Thrasio’s Billion Dollar Mistake | Ep. 2639

It's the big mistake that people are making is they're just getting too aggressive. A lot of these companies, when things were great, they weren't responsible.

I could be wrong here, but they took on debt as well.

You got to be prepared for bad times. That's what a lot of these companies didn't do.

All right. So $3.4 billion aggregator Thrasio has gone bankrupt. So Neil, do you want to explain what an aggregator is and then we'll share some takeaways for everyone?

Yeah. What an aggregator is, at least in Thrasio's case, is they're buying up a lot of Amazon type of website or Amazon sellers, people who are selling on Amazon, aggregating them into one business and rolling them all up into one. They're assuming that they're going to get a higher valuation because they're at scale.

Yep. And so what they were doing, this is probably starting around, I don't know when they started, maybe 2018, 2019, maybe 2020 or so, but they started buying Amazon businesses that were doing well. And their whole thing was like, look, we can, We could have efficiencies with like a front office or shared resources, which means you're sharing like HR, finance, or whatever. And you are basically, you're arbitraging. And in the last episode, we talked about arbitrage, right? So, you're buying ads on Facebook or whatever. And this was before all the iOS changes, before the tracking changes and all that, right? And it was easier to get a high return on ad spend. So, ROAS, right?

Yeah.

And, you know, a lot of people were doing it. And also at the same time, I believe Amazon's take was like 15% or whatever. They've actually increased that take to, I don't know, 20%, 25% or whatever, right? I could be wrong on that. But my point is, at a certain point, once 2022 hit, when interest rates started going up, the arbitrage no longer worked because Amazon's take rate went higher. And then also the calculus on running the ads, the ad arbitrage, it was no longer working. So everything went reversed. Like, Even though they had these interesting e-com businesses that they all rolled together, it didn't work anymore. And so everything, because of the high interest rates, everything started going down. And I believe that they took on, I could be wrong here, but they took on debt as well. And so—

Well, to be clear on what Eric's trying to say is Thrasio filed for bankruptcy, but the company's not going away. They're just trying to restructure.

Reorganize.

That's it. They just took on too much debt when they shouldn't have, and the people who lended them money are kind of screwed.

Yeah, and they're trying to call it too.

Yeah, the investors may lose some money or whatnot, but they're trying to restructure it so then that way they just don't have to pay all that debt. They're just like, oh, we're not making a lot, we borrowed a billion dollars. Oh, we don't want to pay the billion dollars, we only want to give you $100 million. That's pretty much what they're trying to pull off. And we know some other people who have pulled that off and, uh, Yeah.

I mean, look, the lesson is, I think the lesson here is you can't— I mean, in the last episode, we talked about not relying all on— I think betting too much on one formula and betting the house on it. And there's platform risk, right? Because you're betting on Facebook and Meta, but you're also betting on Amazon as well. So there's actually triple risk. So I think that makes it a risky type of thing. And at the time, it seemed really smart because everyone's like, TDC, Shopify, Shopify, Shopify, Shopify. And then like, it's like, yeah, let's roll them all up. And then everyone's like, yeah. And then so it's like, I think the mania caught up, but it all comes down to one, not overleveraging yourself, but also two, not relying on platforms too much. Yep.

So, you know, the other thing too is it's like, just be cautious. You can grow, you can grow fast. And you know, in marketing, you can spend up money and turn up the knobs and just spend a million dollars a day on Google and Facebook and all these channels, but you got to be responsible about it. And a lot of these companies, when things were great, they weren't responsible. You know, they were just thinking about the good times, loading up debt. They weren't running the businesses profitably. And, you know, they were just like, oh, everything's fine, all this kind of stuff. And the way the world is, it just keeps going this way. You know, what goes up goes down and what goes down also can go up. You know, business is like a roller coaster. There's ups and downs and scary moments and happy moments, but you got to be prepared for bad times. And I think that's what a lot of these companies didn't do. You know, when you're scaling up your business and your marketing and things are going well and you have all this profit, it doesn't mean that you should just distribute the profit and, you know, go buy fancy houses and fancy cars. You know, you got to save for the bad times as well.

Look, focus creates discipline. And we have a friend, he raised a couple hundred million dollars for a company and he didn't need to do it. And he regrets it because they ended up getting— Raising money.

$200 million at a multi-billion dollar valuation. Never needed the money. It was a bootstrap company. And you know what? If you ask him, he regrets taking it on.

And he's working harder than he's ever worked at the company to move in the right— it's moving in the right direction. But they hired a bunch of people that they didn't need to hire. And it was a lot of people that didn't align with their culture. It was a lot of people that were seasoned executives that weren't quite ready for the stage that they hadn't been at the stage that they're trying to go to. Maybe they had been at a really senior stage already, But maybe not a publicly traded company, but they hadn't been at a stage where it's like, hey, we're getting ready to take this from a scale-up to a publicly traded company. Yep.

Yeah, no, look, it's the big mistake that people are making is they're just getting too aggressive and they're not really thinking things through. But, you know, I think you guys get the point. And keep in mind, when you read a lot of articles about people going bankrupt and stuff like that, a lot of times they're just doing stuff so they don't have to That's correct.

All right, so that is it for today. Please don't forget to rate, review, subscribe, and check out this video over here if you want to continue to get better at marketing. And we'll see you tomorrow.

Bye.