Kelcey Lehrich | Succeeding in E-Commerce

Kelcey Lehrich | Succeeding in E-Commerce

How can M&A firms succeed in the e-commerce niche?

Kelcey Lehrich, co-founder and CEO of 365 Holdings, is here to share how he provides e-commerce brands with a permanent home when entrepreneurs are seeking an exit.
Kelcey also breaks down what makes consumer products thrive in the marketplace—and why you should treat e-commerce as a channel, not an industry.

Mentioned in this episode:


Patrick Stroth: Hello there, I’m Patrick Stroth, trusted authority in executive and transactional liability and founder of Rubicon M&A Insurance Services, now a proud member of the Liberty Company Insurance Broker Network. Welcome to M&A Masters where I speak with the leading experts in mergers and acquisitions, and we’re all about one thing here. That’s a clean exit for owners, founders and their investors.

Today I’m joined by Kelcey Lehrich, co-founder of 365 Holdings. Based in Akron, Ohio, 365 Holdings is a vertically integrated holding company that provides e-commerce brands with a permanent home where they can thrive for the long term. And I’m always amazed when there are just new places for acquisitions to happen, no matter how large or how small. So it’s very exciting to meet you, Kelcey. Welcome to the program.

Kelcey Lehrich: Thank you for having me. It’s great to be here.

Patrick: Now, before we get into 365 Holdings in your entire eco for e-commerce, let’s start with you. How did you come to this point in your career?

Kelcey: I’ve been an entrepreneur my whole life. So I didn’t go to a name brand school, never worked at a big company, literally just had been working for myself since going through college. Ironically, I think the degree that I have hiding somewhere in the attic has a date on it that’s several years after I started working, because some complications. So my whole life has been working for myself. There’s a long list of stories I could tell, but e-commerce for me started six years ago. My relationship with my co founder goes far beyond that.

So the two of us had been working together in lots of very, very small businesses. It was not until we got to e-commerce that we found any meaningful scale or success to have a team or have real operations or infrastructure. There was a lot of hustling and a lot of hard work to get to the start of our careers, which really began about six years ago, when we bought an e-commerce business. And that kicked off what is now 365 Holdings.

Patrick: And with 365 Holdings, I mean, you didn’t name it Lehrich Holdings, which is good, or some derivation of you and your co-founder’s name. So how did you come up with the name and then talk about what 365 Holdings is?

Kelcey: The name story was we bought the first business and very quickly bought the second one like 60 days later, we’ve maxed the line of credit, drained the checking account and kind of put all the chips back on black and bought a second business very quickly.

Patrick: Wow.

Kelcey: And one day, like, a couple weeks after we did that, I’m like, man, we should like, we need like a holding company. We need like our business to own the businesses and that could make our taxes easier. And I can put up a website, then when we go to buy a third one, brokers will take me more seriously. There was not a lot of thought. I probably spent about 15 minutes with some names. And so 365 Holdings is the one that we ended up with.

I wish I had a better story, but it was, we need a company and maybe one day that name will matter. But right now we don’t have any time to worry about that. So that’s how we got to 365. For the second part of your question, our focus is on buying small businesses that primarily go to market selling physical products to consumers directly over the internet. We are an omnichannel business, we sell some products on Amazon, we sell some products through brick-and-mortar retail.

I think that if we’re going to be the right home, for longtail consumer brands, we will always have sales channel diversity, we will sell products and big box and small retail and we’ll sell them on other people’s websites, but we’ll focus on selling them on our own websites, first and foremost. And having those fantastic small businesses that sell consumer products, it will necessitate us being a multi-channel sales organization.

Patrick: And when you see you know, some of these commercials out there right now or you got you know, Mom and Dad baking cookies or something. And that becomes the cookie empire. And so is that the kind of profile for those of us that aren’t as familiar with consumer brand e-commerce?

Kelcey: The way I like to explain to people is there’s really two ways that consumer products find success in the marketplace. They either have to create demand or they have to capture it. In demand capture, anybody goes on Amazon and they type in spatula or they type in car mats for their car. They type in dog collar, they type in just a key word search term. Yeah, anything. You can do it on Google. You can do it on Amazon. And this whole business is just built on satisfying demand for a category. As other businesses probably more the variety you might see on Shark Tank or to use your mom and pop cookie example that create demand.

They run Facebook ads, they build a podcast, it’s a passionate founder who makes YouTube videos. There’s ways they capture attention by interrupting people. Showing them a solution to a problem and then delivering them a product. E-commerce is incredibly incredibly broad. We’re really focused on three verticals. Specialty food, baby, and classic CPG or consumables. Things like hair care, supplements, nutrition, things like that. E-commerce is much broader than that. I had a phone call yesterday with a gentleman who has a sporting goods business in e-commerce.

There’s obviously apparel. There’s lots and lots of categories. When I think about the world we play in, it’s those three verticals that we’re focused on. But there’s many other go to market business models and many other product categories. They get broadly lumped into this e-commerce industry. The irony, and I’ve started saying this recently is there is no e-commerce industry. That’s a misnomer. I say it. Lots of people say it. But there’s no SIC code for e-commerce. E-commerce is a sales channel, it’s a way to sell products to consumers.

It’s distribution. It’s not actually an industry, yet we talk about it like it is. Amazon’s humungous, Shopify is very important. We all set spend money on Facebook and Google to advertise. Then we talk about e-commerce, but really what we are is we’re an apparel business, or we’re a food business, or we’re a dog leash business, which is in some consumer discretionary product category that just so happens to have its distribution be primarily on the internet.

Patrick: Okay, and now, what is 365 Holdings bring to the table with this? I have a feeling that with a lot of small businesses, they get successful, and they reach an inflection point where they’re, you know, they’re too big to be small now, but they’re too small to be enterprise. And they need channel management, resources, guidance. Tell me about, are those the things that 365 Holdings brings?

Kelcey: Everything you suspect and more. There was always the piece that was having a roll up strategy of the small businesses would allow us to achieve synergy, and we’d have a fixed cost base, and we’d scale on top of that. That’s slowly proving true. It’s incredibly hard work. It’s not a magic wand, where everything we buy just turns to gold instantly.

But the functions we’ve learned are very important. Our supply chain, getting products in the door, getting products out the door, customer success and servicing customers and solving issues and closing support tickets. Go to market, whether it’s on Facebook, Google, D to C channel, Amazon, wholesale if it’s solving that whole demand generation demand capture part

of the business.

Those are the main functions where we see a founder will have some aspirations but they’re done. And we identify opportunity. And those main areas is ways that we can be at best home for that business going forward.

Patrick: And as you’re doing this, you’re taking control or minority shares? How’s that work?

Kelcey: We historically have done 100% acquisition, and we 100% operate post-close. Historically, because of the nature of an e-commerce business, as a sales channel, businesses focused on selling online, there’s often not a lot of infrastructure. There’s not a lot of team, or even necessarily an office sometimes since their virtual businesses that run from people’s living rooms.

We tend to not use a lot of their vendors, because we have an existing warehouse, we have an existing customer service team, we run our own ads, we don’t use an ad agency, so we end up not taking on a lot of resources when we buy one of these brands, we end up largely operating it with our own infrastructure.

Patrick: Okay, well, that makes it efficient, and you got economies to scale that you can deploy on that. So it works. Well with this, because part of this is for owners and founders that either want to come to the next level or get an exit. So I think you’re doing both. Talk about the profile that you’re looking at, you know, for your ideal target.

Kelcey: In our three verticals of specialty food, baby and classic like consumable or consumer packaged goods. We’re really looking for businesses that are call it three, 4 million on the low end of revenue all the way up to 10, maybe 15 or 20 on the high end, that are looking for a transaction where a vertically integrated operating company like ours can be a great home. That revenue size and those three verticals is our sweet spot. We certainly look outside of that from time to time, but that’s our focus.

Patrick: And then the founders, are they do they exit, or do they stay on as this thing goes?

Kelcey: They exit. Yeah. Most of the businesses we’ve looked at historically, and most of what I think is truly a good fit for our model is for the founder to pass on the keys and move on. That’s more often than not what most people are looking for when I talk to them anyways,

Patrick: I can imagine you probably have some repeat clients then. Because that’s the one thing about entrepreneurs. Once they go off, they don’t go off to their little island or something. They get the itch and find something else.

Kelcey: We’ve almost had that happen, yes. So that’s not uncommon.

Patrick: Okay, with what epiphanies you know, and I’m sorry, we didn’t talk about this earlier. But as you sit down with, you know, these targets and talk about here are the things that can happen, and so forth. And you just see the light bulb go on. You know, what gives us a couple situations where that happened. I always think that’s exciting.

Kelcey: Epiphanies in regards to?

Patrick: When the founder comes to you saying I want to scale up and you say, well, here’s how this goes. And they and they think of scale is going to be this much. And you said, well, actually, it’s going to be that much.

Kelcey: Usually one of the harder realities is around working capital requirements. And so when you look at the cash conversion cycle of an e-commerce native business, and we’re putting

money out in ad dollars or buying products, we’re selling them. The cash required to drive growth is usually one of the things that founders underestimate.

It’s often the reason they look for an exit. And then we talk about growth, go through that whole supply chain and cash conversion cycle conversation against market size. Many longtail small businesses that sell products direct to consumer. There’s only so much addressable market to capture. And kind of calibrating expectations of how big this business could or should be, what is reasonable in terms of customer acquisition, cost and customer lifetime value. And how do we actually model out the future of this business.

It’s definitely an eye-opening up exercise for all parties. I love it. We get to go see new businesses, that have interesting dynamics and new and different industries, and most founders have not gone through that process. And so it’s a lot of fun. Sometimes they’re excited about what we share sometimes disappointed. But it’s a new and exciting adventure every time we do it.

Patrick: Okay, and I think one of the things is great now with this acquisition process completely is where you don’t have to build something from scratch, is that it not only accelerates growth. But there’s risk out there. And what I’m very proud about with the insurance industry is we’ve come up with a way to remove or transfer a lot of that risk between buyer and seller off to a third party.

And in mergers and acquisitions largely on the traditional large deals that you hear about, you know, in the news, where a product called reps and warranties will come in and essentially steps in the shoes of the seller saying, if the seller has to indemnify the buyer for breach of the seller reps, and the buyer suffers financially post-closing, then the buyer goes to the insurance company. They don’t go to the seller to clawback any funds and so forth.

What’s been wonderful is that rep and warranty while good for large platform companies and transactions above 50 million is now available on the lower end. And I’m just curious, good, bad or indifferent, Kelcey, what experience have you had with rep and warranty with all the acquisitions you guys have been doing?

Kelcey: I always assumed that the insurance was as you pointed out for much larger transactions than we’re working with. We have had certainly a number of post-closing conversations regarding reps and warranties, indemnification, clawbacks, escrows, all of those things have happened. I wish they wouldn’t. But it’s kind of the nature of transactions sometimes. It would certainly be easier if there was an insurance company to pay that out then to go through the process with somebody you’re trying to maintain a relationship with.

But it’s a constant topic. It’s always a point in negotiation with lawyers. And, you know, buyers want certainty of what they’re going to end up with post-closing and an individual founder making an exit that is non-private equity, non-investment banking, seasoned expert, they’ve never gone through this before.

Patrick: I call those inexperienced. They’re not naive, they’re just inexperienced.

Kelcey: I would agree with that. They’re looking for certainty. They’d like to pass the keys off and move on. Their only experience is maybe someone at home where hey, escrow closes, I get my money, I pull out of the driveway and we don’t need talk again. And businesses are more complicated than that for a lot of reasons. And so I would love it if we had some reps and warranties insurance to fall back on. I’d probably be more aggressive in a couple things knowing it was easy to be made whole if we needed to be.

Patrick: Well, it’s is a great opportunity not to sound like a commercial here but actually what has recently been launched by one of our insurance carriers is a sell side policy for the ultra

lower middle market. This is a policy where the seller not the buyer is the policyholder. The policy responds or is triggered when the seller receives a demand from the buyer saying there’s been a breach, we’ve suffered financially. We need a check for X dollars for our damages.

The seller forwards that correspondence right up to the insurance carrier, the insurance carrier goes to the buyer, negotiates, settles it without the need to pull the seller in or drag them through any clawback. And what’s been wonderful about this is this is only become available in the last 12 months. And at a cost of 15 to $20,000 per million dollars in coverage, it’s not priced based on the size of the deal, it’s just based on how much insurance is carried. And it’s usually a million dollars to $20 million actually.

And with a one day turnaround for getting these processed, it’s efficient and it helps accelerate deals closing. But also, you don’t want them just closing, you want them closing happily. And it’s something that we’re very proud of. Because in my years in M&A, I would constantly be approached by either, you know, owners and founders saying we’re being acquired, we are under $20 million, and our buyer doesn’t want to get this insurance, is there anything we can do? And if the buyer wouldn’t do it, then it didn’t happen.

And so that’s why we’re very proud to have this product out there. And I think that it’d be an ideal fit for, you know, organizations like 365 Holdings, as a matter of fact, because as that is part of the offering that not only will you benefit from the peace of mind, but your counterparty, the seller, can have that clean accent.

Kelcey: I’ll send them all your way. I like it.

Patrick: Well, that’ll be fantastic. So now, Kelcey, in the tenure of 365, I mean, how many acquisitions have you made?

Kelcey: Today, we have six platform brands have been more acquisitions, then that through time. A few exits, more than that in purchases, and today, we hold six.

Patrick: And now as e-commerce, as with a lot of other things is very fluid. I’m sure it was very, very busy a year ago, during the pandemic, but, you know, as we’re coming into 2023, what trends do you see going forward, either via e-commerce or 365 Holdings, whatever you want to say.

Kelcey: The big variables, probably just having the macroeconomy as interest rates move up, and maybe there’s some softening into next year, talk about recession. There’s a lot of question marks. So far amongst myself and peers that sell products via e-commerce, it is not field dire. In q4 of 2022, people had a great Black Friday, major ad platforms performed well, consumers came out and largely spent a lot of money in a lot of places. I’m hopeful that that means good things for next year, I’m concerned if maybe we have a soft q1 or q2, especially as rates continue to rise.

That could spell for tough times. We’ve seen a lot of valuations come down, particularly as public comps have come down dramatically, that’s moved down from the lower middle market all the way to Main Street, and even drying up a lot of venture funds in and around consumer products. So we’ll see where that goes. Anybody’s guess as to what exactly happens. But those are the things that are on my mind to watch out for.

Patrick: I think as a buyer it’s fairly, a little more favorable for you. Because if those valuations come down those numbers come down. I think you’re not going to have those, you know, insane auctions and insane purchase price amounts.

Kelcey: We haven’t done a lot of buying in the last two years for a variety of reasons. For better or worse, I’ve been seeing a lot of distressed deal flow. As a platform buyer, we have the

opportunity to execute on things that don’t make sense for a standalone acquisition. I don’t want anybody to have an unsuccessful business, but if they need a soft landing, we can be a good home for that. And we’re looking at a lot of those right now.

Patrick: Well, fantastic. Well, Kelsey Lehrich from 365 Holdings, how can our audience members find you?

Kelcey: I’m relatively easy to get a hold of on Twitter and LinkedIn. Our company website is If you can spell my first name, you can figure out how to email me and I’m available on most major social networks. If you want to chat about e-commerce, just reach out.

Patrick: Kelcey, it’s been a pleasure. Thank you so much for being here today.

Kelcey: Thanks for having me


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