Case Study #6: What You Don’t Know Can Absolutely Hurt You

Today Erik Huberman runs Hawke Media, which is an outsourced digital CMO agency that works with the likes of Bally Total Fitness, Verizon, and Red Bull.

But the opportunity to build that company came from settling debts from previous startups and a bit of cash from selling a company called Swag of the Month.

The Beginning

We live in a world in which a monthly subscription product aimed at men sold for $1B (Dollar Shave Club to Unilever).

But before companies like Harry’s or Dollar Shave Club even existed, there was Swag of the Month, which was simply an idea of Erik and a friend’s: how to find a better way to sell t-shirts, without the hassle of retail shopping.

They created a quiz which allowed men to share what they were looking for in a t-shirt and then they mailed out a new shirt to that customer each month.  Over time they built confidence by delivering exactly what their customers wanted.  The brand got a lot of prestige from being written up in all the major men’s magazines.

Then, the wall

Unfortunately, Erik had built his company right into a wall.  They had 5 employees and thousands of customers, but the only way to grow was going to be to raise money or sell.  They were simply doing too much work on a day-to-day basis and not making enough money.

Selling, and the two big mistakes in hindsight

One of the vendors of the company was interested in using the platform that Erik and his team had built to push more sales of their own. They were familiar with the brand and, over the course of an afternoon, learned how the business worked, made an offer, and wrote a check.

Mistake #1

The pain and stress was great enough in Erik’s life that he walked into that afternoon meeting with a number in his head.  That number recovered all the investment in the current business, paid off debt from previous businesses, and took a little off the table for themselves.  It was, by no means, life-changing money.  He made the mistake of blurting out this number when asked and hence blew all his leverage.  The buyer clearly had no problem with that number and wrote them a check immediately.

Mistake #2

The reality is that many competing firms at the time had poorer systems, no profitability, and no brand recognition, but they were still awash in venture cash.  Erik had no confidence or connections to enter this world, so he simply folded his cards.  In retrospect he realized that a bit of networking, a bit more asking, or a bit more willingness to look foolish as he started to pitch VCs would have changed everything.

The new owners went on to quadruple the topline revenue in the 2nd month after taking over from Erik and his team.  

Moral of the story: What you don’t know can hurt you in a business sale. With that in mind, know you can trust a team like Apex, which has more than a century of business ownership and sales between their brokers.