🥗 Our Failed Acquisition

Hey there,

Welcome back for another bite to chew on.

We hope you’re crushing your to-do list and having an amazing week!

In the last newsletter, we talked about one of our big wins.

In this newsletter, we want to talk about one of our big losses (at least thus far) 

We feel it’s important for the community to talk about both the good sides and the bad sides of building and running businesses.

We want to normalize the idea of doing something that seems risky, failing, and then learning from it. 

At the same time, we also want to change the narrative of how entrepreneurship is portrayed as a game of just winning all day on social media. 

We know that we have a voice and a platform, so we want to be the change that we’d love to see. 

So - let’s talk about losses! 

What went wrong

Last year, we acquired this brand called Coffee Over Cardio. 

Truthfully, it was our first acquisition ever - so… although we thought we knew what we were doing, we had no idea about what we didn’t know

On paper - it looked like a great business.

Healthy margins. Profitable. Cash flow positive. And lastly… a great deal!

In our heads - we were like… 

• We’ll rebrand it and make it look more premium 

• We’ll start selling it on Amazon. 

• We’ll create and run better ads to better landing pages 

• … and lastly; we’ll get it into retail ASAP! 

We’ve successfully done all of this with Obvi. We have the resources. And we have a team.

What could go wrong???

Answer: A lot

Before we explain what went wrong, and what we should’ve thought more about, we want to show you this matrix of knowns and unknowns.

This is something we started thinking about post-acquisition, and we believe it will serve you to think about it in any big decision you take. 

When making any decision, you have 4 quadrants that you need to consider;

Your Known Unknowns; The stuff that you know you don’t know anything about and therefore you ask questions. This could be in relation to the financials, team, market, etc. 

Your Known Knowns; The stuff that you know you know something about. For example, how to create better ads, landing pages, re-branding, etc. 

Your Unknown Knowns; The stuff that you don’t know that you know, but you actually do know. These are often subtle things you’ve learned through experience and repetition, but you don’t know how much you know about it.

Some people are natural leaders or naturally good at delegating tasks, but they don’t know they have those skill sets

Your Unknown Unknowns; This is where we fucked up. We didn’t know what we didn’t know. 

And when you don’t know what you don’t know - you get blindsided. You don’t know what question to ask, because… you don’t know what you don’t know. 

Now let’s dive into what this actually meant in relation to our Coffee Over Cardio Acquisition. 

1) We didn’t do enough market research before acquiring.

The coffee market is very unique.

Price points and consumer’s willingness to pay range from $1 at Folgers to $9 at Blue Bottle Coffee. 

In our heads - we thought… 

• We’ll take this product

• We’ll rebrand it and make it look and feel more premium 

• The blend is already premium 

• We’ll make some premium collabs with Post Cereal and Entenmann's

• … and then we’ll sell it at premium prices in retail and on Amazon

The only thing we missed here was the fact that, although the blend IS premium - the coffee has no real functional utility.

It’s slightly better than other coffee products, if you just look at the coffee alone - but it’s not much better. 

And therefore - retail buyers simply couldn’t justify paying a premium price when the product itself isn’t premium (even though everything around it is).

…This leads us to the second point

2) We didn’t study the margin profile as much as we should have

When you make a forecast and you study a margin profile of a brand - you think…

Okay we’ll buy it at this COGS, sell it at this price, make this margin, spend X amount on OPEX / Fixed costs - right?

But…

What if you can’t sell it at the price point you initially predicted?

What happens to your margin profile then?

Answer: It tanks. 

What we learned from it

So the learning for us here is three-fold.

A) We shouldn’t have been overly confident in our ability to sell the product into retail at any cost.

We bought the company and then went to talk to retail buyers to try to sell it to them. 

We should’ve talked to retail buyers before even buying the company. 

B) We should not have made overly optimistic sales and pricing assumptions when building out our initial financial models.

Instead - we should’ve looked at a more pessimistic scenario and what we would do in the worst case - not the best case. 

And C) We should’ve just talked to more people to understand our own blind spots and what we don’t know about the coffee market.

What we’re going to do about it

Although we definitely took an L for the first few months - we haven’t failed.

… because we haven’t given up.

And as long as we continue to try, we’re confident that we can make this brand work too.

Here’s what we plan to do:

Product

It’s obvious that we’ll try to improve the product and make it better than the other options on the market by itself.

We plan to do this by 

• Improving the product quality and taste through better coffee sourcing 

• Improving the functional utility of the product (collagen coffee? Protein coffee? Vitamin coffee? Nootropics coffee?) 

Branding

While working on the product, we’re also working on trying to improve the brand’s look and feel, to try and justify the higher price point.

Yes - this may sound weird given that we’ve tried to do this already, but we believe there’s still room for improvement and opportunity if we make the brand perception really damn premium

Distribution

We’re still going to bet on retail and Amazon eventually - but we’re also shifting more focus towards alternative distribution channels such as influencers and TikTok shop which we’ve seen good traction with. 

Tool of The Week

When starting or buying a new eCommerce business, your cash flow will inevitably be tight.

It’s just how the game works. 

We’d argue that figuring out how to leverage and use cash is actually one of the  hardest parts of the game. 

But - although it’s hard, you don’t have to make it harder than it needs to be.

Since starting our eCommerce ventures 4 years ago, we’ve always been huge advocates of using credit cards & short term financing to get longer payment terms and “engineer” our way to more cash flow.

The way this works is simple. 

• You give up 2-3% in margin to get 60-90 days longer to pay your invoices 

• This enables you to sell your products before having to pay for them

• And… At the same time, it enables you to be more aggressive on growth and marketing spend - because you have more cash available to do so. 

If you play the game right, and you know how to acquire customers efficiently - that incremental amount of cash that you can now invest in marketing, will easily offset the 2-3% you gave up in margin.

So Net Net, you’ll make more money and have more cash in hand (and therefore more peace of mind) 

Plastiq is our preferred partner for everything in relation to credit cards and cash conversion optimization.

We’ve been long advocates of their product and strongly recommend you to check them out.

They have been nothing short of monumental for our brands

Click here to check them out

#ProudPartner

Thanks for Reading Along

Well, there’s our L. Soft subject to talk about, but that’s how we grow!

We’re excited to keep you posted on our progress with Coffee Over Cardio.

We appreciate you and look forward to serving you again next week.

All the best,

Ron & Asht