Portfolio Management for FBA Aggregators

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Stefan Haney  4:01  

Yeah, the emergence of private label aggregators, and you’re probably keeping a scoreboard but it’s one of those things. It’s like the Old McDonald sign, you know, I think they update the number every morning. You know, for doesn’t five doesn’t six doesn’t get a few dollars go by business. And I do think, you know, things will shake out at times as people learn the work, you know, it’s real work and you need to, or operators. If your shipments held up at a dock, you know, how do you pick up the phone? Or how do you work around that? So it is not to underestimate them. But I think you know, as other people have said on this on this podcast, that, you know, we’re reaching a point where e-commerce and the shift to e-commerce and the opportunity for businesses to grow to a size where people can start to see their value. We’re taking an age old business model of brand aggregation. And now we’re applying it to brands born online. So Amazon’s are first Focus. And we’re able to see how this model is going to work online. You know, and the businesses have caught the attention by their size, and people are shopping. So they start to see these things. They see them day in and day out as durable brands.

James Thomson  5:14  

I’ve got all these brands asking me questions around is now the time to sell. Should I be thinking about talking to these companies that are looking to invest in companies like mine? Let me ask you, what do you think’s going to happen in the next couple of years that will allow us at some point to say, Are things starting to mature? Are we seeing enough aggregators that, you know, the landscape is going to be stable for a while? Or do you think that these FBA brands are gonna be able to continue to have more and more choices of investors jumping into to look at buying their businesses.

Stefan Haney  5:47  

I think the differentiation is going to start to emerge more. Right now. It’s early days in the playbook heal for all of them is pretty straightforward. There could be minor differences. But you know, what are your acquisition criteria? Are you picking right? or picking companies that have legs and brands that have potential? Or have they already peaked? Because the marketplace and Amazon can come and go? And then do you have the skills and ability to actually operate and grow them? So there will be a day of reckoning at some point, you know, where you see aggregators, who can really grow these businesses? Can they operate them and grow them? When the tailwind, maybe tailwind of e-commerce growth isn’t as big? That will be a differentiator? What’s your growth ability? And then I think the additional you know, what’s 18, 36 months? You know, do you want to trust your brand, trust up to somebody who can help grow it? And then what’s going to keep happening with the brand? Are you going to be a product line? Is it going to be our different aggregators or different brand businesses going to get beyond just the Amazon Marketplace, they’re going to get into really a brand building customer engagement business, that differentiation migrators. And you’ll start to see people sort out, right, some of these areas don’t have a ton of money in the back, right? 25 million, or you know, a smaller amount of capital, may help you get started. But then you really are needing to grow to keep driving your acquisitions. So there will need to be a flywheel. Where aggregators are also how they are driving the flywheel of creating new brands to build either because they’re doing them or provide services to founders that keep spinning up a Foundry pool.

James Thomson  7:29  

Once upon a time, Amazon was an exciting destination for folks that said, I’m going to go build my own private label brand, because there’s all this cheap manufacturing capacity out there. What do you think’s going to happen over the next couple of years as some of these investors get more sophisticated and do start building out their own brands, and they’re now actually competing with the very types of companies that they otherwise might have been acquiring today, but two years from now they’re they’re competing directly with

Stefan Haney  7:58  

I think you’re ambitious to think it’s going to be two years. As you started, there’s a lot of work in solving supply chain trouble, or solving supply chains and making them efficient, getting a product development process up where you can start recognizing customer opportunities, demand, but let’s say whether it’s two years, or whether it’s five years. I, part of part of my thinking, and part of Foundry’s thinking is, as we invest in founders, you know, we want them to participate. And at some point, their business grew to a point that you know, whether they’re spending more time on operating, and they really love product development, or they started this business to spend time with their grandkids, and create some portability for their family. Now they’re spending a ton more time because it went well, and they’re growing, right? Yeah. So I think you know, what we want to do is help our founders spend more time what they want to do, and if it is, you know, just go back to something else, or if it’s go focus, and I think the aggregators that and I think the brand companies that start to find ways to scale and find ways to contribute more to the ecosystem, right now. flywheels pretty narrow. It’s a fine brand to buy, buy them and grow them. Yep. And I think you’re gonna find more cogs come up in the flywheel, you’re already starting to see them emerge. What financing can we do? How do we do invention, right? Even the invention of three p at Amazon is because there’s a lot more sellers than one P partners at Amazon and so sellers can do more, then they’re going to be more founders. So I think aggregators that facilitate that fit that founder flywheel for those who want to keep inventing, I think that’s I don’t think it goes away.

James Thomson  9:35  

So there are a lot of companies looking to be purchased right now. And when I think of the conversations I’ve had with some of these FBA aggregators, they’re literally seeing hundreds of inbound inquiries a week of companies saying Pick me Pick me. I’m curious how your company thinks about the process of evaluating firms, whether it’s inbound, whether it’s outbound, how do you find those firms that make sense for you, and how do you Do that efficiently.

Stefan Haney  10:02  

As you know, as you’ve talked to a number and I’ve listened to several podcasts or talked to some of those groups myself, there are certainly brokers out there. And that’s certainly one way to move people around, or to see who might be available. You know, I think the thing that I look at or that our team looks at is we come with a fair amount of Amazon expertise. I’ve been looking at seller growth and factors of seller growth and what causes seller growth for decade plus now. Yeah, we got to play on the detail page, right, run the Amazon Detail page for some time. And again, look at what drives conversion, what drives e-commerce growth. So we certainly look at some of the same data points that I think the other people you’ve talked to, but we also looked at, in contrast as to what what’s happening on the Amazon Marketplace, what’s Amazon happening on other marketplaces, to where we can predict or we can take a an assessment at does the seller have growth potential? Do we think they do this brand have growth potential? Do we think it’s attractive to customers? And do we think that’s going to happen over time? And look at the data points to do that. And then do we think they’re a good mix to our portfolio? Or do we think that they might be better served somewhere else?

James Thomson  11:16  

What does portfolio management mean today, because right now, I look across different aggregators, some of them are buying every kind of category of product, you can imagine. Some of them are saying, well, we prefer more of the hard lines, some of them are still trying to figure that part out. You’re in a stage where you’ve got a lot of options in front of you, how do you see the process of making sense of all these companies and building internal expertise, when you literally could buy companies in any number of categories?

Stefan Haney  11:47  

You certainly see that behavior, right? It’s sometimes interesting to me, maybe it’s a party game to look at some of the other sales, some of the other groups, some of the brand groups and try to see if I can guess their acquisition strategy. Some of them seem to make it really hard. I’m not sure why they bought that brand. Or, you know, I used to work with that brand back at Amazon. And that seems like a mix of their portfolio. Yeah, when we’re looking at buying brands, and we’re looking at working with founders, it’s a mix of founder brands, we want to see that there’s opportunity to keep growing the brand. Yeah, as you’ve talked about. And so yeah, we’ll add additional inventory is a supply chain issue is an inventory issue. Are there levers that we can work with and work with the brand in our portfolio? And do we see some potential so in a portfolio advertising spend, those brands may not need to be super connected, right, to start applying some efficient processes or changing ID your advertising spend, but an inventory or on DTC, if you’re looking to use some of those levers, the products may need to be more similar. So you know, part of our team one of our founders has built from scratch multiple brands, not on Amazon, all they have an Amazon business now. But including DTC and going into retail and from production and brand on up, and the ability to understand how packaging is going to work and rebranding. And that’s how I think the portfolio manager comes to play: are you choosing a strategy that is going to require efficiencies from brands that have overlap or have similar either similar supply chains or similar packaging? And that’s where we look at clusters? Because we do want to find some of those efficiencies, use that as part of our portfolio management. Like the second thing about performance that I don’t hear talked about as much as sighs great is You and I both know, you know, the, as you get bigger on Amazon and become a bigger seller, the rate of growth decelerates, or it can become a little bit harder. Not everybody’s an acre, the, you know, keep shooting up there. You know, I think there’s also looking at portfolio management of what size of acquisitions you’re trying to bring into your group. And if there are bigger brands that you’re bringing into your portfolio, how do they accelerate the rest of your portfolio? is a platform and infrastructure is that people that came with the brand? Or does it open additional? does it bring on customers that are familiar with that brand that you can then do some additional marketing of your other brands with?

James Thomson  14:27  

So let’s shift gears and talk about the brands themselves. What kind of best practices Would you like to see more private label brands pursue before they actually go down the path of trying to hock their business for someone to buy?

Stefan Haney  14:43  

You’re getting a word in the last few months with several offline businesses getting their business ready: founder-led businesses or family visits or physical on Amazon. So that’s been present in my mind lately, and I think I don’t. I don’t know if I have anything new to add. Are your accounts in order? Right? Are your finances clear? Right? Are you? Do you have a good accounting system? Do you? Have you done reconciliation? If you’re 100%? Amazon, that may be easy. If you have some amount of off Amazon, have you accounted for that? And have you accounted for your risks and costs? Be clear with your potential partner up front? What are your potential risks and costs? Risk could be, you know, how many claims have you had? Or where do you see exposure or if you’ve had a reason supplier shift, that’s, that’s going to impact your potential risk level with your partner. So you keep clear on what the financier and then I think the second thing, the one thing I wish I saw more of was a little bit more documented process, right? When we work at Amazon, always thinking about growth, and you’re thinking about scale. So transactions and events are always looked at in context of Is this normal? The new normal? Or is this actually an outlier? And what I find and what I found in working with some smaller businesses is they tend to view a lot of the events as just events, and as outliers, rather than an indicator of because our business is getting bigger, this is going to happen more often. Let’s build a way to handle this. connected to that as well. And having processes documented or just how things work, is there’s a lot tied up in founders’ heads. Right? And so it will take time to kind of go Oh, yeah, that’s how we always did, I forgot on Thursdays, we always went in and checked the screen, and then sent an email, to remind suppliers to get their shipment out.

James Thomson  16:39  

The issues I’ve had several entrepreneurs who were looking to sell, they want to get to the point where they sell their business, and they can walk away fairly quickly. And to your point about standard operating procedures, a lot of this stuff isn’t documented. And so if everything’s sitting in the head of the founder, or one particular employee who may not be part of the transition team, how do you make sure the new owners can take that process on and do it in a way that at least they know what the baseline expectation is, they may make improvements, but getting that stuff documented? If you’re a big complicated business with lots of selection, lots of different subcategories. Lots of suppliers, that becomes a lot of work to do long before you go to market, getting all that stuff documented and organized and realizing that someone else is going to read through this and say, Well, that’s a cockamamie way of doing things. We probably should streamline that a little bit before we have to turn this over to someone else.

Stefan Haney  17:34  

You confuse between just writing down and documenting what you do and what is just to make the clock run versus getting sucked into Oh, we can make that better? We can make that better?

James Thomson  17:44  

Yeah, yeah. Yeah,

Stefan Haney  17:46  

I used to have a boss and Amazon, there’s lots of things broken. And if people could see behind backstage, they’d be like, wow, how does the show even happen? If someone’s taking over your business, you are inviting them backstage right? To see the mess but and light is a yellow light is a sanitizer as you shine lights on things. But you have to decide as a whole, it’s gonna sink us or not. And so I think there can be some nervousness of like, hey, if we showed them backstage, the deal might not go through. And so I would say first, just in the process of getting ready for sale, that’s an inspection that will help you improve your business. And you should make notes of what, what could be improvements and decide if you want to do them if they will be impactful at the right time. So separate the time to fix from the time to document. And then I think you wanted this is where I think the differentiators between brand aggregation businesses will start to come through because if that founder is gone, they’ve gone on a vacation because they’ve been working hard and there’s no cell phone service in the Boundary Waters of Minnesota. Sure. You know, brand aggregators either have a service provider or a Twinings. We at Foundry have some baseline best practices, right? Our acquisitions team and our integration team has onboarded hundreds of seller businesses and brand businesses into Amazon and the role of Amazon. And so we have some muscle memory, one to also detect, because brand founders don’t always know don’t know what they don’t know. They’ve seen their business, they may have seen a few others. We’ve seen, you know dozens of businesses, right? Right. So we may also process permits that way, but also gives us some best practices that we can fall on and say well, until we know more, we’ll try this and at least give a baseline.

James Thomson  19:37  

One of the things that I’ve been fascinated with going through doing due diligence for a number of these companies, whether it’s for the brands or for the investors looking at the brands. When you go through a look at so many businesses that are Amazon centric, you basically have a product that foundationally may be fairly similar to many other products, but they have strong social proof. They may have good enough inventory management to stay in stock. And they have reasonable enough margins that they can buy a bunch of traffic and make sure that their eyeballs are looking at their products. And yet, when you look at it at a foundational level, what does it mean to build a brand? What does it mean to engage with consumers? What does it mean to solve a problem that consumers can’t otherwise solve? A lot of brands, online or offline alike, don’t necessarily do a good job of doing that. And so my question to you is, what does it mean to be a meaningful brand on Amazon? Do you need to be a meaningful brand? Or are you basically a social proof engine that has a bunch of ad budget?

Stefan Haney  20:41  

I don’t know if I can get to philosophy school, and quite often say that right to philosophical and meta on, what does it mean to be a brand? But I do think it’s not a very crisply answered question. Right, as I’ve talked to, you talked to the brands, but you should talk to the brand businesses. It’s not a McKinsey answer of maecenas. To say, a brand is this and has these attributes. So certainly, when I see it as a minimum, it’s a connected set. It’s a product line, it’s a connected, cohesive set of products that meet features on Amazon, you know, brand durability, maybe a little easier to unseat, then then when you have some of the physical brick and mortar moats, right, it’s a lot easier to get shelf space on Amazon. Yeah, you get distribution, you don’t have to negotiate with somebody just there. It’s just an ad budget. But I do see differences. And I saw this on how differences on how brands pay attention to customer repeat purchase or customer engagement signals. Did you know you are monitoring the auto listing optimization quickly a minute, you know, just because a lot of time on a detail page? Yeah, there’s a lot of brands who come in and, and they set their product bullets and forget it. Alright, I put my product images up and forget it. Versus, you know, if you think about it, like a physical store, you’d rarely set up a physical store where you stock the shelves and make a little showcase and then walk away or never change the front showroom window. Right. And you’re missing out on learning customer signals. If you get a bunch of reviews, and a lot of these brands love looking for reviews. Or you get some ask questions, you now have hundreds of words, on a part of the page that a minority of people may go to less people scroll down and start at the top, you have signals that you’re bringing back to your product bullets, right customers, were looking to understand more about your brand and product. Did you bring it up to where the customers are? No, because you set it. Forget it. So I think the first step to me is our brands paying attention to customer behavior. And I would want to see brands, you know, pay attention to customer behavior as something that makes it a little more of a brand versus a Products Company. Right? And then whether you choose to do that off Amazon and really make a brand story and say Where are my customers? And should I look at them not only on the marketplace where they come to me, but should I start looking at where they are elsewise, and connect with them as a brand. So that’ll be just like we’re applying an offline brand model to brands born online by doing brand groups and aggregators. I do wonder where the overlap will start to creep in of other brand best practices and brand building that occurs offline. What we start seeing founders have snippets in a shark tank way, right? Here’s our stories. Right? What we start to see are media snippets. And like some of the discovery TV show ways, right when we see kind of those personas I don’t know. But I think to be a durable brand, definitely paying attention to customer behavior, in some form is key. And that’s part of what makes it people have a connection, like I have a brand connection, not just I like a product.

James Thomson  23:52  

So you talked earlier about this influx of new aggregators and investors on a daily basis. Talk to me about Foundry Brands, what are you looking to do to differentiate yourself from everybody else out there? If I’m a brand looking to sell, why would I want to come and talk to you versus going to talk to 40, 50 other companies?

Stefan Haney  24:14  

Yeah, we’re excited about your brands. We talked to a lot of the other brand aggregators on the market being so you know, maybe some of them called us and that was, you know, a privilege. But yeah, we talked to a number of folks out there. And the first thing we saw is, is on a funding level. And we’ve closed a large round of funding that puts us in the top top tier of current large rounds of equity funding that puts us in a top tier of brand aggregators. Now, that gives us some flexibility to look at different port company sizes that we can acquire. As I mentioned, company size, it was not an accident, a company size worried about our portfolio, and let us move quickly. This market also lets us participate faster in Technology Building, whether it’s technology partnerships with some of the best in class. And best buds agencies or whether it’s other software developers out there so that we can serve our brands. And then focus our technology spend on things we think are pretty brand specific. So one of the things about Foundry’s we’re excited about our capital position that lets us kind of jump into the fray but also jumped to the front of the next thing about Foundry is your founding team, myself and my time at Amazon, Kyle Walker with his time at Amazon, Tom Shipley, who’s built multiple brands and been in the in the thick of it, Matt Rhodes, who’s done a number of deals. And between the four of us, we talked a lot about grid and being operators, right, helping, you know, we’ve taken those phone calls at two in the morning, because I’m on call. And some sellers, like I’ve got to sell our stuff for nothing, my accounts have been shut down. Or it’s like, oh, my packaging guy, or, yeah, we’ve been on those phone calls, we’ve been in the trenches, both of Amazon, other DTC companies. And so we know what we’re getting into. But we also can step alongside because we’ve been there and work with our founders. So we’re excited about that part, to know what they’re going into, and to be able to help them scale and succeed. There. That’s the short version about Foundry, we’re excited to look at a large set of brands across a number of sizes from our capitalization and technology. And then, you know, we’re excited to bring operational expertise to bear with the Foundry with the partners that we work with.

James Thomson  26:33  

So what’s going to be the role for most of these founders whose companies you buy? Do you see yourself keeping a lot of them as part of the team, you see them, you know, moving off to, say, the lake Lake area in Minnesota, you know, what, what’s going to be the role of the those folks who have built these businesses,

Stefan Haney  26:51  

I think, to some degree, that’s gonna be up to the founders, but it’s partly up to the founders, because we see, we see this transition of their business as a relationship, not a transaction. Right, we so if we want to, we respect the work the forging, you know, stick with the boundary metaphor, you know, the forging process they did to get their brand, get the brand going, we know the lessons that they learned and the expertise they developed and doing so. And we respect that we’d love to have them invest that back within the Foundry organization. But we want to help them get back more focused on what they value, whether that’s family finances, or their next product built. So we see this relationship, it’s early days for us. So you know, we’ll invent what that’s going to look like for specific founders. And, but our goal is that we keep a relationship with the founders, and at Foundry, that they’re proud of where we take their brand, and that they see opportunities to continue participating with us, you know, from from the finances of their deal to sharing their brand or participating in building their brand or others.

James Thomson  27:59  

What’s gonna make your business successful in the long run,

Stefan Haney  28:03  

do for us in the long run, you know, there are the ABCs, right, you know, like, like my number of folks, we’re going to pick the right brands, we’re going to pick good brands that we think have growth potential, and we’re going to grow them efficiently and cross markets. And we’re going to pay attention to customers and how customers are reviewing our brands. And we’re going to build processes that use both technology and analytics that drive automation. And then our people are going to lead that and we’re going to get people behind the brands we bring to market.

James Thomson  28:36  

Definitely want to thank you for joining us today on the Buy Box Experts Podcast. For those of you interested in learning more about Foundry Brands, please visit foundrybrands.com. Now to finish today’s podcast, I’d like to share some final thoughts. For third party sellers to be successful on Amazon, a critical lever will be soliciting feedback from customers. We at Buy Box Experts are really big fans of the team at eComEngine, and it’s tools that help Amazon sellers to simplify the process of messaging customers of Amazon orders. To learn more, go to ecomengine.com. And with that, I want to thank you for listening today and I look forward to joining you next time on the Buy Box Experts Podcast.

Outro  29:18  

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Meet the Speakers

Stefan Haney

Stefan Haney

CTO and Strategic Advisor for Foundry

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