The Next Brand, Episode #14
Hunting, organic scams and buying a business for $0
Hi there, and welcome to The Next Brand - my take on health, wellness and brand building.
In the last 4 years I’ve founded 2 health brands (Kettle & Fire and Perfect Keto), which did nearly $100mm in revenue in 2019. I’ve raised ~$20mm to build Kettle & Fire, gotten into 10k+ retail stores, bootstrapped Perfect Keto, launched 80+ SKUs… and have a small portfolio of Shopify apps I run on the side. Previously, I worked in tech and had no experience in CPG, DTC or any other 3-letter industries.
If you missed past episodes, you can catch up here (Episode 09, 10, 11, 12, 13). Otherwise, let’s dive in!
🆕 What’s new
Last month I went on my first ever elk hunt in the mountains outside of Steamboat Springs, Colorado.
Squad
One of my intentions this year has been to get better at developing the real-world skills I’ve ignored for years while I worked on company building. This year, I wanted to develop areas unrelated to business: cooking🧑🍳, writing 💪, hobby-ing 🚴♂️, and increase my understanding and connection to food and our food system.
This hunting trip was a big part of that: 3 days hunting in the Colorado mountains with 6 other guys. For 3 days we got up at 5:30am and braved the 13 degree weather and 30mph winds to track and search for elk.
When I said yes to the hunt, I knew it’d be physically and mentally taxing. Little did I realize just how much goes into getting prepared for a hunt in challenging conditions. Before even arriving in Colorado, I had to:
Complete a 3-hour hunter safety course
Wait in digital line to purchase elk tags for the hunt (aka a permit to hunt 1 elk in Colorado)
Buy all necessary winter camo gear (I recommend Kuiu brand)
Buy a rifle (and become one of the 5 million new gun-owners in 2020) and a scope
Learn to shoot said rifle by attending a 4 hour long-range shooting class taught by a former Marine sniper
Acquire ammo during a national ammo shortage (again… 2020)
All in the span of about a week after having recovered from COVID.
It was a lot, but totally worth it. Unlike learning to bike, there’s a pretty darn steep learning curve to all this hunting stuff (business opportunity!). I was fortunate to go on a guided trip with a group of guys who were experienced and interested in hunting as a way to connect more with nature and our food system - something that’s a rarity in much of hunting culture.
Once prepped and on the mountain, we spent an afternoon getting our rifles sighted in (aka making sure that the rifle would fire where the scope was pointing, which doesn’t happen if your scope gets jostled or dislodged in transit).
Sighting in my rifle
Once sighted in, the next morning was hunting time: a 5:30am start in a literal blizzard. We got layered up, drove to the hunting grounds and started attempting to track elk with about 30 feet of visibility.
Nothing.
The next few days weren’t much better: my hunting partner Eric + I unfortunately didn’t get a clean shot within range for the duration of the hunt. Though my good buddy and fellow hunting companion Nat Eliason did manage to get one, as he shares here.
Though the hunt was personally unsuccessful in that I didn’t get an elk, I was thrilled with the trip. I got to spend a bunch of time in nature, hang with a killer crew, push my personal boundaries, and connect more deeply with nature. Heck, we even got in a snowball fight!
Hunting is absolutely something I will incorporate more into my life. I’m already planning another trip next year (likely in Alaska) and am excited to pull this thread for many years to come.
💪 Health stuff
In this month’s episode of Wow, Our Food System Is Really Messed Up!™️, let’s talk about chicken. Namely, that every time you buy organic chicken, there’s a good chance (perhaps as much as 50%) that it’s not actually organic.
Surprise!
But why?
A few reasons, most of which have to do with organic soy. You see, most organic chickens in the US are fed organic soy, half of which is imported. (Now, chickens should not be eating soy in the first place given it’s not their natural diet. But I digress).
But if an animal’s feed isn’t authentically organic, well then neither is the animal. Unfortunately for US consumers, it’s easy for importers to pass off inorganic soy (and other products laden with pesticides) as organic. Organic certifications and processes just aren’t as tightly watched in other countries as they are in the US, which makes fraud relatively easy.
And the stories of fraud are damning:
A Ukrainian shipment of 36 million pounds of “organic” soy treated with pesticides wasn’t flagged until the Washington Post found its own evidence and called the USDA. By the time officials discovered the fraud, 21 million pounds had already reached farms and mills.
An Argentinian company, Rivera, shipped 292.8 million pounds of corn and 222 million pounds of “organic” soybeans to the US before being caught.
While the main vulnerability seems to be around imported feed, a Missourian farmer was also caught marketing $140 million of fraudulent “organic” corn, soybeans and wheat.
John Bobbe, executive director of the Organic Farmers’ Agency for Relationship Marketing (OFARM), a farmer cooperative, said the US “is the easiest for potentially fraudulent organic products to penetrate because the chances of getting caught here are not very high.”
In 2018, the Cornucopia Institute - an independent watchdog group focused on protecting farmers - published a report: “The Turkish Infiltration of the Organic Corn Market”. They filed a formal petition to the USDA to address these common issues with organic feed.
Two years later, the USDA proposed a rule that would close the loophole and “require the certified operations to maintain records that document a product’s source and chain of custody across the supply chain.” Yet 3 years later, this rule still hasn’t been implemented due to USDA roadblocks, which means lots of fraud is still ongoing.
So every time you’re doing well by buying organic chickens? There’s a good chance you’re not. Annoyingly.
As thoughtful consumers, rather than over-rely on large certifying bodies (which often advantage larger companies at the expense of smaller ones - a common theme of this newsletter), it’s important to do things that people used to do 80+ years ago, before the advent of our food system. Actually get to know your farmers, get to know their growing practices, and understand how + why they do things.
Go to farmer’s markets, use resources like Eat Wild, buy poultry from regenerative suppliers Cook’s Venture, and play a role in fixing our food system.
🤑 Biz stuff
In my previous life in the SaaS world, I worked with a team (Exceptional) that bought small SaaS apps, grew them and later exited the portfolio to Rackspace.
When I left Rackspace after the acquisition and went out on my own, I wanted to replicate the model the Exceptional team had seen so much success with. I wanted to buy + grow my own SaaS business.
Along with my partner Ryan, we were on the lookout for a business that fulfilled one of the side hustle criteria I’ve written about before.
In early 2016, we stumbled across Notify: a simple Shopify plugin that would pop up at the bottom of a website, displaying a purchase another customer had recently made.
Once I saw it in action, I immediately installed it on Kettle & Fire and saw a 40% lift in conversion… and $1,400 in extra sales (this was 2016… K&F was a lot smaller then 🙃).
Woah.
If it helped my site this much, how many others see a similar sales lift? We had a strong hunch that we could buy Notify, improve a few features and grow it quite a bit.
On February 1, we fired off this email:
Buying an app, no matter how small, is a lot of work. I’d tried to purchase other software businesses in the past and understood how hard it was to come to an agreement. The process involves a good bit of legal spend and can fall apart at the drop of a hat: lessons learned after spending $10k on legal for a failed acquisition 12 months previous 🤦.
We first wanted to see how serious Scott (the app owner) was about selling. We emailed him and grabbed dinner just 7 days after our first email exchange.
During dinner, we expressed our admiration for what he’d accomplished (which was truly impressive). We covered our backgrounds, and shared the many ideas we had for the product that could take it to the next level.
Dinner went swimmingly and we learned a LOT about the product. Within a day or two, we followed up with super early diligence questions:
After taking 4 days to review the numbers he sent over, we responded with a non-binding Letter of Intent: basically, a legal letter that proved we were serious about buying the business. LOIs are non-binding, but show that we’re serious and intend to proceed in the acquisition process. It also served to ensure that we were aligned on high-level terms: what we’d pay, when those payments would hit, etc.
While negotiating this acquisition, I kept in mind something one of my mentors shared when buying assets. Assuming you’re not in crazy hot competition for something, it often pays to operate under a “my price, your terms OR a your price, my terms” mindset.
Basically, let’s say we wanted to buy the app for $1mm, but he wanted to sell it to us for $1.5mm. In a scenario like this, we’d put an offer in front of him for $1mm cash, up-front (his terms, our price), vs. an alternate offer of $1.5mm paid out over 1-2 years via monthly cash disbursements.
In this case, we ended up going with the latter: his price, our terms.
The seller wanted a high (but fair) price for Notify, and wanted to have a piece of the upside going forward. We landed on a structure that would reach his goals AND allow us to buy the business for literally $0.
Here’s how (note: numbers are not actuals):
We agreed on an overall value of the business: call it $500k.
We then discussed how much ownership Scott wanted to maintain in the entity going forward. Let’s say we landed at 20%: we then subtracted that ownership from the total purchase price, and had to figure out how to come up with $400k to buy 80% of the business.
As I said earlier: he chose the price, we chose the terms. Our terms were that we’d buy the business via a series of monthly payments over the next 20 months. So, in our example 400k required purchase amount, we’d pay 20k/mo to buy the business.
Here’s the kicker: we structured it so that payments would begin 60 days after close. Because the business was already doing more than our monthly payments to the seller, as long as the business didn’t implode (it didn’t 😅), we’d be able to buy the business with its own revenue. $0 out of our own pockets.
Once the price + terms were baked into the LOI (and the seller signed), we moved into deeper diligence. Just 23 days after our first email to Scott 🏎️!
We asked him to complete a questionnaire about Notify’s growth, revenue, tools used, etc., as well as give us all the logins related to the business. Over the next 2 weeks as we dug into the info he sent us, we worked with a lawyer to pull together an Asset Purchase Agreement (APA) - basically, the document that’d make the sale official.
Fast forward to closing day, March 10, 2016. We received a signed APA and now owned a business that was already generating cash!
Several years later, Notify has become Fomo: a software business that’s doing $1mm+ each year.
Though buying a small SaaS business is more competitive now, there are still LOTS of opportunities to buy small assets and scale them on the side. If I were to run this strategy again, I’d focus on a few areas:
Buying land and putting it on Hipcamp + other camping rental sites (as I discussed in my last newsletter).
Buying up small apps in the Google Chrome or Mac app store
Buying assets on rapidly growing platforms: ie could you buy out a Fortnite skins developer? A creator on Roblox? A top theme developer on Webflow or Shopify?
Buying small software businesses in industries tech doesn’t traditionally touch. In my world of CPG + food, there are a TON of small software opportunities where a strong operator could buy an asset, tune it up and do quite well.
If you’re going through a similar purchasing process, let me know and I’m happy to share the Asset Purchase Agreement diligence questions we used. Otherwise, happy hunting!
😌 Dope stuff on the internet
Some of my favorite things since the last newsletter (note: I don’t get paid to recommend anything here):
📰 Article - Undoubtedly the best article I read this month was Paul Graham’s How to Think for Yourself. Read the whole article, but this quote especially resonated: “Conventional-minded people don't like to think of themselves as conventional-minded. And in any case, it genuinely feels to them as if they make up their own minds about everything. It's just a coincidence that their beliefs are identical to their peers'. And the independent-minded, meanwhile, are often unaware how different their ideas are from conventional ones, at least till they state them publicly.”
Runner up this month is Rob Rhinehart’s post on The New York Times. Rob is an incredible writer I’ve been really enjoying lately.
📚 Book rec - I’m usually a sci-fi guy, or reading something non-fiction. However, after a friend recommended The Overstory, I tore through it. It’s one of the best-written works of fiction I’ve come across in the last few years, and enjoyed it immensely.
⌚ Cool product - I recently discovered P2K, an app that takes articles you’ve saved to Pocket and sends them to your Kindle. I’ve been a big Pocket user for years now, but as I’ve tried to use my phone less I’ve found I just am not opening and reading Pocket as much as I used to. Worse, when I do use Pocket, I end up reading articles that are 5-10 minutes long… and not touching the 40+ minute articles that are often the most worth reading. The end result is a year-long backlog of 30+ minute reads I’ve felt like I’ll never get through. Since using this app, I’ve been able to actually make progress reading some of the longer articles that have been on my list for months, and do it on a device without any other distractions.
🎵 Music - We got ourselves a throwback this month, ladies and gentlemen. This Gryffin flight log mix was one of my favorites 5 years ago, and is still one of those mixes that gets the happiness energy going. Enjoy!
🏀 Random - If one of your goals this year is to improve your health, check out The Daily Tonic - a weekly health-related newsletter I’m helping advise. The goal is to create the best newsletter on health and wellness that exists, full stop. Think Morning Brew but for health.
We’re just starting out and I’d love your honest (and critical) feedback if you want to sign up and give it a go!
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And with that, 2021 begins. Hoping that the holidays were restful and restorative, and 2021 is just a tad less crazy than 2020. Be well.
Justin