365 Holdings’ Kelcey Lehrich On Building Diversified DTC Brands

The vision of having multiple durable businesses

• The future of ecommerce belongs to a big number of small and mid-sized businesses that may not be the next 130-million unicorn but they need to exist
• 365 is a holding company that provides a team, infrastructure, capital, warehouse and ERP system to these small but durable brands with the intent to hold them for a really long time
• “We’re only gonna do food, baby, and consumable. We wanna be the best home for those really good, really durable businesses going forward.”

Being function focused when running multiple businesses

• The focus of 365 is to build a diversified business as you would a basket of stocks to have a diversified outcome
• “I think over time, we’ll need to focus on different things. My focus is running the enterprise, my business partner’s focus is on running the day-to-day operations, our VP of marketing is focused on revenue, so people are focused.”

365’s ideal acquisition targets

• Behind the profitable numbers, 365 Holdings tries to understand what drives customer acquisition and what drives retention

• “Our dream business is like 20% revenue on Amazon, 80% DTC. The DTC is like 20% Facebook and 10% affiliate and 35% email and 20% SEO and a bunch of Google, and like very diversified, right?

Post-acquisition playbook

• First, Kelcey looks for opportunity. “There’s always some kind of low hanging fruit that a smaller organization just can’t get to, and so we certainly build those plans for each transaction.”
• Being vertically integrated — their biggest challenge is usually integrating a new business into the 365 ecosystem

Calibrating expectations and business strategy

• Kelcey gets a ton of questions from people who are really upset that the market moved and they’re not gonna be valued at 10x revenue anymore
• As soon as you realize it’s not working out, you should have the optionality to flip things
• “Most businesses don’t go to the moon. I’m like — well, all right, if that’s not possible, can you just make 500k in earnings and have a great life?

Multichannel revenue strategies

• Focus on DTC to create demand. “We should run media, Facebook, YouTube, a podcast, run an email newsletter, go-to-market and declare kind of who we are and who should buy from us”
• SKU rationalization by channel is planning what needs to happen in each channel separately for the business to be successful in the greater scheme of the business plan

Different playbook for different businesses

• Kelcey’s mistake is that they try to overfit cross learnings across brands early on
• “So we kind of threw the playbook stuff somewhat out the window. We have different playbooks for different businesses that share some principles on how to make decisions. Those principles don’t really change.”

Inventory planning in multiple channels by hierarchy

• Their philosophy is to have a hierarchy for inventory planning which varies by brand and product category
• DTC subscriptions get fed first, Amazon listings going outta stock are gonna get fed second and DTC third
• “With limited inventory, it’s necessary that we’re feeding the inventory to the best opportunity for business to flourish.”

A durable brand has competitive advantage and profitability

• “I would define thriving as having a durable and profitable future for the business. Durable means  that there’s a competitive advantage and a reason to exist. We know where to play and how to win. And profitable is just that, that it makes money.“

•  “There is equity in that [durable] business, whether it’s sweat equity from a founder or an investor, even if there’s lenders and other capital providers that are in the stack of funding that deserve to have a return paid for their investments.”

The intentional culture of 365 Holdings

• Team 365 has a unique culture where they are intentional about their goals and have 4 core values to support that
• Core value: Relentless execution — “Getting things done well and not going home until it’s finished. We’re gonna get this project accomplished.”

What’s not going to change in M&A for the next 12 months

• The federal funds rate and the cost of debt will affect valuations a little bit, but good businesses that have good unit economics will always get traded at fair prices
• “What’s not gonna change? People want great service, fast shipping, and low prices. That’s not gonna change.”