Trent Riggs: OpenStore acquires businesses built on Shopify, typically those generating between $500k to $10 million in annual sales. These businesses are often too small for private equity and not growing fast enough for venture capital. There are many reasons why entrepreneurs look to sell. Around 23% want to start another business and need the capital to do so.
Some entrepreneurs hit a growth wall with channel expansion or scaling Meta ads and need a partner to help scale their brand further. Others want to pursue something different or spend more time with their families. We serve this part of the ecosystem by acquiring these businesses. We now own more Shopify brands than anyone else in the world. We've integrated many core components necessary to run Shopify stores, which allows us to improve their margin profiles and invest more in marketing and topline growth.
Most of our focus thus far has been on building our team and resources. When you consider the essential components needed to run a thriving e-commerce store—such as marketing (split between acquisition and retention), supply chain management, and customer experience—these elements are highly transferable across the stores we acquire. Looking ahead, our long-term goal involves exploring ways to showcase these products that allows more people to discover them.
Trent Riggs: Given the number of brands we manage, our operational model is function-based. We have centralized teams for marketing, supply chain, business operations, and customer experience that support our entire portfolio of brands.
The marketing team focuses on each brand individually, crafting unique ads and messaging tailored to each channel. In contrast, functions like the supply chain are more horizontal and standardized across all businesses within our portfolio.
Trent Riggs: What really excites us when we consider potential acquisitions are brands with passionate customer bases, healthy profit margins, and marketing scalability. In today's landscape, scaling on platforms like Meta has become increasingly challenging due to intense competition from big players and a crowding out of smaller businesses.
Brands that maintain healthy margins allow us to reinvest in marketing efforts, while strong customer retention signals deep customer satisfaction, which is a key driver for us. Interestingly, many of these brands start on Meta and then expand to Google, with some dabbling in CRM, though often under-optimized. The most successful brands we've seen at OpenStore are those where we can replicate successful hooks and value propositions from Meta across multiple channels.
This includes platforms like Snapchat, TikTok, affiliate marketing, and messaging apps, where many brands haven't fully explored opportunities like SMS or mobile apps with push notifications. By expanding successful strategies beyond Meta and into these other channels, brands can grow rapidly. Staying exclusively on Meta can lead to a growth ceiling due to increased competition and rising costs per impression (CPMs), which often squeezes out smaller direct-to-consumer (DTC) brands from the market.
Trent Riggs: Average order value (AOV) and gross margin are definitely crucial for us. We've found it much easier to scale brands with an AOV above $100. The reason behind this is that when you calculate the gross profit and consider available marketing funds for customer acquisition costs (CAC), it becomes increasingly challenging to scale if margins are too compressed.
We've achieved significant success in scaling brands like our popular men’s apparel brand, Jack Archer, which grew from zero to $10 million in annual sales in less than nine months. Another surprisingly successful example is a vegan supplements brand, Future Kind. What's unique about our portfolio is our category-agnostic approach, with products spanning nearly every vertical in e-commerce, where we've achieved success across multiple categories.
Trent Riggs: As I mentioned, we recently acquired a brand called Future Kind in the health and wellness space that we're very enthusiastic about. They specialize in vegan supplements, tapping into a growing macro trend where consumers are increasingly conscious about what they consume—how products are sourced and tested beforehand. Future Kind has shown impressive organic growth over the past few years, and we're excited about its potential.
Trent Riggs: Most founders who sell to OpenStore start as solo entrepreneurs, growing their brands with a small team of two to three people by the time they approach us. Despite this growth, the founder often remains heavily involved in all aspects of running and expanding their e-commerce store—from branding and marketing to product development, supply chain management, and placing purchase orders. Managing all these responsibilities alone can be overwhelming.
Typically, founders excel in one or two areas but may struggle in others, such as global logistics or procurement. At OpenStore, we can provide support and expertise. For instance, some founders are brilliant at developing products that deeply resonate with their customers but may lack expertise in operational logistics or fulfillment. We thrive on opportunities where we can leverage our strengths to complement what the founder excels at, creating a partnership that enhances overall business success.
Trent Riggs: Temu and Shein have been making headlines lately, and like many, I receive their marketing emails regularly—about four or five a day. I particularly enjoy the gamification aspect they incorporate. However, we’ve observed some challenges in the parcel market due to their substantial investment in the postal network, which has created headwinds for others. While we don’t directly compete with them, it’s interesting to note the typical Temu or Shein product often has a low average order value (AOV), similar to Wish.
In contrast, our most successful products typically have an AOV around $100. Amazon and Shopify represent contrasting approaches in e-commerce. Amazon focuses on fulfilling the needs of shoppers with specific search intents—like purchasing a vacuum with various models and competitive pricing, all with the convenience of two-day shipping through Prime.
Shopify, on the other hand, thrives on discovery. Customers stumble upon products, engage with compelling stories, marketing, and branding, which ultimately influences their purchasing decisions. Our goal is to enhance this discovery aspect rather than competing for the intent-driven shoppers who naturally gravitate towards Amazon’s immediate shipping and Prime benefits.
Trent Riggs: Retention tells part of the story - are customers coming back? While we do include dropship brands in our portfolio, success can vary. One challenge with acquiring a dropship business lies in the potential lack of defensible advantages. Whether it’s the product itself or how it’s positioned in the market, if competitors can easily replicate it at similar costs, our enthusiasm diminishes. Within our portfolio, several dropship businesses perform well.
However, we prioritize uniqueness. This could manifest in a distinct distribution model or leveraging unconventional marketing channels. For example, one of our top dropship brands thrives on its expansive affiliate network, which sets it apart. Competitors duplicating the exact product would find it difficult to replicate this competitive edge.
Trent Riggs: Mastering supply chain logistics posed early challenges for us. One of our initial acquisitions was a frozen meat business with a compelling founder story. During the COVID-19 pandemic, the founder, Janna, faced difficulties in sourcing fresh, farm-to-table meat locally. She took matters into her own hands by purchasing a whole cow and storing it in a large freezer in her driveway.
This experience inspired her to launch Farm Foods to meet the community’s needs. Acquiring this business introduced us to the complexities of handling frozen logistics and working with frozen third-party logistics (3PLs), which was a new area for us. This early challenge prompted us to prioritize building a robust supply chain capability. Our Head of Supply Chain, David, brought invaluable expertise from his background at Amazon, where he played a pivotal role in establishing their early fulfillment centers.
Recognizing the critical need, we invested heavily in developing our supply chain competency. We also observed common challenges among businesses we evaluated for acquisition, such as inventory stockouts due to liquidity constraints or inaccurate demand forecasting. Post-COVID-19, shipping container rates skyrocketed, making sea shipments prohibitively expensive and driving sporadic product availability. To address this, we implemented robust demand forecasting and planning models tailored for smaller businesses.
Trent Riggs: Recently, we've concentrated on standardizing our approach across brands by implementing consistent storefront themes, unlocking the ability to make rapid changes. When we test improvements that enhance conversion rates on one site, we quickly apply those learnings to others. We aim to maintain a similar app stack across brands, though adjustments are made based on each brand's unique business model. For example, brands with subscriptions use specific apps tailored for managing subscriptions, while those in apparel might utilize apps that enhance sizing and reduce return rates.
To streamline operations, we've organized functional teams that centralize core components like customer support. For example. our unified team of customer support are cross-trained across brands, allowing them to flex where needed. We empower them with the latest in AI-advancements to allow them to spend more time with our customers. This has led to automating over 65% of our customer inquiries while increasing customer satisfaction rates to nearly 90%.
Initially, we anticipated that increased automation might lead to decreased customer satisfaction, as no one enjoys automated responses. However, advancements in AI have allowed us to swiftly provide accurate and detailed responses to complex queries, such as those about technical products like drones. Our AI agents can quickly parse through product manuals and technical specifications to provide precise answers that traditionally would have taken human agents much longer to gather.
This progress isn't limited to customer support; we apply a similar strategy across supply chain management, marketing, and storefront operations. Our goal is to leverage technology to enhance efficiency and customer experience consistently across all aspects of our portfolio.
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