Ingrid: [00:00:19] Hello and welcome to Infinite Shelf. This is the human centric retail podcast. I'm one of your hosts, Ingrid Milman Cordy, and I'm here with the lovely, stunning, sensitive.

Orchid: [00:00:33] Oh.

Ingrid: [00:00:35] Thoughtful and very, very, very fun to hang out with on a podcast, Orchid Bertelsen.

Orchid: [00:00:42] Oh, and you forgot someone who just consumes a lot of kombucha because we were talking about that earlier. Like how much kombucha is like too much kombucha to consume. And I don't know that we've settled on an answer.

Ingrid: [00:00:54] So yeah, I mean, you're going to have to have a personal conversation with your gut and your intestinal tract for that answer. But I will say be cautious of the sugar intake is my own... And coming from an also a kombucha fan, I love a good kombuch. But this is turning into the Goop podcast, by the way.

Orchid: [00:01:19] {laughter} Well, you also have to watch the hidden alcohol content. I'm not trying to get kombucha wasted on a Tuesday afternoon here.

Ingrid: [00:01:27] Oh, see, that's where you and I differ. And I'm pregnant. No, I'm kidding. I have been limiting my kombucha intake, but I have still been drinking some kombucha. Come at me. Anyway, so I'm very excited about today's episode. We are on our continuous journey through the DTC life cycle, which happens to, for better or worse, align with our life cycle. DTC companies came around and grew in popularity as we were establishing our professional careers, post-college. All of the DTC companies that you all know and love and have followed and have loved or hated or all of the different emotions associated, we grew up sort of in parallel to and certainly being in digital media, working at startups, corporations... We've seen quite a lot of the DTC journey. And today's episode we are talking about the midlife crisis of a DTC business. And so the idea is that at some point in your life you kind of take pause. You take a beat, you figure out, okay, well, I went from stage one and now I'm in stage two. What is stage 3 or 4 going to look like? And I think that it's really funny because I'm kind of in that place career-wise right now just in terms of what's my next challenge. But then also, I think a lot of DTC companies either are here now, will be here in a few years, or have gone through it. And so I think it's a really fun topic to explore. Orchid, what have I missed?

Orchid: [00:03:11] Well, as someone who is also deep in a midlife crisis, I think your point is right on. You spend the first few years of your life just trying to make sense of the world, and then you reach a point where you're not just trying to survive anymore. You're not just trying to get that first job out of college or even make sure that you can pay your own rent sort of thing. And you get to this point where you just ask the question of what do I want to be next? And I do think with growing up, I actually don't know how you describe 2022, it was like we were in a recession/we weren't in a recession. But at the end of the day, it wasn't about growth. It was about profitability. And so I think the days of cheap CPMs are far behind us for a variety of reasons. So the atmosphere in which DTCs could just launch and grow huge and IPO, those are just going to be few and far in between. So I'm sure a lot of DTC businesses are asking that question of what do I want to become? How will I measure my life? And just trying to understand what the options are.

Ingrid: [00:04:21] Totally. And even to add to that, what is my legacy? I think a lot of what DTC and we've talked about this in detail is what it had introduced into the consumer market was this idea of the humanization of brands, of this brand, is a person has a tone, is a three dimensional, four dimensional being. And so I do think that more so for DTC companies than traditional companies, the idea of what your legacy is, how you made your mark on your category, on your industry, on your target audience matters. A lot. And so it's really, really similar to the human piece. You're like, am I raising good humans? Thinking about all of those things. And so one of the obvious things as we think about really pure play DTC, particularly the ones that have started in the past like five years, they're in this place now where they're trying to figure out what their next step is in terms of ownership. So do you sell to the large corporation? Do you IPO? Are we still talking about SPACs? I think sometimes we're still talking about SPACs.

Orchid: [00:05:40] Oh yeah, that was a thing.

Ingrid: [00:05:41] That was a thing. But I think someone just IPO'd using a SPAC. And so all of these options are now available. And so having gone through being a company that was acquired and then also just sort of seeing some of the inner workings of corporations that were the acquirer, I just wanted to I thought we could talk about that today.

Orchid: [00:06:03] I think that sounds great. That feels great. Or it just might be the two kombuchas I've consumed already today.

Ingrid: [00:06:09] It's great. It's great. My stomach feels great.

Orchid: [00:06:11] I have, yeah, so much gut health. My question is, when we think about exits or when brands think about exits, do you think that they try to match the exit with a values conversation? Or do you think it's pure capitalism? And I know it depends on the brand, but I could see how a brand whose very values-driven maybe, you know given around sustainability they say like, "I want to grow because I can make a bigger impact." Now, some brands are born out of white space and the primary objective of the founder might be to just make a ton of money and that's totally fine too. And so in your experience, has the idea of values come into play when it comes to determining what type of exit you want as a company?

Ingrid: [00:07:04] I would say yes. Having come from a company, Nuun hydration, everyone knows I came from there and we were acquired. It was an incredibly values-driven company with the leadership that was very values-driven. But it's interesting because it was values-driven in some of our work toward sustainability and ultimately trying to encourage people to live healthier lives, powered through movement. And in order to move better, you had to stay hydrated and be hydrated efficiently. A component of that was also just reducing the amount of single use plastic that you would use, like in a Gatorade, for example, or in a ready to drink. It's also less of a carbon footprint when you're shipping out these ten tablets and a little tube that you then put into the water. So you're not shipping heavy water across the country or the world. So there are all these elements to the actual product and the product positioning. But there were also these value elements to the way that we treated our employees. And so there was a heavy, heavy emphasis as part of the leadership team, there was a heavy emphasis on equitable pay and being transparent in our pay structures and in our leveling, being transparent in our how we're hiring, our hiring practices. We would do a lot of things like removing people's names from resumes so that we can just look at the actual talent and try to not give in to like even just our subconscious prejudices and all of those things. So it was kind of this big piece of values that I think that there was an intention. And frankly, I think that as we were getting acquired, there were acquirers, like in the process that saw a ton of value in that, not just internally but externally, and telling that story. And that was sort of built into our valuation. And there were some acquirers that just did not it wasn't part of the equation. It didn't matter to them. They didn't see the value in it, all that kind of stuff. So I think as the company going in to be acquired, yes, that was definitely a part of it. And a lot of the questions that we had to the acquirers were, "How do you treat the employees? What's the process?" All of that kind of stuff.

Orchid: [00:09:42] Okay, that's super whole. That was going to be my next question. When you're fielding, if you're lucky enough to field multiple offers, does an acquirer being able to maintain the culture and ethos and values of the brand come into play?

Ingrid: [00:10:00] It does. It does. I will say that, and this isn't specific to my experience, but just having even other people I know that have gone through the experience, there's always a limit. People put their money where their mouth is, and so if they want to acquire you and they offer you a substantially higher number than everyone else, I would imagine that your shareholders, your private equity investors, all of those people have a say in just how much your values are worth.

Orchid: [00:10:32] That's a very Kendall Roy of you. {laughter}

Ingrid: [00:10:36] I'm not caught up. I have like one episode left.

Orchid: [00:10:39] You mean the final episode? Okay. I won't say anything else. Okay. But I mean, that's not out of character. But that's helpful because I do think that there are so many considerations when it comes to an acquisition offer that aren't really talked about. Because at the end of the day, your unit economics still have to work. You still have to have a healthy business that the acquirer believes that they can scale. I don't think... Well, there are some instances where smaller investors will buy something because they just want to run a lifestyle business or they just want to run it themselves. But [00:11:11] when we're talking about multinational corporations or larger corporations, usually you got to make sure that you've got a healthy business that you can just put your resources against in order to grow. [00:11:23] I will say that most companies, when they acquire another company, they're not built for corporate turnaround of any kind. So having that healthy foundation is extremely important.

Ingrid: [00:11:33] And maintaining it, I think is even more important and being able to maintain it. We have to assume that some of the folks listening to this show are in fact DTC owners or are on leadership teams or have some important say in what the next step for a company is. Based on your experience and also all of the things that you've read about the industry, what do you think is some advice that you would offer if you were sitting on the board of a DTC leadership team that is about to hire the bankers to go for being putting themselves on the market? What are some of the things or pieces of advice that you'd want them to consider?

Orchid: [00:13:05] Well, on the acquirer side, there's always this idea of buy, build, or partner, when it comes to new capabilities or how you want to expand your portfolio. And so I think as someone who wants to sell a company, I would want to be very clear about what I'm offering to the acquirer. Am I going after a portfolio company where my business will be able to help with their strategic roadmap? Let's say a company wants to, if we go with food and bev as an example, because that's where my experience is, are they trying to fill a gap in their portfolio? Is the market kind of moving to, let's say, a healthy or like clean ingredient direction, and the rest of the portfolio isn't that clean? So can you fill that gap? Or do you have something proprietary that's maybe some kind of advanced data analytics tool that will be able to help that company get a better read on the market in order to better help their innovation, as an example? And so beyond kind of like the business fundamentals, I would almost say like, all right, it's kind of like marketing all over again. What is your product? So what is your company? How do you want to position it? And then what audiences are you going after? So the audience "targets" could be a portfolio company. It could be private equity if that's what you want. But what does that look like? And then another aspect of this and I advise on a couple of technology startups is also the idea of an acquihire. And so for the leadership team, if they get acquired, are they willing to work for that parent company? And for how long? Because that's a very big piece of the equation as well.

Ingrid: [00:14:55] I'm so glad you touched on that because I think that that's the very foundational piece of this larger, I would say, hierarchy of decisions that you make about what does a post-acquisition, DTC brand look like? What are the things that you're selling? So you'll have that foundational piece that you're talking about with like the product and where it's unique in the market and its moat and how it is going to help the acquirer in their strategy to do X, Y, and Z. That's sort of the foundational piece. But then the pieces that need to sit on top of that are all a part of the puzzle, so how many and who on the current team and how they function need to stay on and for how long and in what capacity in order to continue making what is happening happen? And I think that that's a really important question for founders actually themselves to think about and weave into the dialog of the conversation and weave into the deal. Because I think often that responsibility to make those decisions about how do we carry something on and how do we not break what we just bought tends to fall much more on the acquirer who, frankly, even the most well-intentioned, well-positioned, well-experienced acquirer, [00:16:28] there's a reason why acquisitions don't have the most fantastic reputation for succeeding post-acquisition. And I do think that a lot of that is because too much emphasis is put on the acquirer to solve those problems after the fact. And I think that my advice, and it's really similar to yours, is to have the founder or have the people who are running that DTC business think about what is that secret sauce of the company. [00:16:57] And it certainly starts with what the product is and what its place in the market is, but it by no means ends there. And all of the supporting elements around it, are just as important as the sum of its parts.

Orchid: [00:17:14] I agree. Did you watch Emily in Paris, by the way? I'm about to make an analogy.

Ingrid: [00:17:20] I saw the first... I kind of hate-watched the first season.

Orchid: [00:17:24] That's the only way to watch it.

Ingrid: [00:17:25] Yeah.

Orchid: [00:17:26] Okay. So I guess it's spoiler alert for Season 2. I think it's Season 2. So do you remember the fashion designer Pierre Cadault?

Ingrid: [00:17:34] Yes.

Orchid: [00:17:35] So he ends up getting acquired? Yes? Okay. I actually don't remember which season this is, but the new parent company opened his stores and basically created holographs or holograms of him. And he hated it.

Ingrid: [00:17:46] Of course they did.

Orchid: [00:17:48] So that's actually a warning. Not the holograms. But [00:17:53] if you're a founder and you're selling, what you also have to be emotionally ready for is if the parent company starts to make strategic decisions about how to use the brand that you wouldn't necessarily agree with because it's not yours anymore. Post-acquisition is not yours anymore. That's why they paid you the money. [00:18:10] I know that's a very unpopular kind of harsh thing to say, but it's true.

Ingrid: [00:18:18] So true.

Orchid: [00:18:18] When you're in those negotiations, having the mindset of, okay, I'm about to cede power and control over this thing that I've created, and sometimes your name is even attached to it. That has to be an emotional thing that you're ready for.

Ingrid: [00:18:34] Big time. And I think the more emotional and connected to its consumer the brand is, the more important that is. And if you think about the legacy brands, like the real legacy brands, that have stood the test of time, they're still all privately owned.

Orchid: [00:18:54] Patagonia.

Ingrid: [00:18:55] Patagonia. And even on the higher end, like Chanel is still privately owned. Prada is still mostly privately owned. And then you actually see the contrast with a Gucci, for example, that is not privately owned, still, has a strong family interest and all of that, but is owned by what is it Kering?

Orchid: [00:19:17] Yeah.

Ingrid: [00:19:17] And they have a lot more of a tumultuous relationship between their commercial end and their couture and how those two interact. The creative directors have left for a lot of different reasons. That tension I think with being a private company and being owned consistently throughout a family or through a trust or whatever it is, makes a huge difference. And I think it's a lot easier for brands to maintain who they are without being acquired.

Orchid: [00:19:54] I have a counterpoint. {laughter}

Ingrid: [00:19:55] Oh, please.

Orchid: [00:19:56] If we're using Gucci and Chanel as the examples, my counterpoint is that I believe Gucci today is better positioned for innovation and fluidity in redefining their brand than Chanel is.

Ingrid: [00:20:12] I think that's a very fair point, and I would say that's more a representation of the changes in creative direction right now. So Karl Lagerfeld having passed and then having new faces or not new, but promoted faces as the lead creative direction, and I don't want to turn this into a fashion podcast, but don't tempt me with a good time.

Orchid: [00:20:43] It's DTC.

Ingrid: [00:20:43] But I agree. And I think Chanel has always struggled with having its feet grounded in legacy and also being relevant. But I will say, and this... So when Alessandro Michele came to be the Creative Director at Gucci, I think it was in like 2017 or something like that, he completely resurrected the brand. It was always like a heritage brand and people always had a ton of respect for it, but it wasn't cool. And he made it cool again. He has since left, again because of some conflicts with the commercial end. And I cannot comfortably say that I am in the market for anything Gucci right now because it is so incredibly commercialized. It just doesn't... It's lost its thing. It's like when Phoebe Philo left Celine. There's no comparison.

Orchid: [00:21:46] I have a different relationship with Gucci because, little-known fact, but when I had my quarter life crisis, I actually quit my law firm job and became a sales supervisor at Gucci in Tysons Corner in Washington, DC.

Ingrid: [00:21:59] Oh my God.

Orchid: [00:22:00] Which is where I fell in love with marketing. So that's for another time. But there is this special place in my heart for Gucci. And I agree that they're very commercial right now. They've gone very extra, they've gone very maximalism. There's a part of it that I don't know if it's just my emotional tie because it was a very key part of my development and my career.

Ingrid: [00:22:26] A hell of a place to learn how to build a brand.

Orchid: [00:22:28] It is. {laughter}

Ingrid: [00:22:30] In an excellent way, like in the most positive way.

Orchid: [00:22:34] Totally. We'll have to do it an entire luxury fashion brand episode coming up. Me as the consumer and you...

Ingrid: [00:22:45] We'll get canceled. {laughter}

Orchid: [00:22:45] We'll save it for our only fans. Maybe. {laughteer}

Ingrid: [00:22:50] But yes. Okay. Please finish your thought because I'm curious about the Gucci piece. You understand that they're more commercialized.

Orchid: [00:22:58] They are.

Ingrid: [00:22:59] Where is that going? How do you fix that without like another brilliant creative director coming in and being like, "Absolutely not."

Orchid: [00:23:06] Is that bad?

Ingrid: [00:23:07] Oh, no. I mean, it's not bad. No, it's not bad. It isn't. And it's highly profitable. Actually, I'm not familiar enough. We should come back and look at how I would... If I had to wager a guess, they're performing exceptionally well and they are probably more profitable than they ever have been. But they wouldn't be in this position to capture all of this commercial mass attention if it wasn't for the five, six years ago when all the cool kids rediscovered Gucci and made it cool again. And so you can't there's only a certain amount of time that you can be on that commercialized wagon. And this kind of goes back to our profit and growth conversation. The growth piece where you had to invest and they're hiring Jared Leto and Billie Eilish, all these like celebrities to wear them head to toe and take over the Met gala and the whole thing. But then you can then sit for a couple of years and just rake it in because then all the more basic and more accessible, still very expensive, but more accessible looks, not so much the fashion, but the things that that are the highest margins, like the small leather goods, the bags, the belts, the wallets, all that kind of... The shoes, like the loafers and all that kind of stuff, just become omnipresent. And that's when you're really making a lot of money. But I would strongly argue that you can't have that without that massive growth phase.

Orchid: [00:24:43] Yeah, I think that's right on. And I think why we haven't gone on a tangent this is relevant to our conversation is that when you go through an acquisition, I think most people do think about scale. It is about bringing it to the masses. And so there are a lot of brands out there that are pretty precious about the audience or customer base that they have. I've seen it. We've been a part of them. There was an ice cream company or an ice cream brand I had worked on. And they thought of themselves as a luxury good, and I was like, "Hey, at the end of the day, you're like $6.99 on promo at Kroger." So like, I don't know how luxurious... We can talk about affordable luxury. And so again, that is something that inherently changes is that a lot of DTC brands have a very specific focused customer set at the very beginning of their inception and they can be very core to that consumer. They can continue to just continue to sell to them. But [00:25:44] with growth comes mass, more mass opportunities. You have to be more approachable, you have to be more accessible, unless you are a true luxury good. [00:25:52] And so you got to be prepared for that as well.

Ingrid: [00:25:55] No, I agree. And I think in the topic of acquisition and where that responsibility falls, I think it's on both because no one is going... The acquirer, no matter how much due diligence they do, they're never going to fully, fully understand what makes your brand yours. And so it is up to the brand that is being acquired to fight and sometimes fight like hell to make sure that the acquirer understands and all of that. And so and again, this isn't just from my personal experience, this is from other people and just reading case studies and things like that. So we are by no means just talking about the Nuun acquisition, but just having lived through it, part of it is just figuring that out. And again, I actually do like having the perspective now, I do think that the right thing to do for Nuun at that time was to be acquired and to be acquired by such an incredible CPG force like Nestle or Nestle Health Science, because they were able to fill in some of the gaps of scalability and things like that. But I think you can't have one without the other. And so that would be my sort of dual recommendation, to piggyback on yours, to my advice.

Orchid: [00:27:16] Yeah. I have a question. So now that you've been through the process, was there a question that you wish you had asked during any part of the acquisition process that you didn't know enough to or maybe didn't get the opportunity to?

Ingrid: [00:27:30] Oh, it's such a good question. I mean, it all relates to this, so figuring out what the team structure is, what the piece of the company, whether it's employees or whether it's certain parts of our values that they are looking at as part of the business model. Not just like the margins and things like that, because we all know they're already doing that and building that in and figuring out what the investment strategy is, where they're going to go from growth to profitability. And we were actually sold as we were already good on that. We didn't go crazy. We were very responsible with our spending. But just figuring out where on that pendulum of growth and profitability they saw us and how we were going to meet our scalability goals based on how they were going to now operate us.

Orchid: [00:28:27] Oh, that's great. Do you have any advice for people going through this process?

Ingrid: [00:28:35] It's definitely an exploration in reflection and getting down to brass tacks. I think the advice that I would give or the part of the experience that I want to share is that it's definitely an opportunity for the company that's being acquired to get down to the fundamentals of what their business is beyond the unit economics and their market share and all that kind of stuff. I think that's very obvious. The less obvious things of like, "Well, this person kind of always comes up with this messaging that just seems to resonate," or "This part of the country we've tried and tried and tried, and for some reason our messaging isn't resonating. We've decided to sort of not focus there and just focus on our strengths," or just those little things are just really basic examples are things that should be coming through in your questions to potential acquirers, to your conversation with your bankers who are helping put together the storyline and everything that you're going to market with, as well as in your management presentations to the people who are interested in putting in a bid.

Orchid: [00:30:07] So this may seem like a very basic question, but what exactly is the role of the banker in all of this? Because it sounds broader than what I initially thought.

Ingrid: [00:30:19] So they're like the matchmaker kind of thing. They will help you put together the story of your business in the context of being acquired, which is different than the story of your business when you were telling it to a consumer or even an investor, probably closer to an investor, but more so on the acquisition phase. So they're going to help you tailor that. They're also going to help a lot in your valuation, so what the actual scope is. Are you going for X amount of 3X or 15X annual revenues?

Orchid: [00:30:56] 70X. {laughter}

Ingrid: [00:30:57] 70X, maybe.

Orchid: [00:31:00] It's not software.

Ingrid: [00:31:02] I mean, I'm totally in the wrong business. But yeah, so things like that. So they'll help you sort of rationalize and they also being in the acquisition banking pool, it's kind of a small network and a small world. And so they will help you with a little bit of inside baseball of like, "Oh, this company sold for X amount." Like information that they probably know because they know someone that knows someone, but just stuff that will help you reframe a narrative and look at numbers in a different way. They're kind of just your partners. They're the intermediary. And then I think that they serve the same purpose for the acquirer because they have their interests in making sure the acquirer is happy because they're also their clients. And they will they are building their reputation. And so actually, in all of this, the main thing that I want to say is the people, the bankers that you hire, [00:32:03] the people that you hire to help you be acquired, is another huge, important decision. They have to know your business and see the vision and see the purpose and be your champion just as much as the founders. [00:32:22] They cannot be in it just for the... Everyone's in it for the money. Don't get me wrong, but that can't be the sole thing. They could be really great at that, but they have to also just really embed themselves in your business. These are people you're going to be on the phone with at 6 a.m. before an 8 a.m. call and putting together a deck and making sure... They're your partners. And so you have to have a good working relationship with them. You have to build a good rapport with them. You have to trust them. They have to trust you. It's a really, really key partnership that a huge piece of advice would be for founders and people that are in this phase of their journey to consider deeply.

Orchid: [00:33:05] And how do you find one? Do you Google them? How do you find one?

Ingrid: [00:33:11] I am not the expert in this, so I don't know the exact answer, but I know that there were like a few different bankers that were willing. It's probably like an RFP kind of thing. Where you're like, Oh, I think... And then everyone, everyone sort of like your investors and your board members have these networks because that's kind of like what they do, and so I would imagine that that's your first place that you go to and see like, "Oh, here's our network, here are our options." You start dating them and seeing which one is a match, but doing that work up front and really finding the right bankers is really important.

Orchid: [00:33:50] Yeah, I was going to go with probably advisors, board of directors because the couple of startups I'm advisor to, they will send investor and advisor updates and I think the strongest ones usually have a section called "Title Asks," or "Requests," and then a lot of those connections or requests for connections take place there, which has always been very helpful, I think on both sides.

Ingrid: [00:34:17] Love that, love that. Yeah. I think another thing that the bank had done was they helped do some media training for some of our leaders, which was great. So yeah, they just kind of come in and they see where some of the gaps are in your storytelling or your messaging or whatever, and they help you there so they can be a huge part of a successful acquisition. This is fun. I like talking about the acquisition stuff. It's a little like inside baseball and the secret sauce.

Orchid: [00:34:46] That's because you like talking about money. Just kidding. I'm kidding.

Ingrid: [00:34:49] You're not wrong. But it's not the only thing.

Orchid: [00:34:55] Peak capitalism. No, I think it's great. I mean, this is why this episode was so exciting for us to record is that a lot of DTC brands have done gangbusters. They've been so successful. But different economic environments have kind of changed course or they've always had maybe had an exit in mind or maybe the founders wanted to do something else. And so I think just that question of "What do I want to become as a founder? But what do I want my brand and company to become?" is such a key one. And of course, beyond acquisition, there are so many other options. But I'm really glad that we saved this space to talk about this.

Ingrid: [00:35:34] Me too. Me too. It's super fun. And as always, I am constantly looking for feedback and questions and I actually think we're going to throw up a little request for AMA for questions. We'll do a little solo hang or dual hang, whichever, and answer some of your questions. It could be about this episode, It can be about DTC in general. It can be truly anything about digital retail media or digital media. And we're here for you. So if you like the show, please do all the things: like, subscribe, follow, tell a friend.

Orchid: [00:36:10] Five stars.

Ingrid: [00:36:11] Five stars. Five stars are best. And from the podcast "Everything is the Best Except When it's the Worst," is one of my favorite podcasts. She always reminds her audience that shitty comments are for shitty people.

Speaker3: [00:36:30] Oh that's true. Love that, love that.

Ingrid: [00:36:33] And that doesn't mean we're not... We want to hear the negative...

Orchid: [00:36:39] Not the shitty ones.

Ingrid: [00:36:40] Not the shitty ones. Don't be shitty. But if you have some actual advice or some things that you'd like to hear that we're not giving to you, please. The only way that you can make that happen is by sharing. So please do so. And thanks again, Orchid, for hanging. This has been so fun.

Orchid: [00:36:55] Thank you. Bye.

Ingrid: [00:36:56] Bye.