Episode 281: commonsku Brings on Investment Partner, Frontier (A Chat with Mark & Catherine Graham)

Welcome to Skucast, the podcast for entrepreneurs in the promotional products industry. Skucast shines a light on our industry's best work, features maverick personalities, and discusses what's really involved in running a modern promotional products business. SkewCast is the official podcast of Common Skew.

Common Skew brings on investment partner Frontier. You've probably already heard the news by now, and today we talk with co-founders Catherine Graham, Common Skew CEO, and Mark Graham, Common Skew's President and Chief Brand Officer, about what it all means. What is private equity? How does it differ from other types of investment? What does this new chapter mean for clients? And why this investment move now? And out of all the investment firms courting CommsCue through the years, why Frontier? Hi friends, I'm Bobby LeHew, Chief Content Officer at CommsCue. Frontier is based out of Charlotte, North Carolina. They're a private equity growth firm with $1 billion in active funds focused exclusively on software. Frontier Growth was listed on Inc. Magazine's inaugural list of the 50 best private equity firms for entrepreneurs. A list of founder-friendly private equity firms. This is from the Inc. article about the 50 best. Quote, private equity firms have been called all kinds of nasty names over the years. Asset strippers, corporate raiders, vulture capitalists. But don't be deterred by these labels. The PE firms making headlines over high-profile corporate bankruptcies such as Toys R Us are rarely the same investors who back small businesses. In fact, more and more companies are taking private equity investment. In the US, the number of PE-backed businesses is up 25%. So don't forget to call PE firms something else—business builders. And hey, before our chat with Mark and Catherine, are you hiring? Are you growing? Are you looking to hire in the near future? If so, have you heard about our new program with our friends at DelegateCX to help you scale your team exclusively for Cometscue customers? If you hire through DelegateCX, they will cover the cost of your new hire's Commenscue license for their first year on the platform. That's an $1,100 value, but really the value is much more than $1K in your pocket because DCX talent comes to you highly trained about the industry, and you can soar past all those pesky HR hurdles because DCX does it for you. Hiring has never been faster or cheaper And growing your business through Commonsku's Work From Anywhere platform has never been easier. You can check out the details on our integrations page where you can see all our integrations from QuickBooks to Avalara to Stripe, HubSpot, and more at commonsku.com/integrations. Now onto our chat with Commonsku co-founders Mark and Catherine Graham. So that we can understand private equity better, as I said in my intro, we kind of always want this QCast to be a learning experience. So we want to talk about what Commonsku is doing so that customers can know, but we also want to teach folks about what private equity is and what that's going to do for your business. So, so that we can understand it better. And for those of us unfamiliar with private equity, what's the difference, Catherine, between like private equity firms versus venture capital firms or other forms of investment?

Yeah, so there's a spectrum within the area of private investment, and on one end of the spectrum you have venture capital firms that tend to invest in early-stage businesses, often even before a product is even created. And they are taking a tremendous amount of risk because the company is at typically an earlier stage in terms of understanding either product-market fit or customer base or any of those pieces. So there is greater risk and therefore higher expectation in terms of the potential, you know, growth path that that business is going to be on. With that kind of comes different expectations as far as the rate of revenue growth, the rate at which kind of that company is going to pour money into, you know, hiring and marketing. And I joke that that's more of like the light money on fire in order to be able to achieve kind of an outcome versus at the opposite end of the equation, you have private equity firms that come in and buy a company outright. So they're taking on a majority position, they have full control over the business. And ultimately, the— obviously there's different expectations in terms of the decision-making process and what it is that the outcome is needed on that end of the equation. In the middle, there is this stage that are called growth equity firms. So they're still private equity, but it's a different stage called growth equity where it's much more of a, what I consider kind of a Goldilocks approach for us. Expectations are much more aligned with kind of where we are at in terms of our growth journey, how it is that we think about investment and being more kind of thoughtful on that front as opposed to lighting money on fire. Uh, yeah, it's this interesting space in the middle and in the private investment world. Yeah.

You call it the Goldilocks middle, which I love. I love that. Um, what do most companies— Mark, why do most companies even seek PE investments?

So it's generally around two things. Uh, number one is money, capital, and the second is expertise and brainpower. Yeah. Um, in our case, it was certainly a mix of the two, um, capital and, and, and, uh, additional expertise. In our case, because Commonsku had been a financially healthy and successful business for many, many years, our reliance on outside capital was fairly limited. And so while that's an important part of this, what compelled us to go down this path was way more on the brainpower and expertise. And that, there's a few components to that. Number one is just access to the partners and the staff on the Frontier team that have worked with countless other B2B industry-specific software companies. So that expertise is really, really helpful for us because it complements our expertise and allows for us to bring in additional perspectives. That's number one. And number two, that's also a great interest, is access to the other portfolio of companies that are within the Frontier Network that are all system of record industry-specific companies that are the Common Skew of XYZ industry. And so being able to connect with those entrepreneurs that have written this story and are at different stages of their journey is also extremely important to us. I often say that we've had such, it's been such a joy for us to build this great community at Common Skew and being able to connect all these great entrepreneurs on the distributor and supplier side. That's kind of what this is like for us. We're surrounding ourselves with peers that are in the software world that are building these exceptional businesses and what can we learn from them. So that mix of capital and expertise is, is something that's super important for us and is generally what you find for, uh, for any business that happens to go down the, uh, growth equity path.

But one of the first things I did was I started looking at, at the other companies that Frontier had invested in and seeing what, how they went to market and what kind of companies they served and who were their customers. It was really interesting to see some similarities, but private equity sometimes has a bad rap. I mean, we learned from Trina Bicknell— Catherine, you might remember the interview you did at SKUCon with the CRO panel. I really was impressed with Trina Bicknell's answer. She talked about private equity being such a tremendous intelligence boost for their business. Here's what Trina had to say.

So all of you are working for private equity-backed companies, wondering, you know, how each of you kind of handle those expectations, manage the stress, and ultimately kind of keep it real. Trina.

I feel really differently about private equity. I feel they very much support us and empower us in a lot of ways. And I feel like you have this whole group of people that are extremely smart, that if you have an issue or a problem, that you can run something by or talk through something with them and actually really learn from them. I mean, when we first launched Batchel Bodega, you know, it, it came out of the, the gates like much stronger than we thought it was going to. And we had a capacity issue right away. It was like, okay, we, we can't actually produce as many kits as people want. What are we gonna do? Well, private equity group had a team come out there and in 4 days they figured it out. Okay, you're gonna need these machines, you're gonna need this many people. Here's what you're gonna need to do. And it was done. And we suddenly had the capacity. But it's stressful to have a board meeting. It's absolutely stressful to have to, you know, talk on lenders' calls, all those things. I can't say it's not stressful, But I think the win that you get from private equity, it far outweighs that because you have this, this team and this bandwidth that you wouldn't have otherwise.

So Katherine, this leads me to another question, um, about the difference with private equity firms and SaaS. So what's different about SaaS companies that seek PE investments? Is there something unique to SaaS that's different from, say, a supplier? Because most of us are just familiar with private equity through our supplier partners.

I think a lot of it comes down really just to investment thesis, right? And that a PE firm that invests in, invests in a supplier within our industry might have a much more horizontal portfolio as far as the types of businesses they are investing in. They wouldn't have only suppliers in the promotional products, you know, industry that are in their portfolios because that obviously wouldn't make sense from a competitive perspective. Whereas what ends up being, you know, can be unique about SaaS investments and particularly with, you know, Frontier in terms of a much more, even more specific investment thesis is that they are only investing in vertical B2B SaaS businesses. So focus, as Mark said, just on, you know, specific industries and softwares that serve specific industries. So with that, I think comes this very different opportunities around, you know, community, around being able to collaborate kind of with other portfolio companies, share learnings, either, you know, through the investment partners or through direct interaction kind of between the portfolio companies. And I think that that can be unique versus the portfolio of a PE firm that has horizontal investments.

Catherine, how does this partnership give you the freedom to run your business but also the support to advise but not control?

I think what's exciting about having smart people around the table that ultimately are enabling you to still call the shots but being able to provide, you know, that guidance and expertise of having seen this movie before. And that, that to me is what's exciting about bringing on an investment partner, is that the, you know, running a business can be lonely, and having, you know, others that can bring outside perspective that when you're often so deep in the weeds that sometimes you can't kind of, it's hard to step out and see the forest for the trees and having someone who is outside your business but still deeply understands your business, that they just bring a totally different lens to the table. And ultimately that ability to bring kind of that thinking as well as that experience to be able to help kind of advise and guide, but without telling us what to do. Like to me, that's as an entrepreneur, that's kind of the best of all worlds.

Yeah, Mark, as a customer, what's the most important thing I should know about this change?

As a customer, I think that you're— there's a couple things I would say. Number one is Commonsku has not changed from the standpoint of Catherine and my commitment to the business. We still own the majority of the company. We still absolutely love this company, the people that work at it, the industry, our enthusiasm is not dimmed after the better part of 20 years. In fact, it's actually only grown in terms of our passion and enjoyment for the industry. As a customer, I think what's exciting here is that you still have our complete focus and the same band is leading this company, but there's that much more expertise, that much more capital that's behind us driving this application to even greater heights. That means that there are fewer constraints. That means that our ability to do more quickly to benefit our customers and drive value for them is that much greater. So this is a very special time, and that was one of the things that was important for us because we've been courted by investment companies for years, and we've always said We don't need the capital. Thanks, but no thanks. And what became apparent to us over the last couple of years as we were starting to consider this and we were valuing things like resources and expertise and brainpower and all of that, is that we were also looking at the value we were driving for our customers. And we wanted to eliminate as many of the constraints that were in our way to be able to do that. And that's what was special about this particular deal, the Frontier. So as a customer, You still have Mark and Catherine. Well, you still have Catherine. I'm sorry, you still have me. The passion is still there, if not greater, and, and certainly a lot more resources to be able to do more quicker. So we're really excited about executing even quicker now.

Catherine, why this investment now? And maybe another way of asking this is, what do you plan to do with the new PE investment partnership? That you haven't been able to do this far, or what do you hope to do more of? Can you sort of give us an example?

I think what's been really interesting in terms of what's going on within the industry, you know, post-COVID, is that the complexity has just exploded over the past couple of years, you know, whether that's getting in fulfillment, whether that's sales tax, whether, you know, you name it in terms of, you know, what it is that the— where is the expectations have gone from an end user perspective, what it is that it is now needed in terms of supply chain integration. Further complexity with additional technologies that are being used within both a distributor and a supplier's tech stack and how it is that information has to flow. So all of this is kind of the backdrop of what's going on. And with that comes no end of opportunity in terms of how it is that technology can help solve those problems. And that's what's so exciting, right, is that you've got all of this opportunity and only so many resources that you can spread over that. So being able to really feel as if we can tackle more, but continuing to be laser-focused, you know, on bringing value to, to our customers, to, to the industry as a whole. That, that, that to me is what's super exciting with that. And I think there's just this interesting inflection point going on within the industry right now, and that's why the time is, is right.

I'm glad, I'm glad you brought up the complexity because we've seen this incredible growth from $1 to $1.5 billion that now runs through the platform. Another example is Shops growth. We just saw our biggest month in July for Shops growth, and July is typically— I used to call them the 3 J's—

were terrible for growth.

Um, but it was our biggest month, and we keep seeing this month after month. So to have this kind of power behind us to be able to then invest in more customer-facing tools and more things like that is just really an exciting— as you said, exciting chapter that we're facing.

So you've also just got very interesting, you know, trends happening within, you know, AI and just other, you know, areas that are just moving really fast right now. And I think that, that again, that ability to have additional horsepower to be exploring kind of what's going on in different areas and thinking about how it is that we can be incorporating, you know, other elements that are changing within the technology space. Again, this goes to having the, the benefit of, you know, a community of other, other companies in the portfolio that are going through kind of similar, um, you know, changes and experiences and, and being able to learn off that. That there's just the pace of change in technology is only accelerating, and again, with that comes exciting opportunity.

So we have complexity on both sides. We have complexity on our— what our customers are dealing with, and plus we have our own complexity on the tech side, just keeping up with so many different opportunities Mark, we've always been focused and passionate about our customers' growth. How does our future investments impact our growing customers? I think I just, we, I'm just repeating the same thing we just talked about, but I want to hear it through a different lens.

So one of the things that's been exciting for us is that over the last 10, 11 years, we've seen our customers grow considerably. And it's exciting for us to keep up with them, right? And that we've grown together. And one of the things that we always want to make sure of as our customers continue to grow is that we continue to be right there, if not anticipating their needs ahead, ahead of their growth. And I think we've done a pretty good job of that. At and managing all of the customers that we have, all the different sizes they're at. But these additional resources now allow us to invest in supporting our customers as they go from that small to midsize to enterprise-style businesses. And that's exciting for us. And as Katherine was saying, the, the word of the day is complexity, right? This industry has become more complex. Our customers' businesses are becoming more complex. And I mean, we've had some customers that have gone from from $1 million in sales to $30 million in sales. That's insane. And that's a completely different business, completely different business in terms of their complexity, in terms of their staff counts. And we're delighted that we're along for the ride. And we want to make sure that we can take them from that 1 to 30 to 100. And that's, that's what this next stage allows us to do is one of many examples. As, as, as we continue to create this modern operating platform for the industry.

Yeah, Catherine, remember pre-COVID, you basically had to beat back investors with a stick. Like, there were so many requests coming in and so many, um, opportunities. Frontier is a private equity growth firm with a billion in active funds focused exclusively on software, as we talked about. And there's a quote I love this from them: importantly, we look for CEOs who are committed to remaining involved in the business and who who care deeply about their customers, employees, and culture. Frontier was listed on Inc. Magazine's inaugural list of the 50 best private equity firms for entrepreneurs. As I read in the introduction, there's this great, uh, description of them, but you've been courted by countless investment firms. What was it about Frontier that drew you to them?

I, I would say two things. Um, obviously the, the very specific vertical B2B SaaS focus, you know, was one element of it, but there are tons of firms out there now that, you know, have that investment thesis. So the piece that was far more important than that was ultimately the people. And, you know, where that interaction comes from, where it is that you start to be able to evaluate that, is from kind of that very first interaction of, you know, an email reach out or a phone reach out, and, and whether someone's done their homework as opposed to, you know, the pitch that can be written on ChatGPT that I receive every day from other firms that I could literally write myself now. So, you know, a more thoughtful approach that has clearly done some homework into the business, as all of us in sales know, as far how it is to be able to get someone to, you know, to return your, your call or email. And then ultimately, you know, every interaction that we've had with them since that point in time, like, they're just, you know, kind, down-to-earth, you know, humble people that, you know, truly put the entrepreneur first and want to work alongside. And what it is then, and what it is that motivates them in terms of creating, you know, great businesses, is so in keeping with how it is that we think about how we want to serve our customers, that that ultimately was kind of what establish those initial, that initial connection in the early days that we were first kind of getting to know them. And as we continued to kind of test that thesis out, as we met more and more people from the firm, that that remained kind of consistent throughout all of the experiences of those that we were meeting. So it wasn't a matter of, oh, it's just one great person that ultimately could turn over at some point. It's like, no, that was a consistent view in terms of how it is that they work as a firm.

If I were to jump in there, Bobbi, I think that there's a difference between people who care about the financial aspects of your business and obviously we care deeply about the financial aspects of our business as well, but that's one part. A way bigger part of it is the business and the stakeholders, the people, the impact that you have on your customers' lives and businesses. Like, that's the reason we get up each and every day. And Frontier is as nerdy and geeky in a positive way about that as we are. And, and that's what got us excited. I will say there's, there's one particular person in the organization who I think has listened to like most of the SKUcasts. And I'm like, I'm sorry, I'm sorry that you've had to listen to those. I really like it. I really like it. He said, that guy Bobby, his voice is fabulous. He's pulling up content from a SKUcast from a year or two ago. Oh yeah, I remember this guest. I'm like, what are you talking about. Anyways, and I think that's an example of the kinds of people that we're aligning ourselves with that have that next level passion and interest for the business. And I think Catherine and I have always believed, and this certainly was the case at Right Sleeve, is that if you treat your people well, you treat your customers well, you treat your partners well, you run a business that's not necessarily a shortcut to riches, right? Like, there's no such thing as that. And you do, and you show up each and every day, and you make the right decisions, and you build a culture that you're proud of, then you know what? The financial side will probably sort itself out after the fact. But all that other stuff is so, so important. There's no shortcut to the financial success side of things. And I think that And that's the feeling that we have about these folks that we've aligned ourselves with. And that is extremely different from some financial investors that will come in, they'll write a check, they'll call you in a quarter and say, how are your numbers? And if they're not aligned, then, you know, you've got real problems. And that doesn't mean that we're necessarily off the hook in this particular case, but we're used to, we're accountable to ourselves and our other stakeholders to run a successful business. Business. So this is kind of commonplace for us. Yeah.

Last question, we'll finish this off with this for both of you, because we talked about the customers, we talked about Frontier, but I'm curious, and I'm sure our audience is curious too because we have an audience full of entrepreneurs, how are you both feeling at this part of the journey? Mark, I'm going to start with you, and then I'm going to— Catherine, I'm going to let you end. How do you feel about turning this next chapter in the story of Comiskey?

Oh, I'm super excited. Um, I mean, It's been a big process to go through the selection of a partner, all the meetings that you have, the flights, the keeping it on the down low. That's exhausting too, right? There's a lot of this that's confidential for it to happen. So that's exhausting. But really excited that we've now crossed the finish line. The deal closed while we were in Morocco. Catherine was sitting in a treehouse Well, that, that all finalized. So we're, we're really excited to have that part finished. And, and for us, what, what's exciting about this next step is continuing CommonSku's path to realizing its fullest potential. Yeah. And I think for us, that That's the reason we get up each and every day is to build a business that reaches its full potential so it can make a maximum impact on customers, on the people who work at the company, certainly for us as entrepreneurs. That's why we do this. And this is one additional, an additional lever that we can pull to help us realize that potential.

Catherine, last word.

Yeah, just feeling totally fired up. You know, we just came back from 2 and a half weeks vacation that was amazing and so kind of restful. And to be able to come back kind of knowing that we're starting on this next phase of the journey and just could not be more excited about having smart people around the table that are here to support and help and being able to have kind of strategic conversations and to spend more time working on the business. I mean, that's what we're always, you know, preaching to, to our customers is to be able to, you know, pull yourself up and be working on the business like that. That is, um, to me what's, what's really, really exciting about this. So yeah, I'm fired up.

Thank you both. We'll link to the letter we sent out to all customers here in the show notes, and, uh, we'll catch you next time.

Thank you, Bobby. Thank you.

Thanks so much for tuning in to this episode of SKUcast. Be sure to keep up with our latest content by subscribing to SKUcast on iTunes or to our blog at community.comandsku.com. Until next time, friends, thanks so much for listening.

Mm-hmm.