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Power of Branding and Buy vs. Build.

Private equity rarely builds and more often buys, and this is by design. When I think of private equity, I see two main opportunities: (1) transform and scale and (2) build on a strong foundation.

The success of Harry’s razors is a great story and a playbook for private equity guys like us, who don’t want to be buying into just a platform, 2-3 add-ons and then selling to a larger PE group. Harry’s was founded in 2011, raised ~$136 million and sold in 2019 for ~$1.4 billion.

What excites us is building on the founder’s vision. Sometimes it requires just execution and other times much more – foundation transformation, process review and new product development (brands and brand extensions).

Setting up for sucess starts before the acquisition is completed. Everything else is execution and staying flexible to pivot if needed.

Harry’s is an inspirational story of two entrepreneurs who disrupted men shaving industry by improving and re-branding an established product category. The success of an e-comm platform with the right brand and message helped them raise enough in VC funding to purchase their own factory in East Germany for $100 million. It is definitely not a typical path for a start-up, but a very traditional path for Private Equity.

There’s actually a book written on the subject, “Buy Then Build” by Walker Deibel. The crux of it is that 9 out of 10 start-ups fail. So, building on a platform that has generated some success makes more sense than investing in a start-up or starting from scratch.

Let’s be clear that venture capital (invests in start-ups for the most part) and private equity (established businesses) are used for 2 different goals. Not that one is better or worse than the other, but the risk-adjusted returns are much different. See my post of PE vs. VC here.

Back to Harry’s. What Harry’s did was a reverse-PE. They established a web-platform and branded the product and then bought out a factory that was producing for top European razor brands. This is much the same as acquiring a manufacturer and then coming up with a right NPD process (New Product Development) to position/brand existing SKUs or adding new. Easily said than done, I get it. Though, the model makes sense!

We like manufacturing as it gives us control on quality, quicker innovation and access to scale. Once we identified the platform to build on, that’s when the fun part starts. Whiteboarding every business process, thinking through the product and consumer alignment. Designing or polishing a core consumer profile to see what new products or market positioning would be most appropriate for a particular product. Most of the above is initiated and drafted way before the acquisition is completed. Setting up for success starts at the beginning. Everything else is execution and staying flexible to pivot quickly if needed.


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