Bring classy back. In an age where it seems cool to curse and common to not care — “gym hair, don’t care” — I’d argue that it’s equally as admirable to keep it clean and take pride in the presence you put out to the world. I learned this from the queen of class herself, my mother. We may have lost her at a young age to cancer, but her legacy lives on. Ask anyone what they remember about my mom and hands down, every single person’s response: classy. Coco Chanel said it best: “A woman should be two things: classy and fabulous.” #bringclassyback
I had the pleasure of interviewing Angela Mader, founder and chief fitlosopher behind the fitness-inspired brand Fitlosophy®. Founded in 2008, Fitlosophy is an innovative brand of products designed to inspire people to live life fit®. Over the past ten years, Angela has organically grown the business from a single-product idea (fitbook®) to a lifestyle brand with a complete line of wellness planning products with placement in over 16,000 stores nationwide including major retailers like Target, Walgreens and CVS, among others. In June 2018, Fitlosophy was strategically acquired by CSS Industries, Inc. (NYSE: CSS), a publicly traded company, where Mader currently serves as Vice President, Fitlosophy Brands, leading the company’s marketing and product development team from their office located in Newport Beach, California.
Thank you so much for doing this with us! Can you tell us a story about what brought you to this specific career path?
As a third-generation entrepreneur growing up in family business, I learned what it meant to work hard whether it was in my father’s bakery or my grandfather’s automotive business. So, while I knew that I always wanted to be an entrepreneur, for years I had no idea what kind of business I wanted to start! In my early twenties I realized that I wanted to turn my passion for fitness into a product business. For years, I had created my own fitness and nutrition journals to gain some semblance of control over my 7-year battle with eating disorders and depression. It was through the process of journaling that I was able to shift my mind from obsessive calorie counting and excessive exercise to a mindful approach of tracking progress, focusing on gratitude, and achieving goals in a healthy way. I figured that if it could change my life, maybe it could help others too. I’ll never forget taking my homemade journal to the gym one day and a guy came up to me and asked where I got it. I said, “I make them.” (Note, I didn’t really make them yet.) He said, “How much?” and I said, “$20 each.” His response: “I want 2.” So, I went home that weekend and designed, printed, cut, bound, and delivered them by Monday — and I still have those two twenty-dollar bills to this day!
When I started the company back in 2008, it wasn’t the most economically opportune time to be ditching a secure six-figure salary job to chase a pipe dream. Fresh out of my MBA program with a one-product business idea, my classmates can attest to 2 things: 1) I took diligent, obsessively organized, color-coded notes in class and 2) I was passionately devoted to this idea of creating a business around a fitness journal idea I had. “It’s called fitbook,” I’d proudly proclaim, “by fitlosophy.” None of those classmates, including myself, would’ve ever guessed that the same “little” idea that was launched in a business school entrepreneurship class would then go on to be sold to a publicly traded company.
Can you tell us a story about how you were able to build a business from scratch, scale and sell it to a bigger firm?
Many people ask if I started the business with the intention of selling and my answer is simple: no. I started it to change lives; to create products that matter. So, when you’re given a once-in-a-lifetime opportunity to capitalize on your efforts while also giving the brand the opportunity to scale exponentially, you realize that it ultimately achieves your goal of changing many more lives on a much grander scale.
I do believe that if my sole intent of starting the business was to sell it and cash out, I don’t believe the brand would have the following, the traction, or the soul that it has today. Fitlosophy’s devotion to its customers and direct-to-consumer engagement is a key component of our brand equity — a result of creating products that change lives, which has always been our driving purpose. That brand equity is what initially attracted the CEO of the business that acquired Fitlosophy. He saw that in the highly saturated consumer products space amidst a struggling retail climate, we had identified early on that creating relationships and engaging with consumers had long-term value and that there was an opportunity to maximize that.
Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lesson you learned from that?
Because my undergraduate degree was in Information Systems, I was able to build our first website myself — note, this was way before the days of Shopify! Maybe a few months after we launched the site, I messed with the code and my shopping cart wasn’t functioning. Panicking, I called my brother (an IT-coding genius) and was freaking out: “I broke my website!!!” He just laughed and reminded me that he doubted we had much traffic to be worried about it. A hilarious reminder that oftentimes in small business, problems may seem huge at the time, but ultimately, they’re minor in the whole scheme of things. I would carry that lesson on with me over the next decade — whether it was a container literally stuck at sea with our goods on it or running into yet another copycat trademark infringement. You just have to stop, breathe, realize it’s not the end of the world, and then take it one step at a time. As much as entrepreneurs can tend to like control, the funny part about it is that rarely do you have so little control in life as when you’re running your own business.
Can you share with our readers the “6 Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit”. Please give a story or example for each.
- Create things that matter — start with why. At the end of the day, none of it matters if products don’t sell. And products continue to sell only if they work. Ten years and over 1 million copies later, fitbook is still our top-selling product because it changes lives. To that point, I created something out of a need; something I needed and used myself. The other day a #fabfitbooker, a term we coined for our loyal fitbookers, posted a picture on Instagram of her 32 fitbooks (and counting) — that’s over 8 years of using our journal! If you create products for the sake of turning a profit, I truly believe that the brand lifespan will be significantly shorter and ultimately have much less impact. At the end of the day, products must benefit the very people you created them for.
- Build a brand — not just a business. Products can be imitated, knocked-off, or created at a lower cost; but branding is the key differentiator that creates engagement, loyalty, and ultimately attracts potential acquirers.
- Distribution is the name of the game — literally. In our business, mass retailers not only scaled our volume, but also gave the brand credibility. It’s one thing to say that we have the #1 top-selling fitness journal — it’s another thing to follow that up immediately with “available in Target stores nationwide.” This is part of why we strategically promote our retailer partnerships because we leverage the relationship and influence we have with our very loyal customers to literally drive traffic to the aisles.
- Focus on cashflow first — then revenue. Many startups focus on topline sales growth, but unless you have unlimited cash resources, revenue or even profitability, it doesn’t matter much if you can’t pay your bills each month! As the business grew, cashflow became increasingly vital for managing the extreme seasonality of owning a business in the fitness industry, especially when selling to mass retailers. Forecasting also becomes a challenge to have enough inventory to fill large orders on time, while also planning cash reserves because there’s often a 4–6 gap between the time you go to production and actually get paid. Fortunately, solid vendor relationships coupled with strong sales growth allowed us to fund the growth of the business organically in the short-term.
- Scale smartly. It can be tempting to say yes to the Walmarts of the world, but it can also potentially put you out of business. Sometimes the volume and visibility of big deals can be highly distracting. That said, choosing to partner with the big boys means you play their game — and trust me, they call the shots. It can be very expensive (and exhausting), but if you want the benefit, you have to be willing to play big. When we finally did decide to go into Walgreens, we had to secure a line of credit in order to service the 8000+ store retail giant to take the business to the next level.
- Develop a team — and treat them well. People are your greatest asset — so it’s vital that you have a core team of individuals who are intensely devoted to your vision. I’ve often sacrificed personal financial success in the short-term because it was more important to take care of my team. Fast forward, and that’s valuable when you’re building a brand that ultimately gets acquired; but to that point, I was intentional in negotiating jobs for every person on my team as part of the deal. Consider what selling the business means for your team and how it impacts them. Odds are you didn’t build business alone, so keep key players top-of-mind when negotiating an exit.
Can you give a few examples of things to avoid when trying to build a business to sell?
Here would be my top don’ts based on my experience:
- Don’t start a business unless you’re passionate about the purpose behind it. An exit strategy should be an option — but not your intention.
- Don’t get distracted. Between negotiations, preparing financial statements, and going through due diligence, selling a business is a very involved and expensive process. While it can be tempting to shift your focus to the deal, you must continue running business as usual until it’s inked. Until docs are signed and money is wired, the deal isn’t done.
- Don’t go it alone. Have a trusted team of advisors on board before you need them. Just like you bring in experts and outsiders to grow your business, it’s vital that you hire business & financial advisors who have experience selling businesses that are a similar deal-size. Ideally you have established, trusted relationships in place before you need them.
What are some of the differences in approach for building a service-based business versus a product-based business with an intent of selling the business at a lucrative price?
While I did start a service-based boutique marketing agency prior to founding Fitlosophy, my expertise is in the product space. That said, while service businesses can be highly profitable, many get in trouble at exit for at least these two reasons: 1) key-person risk, meaning the brand value and/or client relationships are too dependent on the founder or key-employee, or 2) lack of replicable systems & processes, which can be detrimental the transferability & scalability of the business.
As a predominately product-based business, one thing I discussed at length with Pendleton Business Advisors leading up to and even throughout the acquisition process was understanding how buyers value businesses. While the M&A environment has changed rapidly over recent years, some things never change: a successful growth track record for key products, profitability, efficiency, and protected IP are all important. Beyond that, here are a few things we’ve seen become very important to buyers: limited customer concentration, diversification in suppliers/vendors, demonstrable pricing power and cost control via strong gross margins, and a large, loyal, and growing audience. You likely won’t have this if you can’t combine all the above with competent branding and marketing. A larger company will pay a premium for this because it is extremely expensive for them to try to grow organically, and usually doesn’t work.
How does one go about the process of finding a buyer?
My experience is that selling a business is like dating — it happens when you least expect it. I wasn’t looking. I was intently focused on the growth of the brand and not distracted looking for an exit. Going through the process of selling a business or seeking a buyer is a highly distracting and time-consuming endeavor. My advice would be to keep your primary focus on keeping the business growing first, regardless of other opportunities that present themselves, because many deals will fall apart at least a few times before (and if) they close.
Also similar to dating, don’t be as concerned with whether or not they like you — go in with eyes wide open and know what YOU are looking for. Don’t be afraid to walk away or say no. And ultimately, timing is everything. While other opportunities arose to raise capital or be acquired, it was important that I waited for the right opportunity at the right time.
It was important for me to find an acquirer with attributes that would complement our expertise, so things like operational excellence, proven sales performance, and established distribution relationships were vital. Just as important, I wanted to have a very positive relationship with the management team who I would be essentially handing over my life’s work to; to entrust them with that wasn’t something I took lightly. I’ll never forget toward the end of the 1-year-long courting process, over a nice dinner with the top execs, I said something about it feeling like I was giving up my “baby” for adoption. The head of sales responded with exactly what I needed to hear: “don’t think of it like that — think of it like you’re getting a lot more aunts and uncles to love on your baby.” That nurturing response was exactly what I needed to hear to entrust them with what I’d spent 10 years building.
How can one decide if it is better to build a business in order to exit, or if it is better to stick around for the long term and let the company bring in residual income or go public?
I think this is different for every person, but I think you can identify this by answering 3 very important questions: 1) have you taken it as far as you can with your current resources? 2) is this offer so good you can’t refuse it, or 3) are you burned out? If the answer to any of those is yes, then that will shed light on the best path to start exploring.
While I don’t have the experience of taking a company public, I was approached a few different times by investors, and I turned down the money. I knew bringing on an investor wasn’t the path for me because at that point we were cashflow-positive, and I didn’t have a clear vision with how I would deploy the capital. For me, I knew the only option for me to make an exit would be a cash offer to buy the business.
If you do decide to take a deal, then you must determine what (if any) role you want to play in the future of the business. A study in the UK found that over 75% of entrepreneurs can’t imagine leaving their businesses even after they’ve sold them. It’s not often talked about, but ultimately will become a point of conversation as the deal progresses. Negotiate a deal that makes sense in both the long and short-term. Then, establish what your role will ultimately be in the future growth. Your deal should align with your involvement post-acquisition.
Can you share a few ways that are used to determine a good selling price for the business?
My MBA did come in handy understanding business valuation — well, that and having seasoned advisors on board who educated me along the way. Trust me, you can’t google or guess your way through a deal!
There are essentially two different types of buyers, which ultimately determines how the business will be valued. The first is a financial buyer who is looking at the investment for its monetary return with a goal of maximizing cashflow or making a profitable future exit. Generally, financial buyers are much more concerned with earnings, which is why businesses are usually valued on a multiple of EBITDA (Earnings Before Interest, Tax, Depreciation & Amortization).
Conversely, strategic buyers acquire businesses that ultimately fit their strategic objectives. They tend to evaluate and invest in a business’s potential, oftentimes identifying how they can leverage their sales, financial, and operational efficiencies to scale the smaller brand’s future potential. While Fitlosophy had strong distribution, it was ultimately the brand’s consumer value, creative vision, and intellectual property that drove the valuation, which is commonly a multiple of topline sales.
In either scenario, financial or strategic, the multiple varies highly depending on the industry and marketplace, but more so — the buyer. What are they willing to pay? Beyond the numbers, and most importantly, I had to think about what the value was worth to ME. Only the founder can answer that question and it’s one that I repeatedly pondered. What’s your number? What’s it worth to you? What’s your walk away price? Putting those on paper before you’re knee-deep in the process.
You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. 🙂
Bring classy back. In an age where it seems cool to curse and common to not care — “gym hair, don’t care” — I’d argue that it’s equally as admirable to keep it clean and take pride in the presence you put out to the world. I learned this from the queen of class herself, my mother. We may have lost her at a young age to cancer, but her legacy lives on. Ask anyone what they remember about my mom and hands down, every single person’s response: classy.
Coco Chanel said it best: “A woman should be two things: classy and fabulous.”
Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?
I think the first thing that pops into my mind is: “Perhaps this is the moment for which you have been created,” (Esther 4:14) because it just exudes so much power and potential, while also reminding me that I was created for a purpose.
How can our readers follow you on social media?
Thank you so much for joining us. This was very inspirational.