It’s a good time to be in eCommerce. Just ask Jeremy Horowitz.
Jeremy is a long-time DTC and SaaS rockstar with a keen sense of what it takes to run a successful, profitable business.
He’s one of my favorite follows on LinkedIn and his newsletter - Let’s Buy a Business is a weekly must-read for me.
In this episode, we break down the difference between a business we would buy vs. one we wouldn’t and why.
We also talk about key financial benchmarks for eComm and unpack a few publicly traded companies that we would buy or not buy.
Here’s what we cover:
- Amazon and Shopify will soon combine for an estimated $ 1 trillion in annual GMV. Mind blown!
- The P&L benchmarks that make your business a must-buy vs. a must-pass.
- The incredible performance of Crocs (and what you can learn from them).
- Why (legal) stalking your customers is about the only “non-clone able” thing you can do.
- What it would take to save Solo.
- Why LVMH is unattainable but still teaches the rest of us mere mortals some valuable lessons.
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Chapters:
(00:00) Intro
(01:58) The State of eCommerce
(12:39) Constructing a Healthy P&L
(22:48) Would We Buy This Business?
(38:38) The Importance of Focusing on Core Customers
(43:29) LVMH: The Ultimate Luxury Company
(48:44) Outro
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Show Notes:
- Jeremy Horowitz: https://www.linkedin.com/in/jeremyhorowitz1/
- Let’s Buy A Biz!: https://www.letsbuyabiz.xyz/
- Sean Frank: https://www.linkedin.com/in/seandavidfrank/
- Ridge: https://ridge.com/
- Crocs: https://www.crocs.com/
- Solo Brands: https://solobrands.com/
- Preston Rutherford: https://www.linkedin.com/in/prestonr/
- LVMH: https://www.lvmh.com/
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Connect With Brett:
- LinkedIn: https://www.linkedin.com/in/thebrettcurry/
- YouTube: https://www.youtube.com/@omgcommerce
- Website: https://www.omgcommerce.com/
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Past guests on eCommerce Evolution include Ezra Firestone, Steve Chou, Drew Sanocki, Jacques Spitzer, Jeremy Horowitz, Ryan Moran, Sean Frank, Andrew Youderian, Ryan McKenzie, Joseph Wilkins, Cody Wittick, Miki Agrawal, Justin Brooke, Nish Samantray, Kurt Elster, John Parkes, Chris Mercer, Rabah Rahil, Bear Handlon, Trevor Crump, Frederick Vallaeys, Preston Rutherford, Anthony Mink, Bill D’Allessandro, Bryan Porter and more.
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Other episodes you might enjoy:
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Transcript:
Jeremy:
They truly are playing compounding game of just wait every year, make more sales, drive more growth. It is very possible that within the next decade to 15 years, they'll be a trillion dollar company.
Brett:
Well, hello and welcome to another edition of the e-Commerce Evolution podcast. I'm your host, Brett Curry, CEO of OMG Commerce, and today I've got a return guest. This dude is smart. He's blowing up on LinkedIn, everyone's talking about him and commenting on his posts and signing up for his newsletter. But I got Jeremy Horowitz back with me today. He's the founder of Let's buy a biz, check it out, let's buy a biz xyz. Love that top level domain, by the way. But today we're talking about businesses we would buy versus businesses we wouldn't, and I am so excited to dive into this, but Jeremy, welcome to the show, man. And how's it going?
Jeremy:
Thanks, Brett. It's great to be back. I always love jumping on the OMG podcast and catching up. Things are going really well, I think. I'm sure we'll dive into this in a little bit, but it's a great time to be in e-commerce. I know it's been a slog for a lot of brands the past couple of years. We rode the rollercoaster of Covid Up We Road, the Post Covid pullback down, and then now it feels like we're starting to level set back to somewhat saying as normal, but it feels like predictable and understandable growth again. So yeah, really excited to dive back into everything. I know that we usually talk about big predictions, the big bold bets, and I have some of those today, but also really excited to talk about for someone who wants to exit a business, what does that look like? Especially from the vantage point of someone who looks at acquiring a business all the time and then has an operational background of what would we go do if we were to go acquire and run that
Brett:
Business? Yeah, I love that so much. And so it's the first point. It's a great time to be in e-commerce. I 100% agree. We've had four years strung together of very abnormal economic and societal and health stuff going on. And so it does feel like we're reaching maybe a new normal that I think can be very healthy. I was talking about it with my buddy Sean Frank from the Ridge and there, and he said the same thing. He feels like this is going to be a year of more stability for e-comm, and it's just a bright time man. Things are growing. We're going to look at the global picture of e-comm. You've got some good data that we'll unpack. So that's super interesting. And man, I love this perspective of let's buy a biz because as we look at some of these things, at a bare minimum, this is going to help you build and operate a better business.
Even if you're like, I'm building this for the long haul. That's what Sean at the Ridge is doing. I'm building this for the long haul. It's going to be a cash cow. I'm just going to take massive distributions as I grow this thing to multiple millions in EBITDA every year, or I want to have an exit. And you and I, before we hit record, we're talking about our journey. We're actively looking to acquire other agencies. We're actively looking at m and a half for about two years. And it's a super fun space, but so many benefits even if you never buy or sell, lots of benefits to this discussion. And so let's first start with the data that backs up. It's a great time to be in e-commerce. I know you've got some interesting data looking at Amazon and Shopify from kind of a GMV perspective, but yeah, what is exciting to you about Amazon and Shopify and just the state of e-com?
Jeremy:
Yeah, so I think the first thing, and so for quick context where this all comes from is every week I go through a public company's p and l and there are 10 K. And then basically tear it down. What would I do if I ran this biz? What does the financials look like? How can we really get this to the next level? All your usual suspects, Lulu Lennon, LVMH, all those types of brands. And I also like to look at the biggest boys and girls in the space, you primarily Shopify and Amazon. And when you look at their 2023 earnings, they did 936 billion in estimated GMV between Amazon and Shopify alone. Same. So you're thinking about all the sales on Amazon, all the sales on Shopify, it's going to cross trillion dollars. Yeah, it's going to officially cross a trillion dollars in consumer spending in those two categories.
And then when you take a bigger step back and you think of the total, at least US market as is percentage of consumer spending, e-commerce in total is about 15%. So still 85 cents out of every dollar is still spent in physical retail. And these two companies are going to do a trillion dollars in total sales on their platforms across. It's very, very different between Amazon one P three P and then also Shopify and all the new areas that they spend and they play in. But Amazon's GMV is growing at 11% year over year. Shopify is growing at 19% year over year. When you just think about the just raw of dollars, how many Brinks trucks need to drive through to a bank for a trillion dollars in GB, which is going to be even more than that this year, it's a great, well, I would say it's a tail of two.
Brett:
How much money can a Brinks truck hold? I think that's something that's worth unpacking. Yeah,
Jeremy:
That's a good Google. I'm not sure I actually,
Brett:
Yeah, I'm going to Google that. How much cash? Yeah, so how many of those would it take? It looks like four to $6 million according to Google if I'm looking at the right thing. So that's a lot of Brinks trucks.
Jeremy:
Yeah, that's a fleet of brink trucks. And so what I would say is I would say it's a tale of two cities of e-commerce growing. It's growing really well and it's growing really fast. I would say maybe where I may take a nuance or a counterpoint to Sean's course, the point is I dunno if it's going to be stable. I actually think it's a really interesting tumultuous time where it's great for e-comm, the trend line is going up. But I think with the current economic conditions and everything that's happened with interest rates now kind of three big bold bets for this year is it's going to be a wider valley between the haves and the haves, not in the spaces. I think a lot of consumers are just kind of going back to their familiar brands. Going back to the places that you see, I dunno if you also look at the earnings of fast food chains over the past six to 12 months, I have not. The fast food is killing it really. Everybody tried to get healthy during Covid, everybody tried to eat better and now everybody wants those kind of indulgences and guilty pleasures,
Brett:
Comfort food, and it's a little more predictable cost to really eating healthy can be more expensive. And so inflation has been a real thing. Maybe save a little bit of money and I'm getting some comfort along the way with some Mickey D's or some Chick-fil-A or something.
Jeremy:
Yeah, exactly. Just not apparently they're going to change their prices more fast than Uber does upcoming, but I think that's a major part. I think the other big piece and coming as someone who wrote a couple of early stage checks over the past three years, VC funding is not coming back. Private equity is not really coming back in the same way and there's a whole complex macroeconomic reason for all of that,
Brett:
Not what they used to be and things like that. And that's not likely not going to return.
Jeremy:
Yeah, the amount of dollars flowing in through those sources and the valuations are just really, really different. And then also unfortunately, we're just seeing a lot of m as and bankruptcies from the people who dig out too far out over their skis over the past couple of years are now those loans are coming to maturity. They need to figure out how to pay back all of that debt. So I'd say for the brands that kept, and I know we're going to kind of dive into good biz, bad biz, but for the brands that really kept the clean, they didn't take on too much debt, they didn't overhire or take on too much inventory and really stayed in that good healthy place. This is a great opportunity where things can really just pop off. You just find that one good channel, that one right product and things really can because go very well because the dollars are coming in, the customers are spending the money.
I would say it's probably the greatest time to be a 20 to $200 million and up. It's probably really hard to be a new business. It'd probably be very unique to stand out now just because ad rates have gotten so competitive. But I will say, I mean I've been very long on this industry. I've spent basically a decade plus in this industry and mostly in the Shopify space. And I think it's only going to get better, but you really need to be a lot smarter. I think the aperture and the window has closed a little bit where it's not everybody can get through anymore. It's like you need to be a lot more precise in how to build a proper e-commerce and physical products business.
Brett:
And I think the stakes for winning are bigger. The overall pie is expanding. It's at UBS at 15% of total retail, but that's only going to increase. But I like the way you said that. Yeah, the valley between the haves and the have nots, it's widening and we'll likely continue. So yeah, I fully agree. I think there's mountains of opportunities this year both for e-commerce brands, for agencies, for those that support the E-com space, but some challenges too. So one thing that's been interesting, I've seen this trend and I'm curious what your perspective has been, but there was this grow at all costs during the height of covid and then there was a we're figuring out ship again and another supply chain issues. We're just figuring it out, all these other things. There is definitely a renewed interest in just profitability, e-commerce companies saying we need growth, we need marketing, we need to customer acquisition, but we just got to be profitable and there's definitely this ruthless quest to be profitable. I'll fire my mom to be profitable, whatever. That's the sense I'm getting from e-commerce brands and I think that's healthy. That's the way that the industry needs to go.
Jeremy:
And I think the interesting thing, because I know you and I have been from the pre 20 18, 20 19 super boom. That's what this game has always been about. It's always been about profitable growth. And I would say for sure we had a temporary people move the goalposts a little bit and we've kind of returned back to normal, but the goal has always been profitable growth. And I think looking through, I've looked through about 31 public company brands and that's every valuation we can talk about price to earnings ratio, PE ratios, we can talk about revenue multiples, everyone on Wall Street is just how much growth do you have and is that growth profitable? And the past couple of years, they would really, if you're not that profitable, okay, we'll give you a little leeway now. It is just no mercy. You either are profitable or you are not. And then are you growing and how fast are you growing? And everyone has also returns. You're hearing people talk about Warren Buffet a lot more recently than a couple of years ago instead of people on Twitter talking about Bitcoin as per financial advice and how much future cash is this business going to throw?
Brett:
I'm so glad we're moving away from Bitcoin to more buffet. We need more buffet, less Bitcoin talk.
Jeremy:
I feel like it's a 10 year cycle where everybody moves away from buffet, they forget the good fundamentals and they come back and boring as possible.
Brett:
All we need is this crypto. That's how we'll become.
Jeremy:
But yeah, and I think this is probably a good way to think about, and I think more e-comm operators need to think this way is your business is worth the amount of cash it throws off at the end of the day after all of your expenses. I think a really important piece there is you should think like an investor, you should do the analysis every quarter, every year. How much is that cash throwing off? How much is that worth? And then do your own analysis of what we call it discounted cashflow. But you can do it personally of like, Hey, I made a million dollars in net income this year. Should I put that back into the business? Should I take half a million dollars and go on a crazy vacation, buy a sports car, put a down payment on a home as the owner of the business that you are the biggest investor in it. And so thinking through that and thinking through how you want to operate your money, usually operating cash from your business is really important instead of just always grow, always grow, always grow. And then that's also what will determine the value of your business when you exit. Because the bigger that pile of money is, the more someone else is willing to give you their pile of money to take on the future cashflow from your
Brett:
Business. Love it. So we're going to unpack here in a minute. Businesses we buy versus business, we wouldn't, it's kind of like the hot or not I guess, of businesses. And so we make that analysis. But before we do that though, you've looked at so many companies and you've been in the VC space and private equity peeps, as do I, let's set some benchmarks for a healthy, profitable, growing e-comm business. What should we look at in general in terms of constructing a p and l? Now, obviously on a podcast, I'm going to go every single line item of p and l. That would be a little bit boring, but from a larger context, how do we construct a healthy p and l for e-comm?
Jeremy:
Yeah, so I'm going to keep it super high level and this is also actually how public companies have to report their p and l. So it's probably a good practice to start doing the fundamentals. Now obviously you don't go through gap accounting and pay E and y $500,000 to your books this year, but just really simply what you should be reviewing every month, if not even more frequently, definitely every quarter, every year, start with your revenue. How much total net sales did the business bring in? Then what are your cost of goods sold to get to gross profit? Hope everybody who's listening to this podcast, super familiar with that part, really comfortable. How much should we make? How much are we keeping after what we outweighed to buy the product? Then from there, you want to break out opex. Now I think this is the trickiest part, and I've seen after analyzing close to 300 pcom p and ls over the past couple of years where this just goes all over the place. So I'm going to give you Amazon structure because if it's good enough for Amazon, it's probably good enough for your
Brett:
Biz, good enough for Uncle Jeff, probably good enough for us.
Jeremy:
Right? So marketing and sales, that should be pretty straightforward. What are you spending to get people to buy your product then your GNA, so your rent, your team
Brett:
Administrative? Yeah,
Jeremy:
Just all of the backend stuff to keep the business going, your fulfillment and supply chain, and then if you have it, your r and d and why it's super important to break those four key components out. And what I see so much of the time is people will bundle in sg and a or they'll bundle in fulfillment into GNA as well is really all an e-com business is how much around money do I spend on marketing to get someone to buy something and how much does it cost me to make it and get it? And you really want to break those two things out because no offense to all the three pls and people who fulfill, but you are almost always losing money in that part of your business. And then really where the most cash is probably going to come out of your business is in marketing and sales.
And so there's a huge fluctuation, and I'm sure you probably know better than I do, but depending on where a brand is in their growth curve and how much they want to grow, that is really going to be the biggest lever and the biggest place where you push or pull back. Whereas you may not, may not love your three PL and they may be charging you 15% of your revenue to ship out a product, but you're not pulling that back tomorrow or you're not pulling that back next week. And so you really need to understand where are my softer and where are my harder expenses? Because at the end of the day, everything that I see is that is what makes or breaks the profitability of an e-commerce
Brett:
Company. I know every E-comm brand is going to be a little bit different. And we have a lot of visibility obviously, into the marketing and advertising spend with our clients as an agency. And often that's 25, 30% of revenue that's going right back into marketing and advertising. I know it varies for every e-comm brand. What are some benchmarks from your perspective, where should these percentages be with the caveat that it could be different a little bit from business to business, but what are the benchmarks?
Jeremy:
Yeah, so I think this is a really interesting, especially when I was, earlier in my career, there's always seemed to be words of wisdom that I always ask like, Hey, where did you get that math from? And it was just always, this is how it is. And now I've actually pulled enough data to know it kind of reverts back to this
Brett:
Consistent, it's how it's, yeah,
Jeremy:
Yeah. So I would say if you want to be a top tier brand that can really grow and scale and get to significant level 50, 200 billions of dollars in revenue, you want to target about a 50 to 60% gross margin. Now, I've seen some super successful brands that can dip down into the 30 40% and then some crazy high brands that are up in the 80, 70, 80%
Brett:
Sales. Yeah, 50 to 60% gross
Jeremy:
Margin. Yeah, so, so once you get to your gross margin, I think that's the most important determinant for your brand because that will determine your entire strategy. And what's really interesting also is it's kind just a function of math. If you only have 40% of your revenue after your cogs to spend, you're probably not going to spend as much on marketing as if you were spend percent gross percent on
Brett:
Marketing at that point, right? Then you
Jeremy:
Yeah, I mean you can
Brett:
Can't, but it's, yeah,
Jeremy:
Yeah, right. It's much tougher to spend 30% of your marketing at that level versus if you're an 80% gross margin brand, you can spend 30% and you still have 50% of your revenue to go spend on fulfillment operations, sg a. And so it really is interesting how it shifts and changes. I would say there's usually what I would call the pop dip and then rise on sg a. So right, your team, really, really high growth top tier brands can usually get to about 10 million on five people. I haven't really seen it on fewer. There are some brands who can do it on two or three, but that's truly special unicorn edge case. I'd say usually around 10 million in gmv, you're probably at maybe five people with a bunch of agencies and other freelance resources. And so your sg a can be super, super low. A lot of super high growth brands that I see their sg a is around, especially up into that 10 20 million in GMB, usually about 5% of their revenue now that will then grow over time.
So as you get to 20, 50, a hundred million, you will have to hire a lot more people. And then when you go to a public scale, it's usually somewhere around 50 to 20% unless you're Warby Parker and Allbirds and then you're at 40 or 50% and you're not making any net income. So that's a super important component. I would say fulfillment is usually around 10 to 15% of revenue. And this is the one area that I think is super important to break out from your sg and a of how can you whittle that down because every percentage point there could be going to marketing, could be going to bottom line, could be going to all these other areas. And I dunno, from what I've seen economies of scale is nobody's really figured out economies of scale and fulfillment for e-commerce yet. And so I think that's another major component.
And then we're always nets down to, and what's to me the most interesting is a lot of the retail OGs and people who are really successful building malls, physical brick and mortar retail presences always said your net income is going to net out at 10 to 15% of your revenue. And it holds true. The DTC darlings, the retail heavy brands, the hybrids, I mean it all will fluctuate, but you kind of always net out at 10 to 15% of every dollar you make in top line nets out as net income. And it's a really interesting trend and also makes it it's, that's probably the best benchmark. Everything in the middle, your gross margins, your opex is going to fluctuate based on your business and your dynamics, but you kind of always want to net out at that 10 to 15% in net income if you want to be high, if you want to take out more cash out of the business, raise it. If you're comfortable with growth, you can lower it. But it really seems to be that words of wisdom that really does always net out from
Brett:
The data. Got it. And yeah, maybe if you are in the agency world, we're generally seeing the high teens to say 24%, that window is what a lot of agencies shoot for and PE groups that we know they specialize in agencies, that's kind of what they look for. But it's still not far off from what you just said, but the idea there is if you take a higher percentage of profits than your are likely pulling away from something that's going to impact future growth. So you're pulling away from marketing or sales or RD or something to get to that higher margin. Are you seeing many of the e-com rockstar businesses that are hitting 20% net income or that's pretty rare?
Jeremy:
That's very rare. And I actually think the interesting thing that I'm also seeing and hearing a little bit of through the rumor mill is a lot of financial companies don't want you to be that high because actually
Brett:
It's not hitting the accelerator hard enough. It means you're not advertising enough.
Jeremy:
Yeah, I mean I think reason I was looking at this as a percentages and a pie is you got to take something from somewhere else to put it in another pocket. And when you think about an e-comm business, like your cogs and your fulfillment costs are fixed isn't the proper accounting word, but they're a lot harder to move. You buy your product, you commit to those prices, you ship it, you're kind of committed to those things. So really when most brands want to take more profit out of the business, they're cutting their marketing or they're cutting their GNA, which is team or their variable marketing spend, which is almost always an investment in growth. I will say the one caveat for the past couple of years is a lot of people just over hire and just brought on too many people and you're seeing a lot, unfortunately the layoffs are pretty painful and tough, but also Shopify got dragged in the markets for their rounds and they reduced their SG a by 31% year of year and had no meaningful impact on their business. And so I think that's also a little bit of market dynamics and corrections of people got a little too high on the hog in 20 20, 20 21, and now we just need to get back to everybody getting in shape and getting
Brett:
Fit. And I think it is just healthy, and this is something that every business needs. We've got these benchmarks and we're going to ruthlessly attack those. So right sizing, I mean it was easy for e-comm businesses and agencies. We all went through this period. Shopify did it right of just adding too many, getting a headcount way too high for what you really needed. And so the right sizing is painful but necessary for sure. So awesome, man. So love that. Not everybody likes to talk about a p and l, but come on, that's poetry in motion, baby. When you've got a good p and l for your business, you're hitting that 10 to 15% net income, you're growing. That's a beautiful business and it's attractive if you want to sell it or if you just want to cashflow it, you're likely really good. So let's do it, man. Let's kind of buy this business. Would we buy this business? Would we not buy this business? Who's kind of first on the list for us to break down?
Jeremy:
So my favorite one that I looked at and kind of actually where I started this whole journey was Crocs. And Croc is such a
Brett:
Fascinating, it's such an odd resurgence, such an odd resurgence post like yeah, they're ugly, but I love it and it makes me feel good, and so I'm going to wear it. And I love this trend. It's awesome.
Jeremy:
Yeah, yeah, I mean they were probably too early to the comfort economy and then yeah, COVID was a really good bump for them. So just a quick stats on Crocs, they're currently training $124 a share. They have a market cap of 7.5 billion, and when you look at their revenue and net income, they're trading at essentially two times their revenue and 9.7 times their, what's called the PE ratio, which is basically just what is their net income, what is their market cap divided by their net income, which is 9.7 times. Why I always like to look at this and I look at both SaaS and eCom businesses is really important is I feel like too many headlines recently have been this company traded at X on their revenue
Brett:
Or 30 x earnings or 15 x revenue or something. And it's like, yeah, that should only apply to a few business categories, not eCom.
Jeremy:
And I think the difference is if you're an 80% gross margin business and you have high recurring revenue, investors will give you the leeway of saying, okay, this will be a multiple of revenue versus we just talked about it in e-comm business. There's all of these other expenses that are pretty tied to the business. So I think a really important level set there is to always look at what are the PE ratios of public eCom companies, because that's actually the determinant that the financial players are using to get to whatever that market cap should be. But CROSS is a really strong business. They're doing 3.9 billion in revenue in 2023. They have 1.7 billion in cogs, so they're at about a 56% gross margin, and they did about 2.2 billion in gross profits. They have an SGA of 1.1 billion, which puts them at about 30% of their revenue, which they actually are at 20% net income.
So when you think about that, it's the silly brand that everybody loves to make fun of, but they really are building a meaningful business. And every year, because I've been posting about them for a couple years now, every year everybody's like, oh, it's just a covid fad. They'll slow down. They're growing just as fast as they did before Covid, and they actually have this brilliant business model, which I call ludicrous stunt collabs. So I don't know if everybody remembers the Balenciaga Crock from a couple of years ago, 2022, they did over 66 collabs with different celebrities and different huge other brands like Hello Kitty Crocs and all these other things. They're doubling down. They did even more than that in 2023. And I think it's also just a really good lesson in creative marketing as well is they make plastic clogs that our guests are super comfy. I don't own a pair, but I have, the guests are super comfy, but really,
Brett:
I owned a pair in forever, but they are comfortable.
Jeremy:
Okay, yeah. Everyone I know owns 'em. Like I am the outlier in my social network for not having a pair of Crocs. But yeah, I think it's a really compelling and really interesting business case where I think the other really important part is they're a traditional legacy retail brand that then also had a kind of renaissance of e-commerce, and now the two are really blending the business model. They've found a good way to blend those business models well together. I think the other thing that I really want to make sure this little period ends is this whole D two C or dye mania of just, it has to be D two C, we have to go to a hundred million, 500 million, whatever direct to consumer. No, if you make a product, your job is to sell that product in as many channels as possible through different vehicles. Some of those will be owned, some of those will be rented, some of those will be partnered, and I think they're one of the best examples of just really running the playbook well and always having something fresh. Really, they don't have that many products. Yes, they've extended in some other categories, but to me that's a really, really strong business where it's not a massive product catalog. They don't have 15,000, 20,000 skews, but they're selling in multiple places. Their strategy on
Brett:
Amazon, I wasn't sure, but they're selling on Amazon and they've got a pretty awesome Amazon store.
Jeremy:
I think that was one of their, I think that was a covid, we need to get on Amazon because we have to shut our physical retail down and now they don't break out their Amazon and their earnings, but I would assume Amazon is a meaningful part of their business now and their digital presence between D two C and Amazon is a bit of a flywheel that also then fuels their retail businesses.
Brett:
You get the Hello Kitty collab, the NASCAR Crocs, you got other stuff that I don't even understand what I'm looking at.
Jeremy:
And I think that's also part of the brilliance of the strategy is it's the same product, but the designs are bringing in different customers where I'm going to go on a limb and assume that the Hello Kitty crowd's not the same as a NASCAR crowd. People were probably buying their NASCAR product, probably aren't buying their Hello Kitty product and vice versa. And I think that's a really brilliant design way to acquire more customers. Now I'd say on the flip side, let's take a brilliant market, buy
Brett:
More right now maybe if I'm a NASCAR fan and I've got a daughter, I'm going to buy her Hello Kitty. Or there's the Pixar integration here on some of this, like the Woody Crock here from Toy Story. Yeah, so just brilliant.
Jeremy:
I would say on the flip side, a different example of brilliant marketing use case that didn't work out of not buying a biz would be solo solo brands. So I know everybody loves to beat up on them. They had a pretty tough quarter. I think the more important piece here is really diving into why that business didn't work. So for anyone who isn't familiar, solo Brands is essentially a portfolio company of four different D two C companies. The largest one is Solo Stove, so this is kind of basically the Yeti of fire pits. It's a portable fire pit, super high end targeting the outdoorsy people who want to do Campfires Grill marshmallows. They acquired Chub's, the short shorts company, huge fashion like Shopify 1.0 D two C Darling. Then they also acquired oru Kayak and Aisle Paddleboard. So very much trying to live the outdoor lifestyle, big products people buy.
I think here's my two main problems with it. First Shies makes no sense in that product portfolio. I'm not the customer, so I'll take this with a grain of salt, but someone who bought, I can't just imagine someone going camping, bringing their solo stove and their oral kayak while wearing their American flag, overall short shorts from Chubby. I'm struggling to see that being the same customer base, but I think the other bigger component is we have to stop shipping heavy stuff. It just doesn't make sense. They're an unprofitable business. They actually had a pretty painful year over year net loss and then obviously bring them up of the whole Snoop Do thing. I think it was brilliant marketing. I don't think it was the right strategy at the right time.
Brett:
Yeah, I mean that whole, I'm giving up smoke from Snoop Dogg. Brilliant. I think the execution was really interesting as well. It didn't work maybe for a few reasons, but yeah, quick note on that. I met one of the founders of solo solo stove, brilliant guy, just awesome guy. I know a couple of founders from Chubby's, also, brilliant guys, really cool brands. But yeah, there's been some challenges and maybe some missteps along the way and everybody does sort of love to hate on him, which probably isn't totally fair. But to your point, really good lessons here as we unpack them. And I think, yeah, to your point, I love Chubby's and Preston Rutherford's a friend. Actually I think you and I were commenting on one of his LinkedIn posts. Yeah,
Jeremy:
He's great.
Brett:
He's so good. He is one. He was on the pod recently. So if you're listening and have not listened to the Preston Rutherford podcast episode, you got to go do that. I'm not a Chubby's customer either, even though I got mad respect for them and love it, but there's going to be some crossover there, but yet it's not just this brilliant marriage of all chub's. Customers buy stoves or stove people buy chubby. It feels like kind of a different crowd.
Jeremy:
And so I think because I completely agree with you, all of those are great brands. All of those should be doing much more successful than they should. I don't mean to, I think Chubby should be divested and run as an independent apparel brand or sold to a different apparel brand and will be incredibly successful. And it's almost one of those things of if you set it free, it will do better. And then I think more of the point of where I think the midst of the original strategy was is we're going to aggregate a bunch of DDC brands that are kind of similar and try to run that as a big portfolio versus really there are three large heavy high A OV physical products that outdoors people will buy and a fashion retail apparel brand. And I think
Brett:
Which wildly different when you look at it like connection of D two C and maybe people that like to go outside, okay,
Jeremy:
And we're going to kind of make it work together. Versus Chubby's is a true D two C brand that should be in Appar, that should be in physical retail, a nine figure brand. They're at the scale in size where there's only so many dollars you can torch on meta before you have to move into retail. And then I think the other brands need to just be retail brands, the physical expense to ship. If you buy Brett and Jeremy buy a solo stove and an or Kai, you're spending 60, 80, a hundred dollars to ship something that heavy to a customer all over the country and all over the world. That's where you want to piggyback off of the retail supply chain infrastructure because it was literally built to do that. There are REI, home Depot, these companies ship much heavier things already to their physical locations, and so it shouldn't really be this D two C as an innovative disruptive channel, but really those are retail brands that will probably do much more successful and be much more profitable in a retail channel. But it feels like they're clinging to this. We have to be D two C
Brett:
Thesis. Got it. Your fix for solo stove is we divest Chubbies and it appears actually chubby is profitable, successful, all those things, but let it live and breathe and work on its own. And then we're keeping solo stove and or kayaks and stuff. We're keeping those together or are we splitting those up potentially as well?
Jeremy:
Yeah, I don't know enough about or root kayak and the aisle, but to me those all make sense together. To me, those are all the millennial REI customers. I'm going to buy my solo, so go on my camping trip or we're going to go paddle boarding or kayaking. And to me, those all make sense that urban millennial who wants to get out of the city kind of branding there, I don't know enough about the specific entities, but to me that makes more sense. And then solo brands should be going all after that customer versus let chubby, maybe there's another fund or another retailer that makes sense to have that brand live under its umbrella, but I also assume it could probably, their founders have also been amazing. I was at an event last year where their founder shared their p and l right before they exit up until where they exited. And it was a growing profitable
Brett:
Kyle as well. Kyle, that's legend as
Jeremy:
Yeah. So he presented on the main stage of a conference that I was organizing and retained.
Brett:
That's where I met him in.
Jeremy:
Yeah, Brett also dropped a lot of knowledge on YouTube ads at that conference as well. But to me and Wall Street, it's not a unique appear because Wall Street is taking the stance as well as it's not by that company. I think there are too many of these, like D two C aggregator is not the right word. It's not raio that try to buy 50, but a brands is in a similar boat where they bought three apparel brands and then Culture Kings was your retailer and somebody, everybody was just trying to aggregate revenue to just get to the size to go public. And I think a lot of companies are now unwinding that strategy and just going out really mastering who are our customers, what can we get to buy them to buy more of from us and really focus on that versus this kind of like, I call it spreadsheet math. We're really good at this, so let's just add this new market and that will increase our percentages by X and we'll be a big brand really staying true, really staying focused because the super successful brands are really nailing that really well and just have the patience to let that momentum build and that revenue and those profits compound over
Brett:
Time. And when you're just bolting on ebitda, when you're just buying revenue and trying to piece it together with kind of a loose association, that's not a recipe for synergy and true integration and ultimate long-term success. So yeah, I really like that. Awesome. Any other thoughts on how you would fix solo?
Jeremy:
It's a good question. I think honestly it's probably cut costs and ride it out as high as outdoor and home and goods rose, it fell and it's really just a demand pull forward problem. I don't think there's anything wrong with their business. I don't think that people are going to stop going product
Brett:
Sound from what I hear, products are great.
Jeremy:
Yeah, I don't know anything bad about them. The whole snoop thing generate a lot of buzz and that will always get a lot of thought boys to give their opinions on it. But I think the core of the business is really strong. It just needs to literally ride out the winter. The crazy idea that I have is they should actually go raise more money or go private and scoop up all of the other more struggling outdoor brands because I think it's that classic Warren Buffett we're going to talk about a bunch of times today. It's cost like Warren Buffet, right? Of when others are fearful, be greedy, and when others are greedy, be fearful. If outdoor is really struggling, could someone private or a larger company buy solo brands and acquire all of the other relevant brands right up the storm for two years, three years maybe?
And then you come out of it the other side, you own the entire category. And going back to the reason why I think they should divest Chubbies is if you have seven or eight products that one core customer buys, you could be Home Depot's largest outdoor recreational supplier or someone like that where it's just, it could be six different names, but you're still buying one end product that's really difficult to do. And like I say that pretty easily, it's one of the most complicated strategies to execute and it's actually one of the highest failure rates. But that would be my last crazy out of the box idea of where solo brands could go if they had the resources. And I actually think there's a lot of smaller examples of that across many different industries in e-comm right now where there are 400 lugging brands out there, there probably don't need to be 400 lugging brands, but a lugging brand can maybe get into what's the workout thing that they use or what's the beauty and cosmetics and really start to master what's that one core customer, what's our core competency and figure out that right ecosystem.
If everyone is struggling, I think a lot of consolidation will solve a lot of those problems.
Brett:
Consolidation is definitely going to happen. We're seeing it with D two C brands with agencies as well. One of the things you talked about is understanding who is our customer, what do they buy? How do we then assemble this collection of brands that are and products are going to meet their needs? And you made a post on LinkedIn. I'm just going to encourage everybody. You got to follow Jeremy on LinkedIn. He's awesome there. But one of my favorite posts recently that you, I'm just going to read it because this is powerful. You said the best businesses stalk their customers don't break laws. That's an important caveat, but you need to be in their social feeds following what they fall consuming, what they consume. You need to be in their heads more deeply than they are, do this over and over again across the entire customer base. That's when you'll have the algorithm down. That's the only way to know what they want before they do. That's going to set you apart for everybody else. Everything else is clone, which I love that. And so any other things you want to riff on there? But I think that, and that applies to the D two C brands that applies to agencies, that applies to software companies, obsess about your customer and stalk them, know them inside and out.
Jeremy:
So for anyone, I guess I should start all my statements on things now is this is not financial legal tax advice. Don't break any laws. I was never here. But yeah, this basically came from back in my time at Lumi, which was basically Kim Kardashian's favorite selfie case. So our core ICP was 18 to 34-year-old women who wanted to basically look nicer when they took photos because it was basically a phone case, light rails on either side. It made you look really beautiful. It was basically a photography level spotlight on your face or on anything you were taking a photo of when you went out in any dark scenario for everyone who isn't watching this live, I am a white guy bald with a beer. So I couldn't have been farther away from that demo if possible. Actually most of my career I found most success marketing and selling products that I don't buy and that I also don't fit the core customer base of. And so when I got asked like, Hey, how are we going to sell this to more women? I was like, cool. I don't know. So I mean it's a fun way to basically say do deep, deep customer research, I think
Brett:
Mill, right? Because you can't just rely on your, oh yeah, I know because it's me. You have to get in and know the customer and then follow the fundamentals and actually probably made you a better
Jeremy:
Marketer. Yeah, it really did. I think the important piece now that social media is just, everyone has it and it's everywhere and every brand has some relation to it is I think when most people think of customer research, they think of surveys or they think of pulling data. And really what I found to be the most successful is I would go spend hours reading people's Instagram posts and I would go look at their profiles to see what they posted. It was a little bit different. I was trying to look at what photos they take to understand how they were using the product. But what I actually discovered in doing that was I actually understood what were their interests, what were their passions. Great salespeople will always say, I know what my clients do on a Friday night. And I think that having that level as a marketer at scale is so important because from anything from your messaging, your positioning, we invented new products around a lot of what we did and what we found out there.
It's so easy. All it just takes is effort. And now anytime I look at a new brand, the first two things that I do is I go look through the reviews and then I go look through their social media and what people are saying and what people are posting and then go dig into some of those people because it's the best I found. At least it's the best way to truly understand what the person's actually like and what the person's actually interested in. And then after a certain number of hours, you just do it enough that it's like, okay, this is our entire customer base. And I mean we had hundreds of thousands of customers at Lumi and we get to profile level and personas. This is what the customers like, this is what they do, this is how they talk. And then a lot of the best marketing I've ever done is copying and pasting customer quotes and then putting in ads, putting in emails, putting in all those other components.
Brett:
Yeah, yeah. Did a podcast with the founder of Tushy and she was talking about such a great Mickey aal, such a great brand bidets that you attached to the toilet or whatever. And so some of her best marketing headlines and stuff were just lines taken from somebody. And so one was like tushy is eye candy and butt bliss. So it such a weird line, but it's like it looks beautiful and butts bit happier, whatever. Some of those lines you may not think of but your customers are and that can become your best ads. And so love that strategy, stalk your customers, but don't literally stalk them. As we wrap up and we're just about out of time, but you also had a really, really great post. I think it's worth highlighting a little bit and then people can dig in and look online a little bit closer, but talk to me about LVMH potentially going to be the first trillion dollar product company. Who are they? What do they do? What makes them so special?
Jeremy:
Yeah, so for anyone who isn't familiar, LVMH is the ultimate luxury company. They own 75 different, what they call luxury houses are essentially just brands. And most of them, Louis Vuitton Moat and Hennessy, they bought Tiffany's the famous New York jeweler. They've also bought Fenty by Rihanna, her beauty and cosmetics brand. They're basically the luxury aggregator really. Actually they are over 50 to 80 years. They've basically just rolled up 75 different luxury companies and they've just mastered this playbook because I don't buy any of these products, so I can't really speak to it, but my assumption is they have a very, very clearly defined ICP. They really know who's going to buy their business or buy their products and they're doing 80 billion in revenue. It's really hard to really, I started when these numbers started getting so big, I started like a country's GDPs, their GDP. If LVM H was a country, they would be bigger than Uzbekistan is the 72nd largest country in the world, which feels a little silly
Brett:
And gross margin, 86 billion in revenue on 69% gross, but 69% gross margins. Insane.
Jeremy:
Yeah, absolutely insane. Their net income, when I looked at it, their net income was more than I think 70 or 80% of all the other companies we analyzed last year combined. And so I think the really important lessons here is one, they have a really simple, yet hard to execute business model of they know exactly the type of company that they want to buy. They wait for it to get a certain size, they acquire it and then they just plug it into their machines and it's really aspirational. Also, they just traded a hundred billion dollars. So when you think about their growth rate, when you think about how much profit they kick off and when you think about they truly are playing the compounding game of just weight every year, make more sales, drive more growth, it is very possible that within the next decade to 15 years, they will be a trillion dollar company.
Anyway, the craziest thing is I actually don't think they need to acquire that many more brands. Maybe in that 10 to 15 years they'll be at 78, 82 maybe, but they've done a really, really good job of just consistently growing. And they have about six core categories of spirits, apparel, jewelry, I think they have an other category and then luggage and travel and accessories. And they just acquire a couple brands in all of those spaces, really run them well and then just let them go. I think the other really important piece where it's really hard coming from our end of the space where we're constantly disrupting and we're constantly trying to challenge people is they have a legacy to protect. So they have an incredible focus and I think it's so easy to get wrapped up in, we're doing this today and that looks really shiny and I have worst shiny object syndrome, but the greatest lesson I took from that is just wait 20 years, literally just do the one thing you're doing really, really well.
Let it compound, let it grow. I think they really take that approach really well to everything that they do. They're in luxury. So yes, they can really support. I mean, I don't know any other company that supports 69% gross margin at that scale or even really at most any scale, which you could past like 50, a hundred million in sales. But I think they've also just done a really great job of building the layers of their house brick by brick, layer by layer and just being very patient with it. I know for a bunch of entrepreneurs who are like, I need to hit 50% growth next month, that is the worst thing to leave you with. Absolutely. But I think really not getting distracted by the side quests, just really focusing on that core thing and sticking with it for a long period of time because there is really my buffet quote number three, there is no greater value than compounding growth. And just really having the consistency in the patients to stay on that course is why I think they're not attainable, but it's really something that every brand should go study look at and think about how they can take it away for their brand,
Brett:
That focus and longer time horizon, the patience that's there. Because if you're trying to ruthlessly hit a profit number or a revenue number, you're going to be really tempted to discount and do some things that have a really short-term, great short-term payoff, but a long-term net negative for the brand. And that's the type of stuff that LVMH and their premium brands don't do. And of course we would all look at that and say, well, of course they sell luxury items, easy for them. No, no, no. It's simple, but it's not easy. They are focused and they are just, they're cutting out everything else and they know who their buyer is and they're not worried as much about short-term profits as they are protecting and building the brands over the long haul. So really, really good man. So as people listen to this and like, dang, I want some more Jeremy Horowitz in my life. I need to follow him on the socials, I need to get on his email list. How can people connect with you?
Jeremy:
Yeah, definitely. So if this was helpful, if you want to hear more of my crazy thoughts and ideas and then hopefully some helpful macro analysis of the space, just follow me on LinkedIn, join the 20,000 other e-comm heads who decide that my crazy ideas are worth reading every day. I do try to post helpful stuff and tips as well. Jeremy Horowitz, H-O-R-O-W-I-T-Z. And then if you want to get the weekly teardowns where we do go through public company p and ls, then out of the box growth strategy as on how we would three x five x, 10 x our money running those brands, just go to let's buy a biz BIZ xyz and subscribe to the newsletter where you'll get all 32 p and ls that we've analyzed so far. And you can look through all their businesses, see what all their revenue costs of goods sold, all those other components are, so you can better understand what your p and l could look like.
Brett:
You'll be a better operator, better business mind and thinker if you get on Jeremy's newsletter. And Jeremy, man, love hanging out with you. You are a beacon of truth in a sea of craziness. You speak the truth on business and D two C growth and p and ls, and I love what you're doing. So keep it up and thanks for coming on the show. And yeah, dude, I'm smelling like round. Is this the third podcast you've been on at least two? So anyway, next round, we'll definitely schedule it here in the not too distant future. So thanks for coming on. Super fun.
Jeremy:
Yeah, appreciate it as always. Always have a great time, Brett.
Brett:
Awesome. And as always, thank you for tuning in. We'd love to hear from you what would like to hear more of on the show. And if you haven't done it so far, we'd love that review on iTunes. That's my big ask for you. Review it, share it with someone else that you think could use this. And with that, until next time, thank you.
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