Sell Like a Boss: The Secret Formula for Selling Your DTC Business — Chris Shipferling | How to Make Your Business Worth More, How to Get Buyers Interested, How to Get Funds to Grow, Why Selling Online Businesses is Tough

In this podcast episode, we unpack the strategies to make your business sale-ready. Our featured guest on the show is Chris Shipferling, Managing Partner at GW Partners and Founding Partner at SouthCol.co

Topics discussed in this episode:

• How to get your business ready to sell at a higher price
• How to attract potential buyers by making improvements across the company  
• The role of investment funds in providing capital to help businesses grow
• Why buyers and sellers often have different price expectations when it comes to acquisitions
• The Reasons behind the recent slowdown in e-commerce business sales

Links & Resources

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


Get access to more free resources by visiting the podcast episode page at
t.ly/wtClv

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Transcript

Claus Lauter [00:00:00]:
Welcome to the ecommerce Coffee Break podcast. This time we revisit the episode where we talk about the steps you need to follow to make your business sellable. Our guest on this episode is Chris Shipferling, managing partner at SouthCol.co. So let's dive right into it.

Voice over [00:00:17]:
This is the e commerce Coffee Break, a top rated Shopify growth podcast dedicated to shopify merchants and business owners looking to grow their online stores. Learn how to survive in the fast changing e commerce world with your host Claus Lauter, and get marketing advice you can't find on Google. Welcome.

Claus Lauter [00:00:42]:
Welcome to another episode of the ecommerce copywriting 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 you 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. Chris is a renowned figure in e commerce and investment banking. As a managing partner of GW Partners and founding partner of Southco, 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 SDE, expanding their multiple and improve their e commerce operations, preparing them for a successful gross and lucrative exit into the market.

Claus Lauter [00:01:36]:
So let's dive right into it. Hi Chris, how are you today?

Chris Shipferling [00:01:39]:
Hey, doing good Claus. Thanks for having me on man. I appreciate it.

Claus Lauter [00:01:42]:
Great to have you on the show, Chris. 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 an idea what's happening right now.

Chris Shipferling [00:01:55]:
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. It was an aggregation, so it was an aggregator type model. You had a lot of those. Private equity was still dabbling their toes into 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 didnt 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.

Chris Shipferling [00:02:45]:
One third is consumer products based. And through COVID that flipped and now were feeling the flip back demand that we saw through COVID were not seeing that as strong anymore. And so that for the e commerce owners was causing a lot of, well, 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. And 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.

Chris Shipferling [00:03:34]:
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% today. You had a lot, id say from this point historically to about, ids 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 1020, 50, 60 million, even 100 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 a small business market.

Chris Shipferling [00:04:14]:
And so trades selling your company just pretty much came to a pretty strong halt. It was actually kind of across the board, not just e commerce centric but just across the board m and a activity halted. And through that you had slumping as I mentioned. And then now were really looking at, okay, if you want to try and sell your business right now, a its going to be extremely difficult to find the buyer thats going to pay you what you expect to be paid even if you have a great business at the moment. You know, thats the other thing thats 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 April and he just called it out as it is, he said, look, Bain is buying, we are buying bolt on companies that make sense for our platform businesses but were not making large trades right now, mainly because buyers expectations are still here. Our expectations are here and we cant meet on pricing. And so thats the most recent state of the market thats heavily affected the e commerce centric founder owner.

Chris Shipferling [00:05:30]:
Its not fun, but theres hope.

Claus Lauter [00:05:33]:
Yeah, its a very interesting situation that were in there. But I think, as I said, there is hope. And I think selling a business, obviously, its a long term game and you need to have all your ducks in a row to make it sellable, to make it attractive. And you dont want to undervalue your business or you, you don't want to have an undervalued. You want to sell it for the price that it is worth. Now that's a very different thing or difficult thing as a small medium enterprise coming to these 510, 15, 20 million, 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. Now that's something you help with obviously, as an advisory. You are coming on board and going into the different parts of a business and optimizing them for the optimal sale.

Claus Lauter [00:06:16]:
Tell me a little bit, how does this whole process work and where do you help us?

Chris Shipferling [00:06:20]:
Yeah, absolutely. And I mean, to your point, there's a lot of headwinds that are currently affecting, you know, business owners and, and really across all functions. Right. I mean, you know, it's, it's not just marketing or sales or trying to find, you know, stronger turnover year over year over year. It's also affecting, you know, well, 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? You know, 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 mean I saw the crummiest businesses do extremely well through COVID. They didn't need any branding. They didn't need any kind of technician work, technical work on them.

Chris Shipferling [00:07:20]:
COVID just made them great. Well, we're past all that. And now you've got to get back to disciplines 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. We 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 really just two things. Well it's about your SDE or your EBITda and financials and well that's about it. That's kind of where they park themselves.

Chris Shipferling [00:07:52]:
Like do you have really good net income? And it's like, yeah, that's so, but that's not, that's not what they're buying. Like, so 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 one 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 lets talk about your supply chain.

Chris Shipferling [00:08:49]:
What does that really look like? Thats one thing through COVID that has not gone away, which is, hey, its no longer just, oh yeah, Ive got a freight forwarder, Ive got a supplier. Its 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're here. You need to be here because your goal is to sell this company for $25 million.

Chris Shipferling [00:09:35]:
If we sold it today in its current state, you'll get five. So how do we get 25 million? Let's build the roadmap. And this is effectively what we do both on the GW side and the south call side, is we help build the roadmap. 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 its a traditional middle market style process. We're taking it to corporate strategics.

Chris Shipferling [00:10:04]:
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. So yeah, that's what, that's how we lay 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 [00:10:31]:
Hey Claus, here, just a quick one. If you like the content of this episode, subscribe to the weekly newsletter at newsletter Dot e commercecoffeebreak.com I score and create 50 news sources so you don't have to saving your hours of research. Grow your revenue with e commerce news, marketing strategies, tools, podcast interviews and more, all in a quick three minute read. So head over to newsletter Dot e commerce coffeebreak.com to subscribe as at. Also you will find the link in the show notes. And now back to the show. If you want to grow a business or make a business sellable, obviously sometimes money is a factor. A lot of DTC businesses are sort of cash flow driven and they don't have enough assets to really get to the next level.

Claus Lauter [00:11:10]:
You help with that as well. How does that work? How do you bring money into the company to bring it to the next level?

Chris Shipferling [00:11:16]:
On the south call side, as a growth fund, we have a $50 million, as you mentioned in the beginning of the podcast, we have a $50 million fund earmarked for growth investment. And so a growth investment for us means we're a minority owner. So what does that mean? We own less than 50% basically. And so 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 cash flow and why businesses get so cash tight is because of inventory mainly. Thats what it boils down to. So thats why in consumer products you have a lot whats called asset backed lenders abls that the assets that are backing or being leveraged is the inventory itself. So thats kind of where most, most business owners get cash strapped. So its really about okay, where do these funds need to go? Porsche needs to go to inventory and future inventory for the company.

Chris Shipferling [00:12:15]:
Another portion though needs to go to marketing. Okay, well lets 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 kind of helping bridge from a capital perspective. But then they're also going to require big program. Okay, youre on our shelves, but now you need to drive the traffic to our shelves.

Chris Shipferling [00:12:50]:
And so this is just one 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. Venture debt. Our product is very friendly in the sense that its interest only for two years. So our growth fund is really more or less an accelerator. Were looking to get in, do the optimization work that needs to be done to get the company from here to here. Right, point a to point c, d, e, f, one of the points, and were trying to then in two years time, get the company to market and sell the business, because at year three, that working capital starts to amort and principal needs to be paid.

Chris Shipferling [00:13:38]:
But the idea is optimization work gets done, acceleration, we sell the business and then of course, principal is paid back through the funds. But the idea here is, with us involved, your business would normally sell for 5 million. With us involved in everything that we're doing with this. 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 five, let's try and get you to sell for seven in two years or ten in two years.

Chris Shipferling [00:14:10]:
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. You know, one of our investments, if we took them to market right now, uh, we just, they, you know, they just became a portfolio company of ours two months ago, or less than two months ago. We could probably sell them for about ten, but, you know, we're looking to take them to market in 18 months. And we all firmly believe we have a pretty strong conviction around our, our thesis, but mainly our business plan. But that thing's going to sell for about 30 to 40 million. So I mean, it's a big, big, big jump. 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.

Chris Shipferling [00:15:03]:
Once it hits that point, it's going to need a new tranche of funds to take it from this point now to this point. And that's where we will. 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, thats how both work.

Claus Lauter [00:15:45]:
Okay, very interesting. Now, you gave a very good example there between people looking from the financial side and from the stock side. And then obviously you have the marketing guys like me who are just spending the money and need more money. And a lot of companies and I have set in a lot of shareholder meetings in my life is there is a communication problem within the company. So basically 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 comes in? Who does speak with you? And I think what you basically bring to the table is you're asking the uncomfortable questions.

Chris Shipferling [00:16:24]:
How does that look like it really is? This term has been overused and abused, but it truly is a partnership. And I think to your point, I kind of. 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, finance is speaking German, of course, operations is speaking Portuguese, 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.

Chris Shipferling [00:17:09]:
We're at point a altogether, but here's how all the functions need to look, and here's how they need to, you'll 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. We got two years. Let's just assume the business plan is two years in year one, are we going to burn cash in order to gain growth? Because this particular company has very strong LTV. That's.

Chris Shipferling [00:17:45]:
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 TCAC is this, LTV is this. And now let's have a discussion about how we want to now now run the business for the next two years to get to point b.

Chris Shipferling [00:18:11]:
And so that's how we, that's how we work in partnership, because we don't come in as, and I've seen this before, too, just like you have, Claus, where in those shareholder meetings, you've got the money guys kind of coming in like jerks, to be blunt, and sometimes not all the times, but they can get a little jerky in the sense of Im the smartest guy in the room and im much smarter than the marketing guy because Im the finance guy. And we do not have that type of hubris or pride when we enter into a partnership with anyone, whether its 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.

Chris Shipferling [00:19:44]:
I'm not, 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. You know, we just had this happen. That's why I'm giving the Pinterest conversation, because we just had this happen. And the business owner who loved Pinterest looked at this and said, now you guys are right. That's the data says what it says. So let's reallocate all those dollars towards Google Ads, because Google Ads is actually producing a four times mer for the company. So hopefully that explains how we like to work and think, et cetera.

Claus Lauter [00:20:16]:
No, I think that was a very good example and 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 get in contact with you?

Chris Shipferling [00:20:43]:
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, we're very, and I 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 and, and having discussions with them about their business. And ill talk to almost anybody.

Chris Shipferling [00:21:15]:
And then usually through that conversation it becomes clear, hey, this probably would be a good fit for either 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, I could help make for you, you know, to a resource, one 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. To help, to help you. So. So, yeah, no homework needed, man. That's the good news. Just come as you are and let's just have a good chat.

Claus Lauter [00:21:56]:
Okay. Are there any specific industries or niche that would make you a perfect customer?

Chris Shipferling [00:22:02]:
My background is in, 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, right? Is that I say that word? Right. So I 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.

Chris Shipferling [00:22:25]:
We love beauty products. Love baby products. We worked with some toy companies before. We love home decor, home goods. You know, 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 kind of a bit of the same. Similar mindset.

Chris Shipferling [00:22:47]:
Owner mindset. My pet is my kid, but, you know, we're fairly agnostic. I think. I think the way to probably maybe rephrase it or re answer it is not a big, big fan of supplements. Not a huge, huge fan of clothing. But we will do clothing for no will.

Claus Lauter [00:23:04]:
We don't. We will.

Chris Shipferling [00:23:05]:
There's a lot of folks out there that are just totally, no, I don't want to touch clothing brands because it's so trend heavy. It's brand heavy, but it's really trend heavy. But we will work with clothing brands. So hopefully supplements is kind of. It's kind of the only one that. And furniture is tough. Furniture is really tough. So those are really the only two that were.

Chris Shipferling [00:23:27]:
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.

Claus Lauter [00:23:36]:
Okay. Makes sense. What's your pricing structure? How does that work?

Chris Shipferling [00:23:40]:
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, you know, we've got retainers that accordion up and down in terms of how much we charge per month. We run it like almost like a Deloitte or a McKinsey style consultation engagement where we have phases. We have phase one, which is analysis, phase two, which is execution, phase three, which is maintenance, and then phase four is the m and a. So that's kind of how we phase it out.

Chris Shipferling [00:24:25]:
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 youre working a little bit more, id say involved like us in terms of accelerator.

Chris Shipferling [00:25:03]:
So well take a monthly fee and then we actually own equity on the south call side. So that is the bigger difference. We are equity stakeholders with the business owner where on the GW side its more of a traditional kind of consultation advisory towards the sale of the business.

Claus Lauter [00:25:21]:
Before we come to the end of the coffee break today, is there one final thought that you want to leave our listeners with?

Chris Shipferling [00:25:26]:
Oh, theres hope. There is hope. I know youre feeling lots and lots of headwinds right now. Some of you may not. Some of you may be feeling growth and feeling good, but expectations in terms of selling the company right now may be way off. Listen, put your head down. Keep growing the company. There are many, many, many business owners and founders out there.

Chris Shipferling [00:25:45]:
There are masterminds you can get a hold 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 is going to be back in full force. Its 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 and a because its all about the future.

Claus Lauter [00:26:21]:
So theres hope were on the same page. I totally agree with that, Chris. Where can people find out more about you and get in contact with you?

Chris Shipferling [00:26:28]:
Yeah, so pretty simple. Weve got one of those cool modern websites, GW Partners. So not Gw dot partners.com but gw partners. And then south call is just s o u t h, like south and c o l co. Southco. South call is the last base camp before you get to the top of Everest. So that's kind of the analogy we did with the whole growth fund. But yeah.

Chris Shipferling [00:26:54]:
So Southcol 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 [00:27:02]:
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 for your time and talk soon.

Chris Shipferling [00:27:16]:
Thank you so much. Appreciate it.

Claus Lauter [00:27:19]:
Hey Claus here. Thanks for joining me on another episode of the ecommerce Coffee Break podcast. Before you go, I'd like to ask two things from you. First, please help me with the algorithm so I can bring more impactful guests on the show. It will make it also easier for others to discover the podcast, simply like comment and subscribe in the app you're using to listen to the podcast, and even better if you could leave a rating. Thanks again, and I catch you in the next episode. Have a good one.