How does a high LTV enable a $700M DTC exit?

Ep 107 Brian Ree Transcript Jason Kirby (00:01.104) Everyone, welcome back to $100 million exits. Today we have Brian Rhee. Brian, you and I were playing paddle not too long ago at the post-exit conference in Miami. I heard your story, and I was like, you got to come on the podcast. For those that don't know Brian, he built a company called Daily Luck, merged it to Adore Me right before Adore Me sold to Victoria's Secret for a $700 million transaction. Brian Ree (00:02.54) Yeah, no, I'm excited. Jason Kirby (00:29.168) $400 million cash, $300 million in additional consideration after the exit. Brian, you are a fashion, apparel, and direct-to-consumer hero having that type of exit. Welcome to the show. Brian Ree (00:44.344) Hey Jason, thanks for having me. Hopefully we can play PEDAL soon. Again, had a lot of fun that day. Jason Kirby (00:46.48) Should have won. Should have won. Yeah, really excited to have you on the show for obvious reasons. You know, you, this is a massive exit. Obviously it was peak of market when all these types of deals were, you know, more likely to happen. Obviously the market shifted. We'll talk more about that later, but I want to kind of get into the details of Daily Look. If you can kind of just give everyone a quick idea of what Daily Look was, and you ultimately grew this to about 30 million and then after acquisition grew to 140 million in revenue. Walk us through a little bit about what data like was and kind of how you hyperscale that revenue engine. Brian Ree (01:25.346) Yeah, so Daily Look is a woman's premium personal styling service where we use human stylists plus AI to curate a box of 10 items. And you get sent a box of items to your home, styled and curated, and you try it all on, and you keep what you love, and you return the rest. And so our business model really relied on the fact of whether we could accurately style you some products that you're really likely to keep. And if you kept three to four items per box, which was around $300 of purchase value, it was a great business. And if we're unable to do that, it was not a great outcome. But over time, we were really able to invest in our algorithms. We had our own deep learning neural net that powered the expected value of every single item. in our skew universe. So we actually knew with a high degree of certainty, we're going to send you products, how likely you were to keep it. And then the stylist there, I like to consider them sort of more like last mile stylist where they were responsible in putting together the sort of the whole head-to-toe ensemble or look and build like a nice story around it. Jason Kirby (02:45.872) I would say a mission accomplished on the core business concept. Obviously there's been other players in the space that have done something in a similar capacity, but I would say from an exit capacity, guys did pretty well. What was it like kind of driving that revenue to that level? Like what were the levers that you guys pushed? And this is also, grew substantially after the whole Pixelgate issue on Facebook and Google. So you still managed to overcome that. Brian Ree (03:13.55) Yeah, so back in like 2017, I made it a strategic priority where the only thing we cared about in our North Star was to both maximize customer LTV and actually have the highest e-commerce LTV amongst any kind of apparel brands. And so my thought process then was In order to grow customer base, you have to pay the Google tax or the Meta tax. customer acquisition costs fluctuate. There's a high degree of variability. They change their algorithm, and your cap can increase by 50 % overnight. So I'm like, well, if we're going to be able to weather those storms and be able to grow in any environment, then we need to have the highest customer LTV. And if we are able to achieve that, then we'll be able to control our own destiny. Now, in our business and most consumer businesses, it's not that easy to drive customer LTV, but for us being a subscription, it was really about two things. One is maximizing the unit economics or gross profit per box, every time you send that box. And then really the second big lever to focus on was retention, right? How many boxes are you going to receive over your lifetime before you cancel or opt out? And so I would say for first couple of years, we've really focused on optimizing and maximizing our unit economics, which once again meant investing heavily in the styling accuracy, increasing the product quality, the price points. Half of our product in our box was curated with in-house, our own branded products. So we had five brands in-house, which are all private label. They are moderately price point, but with very strong margins because we control the whole supply chain. So that drove a lot of gross profit in the box. And then toward the later years, we really focused on retention and particularly Brian Ree (05:40.556) month retention and understanding our cohort performance. Like how many percentage or what percentage of our customers, their active subscribers are gonna stay and be an active subscriber a year later. eventually those are the two big areas that kind of roll up into LTV. Our LTV ended up being close to $500, which is substantially higher than all of the competition. I can tell you, based on some public numbers that we had two and a half times more 52 week spend than the average Stitch Fix 52 week client. Just to give you a degree of like, you know, how well we perform. Yeah, it's substantial. And so it made a lot of sense to me why in the past five years we were able to grow even when online advertising on Meta became more expensive. Jason Kirby (06:24.047) substantial gap. Brian Ree (06:40.192) and we were still highly profitable. Whereas if you looked at someone like Stitch Fix in that same period, because they're a public company, their business was contracting and they were losing quite a bit of money, probably because they kept continuing to spend a lot of money on that online acquisition, but it was unprofitable spend, right? Because they don't have the LTV to support that CAC. And so I think that became a pretty sustainable... moat for us and pretty defensible because you can't manufacture LTV. You have to deliver a great customer experience and a great product. And that's what we were able to do. Jason Kirby (07:19.415) And a common theme I'm hearing from you and kind of like the note for other founders that are in the kind of the direct to consumer brand building space is you had a relentless focus on LTV, but you had the data. and it sounded like you had a real data infrastructure for your organization, probably at an early, early stage of the company. How did you kind of set that up? Was that just who you are and how you're programmed? Or did you hire some people that kind of made that possible? Brian Ree (07:46.008) So data was one of our five core values. And it was, I still remember the little mantra. It was in data we trust. In data we trust. And we had that throughout our DNA and culture. And I would say, so just to give some additional context, I don't come from fashion, apparel. I've never had a career in retail. Jason Kirby (07:55.855) Ha ha ha. Brian Ree (08:16.15) other than having sold some stuff at a prior e-commerce company early on. And apparel is quite a complicated, challenging, skew, heavy business. And so the great thing about our business, I learned really early on, is that we send an item to you and you're explicitly giving us a binary purchase decision. Right. You're either returning it or keeping it. And so we're able to understand it's not even like intent. We don't have to like try to guess why you didn't buy it or why you clicked and did not purchase your, and when you actually send the box back, there's basically a mini survey. So you're saying I'm keeping, keeping, returning, returning. And really the gold is in the why people would P there's other like little questions that come up. And you tell us why you're buying or keeping it, the quality, the price point, the fit, the color, the style, et cetera. And so from there, I'm like, OK, we have all this data. I'm not a merchant. I don't know how to sell women's clothing. But I can see all this data coming in. And so we're just going to trust the data that the customers are explicitly telling us and build. And we'll have a really large data set. And we can use really data science or applied data science before deep learning to very quickly understand what products people are keeping and the why. And I think that was our competitive advantage. And so we just A-B tested everything, A-B tested or beyond, you know, what people typically test, which is our website. We could very quickly A-B test styles and designs. And I very quickly understood like we need about 150 units sent to a broad base of people telling us whether they're keeping or returning to know whether that product will be a hit or not, whether we should reinvest and scale up the units so that we don't have to take on any inventory risk. And the great thing about our business and why it was so profitable is because we had very little markdowns. We're a no discount business. We're super efficient with our inventory. Brian Ree (10:40.578) And it kind of relates to like, if you read the case studies on the Harvard Business Review case studies on Zara, it's like, they're really fast, but they also like, are really fast about like being at the runways, getting inspired by styles, getting inspired or knockoff version, sending him into a handful of stores. And within like two days, getting a read on whether those actual styles that they created are moving or not. Right. And so in a sense, they were looking for signal, but through an offline traditional distribution channel. But we can get much cleaner signal and we could do it much more quickly because we just sent out, you know, 200 boxes overnight with a new style. And we'll know within five days, four days, whether that style basically achieves the watermark needed to reinvest in that product at like a 10x bigger investment or if it's getting kept at 40%, then I would feel very comfortable scaling that by from 200 units to 2,000 units and be very comfortable that it's going to continue to sell. Jason Kirby (11:55.12) When it comes to, know, it's I want to appreciate the methodical approach to the stuff is because I, mean, there's so many DTC brands and they get so lost and it's our brand, you know, that's so focused on, you know, the, the uniqueness about what they've done where it's, you're kind of focused on just what are the customers actually doing and what that's amounting to. And that's kind of how you maximize the LTV. What I want to shift is to build that data infrastructure. A lot of consumer brands, they get started and they spend the money on inventory and then they're growing. Especially these days, it's a very different game and we'll talk about that later. You had to raise some money in the early days, but you did it for what? 14 years? You started in 2011 or something like that? Brian Ree (12:42.254) Yeah, I founded the company in late 2011. We sold the company in 2022 and I stayed on for another two years and then left basically January of 25. So pretty long. Yeah. Jason Kirby (12:54.223) Yeah. Good, good, solid 14 year. And, you know, you raise some money, you had some investors joining in the journey, but you didn't raise an astronomical amount. It was relatively modest for the scale that you reached. Kind of walk us through the fundraising journey that you had back in the early 2010s or mid 2010s. Brian Ree (13:13.122) Yeah, so the first round was oddly enough the easiest to raise. And back then when we started the business, was actually, it was the same mission to make it really easy for someone to buy a whole look head to toe. But we were actually a daily newsletter and that's where the name daily look came about. We were a daily outfit of the day newsletter. And we, the premise was we're going to put together this stylized look. and we're going to sell it to you transactionally and make it really easy to buy the whole look with just one click. And that I think was a interesting or novel enough idea or way to buy it, make it easy to buy a whole look that it did get some initial traction. There are lots of folks that did sort of unboxing videos and outfitting videos on YouTube that started buying from us. And so that's kind of how we had our first six months attraction and we raised a modest seed round of, I want to say something like $3 million. But by that point, we had already, we had the traction of maybe $3 million of annual sales within six months. So we came out the gate and we raised, Jason Kirby (14:34.671) Thanks a lot. Brian Ree (14:40.878) like a Series A in two parts, I think one in 2014, and I think that was about $5 million and another $3 million or so in 2018, that was from Forever 21. And that was their first corporate investment. And after that, we never raised the... Jason Kirby (15:03.476) How did you secure Forever 21's investment? Brian Ree (15:09.678) A lot of the vendors and manufacturers that we were working with were their suppliers. They basically owned the ecosystem or were the biggest check and buyers of merchandise in the manufacturing ecosystem in Los Angeles. So Los Angeles has a very big vibrant clothing manufacturing base, would say, know, hundreds of vendors, some of them are very big and they supply a lot of the big clothing retailers and do a lot of private labeling for folks, including Forever 21. And at some point, just through relationships, I was able to meet the Forever 21 president and took an interest in what we were doing. And the first time they actually said, no, they don't want to invest. then and I met with them in 2017 and then they kind of came around in 2018 and randomly pinged me and that's kind of how that investment came about later and their president, Alex Oak, ended up taking a board seat. Jason Kirby (16:24.505) That's pretty interesting, of getting a strategic at that stage for this type of company. How did that work? Was that a good experience in the long run? Bad experience? Did they influence anything or did they just let you do your thing? Brian Ree (16:38.082) No, they really let us do their thing. think, ultimately whenever you have someone on your board and I think is super important that you have a certain level of professionalism and trust and rapport with that person. Like you wouldn't mind having a beer with them, spending some time with them. You have a great relationship because then they like your board is sort of one of the few people that can fire the CEO. our founder, but at the same time, they have an incredible amount of experience and resources, right? He ran Forever 21, a multi-billion dollar business that grew and was a true sort of rags to riches, you know, entrepreneurial story. And so he had a ton of resources and experience and wisdom. And I thought he had a great approach because he was really there to learn and he, never really like, like he didn't make assumptions that everything he knew about his business and forever 21 applied directly to our business, even though their business was so much bigger and they're essentially also in the apparel business. But I think he was there to learn, what we were doing differently. And I think in, in the kind of business that we're in, because we were innovating on sort of the distribution and business model side, but at the end of the day, the clothing, the product that you're actually selling is the clothing and it's made and manufactured in the same way that their supply chains are. And so that actually, I would say had almost a hundred percent overlap. We weren't actually innovating in garment or pattern making or design. And that wasn't really the value problem. So I can get a lot of good advice and help from them. Jason Kirby (18:34.473) That's good to hear. And yeah, there was a point in the business history where, you know, things got tight. Things weren't super clear in terms of what to do next in terms of capital. Kind of what was that like when you had a really good run, it was going well, and then things weren't going as well. Like, what did you kind of do? How did you handle it? Kind of give the context to the listener. Brian Ree (19:00.78) Yeah, so there were two pivotal points where the company almost died. One was the first time was in 2014 when we made the big strategic pivot from being a outfit of the day newsletter selling transactionally to being a personal styling subscription service via box. And when we first made that pivot, We had so much demand. People loved the idea of getting a curated box personally styled to them. And so we had a wait list. Well, actually, before the wait list, we had 10,000 people actually sign up saying they wanted a box before we turned it off and turned on the wait list. And then another 10,000 people on the wait list. So we were so excited by all this demand of people who had said, yes, I want a box. When we had launched, there was no styling fee associated with receiving a box, which we have now. So a styling fee is the fee that you pay, which will get credited toward any purchase made in the box. But it's like a fee that you pay upfront. And it would cover the shipping both ways and the stylist's time. And so when we launched with no styling fee and had 10,000 people sign up, We were like, well, we have to send at least 10,000 boxes out. And we did so. We did the best that we could, but we had to scale it very quickly. We had the inventory. We didn't have the algorithms. We didn't have any deep learning neural net or technology supporting that curation. And I wouldn't say it was disastrous. It was OK. Like, let's say people were keeping one and a half items or maybe 1.6 items in that first batch run. But ultimately, we didn't have our merger price point and that wasn't a high enough keep rate where let's say 40 % of the people were also not buying anything and they were returning the whole box back. And so ultimately we had negative unit economics. And what that means is Brian Ree (21:23.118) our contribution margin or gross profit dollars were negative per box. And so scaling up the people, the resources, then having essentially negative unit economics across 10,000 boxes over the next three months, we found ourselves burning several hundred thousand dollars a month. And this was before we had raised an A round. So we found ourselves, basically, we were going to run out of cash in three months. And so we had to have a pretty big downsizing of about 70 % of the company at the time, which is super painful. We went from 100 to 30 people, and that was rough. That was actually the worst experience that I've had as an entrepreneur. Jason Kirby (22:11.575) Oof. Brian Ree (22:22.286) Very emotional and tough to see all these great people that you have to let go because you're in a tight spot. And ultimately, I tried to raise a bridge round. But at that time, a lot of folks basically wrote us off as having that we're going to be imminently bankrupt and cease to exist. And everyone was sort of deer in headlights saying we were just a company of what they call it, walking dead. And I kind of heard this after the fact because investors that decline are are going to be much too polite to say, hey, I think you're not going to survive this and be out of business in two months. And the reason I heard of this after the fact is because eight months later, we were still around. We made some adjustments. And we had yet to raise any additional capital. And a bunch of folks are like, wait a minute, you're still in business. How are you guys still alive? Yes, the team was a lot smaller, but what had happened was we went from a $0 styling fee to a $40 styling fee because that was really the only way to have our customers sort of provide some working capital. We turned through probably about 40 % of our customers at that time, but that but the 60 % of remaining customers, they ended up being like the best customers, much more loyal, willing to pay the $40 and sort of like the idea of the service we are providing enough to help essentially finance our business or through the $40 styling. Jason Kirby (24:22.223) So it's such a fascinating story. guess it's like, it's so counterintuitive to what a lot of people think of like, Oh, I'm to lose all these customers. like what you fundamentally knew about your business, like you needed to recover cash from these sales. Like, you know, you pay for these customers and then your gross margin needs to be at a certain level. And you sacrifice 40 % of your... You know, growth or customer book for the sake of survival and profitability to continue to fund, you know, the business. I feel so many founders struggle with a hard decision like that to be able to. You know, look at like, what are the fundable economics of this business to be self-sustainable? So people get kind of propped up with venture money that they don't really actually try to solve this problem. And, I think it's pretty unique that you, guys did that relatively early and save the company because of it. Obviously a great outcome because of Brian Ree (25:14.382) Yeah, I mean, it was a super painful forcing function, but there was also a really key strategy that was born of that really difficult time. And that was we went from a $0 sign fee to $40, and $40 was twice as more expensive as anyone else in the space. So where we ended up was like, well, We're charging double now and these customers are better. They're willing to spend some more. So I think we need to lean into this and focus on delivering a premium experience, right? There's already someone offering the $20 experience. What does the $40 experience look like? What can we do to live up to those expectations to have better product? Will they pay more for higher price point products? because they've demonstrated a willingness to invest $40 in this diamond fee. Can we send more products? So the nearest competitor was only spending five items in a box. I'm like, well, that $40 provides more working capital and better working capital dynamics. So can we send up to 10 items per box? Right. So we make sure it's worth their while. So that was the beginning. Like if you ask, like when I first started a business, did I have this big vision of being like a premium quality branding experience, the answer was no. I didn't know that at that time. But I kind of stumbled on it. And I think that's really important as a founder is like, you know, like things happen, but it's like, how do you respond to it? What do you learn from it? What is the market telling you? And to me, the market and customers were telling me, hey, there is this segment of customers that are willing to pay more, but if we're going to take that position and claim that we're going to have to deliver more. So we kind of put our flag, you know, our North Star down there. And then for the next five years, we spent every investment that we were doing and operating everything around execution was like, how do we elevate our service, our product? How do we live up to those expectations of what we're claiming so that we can meet customer expectations and make them happy? Brian Ree (27:35.81) And so that was sort of the beginning of the sort of insight of like, well, if we do this and we have a better customer paying more, shouldn't we have a higher LTV? We didn't have that higher LTV when that moment happened. But true to sort of in data we trust, over the next couple of years, we kept seeing the LTV in CHUB. in the beginning not through retention, but first through the increased price points and the increased uptake, people buying more items per box. And so that was like the first big unlock on like, okay, we're onto something and it's working. so I'm gonna fast forward, well, go ahead. Jason Kirby (28:25.26) Well, I want to kind of jump towards kind of the state of like the next transaction if you want to kind lead into what happened there. Brian Ree (28:38.094) Yeah, so we kept doing that. And then in 18, we tried to raise a growth round. But what I found was that was very challenging. And basically, everyone said no, because there was already a large competitor in the space that was mass market and going public. And so from an institutional investment standpoint, we were still maybe 1 50th the size of the number one going public. So they're the clear dominant market leader. And, and so even though our business is growing and profitable, there's there was just no growth equity that was interested in investing. So as a result, we just had to continue to focus and grind it out. And we were profitable but growing moderately. And I say moderately because we had never raised any more money after I think 2017 or 18 from Forever 21. And so we still had a very, very lean balance sheet. And the tough part with this business is you're growing is even though you're profitable, your inventory buyers are getting bigger, right? And the inventory needs increase. And usually the lead times to invest in inventory grow as well. You might have six to eight month cycles on placing orders from China because your orders are now bigger. And so we just kept growing and just grinding it out. And I would say in the year 2022, I had a relationship, a pre-existing relationship with Morgan, the founder and CEO of Adormi. We had actually known each other friendly for like the past 10 years. And that's primarily because we shared a lead investor. And so we'd always stayed friendly and when I go visit New York, we would hang out. And in 22, he told me their investors wanted liquidity and Brian Ree (30:59.554) the IPO window was open. And so he told me that they had plans to go public. They had a great bank that was underwriting the deal, JP Morgan Chase. And we continued to talk and, you know, we came to this idea that merging the two companies Like the timing of merging the two companies prior to the IPO would be a great strategy from many factors. So we considered diversifying the business as a platform. Adorme also had a subscription business. Ours was a bit stronger than theirs. And so the idea is we can help strengthen their subscription business. And then from a product standpoint, we were highly complimentary, right? Like we didn't sell any product in the intimates and laundries space and vice versa. And so we could offer their product, they can offer ours. And then the obvious other synergies are all related to the boring stuff, which would be infrastructure, back office, logistics, sourcing. And so we just felt like we can build a bigger platform and really dominate this business model and be like, best in class at the business model of running subscription, being digitally native, DTC, while being able to source their own products. Jason Kirby (32:36.526) And I think one thing I want to call out here is just like, albeit it's a great outcome, especially, you know, cause they had, you know, um, like you said, Morgan Stanley, like getting everything ready and like getting this big package deal and you were the perfect tuck in, you know, to kind of juice the deal to get it over the finish line and bring everything together. You had such a deep existing relationship. And I want to bring this up because I talked to so many founders that are just like, all right, we want to sell. like, who do you know that like who's talking to you about buying you? And they're like, well, that's that's your job. it's like, well, yeah, but, you know, it's not going to happen in three months. You know, it's like, not going to sell for 100 million dollars, 50 million or whatever it is, you know, unless people know intimately who you are, what makes you special and actually care about doing a deal and have intimate knowledge of the deal. So I tell a lot of founders, it's like, if you haven't already had those relationships of someone like a buy, I You should start as early as possible. You know, it's like when Walmart bought us, like we were already in bed with them for about a year, year and a half before, you know, the, actually came to a realization. and so I just, I think that's something that a lot of founders don't realize in these like big strategic acquisitions. Like, like they sold for this much money. And I'm like, well, that's, that was in the works for a long time. Me and people like doing people a deal. Brian Ree (34:00.77) Yeah. Jason Kirby (34:02.786) People like doing deals with people they know. Brian Ree (34:05.998) know and they like Jason Kirby (34:08.396) Yeah. Sometimes I see some deals where they just kind of like, you know, have to do a deal. But, in most cases, yeah, it's like, I've had many people in the podcast where it's just like, you know, they could be on the acquiring side or the, the sell side. And it's just so much of the common denominator is like, you know, they, they knew of, they knew each other for a while. I've met her at a conference, like an industry conference, or they were friends before or met through initial contact. Brian Ree (34:34.904) Yeah. I mean, I can agree with you more. And I would say also in hindsight, as a, when I was a younger founder, a younger entrepreneur, you get so wrapped up in running your business, right? Cause there's so much to do. And there are times where you feel like you're drowning or, and so then like just spending time shooting the shit and relationship building sometimes feels like, like a waste of time or not the best use of your time. But if it's with the right folks that are related to your business or strategic, it's actually super important, like you said, to build relationships early, especially if you have any intent on wanting to sell or they're a potential buyer. It's really, really critical. Jason Kirby (35:29.514) Yeah, and I guess. How does one shoot the shit with, you know, it's like, I'm curious, how do you tell someone to be targeted on shooting the shit with the right people that can actually move the needle? Brian Ree (35:47.798) I think one, the right folks in the room, they have to be decision makers. Right? Like you have to be a decision maker. So when I spent time, even with Morgan, it was really a lot, mostly one-on-one time. And it was more in a casual setting, you know, grabbing lunch, getting coffee. I'm visiting New York. We're going to hang out for, you know, I'll stop by the office. hang out. But I wasn't spending time like, for example, with the rest of their C team. I wasn't presenting anything. And I would say a lot of it is subtle in like, just sharing like every entrepreneur, every founder, you have goals, like, what are you trying to achieve? What are you trying to do for next year or this year? And then I think you saw a handful of times just under under promising and over delivering. And I think that was really key because that establishes your credibility. Like you're not trying to sell the company, but you're like, yeah, I want to try to do this this year. I want to grow 50, 40%. And then I came back and I was like, Hey, guess what? We grew 60%. Like we're, crushing it. And so that really helps establish credibility when I think you can be authentic and you can share what you're doing. And then you also like share a little bit about your personal life. in terms of like what's going on with your family. We we happen to be in similar life stages, having had young kids. So there are just lots of things to just be friendly about and talk about and just kind of stay in touch. And I think that's kind of how you shoot the shit is just, just spend time and just try to get to know the person and what makes them tick and share about yourself. Jason Kirby (37:43.031) So simple. You know, when you think about it, but I see some people struggle with it because, know, it's like, again, it's so happened. Morgan was also building a great business that, you know, there's a lot of complimentary attributes. Like, were you shooting shit with people that didn't amount to anything? You know, obviously didn't transact. Yeah, it's like, how do you make the, how do you kind of surround yourself with the people that actually can potentially impact the output of your business? Be curious to get your. if you have any thoughts there. Brian Ree (38:14.232) Yeah, no, I do. So, no, I don't like, try to be helpful to everyone because I believe in karma. And you just never know. So if people want to spend time or, or coffee, even if they're just starting out, like I'm happy to spend some time and try to be helpful or provide some advice. Now with someone like Morgan, it was a bit different because we had like our businesses were very similar in the way that we were growing it, except we didn't have any, we didn't feel any competitive threat because we were in like completely different categories. And so our approach and our innovation and our business model, there was like a lot of overlap where we actually felt like even if we never did anything, just by talking to each other, we can share some best practices and we can learn from each other. So that's why I think you'll feel certain types of gravitational pull from different folks where it's not just about like you get along with them, but you feel like there's enough relevance in your business or what you're working on where you feel like, it'll be really easy and organic for that person to be helpful and or vice versa. Jason Kirby (39:36.28) Don't want to of, you know, advance towards, all right, this, this deal you merge with Adore Me with the expectation that you're going public. And that's kind of the narrative. Victoria's Secret comes in and changes that outcome and, you know, ends up putting in a bit, like how, how did those conversations happen? And, you know, ultimately why was it better to sell for the cash versus doing an IPO? Brian Ree (40:08.43) So part of it is hindsight is 2020, but I would say, me recap the timing because it was a whirlwind. the consummation of and completion of our merger transaction with AdoreMe happened and closed in April of 2022. They filed and we started talking like December of 21 and Adorme had filed their confidential S1 filing to go public in February and the timing of that was supposed to be May. So we were all super excited about this impending IPO in May, to plan like parties and a big announcement all that but then the markets turned over, started turning over in April, May of 22. Jason Kirby (41:12.46) Yep, that. Brian Ree (41:13.292) Yep. think a lot of people remember. And so then the IPO window shut. And in a way, we weren't all that disappointed because I would say because we had both respectively been in the business and have been running it so long. It's like when you've been building a business for 12 years, 11, 12 years, you're kind of like, okay, well, we're profitable. We're not. We weren't trying to go public because we needed to raise money. More of it was shareholder liquidity. And so we'll just need to keep our heads down, keep doing it a little longer until the markets get better. Victoria's Secret came about, not initially, they came about in September-ish. And I heard through Morgan because they were having some discussions about wanting to invest $150 million, of which most of it would go to secondary. So they wanted to take a large ownership stake. And so I was like, okay, if that happens, that sounds great. Because, and if you think about the timing of it, that was to provide some shareholder liquidity because the IPO windows got shut and wasn't going to happen. So I want to give credit to Morgan for having the relationship with the CEO. And like you said, these things don't happen overnight. I think there were two factors. One, Morgan had a pre-existing relationship with the Victoria's Secret CEO at the time. And then number two, Adorme was on the precipice of going public and had filed and it was a very real thing. It was validated by real bankers and there was real demand. And so I think that really helped validate some sort of market value of what a potential IPO would have been. And that kind of set some sort of benchmark for Victoria's Secret to look and Brian Ree (43:27.284) and prescribe a value to the investment. And so what happened was Victoria's Secret spent about two months doing due diligence for this investment. And then after finishing their two month due diligence for this investment, I think they had a realization that making this investment was not going to be that helpful or strategic in helping digital innovation or helping to really move the needle and impact Victoria Secrets own digital innovation, right? Because they saw how differently we did things, the technology stack that we had built and how we run the company. It's it's fundamentally probably very different than how Victoria's Secret ran their business. And so they're like, well, this is a completely different thing. Just because we get to peek behind the curtain and see how it all works, how the sausage is made, doesn't mean we can make the sausage in-house. We just don't have that capability. We don't have the DNA. We don't have the technology. We don't have the engineers. So they came to this understanding that, well, Making these investments not really going to do anything. What are we going to do? Twitter thumbs and watch this for the next three years. We're not in the business of making investments. I think if we really want to make a move and have a meaningful chance to transform our digital innovation, we're going to need to own this outright and then like really have it be able to make an impact for our core business internally. And so I want to say then In November of 22, I got an update from Morgan saying like, Victoria Secret wants to buy the whole business. bringing this to the board. Got it proven like days. they said, and we want to close in the next 30 days, which was insane, you know, relative to the transaction value. And I actually was skeptical that it was, that they'd be able to pull it off. I'm like, Brian Ree (45:50.734) This is too big of a transaction to transact between the beginning of November and the end of December with the holidays. I'm like, how is this going to get done? It's probably going to get pushed out. Yeah, it through the holidays, but I still don't see how gets done. And to their credit, they worked nonstop around the clock. it was mostly, the deal was consummated mostly out in New York. Jason Kirby (46:02.215) No holidays. Brian Ree (46:19.63) So I wasn't very close to the actual transaction deal. And I really just kind of waited for all the different sign-offs and signature papers that I had to do in respect to my shareholders or our shareholders on our side of the transaction. as far as for daily look. And I actually remember because I was on vacation, winter vacation in Beaver Creek the whole last week of winter break from December to Jan 1st. And I literally signed all the papers on December 31st. Jason Kirby (47:10.477) Yeah, didn't you get a call in the mountain? You're like skiing or something like that. Brian Ree (47:12.652) Yes, yes, I was skiing and trying to ski and it was snowing and there were many calls with various attorneys at the time. I don't remember them all, but there's just like a whole bunch of, there's so many things that you have to sign off on related to a large transaction by a public company, right? Like they really have to be thorough. Jason Kirby (47:44.271) It's an impressive story and you ultimately still grew rapidly after that transaction. Obviously there was incentive, there was some pretty sizable earn out left to get with growing the company. What was it like kind of growing the company within Victoria's Secret? Brian Ree (47:53.774) you Brian Ree (48:05.87) So the great part about the transaction post transaction is because they're a big company, they tend to move pretty slowly. And so I think post acquisition, there wasn't a whole plan in place, especially because this is not a particularly acquisitive company that, like some of the SaaS companies that have a built-in team and muscle to acquire and integrate. And so for the first year, they're basically like, we're not going to do anything much other than sort of the required financial compliance integration that we need. So I like to say that it took, this is kind of funny and I think can say it. I like to say it took the first six months. We had to figure out how to move our bank account and get a new bank account where the master treasury was owned and controls were owned by. Victoria's Secret. And then the next six months, we had to learn how to get off of our accounting systems and get into NetSuite. Jason Kirby (49:08.398) That's fun. Jason Kirby (49:21.678) Mmm... fun. Brian Ree (49:23.074) Which actually took a whole year, not six months. So it was a lot of that very basic boring stuff back office. But they didn't mess with the business at all. And that was great because we got to continue focusing on our business plan and our strategy. And once again, I would say because we had built such a strong LTV. I felt like the business was fundamentally sound. felt very comfortable now, where we had the balance sheet support to be a much more aggressive about growth, both from a paid acquisition side, but also from the inventory side. And so we weren't, you know, we were still very disciplined about spending and staying within our, our internal guard rails, but. At that point, we just felt a lot more comfortable. Like if something got screwed up or something unexpected happened, we would have the full financial support of Victoria's Secret to work things out. Unfortunately, I want to say though that the scaling of the business from, let's say from the $50 million revenue point to 140. That was actually the easiest time of my career and running a business. And I think that's a testament to having had enough time to build the right people, the right teams. And even though the team was still fairly lean, everyone knew what to do. And we had a very strong financial FP &A model so that if we wanted to scale more, Like we just drop it in the model and the outputs would get shared with everyone respectively. So they're like a financial model for operations and one for the styling team and one for headcount, one for customer service, one for merge. And that model we had like sort of hardened and it had been through so much testing over the years that it was highly accurate. And so we can share that model. And it was just like very easy to scale up because we had a great people, we had great team. Brian Ree (51:48.878) and had very accurate financial modeling. Jason Kirby (51:53.858) Well, that is comforting to hear. Post-acquisition can often be a mixed bag for so many people. And it's great that you're able to achieve such great accomplishments post-acquisition. I know for my situation, selling Walmart after we were bought, was not... It was, in fairness, we were blitzing like crazy and breaking all the rules in Walmart to do so, because they were like... we were trying to force our launch to go quicker so that we could basically force Walmart in commitment. Once Walmart's publicly committed to something, they are committed. They unfortunately pulled the plug a week before our launch. So a little bit of a different scenario. think we doubled the team in six months. We from 30 to 60 people pretty rapidly. Brian? I've been really enjoying this conversation. You've had a very long journey getting from, you know, 2011 being a daily newsletter, uh, to basically a $700 million outcome in the grand scheme of things. Um, what's kind of your advice to the founders that are in this space, this direct to consumer space, you kind of caught the perfect last moment to kind of maximize enterprise value before evaluations really fell off a cliff in this space. What's your advice to founders that might be currently in a brand building, direct to consumer space right now fashion. Brian Ree (53:27.822) I think so my advice around this space is that it takes a long time to build a brand and it's very hard to build a brand. And so in order to even have a chance, you really have to, I think you really have to have perspective that it's going to be a decade plus long journey. And so, know, knowing up, knowing what you're signing up for and be like, you know what this mission or this brand is, is really calling me and, and there's not a lot of &A activity in this space. So I would say, you know, slow and steady wins the race. in this space like there's some points where you come out with a product or brand and maybe it's hot for a minute, but really to build a great business and a great brand I think you need sort of that long-term sustainable approach and outlook. So that's what I would say and I would say don't listen to Don't worry too much about like, like you can hear a lot of noise. It's a very noisy, crowded space. It's very competitive. And that's why, um, that's why it's hard to sustain. can be as big as, I had an investor forever 21, 2018 and they were on top of the world. And about a year ago, they went through the bankruptcy. They're, they're no longer, uh, They're no longer around, right? And so, you know, this business can be fairly volatile. So it's not for the faint of heart. Jason Kirby (55:35.949) Those are some wise and unfortunate words. And what are you doing now? You know, it's been a year, took a little time off, post-exit paradox experience. What are you working on now? Brian Ree (55:53.72) Yeah, so it's been almost exactly a year since I left the company. The first six months I spent some time sort of unwinding and decompressing from having been a founder. And that could be a whole nother episode about like all the fields you go through post exit when something was your baby and now you've sold it. And then in some ways you don't know what to do with yourself and you feel a bit lost. And yet no one is going to cry for you. Right. And so that's a whole nother thing. But at heart, I really am a serial entrepreneur. I love to build. I love to be in the arena. And now I'm working on a AI connected smart beauty mirror that is able to scan your face. and your skin as you just use the everyday beauty mirror and provide a full skin analysis where your skin health scores appear on your phone and your phone then becomes your digital esthetician. So think of it as like the aura but for your face. So that's what I'm hoping. Jason Kirby (57:15.233) Yeah, I did see the demo of it. It's pretty gnarly how much sun damage I have. Brian Ree (57:23.15) Well, damage is fundamentally 80 % the cause of all unwanted skin concerns like aging, hyperpigmentation, and a lot of other skin concerns. I think helping even on that one score, if I can help everyone in the world improve their UV sun damage score by being just more aware because you can't see your UV sun damage. when it starts because it's under the skin, it's deeper in the dermis, then I think we can make a pretty big impact to how people think about skin care and even beauty. Jason Kirby (58:10.625) You know, even after a successful exit and previous exits to the, you know, this company even way back in the early 2000s, you just can't help yourself, but to get back in it. Brian Ree (58:24.012) Yeah, well, I think entrepreneurs have a, you know, I like to think of entrepreneurs like professional athletes or professional idea builders and executors. And, and I do believe that entrepreneurs like have some sort of shelf life where if you're not in the game, then you know, all the skills and muscles that you use to build company are going to atrophy and, You know, I think I have one more left in me. Don't get me wrong, they take incredible amounts of work and energy. And I actually seen a lot of founders have a bad experience and then never do it again. Meaning they are one or two time founders and they have a bad experience of maybe a bad outcome or having to wind down a company and it is very hard and painful. And then I see them never doing it again. And so I think those that are willing to credit out and keep going and are glutton for punishment, also can enjoy it. You know, I'm not sure we just come back to build mode and founder mode. and help ourselves. Jason Kirby (59:35.981) No, I know it's, I'm guilty of it myself. Brian, if someone wants to either learn more about your journey and or reach out, um, what would be the best way for them to, to learn more or get in touch? Brian Ree (59:48.3) best way to reach out to me would actually just be to email me to my personal email address for now. It is just my name, first name, last name at gmail.com, brianree at gmail.com. Jason Kirby (01:00:04.151) We'll blur that out so the bots don't get it. But if anyone wants an intro to Brian, by all means leave a comment or reach out to me and I'll be happy to introduce you to Brian. Just make sure it's worth as well. Brian Ree (01:00:19.628) No problem. I'm happy to help and pay it forward. Jason Kirby (01:00:22.133) No, I appreciate that. Brian, it's been absolutely amazing hearing this story. There's not a lot, there's some triumphs in this space and I think you're one of them. And it's been amazing to kind of hear the backstory of what made the business so successful and really appreciate you coming on and sharing your story. Brian Ree (01:00:40.878) Yeah, Kirby, thanks for having me. I really enjoyed it. And whenever you're in LA, I'd love to play some Padel again. Had a lot of fun.