#324: Brenton Howland of Forum Brands, on Innovating through Acquisition to Turn Consumer Brands into Household Names

Welcome back to the Just Go Grind podcast. I'm your host, Justin Gordon, the director of marketing at Vitalize Venture Capital. On today's episode, we have Brenton Howland, co-founder and co-CEO of Forum Brands, a company that buys Amazon FBA businesses and builds them into world-class consumer brands. In 2021, they raised a $27 million round and it also raised $100 million in debt. Quite the interesting model they're using to buy companies. Let's dive in. Brenton, welcome to the show.

Thanks so much. It's great to be here. Appreciate it.

Appreciate you coming on. And with Forum Brands, people who aren't familiar, give us an overview of what you guys are doing.

Yeah, so the quick elevator pitch on Forum, you know, we've been around for about 2 years now. We got started, myself and 2 co-founders, a guy named Ruben Amar and a guy named Alex Kopko, you know, got excited about the ability of innovating through acquisition in the consumer space, which is actually something that Procter& Gamble and Unilever and a lot of the giant consumer companies that we all know well and see around our homes have actually been doing for the last 75 years, but have been doing it entirely via brick and mortar in the offline consumer space. And we saw an opportunity where there's a ton of white space, particularly in this creator economy within consumer goods, to be able to do something similar and leverage best-in-class practices around e-commerce, digital merchandising, digital performance marketing, to create kind of a platform of consumer brands that, you know, we hope and expect to be prominent on shelves, whether physical or digital, around the world in the next few decades.

Okay, we have to dive into the story of how this started. I'm curious, take us back to the beginning. What was the environment you're in at the time? You're like, let's start foreign brands?

Yeah, so a little bit of like a stereotypical founding story where, you know, I had grown up through very traditional companies to start my career, worked for McKinsey, spent a lot of time doing digital transformation for consumer businesses at the Fortune 500 level, then went into private equity, kind of cut my teeth there, understanding what it takes to build successful and sustainable businesses, and then decided I wanted a breather. So I went to go get my MBA out at Stanford. And Stanford kind of throws entrepreneurship in the faces of their business school students, which I think is a really good thing, because it forces you to think about, you know, what do you really want to do short term, long term? and kind of opens the aperture of opportunity. And so that's what it did for me. And I was just fortunate to have been in class with my COO now, Alex, who was the smartest person in every room I think he's ever walked into, and Ruben, who comes from a traditional private equity background. And, you know, we had built a close friendship and spent a lot of time talking about how to leverage our skill set to go build a business, which is different than, you know, the traditional enterprise software Silicon Valley startup, right? So It was a lot of like, kind of like founder market fit, for lack of a better buzzword, to get us going.

With this too, so there's so many ways to go about obviously starting a company, building a business, like you're going this much different route than a lot of people, I guess, are kind of thinking about. And I've just said before, we talked like, it's a little bit more popular now, kind of acquiring businesses and going that route. We look at something like MicroAcquire, for instance, like buying companies or like other like, you Yeah, there's so many different ones out there. Like you see it, they're doing things differently. For you with Forum Brands, like what do you see as your opportunity to excel in this, in this overall kind of space we're in right now?

Yeah, I mean, the first thing is access to capital and understand how to use capital in a really creative way. I mean, that's where the private equity background I think comes into play in such a powerful kind of value creator in this space is the ability to understand how to use equity and how to use debt to your advantage in a market where assets trade for really cheap multiples. And, you know, there's thousands and thousands and thousands of them on Amazon alone. There's 60,000 sellers that do over $1 million in sales across the marketplace. That is a huge pool of potential assets. And so I think that was really important to us. The other thing here is like, you know, traditional M&A and consumer goods largely, once you get past the initial product market fit stage, which we're doing, like we're taking out product incubation, brand incubation risk. And stepping into businesses that already have a demonstrated value prop. From there, it's an execution game. And we felt really confident in our ability to step in with sound business practices, with an ex-Amazon DNA where Alex comes from and kind of most of our operating team, and just go out, execute the market. And that's really the thesis that we stepped into. And so combination of that access to capital and then kind of a true data and technology orientation, which we've got, and I can talk more about what we're doing there. Those were the things that you know I thought it was going to take for us to be successful, and you know for the most part that thesis has played out and more over the last couple years.

I would like to hear about the data component. I know that's something that us at Vitality Venture Capital we think about that a lot with the space we play in future work startups and everything with that. Do they have a data component? Are they leveraging it in some creative fashion for that? For you, how does that play a part into the brands you end up you know trying to acquire?

Yeah, it's it's interesting because you know our business is actually very analogous to the venture capital space in terms of. I think how to be efficient and data-driven with sourcing. And so I'm sure you guys are spending lots of time thinking about how do we get information on early-stage businesses that are strong signals that ultimately predict long-term breakout value and success. Same exact vision for us in our space. And I mentioned this addressable pool of businesses on Amazon. The reason that we're so excited about Amazon is because of access to data and how rich that is. And so from the get-go, before we did anything else, before we raised money, We started building out proprietary data tools that we knew were going to give us an advantage in finding businesses that met our portfolio strategy and our acquisition criteria. And so now what we've got is this amazing dashboard that allows our analysts on the M&A side to say, I want to find a business that is in this size range with these specs, selling these products at this average star rating with this revenue velocity. Because it maps where I think there's white space in our portfolio, and they can do that with 3 clicks. And it's a huge advantage for us in pushing portfolio strategy versus doing what traditional private equity firms have done in taking inbound opportunities from bankers, brokers, and then fishing in that pond. It's a totally different game and does have a lot of similarities to what I think some of the best data-driven venture firms are doing out there.

And that's also something too, when you look at it's kind of part of venture where they're going a lot earlier to get some of those insights with these companies. Obviously, there's a lot of reasons that big funds are going earlier as well. But it's also part of that to get more data around it earlier on to see that progression. And I know we're looking at like getting a data scientist, we have someone on the team in that role, but getting someone else like more in-depth experience on that to leverage that within our portfolio as well, which we think about a lot. For you then too, at the beginning of this, having this idea, knowing you're going this route of acquiring these Amazon businesses. What did that team look like? You mentioned your co-founders. What did that team look like in terms of like, okay, we need to hire this person, this person, like we need this at the get-go. Like, take me through some of that stuff too.

Yeah, it's a, it's a great question. So we, you know, we came at this with a thesis that we wanted to hire top-down is, you know, in playing kind of the talent advantage game where it's an execution-driven business model, you want to start with people that you believe are going to scale into long-term leaders. at the business and then let them go fill out their teams. It's a way more efficient model for business building, I think, than having a few smart co-founders and then hiring a bunch of junior people to go execute the day-to-day work because you're left with a gap in the event that things work and that's a hard gap to fill. And so we went out, we hired somebody on the brand side to help run the portfolio. We hired a VP of M&A who's fantastic, who's really helped build our portfolio from scratch and build a lot of the infrastructure around our M&A model. We hired a VP of engineering to go build out that engineering team. That was a hard hire and it was one we really had to get right. We got lucky there. And then somebody to lead finance, somebody to lead biz ops, and a chief of staff who really just kept the train on the tracks and has continued to do so for the last 18 months. And we built from there. And so we found that core senior team in place and we took that team of 8 and have turned it into 80 in the last 15 months.

So it's been, it's been busy, busy, busy hiring, one of the hardest parts, obviously. So getting that right is critical for you. For you too, you mentioned the portfolio side of things and how obviously looking at different types of companies each time. Take me through how you look at that today in terms of the portfolio of, you know, de-risking in some ways or having different types of ones or brands that you got obviously get the data from to figure out which ones are doing well. I'm just curious on how you even think about portfolio side of things.

Yeah, yeah, we do it in a way that is very, very different than most in our space. And the analogy I would use is like, you've got some venture firms that play just in a stage, and they live in that stage, but they're relatively industry agnostic. That is most of the businesses in our space, is that they're going to go buy anything that fits their buy box in terms of size, and they don't care what product it sells, Where they sell it, kind of how it's differentiated. We've kind of taken the opposite approach where we'll actually scale from buying fairly small businesses, $2, $3 million of top line sales, all the way up to $15, $20, $25, and we'll focus on category instead. And so we want to be in 6 categories within consumer durables, all markets that we think are big today and going to be large 10, 20 years from now. Simple and stable from a category perspective, so not too complex to manage, and with really attractive unit economics. And so what that looks like for us is stuff that you'd find around your home. It's pet accessories, it is what we call family products, which is effectively baby, toddler, and parenting, patio, lawn, and garden, home and kitchen, sports and outdoor, and then some other kind of wellness-related products. And so, you know, we want things that sit on shelves, we want things that are durable, We want things with high gross margin. And that's helped shape our portfolio strategy. But we're pretty focused on those 6 categories. And we won't deviate from those anytime soon.

Take me through early days of this. You obviously had the idea of build a great team, you have an idea of what you want to do with this, your thesis around it. That first company or first couple companies, take me through those and how those were getting those first ones on board. You have no inertia yet. Take me through those.

We got the— I'm not going to name names. Really wrong. And we really learned what it took to build the platform, quote unquote, around this model and to do so in a scalable way. And I think we learned a ton from our mistakes. And so this was in Q4 of 2020, we bought 2 businesses back to back. One has been the worst performer in our portfolio, the first one. We bought it at a discount. We thought there was tons of upside opportunity.

Yeah.

Turns out it hasn't played out that way. And it's been like a steady, stable grower, but a small business that hasn't really hit breakout velocity like we expected. Counter to that, really simple business owned by a guy in Corpus Christi, Texas, who just had a product idea that he wanted in his home, and he felt like nobody was meeting it. You know, we thought the market was small, it's proved out to be way bigger than we thought. And all it took was a little bit of like, quote unquote, operating alpha, for us to ultimately accelerate the business. And it's grown triple digits and continues to do so in our second year of ownership. And so 2 very different stories, and we got the first one wrong and we got the second one really right. And it's really honestly helped us shape kind of who we've hired, how portfolio strategy has evolved, how we think about our M&A diligence process. And we're lucky we put small dollars into the first one, pretty similar to a venture fund, right? In the sense that you don't want to get too big for your bridges too early.

With this platform, you know, style as well, like you're helping scale all these different companies there, I imagine is, you know, there's learnings and lessons along the way, you figure things out, you learn different things from the companies you do then acquire. What does that platform look like? That platform side look like when like a company joins? So you buy a company like, alright, yeah, we just sold the foreign brands. Like, what does it even look like on that side after that? Like, take me through that.

Yeah, so like, Yeah, so 2 different components of the platform, I would say. One is like physical infrastructure, it's people, it's logistics, it's playbooks. Second element of the platform is all technology. And so first thing is, you know, we transitioned it over to what we call a brand builder, effectively a brand manager who is the owner of that P&L and for us serves as kind of the brand CEO. They're supported by a SWAT team across logistics, across marketing, across business operations, across creative and design. We've got kind of a special projects team as well that helps with all the kind of incremental, what we call day one, which is like next step once you have the core right opportunities. And then supported by other back office teams like finance and people. And so they get plugged in there. They also get plugged in through a lot of our operating playbooks. And so we've got kind of a transition plan that we run with all our businesses. We've got kind of a 90-day plan. We call it our Day Zero Checklist, an Amazon term that we've adopted from our friend Jeff. We've got kind of a Day One Playbook, which helps us think through kind of longer-term opportunities like international expansion, channel expansion, new product launch, product innovation in general across portfolios. And we've got dedicated SOPs for all this. So it's all very repeatable and very scalable, which is one of the things we like about this business model is that these businesses' products are different, but the business itself, very analogous deal to deal. Now, the, I think, more exciting element of the platform is obviously technology. And so we've built out some pretty special tools around automated pricing and promo, automated demand forecasting, automated marketing. On the performance marketing side. And a lot of the backend stuff that people don't think about all that often, like how you get goods from China to the US in a really efficient way. And how do you get visibility into those goods?

Going from that, then to understand that's the platform side of Forum Brands. I'm also curious about raising funds for this in the first place. Obviously, the venture side of things, then you have the debt side of things. Take me to that experience of doing both of those. I would love to hear more about that and dive in.

Yeah, this was really interesting. And it took us a long time to figure out what we wanted to go raise, how we wanted to go do it, what the cap structure looked like here. Because for most roll-ups, you raise money in a traditional fund structure. So you raise equity from a bunch of different LPs, those LPs will give you maybe 20%, 30% of the economics depending on performance as the GP deploying capital. But it didn't really make sense for this market because the assets in this space trade from anywhere from 2.5 times trailing profit or trailing LTM EBITDA to maybe 4.5 times for larger businesses. And we're running all these things as asset purchases. And so to us, we sat there and said, okay, those leverage ratios are pretty healthy where you can use a lot of debt to finance these businesses. And then do so in a way where you get to retain the majority of the economics as the operator. And so instead of giving up 80% of the economics right out the gates to your investors, we keep 80% of the economics and then raise some traditional venture capital. And as long as we're efficient with our unit economics, we can keep a lot of that equity on the balance sheet and then go raise a bunch of debt at a much, much lower cost of capital than that equity ultimately generates. And so It was a little bit of kind of like a unique model to think about an M&A platform in a really high velocity and a low cost environment. And not a lot of folks had done this to date, even in this space. Like, there's a lot of hybrid creative cap structures, but nothing I think as clean and as leveraged forward as what we've done. And what it's meant is we've had to stay fairly conservative and efficient with how we manage capital over time. So we've continued to do that. So we're never going to be the group that goes to raise like a heap of money from some big investor, not to name names, but, you know, we're going to try and continue to leverage great partners and a balance of equity and debt in a way that ultimately, you know, like minimizes dilution, not just for us, but for all our employees who are sitting out in the office here, who are equity holders in the business. And so it's a little bit of an interesting model that we flipped on its head. And so far, so good.

With that too, and doing kind of a different structure, a little bit different model with that, with the VCs you do have on board, some of your VCs on board, saw that, and FX being one of them, for instance, like what was the feedback from them on your model? Was it difficult to explain how, you know, the reasoning and everything? Was it like, I'm curious as to how that went because anyone, anytime someone is innovating, kind of do things different, obviously there's a level.

Yeah.

You know, something more on that. Just tell me more about that, how that went for you.

No, I mean, I'm sure for you guys, as an example, you've got a box. And so you've got things that you really like, future of work, B2B software. Those are things that you're comfortable with, you understand. And so that's where you invest, right? So for us, it was a little bit of a tricky game where we wanted generalist investors who were kind of operating and deploying capital with a talent-first thesis in big markets, which is exactly what this is. And so You know, we couldn't go to the folks that wanted to only do, you know, crypto and things like that because we just don't fit in that box, even if it's a compelling opportunity for, you know, early-stage investment. So, uh, the initial money we raised was from a guy named James Currow at NFX, who, uh, thankfully we had a bunch of just personal connections to. Um, and he's somebody who really values network effects and data as an advantage in big markets. And frankly, like, doesn't care what industry it is. So for us, we came to him and he looked at us and he said, now, this sounds actually a lot like my business. How do you think about a data advantage in what is otherwise a commodity market where you're competing against other sources of capital? And so quickly understood the business, believed in the vision around technology, and importantly, believed in the fact that the market was kind of still in the top of the first inning and we were the right people to go step into it and create kind of what what he believes is a long-term outcome.

With this too, with the last couple of years running this, you mentioned there's a lot of different things you've had to do, raising debt versus raising venture and all of the complexities of this. For you, what's been the biggest challenge of this model, building this type of company? I'm curious.

I would say maybe not the biggest challenge, so I'll flip the question a little bit, but the thing that I'm glad we've dedicated as much focus to as we have is partnership and people. And I think this is such a— it's such an overlooked thing, particularly in, you know, circles like venture and the private equity world where, you know, in my view, the person behind the partnership is just as important as deal terms and, you know, what's on a term sheet. And I think in our space, we've certainly felt that because it's a nonlinear path to ultimate breakout success. And it always is for every company, even if outside in, it looks like it's been kind of an upward trajectory up into the right. It's never that easy. And our view has been, your professional success is really based on how you make people feel and how you treat others.

Okay.

And it's a funny thing to say about raising debt as an example, where most people don't think and talk that way, but that's effectively how we picked our partner. was, you know, we made some trade-offs on economics and really leaned into who was sitting on the other side of the table. And that has been a huge win for us.

You've touched on this a little bit, but as we're wrapping up here, just curious, is there any other things with being at McKinsey, having that experience, being in the private equity world as well, how that influenced, you know, what you were going to do, how you run this company with 4 brands so far? I'm just curious about that as we wrap things up.

Yeah, it's a great question. I would say on the McKinsey side, one of the things that I really learned was the importance of professional development and setting people up for success. McKinsey kind of has 2 core principles, and I'm not going to get these right verbatim, but it's effectively delivering client impact and then also developing excellent people. Because as a consulting firm, what are you selling? You're selling talent, you're selling people. And I've talked a lot about talent thesis here in our business, but it's been hugely important in putting infrastructure from a people ops perspective around these folks to make sure that they feel like there's a path and that there's structure even in a high-velocity startup environment. So that was something I really learned on the consulting side. I would say from my private equity experience, other than company building and making sound investment decisions, the 2 things that I really learned are ruthless prioritization and focus. And that has been so important for us to instill across the business in a space that, you know, digital retail globally is a $6 trillion market. You could go so many different ways with what we're doing here. And, you know, I'd rather be really good at a few things and build a company that way than kind of be a mile wide and an inch deep, if that makes sense.

Yeah, absolutely. And where is the best place for founders to go if they have an Amazon business? They, you know, want to get in touch with you guys, what's the process for that? Tell us about that as we wrap things up.

Yeah, so we got what I think is a very highly informative website at foreignbrands.com, where you have an opportunity to get in touch with folks on our M&A side. You know, if folks want to talk about Foreign Brands or what we're building or our story, they should also feel free to reach out to me on LinkedIn, my email brenton@foreignbrands.com. Um, or shoot me a note on Twitter or something like that.

Perfect. Brenton, thanks so much for the time today. I really appreciate it.

Yeah, I appreciate having me. It was fun.

Thank you so much for listening to this episode of Just Go Grind.

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