SaaS Acquisition Stories w/ Frank Kosarek - Head of Sourcing at OpenStore

Foreign. I am excited to have with me on the podcast Frank from Open Store. Frank, thanks for joining me today. Super excited.

Likewise. Thanks for having me, Andrew.

So Open Store, heard a lot about it. You guys are definitely innovating in a lot of really interesting ways in the E. Comm acquisition space to kick things off. Do you want to give just background on yourself and Open Store what it does, who you are?

Yeah, absolutely. So Open Store was founded about a year ago to tackle this problem of liquidity for Shopify E commerce entrepreneurs. We discovered through our founder, one of our founders, Jack Abraham, that there is a problem whereby a merchant maybe making in the 1 to 10 million revenue range doesn't have as many options to pursue a fast and easy exit as merchants that have achieved escape velocity above that $10 million mark. And so OpenStore's mission is to provide founders with the liquidity to move on from their business if the timing is right for that, and ultimately just to pursue what's next. Right. If we're allowing the merchant to move on to whatever's next in their life and feel like they can get a lucrative exit by selling directly to Open Store. A key differentiator for us is we are actually not the broker, we are the end user and, and the end buyer of each of these businesses. And our long term strategy is to acquire as many of these businesses as we possibly can and take into account that we want to leave the brands completely intact. We don't want to sell them for parts, we don't want to shut them down. We want to leave the secret sauce that's made the brand special intact so we can continue to take it to new heights. So that's the quick high level.

I love that. How many acquisitions have you guys done so far?

A few dozen so far. And I think the sky's the limit in terms of the number that we're willing to do. Ultimately, because we're committing to run these brands in the long term, we want to be very selective about the brands we do acquire. But we don't have any restrictions on which industries will acquire. We're interested in anything and everything that's on Shopify with exceptions for the obvious Vice industries.

Let's dive into that a little bit more. For those who may have an E commerce store and they're evaluating Open Store as a potential option. What's like a sweet spot, like maybe a lead comes in, you know, like this is a perfect acquisition target for Open Store. What does that like look like from a high level? I know that's like, no, yeah, you just said like, you know, you have a wide range, but what's like right on the nail if you had to.

Yeah, yeah.

Or at least on the dartboard.

Just right on the dartboard for sure. Can get into. So we'd like to see at least 500k in revenue from the last 12 months trailing. 12 months. We also like to see that Shopify makes up a sizable percentage of the overall business. So at least 70% of sales we need to see coming from Shopify. And then also we need to see that at least 50% of the customers are U.S. based. And so what that means is, you know, if you're an entrepreneur who's headquartered abroad, not in the US but you serve US based customers, that's very much, you know, a possibility for us. And then beyond that, you know, of course I mentioned Vice Industries. We can't transact on restricted categories, but. But beyond that, we'll look at any deal that fits those criteria.

Nice. Are you open to talking about your due diligence process? Because you've really innovated there. You've really. When I saw it come out, I was like, that is badass. You can basically acquire companies within days with open source, right?

That's right. Yeah. So assuming you come to the front of our website, you submit the data we need to generate our offer. If you're a fit for the criteria I just mentioned, we can turn around a price in 24 hours. And you can accept that price in 24 hours. Too badass, dude. It's crazy. It is crazy. And it is an order of magnitude faster than anything else out there. And I think what gets us really excited is also the diligence process is really fast. We've. We've had diligence process, you know, processes that take under two weeks in total. And the purpose of diligence is really to validate that nothing about the business is different from how it was originally presented. Right. So it's about, you know, let's reconstruct the margins you provided on your P and L. Let's look at tax liability, let's look at inventory. And most merchants, you know, go through that process without any issues. And most importantly, there's not this long term kicking the tires back and forth between us and the seller. We already have our expressed intent to transact at the price we set. And so we set the expectations, saying, listen, we're going to do this really efficiently, cover all the bases we need to in two weeks, and then let you move on to what's Next.

Nice. After going through due diligence a couple times personally, two weeks sounds nice. For sure. Yeah. That's awesome. Um, so you know, a lot of, you know, founders, they, they start companies and you're not going to pass them down. Your kids, like you're always, you know, on your mind is, am I ever going to sell this business? And for a lot of founders, they don't, you know, know too much about acquisitions or how to properly, you know, position their company for success. If you had to give like maybe just based on all the founders that you talk to, what's like two pieces of advice you'd give for founders that are maybe looking to sell to open store or just their general business?

Yeah, for sure. I think the first is in our case, the way your valuation would increase is not necessarily just by improving your financials as reported by your P and L. Of course that's important, but we acknowledge that the P and L doesn't tell the whole story. What we value especially are returning customer rates, average order value trends and marketing return on ad spend. And all those to me roll up into a high level view that says basically you've got to create a product that is sticky and essentially generates a movement amongst your customers to continue coming back to your store and buying more and stocking up. Right. So my advice there would be focus on pleasing the customers you've already acquired and making them come back to your store. Of course, new customer acquisition is important, but that repeat purchase behavior is something that we see is very, very attractive. And then secondly, I would say that a big piece of advice would be, you know, to the extent that you can formalize all of the nuts and bolts of your business, supplier relationships, employee contracts, you know, sops for handling returns, et cetera, et cetera. If that's all formalized and presented up front, that makes our diligence day so much faster and makes it so much easier for us to take over the business and like hit the ground running. So those two things I would take back if you're, you know, really, if you're interested in any sort of M and A, but especially if you're interested in an open store acquisition process.

Yeah, I would, I would totally agree with that, especially on the, the preparations part, just having all the information that you're probably going to ask for in advance. So if you do like the business, I don't have to spend, I'm just pretending I'm a founder looking to sell an open store, then you don't have to tell me, hey, can you get me? This is. It's all ready to go. Exactly. So preparation is key. I love that. Yeah, tell me about. You don't have to give like details or anything like that, anything you're comfortable sharing. But tell me about maybe one of your favorite acquisitions that you guys have done at Open Store.

Yeah. Just last fall we acquired a very high end custom jewelry brand based out of the Northeast. And I think what made that transaction so delightful for both sides of the equation was just how forthcoming the founder was and how much of a, like a passion project it was for her. She went above and beyond during our diligence process and our transition process to guide our team on exactly what resonates with their audience, which ads to run, which creative to use, what messaging to use. And since then, she's fully transitioned away from the business, but she still gives us, gives us pointers on, hey, this ad hits the mark or this ad is off the mark, and kind of helps us understand what resonates best with her audience. And it just ultimately showed that she cared deeply about the brand and also she cared about our ability to continue to run it successfully, which we thought was really refreshing and gratifying and props to her. She has since pursued a yoga instructor training. She's onto her next, onto her next adventure because she sold to us. But we are very grateful for how forthcoming she was.

That's awesome. There's a quote by Warren Buffett that says you can't do a good deal with a bad person. Yes. But just having like someone that, you know, wants to see the acquisition succeed just beyond the close date, I think number one, shows a lot about the person's character. And then obviously, you know how much they want the business to succeed, to succeed, even if they're not involved anymore. So, yes, that's. That's an awesome story. I guess. You know, last. Last few questions. You know, last year was a banner year for, you know, M and A. What industry trends are sort of, if you had to make like a prediction of 2020, what do you think that looks like? And that could be an open source goal. It could be literally anything. What would it be?

Totally. I think the first one that of course, everyone is always talking about is marketing efficiency. The world of digital acquisition has become much harder with the iOS 14 changes. And of course, Facebook's doing their best to counteract some of that. But I think this will be the year during which successful founders have to get very creative about creating lookalike audiences and retargeting those lookalike Audiences being very deliberate about tagging certain users who do deliberate high value behaviors on the site so that it's easier to retarget them for, you know, kind of win back style marketing. I think that's one piece. We also think, you know, of course mobile optimization is huge and the extent to which merchants can spend time thinking about how to optimize their product detail pages and their listing pages for mobile traffic, that will be of course very important. And then also we think this could be an interesting year where alternative forms of payment start to take off the crypto wallets and any cryptocurrency based payment out there may become more of a norm for a Shopify transaction than it was in the past. So we're excited to see how that plays into our funnel and also of course into our diligence process.

I love that prediction because that would be, I think it's number one likely. And then two, it will be interesting how to, you know, let's say you get bitcoin, you got to convert to USD, right? Do you hold the bitcoin? Do you? So that's interesting. I'm sure people, I'm sure there's already tools out there that allow Shopify stores to accept cryptocurrency, but I can definitely see that trend. For sure. That was a good one. All right, so we got the final three ready.

Let's do it.

All right. What is your favorite book?

It's called Team of Rivals by Doris Kearns Goodwin. It's about Abraham Lincoln's presidency and essentially the punchline is he was the world's greatest president and the greatest president in history. Because he had no political enemies, he was able to take his opponents from the 1860 election and turn them into allies. And no one else in that campaign drail was able to do that. So just a very interesting leadership story.

I have not read that book, but I'll definitely check it out. I always ask that question on podcasts just to continue my book collection because I'm an ad reader.

I have the same list.

Yeah. And then number two, favorite entrepreneur. And I'm going to tell one, you can't say which is Elon Musk because everyone says Elon Musk.

No, I understood there. But I do think, and this is maybe a shameless one, but our founder, Keith Raboy is probably my favorite. I think the degree to which he can drive differentiation, automation and focus on a singular set of extremely important narrow goals, all of which move the business forward, is unlike anything I've ever seen. And every time I interact with him. He's just an honest, straightforward, very focused guy who ultimately is looking to really empower entrepreneurs everywhere. I mean, that was his. That was his motivation behind starting Open Store in the first place and why he shows up here every day. So it's just inspiring to see someone with his level of success come back to the drawing board and say, you know what? I want to be in the trenches every day. So I respect him madly for it.

What's his resume again? He's not that successful. Right. He only co founded PayPal Square Open Door.

Yeah. Yeah. He's had an illustrious career, and this is just a new chapter.

I love. I love how he keeps the final three ready.

Mm. Let's do it.

All right. What is your favorite book?

It's called Team of Rivals by Doris Kearns Goodwin. It's about Abraham Lincoln's presidency. And essentially the punchline is, he was the world's greatest president and the greatest president in history. Because he had no political enemies, he was able to take his opponents from the 1860 election and turn them into allies, and no one else in that campaign drill was able to do that. So just a very interesting leadership story.

I have not read that book, but I'll definitely check it out. I always ask that question on podcasts just to continue my book collection, because I'm an ad reader.

I have the same list.

Yeah. And then number two, favorite entrepreneur. And I'm going to tell one, you can't say which is Elon Musk, because everyone says Elon Musk.

No, I understood there. But I do think, and this is maybe a shameless one, but our founder, Keith Raboy, is probably my favorite. I think the degree to which he can drive differentiation, automation, and focus on a singular set of extremely important, narrow goals, all of which move the business forward, is unlike anything I've ever seen. And every time I interact with him, he's just an honest, straightforward, very focused guy who ultimately is looking to really empower entrepreneurs everywhere. I mean, that was his motivation behind starting Open Store in the first place and why he shows up here every day. So it's just inspiring to see someone with his level of success come back to the drawing board and say, you know what? I want to be in the trenches every day. Um, so I respect him madly for it.

What's his resume again? He's not. He's not that successful. Right. He only. He only co founded PayPal Square Open Door.

Yeah. Yeah. He's had an illustrious career, and this is just a new chapter, so I.

Love I love how he keeps going, you know, I love how he doesn't, you know, he just keeps building. So I'm a fan of him as well. Um, and I love what you guys are doing at Open Store. Just bringing more liquidity and more options for entrepreneurs to sell their businesses and just making the process more streamlined and not such a huge fucking headache when you sell your business.

That's right.

Um, so, you know, if people are, you know, listening to this and they, you know, think their e commerce business might be a good fit for Open Store, what's the best way to get in contact you and learn more?

Yeah, absolutely. I'm always available to answer questions. My role is to look after the new merchant sourcing effort. So happy to provide more details about our process and what to expect. My email is just my first name. Franken Store.

How do you spell Frank?

F R A, N K. Like Sinatra. Like Sinatra. That's always an option. Also on our homepage, feel free to use the link Open Store Microacquire or that'll land you right at the front of our pricing process where you can submit your business, connect a few pieces of data and then kick off that 24 hour pricing turnaround period. But in the meantime, if you need some more information about what we do, I'm happy to be a resource.

Right on, Frank. And I'll put all those in the show notes for anyone listening so you can just click below and that while I'll be in there. But Frank, again, love everything you guys are doing at Open Store. Please tell the whole team congrats on all your success and looking forward to seeing you guys acquire more e commerce businesses in 2022.

That sounds.