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What Buyers Actually See Before the LOI (And What the SIM Hides) · Private Equity Data Guy

• 0:00
  You know, I like to see if you can prove that you have a customer base that's willing to take the time to come to your store and it's profitable.
• 0:08
  That is a terrific sign because at the end of the day, if you can't sell your own product, you really have a brand.
• 0:12
  The more curated that you can be in whatever product category you are.
• 0:17
  Again, it all comes down to product.
• 0:18
  It's got to solve a real problem or it's got to create a real desire.
• 0:23
  These are two different things, right?
• 0:24
  And so brands that solve a need and create create desire are the most profitable brands in the industry.
• 0:31
  Behind every value creation plan, there's a data problem nobody wants to talk about.
• 0:36
  Fragmented systems, metrics nobody trusts, and decisions made on gut feel dressed up as analysis.
• 0:41
  Welcome to the PE Data Guy.
• 0:43
  Each week host Graham Crawford talks to the operating partners, advisors and practitioners who are doing the work inside portfolio companies.
• 0:50
  If you care about what actually drives returns in the bid market, then you're in the right place.
• 0:54
  The PE data guy starts now.
• 0:58
  Jeremiah Wenzel has spent 22 years scaling consumer brands from 50 million to 225 million at Hugo Boss, Calvin Klein and Steve Madden.
• 1:06
  He works as an operating partner with PE firms in the consumer sector, originated and supported a major acquisition of Capezio for Argon that won M and a deal of the year.
• 1:16
  Jeremiah's just launched DealReveal, a consumer M and a scorecard that grades a deal across six weighted value drivers in in under 10 minutes.
• 1:24
  More on that during the episode.
• 1:26
  Jeremiah's one of the few people in the PE ecosystem who sources deals, runs diligence, builds the value creation plan, executes it and has now packaged the first layer of a diligence lens into a self service tool.
• 1:37
  Today what we're talking about is what buyers really see in consumer deals before the loi, what two decades inside Hugo Boss and Calvin Klein taught him that no investment banking template captures and why he built the scorecard that
• 1:49
  he wished already existed.
• 1:50
  So Jeremiah, welcome so much to the show.
• 1:52
  It's so great to have you on.
• 1:53
  Appreciate you taking the time.
• 1:54
  Thanks Graham.
• 1:55
  Thanks for having me.
• 1:56
  Kit's the operators forum yesterday.
• 1:58
  We got to spend some time together and as usual with any industry, it's always a much smaller world than you think it's going to be.
• 2:05
  Right?
• 2:05
  That's absolutely true.
• 2:06
  Kit's a great guy and I know he was just on your show so.
• 2:10
  Yes, yes, we had a great episode a couple of weeks.
• 2:12
  So I'd encourage anyone listening to this one to skip Back two episodes and listen to Kit, as well as a great convener of conversations and a lot of really interesting stories to tell as well.
• 2:22
  So.
• 2:22
  So we have something else in common, you and I.
• 2:26
  We went from corporate life to private equity world.
• 2:30
  In your case, you went from running 88 million at Hugo Boss and then 225 million at Calvin Klein, which I'm going to ask you if it was underwear or not, and you walked into mid market consumer brands backed
• 2:42
  by pe.
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  First, was it underwear at Calvin Klein?
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  And secondly, what's the biggest shock for you when you went from this kind of Fortune 100 world down to a $75 million portfolio company?
• 2:56
  Great questions.
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  It was indeed Calvin Klein Underwear.
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  It was.
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  Oh my sons, thank you for your great work.
• 3:02
  The Crown jewel of PBH.
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  And in fact, I was there right after the $2.9 billion acquisition of Warnacle Group that used to have the license for Calvin Klein underwear.
• 3:12
  So, yes, that is true.
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  I know more about women's undergarments than any man should.
• 3:18
  But it was a great experience.
• 3:19
  And ultimately the product category doesn't matter to me.
• 3:22
  It's the same fundamentals, you know, when you ask about that shift over to private equity and the major difference, yeah, it's the data gap, no question.
• 3:32
  You know, when you're at a Hugo Boss or a PBH Calvin Klein, you have the tools available to you as far as, you know, demand planning, SKU level, merchandising, analytics, weekly sale through by door.
• 3:44
  You need all of that from an Omni channel.
• 3:46
  And that is indeed what's missing in the lower to middle market.
• 3:50
  So when you have a $75 million Portco, you know, you're trying to piece together shopify dashboards, wholesale spreadshee, then of course you got to go ask Cheryl and accounting for the rest of the information to have one holistic
• 4:03
  view.
• 4:04
  Yeah.
• 4:04
  And you and I are certainly cut from the same cloth both in terms of the transition as well as the kind of different set of issues that you deal with.
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  You go back to that world you were in and it's almost an embarrassment of riches.
• 4:16
  Right, from a data perspective.
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  And the challenge is, which data am I going to use from this huge menu that I have in order to produce the killer unsized to boost this business to where enough do I find it and who's got it?
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  And who wrote the password for this for the macro on this spreadsheet?
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  How do you approach it?
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  Like, how do you go about, you know, fishing?
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  Because you land.
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  The look of the water is different the fishing boat is different.
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  You've got a different fishing hook.
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  How do you go fishing for data in a mid market portfolio company?
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  Well, you got to know who to ask, right?
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  And in each division they have a pretty short bench and there's a lot of institutional knowledge in, you know, small to medium firms.
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  So you know, obviously finance is the first stop, VP of sales, the second stop.
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  But often that you, you will find that they, you know, there's a lot of silos in these smaller companies.
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  You would think it'd be contrary, right?
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  You would think it was the larger companies that have silos and they do, but they are more integrated than smaller companies.
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  So finding that data is, you know, first identifying who are the key players within the portco.
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  That comes from the second layer of diligence.
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  We'll talk about deal reveal in a little bit.
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  That's the surface layer, but the team and the folks that are running the business behind it, you got to find who those key players are on day one and.
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  Absolutely.
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  And it's sometimes easy, sometimes harder to find them and do that.
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  So me and my teams go fishing on similar expeditions as well.
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  And it's interesting.
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  So the number one question that I find myself asking more in mid market portcourse than I used to in big corporate is how do you know that's right?
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  And I think that's one of the best questions that I arm my teams with when they're going into a portfolio company.
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  And people are wise to the single source of truth phrase like oh, here's our source of truth on this.
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  But that second level question of how do you know it's right and where does it come from Often springs up some really interesting answers.
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  That's an excellent point.
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  And I would say Fortune 100 taught me what questions to ask.
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  The mid market taught me no one can answer them.
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  And getting those fundamentals down is key.
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  You know, I had a port company actually that, you know, had a retail part of their business and they were calculating their IMU incorrectly, you know, just that fundamental.
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  So their business, you know, looked really bad on paper, but actually wasn't as bad as they thought.
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  They were calculating on, you know, a wholesale number, not a landed cost number.
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  So they weren't getting the full credit for their retail margin.
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  So there's one great example.
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  Yeah, I've actually come across something similar.
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  A company was measuring a downtime of some systems and anecdotally they said, oh, we need to focus on this downtime because it's currently 20 plus percent downtime.
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  Same deal like they were calculating it incorrectly and calculating anecdotally it was actually under 10% and was actually not a priority was one of the first things that we found.
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  So, yeah, super fascinating.
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  So before we go on to the second layer and deal reveal, let's go back to the.
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  To the first layer.
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  So you get a confidential information memorandum from a deal team for, for a new consumer brand.
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  Right.
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  What's, what's the gap you most often expect to find between the revenue story that comes in the information memorandum and what actually happens when you get into the portco?
• 7:45
  Yeah, that's exactly right.
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  It's story versus reality.
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  The sim shows the revenue line.
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  It rarely shows revenue quality by channel.
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  And that's what's important.
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  You know, customers at what margin, how concentrated it is.
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  You know, every sim of course, is shiny and beautiful and revenue is going up to the right and you're showing a 3x even though your past three years you've only had 2% growth.
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  So how does that work?
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  And that's the first red flag.
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  Right.
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  So you, so you have to really dig by channel.
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  And that's the key with any sim because you know, they're always polished and beautiful.
• 8:21
  Yeah, no, absolutely.
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  So those are for sure the gaps.
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  How do you, and you talked about finding out what data is like.
• 8:29
  How often do you see those stories match when you go in?
• 8:33
  Very rarely.
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  And that's why most deals are a pass.
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  Most are a hard pass.
• 8:37
  After three, five minutes of looking at it even less, especially on the PE side, they'll give you 30 seconds on the deal or at least the sim review.
• 8:47
  So again, that first litmus test is how much growth are they projecting in the future and how much have they delivered in the past three years?
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  And if that isn't somewhat matched, you know, it's really built on nonsense.
• 9:01
  Yeah, it's.
• 9:03
  Yeah.
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  And you can tell that super quickly, which is, which is super cool.
• 9:06
  A different story of one that was a pass that turned into not a pass.
• 9:10
  Like there was a deal you originated, you brought it to your firm after another firm had passed randilligence, built a value creation plan, did the full thing.
• 9:19
  What did you pick up that the other firm missed or vice versa in that situation.
• 9:25
  Yeah.
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  So we're referring to Capizio.
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  Amazing brand, an extraordinary story.
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  This is a fifth generation family owned business going on 140 years.
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  Think about that.
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  It survived two world wars, survived the depression.
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  It's just an amazing story.
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  First institutional capital.
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  So I did, I looked, I looked at this deal with another Firm.
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  They passed on it simply because they didn't understand the dancewear space.
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  So let's start there.
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  Deal thesis.
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  If you don't have a clear deal thesis going into any, any deal, you're kind of flying blind from day one.
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  And I always look for niche, dominant brands within a certain sector.
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  It's the classic blue ocean theory versus red ocean theory.
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  As long as that subsector is large enough.
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  As long as that tam large enough.
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  And dancewear certainly is.
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  Capezio just checked every box.
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  They already dominated it.
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  You know, been around a long time.
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  They, they have the brand equity and heritage.
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  And so when I brought this to Argonne, they got it.
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  They completely got it.
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  And they were in fact, the right firm for this deal.
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  So what jumped out at me was one brand equity, brand heritage.
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  They were well diversified, although a little, you know, skewed a little in the wholesale channel, which is not, which is not unusual for a brand of, of that size and age.
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  But there was lots of opportunity on the digital side.
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  Yes, they did have digital presence, but that was, that was under penetrated.
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  And that's what I loved about it.
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  Because if there's something that you can't fix or can't improve, then I guess, what are we doing here?
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  How are we going to 3X this company?
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  So, so in short, that's.
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  That's what drove that.
• 11:11
  Yeah.
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  And I've got a couple of things to pick up on from that.
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  And first brand, obviously you're carrying some of that oil from your Calvin Klein experience, I think even if you won't claim it yourself, I'll give Calvin Klein credit for being the first underwear brand that people wanted their underwear
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  to be visible over the top of their jeans.
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  Right.
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  Such a status symbol growing up.
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  So you're drawing on your kind of past experience.
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  Let me ask you a question from the other side.
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  Was it that digital thing that Capizio needed help with?
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  Because one of the things, I meet a lot of founders on My Travels, founder, CEOs, and many of them are very thirsty for a private equity exit.
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  And they consider that the pool that they're trying to climb.
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  And my question to them is always like, if your business is so great, why do you need the money?
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  The case for taking in the money has to exist in either capital exists through the deal or some expertise exists through the deal that I wouldn't have access to or the capability to put in myself.
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  So was that part of the vibe with Capizio?
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  Did you identify that for yourself?
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  The digital opportunity?
• 12:16
  Absolutely.
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  And I would Say every, every brand and company needs digital help.
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  I don't think anyone's fully figured it out.
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  Even D2C brands, I mean it changes so rapidly, you know, from social to now you have AI to consider and how do you optimize that?
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  So this is not, you know, every brand.
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  I don't care if you're a Legacy brand or D2C brand.
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  If you don't have a focus on the digital aspect and how to improve that, it's getting more and more challenging.
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  But the key there was is that there was a repeat customer.
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  That's also very important to note here that it wasn't a one and done.
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  Dancing is not going away.
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  No one's going to stop dancing.
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  And it starts at age 3 and it goes all the way up to adults who recreationally want to continue dancing for health purposes and then also professional.
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  That's from a thesis and a macro.
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  That's what was so appealing about it.
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  You know, in dancers they fly through products as they're really hard on products whether that's you know, pointe shoes in the ballet arena, tights, et cetera.
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  So they're constantly, you know, buying new products from a need based also from a desire and want base.
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  And it's just the perfect business model.
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  And in subsector, that's what I loved about it.
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  But from, from an E commerce and digital, you know, there was lots of opportunity to capture market share from that younger customer, digital customer.
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  Right.
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  And what was the.
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  And of course with increased digital presence comes increased amounts of digital data as well and understanding of your customer.
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  So I can really feel the snowball start to roll there.
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  Let's go off topic slightly for a second.
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  I saw this tweet last week and I thought about you.
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  This thesis that someone has already executed on is they're really good at garnering kind of online visibility and attention.
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  So what they do is digital presence arbitrage and they go out and they look for high ticket service businesses in the local area and then basically funnel the traffic and then subcontract the business with a margin out to
• 14:24
  the.
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  This is a very aggressive way of doing it on a local scale.
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  Like I think it was like roadside assistance, right.
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  So you want to, you want to get your car towed.
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  And this guy basically built a website to capture all of the search traffic for roadside assistance in a certain area and then agreed deals to subcontract it out with people actually doing it with margin.
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  And he's I think making 100k a year.
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  And of course there used to be one route to doing that through Google Search.
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  Right.
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  That used to be the only game in town.
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  It's now a much more complicated and nuanced environment and I think businesses who aren't thinking about the digital world are really going to kind of get behind.
• 15:00
  Any thoughts on that?
• 15:03
  It's brilliant, actually.
• 15:04
  I've never heard of that.
• 15:07
  I'll send you the tweet afterwards.
• 15:08
  It's a guy who I've been lucky enough to get to know.
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  He's called James Dickerson.
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  He runs an X account called the Boring Marketer.
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  And you know, he's not boring himself.
• 15:17
  Very interesting, but he markets boring, you know, the boring businesses, many of which I think are in.
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  There's a big wave of which in need of new ownership.
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  So yeah, there's a really interesting data play going on there.
• 15:32
  That really is brilliant.
• 15:33
  I'd love to see that.
• 15:34
  But ultimately, yeah, that's essentially taking data, you know, serving in need, people in need, especially roadside assistance, that's an urgent need and you know, commoditizing that, but packaging that up and driving that funnel to close, it's quite brilliant.
• 15:51
  I mean that's what everyone in E commerce is attempting to do.
• 15:54
  But there's just so much competition there.
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  Like who, who needs a basic blue T shirt nowad days?
• 16:00
  Right.
• 16:00
  There's a hundred different brands trying to do that.
• 16:02
  So again, I really love the niche subsector that this individual was focused on driving data to bottom of funnel.
• 16:10
  Yeah, and it's the moat, right.
• 16:12
  The distribution becomes the moat in a world where people can produce endless content and whatever else the platform and the distribution becomes the moat for a lot of these businesses.
• 16:22
  Whereabouts you located again, Jeremiah?
• 16:24
  We're in the country.
• 16:25
  Are you?
• 16:27
  I am now in Nashville, Tennessee.
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  I just said yesterday, Music City.
• 16:32
  Yeah, indeed.
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  You know, after 25 years in New York City, east coast recently moved down south and we're loving it.
• 16:40
  Yeah, well that's not too far away.
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  Only 10 hours drive away from me.
• 16:45
  So let's, let's make a connection and see if we can have a weekend hobby project stealing a moat from, from some high ticket service businesses and see if it works.
• 16:54
  We'll test the theory.
• 16:56
  I want to come back to Capizio and I know people have been waiting to hear about deal reveals.
• 17:01
  So if you think about that Capezio deal, which credit again by the way, because it's effectively.
• 17:07
  You mentioned ballet shoes being worn out and whatever, it's effectively a recurring revenue business but in a CPG package.
• 17:13
  So it appeals on all the Fronts.
• 17:15
  So, yeah, I see the light now.
• 17:18
  Let's talk about dealreveal and then can we run Capizio back through the Deal Reveal framework to talk about how we do it?
• 17:24
  So you've got six value drivers that you would look at Deal Reveal.
• 17:28
  Can you just walk me through what each of them.
• 17:30
  Each of them are.
• 17:31
  And let's use Capizio Dansware as the, as the guinea pig to run through.
• 17:36
  Sure.
• 17:37
  First, if you wouldn't mind, let me tell a quick story of how I came up with the idea.
• 17:40
  Of course, Please.
• 17:41
  Yeah.
• 17:41
  History and why I thought there was a need for it.
• 17:44
  So a few different data points.
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  One, the most important are business owners looking to sell.
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  You know, most of these business owners is the first institutional capital they've ever taken or forced or first exit they've ever taken.
• 17:57
  And they really don't understand what they're getting into when they start to deal with private equity firms.
• 18:02
  Just as far as the level of information that PE firms need, the speed of which they need it.
• 18:08
  Like, it can be overwhelming.
• 18:10
  If you're trying, it's like a second job.
• 18:11
  Right.
• 18:11
  If you're trying to sell your company.
• 18:13
  Can I just ask you about the wave?
• 18:15
  Because I referenced that and I hear Cody Sanchez talk about this wave of, you know, people seeking institutional capital or selling businesses for the first time.
• 18:22
  Like, what, what, what do you think is driving that, that wave?
• 18:26
  I know people are aging out and not wanting to pass on to the family.
• 18:29
  Like, is that the, the, the root of it?
• 18:32
  That's always the first question I ask, why now?
• 18:34
  Why do you want to sell?
• 18:36
  Because more often than not, you want that team to stay.
• 18:39
  Like, if you built this great business, like, we're here to support you.
• 18:42
  We're not here to take over the, the, you know, the day to day operations.
• 18:46
  We want you to do that.
• 18:47
  We're here to support you, you know, from value creation, obviously, capital growth capital, et cetera.
• 18:52
  So why now?
• 18:53
  And generally speaking, if it's family owned, yes, there's a, there's a family reason.
• 18:58
  Maybe the next generation has no interest in the business.
• 19:02
  They have other interests.
• 19:03
  So there's nowhere to pass the, the business along.
• 19:06
  And you know, they decide to cash out and God bless them, that's great.
• 19:10
  Other times they're just burnt out.
• 19:11
  Like we really, you know, I've been doing this for 10 years, I'm grinding it out.
• 19:15
  I'll stay on for six to 12 months.
• 19:17
  And as long as the firm is comfortable with that and you have a valid replacement in the C suite.
• 19:22
  Okay, fine, we can have a succession plan.
• 19:24
  But if it's simply, I'm just trying to get top dollar and I'm out of here in two weeks, like that's not going to fl.
• 19:30
  So, so you have to, there's got to be a sincere reason and ideally a sincere incentive to take it to that next level.
• 19:41
  So you have to share the wave, in essence.
• 19:44
  And that's my one advice to business owners is one, start the process one to three years before you actually want to sell because that's how long it takes.
• 19:52
  Otherwise you're leaving money on the table.
• 19:54
  And it's the difference between, you know, a 2x versus a high single digit 8x, you know, and that's another key point and I'm going to ramble here a little bit.
• 20:03
  You know, 10x's like that is so rare.
• 20:06
  And I think you also have to, you know, temper as a, as a seller, a business owner, temper your expectations.
• 20:12
  Like 10x doesn't happen very often.
• 20:15
  You better have a very good use case and a very clear growth channel to warrant that.
• 20:22
  And don't show me a 2 to 3, you know, past growth.
• 20:27
  That's just not going to get you there.
• 20:28
  Oh, I grew 5% in the last three years, but you're, I'm going to give you 35 in the next three years.
• 20:32
  How, how does that work?
• 20:34
  Yeah, so I didn't do it for myself, but for you I'll definitely do it.
• 20:38
  So that again, that's just the first line.
• 20:40
  But going back to deal, reveal why I created this scorecard.
• 20:43
  It essentially democratizes or creates an unbiased, you know, scorecard for a deal.
• 20:51
  And you know, first and foremost for the business owners that have never gone through this process, it gives them a gauge of valuation.
• 20:58
  What's the strength of my deal?
• 21:00
  On this first layer, it doesn't replace due diligence.
• 21:04
  It's just, it just gives you an honest, clear feedback.
• 21:08
  But what really drove this was, was two points.
• 21:10
  I was looking at a, a golf ware deal recently.
• 21:15
  Unfortunately it was pulled off market.
• 21:17
  Hopefully it comes back on market.
• 21:18
  Can't name the brand, of course, but I was looking at it with.
• 21:21
  I, I brought the deal to a private equity firm who I had a relationship with and they told me like, oh yeah, we saw this pass.
• 21:29
  I'm like, why did you pass?
• 21:31
  This is the reason why you should pursue this deal.
• 21:33
  X, Y and Z.
• 21:34
  And this particular deal had clear, you know, growth ahead of them.
• 21:38
  It was a door multiplier.
• 21:40
  They had just recently, you know, Launched into a large big box store.
• 21:46
  The test was phenomenal.
• 21:47
  Like 200 doors, like they were going to scale to 2,000 doors very quickly.
• 21:51
  So it's like there's a clear on ramp here.
• 21:53
  This is the time to get on board.
• 21:55
  They were well diversified and the PE firm said oh wow, we didn't look at it that way.
• 22:01
  And then they jumped back into the process.
• 22:03
  So that was, they weren't looking at the deal in a multi channel perspective.
• 22:09
  Secondly, I had an investment banker reach out to me on LinkedIn and I didn't know this guy.
• 22:14
  He was like, hey, you know, I see you're in the space, would love to pick your brain.
• 22:17
  I'm about to bring a deal to market.
• 22:19
  I'm like, sure.
• 22:19
  Jumped on a call within three minutes.
• 22:21
  I said, this, this, this company is not ready.
• 22:24
  So it was an outdoor brand.
• 22:26
  You know, they were doing about 12 to 15 million.
• 22:28
  Top line, very profitable.
• 22:31
  But they were only in E Commerce and they had one key item.
• 22:35
  They nailed that key item.
• 22:37
  But I'm like, I'm like, you know, dick sporting goods or you know, North Face could knock this off tomorrow and they're out of business.
• 22:45
  Like they, they have no, zero diversification.
• 22:49
  They hit this one product category on the head and they're crushing it right now.
• 22:53
  But that could change in six months.
• 22:55
  So he's like, ah, good point.
• 22:57
  Let me, you know, advise them of that, that and you know, get some more product breath, get another, a couple more channels, improve this out, then bring it to market because otherwise you're going to waste your time.
• 23:08
  This brand is never going to transact.
• 23:10
  And he was so appreciative of that, that quick feedback and had he had a tool like this, it would have told him the same thing.
• 23:17
  Right, right.
• 23:19
  So what, what are the, what are the elements of the tool?
• 23:22
  Can you, can you, can you back.
• 23:24
  To your original question.
• 23:25
  Yes.
• 23:25
  Okay, so there's basically six parts of the framework.
• 23:31
  It's the weighted averages that's equally as important here.
• 23:34
  Right.
• 23:34
  So there's financial health.
• 23:36
  Right.
• 23:36
  You gotta at least be making your gross margins and above industry average.
• 23:40
  If you're well below that, that's a hard pass too.
• 23:43
  In my opinion.
• 23:44
  One of, one of the most important things is multi channel diversity.
• 23:48
  You can't just be an E Commerce brand that just doesn't fly anymore.
• 23:52
  The contribution margins aren't there.
• 23:53
  There's way too much competition.
• 23:55
  There's a lot of reasons behind that.
• 23:57
  Third is market positioning again.
• 24:00
  And within market positioning also digs into your subcategory.
• 24:04
  Are you competing in a red ocean or a blue ocean?
• 24:08
  And a blue ocean, you know, points to your niche brand.
• 24:12
  You dominate in that niche and you have meaningful market share in that niche.
• 24:17
  So I look for that as opposed to, you know, I mentioned a basic blue T shirt.
• 24:22
  There's all these brands popping up left and right.
• 24:25
  They're all the best.
• 24:26
  Pima, but who cares?
• 24:27
  It's not really a brand.
• 24:28
  You're just, just trying to drive traffic and the advertising dollars behind that just aren't sustainable.
• 24:35
  Just on the, just on those last two, when you said it's not enough to just be an E commerce brand.
• 24:38
  Like what, what do you mean?
• 24:39
  Like what?
• 24:39
  What other things would you want to see from, from a company?
• 24:43
  Oh, great question.
• 24:44
  Okay, so when I say multichannel, I want to see wholesale distribution.
• 24:48
  Right.
• 24:49
  I want to see ideally your own stores.
• 24:51
  Now every category doesn't warrant your own store.
• 24:54
  If you're selling razors, you don't need a razor, you know, brick and mortar shop.
• 24:57
  But if you're in apparel, footwear, accessories, and that's really, well, as cpg, you know, I like to see if you can prove that you have a customer base that's willing to take the time to come to your store
• 25:10
  and it's profitable.
• 25:11
  That is a terrific sign because at the end of the day, if you can't sell your own product, you really have a brand.
• 25:16
  Yes, right.
• 25:18
  Warby Parker was the first example that sprung to my mind when I thought of that with the, they have Warby Parker, the glasses.
• 25:24
  Perfect example.
• 25:25
  I mean, you know, again, they were, they were on the forefront of this perfect example.
• 25:29
  So.
• 25:30
  And then also, you know, the love hate relationship with Amazon, you can't discount Amazon.
• 25:36
  They're very difficult to work with.
• 25:38
  They're getting more difficult, but you still need them.
• 25:41
  It's the largest search engine in the world.
• 25:43
  You know, it's the best logistics company in the world.
• 25:47
  But that's a cautionary tale.
• 25:48
  You still need it for brand visibility.
• 25:51
  But again, there's a whole strategy behind.
• 25:55
  I think there was a window for a couple of years where Amazon FBA businesses were an opportunity for, for stay at home entrepreneurs.
• 26:03
  But they didn't reckon on the huge data machine that is Amazon.
• 26:06
  And as soon as they see like, oh, we're shifting millions of dollars through this thing that we can make an Amazon Basics version of and undercut everyone and get all the keywords for free with no advertising costs because
• 26:18
  we've already got the eyes on the platform like we can.
• 26:20
  They were blowing entire, they were Blowing multiple companies out the water at a time and letting them guinea pig test the market for them at their cost as well.
• 26:27
  It was an incredible frame from Amazon, but yeah, tough business to be in if that's your only outlet.
• 26:34
  That's essentially what Amazon did with Whole Foods, right?
• 26:37
  They have all this data, what are the top selling peanut butters And I'll just knock it off and create my own brand and I'm gonna remove these other 12 brands in the competition.
• 26:45
  That's what they've done with Whole Foods.
• 26:47
  So.
• 26:47
  But that is absolutely true.
• 26:50
  Amazon is pay to play.
• 26:51
  But you still, depending on the category, you still need them as a channel.
• 26:56
  But again, if I see that that's north of 25% of your business, that's a red, you still need them, you need to contain it, you need to be very narrow in your assortment and in how you're driving that
• 27:07
  business.
• 27:08
  But again, depending on the category, it's still a necessary channel.
• 27:11
  So that's what I mean by channel diversity.
• 27:14
  And these D2C brands prior to 2020, if they haven't adjusted their business model by now, they're toast.
• 27:22
  They're just not going to survive.
• 27:24
  AG1's the D2C that always springs to my mind, but I think that they're operating on such a huge margin, like selling green powder for 70 bucks a bo, that they're probably protected.
• 27:34
  Right, right, right.
• 27:37
  So moving on down, down the list of what the scorecard.
• 27:41
  Of course, now there's tariff risk.
• 27:43
  Right.
• 27:43
  As of last April, you can't discount that.
• 27:46
  How is your supply chain set up?
• 27:48
  How nimble are you?
• 27:49
  Because they're changing by the day and month.
• 27:51
  And of course you can't just flip over a new factory overnight.
• 27:55
  So I like to see what that looks like and what the risk profile is there.
• 28:00
  And again, prior to last year, that didn't exist.
• 28:02
  Right.
• 28:03
  So this is, this is a metric that we need to be looking at.
• 28:06
  And then the last two, you know, obviously there has to be a thesis of MOIC fit.
• 28:12
  Right?
• 28:12
  How do we get to that 3x, what are we underwriting?
• 28:14
  What's the expectation?
• 28:16
  Is there clear growth channels and how are we going to get there?
• 28:19
  You know, that's the number one thing that any business owner needs to convince a private equity firm of that this growth is real.
• 28:26
  It's right in front of us.
• 28:27
  And this is how we're going to execute.
• 28:28
  And this is ultimately where we need your help PE firm to help get us there.
• 28:32
  And then last is that growth potential.
• 28:35
  So, so those are the, you know, the six kind of questionnaires that this, any user would go through on Deal Revealed.
• 28:44
  And it spits out a score between 1 and 10 and, and it also gives you evaluation range.
• 28:50
  So there's tremendous value.
• 28:51
  And by the way, it's free.
• 28:53
  There's a paid version, but it's totally free.
• 28:55
  It gives you a benchmark.
• 28:56
  Use it as you wish and you know, there's no, there's no risk to it.
• 29:00
  Amazing.
• 29:00
  Where do people go to find Deal Reveal?
• 29:03
  So you can go to growthmindsetadvisors.com and there's a button that says Deal Reveal.
• 29:07
  You can also find it on my LinkedIn page.
• 29:09
  Jeremiah Wanzell.
• 29:10
  There's a little link right in the middle of my page and takes you right there.
• 29:13
  Love it.
• 29:15
  And now that you explain all the factors, I can see without having to run through how Capizio fits all of those because you basically described it in the description.
• 29:22
  Are there any things that you thought about including and then knocked off, you stuck on six for a reason, like six and not seven.
• 29:27
  Like, is there anything that sort of just missed out on the list?
• 29:30
  Well, I also, I wanted to keep this as simple as possible.
• 29:34
  I mean, it is still a fair amount of data that someone would have to enter into it, but it's all data that you would have to give a firm or an investment banker from day one.
• 29:45
  So, and again, what's important here is whether you're a business owner, whether you're an investor or an investment banker, you can run this all through the scorecard and you know, and benchmark a, a deal and it'll give you
• 30:00
  the confidence to, to pursue or, or not to pursue.
• 30:03
  But those, those six, you know, kind of gates, if you will, that's the no go go or no go metrics.
• 30:11
  Now of course, as we get to that second layer, you know, this just gets you through that loi stage.
• 30:16
  Once you get through that, then the diligence starts and then we really start to dig into team culture, inventory.
• 30:24
  Those would be the next three things we dive into.
• 30:26
  Yeah, absolutely.
• 30:27
  Yeah, I love it.
• 30:28
  And it catches the things that the traditional templates miss because as you said, it's built on operator experience rather than financing the deal experience like it's done from the inside rather than the outside.
• 30:39
  So that's the magical thing about it.
• 30:41
  So, yeah, heartily recommend that to anyone who's in the market to go and check out dealreveal.
• 30:47
  So a couple of things that we talked about last time as cautionary tale, you mentioned Nike Mentioned Allbirds as like cautionary tales for consumer pe.
• 30:56
  Like what happened in both of those situations.
• 30:59
  Let's start with Allbirds, because I got some on my feet right now.
• 31:02
  They were unable to expand wholesale.
• 31:04
  What happened with that situation and why did it fall down?
• 31:07
  Yeah, listen, they were once a billion dollar unicorn and they had one product category and it caught lightning in a bottle and it was cool.
• 31:17
  They had good marketing, but they stubbornly stayed D to C for too long.
• 31:22
  And again, you know, 2020 was kind of, you know, the magic time because that's when iOS changed.
• 31:30
  IOS 14.
• 31:31
  And long story short, you know, advertisers and brand builders no longer had access to third party data.
• 31:37
  So.
• 31:38
  So your, your marketing dollars were less efficient after that iOS change.
• 31:42
  It was a big disruptor in the industry.
• 31:44
  Less trackable as well.
• 31:45
  Right, as well as a lot of efficient.
• 31:47
  Less efficient, absolutely.
• 31:48
  So, so that, that was one key factor.
• 31:51
  The other key factor that just changed the game was Shopify.
• 31:53
  You mentioned Warby Parker earlier.
• 31:55
  So all D2C brands, you know, prior to 2020, but really earlier than that, 2015, before Shopify, they've had to, they had to raise a lot of money not only for, for their brand and inventory, but they had to
• 32:08
  build a tech stack.
• 32:09
  Right.
• 32:09
  They had this whole other technology piece that they had to worry about out in Warby Parker was at 2009 or whatever it was, they had to build the tech stack.
• 32:16
  You don't have to do that anymore.
• 32:17
  You just plug into Shopify, throw your, your blue T shirt up and you're in business.
• 32:21
  So Shopify enabled all of these brands to explode on the scene.
• 32:27
  Then you had iOS 14 come out and it just completely changed the Dynamics of the D2C business and those brands that didn't shift along with it, their business model no longer worked.
• 32:39
  Your, your digital spend was not as efficient.
• 32:42
  The real winners were here were Meta and all, you know, social media that were taking your money, but you weren't converting.
• 32:49
  Right.
• 32:49
  So, so allbirds.
• 32:51
  So that was number one.
• 32:52
  They didn't shift into wholesale fast enough.
• 32:55
  Also from a product category, there was a misalignment there.
• 32:58
  Yes, there were some early adopters.
• 32:59
  You just mentioned yourself, I certainly wore Allbirds at the time.
• 33:03
  They really, you know, San Francisco based, they tapped into that kind of tech, tech world and finance world world as things became more casual.
• 33:14
  But they leaned too heavily on this whole sustainability thing that ultimately the customer didn't care that much about.
• 33:20
  So as they started to push that narrative and push that branding forward, they learned the hard way that that's actually not what their customer valued in the product.
• 33:29
  And so they didn't shift enough, they didn't listen to their customer enough, they didn't expand and involve their product category enough, enough.
• 33:36
  And by that time all these other brands started to pop up and you know, they, they went public.
• 33:41
  So long story, they went public.
• 33:43
  They're, you know, from a billion dollar valuation, they went bankrupt in last year.
• 33:49
  Now they're an AI company.
• 33:51
  It's a true story.
• 33:52
  They've actually pivoted to become an AI company.
• 33:54
  I don't know how that works but.
• 33:56
  I, I had heard that.
• 33:57
  I've not pivoted into it, but it's a, it's a straight, it's a, it's a big switch from a, you know, conservation sustainability company to an AI company.
• 34:05
  So I don't know, it seemed to, it seemed to do the job on the stock price anyway.
• 34:10
  Well, that's the only reason why I did it.
• 34:11
  And I'm not sure who bought that stock but wow, that's a stretch.
• 34:16
  So now let's go to Nike because this is a great contrast of why multi channel diversity is so important.
• 34:24
  And this is before, you know, the current CEO and Nike had a really tough go.
• 34:29
  They took their eye off the ball and they essentially tried to double down on dda.
• 34:33
  They were walking away from wholesale accounts.
• 34:37
  And that is a dangerous things.
• 34:39
  And listen, I always say this.
• 34:41
  All channels of distribution are important.
• 34:44
  They all serve a purpose.
• 34:46
  One's not more important than the other.
• 34:47
  They have to work together as a machine.
• 34:49
  And so if you are within a brand and there's always going to be a larger channel than another.
• 34:55
  But if you publicly say, hey, wholesale is most important here, you know, how does that make the D2C team feel?
• 35:02
  How does that make the, the retail team feel?
• 35:05
  Or vice versa.
• 35:07
  You should, you know, if you're the CEO or a leader within a company, they all have to be treated equal, irregardless of their size because they all need to work together.
• 35:17
  And Nike essentially walked away from the customers that got them there.
• 35:21
  You know, they closed Macy's, they closed dsw, they closed all these accounts.
• 35:25
  Should they have been shrunk?
• 35:27
  I'm sure, yes.
• 35:28
  I think there, there, there was a reason for that.
• 35:30
  But to completely walk away and think you're going to make that up in D2C was false and it proved that way.
• 35:37
  So in essence in dsw, for example, do you think that customer is walking down a DSW store and doesn't see Nike?
• 35:44
  You Think they're really going to think that.
• 35:45
  Let me jump on nike.com and look for this one sneaker.
• 35:48
  They're going to buy Adidas.
• 35:50
  That's there.
• 35:50
  They're going to buy another brand.
• 35:52
  So yeah, it's already there.
• 35:54
  So you know, that customer, they value the indoor experience, they value everyday low prices that DSW offers, That's what that channel provides.
• 36:04
  And Nike lost sight of that.
• 36:06
  And they arrogantly thought that they could just capture that customer, pull that customer back to D to C or into D2C.
• 36:14
  And they were terribly wrong.
• 36:15
  So there's more than just that.
• 36:17
  There was also a lot of product mishaps.
• 36:20
  You know, they took their eye off the ball on the running category.
• 36:24
  They got absolutely crushed by on and Hoka and Brooks.
• 36:28
  They took their eye off the ball on the, the FEMA customer.
• 36:31
  So there, there were a lot of things they did wrong during that time and they're trying to turn the ship around.
• 36:38
  But the cautionary tale is you have, you know, you know, the largest, you know, footwear and sportswear company in the world with Nike and then you had a D2C darling with Allbirds, you know, very similar mishaps.
• 36:54
  Nike didn't go out of business, of course, but the point is you have to be diversified, multi.
• 36:59
  Yeah.
• 36:59
  I actually had someone from Nike on the podcast in one of the early episodes and he, his description from now outside the company that he was told at the time was that Nike is a brand marketing company that
• 37:11
  just so happens to sell footwear.
• 37:12
  Right.
• 37:13
  And I think that's a smart way of thinking about it.
• 37:16
  But obviously, you know, if you're not being holistic in that view, as we've just seen, you've got that issue.
• 37:23
  And the other, the other interesting thing for me with footwear and those are both footwear examples is it's one of those things thinking about that Nike strategy that actually footwear, much like women's underwear, which you're, you know, a
• 37:35
  self confessed expert in, is one of the things where you can't just have a size and it just fits you.
• 37:39
  Like, like for me, like a size 10 and a half in Adidas versus Nike versus Reebok versus on.
• 37:47
  It's going to fit and feel very differently.
• 37:49
  In fact even, and I do have Nike shoes and my like Jordan 1 lows fit me completely differently than the dunks.
• 37:57
  And like there's huge advantage to being there because you can make the return process as easy as you like.
• 38:02
  And all Buzz did do a good job of that.
• 38:04
  But it's Still a hassle, isn't it?
• 38:05
  Like I've still got to put this in the box and then print a label and I need to go back down UPS and I need to send it.
• 38:10
  That's why people go to DSW still.
• 38:13
  And that to me is a value creation lever.
• 38:16
  I mean that is expensive to, to manage.
• 38:18
  And, and to your point, you know, again, Nike's an anomaly.
• 38:22
  They're, you know, they're the three headed monster.
• 38:24
  They're just so big.
• 38:26
  And yes, ultimately they're a marketing company but you know, in this, in this business it starts and ends with product and if you don't have the right product and product also fit, you know, and I'm sure the example
• 38:38
  you just used, these are different divisions within Nike.
• 38:40
  They have different specs.
• 38:43
  My gosh.
• 38:43
  Like that, that is, that is low hanging fruit and I think growth.
• 38:47
  Great advice for any, you know, small to medium brand.
• 38:50
  That's, that's, that's, that's growing up in the, and scaling in the business.
• 38:55
  Get your fits right and make sure that they are seamless across the board.
• 38:59
  And I think that's one thing that Polo does very well.
• 39:02
  Like, you know, for the most part at least from my experience and I wear many different brands but they're consistent with their sizing and, and if you have those, those variances that, that can be a very costly mistake.
• 39:14
  Like.
• 39:15
  Yeah, no, absolutely, absolutely agree.
• 39:17
  I was running an experiment the other day.
• 39:18
  Like both of my teenage sons have expressed at times various interests in learning how to do business right.
• 39:26
  And I was shocked with just how easy it is now, especially with the assistance of, you know, some of the frontier AI models to not only do market research to identify, you know, something you might do, but through
• 39:36
  that combination.
• 39:37
  You talked about Shopify, but you can hook Shopify up to Printify, up to a website and like you, someone could spin up a business in two hours.
• 39:47
  I think realistically it might be rough around the edges but I actually ended up not pushing it live because, you know, my son was busy and he wasn't going to do it and I've already got a business of
• 39:56
  my own so, you know, etc.
• 39:58
  Etc.
• 39:59
  But it was actually Fable was protesting at me quite a lot when I was like, I'm not going to do it.
• 40:04
  And it was like, this is going to cost you because of the free trials on Shopify.
• 40:07
  This is going to cost you, you like $200 to do a three month trial.
• 40:11
  You just sell two of these things.
• 40:12
  It was basically, I think retro gaming signs like metal plate retro gaming signs in anticipation of the resurgence of gaming when Grand Theft Auto 6 comes out in November.
• 40:22
  And like people like our kind of age are going to go back and they're going to want to decorate their game room and whatever.
• 40:27
  It's a reasonable thesis behind it.
• 40:29
  But basically they were saying like if you sell two of these things like the experiments, it's a free experiment experiment.
• 40:35
  And I wonder how if that was my thing and I had a bit of capital, I could start 100 of those things and just eliminate the 95 of them that do the worst over the first three months.
• 40:46
  So I think that's an incredible opportunity which maybe sits untapped still to do a mass data collection exercise of an early stage kind of CPG business and run and keep the winners.
• 40:57
  What do you make of that?
• 40:58
  Tell me I'm crazy.
• 40:59
  You're not crazy at all.
• 41:01
  I think I picked up a couple things and what I really jump on there, Graham is, is product focus.
• 41:09
  And I look for brands that I'd rather sell one thing to a lot of different customers than to try and sell a lot of different things to just a few customers.
• 41:19
  I often hear and look at sims and in these brands like we have 10,000 SKUs, I'm like, that's not a good thing.
• 41:25
  You are way over assorted.
• 41:27
  And when I hear that, that tells me that you got a full warehouse that's not churning and there's a lot of capital tied up in your inventory.
• 41:36
  So that's one of the, so that's kind of like the second stage that I look at.
• 41:39
  The second layer, once we get into due diligence is okay, what is, what does that assortment look like, what does your inventory turns look like and what are your key items?
• 41:49
  And the classic 80, 20 rule, like what 20% of your product, you know, range line sheet is driving 80% of the business.
• 41:57
  And you'd be shocked at the long tail of all these products that brands produce and even stock that just aren't churning, they're not selling.
• 42:09
  And this makes the business less effective.
• 42:11
  The version of that I see is Gordon Ramsay's Kitchen Nightmares.
• 42:14
  When he goes into a restaurant and They've got a 10 page menu with like 30 items on each page.
• 42:18
  And he's like, how can you personally do this?
• 42:22
  Excellent example.
• 42:23
  And I use that example all the time.
• 42:24
  It's funny you mentioned it.
• 42:25
  Yeah, I think customers one of a curated experience, right.
• 42:30
  We're, we're all constantly inundated with, with ads and just trying to take up that mind share of what you're trying to sell somebody.
• 42:40
  So I think the more curated that you can be in whatever product category you are, again, it all comes down to product.
• 42:46
  It's got to solve a real problem or it's got to create a real desire.
• 42:50
  These are two different things.
• 42:52
  Right.
• 42:52
  And so brands that solve a need, need and create desire are the most profitable brands in the industry.
• 42:59
  Skims is a great example.
• 43:01
  Look at what they're doing.
• 43:02
  What was that story?
• 43:04
  Skims.
• 43:05
  Kim Kardashian's brand, Skims.
• 43:07
  I don't know if you're familiar with it.
• 43:08
  I know.
• 43:09
  And they have obviously a very powerful spokesperson behind them with a lot of reach.
• 43:12
  Oh, my goodness.
• 43:13
  But, but it's also amazing products.
• 43:14
  You know, she's, yeah, she's obviously one of the largest influencers out there, but she makes great products.
• 43:20
  Product.
• 43:21
  She understands her customer.
• 43:22
  And not only did they create a collaboration with Nike, they created a brand with Nike.
• 43:30
  It's not just a collaboration.
• 43:32
  It's Nike by Skims.
• 43:34
  Like it's, it's one.
• 43:35
  It's like here to stay.
• 43:37
  So that is a powerful, powerful development.
• 43:40
  Nike's never done that before, so we'll see how that goes.
• 43:43
  It's relatively new.
• 43:44
  But my point is, is that curation and, you know, the brands that can really dial in their product market, fit, understand their customer by Persona and by channel are the ones that are winning.
• 43:56
  I mean, the, I think the power of a great brand ambassador plus tapping into a market.
• 44:01
  Gwyneth Paltrow had that and I think that's proof that if you have those two things, you can sell pretty much anything.
• 44:06
  Yeah, indeed.
• 44:08
  Yeah, indeed.
• 44:09
  All right, Jeremiah.
• 44:10
  I'm going to go off and start my own CPG brand.
• 44:12
  So I'm going to have to bring the episodes to an end.
• 44:17
  You already mentioned growth.
• 44:18
  Growth.
• 44:19
  Remind me of the website again for folks who want to find you growth.
• 44:22
  Mindsetadvisors.com growth mindset advisors.com I'll put, I'll make sure it's in the show.
• 44:26
  Notes underneath for folks who want to find you, who want to go and do the deal reveal for themselves.
• 44:32
  And in the meantime, let's, let's stay in touch and you know the rest of the audience.
• 44:37
  Watch out for Graham and Jeremiah disrupting roadside assistance D2C underwear.
• 44:42
  Coming to an Internet ad somewhere near Houston.
• 44:46
  Take care, everyone.
• 44:47
  Love you.
• 44:48
  Thank you, Graham.
• 44:49
  Thanks for coming on, Jeremiah.
• 44:51
  Cheers.
• 44:51
  Bye.
• 44:52
  Thanks for listening to the PE Data guy.
• 44:54
  The place where private equity meets data.
• 44:57
  Please forward this episode to your favorite private equity friend.
• 45:00
  Thanks for listening.
• 45:01
  See you next time.