From Startup to Sellout: A Guide to Selling Your DTC Business Successfully | #242 Chris Shipferling

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Claus Lauter: Hello and welcome to another episode of the e commerce coffee break podcast. Today, we want to dive a little bit deeper into when you're planning to sell your business. Obviously every merchant at some point in the business life has the idea of having an exit strategy and it should have that definitely, but how do you do it the right way?

How can you grow your business and make it sellable? So with me on the show, I have Chris Shipferling. He is the managing partner of GW partners and founding partner of southcol.co. Chris is a renowned figure in e commerce and investment banking as a managing partner of GW Partners and founding partner of southcol.co.

He co founded a 50 million e commerce growth fund, bringing a wealth of experience and unique insights to the digital consumer product industry. Chris expertise lies in guiding business to optimize their EBITDA slash SDE, expanding their multiple and improve their e commerce operations, preparing them for a successful growth and lucrative exit into the market.

So let's dive right into it. Hi, Chris, how are you today? 

Chris Shipferling: Yeah. You're doing good. Klaus. Thanks for having me on, man. I appreciate it. Great to have you on the show, Chris. 

Claus Lauter: Chris, tell me a little bit. E commerce is growing, but the market is a little bit wobbly when you're trying to sell your business. There's a lot of things happening in the background.

Give me a bit of a oversight bit of an idea of what's happening right now. 

Chris Shipferling: You've got a market that's come off of a COVID push, a COVID, tailwind, through that period, you had a lot of dollars that were raised capital that was raised to go and find growing burgeoning e commerce businesses, that they could blossom into something much greater and bigger.

 And it was in aggregation. So it was an aggregator type model, right? And you had a lot of those private equity was still dabbling their toes into kind of all e commerce centric businesses. Very curious to see. They invested a lot of money into the vehicles like the aggregator vehicles.

The actual platforms didn't do so much on their own. And what happened. Well, you had a post covid slump, specifically in consumer. Two thirds of our economy has traditionally been service based. One third is consumer products based and through covid that flipped and now we're feeling the flip back.

 Demand for that we saw through covid, we're not seeing that as strong anymore. that for the commerce owners was drifting down to the left and not curving up to the right anymore. And in the process, you had credit markets start to flip upside down and a lot of acquisitions specifically in this market are done through debt, debt was getting more and more expensive.

You also had a lot of uncertainty in terms of the global economy. You had a lot of uncertainty going on in the Eurozone. You had a lot of uncertainty going on here in the United States in terms of where is this all going? A year and a half ago, every bank was ringing the alarm. Recession, recession, hard landing, hard landing, no soft landings.

This is going to be catastrophic. And now Goldman just slashed their chances of a recession down to 15 percent today. From this point historically to about, I'd call it a year and a year and a half ago. You just had a lot of question marks and through that it was very difficult for an e commerce centric business that is, for all intent and purpose, small, when you're even talking about a business, that's 10, 20, 50, 60 million, even a hundred million, these are small businesses.

Still, it sounds like a lot to an individual owner and founder, but in the grand scheme of things, this is small business market. trades selling your company just pretty much came to a pretty strong halt. It was actually across the board, not just e commerce centric, but just across the board, M& A activity halted.

 Through that you had slumping, as I mentioned. And then now we're really looking at, okay, if you want to try and sell your business right now, a, it's going to be extremely difficult to find the buyer that's going to pay you what you expect to be paid, even if you have a great business at the moment, that's the other thing that's causing, I would say, M and a activity to depress a bit at the moment.

Is expectations between buyers and sellers, the Bain CEO was on CNBC, I think back in like April and he just called it out as it is. He said, look, we are buying bolt on companies that make sense for our platform businesses, but we're not making large trades right now, mainly because buyers expectations are still here.

Our expectations are here, and we can't meet on pricing that's most recent state of the market that's heavily affected the e commerce centric founder owner. It's not fun, but there's hope. 

Claus Lauter: Yeah. It's a very interesting situation that we're in there, but I think there, as you said, there is hope, and I think selling a business, obviously it's a long-term game and you need to have all your ducks in the row to make it sellable, to make it attractive, and you don't wanna undervalue your business or you don't want to have it undervalue.

You wanna sell it for the price that it is worse. No, that's a very different thing or difficult thing. As a small medium enterprise coming to these five, 10, 15, 20 millions, you have other things on your mind and you don't know how the big guys who potentially might be interested in buying business, how they think.

, and now that's something you help with. Obviously as a advisory, you're coming on board and going into the different parts of a business and optimizing them for the optimal sale. Tell me a little bit, how does this whole process work 

Chris Shipferling: and where do you help with? To your point.

And like we were talking about before, there's a lot of tailwinds that are headwinds that are currently affecting, business owners and really across all it's not just marketing, or sales or trying to find stronger turnover year over year over year.

It's also affecting, what about my infrastructure and the people that I've hired and how do I find really good people and how do they matter to my organization and how do I compensate them? How do I set my business up to be more valuable across every function.

And so that's really what it boils down to is it's a really good time, I think, because you don't have outside forces that are pushing your business into a stratosphere like we had through COVID. I saw the crummiest businesses. Do extremely well through covid.

They didn't need any branding. didn't need any what I would call technician work, technical work on them. Covid just made them great. Well, we're past all that. And now you've got to get back to disciplines. Conviction and discipline fundamentals of how to be a really great brand.

And I'm making a distinction there. And so that's really, what we do, both on the South call side, which is our growth fund and GW partners, get in there because to your point, what are the buyers really thinking? Well, you'll have a lot of business brokers and advisors tell you.

It's really just two things. Well, it's about your SDD SDE or your EBITDA and financials. And, that's about it. That's where they park themselves. Like, do you have really good net income? And it's like, yeah, that's so much, but that's not what they're buying. They're buying the future of the company.

So it really is about pro forma and about the future. So what does that really mean? And what does that look like? And what do buyers actually care about? Well, through every function, buyers care about specific things about that function, whether you're talking about. Marketing metrics, first click attribution, last click attribution, whether you're talking about your sales channels and strategies for those sales channels, they want to know a lot about what's your TAM, your total addressable market through each channel.

What are your unit economics running through each 1 of those channels? How do they affect the entire organization? How are you sticky with the consumer? How are you having that second conversation with the consumer and really doing things that are truly brand building? And supply chain is now an asset.

Well, let's talk about your supply chain. What does that really look like? That's 1 thing through covid that has not gone away, which is, hey, it's no longer just, oh, yeah, I've got a freight forwarder. I've got a supplier. It's. Okay, well, what about your master service agreement? The MSA with that particular service, for your supplier, how often do you visit them?

What does your product roadmap look like? Do you have a product vision for your company? And does it all tie into your brand if things disjointed? Because again, buyers are all looking towards the future state of the business. And so when you go into each function, it's not just well, let's analyze what's been done and only talk about that.

It's let's analyze what's been done so we can try and get it from. And this is what we do. You need to be here because your goal is to sell this company for 25 million. If we sold it today in its current state, you'll get five. So how do we get 25 million? Let's build the road map. And this is effectively what we do, both on the GW side and the South call side is we help build the road map.

We know we've reached that point. Does the owner founder want to sell the company now? Yes. Great. Then we run the process. And we take it out to a traditional middle market style process. We're taking it to corporate strategics. We're taking it to private equity. We're taking it to family offices, which have been a very big thing over the past call it decade.

 Wealthy individuals that kind of form a family office together, with specific mandates of what they want to buy. That's how we layer ourselves into how we help a business go from what I would consider like this point. To that point. And there's so much in between 

Claus Lauter: if you want to grow a business or make a business sellable, obviously sometimes money is a factor.

A lot of these businesses are sort of cashflow driven and they don't have enough assets to really get to the next level. You help with that as well. does that work? How do you bring money into the company to bring it to the next level? 

Chris Shipferling: On the South call side as a growth fund, we have a 50 million.

As you mentioned, the beginning of the podcast, we have a 50 million fund earmarked for growth investment. And so we're a growth investment for us means we're a minority owner. So what does that mean? We own less than percent basically. what we do before any of the money is injected into the company, we fully understand where the use of funds are going to go, because to your point, majority of cashflow and why businesses get so cash tight is because of inventory, mainly that's what it boils down to.

So that's why in consumer products, you have a lot, what's called asset backed lenders, ABLs, that the assets that are backing or being leveraged is the inventory itself. That's where most business owners get cash straps. So it's really about, okay where do these funds need to go?

Portion needs to go to inventory and future inventory for the company. Another portion though, needs to go to marketing. Okay, well, let's talk about that. Where are you ramping up your marketing? Why are you ramping up your marketing? Maybe it's a new sales channel that they've identified.

We're having conversations with target and we need money for both inventory To service target, because their terms are 60 to 90 days you ship product and you're not getting paid for another 90, so it's helping bridge from a capital perspective. But then they're also going to require big program.

Okay, you're on our shelves, but now you need to drive the traffic to our shelves. And so this is just 1 example. But so we take a look at the use of funds. How much is needed on our growth fund? We underwrite the business and then we inject. The working capital into the company, and it comes in the form of what we would consider venture debt.

Our product is very friendly in the sense that it's interest only for 2 years. So our growth fund is really more or less an accelerator. We're looking to get in. Do the optimization work that needs to be done to get the company from here to here. point a to point C, D, F, 1 of the points, we're trying to then in 2 years time, get the company to market and sell the business because at year 3, that working capital starts to a more and principal needs to be paid.

But the idea is optimization work gets done acceleration. We sell the business. And then, of course, principles paid back through the funds. But the idea here is with us involved, your business would normally sell for 5M. With us involved in everything that we're doing with this, and this is on the South call side.

It's very similar to GW and I'll get into that in just a moment. We're going to sell for 25, right? That's a big jump. We're not looking to come in and say, oh, you could sell for 5. Let's try and get you to sell for seven and two years or 10 and two years, we're trying to get it to where it's like, okay, you're at five.

Let's try and get you to like 15. Let's try and get you to 20. One of our investments, if we took them to market right now, they just became a portfolio company of ours less than two months ago, we could probably sell them for about 10, but, we're looking to take them to market in 18 months.

And we all firmly believe we have a pretty strong conviction around our. Thesis, but mainly our business plan. But that thing's gonna sell for about 30 to 40 and then on the GW side, we have resources to introduce capital into the business if it's needed.

We have a client right now that we're working with on the GW partner side that is currently self-funded and can stay self-funded up until about the budget hits a certain point, which we've outlined as far as the business plan goes. Once it hits that point, it's gonna need. A new tranche of funds to take it from this point now to this point.

The way that typically works, it just depends on the type of money that's needed in this particular case, we'll actually go run a process like we would selling the business. To find investors to take a minority ownership of the company. So very similar process. We'll go out there and find somebody like a private equity fund, a larger private equity fund to inject, and then own the company as a minority owner to then grow it to 100 million, 150 million, and then sell it.

So anyways, that's how both work. Okay. Very interesting. 

Claus Lauter: Now you gave a very good example there between the people looking from the financial side and from the stock side. And then obviously you have to marketing guys like me who are just spending the money and need more money and a lot of companies and I have set a lot of shareholder meetings in my life is.

There is a communication problem was in the company. The different departments speak different languages. They can't agree on the pathway they want to go for. How does the cooperation with you guys look like? So who does speak with you? What you basically bring to the table is you're asking the uncomfortable questions.

 How does that look like? 

Chris Shipferling: This term has been < overused and abused, but it truly is a partnership. And I think to your point, let's pick on language for a moment, because you're right. Typically when you get operations in the room with marketing, In the room with finance, one finances speaking German, of course, operations is, speaking Portuguese, right?

And sales and marketing is speaking Spanish. And I think the benefit of us is we speak all three languages very well. So we know how to tie the company into a common goal. We're going to sell this business. And we're going to sell it for X. That's the point B. We're at point A altogether. But here's how all the functions need to look.

And here's how they need to... Y'all use a term synthesize or harmonize with one another. But here's what we're looking at. It's the business plan. So we need to all start working towards the common goal. But before that, you nailed it. Let's ask some uncomfortable questions years. Let's just assume the business plan is 2 years and year 1.

Are we going to burn cash in order to gain growth? Because this particular company has very strong LTV. That's again, we're looking at the same, I love analogies. We're looking at the same hymnal together. And that hymnal is data. It's all the data and all the metrics of the company. No one's flying blind anymore.

We're all looking at the right BI tool with the right attribution tool. And we're seeing, okay, the TKAC is this LTV is this and now let's have a discussion about how we want to now run the business for the next 2 years to get to point B. That's how we work in partnership and I've seen this before too, just like you have Klaus where in those shareholder meetings, you've got the money guys coming in like jerks to be blunt, sometimes not all the times, but they can get a little jerky in the sense of I'm the smartest guy in the room and I'm much smarter than the marketing guy because I'm the finance guy and we do not have that type of hubris or pride when we enter into a partnership with.

Anyone, whether it's on South call or GW, and we do it in a very graceful way because most of the time marketers tend to just be very passionate about what they believe because they've seen the results, but they may not have the right data to have the appropriate conversation. You might think Pinterest is our number one revenue generator, but what I have found is that it's actually losing money.

Because the CAC is the same as the AOV. So I'm not going to be a jerk about it. I just want to show you the data. So as a marketer, do you think we could do either a something different to get the CAC lower and AOV a little bit higher, or maybe keep AOV the same? Is there any LTV that we can try and squeeze out of a Pinterest customer?

And you have a discussion around those points, right? So you don't come into it as a jerk to the marketing guy. It's more like, Hey, look, I just want to show you the data. And actually I'm not going to just show you the data. Let's have a really good discussion on what we can do with this. We just had this happen.

That's why I'm giving the Pinterest conversation because we just had this happen the business owner who loved Pinterest, looked at this and said, no, you guys are right. That's the data says what it says. Let's reallocate all those dollars towards Google ads because Google ads is actually producing, four times Mer for the company.

Claus Lauter: No, I think that was a very good example. And it's easy to understand that you come in as a partner. Sometimes that might be the right questions that help. And a lot of business, they don't see the forest because of the trees. So it definitely helps to have some third party coming in and helping you with getting some clarity there.

Now, in regards of timeline, you said it takes about, or usually about two years. What kind of homework does a business have to do before they 

Chris Shipferling: get in contact with you? Not much they can get in contact with us and then we can tell them what the homework looks like. That's the good news.

 If they want to reach out and they want to, just have a good conversation hope you heard in my tone. Even today, we're very altruistic in the way that we like to approach. Conversations with founder, we have a passion for founder owners.

We're founder owners. We don't use that in our marketing, but we are, we have a passion though, for founder owners having with them about their business. And I'll talk to almost anybody. And then usually through that conversation, it becomes clear, Hey, GW.

This would be a good fit for South call. , but I almost tell every single person I get on a call with by the end of this call, there will be something that benefits you potentially through an introduction that I could help make for you, to a resource. 1 of our resources that are just you have a weakness.

You have a need for the company and we potentially have a really good resource to make a good introduction to help you. so yeah, no homework needed, man. That's the good news. come as you are and let's just have a good chat. Okay. 

Claus Lauter: Are there any specific industries or niches that would make your perfect 

Chris Shipferling: customer?

I actually came from consumer products. As you mentioned before you grew up around Cologne. I used to go there all the time for a trade show. It's a big baby trade show at the Messe. worked in baby products.

It tends to come a little bit more natural in terms for me, but I'd say our firm, we do a lot of work in beauty. I feel, we feel. We love beauty products. We love baby products. We worked with some toy companies before. We love home decor, home goods. Pet is another one that we've dabbled in.

We haven't really done a whole lot in just yet, but pet, ironically enough, is very close to baby products. I know that sounds weird, but a bit of the same similar mindset, owner mindset, my pet is my kid. We're fairly agnostic. The way to rephrase it or re answer.

It is not a big fan of supplements, not a huge, huge fan of clothing, but we will do clothing for noble. 

So hopefully supplements is the only one that in furniture is tough. Furniture is really tough. But anybody listening who has a supplements business and a furniture business, we will absolutely chat with you just because again, it's the whole resource discussion.

Okay. Makes sense. 

Claus Lauter: How do you earn money? So what's your pricing 

Chris Shipferling: structure? How does it work? It's fairly similar ish. I mean, look, we tailor every engagement very differently. Because it's all based on the needs of the company and it's all based on, and you'll understand this better than anybody.

It's all about scope and time. That's it. Right. So if the scope is really big and it takes a lot of time. On the GW side, we've got retainers that accordion up and down in terms of how much we charge per month. We run it like a Deloitte or a McKinsey style consultation engagement where we have phases.

We have phase 1, which is analysis phase 2, which is execution phase 3, which is maintenance and then phase 4 is the M and a. So that's how we phase it out. And every month in those phases change, good news, we credit every single dollar back to the sale of the company. So if we work with you for six months and you've paid us a retainer for six months, then we go out and we sell the business, however much you paid us in that six months.

Is then credited towards our success fee. So our success fee varies in terms of percentage of the sale of the business on the South call side. We might take a management fee depending on the company management fee is very typical in private equity, or even in venture where you're working a little bit more, I'd say involved like us in terms of accelerator.

So we'll take like a monthly fee. And then we actually own equity in the, on the South call side. So that is the bigger difference. We are equity stakeholders. With the business owner, we're on the GW side, it's more of a traditional consultation slash advisory towards the sale of the business.

Claus Lauter: Makes absolutely sense. Before we come to the end of the coffee break today, is there 1 final thought that you want to leave our listeners with? 

Chris Shipferling: Oh, there's hope. There is hope. I know you're feeling lots and lots of headwinds right now. Some of you may not, some of you may be feeling growth and feeling good, expectations in terms of selling the company right now, maybe way off.

 Listen, put your head down, keep growing the company. There are many, many, many business owners and founders out there. There are masterminds you can get ahold of. There are a lot of people who are feeling the same way, but there is hope we're starting to finally see first half of this year was very difficult.

We're starting to see much better movement in terms of M and a activity for the second half, and then going into, I'd say by middle to end of next year, so about one year away, we believe firmly and strongly that the M and a market's going to be back. in full force, it's one of the leading, economic indicators.

So when you see any type of depression in a market, one of the first things to come back is M& A. Cause it's all about the future. There's hope. That's my message. Okay. 

Claus Lauter: We're on the same page. I totally agree with that. Chris, where can people find out more about you and get contact 

Chris Shipferling: with you? Yeah, so pretty simple.

 We've got one of those cool modern websites, gw. partners. So not gw. partners. com, but gw. partners. And then Southcall is just S O U T H like South and C O L. co, Southcall. co. Southcall is the last base camp before you get to the top of Everest. So that's the analogy we did with the whole growth fund.

 So Southcall. co and gw. partners. It'll tell you everything you need to know to get in touch with us through those websites. Excellent. 

Claus Lauter: I will put the links in the show notes and you're just one click away. Chris, I could talk for hours about this topic because I really like to talk about the future and optimizing businesses.

But for today, the coffee break is over. Thanks so much 

Chris Shipferling: for your time and talk soon. Thank you so much. Appreciate it.

Links & Resources

Website: https://www.southcol.co/
LinkedIn: https://www.linkedin.com/in/chrisshipferling

About Our Podcast Guest: Chris Shipferling

Chris Shipferling is a renowned figure in eCommerce and Investment Banking. As the Managing Partner at GW Partners and Founding Partner at SouthCol, he co-founded a $50 million eCommerce growth fund, bringing a wealth of experience and unique insights to the digital consumer products industry. Chris's expertise lies in guiding businesses to optimize their EBITDA/SDE, expand their multiple, and improve their eCommerce operations, preparing them for successful growth and lucrative exits in the market.

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