Every day the world is filled up with new incredible ecommerce brands. The problem is that not all founders want to run those brands forever. On top of that, only a certain spectrum of brands are attractive to private equity. This left many more brands that would slowly shut down, rather than sell. OpenStore is changing that by providing a simple platform for Shopify entrepreneurs to make attractive exits. Co-Founder and Head of Product Matt Lanter joined us on DTC POD to explain how OpenStore works, and what inspired them to build it.
Matt Lanter is OpenStore’s Head of Product and Co-Founder. Matt served as an engineering and product leader at Opendoor, Facebook and Apple. He was the Chief of Staff at Founders Fund where he worked closely with entrepreneurs building the next set of companies. OpenStore provides life-changing liquidity to Shopify business entrepreneurs that are ready to sell their business so they can move on to what's next. Anyone can get a free, no obligation offer for their business within 24 hours by visiting open.store.
00:14 - Helping entrepreneurs exit
Matt explained that just like selling a house, selling a business can be a lengthy and complicated process. He wanted to change that.
“We provide liquidity to Shopify entrepreneurs. We provide them with an exit and the ability to sell their business when they're ready to. A lot of these entrepreneurs don't really have other options to sell their business. They're too small for private equity. They don't necessarily have the characteristics that venture capitalists are looking for. And there are brokers and marketplaces they could go with, but similar to all other marketplaces, even selling your house, there's no guarantee you'll be able to find a buyer. You can spend a lot of time talking to potential buyers and waste time. So we wanted to make it really simple for these Shopify entrepreneurs to come to our website, connect their Shopify account, their Facebook and Google marketing data if they have it, and get an offer within a day to sell a business if they're ready to.”
04:16 - The problem with private equity
Private equity tends to go after high-value targets. It’s also very high-touch, with a process and payment terms that can move at a glacial pace.
“Private equity tends to be more like $50 million+ in GMV, so it tends to be on the larger side. Whereas for us, our target size of businesses is between $500K and $10 million. Part of it is that private equity firms tend to be very human-based and use a lot of humans to value these businesses and go through that process. Whereas we've built this pricing engine that's able to within 24 hours deliver an offer for your business. So we're able to serve a much wider swath of businesses and really serve as many people as we can….With private equity also, it's usually a multi-year payout. And there’s earnouts over time and all these percentages, and it's a fairly complicated thing for sure. We want to make it very simple. You come to us, you get your offer. It's a very clear price. You actually get 80% of it on the day you close. And then there's a short 1-2 month transition period where you help us learn about your business. And then you get the remaining 20% at the end of that.”
15:11 - A streamlined sale process
When selling on OpenStore, founders immediately get 80% of the payout. After helping transition the business, they get the rest. Meanwhile, OpenStore works hard to maintain brand integrity.
“Once you close you get 80% of the cash around then, and then it's a 1-2 month transition period. So the founder works with our team for us to understand how they run their business, transition everything over to us. Domains, all the various parts of the business. And then we run it from there. To that point, as we build out this operating platform we've created a set of OpenStore best practices. Various tools, internal and external, that we use to help run these businesses at scale. And analytics is a very important thing as well. So investing in that and moving those brands to our way of running and growing them. But one thing is we do really want to maintain the brands and grow the brands. We don't want to take a company and then just get rid of the brand. We really want to keep the brand and grow the brand and highlight what the entrepreneur has built.”
19:57 - The power of brand
OpenStore works exclusively with Shopify brands because they find branding to be important and rewarding work. Shopify provides the tools that the team needs to help brands thrive.
“We really like that these Shopify e-commerce brands have a really strong brand. Whereas the ones on Amazon tend to don't need to focus as much on the brand, because they're on Amazon. And Amazon helps them with customer acquisition. And so we focused on Shopify stores because we believe in a strong brand and a strong building-out of these brands. For example, you look at Nike, which is obviously a very well-known brand. and they aren't on Amazon. They can't control their brand experience. And we really want to control the full stack of things…When you're running these businesses, there's marketing, supply chain, demand, planning, forecasting, all those complex things. Which when you run them on Shopify, there's like a lot of room for us to really grow and build out a great platform there. Whereas Amazon takes care of a lot of those things for you, so it was less exciting work for us.”
22:45 - Promoting entrepreneurship
Matt and his team are big cheerleaders for entrepreneurs. They hope that the ability to make an easy exit with OpenStore will convince even more people to build something new.
“Part of the reason people may be hesitant to start a brand right now, even if they have a really cool idea, is that they could pour years of their life into this and a lot of hard work. And then there's no certain exit after that. Like after five years, let's say, maybe they want to do something else. They don't want to sign up like, ‘I'm going to work on this brand for the next 80 years’ or a long time. But now that we provide an exit, hopefully more people will create brands. Generally I think entrepreneurship is just great for society and great for the individuals as well.”
26:20 - Catering to startup addicts
Matt recognizes that some founders enjoy the thrill of a zero-to-one startup environment. They don’t want to be handcuffed to a business long-term, even if it’s successful.
“A lot of people just enjoy the zero-to-one type of work, and don't want to do the scaling work. Just like you see at startups or other companies, the types of people who enjoy working at a startup versus a larger tech company tend to be different as well. And we have found, to your point about shutting down the business, some of the early companies we acquired when we actually met the founders right when we were starting, some of them were actually in the process of already even shutting down their business. And then they found out about us at the last minute, and were very excited and happy. But it is crazy to think about you pour all your time and effort in this business, just to shut it down.”
29:06 - How to prepare to sell your business
OpenStore serves entrepreneurs of all business types. That said, Matt recommends improving product margin and lowering CAC to make your business profitable and attractive.
“We want to serve as many entrepreneurs as possible. So we're not particular with what they sell or even the characteristics of the business. It could be a higher margin, lower margin, different repeat purchase rates, average order sizes. But in terms of things to obviously improve your business and grow them, I’m sure it's a lot of things people have heard and standard things. Obviously improving the margin of your products helps by decreasing your fixed costs. On the customer acquisition side, lowering your cost of customer acquisition, which kind of ties to building a product that delights customers. That will lower your costs naturally.”
31:11 - OpenStore’s 5 founders
A complex business requires a team with varied expertise. That’s why Matt is one of five founders who share the work of running the business.
“There’s five founders of us in total. Obviously it’s a really complex business, so we wanted to start with a really great team. So myself, I'm the head of product. And then like I mentioned, Jack Abraham from Atomic came up with the idea, and has been helping us along. As well as Keith Rabois, who is a partner at Founders Fund, another venture firm, and was an executive at Square and LinkedIn. He’s currently our CEO, so helping making sure that we're building a great company and making the right decisions. And then we have Jeremy [Wood] our head of engineering, and Mike [Rubenstein] our president who's been president of other great startups, helping us build and scale the company. And as we build out the team, we focus a lot on engineering, product, design, so that we can really run these brands at scale. So both the pricing engine, being able to build a great pricing engine with data science to quickly deliver evaluation to businesses as well as building out the operations platform to help run these businesses.”
33:03 - The magic of Miami
Right now, Miami is a hotbed for startup innovation. The city is in full “building mode” compared to more established startup cities that are in “preservation mode.”
“I think everyone's really excited about Miami. I think in some ways there's actually similarities between startups and companies and cities. So early in a startup, obviously people are very excited about what you're building. You're focusing on 10x opportunities to grow the business and really optimistic about the future. And then once a company builds something valuable, then companies naturally switch a little more into value preservation or protection. And I think cities are the same way. So San Francisco and New York obviously have been great tech scenes and are great tech scenes, but they're a little bit more in this value preservation mode rather than being excited about building new things. And so what we all love about Miami is everyone here is super excited about building, solving really hard problems. So it's great both from a work and a lifestyle standpoint.”
This episode is brought to you by OrderGroove and OpenStore:
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Visit https://open.store to get a free, no-obligation offer for your ecommerce business from OpenStore in 24 hours.
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