The Lucky Titan

How to Learn from your Mistakes and Build a Business with Momentum with Luke Peters

May 02, 2022 Josh Tapp
The Lucky Titan
How to Learn from your Mistakes and Build a Business with Momentum with Luke Peters
Show Notes Transcript

CEO of Newair which I started with my wife out of my garage in 2001. Our products are featured in the top retailers and I am lucky to have an amazing team that continues to drive the brand forward to our goal as the most trusted brand in compact appliances.

Recently joined the board of directors of the International Housewares Association and look forward to meaningfully contributing to this great organization that supports and advocates for the whole housewares industry. 

Married with 6 kids!

Intro: Welcome to the Lucky Titan podcast here you will learn how to fill your favorite platform with tons of your dream customers from some of the world's top entrepreneurs. I'm your host, Josh Tapp, now let's get started. 

Josh: What's up everybody, Josh Tapp here again and welcome back to the lucky Titan today, we're here with Luke Peters. Now, you guys, this is a guy, I'm actually told your story, Luke, I don't need to tell just I probably told your story that at the times on this show, because to me, it was one of those stories where I was like, I wish people would meet people like you or you're one of those guys. You're not a flashy business, right? You're not the kind of guy who is out there. Like, look at me, I do marketing, I do something like really sexy. You're like, I'm a manufacturer but you've built this massive empire and when we had you on I'm not gonna say revenue numbers or anything but big numbers, guys, I'm talking big, big numbers but you did it all starting from your garage and building it up now, it's was, what 21 years that held your company? Right? 

Luke: Yes, 21 years. 

Josh: But now you're now working with a PE firm, which is one of things I really want to talk to you about today, because we've been talking about it for like 30 minutes at this point but I really wanted you to come on, share your story, a little bit of what's been happening, because as everybody will know, we're doing a series right now we're bringing back some of our favorite guests, having them share what's been happening over the past three, four years since we last talked with them. So Luke, I'm stoked to have you here first off, but I want to dive into this a little bit. So tell us a little bit about new hires journey over the past even three to five years.

Luke: Yeah. Well, thanks again for having me on, Josh. Really appreciate it and congrats to your success as well so thanks. It's really cool to see that I've tried to podcasting, I like I was telling you, I got to 100 episodes, and it was fun, but it's definitely challenging a lot of work so congrats on that. 

Josh: Thank you.

Luke: Yeah, no, we Yeah, last three to five years, you know, the company newer, so we do specialty appliances, wine, coolers, beer coolers, we're really focused on like the enthusiast categories and things that we can have a lot of fun with so the culture is fun, it's innovative icemakers, and just trying to make really cool fun products that people are gonna want. Most of them will have a plug, or pretty much everyone, everything has a plug in, it's compact and so leading up into this time, by the way, we did start to see so old school, SEO, those are my roots, new school marketing, I get it, but I hand it off to the experts now and we grew the team, but I there was kind of like a breaking point, I would say it wasn't a breaking point but it was just kind of like the company grew to a certain size, and it needed a transition for the next level of growth and that's where I just started focusing on people, you know, and I wish I had done that sooner. So five years of just really focusing on bringing in the best people and then getting ourselves ready to become, an investable business so meaning prior to that, you know, had a great company, but hey, what do investors want, you know, they want financials, they can trust, they want systems, they want a management team that understands the business because most investors, most of them don't want to run the business, they want to invest in the business. Sometimes, if there's, you know, another company or some sort of synergistic purchase, they just want the whole company, but we just I basically had to work on preparing the company to become investable, things like getting audited financials, right, which is like, you know, as a younger entrepreneur, I'm like, Whoa, no way, I'm gonna pay, you know, $50,000 to have my financials audited, okay, they're, they're good. Like, why do I need to pay somebody else for that, but it's a discipline that the company has, because in order to do that, you know, you got to have really great financial people, you got to have a great controller and a great CFO and what does it give you now I can, you know, companies who have those types of financials can go work with the jpm 's of the world and the big banks, and they can get asset baselines, like really, really low interest rates, versus, you know, if you just have kind of the lower systems, maybe you're not going to be trustworthy to the big bank so everything kind of has, you know, it was all set up to become that investable company with a great team okay and then along the way, there's all these things that we had to do.

Josh: Yeah, well, you know, what's been unique, Luke is like, as I've been interviewing you, and you know, a lot of other successful people, and it's just finding that getting past that million-dollar barrier, it usually isn't a marketing or a sales problem. Usually, you've already kind of got some sort of system that can produce sales, but like you mentioned in there, it's team and then it's, it's the stuff that nobody wants to think about, which is auditing the financials, making sure you have your legalities taken care of and you know, the sort of things that nobody really wants to think about but those little things are hireable, which seems to be what you've been excelling at as far as prepping your company for investment so walk me through a little bit of that, what that looked like as for your team, as far as like, who are they the key hires to help you prep for investment.

Luke: Well, actually, that's what we'll take a step back. A lot of times, smaller companies, they won't have like a real clear hierarchy. And a lot of times, you know, we you know, maybe the entrepreneur will be doing all the work and kind of getting his or her fingers into everything right. So the idea is like, what does it professional firm look like? You know, you've got a head of finance, a head of marketing, a head of sales, distribution, sourcing HR, probably leaving something out, but you follow me so it's like all the main departments hire the best possible talent, that was kind of the mentality and of course, there's, you know, along the way you'll learn, and you'll learn what's good and what isn't, and how to do that hiring, what the process should look like, and who you should work with but basically, just kind of like realizing that really solid professionals who care about what they're doing, and have done it before, that's the other thing I learned is like, get people who have done it before, okay, because I don't have that experience. I'm not a CFO, right. So someone who's been there, done that, and you bring them into your team, it's like rocket fuel so those are kind of the areas that we focused on and it took a while, you know, because you don't just hire a head of finance, you gotta hire the whole team, you got to get the controller, you got to get all the you know, and then along the way, the other part was, and again, you know, maybe a lot of the audience may not need all of these pieces but for us, we need a really good ERP. Okay, like, you know, a system that the company ran on, right? So, you know, anybody starting out should really make sure they've got a solid financial system, even if it is just QuickBooks Online, but something that they're doing everything through it properly, and tracking all of that so that they know what their margins are at the end and that allowed us to do that, you know, you got to have per customer p&l, Product margins all the way through with all the costs allocated correctly and, and Gap accounting, you know, and setting up financial and in a gap format, accruing properly, like all of these things that are important, and you're going to need that team to do pay huge dividends later on.

Josh: Yeah, I love that. But you know, it's funny, and that's a great team to have, I have my undergraduate in finance, I thought I understood numbers, I'm like, hey, I can do this myself. About three years in, I remember bringing on an accountant and having him run it through QuickBooks, I'm like, I'm doing a 60% margin he's like, no, you're doing like a 20%. 

Luke: Exactly. 

Josh: What the heck, where's the money on being lost? You know, that? Yes, I agree that tight. So how big is your team right now are you able to say that?

Luke: Yeah, we're about 50. In Cypress, California, we're mostly like pretty much somewhat remote, okay, like, obviously, the operations, we have a big warehouse, you know, we have 115,000 here, we're opening 100,000 on the East Coast and so, so we have a big footprint there. And we'll grow the team more quite a bit this year but we also have a solid team in the Belize, they handle all our customer service, we got a solid team in Mexico, they do a lot of that team is built all the way up to like 10 people now or something like that and just a great team handling, helping with like marketing, some finance over their design, graphic design so yeah, we're pretty diverse group and somewhat all over the world.

Josh: I was gonna say, and that's the reason I was curious about that as I might some people, again, I wish I could just share numbers, we'll keep them quiet here but I'm like, Man, the size of company you have having that small team is honestly crazy that you've been able to do it so well, to grow so big, because a lot of companies your size are like, oh, I have 1000 employees and like how do you pay yourself if you have a thousand employees.

Luke: Yeah, well, you know, what, if you hire the best possible people, I think is, you know, it's kind of the mentality that we have 

Josh: Right. 

Luke: I'll try to get the best talent.

Josh: Well, I mean, I love that first off, and we have to cruise to the interview here. This is what sucks about having 20 minutes, it's not enough time to ask all the questions I want to ask but the big question I have at this point is like, you know, you've been you've been prepping for investment and everything as well but a lot of the companies listening to this are doing, you know, a million or maybe even 7 million and are trying to decide, hey, like, do I scale, do I, Do I pivot on at what point would you say, hey, maybe look into investment, do you think that's that early on or do you think that should be something like a decision made later on, the exit decision?

Luke: Yeah, I think probably it's too early for most of those companies. I mean, because I think the entrepreneur, it's okay, first of all, as you know, it's a very mental type of job, okay, you're gonna have your highs and your lows, you gotta be really careful not to make a bad decision, when you're having your lows, you're just, you know, what someone going to be left with, if they exit, you know, on a million dollar business, they're gonna have to go right back to work so if you've got something that's working, I would say what that pivot might look like, or scale might look like, is focused on the team. Now I'm assuming the product solid, right so first, you got to focus on the product so that's everything but after that, you know, focus on building the team, which is another word for saying focus on building your business.

Josh: Right, yeah, building the business. 

Luke: yeah, bringing in an expert, you know, someone to match. Obviously, sales and marketing is the first place probably that somebody should bring those expertise in because just because then usually the entrepreneurs generating the sales and marketing so okay, bring somebody in who can do that. Now, you don't have a job now, you know, you're making the business, you know, now somebody is working on the business when you're not and there's a little bit more of a, you're probably going to have better energy to continue with the company versus being I think people exit when they're at a million, it's probably because their grant, they're just grinding, you know, and it's just like, beaten them up and they want to get out so that's a way to kind of say, hey, get back in it, because you're not going to get a big enough cash out and you could if you take that thing to say 5 million EBITA or try to hit that magic number a million dollars, you know, the profit side, then it's really going to be worth something.

Josh: Yeah, I would agree with that and that's why I was just kind of curious because I was coached, when we were right around a million, they're like, they're like, Hey, you should go out and you should be the acquirer so be acquiring other companies, and then soon building up a big enough asset, it's not even like, Hey, you're coming at this, from an investor perspective, you're coming at it as, hey, I need to build a large enough asset that makes me purchasable and so from my perspective, is like, Hey, I could invest in other companies, but nobody's even looking at it buying our company, because we're not even on the map yet, for a PE firm, especially. So for you guys, you've recently just had a PE firm enter with you guys, right they've, they've invested with you guys, at this point, you're allowed to share names and everything with that?

Luke: Yeah know, for sure that part's all been sent out so it's called Guardian Capital Partners out of Philadelphia, fantastic firm, they're just kind of like us, you know, we're kind of a scrappy company, humble group, and just work hard and they're the same way and they have a fantastic team. So we still run the business, you know, they assist us with a lot of other expertise and the idea is just to grow together for you know, the next exit.

Josh: Love that and so how do you choose them? I'm curious, because like, you know, like, you and I have talked about, I've worked with a lot of VC firms and PE firms, and a lot of them, it's, they're just jerks. Yeah, so I'm just curious how you picked one, without fear?

Luke: Yeah, well, well, here's the other thing, especially for like, you know, entrepreneurs who are maybe, you know, if some of your audiences like get good advisors, okay, get find a way to get good advisors, it could be the problem with some of the networking groups is like, you know, sometimes you might be surrounded with a lot of companies your same size, try to find people who are like 10 million, 20 million, whatever, just a lot bigger than you are, because they, they've been there done that, and I had some really good advisors who have been through the PE multiply had like three of them, actually. So they really helped guide me and these are not, you know, when you go to, when you go to market, you got to go work with business bank, banking firm, and they're going to take you to market and do all this, promote you and put a book together, this is separate these are just advisors I had been working with for years and basically, you know, you get to interview all the PE groups so we had a lot of interest, we had choices on who we wanted to work with so that's good, not everybody's is, you know, we were really fortunate to have that opportunity sometimes, you may only have two or three companies that are or groups that are interested in investing, and then you're going to have to decide who to go with but yeah, so that's a long answer, short answer is we had some choices and worked out with a good group.

Josh: I'm glad you ended up with it and I want to discuss kind of the deal here a little bit, because I hope we can open people's minds, because I talked about acquisitions a lot on the show, and we have a lot of guests talk about it and, and the ways to go about buying but I wanted to just kind of prove the point with your story here is that there's not just one way to buy or sell a company, it's not like cash out or nothing, right? It's not buy or whatever it's like in your case, you sold a percentage of the company, and you're keeping a percentage of the company so that you can almost double dip, right? 

Luke: Yep, yep. 

Josh: So walk us through that detail.

Luke: Yeah, so we'll typically like a PE deal. It's just like, I mean, I guess in the old days, it is called like a leveraged buyout. So they're bringing in their own equity, then the company that's acquired, oftentimes, again, they don't want to run the business, they're buying the management team and the company and they it's an investment, so I still retain a large minority, they buy the majority and also there's, you know, a chunk that set aside for some of the key staff of the company as well so there's, there's opportunities for a lot of people to grow, that's also a really nice part of it. Yeah, and that's how most of the deals work. Not all of them, there's different ways and it also depends on the size of the company sometimes with smaller companies, it's going to be 100% buyout, it might be an urn out so the bigger you can grow your company kind of the more opportunities you're going to have because these deals are really expensive for them to do, okay and since they're expensive, they're not looking at companies, generally, they're not looking at companies that are maybe at a million dollar level of profit, even a profit, it's so much work that a lot of times PE groups are minimums are going to be like 5 million, okay, and that's kind of where they'll start so that gives a good idea of now for marketing companies, it could be different, but generally, 

Josh: that's about right. 

Luke: Yeah. Is that about right? Yeah. Cuz it's a lot of dollars, you know, on their part and a lot of diligence and time and everything to do the deal.

Josh: Well, I mean, I mean, it's like when you buy anything, right, you're gonna have to pay an agency to do work for you and they have to do it yourself, you know, and it works the same way when they're buying your company they're like, I don't want to have to buy this failing company and try to fix it and bring my own people they want to buy a successful company that's working that they say, hey, I can just feel this and we all went off of it so I love to see that happen. So a lot of shady people in that space is you have to be careful with who you who you end up partnering with, but I think you give you found a great firm, say we aren't coming up to the end of the interview here though so look, I just want to ask you two questions so the first one is like what's next? Where are you guys go on what are you trying to do?

Luke: Yeah, I mean, we just keep building great appliances so we just recently had a partnership with Stone Brewery, I don't know if you know they're they're one of the one of the fastest growing breweries and a lot of fun like their image is a lot of fun, with the gargoyle on the on the on their designs, and so now we're making beer coolers, we got their cool design team at work there. So doing more projects like that, you know, we're getting into just a lot of fun beer, ice and wine categories, others as well, we do heating and cooling and all kinds of refrigeration but we're really gravity gravitating towards a lot of these fun enthusiast categories that are really talkable so our marketing, we like to work with influencers so we want to make products that they want to show off in their social channels, and that are fun and engaging and that's kind of separates us.

Josh: Yeah, I love that, it's cool, you guys have an influencer strategy. I wish I had more time because I want to dive further into that but just to kind of wrap up the interview, what would be your final parting piece of guidance for our audience?

Luke: Yeah, I mean, the final thing would be to make sure that you charge for the value that you're delivering. So just a couple quick things is like a lot of times, because we were just talking about this pre show, right? It's like, the margins oftentimes aren't where they should be for a lot of young entrepreneurs are starting out marketing companies, I mean, you got to be making 20% You know, at that point, otherwise, you have a job, not a business and the other thing is, you know, don't hesitate to hire people as soon as you can good people and learn that management skill because to become investable, you're going to want a team around you and when you have that team around you, it's going to reduce your stress, it's going to allow you to push that company harder, bigger, faster and longer so those are the main things I wish I'd done sooner.

Outro: Hopefully you enjoyed this episode of The lucky Titan podcast. If you've learned anything from this or any other episode, make sure you rate it and share it with another entrepreneur could help. Thanks again and I'll catch you on the flip side