Executing a Successful DTC Roll-Up with Taylor Stitch’s Mike Maher

Announcer:

Hey, welcome to the Nerd Marketing Podcast. Join co-hosts and ecom OGs, Drew Sanocki and Michael Epstein. Get ready as they'll bring you trusted tactics and strategies for boosting your brand's revenue, operations, and profitability.

Drew Sanocki:

Hey everybody. Drew Sanocki here, on the Nerd Marketing Podcast. Today's guest is my longtime friend Mike Maher. Mike, who's the founder and CEO at Taylor Stitch. A couple years back, he sold Taylor Stitch to an e-commerce holding company called Digital Stronghold within the Digital Fuel capital family of holding companies.

So it was really interesting to hear not only about how he started one of the most innovative direct to consumer apparel brands, Taylor Stitch, but also what it's like to run a holding company like holding companies have been this sort of old private equity approach. They're also called Roll-ups. You buy a bunch of companies in an industry and you hope to get the valuation up and exit at a much better multiple someday. While he's doing that, right now it's working. They own Boston Scally, they own the Tie Bar, and he's going to share a little bit of learnings about how you put companies together and make them bigger than the sum of their parts. So without further ado, Mike Mahar, how's the rollup business going?

Mike Maher:

Rollup business is great. At this point in time. I feel like we have a really good team in place. There's just a lot of things that are working. There was some stuff that we needed to fix. There's an integration period where we basically bought two other companies on top of Taylor Stitch in the first year and then have spent the last year getting it organized and sorting things out. And now I feel like we have a group of people in place that are all gelling in a good way.

And despite the macro environment, I think all the businesses are doing pretty well. We have one business that's a little bit softer, but our focus is driving profitability. So that's been where we've spent all of our time is undoing some stuff from a promotional perspective, specifically at Taylor Stitch doing a lot of price testing things, trying to drive more margin to less increase ebitda, and I've never been interested in just driving crazy top line revenue growth for the sake of it. I think a lot of that can falsify the true underlying performance of the brands. There's a lot of ways you can artificially prop up revenue, EBITDA profits to back it up. Like what the hell was the point? You probably destroyed your brand in the first place. 

Drew Sanocki:

When you added two more brands, tie Bar and Boston Scally. What did you have to do to integrate them? Were they all on Shopify?

Mike Maher:

Scally's on Shopify Tie Bar is on kind of like a weird headless version of Shopify that we're trying to fix right now just due to the massive SKU counts that they had. So that was one thing that we just need to be concerned about. That business has historically thrived off of SEO. SEO and paid search, and we were worried that we'd screw that up if we did a lot of stuff around changing SKUs around and things of that nature. What was the

Michael Epstein:

Thesis around those acquisitions? Why those two? 

Mike Maher:

Tie Bar was convenient. It was going through an A, b, C workout, so it was less about paying a multiple of EBITDA and more about we can basically get this thing for free. We're mid pandemic still at that point. So we thought that the wedding market, which is Tie Bar's core channel, would come back a lot. And so the kind of thesis there was, this is a game of patience and that was the thought there. Boston Scally was just this really interesting customer dynamic.

Has done an impeccable job building a following of consumers that need to have every single hat he makes. I equate it to the same people that collect sneakers and I guess there's a lot of people that collect regular ball caps and things like that as well, but he carved out a niche theoretically, this more blue collar guy that identifies with this S scally cap and built a following around them. I mean, guys are purchasing like 70 of these things. Wow, it's wild. And so he's just done an incredible job knowing his customer, relating to them building a great community. That was our kind of thought around that one.

Drew Sanocki:

So he's still involved.

Mike Maher:

Yeah, our whole thesis is generally fine. Founder led businesses, they want to go sell majority, take some chips off the table and have a thought partner, and that's where we feel like we really shine. So it's like, hey, we want you to be doing what you're good at and what you started this for, not having to worry about all the tiny ancillary menial tasks that A may not be good at and b, just didn't want to do in the first place. 

Michael Epstein:

So how do you structure the org and the teams, what's like a shared service versus what are the brands retaining control over directly?

Mike Maher:

So the kind of core things that the brands retain control over are brand content marketing, merchandising, product design, anything that feels like very core to the brand. One thing that we're very cognizant of is we don't want the whole thing to feel like a mono brand. We don't want you to look at it and be like, oh yeah, all these brands kind of look the same. Think that's when you kind lose the secret sauce of brand and product and community. We put things like digital marketing, digital product, finance and accounting. I think one of the big chunky things that we still need to tackle is shipping logistics, what you expect of a private equity rollup, but with a lot of the digital stuff rolled up as well. And then we build channel managers within the digital function to run those channels.

Drew Sanocki:

And so the thesis is like this guy, Carson Bitterman at Digital Fuel Capital wanted to start rollups in different categories.

Mike Maher:

I think they have four or five. 

Drew Sanocki:

And so they buy them at one multiple of ebitda, combine them and exit them all at a higher multiple of ebitda.

Mike Maher:

Yeah, yeah. Our belief is we're better together and we're worth more together. I think if you look at lower middle market private equity speaking in the generality, you see exit multiples expand north of 10 million of ebitda. You see 'em expand more north of 20 million of ebitda, just the universe of buyers gets bigger, hence they're more competition willing to pay more. Our theory is by aggregating these all up together, the first bite of the apple may not be the biggest bite of the apple, but it gets cash off the table, creates really strong alignment for everybody and everybody gets to benefit from that higher exit multiple down the road because you're retaining the equity that would then exit that. Are you

Drew Sanocki:

Always on the hunt to buy more? 

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Mike Maher:

Yeah, we call it a men's interest roll up. So really anybody that the predominant consumer is a male, we'll look at it. So we looked at cigar businesses, we looked at health and wellness things, pretty apathetic as to what that is. We just believe that the common thread with these things should be some sort of same general interest or space.

Michael Epstein:

I'd also love to hear a little bit more about the origin story of Taylor Stitch because one, we've always held it up as a great example of a brand that really knew who they were and was very thoughtful about their brand. And then some of the other innovations that you've had with pre-ordering of product also was sort of really new and innovative for the channel. So I would love to hear one, how you approached it when you first started and how you thought about rolling out some of these other capabilities and elements of the site. 

Mike Maher:

I like to think of Taylor Stitches just as one big entrepreneurial experiment. I never thought of myself as someone who would end up selling clothes. If you had to ask me as even a 20-year-old in college, what kind of business are you going to start? My buddy Barrett that I started with and I were planning on starting a van rental business, one that we had seen in Australia when we were abroad there, and then we kind of got back and it was 2007, 2008, so the recession hit. Gas prices were five bucks a gallon. It didn't seem like people were going to be really excited to go on long road trips. So his dad had always brought back custom shirts from Hong Kong and less expensive custom shirts. These are not the ones that you go to sack's and get tailored for 2 50, 300 bucks a pop. And he always stole 'em from his dad and brought 'em to school.

And so he kind of had this really interesting conversation about what would it be like to make a less expensive custom shirt? That was the original origin of the brand. It was like, how do we make a custom shirt that fits better? And the other thing that we were seeing was we had graduated college on the east coast, we'd moved to California. We were starting to see tech companies pervade the country, thus making the dress code much more casual.

So we were seeing 25-year-old engineers come in and get their first custom shirts and they didn't a crisp stiff collar white shirt. They wanted something that was more casual, but it still fit them. And so we kind of carved out this niche of making a really high quality custom more casual feeling shirt. We still did white and blue dress shirts and things like that, but we found that our guy wanted something that was more style and he was wearing these less with suits and more with jeans washed khakis.

And so that was kind of how the brand formed and it was really, that was something that we figured out over the years. It wasn't like we went into this and we were like, oh, we were just a bunch of stupid early 20 something boys trying to figure out how to get dressed ourselves. And I think that we learned a lot by finding our own personal style. And I think it was this amalgamation of preppy plus agrarian East coast roots mixed with more of a California style and it kind of created this vibe that worked for both the East Coast and West coast and a lot of people in between. I think that was the thing that helped us find our brand. And then I think from there it was really just a bunch of repetition around making sure that things were consistent from a visual standpoint and a storytelling standpoint that we were talking about earlier too.

Michael Epstein:

In the earlier days, like pre sort of 10 million in revenue, how much of the marketing was focused on brand marketing versus direct response?

Mike Maher:

We didn't figure out how to do direct response marketing until probably 2016, 17. And I still, I don't know if we ever figured it out in the way that a lot of these people really do. We and to this day are heavily reliant on just making great brand and product and telling those stories and making people connect with them. So I think it's always been about both of those things. We don't have a strong direct response product promise in the way that a mattress company does or something like that. All of our products are built to last a long time and they're built out of responsible materials.

So it's kind of like a mix of brand and product promise at the same time. You can kind of say it's direct response in some regards, but this is what we've been really good at is find a consumer that likes the way we think about building product and then get them to come back again and again and again because they trust us. I think a lot of the challenge is getting that customer to make that first purchase and then once we've done that, we have a high degree of confidence that we can kind of hook them.

Michael Epstein:

And then the workshop I kind of equate to Kickstarter for apparel, which I remember when you launched it, it was really unique at the time. How'd that come about? 

Mike Maher:

I mean, honestly, the workshop came about because we had no background in running a clothing company and we didn't know how to inventory plan. Our whole thesis on building this brand was that we were going to launch super short runs of product and sell 'em out over and over and over again because what we had seen was all these large brands were launching things on the retail, the wholesale calendar. So they'd have a huge collection that comes out and call it January or February by the time summer actually hits, the only thing they had to talk about was whether they were 30, 50 or 70% off, yet we were doing something more of a drop.

Think of it like streetwear where we're dropping something new every week, which was pretty different at the time. And as those drops got bigger and bigger from an inventory perspective, we got more and more scared because the buy got bigger. And so we kind of said to ourselves, Hey, we'd done some successful stuff on Kickstarter. What if we actually put this back to our community and said, you guys want this? And that was the original impetus for the workshop, which as you described is really it was just our version of building an internal Kickstarter to launch new products through to see if they worked or not.

Drew Sanocki:

Any thoughts around rolling that application out to Boston s SC Lake, where there's a strong community and they're really into the new edition of the hats?

Mike Maher:

Totally. We haven't done it yet, but we've talked about it and we're trying to figure out if it makes sense. There's a lot of limited releases too, and we're trying to find the balance of how that would work or if the guy that buys scaly caps cares where there's a limited number of them out in the world or not, or they just want to get them. But yeah, it's not interesting for Bar since they're more of a basics business not doing drops, but it could absolutely work for Sally.

Michael Epstein:

Have you ever contemplated opening up retail for Taylor Stitch and why or why not? 

Mike Maher:

We have. I think at the point we're at right now is there's still a lot of juice left in the lemon from a direct and digital perspective, and it's a pretty big financial and operational lift. I mean, we're kind of in the business of buying into more ebitda that just creates a bigger, when you look at opening more retail, do you

Drew Sanocki:

Think the rollup strategy is sort of here to stay?

Mike Maher:

I think it's here to stay.

Drew Sanocki:

What makes a good rollup?

Mike Maher:

I think what makes a good rollup is having brands and businesses that are much akin to one another. There's actually things that you can fix across the portfolio, whether it's channel or the products are much the same. You kind of ship 'em the same way. Anytime you can actually find true synergies.

I think a lot of people put things together that don't really fit that well. What Eric does at Resident is really interesting because he's really good at direct response driven brands and they know their playbook and they go at it. What we're better at is finding brands that maybe have more of a lifestyle component to them, and we're looking for longer tail retention metrics from our customers. T

hese are all things that need to be thought about when looking at acquiring brands. But yeah, I think they're here to stay and listen, roll-ups have been happening for a long, long time, decades. It's just that we are now in this. Okay, how does this look as it relates to, we can call it direct to consumer brands or omnichannel in Atory? It feels like people have just rebranded it in a way that kind of tries to make it feel hot again or special, and it's really kind of the same thing, just repackaged.

Michael Epstein:

I think there's also something to be said for how you've structured the org around it. You've got some rollups that we're thinking, we're just going to mash a bunch of things together, centralize the marketing function. But as you said, sort of leaving it founder led, who still owns the brand, the merchandising and product strategy. Let's see how you combine those across disparate brands and categories.

Mike Maher:

I totally agree with you, and the reason that I've kind of always said I don't want to buy anything that has less than 2 million of EBITDA to it is for that purpose is when you just try and smash all these small things together, how do you manage them? The complexity gets significant very fast. And I've always kind of said, I want to have enough EBITDA where I can confidently hire an adult and pay them enough to be in that room to run that business.

Otherwise, if something falls apart, you're going to be scrambling to jump in there and try and figure out how to fix it. And when the businesses are too small, you're kind of pulling the guts out of them, try and optimize it. It feels like almost like a sunset job where you're like, okay, we're going to pull the brand out. We're going to just optimize around these few products and hopefully it lasts long enough for people to get a return.

Drew Sanocki:

So what if you were starting from scratch today? 

Mike Maher:

I don’t think it would start a business from scratch today unless it was a total art project and I didn't give a shit. If it ever made money, I would buy a business and optimize it.

Drew Sanocki:

And then you get to that, it's got to be doing 2 million or more in EBITDA as one of your criteria kind of busted.

Mike Maher:

Yeah, I mean, I think there's a lot of businesses in this world that are just suboptimized great businesses. It could be a legacy business that can have a great boomer business that just didn't ever want to make it any bigger or better because they were totally happy clipping however many millions of dollars they were every year, but there's a big opportunity to grow. It just didn't put the pedal down. I think there's a lot of interesting stuff like that out there. I think especially as we're call it now through five, 10 years, you're getting a lot of boomers that are retiring and they built great businesses and create a lot of wealth. And I think those things are the interesting things to me.

Drew Sanocki:

Mike, thanks for joining us. It was great seeing you again.

Mike Maher:

Great to see both of you fellows as well.

Announcer:

On this season of the Nerd Marketing Podcast, you'll hear from the Wharton professor that literally wrote the book on customer centricity, along with Drew and Michael's experience in private equity and advice from VC firm partners on what they look for in investments. And you'll hear topics about brick and mortar retail strategies for CPG brands and much more. Alright, Drew and Michael, will be back very soon.

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