May 23, 2023

Kelcey Lehrich - Co-Founder of 365 Holdings - Buying Niche E-Comm Businesses in a Hold-Co Structure

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Kelcey Lehrich is the Co-Founder and CEO of 365 Holdings. 365 Is a vertically integrated owner and operator of consumer product brands focused on eCommerce.


On this episode, Chris & Kelcey discuss:

➡️ How they look at investing in niche e-commerce businesses

➡️ Why they've chosen shared services hold-co structure

➡️ The current eCommerce market

➡️ Deep dive into two of their businesses (cloth diapers & good for preppers)



(00:04:14) Kelcey’s background and 365 Holdings

(00:05:14) What does shared services mean?

(00:06:39) Acquiring the first eCommerce business

(00:07:09 How do you think about your role in the organization?

(00:08:12) What’s happening in eCommerce right now?

(00:09:44) What happened in your eyes when Apple and Facebook went at it in the Ad space?

(00:10:43) What are the best ways to market online today?

(00:11:44) What caused the end of the ‘Covid bump’?

(00:12:41) What goes through your mind when you want to buy a business?

(00:14:00) The business of cloth diapers and emergency food

(00:21:41) What have you learned about structuring a deal?

(00:22:57) Amazon: A Necessary Evil

(00:25:37) What’s your goal for these 9 businesses?

(00:26:56) What happens when you sell a business?

(00:28:46) - Are the big 3 in eCommerce gaining more dominance?

(00:31:06) AI in eCommerce

(00:31:57) What type of HoldCo do you run and how would it differ from others?

(00:37:10) Why do you have manufacturing here in the US?

(00:39:42) How is the business capitalized?

(00:41:17) HoldCo Conf

(00:53:28) Twitter


Additional Resources

👉 Kelcey on Twitter

👉 365 Holdings

👉 HoldCo Conf

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➡️ Follow Chris on Twitter:

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➡️ Subscribe to The FORT on YouTube


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Chris Powers: Hey guys, I just got done recording with Kelsey, and we had a fantastic conversation. Kelsey co-founded 365 Holdings, a HoldCo that manages nine different e-commerce businesses. And we talk a lot about what that structure's like and how he has managed to do that with some shared services.

We talk about two businesses in particular, that they have a natural cloth diaper business and an emergency food-prepping business. We go into how Kelcey structures e-commerce acquisitions, especially how he might think about structuring future acquisitions in this down market. We discuss how Amazon is a necessary evil if you play in the e-commerce space.

And then we talk about a conference that he throws. And it'll be throwing for the second time called Holdco com, and just what it's like to throw an event and what he is learned from putting on these kinds of niche community events that are becoming more popular. We cover a lot, Kelsey's great. You'll enjoy this as much as I did, so thanks for continuing to join me and enjoy the show.

Hey guys, if you need to follow Fort Capital on LinkedIn, I talked about our newsletter in a prior ad, but LinkedIn is just as good, except these are in real-time. We post weekly, sometimes daily. We discuss career opportunities, information on our latest acquisitions, and dispositions updates across the Fort teams.

Our latest actual estate-focused podcast episodes and our most recent content pieces stay updated with Texas's number one fastest-growing private real estate company by following Fort Capital on LinkedIn. Kelsey, welcome to the show.

Kelcey Lehrich:Chris, Thanks for having me. 

Chris Powers: It's fantastic that the Internet brought us together.

You're from Akron, Ohio, but we've had a chance. Given the distance over the last couple of years, we spent a good chunk of time and consider you a good friend now, so thanks for coming down to Fort Worth.

Kelcey Lehrich:Thanks for having me back for a second visit. Sorry, the first one didn't work out. 

Chris Powers: Yeah, Kelsey lost his voice, so he flew into town, and we ended up getting to hang out for an afternoon instead, which was fun.

Kelcey Lehrich:But it was just a ruse to spend more time with you. Thanks for it working.


Chris Powers: That was a good excuse. Let's start with a little bit about your background and how you got into 365 Holdings, and a little bit about you. 

Kelcey Lehrich:My business partner and I bought our first e-commerce business six years ago. We had a couple of small, offline service businesses.

We managed to sell one for a hundred thousand dollars. We used an S.B.A. loan and a seller's note and bought an e-commerce company. Having no experience or knowledge, we got a good deal on the business. And if everything went poorly, we thought we could run it if the team up and left says our first foray into e-commerce.

About 90 days later, we maxed the line of credit, drained the checking account, and bought the second one. And that was the beginning of 365 Holdings, a group of nine brands in a portfolio. We're running a shared services model in northeast Ohio where we do everything from manufacturing to pick back and ship customer service, content creation, and design marketing. For all those brands, we just run them on a rollup.

The vertically integrated shared services team does everything those businesses need under one roof. 

Chris Powers:So shared services, the chicken, the easy-to-do stuff that I wouldn't say easy to do, but the same vanilla stuff that happens in each business. What do shared services mean to you?

Kelcey Lehrich:If you are in marketing and are good at writing email marketing, you will do email marketing across all those businesses. If you're in customer service, you weren't working on two or three businesses you know well. If you're in the warehouse, you can pick and pack any item because they're all on the identical barcodes and shipping system instead of us paying profit to outside agencies or vendors for many functions that many e-commerce native businesses would outsource.

We've built it all on an in-house team that is more high leverage, head of H.R., head of finance, and head of the supply chain. We can fractionalize those services internally, where some of our businesses would never have a supply chain leader, and they wouldn't have that person.

The founder of the owner-operator would drive the product. And now we have a team that can help assist with those things. 

Chris Powers: And one thing I thought was interesting and confirms that I'm right here, but you do all that under one roof? 

Kelcey Lehrich:Physically? Yeah. So there's an office, and then our warehouse and production facility are adjacent to our complex.

Chris Powers: Okay. So all nine businesses live under one roof? 

Kelcey Lehrich:There are a few exceptions here and there. So we have a couple of contractors around the globe. We have a captive production facility, and it's overseas for one of the businesses, but for all intents and purposes, it's 90% in Akron.

Chris Powers: I want to jump back just a second.

How did you guys get this first deal? Where were you at in life that an e-commerce business came across? How did you meet Justin, and how did you guys get a deal? 

Kelcey Lehrich:I didn't know the term at the time. Today we'd be classified as a self-funded searchers, and we were guys looking to buy a business.

E.T.A. and search funds are trendy today, and I just thought it was, Hey, I want to buy a business. And so I was on business brokers' email lists and looking at offering memorandums and trying to find a company to buy. 

Chris Powers: I'm going to challenge you a little bit because, when I think of nine businesses under one roof, the way my brain works, when you wake up every day, and you walk into the office, what are you doing?

Are you running each business daily or sitting at a higher level? What do you think about your role in the organization? 

Kelcey Lehrich:I've got the role of C.E.O., and then we use a system called E.O.S. to run the business. I'm the visionary, Justin's the C.O.O., president, and EEO s integrator. He runs the day; the leadership team reports to him.

We have a couple of brand general managers that also report to him. I'm worried about the direction of the company. Where are we going in the future? What is a good growth prospect? What should we be doing from financing or M and A? I'm thinking a few steps ahead of the future of the business and managing any external relationships.

So my weeks can vary widely. I've got one and a half direct reports. And I'm apprehensive about where we're headed, where Justin's worried about getting this month's P and l out at a profit.

Chris Powers: Where we're headed? What's going on just in e-commerce in general? Right now.

Kelcey Lehrich:It's getting tough.

The post covid bump of e-commerce was natural, and many people rode that wave to new heights, and with changes in supply chain and inflation, Interest rates are more challenging. We've seen a lot of consolidation, and prices on many transactions have come down. Sources of capital have dried up, or those sources have become much more expensive.

Ad tech and big techs of Facebook, Google, and Amazon are like the marriage you never wanted to be in, but you have to be, for e-commerce consistently puts pressure on many small businesses. But if you're in e-commerce, it's exponentially your source of new customers and traffic in many ways; a lot about those external risks on the business and how we can build higher quality businesses that can survive despite the changes that big tech might make.

Chris Powers:I had Andy Dunn for a few episodes, and he said something.

When E-commerce started, you mentioned the big three; the cost of working with them was pretty low. And then, over time, they kept raising the costs, and Andy just said, you'll see a lot of e-commerce businesses now maybe going back to brick and mortar because it turns out, and rent is cheaper Than the toll you pay on the Internet. 

Kelcey Lehrich:The joke was C.A.C. is the new rent, and you are an acquisition cost from Facebook.

He wrote a seminal piece that many e-commerce people have read about e-commerce growth and the frustrations about enterprise value and earnings. And Nobody knows better than him, and he's one of the O.G.s.

Chris Powers: What happened in your experience when Facebook came out? It's been over a year now.

When Apple said, no moss, we're going to change the algorithm, and Facebook couldn't do what it could do before.

Kelcey Lehrich:That was not as big of an impact on our business as many people assume it would be. If you are a business owner and you get 100% of your new customers from one place, That's a tough place to be.

So regardless of the size or scale of your organization, if your only way of acquiring new customers is by putting money into the Facebook ads machine and expecting it to come back at an inevitable return, that's a risky business proposition. Most of our businesses do run Facebook ads, but we also have a lot of other traffic channels, whether that's Google email affiliates, SEO search, or Amazon.

So we felt an impact, but it wasn't a dramatic one. And many of the better operators in the space, ourselves included, have now navigated this post. IOS change and advertising may be hard to measure, but it was only a speed bump for us.

Chris Powers: That leads me to the question, what are the best ways to market online today?

Where do all of you get the most traction? 

Kelcey Lehrich:There are only three ways to bring in revenue. If you're a consumer products company on the Internet, either you have brand awareness, so Chris recommends you, and so I type in the company's name, and I go right to them. Or a consumer can either enter a commercial transaction through demand capture or demand creation.

So demand captures. I go looking for something, and I type it into Google. I type it into Amazon. That's the easiest to do because you bid on it, show up, and people go looking for the thing you sell. The harder one is demand creation. That's creating a story, discussing people's problems, and presenting solutions.

Usually, those are only your three options: Facebook ads, YouTube ads, etc. If Nobody knows you yet, you must create or capture demand. And if they know you, you can use the revenue you get from that low-cost traffic to reinvest in capturing or creating more demand.

But it's just a game of balancing how much you're spending to capture demand, create demand, and how much you get just for showing up every day.

Chris Powers: So on that demand, you said there was a nice bump throughout Covid. What caused that bump to come back down? Was it just natural market forces?

People got busy again; they weren't just shopping all day, or was something else happening that structurally shifted how demand works in e-commerce? 

Kelcey Lehrich:It was just a bump on the long-term trend line. There's one good data St. Louis Fed puts out; you can see this chart. It was just a bump of people who couldn't leave their houses to go to the store.

Indeed, the stimulus checks and extra cash in the system made it easy to finance things. There's probably a bubble in consumer credit right now. You've probably been on websites and seen the four easy payments button. Many of those vendors got big throughout covid, and consumers were stretching their wallets to buy discretionary things, home, fitness, equipment, food, whatever it might be.

Took the growth of e-commerce above the trend line, and now it's since come back to on-trend.

Chris Powers: When you're buying a business, Are you thinking of it from we're looking for a good opportunity, or are you looking at, hey, here's a category we want to be in that we've researched that and let's find a business in that category?

Kelcey Lehrich:Historically, we've been super opportunistic just finding businesses we thought we could operate well that would be profitable and have some defensibility or moat in the business that we thought would be staying power for it to be a good investment. 

Chris Powers: So expand a little bit more. What would you say is your edge? 

Kelcey Lehrich:So today, some of the best businesses we have is where we have in-house supply chain or manufacturing function, where no matter how brilliant Chris Powers is or how many resources he has, it'd be tough to go spin up a competitor because you couldn't just go to a factory in China and say, Hey, I'd like to order, you know, carton of these and I'm going to put them on Amazon and compete with Kelsey.

Supply chain sensibility, in-house manufacturing, and verticalizing businesses are the best defense in e-commerce today because the barriers to entry on commodity products are so low.

Chris Powers: And like what you said, some of these businesses, if they're standalone on their own, would need more resources to work on them than they do because you have a shared service function across nine businesses.

So you can provide resources to some of these standalone businesses they couldn't afford. 

Kelcey Lehrich:Correct. 

Chris Powers: I had two businesses picked out. You all have gone super niche. So you buy niche businesses.

Let's talk about the business of Cloth diapers.

Kelcey Lehrich:This is your favorite. I know.

Chris Powers:I talked about this with Bill DA, but. How did that deal come to be? Maybe again, it was just an opportunity, but I want to, Pick around and talk about how this business works and what you've learned from it. 

Kelcey Lehrich:So I'm going to zoom back a little bit and talk about the transition from the beginning of this conversation when I said, Hey, we bought an e-commerce business, no actual thesis, and then 90 days later, we took all of our money and bought a second one.

Somewhere around that time, I started to go deep to figure out their business model here and the business model we then embarked on. What we've primarily accomplished today is the notion that. After World War ii, the American consumer spending trend started; there was no idea that consumers had discretionary funding to spend money on things before World War ii.

It's a post us dominant. The financial system phenomenon is that we all have discretionary money and buy things from brands. It is a relatively new thing in the history of the world. People have been buying houses for a long time and buildings and cars, but the notion that we spend money on branded products is a new phenomenon.

So if you look at the history, it starts with. Big companies advertise on A, B, C, and M, B, C, and radio. They bought billboards, went through big box stores like Sears back in the day, and eventually Walmart, and that was the beginning of American consumer spending. The Internet has come along, changing the future from a small number of big brands to a significant number of tiny brands. 

So I can go on Facebook, I can go on Google, I can go on Amazon, and I can now find these Long-tail niche brands that would never be on-the-shelf stores of Kmart or Walmart, or Costco. And so it unlocks this long-tail demand where you ask about cloth diapers.

Going to many big box stores, you can find one or two cloth diaper products from Gerber or Gerber branded. You won't find the dozens of online niche-branded cloth diaper brands we might sell at Nikki's Diapers. Our emergency food business is one of our better assets. If you put Chris Power's ten checkouts, there's a coupon code to get a discount on some emergency food.

Because Chris is such a fan, that product needs more demand at retail for us to have a viable business model. Some competitors have retail distribution, which is essentially an online category. Most people shopping for that product will order it over the Internet and have it shipped to their homes.

It won't appear on the shelves of Sam's Club or Costco.  

Chris Powers: You and I, that was like one of the first businesses we talked about, and I was blown away. How many people are out there buying? Food for prepping. 

Kelcey Lehrich:The average customer in that business is not a hardcore prepper. It's an average middle-American family with two kids and a spouse, a husband or a wife.

Either way, that's just concerned about the world in the future and sleeping better at night knowing they've got a couple of buckets of food in the basement. We did a whole campaign called food insurance, and it just helps you sleep at night; you'll feel better. 

Chris Powers: Do people buy once, stick it in their closet, and then they're done?

Or may they add another bucket to the collection whenever a scary media story emerges? 

Kelcey Lehrich:This is the best counter-cyclical business you could ever imagine. I don't want bad things to happen in the world, but when the news headlines get scary, the revenue in that business generally does well.

Chris Powers: Whenever they say they will try and ban guns, gun sales go through the roof. It is the marketing campaign for that Sales.

Kelcey Lehrich:Anything political or new cycle fear-driven will cause an immediate reaction in the revenue of that business.

Chris Powers: Quickly, you said something interesting, and maybe you have the answer to this; maybe you don't.

What caused the American economy and consumers to buy from brands after World War ii? Was it something that the government pushed, or what was like an inflection point there?

Kelcey Lehrich:It was just the dominance of us as the world's reserve currency. Very few buildings, equipment, and factories were left in mainland Europe.

America had just stocked up to build the U.S. war machine. Now we have factories, and we have an economy, we have the world's reserve currency, and we have humans that were coming home and ready to work because they were done fighting on foreign chores. And that's the boom of when we see consumer brands take off in America and then in the world broadly.

Chris Powers: So the Internet was the only thing at that point. 

Kelcey Lehrich:Stopping a small brand from getting big. So big companies, Proctor and Gamble, SC Johnson, all these companies and the brands they own date back to the early part of the last century, and they established dominance throughout the sixties, seventies, and eighties and nineties.

Then the Internet came along and changed distribution. I can now reach Chris Powers with my vegan peanut butter dog treat that Nobody ever would put on a shelf at a store, right? But, like you love that for your dog, you must buy it. And I find you on the Internet with a great ad about how this dog loves these treats, and you decide to buy it.

That just wasn't possible in a Big box retail format.

Chris Powers: So, back to the cloth diapers online. How do you find people that want to buy a cloth diaper? I've never seen an ad for one, and I only knew they existed once we talked about them.  

Kelcey Lehrich:We're back to the three ways you can sell things on the Internet.

You have brain awareness, and people know about it, or you search for it, and I appear or target you through advertising because you're a good prospect. So, We own Nikki's diapers, and he said, Hey Kelsey, where should I buy my cloud diapers from? Hey Chris, like Nikki's diapers is the place.

So you type that in. We're now capturing you through the brand. If you don't know me and you type it into Google, we'll show up at the top of that page, either through organic or paid to capture your sale. Or if you're a young mom in the market and Facebook's algorithm, we might show you an ad that says, Hey.

Are you interested in sustainability? Are you worried about what diapers are doing in the landfill? Are you worried about your child's sensitivity to their skin? Consider switching to cloth and save some money. I will either have brand awareness capture you when you search or interrupt you and try to create demand while browsing.

These are the only three ways we can generate revenue in e-commerce, and we do all three. 

Chris Powers: Do you sell anything besides the diaper?

Kelcey Lehrich:Everything that goes with it. 

Chris Powers: What goes with it? 

Kelcey Lehrich:Stuff you don't even want to imagine.

Chris Powers: Well, let's talk about a few; since I'm so clueless on this, I'd imagine some detergent may be suitable for cleaning kid poop.

Kelcey Lehrich:There's usually an inner and outer, the outer is waterproof, and the inner is absorbent. Change the inners more frequently than the outers, which would go into a pale liner like a stink-proof bag. You'll put all the dirty diapers in, and there are many adjacent accessories.

Chris Powers: Can you buy branded cloth diapers with designs on them, or could you get them if your kid loves baseball, get.

Kelcey Lehrich:There's a whole series of prints, patterns, colors, and seasonal themes. It gets pretty crazy. 

Chris Powers: How many competitors are out there in that space? 

Kelcey Lehrich:Not many. That market has been consolidating for sure.

And our brand operates as one of the more prominent players in the space. 

Chris Powers: On returning to the prepping business, I'm assuming there are lines of food you can sell. Are there other things that I need to think about that you can sell through? 

Kelcey Lehrich:Oh yeah. Water storage. So if you want to catch and store some rainwater, that's a prevalent prepper activity.

Some equipment, so like from generators or even home freeze dryers, we're a retailer for some of those. Food is by far the bulk of that business, though.

Chris Powers: But like a generator, you're not manufacturing the generator; you're just a conduit to the generator. 

Kelcey Lehrich:If it's the equipment, like that business is at its core food business, but we know that customer has other needs, so we're going to build some ancillary product lines around food such as water storage, generators, freeze drivers.

Chris Powers: You had a quote on Twitter; you said The best business we have bought to date, we paid the lease for. And we paid the most for the worst business we bought to date. Is that luck, or is there an insight there?

Kelcey Lehrich:I have yet to learn about the financial models you've done over the years, but all of mine go up to the right.

Chris Powers: I've never seen one that does it. 

Kelcey Lehrich:Yeah. It's crazy. For all the best intentions, every time we do a transaction, we learn something and get a better filter and lens of how to think about future deals. And so, like every business we've ever bought has been with a business plan predicated on continued growth and success, and sometimes those only sometimes pan out.

We've just seen a dispersion in outcomes.

Chris Powers: Is there something you've learned just on structuring a deal, or is it deal by deal, or are there things that you've learned from deal one to now like this is how you structure an e-commerce acquisition? 

Kelcey Lehrich:The thesis I have now for consumer brands and the things we understand about what drives revenue and value are things I needed to understand when we started.

It's all been self-taught through operational experience, and our lens has gotten much sharper at evaluating deals. Now. Some things cross my desk today that I laugh at and delete that I might have put an offer in on a couple of years ago. So it'd been that entrepreneurial learning of going through operating those brands.

Chris Powers: Amazon. Do you love them? Do you hate them? Are they just another necessary evil?

Kelcey Lehrich:Necessary evil? What does that mean? Many people, myself included, maybe you, I've seen my wife do this, you'll see an ad, and you'll instinctively open Amazon and go to order it there because it's free prime two-day shipping, and it's easy, and it's fast and your card's saved.

That is a competitive moat that they've built there. And so I used to be very precious about this and say, We don't want to give our customer to Amazon, it's their customer, and they're going to take all this margin out of our P and l. And now I'm of the mindset that we want to be everywhere.

If you'll see my ad and go to my website to direct, I'd love that. If you're going to see my ad and decide to open the Amazon app, I want to avoid being there because the chances of you buying anyways from a competitor are high, and I could capture that sale. So for better or worse, we're on Amazon.

Chris Powers: Do you make money on Amazon sales, or is it like.

You don't lose money, you don't make money, but it's almost like a marketing channel.

Kelcey Lehrich:We're profitable on Amazon for all our businesses. The P&L break end differently because you have different cost drivers.

You end up with a more significant share of costs going out to Amazon and their platform fees that you don't have on the D two C side, but you make up for Fort Worth—a little bit lower burden on things like customer service and shipping.

Chris Powers: Is the momentum with Amazon that you feel like they're helping small businesses, or is it that they're continuing to little by little takeaway?

Kelcey Lehrich:So, back to brand demand capture and demand creation. Amazon is a demand capture platform. It's spring in northeast Ohio. I bring the grill out, and the brush needs to be in better shape. I type in the grilled brush. I buy the first $10 grill brush.

There needs to be brand loyalty there. I didn't get an ad, so I looked for it. It was the lowest cost and the easiest way to find a grill brush. And so, if you are selling a commodity product, it is the place where there's the most transaction volume. And if you're a good operator, you can build a profitable business on Amazon selling commodity products.

If you're differentiated or want to create demand, you can only do that on the Amazon platform well. You will use Facebook ads and a D two C website to sell those products. 


Chris Powers: Okay. So if we go back to the cloth diapers. Is that a commodity product? 

Kelcey Lehrich:Depends on who you are as a buyer.

So we have buyers in our business that would look for us as a commodity and would prefer the low-cost channel of Amazon as an easy way to get the product. We have other customers that might be enthusiasts. You mentioned the prints and patterns where they're going to go to the D two C site, and they want the new thing the day it comes out, and the particular color and size shipped right from the manufacturer, not from Amazon.

So depends on who you are as a customer. 

Chris Powers: Is your goal with these nine businesses too? How do I say this? Let's say all nine started taking off and growing like crazy.

Kelcey Lehrich:That'd be great. 

Chris Powers: That would be great. That would be like these nine rocket ships; I have to imagine the law of averages and numbers.

One or two emerge as growth leaders. What do you think about that, as some of these break out and some don't? Does that change how you think about the future of what you want your portfolio to look like? 

Kelcey Lehrich:We look to run 365 as a business, and 365 happens to own this portfolio of brands.

And so it's a single P&L conglomerate with these different profit centers. And each profit center represents a brand and a channel. Through time, we're going to sell off the ones that don't make sense to hold for a team, and we're going to invest in the higher quality businesses.

So we have businesses today that don't need a shared services model. They don't benefit from some of our leadership team, and they're just not getting any value out of that. The best move for us would be to put those on the market. Take that cash and reinvest it into their existing businesses that we have. They're growable or into new brands, we want to add to the portfolio. So through time, we're just going to sell off some and keep buying up the chain. 

Chris Powers: How do you sell those?

Kelcey Lehrich:Through business brokers, typically, we're in the main street to lower middle market e-commerce world.

A handful of well-known, established business brokers can package those up and take them to market like you'd retain a commercial real estate broker. 

Chris Powers: And who would be the type of buyer that might buy one of those businesses? 

Kelcey Lehrich:Usually, it will be a first-time buyer that will use an S.B.A. loan, where we were six, seven years ago, starting.

And they're going to say, Hey, I need to make a living. And this business that does 3 million in revenue and 500 of cash flow can pay the bank loan can replace my salary from corporate America and turn a profit. Great. I want to get into the business. And they're going to buy that. 

Chris Powers: What happens at closing when they buy it from you?

You're sending them all the web, Internet, and I.P. assets. Do you send all the actual products to them and then send them to the manufacturing line? Like what do they need to take over your business? 

Kelcey Lehrich:So you look at the balance sheet of an e-commerce business, you're going to have inventory and then a bunch of goodwill and I.P.

So the goodwill and the I.P. are easy. Here are your passwords. Here are the logins to the website and whatnot. Here are the creative files. We do our shipping. We have our warehouse. So for a buyer, we'd let them run out of our warehouse at a fee for service for a short time, but we would look for them to take it to their warehouse or a third-party logistics provider to ship for them.

But we'd transition that.

Chris Powers: And that takes what? 60 days?

Kelcey Lehrich:Probably. 

Chris Powers: Okay, so literally, you're sending them the passwords. They go in and change them. The legal documents say they own them, and you can transfer the domain name to their GoDaddy account. 

Kelcey Lehrich:That's about it. It's that simple for where you have titles and buildings, and you can see transacting a digital business as the least satisfying, most ethereal thing in the world.

Chris Powers: Because you're not writing code, these live on Shopify sites, right?

Kelcey Lehrich:Yeah, if you have the admin password to Shopify and you have the domain name control, you own the business. 

Chris Powers:Is there anything going on that you mentioned the big three, Google, Facebook, and Amazon? Then we just talked about Shopify, which is out there for the small business.

If you were to project out like ten years, is the industry trying to do a workaround and get out of the extensive three-s control, and do you see that happening, or are they gaining more dominance? 

Kelcey Lehrich:Dr. Crystal Ball, I would love the answer. Big companies have much-staying power and have more in their own business.

We looked at TikTok as maybe this way that would be disruptive, and now there are questions. The regulatory front, like, will it even be in this country later this year? We don't know. 

Chris Powers:I hate to tell you this, but I hope it's not. And I love you, and I love your business, and I want you to be successful. I'm not too fond of TikTok.

Kelcey Lehrich:You might be right. Thankfully, we've yet to see it be that high performant of a platform.90% of e-commerce entrepreneurs are still basically married to Facebook, Google, or Amazon. If there is a good guy in the fight, it might be Shopify, and they certainly have an ethos of arming the rebels.

That's their tagline, and they might be the last good guy in small business digital entrepreneurship. 

Chris Powers: Is Facebook getting better or worse for you all since the iOS changed? 

Kelcey Lehrich:It's harder. 

Chris Powers: It's more challenging. But do you feel they're championing for you, or is it the exact old toll you will pay to do business?

Kelcey Lehrich:Same old toll.

Chris Powers: And there's probably, is there any?

Kelcey Lehrich:If you go on Twitter or some industry forums, there is no shortage of stories of an entrepreneur who owns a small business doing a couple million in revenue with a team of employees that somehow gets their Amazon or Facebook, or Google pick your player.

They get their account banned, and they're stuck in this customer service nightmare of going out of business because some big tech company has horrible customer support, and it's not an uncommon story. It's bizarre. 

Chris Powers: God seems to me like intelligent people are trying to figure out the work around here.

There's a lot at stake. 

Kelcey Lehrich:For sure. It's heart-breaking. You see entrepreneurs like put blood and tears and financial everything on the line to do this, and then there's some automated, you know, Chatbot system that's blocking them from being in business. 

Chris Powers: Have you seen any signs? I know it's early, but the A.I. topic is hot.

Is there anything in the ChatGPT or the A.I. world that excites or frightens you, or what will help? What's going to hurt?

Kelcey Lehrich:We're leaning into it heavily from a content perspective. We're augmenting our content team heavily by using ChatGPT. Our SEO guy was very skeptical, and then he wrote a 6,000-word ebook in half a day and was very excited.

That was helpful. The customer service team is looking at how to augment, automating many of our responses to be more potent without the need for an hour, so taking knowledge bases and having them consumed by the A.I. tool to write better customer support responses. So we're leaning into it for sure.

Chris Powers: All right. We've discussed shared services, and you discussed 365 as this kind of holding company. A holding company can be loosely defined, depending on who you talk to. And we will move the conversation there because this is something that I know is important to you. What type of holding company do you run, and how might that differ from another one?


Kelcey Lehrich:There's this chart that gets thrown in the show notes, so you can find it if you Google, but this chart demonstrates the diversity of serial acquirers, and so it's called the buckets of serial acquirers image. If you Google it, you'll find it. And on one side, you have a very diverse holding company like Berkshire Hathaway.

And on the other end, you have a rollup, and it's a very tight programmatic way of running multiple businesses. And I've studied the chart a lot and realized we have elements on both sides of the spectrum. So, emergency food and cloth diapers look diverse and non-correlated.

But if you look at the way we operate them, it looks and functions operationally like a rollup. One team uses one operational software platform, humans, office space, et cetera, to run those multiple businesses. So we've  into being a rollup of e-commerce businesses that with

Chris Powers: How does the market view you if you go to, say, Transact the whole business? 

Kelcey Lehrich:Yeah, six years ago, we bought the first one, and I was like, oh, we should do this like HoldCo of e-commerce businesses. Our mutual friend Bill and his mothers had done something like that, and I'm like, this is a good career path.

The notion of like the Amazon aggregator and phrases and all these like news articles about raising billions of dollars to roll up e-commerce happened after entrepreneurs like Bill, myself, and others were doing this. And so that notion of taking venture capital, buying a bunch of assets at some multiple and then going public ten years later at a much higher multiple.

That may not work, and it's not happened yet. It'd be great if it did, and it would set a transaction mark that businesses could chase and provide a pathway to say, Hey, here's a comp, and we're worth that comp. It's unclear whether or not our business would see a premium or a discount if we tried to transact the whole business.

Chris Powers: You're not the first person on the podcast. Almost every time we've talked aboutE-commerce, there have been several guests, Patrick and Bill, and everybody has the same feeling that, like these big aggregators, it won't work out. 

Kelcey Lehrich:I hope it does for all of us, right? If somebody can prove that the market's willing to pay that price premium, then those of us with multiple assets have a gold chase until then.

It's some of the parts. 

Chris Powers: Well, what, okay. But it is a common insight amongst people from all over the country and all different types of businesses. Why might it not work out how they think it will? Or that raising V.C. money to do it? Or is it the way they've structured doing it?

Is it that the model might not work?

Kelcey Lehrich:If you look at the VC-funded ones, they're all predicated on massive multiple arbitrages. They will buy businesses at three or four times earnings, and then the public company I P O will one day be worth 20 times earnings. It's that different from four times to 20 times that creates all this value, and you or I can put it in a spreadsheet model, and it'll go up and to the right cause all the charts go up and to the right.

And it'll look delicious on paper, but somebody has to be that terminal buyer, A private equity firm, the public markets a space. Somebody has to say, I will buy this thing at this valuation one day, and it has yet to happen. 

Chris Powers: So that is the value add is just multiple expansion.

Kelcey Lehrich:A hundred percent.

Chris Powers: There needs to be an operational improvement, or we have a better marketing engine.

Kelcey Lehrich:Theoretically, if you had a tight group of brands, we're doing everything in a baby. We're doing everything in pets, and we're doing everything in sports and outdoors. That can work. So the private equity firm that took public solo Stove had some ancillary brands around it.

A Kayak brand and some others, you certainly can get a story about an end market. So like, we're serving millennials, or we're serving moms who care about the environment. You could build some like end customer thesis—the only other strategy there might be a technology play. We have this best-in-class software that does X, Y, or Z.

As an operator, I usually see those newfangled like we will invent e-commerce software packages. I roll my eyes at most of them; many are ineffective. Humans are pretty simple; each of them does the right thing at the right time, and they will buy it.

Only so much value can be added to the marketing tech stack. Once you're sending emails and running some ads, there's not much more magic that will happen. So I'm skeptical of a lot of the technology value added. 

Chris Powers: Is the phrase bought or is the phrase different? I've not done any research on the phrase, so Sure.

They're a big name. Are they different than an Amazon rollup?

Kelcey Lehrich:They are the original preeminent primary reference to Amazon Rollup. 

Chris Powers: They were buying companies that only sold products through Amazon.

Kelcey Lehrich:Correct, which is a very homogenous-looking thing because, hey, we have a typical sales channel.

However, the supply chain is incredibly different if you're buying products from them because they might have dozens of factories scattered across China from dozens of brands on different manufacturing cycles. It is a common end market of the Amazon shopper and a very diverse supply chain.

Chris Powers: Why have you all chosen to have manufacturing be domestic besides the fact it's the right thing to do, and we love America? 

Kelcey Lehrich:It is a good moat in the business. The best example is our business making fermentation supplies. If you want to make some sourdough bread or kombucha or yogurt at home, we got everything you need to do; we run a commercial kitchen that has food inspections that has to grow those products, harvest those products, dehydrate them, package them, packet them, kit them into end skews, and then skews only 40, 50 bucks retail. We had this many value chains to assemble, so you must rebuild that entire value chain to compete with us.

Chris Powers: Does anybody compete with you that does it overseas? 

Kelcey Lehrich:I don't think you could do that feasibly.

Chris Powers: Okay, part of it is you're in categories, and you almost have to do it domestically, or else it can't work. Correct. But are you in anything where we have business competitors doing it overseas? 

Kelcey Lehrich:Yes.

We have one business with custom overseas products and a direct competitor that also makes them overseas. It would not be cost-effective to bring that one stateside. 

Chris Powers: Do you have an opinion on, I know you don't do it, but companies that are outsourcing, like I hear things like China's not as cheap as it used to be.

It's becoming almost as expensive as America. They copy your I.P., and they rip you off.

Kelcey Lehrich:In most categories, the supply chain is relatively established. So if the unit decides, we will make the Chris and Kelsey Jean Company. Only so many factories make jeans, and they're all in the same couple of places.

In Asia, we might find one or two domestic manufacturers, and quickly we'd have a spreadsheet of the people we could buy from. Here are all the input costs, specifications of the materials they will use, and their lead times. And you'd have a magnificent view of the supply chain to make jeans.

You should not buy a fabric mill and sewing machines and start making jeans from scratch. Because What would be your competitive advantage in doing that? It'd be tough to do so in most markets, and I use just jeans as a random example. There is a relatively established supply chain for most consumer goods, and whether it's peril, cosmetics, or food, they're just established places to buy those products from.

And if you're an entrepreneur innovating in a category, you can add some value, but the supply chain is likely already established. 

Chris Powers: Interesting. Yeah, Berkshire Hathaway was started in a fabric mill, Textiles. It's similar, and it didn't work, and it worked out. It did, and it worked out. But not because of the textiles.

Are you guys self-funded? Do you have investors? How are you guys structured? 

Kelcey Lehrich:We are self-funded, and Justin and I are the only equity holders in the business. We've maxed out S.B.A. loans a couple of times, which is fun, and we've done every version of high-interest-rate borrowing that an entrepreneur can do to lever up an e-commerce business.

We're about to turn the corner, having much of that paid off in a clean balance sheet and ready to figure out what's next.

Chris Powers: Why have you all chosen to sell, fund, and bootstrap, not take on investor equity?

Kelcey Lehrich:I'd be a terrible employee. 

Chris Powers: You would? 

Kelcey Lehrich:Yeah, I would be.

Chris Powers: You're afraid that, not afraid, but the type of investor you might bring in.

It's more of an I work for your type of relationship.

Kelcey Lehrich:No, that's a good joke. And Justin and I do like to joke about being unemployable, and it's been a common thing for the two of us, but I don't know that candidly. Adding outside capital would be an excellent accelerant to the business model, and I need a thesis for why I would want to do that.

Can other people want to invest in e-commerce? I need an opportunity set identified that would make that a perfect decision for us to pursue. If I did, I'd call you.

Chris Powers: Okay, Before we came in earlier. We were chatting and talking about live events and how the Internet has created this fantastic opportunity for like-minded people to get together more often. They can be something other than these costly conferences that are super expensive, and you need to know who's showing up.

You can get these more niche communities. While you've been an attendee of many, you launched one. Let's focus on how an event happens, what goes into it, the value you see from it, and your thoughts. 

Kelcey Lehrich:Yeah, the backstory there is HoldCo com, an event I co-founded last year with my friend John Wilson, which is an annual event for holding companies.

And so what John and I realize is we're both in northeast Ohio. We had similar headcount, number of businesses, and similar revenues, We shed a lot in common, and we hit it off and became friends. And there was no place he and I would've met if it wasn't for Twitter. It's an incident we met online, but there was no industry event for holding company owners.

There was no prominent place to go if you had two or more businesses. If you were in e-commerce, there are e-commerce events, and you, Chris, can go to real estate events, but there needed to be a place to hold them. And so, we started that live event last year, hosting it again this year, and it's just been a ton of fun because you get this very widely diversified, varied entrepreneurs in all kinds of categories. Last year, people owned everything from restaurants, HVAC and plumbing companies, e-commerce businesses, and software. Still, the one thing they all had in common was that they had two or more businesses and had the same problems of scaling a portfolio of companies. 

Chris Powers: What are some of those problems?

Kelcey Lehrich:H.R., finance, shared services, and decision-making around scaling the team, hiring leadership, hiring operators for portfolio companies, and raising capital. People presented the same challenges people faced early in that two or three businesses with seven or eight businesses and tens or hundreds of millions of dollars in revenue.

Chris Powers: You're about to throw the second annual. What did you learn after year one at that will? We could think about just throwing an event in general. 

Kelcey Lehrich:Yeah. It's exhausting. 

Chris Powers: So a lot goes into it, huh?

Kelcey Lehrich:Yeah, it was a lot of fun. My wife came to the closing night dinner, and she's like, how are you?

And she expected me to light up because we just had a very successful event, and I stared at her blankly, and I'm like, I'd like to go to bed now. It was like eight o'clock, and I was just exhausted. It takes a lot out of you and a lot of hard work.

Chris Powers: Were you? It's at Miller because you're working the event.

Kelcey Lehrich:Yeah, It's like an adrenaline dump every five minutes. You're trying to make sure that there's an excellent experience for all these people. I felt like. John's laid back, but I felt this immense pressure of, like, we just had a hundred plus people fly in from not even around the country, but around the world.

We had international attendees that decided to come to Cleveland for a couple of thousand dollars to this brand new conference from two guys that met on the Internet. I better deliver like I want to make sure I'm proud of this experience, and I felt immense pressure to make sure it was a fantastic event.

I'm glad to say we did a good job. We got a lot of kind words, and we delivered on it, but. Man that I feel out of pressure. 

Chris Powers: Is it the same size this year? 

Kelcey Lehrich:We're shooting to be a little bit bigger. 

Chris Powers: Okay. 

Kelcey Lehrich:there's a lot of interest in the S.M.B. holding a co-roll-up thing. It's a popular topic, so we're shooting for more significance this year.

Chris Powers: Why do you think it's become such a popular topic? 

Kelcey Lehrich:It's a whole generation of us that are all probably of a similar age. Call it Early thirties to 40-something, and we all read Richard Ed Poor Dad and know who Tim Ferris is and read the Four Hour Work Week. And there are specific entrepreneurial themes in a culture that we've all seen the same thing.

We see Warren Buffett and Charlie Munger, and we know their stories. And as a generation of entrepreneurs decides to look at buying small businesses instead of working in corporate America, working on Wall Street, or doing the startup thing in Silicon Valley. It's just this triangulation of personalities with similar interests. I guarantee you that I and any other quote-unquote HoldCo guy could spend three hours of her drinks just trading similar stories.

That Common Bond of running multiple businesses is just an instant conversation piece. 

Chris Powers: Do you think a lot of this style comes from what happened at Berkshire? Have you, as you've met many of these people, is that the inspiration for many people to start it? 

Kelcey Lehrich:The big names are mutual friends like Brent at Permanent Equity or the guys at Chen Mark.

People have been talking about this publicly for a while, and those who are the most influential audience probably get mentioned frequently. You point back, though, and the Charlie and Warren Berkshire compounding patient capital gets repeated the most as influential.

Chris Powers:I won't say something you've probably never heard before. But when I think about buying small businesses, Yep. And then sitting around and eating peanut brittle and playing g or I think about buying the most excellent businesses in the world that are billions of dollars with C.E.O.s that have, you know, he really, do you think there's an allure to be like that?

But it's I don't want to say it's impossible. Maybe, one day you get there, but it's much different buying some of these companies that he's bought for tens of billions, and it is to buy a 2 million company and, you know, you can't sit on your ass and do nothing. 

Kelcey Lehrich:I would agree.

What I do for a living is different from what happens in Omaha as much as that's inspirational. I get bored quickly, and I like a new challenge, and the thrill of doing deals is undoubtedly part of what fuels our organization. Is it easy to say I want to be Warren Buffett growing up? But maybe.

But he has a very different life than I do. 

Chris Powers: Here's my question. You have the thrill of doing deals, and said it brings momentum to 365 when buying a deal. How's the team made aware that a new company's coming in, a new product's coming in, or how does that work?

Kelcey Lehrich:That works, as I do most of the sourcing and diligence work on the front end. And so it's time for us actually to get under offer. I'll bring in Justin then, and we'll align on all the transaction specifics. And as we get to be under L.O.I., we're going to engage stakeholders in the team, usually the V.P. level, so supply chain ops, finance, hr, marketing, and they're all going to have their opportunity to ask questions, and be involved in the diligence process.

And generally, jump into things. We'll answer it to the team shortly after that, which will probably happen. And then on data close, the team's told, Hey, it's done.

Chris Powers: Okay. How do you source? 

Kelcey Lehrich:Historically, most of what we have bought has been on the market. So, all the same, brokers I've bought businesses from over the years are the ones I talk with regularly about what they're selling.

We're getting an inbound deal flow. Some are attractive, and some aren't a good fit for us, but I'm happy to have them. People reach out frequently. And then, as of late, we've been doing some distress transactions. So we have a relationship with a lender that's backed various e-commerce businesses. When they need a workout, we get a phone call to play a clean-up crew, which is an excellent opportunity for us economically to turn around a business and partner with a lender in the next phase with that company.

Chris Powers: Okay, what would a turnaround look like? What would a mess, what would a broken business look like coming in, and what are you all doing to get it back to the correct size?

Kelcey Lehrich:Many of these have been venture-funded businesses, so the balance sheet is usually pretty distressed when we're brought in.

It's often cleaned up through the lender transaction, but the real problems on the p and l side are that when money was free, there was always another round to be raised. Checks were flowing, and there was just no discipline around expenses where we would typically benchmark comp for a role or an expense category as a percentage of revenue or whatever that K P I might be.

Things are just wildly off, and that's where we start actually to see the synergies of our model. Our shipping rates with D.H.L. or FedEx are much lower than theirs. We know they had X number of accounting people, and our accounting team has some capacity to absorb things, and our marketing team has the capacity, so we see good synergy in those transactions.

Chris Powers:I want to go back to the HoldCo conference. So you through year one? What are the most significant changes you're making, if any, to year two? Like what did you learn more about the agenda of the event? Did people like more speakers? Did they not Like, how is it, how will this year be better? 

Kelcey Lehrich:We're staying the same.

The only material change is some breakout sessions, getting people with everyday problems together to do problem-solving in groups in an open setting. Probably the most significant change. We have a handful of speakers. And we have a handful of kinds of activities that are fun. If you go to a conference and say, oh, man, like there's all these speakers and people on stage, but like the best conversations were in the hallway.

I don't want somebody to say that about holdco com, and I want the hallway to be like half of the conference. And so one of last year's days was like, choose your adventure activities. 

And some people went to a cocktails class, some went rock climbing, and others went bowling, activities to spend other time with incredibly unstructured attendees with food and drink available to relax and spend a couple of hours building relationships. So we're going to do a lot of that this year. 

Chris Powers: Any extraordinary stories of things that happened amongst attendees after going year one? 

Kelcey Lehrich:Ooh. That's a great question. Indirectly, I know of people that ended up doing deals that were both in attendance, and I don't know if that was a direct result of the conference. Yeah. Or something else.

Chris Powers: And is this something that you foresee becoming a business in and of itself, throwing this and making it a thing you do every year?

Kelcey Lehrich:I'd like to. If there's enough interest from the market for us to keep growing it, we certainly will. 

Chris Powers: I am very interested in doing something like this in the real estate world.

Kelcey Lehrich:Yep. It's fun. It's exhausting, but it's fun. 

Chris Powers: What's so exhausting about it? 

Kelcey Lehrich:I had nonstop, like adrenaline dumps.

Chris Powers: During the conference, was it exhausting building it? 

Kelcey Lehrich:Not really, no. We had good event planning help. We have event planning help again this year.

Like I had a good vision for what we wanted, it was just the operation and production of the conference, like I'm excellent, saying I know a hundred people on the stage and talking about something. That's fine for me. Somehow I was pouring buckets of sweat and had nausea for no reason other than feeling the need to make sure the conference went well.

I wasn't nervous about speaking; I was nervous about everybody having a great time and being able to do it again next year. 

Chris Powers: You think you'll have that same experience this year, or you've streamlined it more? Are you going to bring the adrenaline again? 

Kelcey Lehrich:We'll see. 

Chris Powers:Is it in Cleveland again? 

Kelcey Lehrich:It is. 

Chris Powers: How'd you all pick Cleveland?

Kelcey Lehrich:It's our backyard. It's a cost advantage to doing events locally no matter what part of the country you're in; having the ability to be down the street is an advantage. 

Chris Powers: Cool. What do you think about the conference at all? Is it something where you are videoing or creating additional content for it, or are there other ways to learn? Have you thought that far into it?

Kelcey Lehrich:We recorded all the sessions last year and released most of them online—the free podcast and video. We'll probably do that again this year. We also started a survey for holding companies. So I looked at various industries, and there's an industry publication that tends to do an annual report, so we decided to kick that off this year with the first HoldCo survey.

And so that piece of collateral of insights about holding companies and their various revenue sizes and how they're financed and all the typical questions is I'm excited to put out this year leading up to this year's conference. We'll record all the sessions again this year and continue to release those.

We did a boot camp for Aspiring Holdcos this year, which was a lot of fun. I suggest doing one or two of those a year, but the real vision for the HoldCo conference is to be the annual gathering of like-minded multi-business entrepreneurs that is the can’t miss event. 

Chris Powers:I love it. There's an opportunity in many verticals to do something like this. 

Kelcey Lehrich:We had a conversation last year after the conference with a guy who was like, I feel like I could go to niche communities on the Internet, and I can find one in real estate and one in Sass and one in Holdcos and made a list of them, and I could build a business doing a conference a month and just hosting.

Niche community, live events. I'm like, that's a multimillion-dollar business. 

Chris Powers: A hundred percent. It's a multimillion-dollar business. You mentioned the T word Twitter, and that's how we met. I ask folks on the podcast how Twitter's impacted them in hopes that one brings new people to the community that might not be on it, but what, how's Twitter had an impact on you, and how do you think about it? 

Kelcey Lehrich:I have long valued learning from respected people and getting insights into the business. Some of the most intelligent, most insightful. I've learned that people willingly share on Twitter, which is wild. I met some great friends, yourself and others, and built some relationships.

Yeah, it's fantastic. The community is super cool. I have gone through phases of how much I want to put out there in the world and have some identity crisis around what kind of content I want to make. But I'm a big fan of the platform and hope it stays a great way to meet people.

Chris Powers:I think the same. You said it perfectly. I enjoy the people I've met, which is the most valuable. The business it's generated is incredible. I struggle a lot with, they're just weeks, months, and I'm like, ah, I got nothing to say. So anyway, all right, buddy. Thanks for coming down to town, and I look forward to the few more events we will hang out with this year.

Kelcey Lehrich:I appreciate it. Thanks.