he was already pulling down $1M/$2M a year.  He wanted a very large payout.  And it turns out he got what he wanted.

Lessons

If Josh could have changed one thing, he said he would have gone to his broker with at least some idea of the structure of the deal he wanted.  He’s said he’s heard of sellers who go to their brokers with vague ideas for a sale outcome, and then complain when they end up with a yellow Camry instead of the black Mercedes they envisioned.  “Get your deal on paper, talk to lawyers, then bring it to your broker, then you’re all on the same page about the outcome you want.”

Other lessons Josh shared:

• Affiliates can get you instant credibility and instant customers.  Depending on how you structure your commissions with them, they can take your growth to the moon (or not).
• Be clear on your why for selling.  Josh wasn’t just looking for a quick buck.  This was not his first rodeo and given his trajectory and the margins he had built, he wanted to get paid for where the company was going (to the moon!) and was happy to move on to the next thing.
• Avoid being romantic about your business.  Some sellers sleep/breathe/eat their businesses.  That’s great!  That’s often part of the success.  But realize too that can make you totally emotional when it comes to a transaction and that’s a liability.  Consider the value of emotional distance from your business.
• When taking stock as part of the transaction, look to see how easy/safe it is to liquidate.  That has to be part of your calculus when considering how much you are willing to take.  

Do you want an unromantic look at your business to see if it’s in shape to sell?  We’ve got you covered.  Give us a call.

Andy Cabasso was a law student looking for jobs with law firms and thought that most of the legal websites he found were absolutely terrible.  He reached out to a friend with a web design background and JurisPage was formed, building websites and helping with marketing and SEO.  He ended up finishing his degree and became a licensed lawyer, but not long after that he sold JurisPage for a seven figure sum.

Focus

Early on Andy and his partner decided they were not interested in one-off work.  They would only create a website for a company if they committed to doing some kind of recurring work with them, whether that was SEO optimization, paid search, or other marketing.

They also wanted to focus exclusively on the legal field.  

These two decisions shaped the entire growth trajectory of the company.  They turned down lucrative work early on, when it was the hardest to do so, because it was either from non-legal clients or from people who “only wanted a website.”  This also meant that they were able to put an assembly line system in place in which various members of a team could simply guide clients through a repeatable process every time.

As he built SOPs that documented every step of the process he found it was really important to check with his team on a weekly basis to go over checklists in the process.  Instead of just handing an SOP to his team and expecting them to just refer to that all the time, he took the time to make sure that the SOP was working and updated it as needed.

Abundance Mindset

Andy noticed that some other firms worked off a fear mindset: they “owned” the websites that they created for companies so that if the business ever wanted to leave they had to pay a large fee to “buy” their website from the website designers.

Instead, Andy chose to lead with results.  He made sure the contract stipulated that the client owned the website and if they ever left they could take it with them.  His thinking was as long as JurisPage was delivering results, why would a client want to leave?

Acquisition

Andy did start to get acquisition calls a couple years into the business.  He would ask the caller what the investment criteria they had was and would often tell them to check back in six months or more.  Truth be told, he wasn’t really looking to sell.

That was also the case when a conversation started with Uptime Legal, which was a referral partner of theirs.  Uptime offered managed services for legal services and was very much a complementary business.  At a conference Uptime threw out the idea of an acquisition and Andy’s response was, “Do you have a compelling offer?”

Uptime came back with the synergies and cross-selling the combined company could offer as well as the fact that they were older and more established and could grow the company faster.

Andy refused their first offer and instead of countering, he simply offered some other possibilities for how they could work together.  He was able to do this because he wasn’t looking to sell in the first place, so unless he was really happy with the offer, he wasn’t interested in selling.

The Lawyer Hires a Lawyer

Despite being licensed as a lawyer, Andy begged off from working on his own deal.  Not only was he not an M&A specialist, he knew that he was too emotionally close to the deal and couldn’t be counted on to be objective.  

He ended up with a sale he was happy with and stayed on with the new company for some time to help them hit some targets they had agreed to.  His payouts came first at closing and then after he had completed the agreed-to term at the new company.

Takeaways

Andy managed to do well in the legal field, though not in the way he had originally planned when he was in law school.  Lessons to take from his story:

• Recurring revenue matters.  Not only is it cash flow you can count on every month, it’s revenue that buyers really like to see.
• Focus on a niche.  Despite living off their savings in their early days, JurisPage didn’t jump at every customer opportunity.  They built a niche based on their expertise and owned it.
• Be clear on what you want.  Andy didn’t counter the first offer because he wasn’t the one who initiated the sales process.  That was smart negotiating on his part.  That led to the buyer taking him more seriously and competing against themselves for the second offer.
• Don’t DIY a business sale.  Despite being a lawyer running a business catering to lawyers, Andy was smart enough to hire a professional when it was time for a sale.  
• Think abundantly.  Rather than keep customers’ websites hostage and build a customer base he was afraid of losing, Andy focused on delivering best-in-class service and let the customer decide for themselves.

Do you need some names of lawyers to help you with a sale or purchase of a business?  We’ve got some great names to share with you.  Give us a call.