Lessons from buying a company back
James Patten | 5 minute read
Key points:
- Be clear on what you’re buying back.
- Check the finances and future potential.
- Ensure it fits your long-term goals.
When opportunity presents, grab it with both hands
I never imagined I would buy back a company I built from the ground up for 10 years and sold to a competitor or the lessons I would learn along the way.
But less than nine years after selling our cosmetics business, RY.com.au (“Recreate Yourself”), to global corporation The Hut Group (owner of LookFantastic), my business partner and I found ourselves repurchasing our old business assets again.
In 2016, as founders, we had come up with a business plan on how we wanted to scale RY and part of our strategy was to scale through acquisition. We planned to buy our competitors in the space in Australia. But it turned out that what we thought was one of our smaller competitors ended up being owned by a global corporation, The Hut Group. And we got a quick response to our offer to buy them: “we’re not going to sell our business to you, but we’ll make you an offer to buy you”.
Within days they made us an offer we couldn’t refuse, and we ended up exiting the business. This wasn’t the end of the road, however. Just nine years later, when The Hut Group decided to exit Australia, the opportunity presented itself for us to repurchase the business and take back full control. I’d learnt some valuable lessons I could apply to my newly repurchased business.
Lesson 1: E-commerce’s seismic shift
Second-time around was a different game. When we started back in 2007, it was the early days of e-commerce. The iPhone wasn’t ubiquitous, and people still had dial-up internet connections that frequently interrupted their shopping experience. Our advantage was being an early adopter, first to market.
Today, the market is much more saturated and highly competitive. E-commerce is now mobile-first and increasingly sophisticated, with sales expected to reach US$4.3 trillion worldwide. To survive and grow, businesses need a differentiator that is sustainable and long-term. Key lessons from the first venture helped us navigate these waters.
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Lesson 2: Core values are a differentiator
Initially, we thought of ourselves as a retailer who sold products. Now, I’d describe us as a volume-based marketing and logistics company. We still sell makeup and skincare and have the largest product range in Australia – around 200,000 different SKUs – but it’s not about just building a moat to protect that area of differentiation.
To find our differentiator, I went back to our core values. I dislike values like “integrity”, “honesty”, “working as a team” because they’re just hygiene. If I can pick up my set of core values and I can lay them over any business, and they match, my business isn’t different.
We decided to base one of our core values around reputation rather than revenue. Another is being easy to do business with. We also pride ourselves in being able to think like a pufferfish, i.e. make ourselves look bigger, which means that everybody in our team is driving the business in a different way. There are valuable lessons in focusing on core values.
Our point of difference is also being superior around delivery. We’re building expertise and excellence around marketing, selling high-cost goods while operating a low cost-base model.
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Lesson 3: Drive growth by listening to customers
Everything for us is data-driven. We continually come up with ideas that we think that customers need and want, and we’re still wrong sometimes. For example, we kept hearing from people that customers want education, so we created an online skin consultation app. But after it went live it took more than three days before the first person decided to use it.
The answer’s always in the market. If you release a new product or service and it dies, the customer could have told you that. If you want to know the answer to what your business model should look like, go and speak to your customers first. They’ll tell you what they need based on their own lessons.
Being online, we’re lucky with the amount of data points that we can connect around different questions. How much are we spending to acquire a customer? Do they return often? How do we make them spend more?
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Lesson 4: Fast growth is a big challenge
Growth is a hungry beast. It burns cash. When we first started, we were too small to have a CFO or financial controller. But we engaged an outsourced finance resource one day a week, so that we’d have a clear one-pager to tell us where the issues were.
Running out of cash is the number one red flag. It can happen when CEOs don’t pay enough attention to their numbers. It’s always surprising how many people don’t read their profit and loss until they have a quarterly meeting with their accountant. Understanding your finances, and especially your cash flow is critical. These financial lessons are vital for every stage of growth.
When you’re starting out, you need to be forward thinking, be able to cut your losses and quickly understand the difference between a bad idea and bad execution. As a fast-growing company, you can never get wasted time back, so use it well.
During growth your business will evolve. As a founder there comes a point where you need to step back from doing everything and delegate. This is why building a trusted team is paramount. If the product is good, building the product will take care of itself. But it’s not just about the product. It’s about building an awesome organisation with a strong team and strong governance.
Above all you must always know your goals. Otherwise just growing for growth’s sake is pointless. You’re on a treadmill with no clear end in sight. When you know what your end game is, valuable lessons help you make better strategic decisions around your growth.
Finally, be prepared for shifting goal posts. Like me, you never know when you’ll find yourself back in your business, even after you’ve exited and moved on. Stand ready to take that opportunity when it presents itself.