Royce Yudkoff:

Welcome to Think Big, Buy Small, a podcast from Harvard Business School about entrepreneurship through acquisition. We’re your hosts, Royce Yudkoff…

Rick Ruback:

…and Rick Ruback. 

Today, we interview Robin Kovitz. Her business, Baskits, employs well over one hundred people, plus scores of temporary workers during its busy season. She purchased the company from its two retiring founders and has expanded it to be the largest gift basket company in Canada, serving mainly companies that come back each year to send gift baskets to their valued customers and employees.

Royce Yudkoff:

Our interview covers a number of the important questions that searchers need to think through, and we learn how Robin thought about them.

Rick Ruback:

You and I will regroup to offer a few thoughts on what we heard from Robin, but let's hear from her first.

Royce Yudkoff:

Hi Robin.

Robin Kovitz:

Hi. Thanks for having me.

Royce Yudkoff:

We're so happy to have you here. Robin, let's start by talking a little bit about your journey into search. You graduated from business school and worked for about half a decade and then left to look for a smaller firm to buy. Tell Rick and me about your career and what made you decide to leave your job and buy your own business. Is it because you had a terrible job? Were you a coal miner or a hitman for the mob?

Robin Kovitz:

I was definitely not a coal miner nor a hitman. So, I worked in private equity and I loved it. I loved what we did. We raised money, we learned a lot about various businesses, bought them, fixed them, sold them. I loved the job. But when I started a family I couldn't reconcile how I could keep doing that and be successful doing that and also be the kind of mom that I grew up with, which was a stay-at-home mom. So, we came up with the bright idea - actually, my husband encouraged me - to buy a small business. And I knew I wouldn't be working less but I knew I would have more flexibility to be a mother and work from home, and so I decided to try and buy a small business on my own.

Rick Ruback:

A couple questions about your search. First of all, why did it take so long? I mean, your search took three years.

Robin Kovitz:

Yeah, a little bit more than three years. It was much longer than the average searcher. And that's a great question. Obviously, it was grueling and I wanted it to be over every minute. I was using my own money, so I was looking for something that I could be passionate about, and I think that passionate factor is not a typical investment criteria. Number two, I think because I was using my own money, I was scared. So, when you're investing your own money, you're very, very cautious. So, I got close a couple of times and then didn't get there. I think part of it was luck. I got close on a couple of deals that just didn't work out for various reasons. But ultimately, I'm thrilled. What's the difference between two years and three and a half years or two years and a half? Like, find the right business. That's the objective here.

Rick Ruback:

And when you said it was your own money, you meant, I think, not so much that you were funding the search yourself, but you're planning on also providing the equity for the business. Whatever it would've been, you would've borrowed some money, but you wanted to be primarily family money, your money.

Robin Kovitz:

That's right. Yeah, and a small loan from my parents.

Royce Yudkoff:

There are two ways in which searchers pay for their search and the companies they buy, and both have merits that we'll dive into again and again in future podcasts in the series. One is what's called a funded search. There's a population of investors who are eager to invest in searchers, and they do this again and again. And in a funded search, a group of these executives come together and they will actually pay you a salary and cover your costs while you search for a business to buy, in return for having the right to invest in that business on terms you and they agree on upfront, and they'll put up the equity when that business is identified. So, you'll earn a salary along the way, you'll have a significant piece of ownership, and that group of search investors will be your partners. That's the funded search.

Rick Ruback:

And the downside of that is that they take a lot of the ownership for themselves. The alternative is to cobble together enough money so that you can fund the search yourself. When we say, “fund the search themselves”, don't imagine an intricate bank or something like that. Think about being frugal, searching locally, not nationally. Those kinds of things allow you to keep your search costs really low. So, Royce, you were talking about funded searchers. We talked about that in class. The typical funded search is a partnered search and they'll have expenses running near a million dollars.

Royce Yudkoff:

All of which are covered by a group of recurring search fund investors to get at that company you might buy.

Rick Ruback:

Yeah. And they're boiling the ocean to find that company. Alternatively, we see people, and we had a few in class, that funded their own search and they did it for less than $50,000.

One of the things that's really special about entrepreneurship through acquisition is people who have never owned a business can buy a business even though they don't have any personal wealth. They don't have any money in their savings account. They can still do it. And the reason they can do it is because what's really hard is finding the business, and that takes a lot of persistence and energy and thoughtfulness and care. And investors and banks are looking for people just like that. If you decide to go down this path, you don't need money. That's not what's required. What's required is some creativity and persistence.

Rick Ruback:

And you really wanted to be in Toronto. Did that matter?

Robin Kovitz:

Yeah, I'm sure many people listening are thinking about whether they should have a geography-based search. For me, my husband, who was paying the mortgage and the bills, at the time was a lawyer based in Toronto, so we were quite limited to that region. There's pros and cons to having a geography-based search. Sure, it limited the amount of businesses in the pool that I could acquire, but at the same time, it helped focus me, right? I wasn't looking at everything and anything all over the map. It did help narrow the pool.

Royce Yudkoff:

Robin, I think a lot of listeners might be wondering, "Gee, if I quit my job and I go search and the search doesn't work out, what do I do then?" Tell us a little bit about your thoughts on, "What do I do if the search doesn't work?" What do you think you would've done?

Robin Kovitz:

I remember being terrified of that. I remember being so scared that I invested ten years of my career, built a reputation, and that I would never be able to come back from it if it didn't work out. But being a CEO now for nine years, being in my 40s, I can tell you, it's totally foolhardy. I would absolutely hire a failed searcher. And so I really would encourage anyone listening not to think about search as like, "Yikes. I go back to Wall Street or whatever with my tail between my legs." The right firm or the right employer would really recognize, view, and value that experience.

Rick Ruback:

Tell me more about the two pregnancies during search. So, did you have one child when you started searching, or were you pregnant with your first child when you started searching?

Robin Kovitz:

Yeah, so I had a newborn at home when I started searching and then had a pregnancy and another baby right before, my second child, before my acquisition.

Rick Ruback:

So obviously, I guess, having an infant during search must have been okay or else you wouldn't have had the second one right away. 

Robin Kovitz:

Truly. I mean, I used to take the baby with me all the time on the road looking at businesses. It was often an icebreaker and chatting with business owners, you know, it was just what I did because I used to drive around industrial parks within 30 minutes of my house and look at businesses, and I was just a person with a baby walking in. Search is a great thing to do while you're having kids because your schedule is your own.

Royce Yudkoff:

Well, maybe this is a good moment to talk a little bit about the business that you ended up buying, Baskits. What does the business do and why did you like it?

Rick Ruback:

So it's a big gift basket company!

Robin Kovitz:

Yes. It's a gift basket company.

Rick Ruback:

What a weird company. Sorry. I mean, the idea that there's going to be a company that actually just does gift baskets.

Robin Kovitz:

Yeah, not your typical search company, right? I remember asking you guys, “So, I've come across this company…”, I was almost embarrassed to tell you, “…and they make gift baskets”, and you had the same face.

Rick Ruback:

That I have now.

Robin Kovitz:

Yup. Royce, you encouraged me. You said, "Look at the margins and there's something there. There's some sort of competitive advantage. You just don't know what it is yet."

Royce Yudkoff:

Right.

Robin Kovitz:

And that inspired me to dig and understand the business.

Royce Yudkoff:

Tell us how the business operates. Who does it sell to? What does it do?

Robin Kovitz:

Sure. So, the competitive advantage or the sort of barrier in this business, is the complexity. So, you can imagine that a gift basket has a number of components, some of which are perishable. So, you could have anywhere from five to twenty-two items that go into this gift basket. It needs to look a certain way. It needs to be designed beautifully and have a theme. It's actually quite complicated to do. And then it needs to be attached with the correct card, delivered on the right date to the correct location. There's just an enormous amount of complexity. On top of it, what we specialize in is large orders. So, we have a large B2C, or a business-to-consumer business, that particularly grew during COVID. So, you need one baby gift? Great. We'd love to help you with that. But the core of our business is our B2B business where, say Harvard wants to give all 300 profs a holiday gift. I'm available, by the way, if that's what Harvard wants.

Rick Ruback:

That would be nice, would be nice. Except it would probably be a ham. What would I do with a ham? But go ahead.

Robin Kovitz:

Harvard would send us a list, right? With three hundred names, three hundred addresses. Some might be wrong. And that's the value that we bring, is that we would ensure each one has the correct card and the correct message delivered to the right address, at the right time. We're really experts in large order gifting to multiple addresses.

Royce Yudkoff:

Give us a sense of how big the company was when you bought it. How many gifts did you send out? How many employees?

Robin Kovitz:

We had twelve employees when we bought the business and now we're over a hundred.

Royce Yudkoff:

Lots of growth. And roughly how many gift baskets did you send out last year?

Robin Kovitz:

Oh, hundreds of thousands.

Royce Yudkoff:

Hundreds of thousands. So, you must be Canada's largest gift basket company by far?

Robin Kovitz:

I think so. I hope so.

Rick Ruback:

A hundred employees now?

Robin Kovitz:

Yeah, seasonally. Full-time, just under a hundred. But at the top of the season, yeah, way more than a hundred.

Rick Ruback:

Wow. I remember when you went from fifteen to twenty-two in your first year and I thought, “Oh my word. She's out of control.” You really are out of control.

Robin Kovitz:

It's definitely more complicated in Canada, for sure, employment at will. It’s that age-old, you build it, they will come. Or do you need to build it first and they'll come, or do you build it as they're coming? This whole fixed cost conundrum is difficult for any business owner.

Rick Ruback:

I kind of like it when they come first and then you build it.

Robin Kovitz:

You just hope the service level is okay when they get there when it's not built.

Rick Ruback:

Yeah. Yeah. Yeah, yeah, yeah.

Royce Yudkoff:

Part of your challenge, and we'll come to this later, is that it's a seasonal business, so in some ways you have to get ready for these big seasons that come by the mouthful. But at acquisition you had gone through this very long search. You described yourself as being quite particular about the company you bought. What was it that arrested your attention at Baskits? You certainly have told us one thing, which is there are big barriers to entry here. It's a complex product to deliver right, and you get loyal customers who order year-after-year, particularly these companies. But what were the things that most arrested your attention about the company?

Robin Kovitz:

I just fell in love with the business. I always joke that it's my third child, the one that's not going to leave me. And maybe that's not the best lens or example for you future searchers, but I love it. I mean, I spend more time on my business than anything else. It's part of my passion. I'm so passionate about the products that go into our gifts, about the connections and help that we offer our customers in connecting with other people and the happiness that it brings to people all across North America. We serve customers all around the world. It's a happy, fun business. I just love it. I love what I do.

Rick Ruback:

But it's a gift basket. It's not like a cure for cancer, right? It's not how to make people taller and skinnier. It's a gift basket.

Robin Kovitz:

Yes, but it's fun. You have to come see us. It's a lot of fun.

Rick Ruback:

Well, I have seen you.

Robin Kovitz:

Not in the new place.

Rick Ruback:

Not in the new place. But what makes it fun? I mean, last time we talked you were designing your own gift basket.

Robin Kovitz:

Yes.

Rick Ruback:

Do you still do that?

Robin Kovitz:

I do, by accident, because when I first bought the business, I did not think I was going to be involved in design, but the former owner left earlier than expected and so I fell into the design, and I actually, I love it.

Rick Ruback:

What makes you think you're good at designing gift baskets? I would not be good at designing gift baskets.

Robin Kovitz:

I love problems, I love math, I love that kind of thing. It's a very interesting problem to solve because a gift basket needs to look beautiful, which is quite subjective, I hear you. But then the math really has to work, right? There's actually a really serious formula and algorithm and calculation that I do based on what my product cost is, what my labor cost is, what the retail value of the product inside the basket is. And so I'm always solving for these calculations, at the same time, trying to provide as much value as possible for the customers, while making it look beautiful. It's like this really fun puzzle that I get to solve. I have like a world-class team now that supports, but I am very involved in the design.

Rick Ruback:

One of the things that I found really interesting about your experience is your business is highly seasonal, beginning kind of November, December. And you bought the business mid-October?

Robin Kovitz:

October 1st we closed, yeah.

Rick Ruback:

October 1st. So, you bought the business October 1st and then you took over. Tell us how that first season went.

Robin Kovitz:

Oh, it was tough, looking back. Not at all what I expected it would be. I can imagine many searchers have that experience, where their expectations of the first year are not in actuality what they thought it would be. The business I bought, Baskits Inc, had the additional challenge in that it had two 50/50 partners when I bought the business, and so that's a whole other set of dynamics. Both of the co-founders stayed post-closing. One was supposed to stay for a year and stayed contracted for many years to help us with the transition, and the other stayed on as an equity owner. And so I was well-supported when I stepped into the business because the two former founders were there with me.

It was not great timing. We had tried to close the deal much earlier but, like many deals, you get stuck at the end at little knits that you're negotiating. And I think we had set October 1st as a drop-dead that otherwise we'll have to wait till the new year. It was tough. It was tough. So, I had to learn the business and then I had to, on the fly, figure out what I would change in order to get the business to the point where I thought I would be able to grow it, while facing the uphill battle that nobody wants to change ever. First got there and I kept asking, how many baskets did we make today? And people kept giving me the runaround, and then I realized that no one really knew how many baskets we were producing because no one really tracked that. So, I had to get my steel toes and get over there myself so I could start counting and put in a system so that we could count, so we could calculate our labor costs and understand some of these basic things.

Rick Ruback:

Tell me about your day. What time do you wake up?

Robin Kovitz:

Early. Like probably 6:00.

Rick Ruback:

So, you'd get up in the morning, 6:00. You'd get your kids set. You'd be out the door, when?

Robin Kovitz:

7:00 or so. In the first few weeks it was early because I wanted to get there way before the shift started because we had already hired about thirty or forty seasonal people in the first year. So, I would try and get there a few hours before production started so that I could really have a clear plan and make sure that I was really utilizing labor efficiently. Not as efficient as we are today but did my best for what I inherited, or purchased. I’d get to the plant and I was effectively the warehouse manager, production planner, foreman. I mean, I had to learn how to make a basket, which is actually really complicated. The artisans who make it for us are quite skilled labor. It's very difficult to make it look that beautiful. So yeah, I'd get there. I'd do a production plan, make sure the stations were all set up. Really hands-on sort of warehouse work.

Rick Ruback:

So now we're at coffee break. You're around 11:00. You've been wandering around the -

Robin Kovitz:

Yep. 10:30 break. Production starts at 9:00. 10:30, coffee. I would also use those times to really make sure that the foremen knew what was next, so I didn't get a coffee. Then run through production. It would end around 5:00 and then I would stay for several hours to set up the production for the next day.

Rick Ruback:

So, no dinner with your family and two young children?

Robin Kovitz:

No. I gained a lot of weight. We'd order pizza or something and eat through dinner and then start my real job as a CEO in the evening, trying to figure out the plan, trying to make sense of where the business was. And so during the day I was running the business and then during the night I was trying to be the CEO and planning.

Royce Yudkoff:

You came out of this experience deciding to make a bunch of really significant changes to the way the business operated. And not only were these, for the business's size, big money decisions, big changes in procedure, but decisions that, once you made them, would be hard to reverse. And that's very different from what most searchers do, where they make lots of little decisions every day but they try, in their first year, not to make big, hard-to-reverse decisions until they know the business better. You considered that but you pushed ahead on these big decisions quickly. What was it in your first months operating through the busy season that made you be so different from what most searchers do?

Robin Kovitz:

I could actually hear both of your voices in my head at the time saying, "Don't do this. Don't do anything. You just sit there for the year. You study it." That was even making me more nervous, right, because I knew that it was not the best, ideal thing to do would be to make changes, but to be honest I just couldn't stand it. I couldn't stand how inefficient things were. I just had a vision of a better way to do things. To me, they didn't seem like huge decisions. They seemed like the natural thing that I needed to do in order to survive, even. Since I was investing my own money, I think I went smaller in the initial deal than most people do, so there's less infrastructure. It felt to me like a house of cards.

My dad is an entrepreneur. He used to always use that expression. I didn't understand it but I just felt like if I pulled the wrong card the whole thing would come down on me. And so I felt like I had to put those cards in those places to make it more secure and stronger.

Rick Ruback:

It wasn't so much an economic decision as, “I want things to be done in a particular way. I want it orderly, structured, calm.”

Robin Kovitz:

I guess maybe that's part of it. I think my generation does have a tendency to do that. But for me, no. I just needed to make sense of it and stabilize it. In my mind, I thought I was stabilizing the business.

Royce Yudkoff:

Early on, introduced an IT system into the business, that was a meaningful change, and you leased some real estate that was significantly larger than your permanent year-round facility to eliminate this seasonal facility the business would add on. So, expenses went up a lot right away.

Robin Kovitz:

Yup.

Royce Yudkoff:

Were you confident at that time that you could generate more revenue and pay for this, or how much of a risk did you think you were taking?

Robin Kovitz:

It's a great question. I was optimistic. I don't know if I was confident. When I did the high-level math and built a model, I felt like it was very reasonable and I ran all the scenarios and I still felt like even the worst-case scenario was very reasonable. So, I was very optimistic. I think as a first time young, especially female, CEO, I don't know if I was confident. I think I've developed that confidence over the last nine years. I think I doubted myself a lot when I first stepped into that role. I didn't know the business, I didn't know the people. I didn't know the industry. I had never been a CEO before. Thankfully, we were able to grow.

Rick Ruback:

I want to just go back and fill in one thing on the work stuff. So, how many hours a week do you think you were working?

Robin Kovitz:

Oh, endless. For the first few years, seven days a week. Way more than twelve hours a day.

Rick Ruback:

Over a hundred hours a week.

Robin Kovitz:

Yeah. Easy.

Rick Ruback:

You're married?

Robin Kovitz:

Thank goodness, still married.

Rick Ruback:

How did Sam go through this? Because at this time he was still at a, a partner at a major law firm.

Robin Kovitz:

Yeah. Bless Sam. I mean, I'm so grateful for his support. A big part of my success is the support that I have at home. Would you say you're successful because of Elaine or Jody?

Royce Yudkoff:

Oh, yes. My life has been a story of a partnership where we divided up the efforts.

Rick Ruback:

Now in my case, I've had 47 years of marriage, so it would never occur to me to do anything without Elaine.

Robin Kovitz:

Yeah. And I'm so grateful. He was so patient, supportive and encouraging. Truly, wouldn't have gotten through those dark days without his support.

Rick Ruback:

So, here's the advice that I know everybody wants to know. If you're thinking about search and you're thinking about picking a life partner, what are the key characteristics you go for? Can you give us a list of things that we should look for in a life partner if we're about to search?

Robin Kovitz:

Yes. This is great. I love this.

Rick Ruback:

That's an interesting question, right?

Robin Kovitz:

Very interesting. Okay. One, they have to be willing to work in the business for free. That's number one. Sometimes Sam will deliver a basket, you know, I have this lawyer. You know, they have to be willing to do whatever's required for the business. Number two, they have to be willing to listen or pretend they're listening to you at all times. And I think that brings me to number three, which is, agreeing and supporting. That's it.

Rick Ruback:

Did you know this about Sam before you bought your business?

Robin Kovitz:

I did. Yeah.

Rick Ruback:

So how? Tell us, how?

Robin Kovitz:

Sam has just always been incredibly supportive of whatever I wanted to do. I mean, if I wanted to be an astronaut, he would've been this supportive. I think he's just that kind of partner. The searcher needs to have a tolerance for risk and volatility, and therefore the partners should have some sort of tolerance to be the person who absorbs that, I guess, if that makes sense.

Royce Yudkoff:

Well, Rick and I have met Sam and he's a wonderful person. In fact, every time I meet him, I feel deficient as a husband.

Rick Ruback:

Well, it's really bad because every time Elaine meets him, she says, "Why can't you be like him?"

Royce Yudkoff:

Yeah. I've politely asked Jody not to come to the interactions with Sam for just that reason, but enough about me. I wanted to ask, just on this topic of work, when you were working these hundred hour weeks early on, was it that you didn't yet know what was really important? Or was it that you cared so much, you were just determined to get everything as right as it could be? What caused this?

Robin Kovitz:

I think all three.

Royce Yudkoff:

All three?

Robin Kovitz:

Yeah. So, part of it was me just learning the business and trying to figure out how it worked and what was required. The other part was that obviously the team that I acquired was great in their own individual roles, but not at the macro level of thinking of the whole business in its entirety and how to be more efficient and better. One trap that young CEOs can fall into is wanting to do everything yourself. And I think in my evolution as a CEO now, nine years in, I've learned that “nose in, hands out.” It's my job to know what's going on but I don't fix it. I have to work through other people. And that has been a really difficult skill to develop because I would do it differently, often, but you're not going to be able to build a big business if you touch every part of it.

Royce Yudkoff:

Tell us a little bit about your work life balance now. Is that -

Robin Kovitz:

It's good. It's much better. I am by nature a workaholic and I sort of had that journey through my 30s of learning that about myself. Not good or bad, it just is who I am. I get really fixated on things. I could work on something all night. I do want to be a part of my kids' lives and be more present. And I know I only have five more years with them before they go away to university, which is terrifying. So, I'm quite actively, consciously trying to make sure that I don't dedicate my entire life to work and that I have more of balance, whatever that word means.

Royce Yudkoff:

Robin, you had mentioned that entrepreneurs have a tolerance for risk, and I agree with that. My impression of entrepreneurs, and frankly of you, is a comfort in sort of directly managing risk. It's not that I think of you as someone who is casual about taking risk or particularly likes to take risk, but different from a lot of people, you are very comfortable directly managing the amount of risk you're taking. Do you think about yourself that way, or do you think differently about yourself?

Robin Kovitz:

I don't know. I mean, I would agree with what you said, which is that I just view things differently sometimes and I don't necessarily see it as a huge risk. And maybe I'm underestimating the downside of things, and maybe I'm just an optimist and I'm overestimating the potential positive outcome. Sometimes I just see a way forward and I think that it would almost be riskier not to do that. I mean, I didn't want to get stuck with a tiny little business in 9,000 square feet and this lease that I couldn't get out of for the next five years. And to me, that would be worse than taking the risk of moving into a bigger space and not being able to fill it.

Rick Ruback:

If you think that things are always going to work out, it's easy to take risks, right? Whereas if you're sort of more balanced in the probabilities, then you're still taking the risk, but you're maybe more sober about it.

Robin Kovitz:

With the same logic, you could say that often the people who don't take any risks are just pessimists, right? They just never think anything's going to work out and therefore see everything as very risky.

Rick Ruback:

That might be right.

Royce Yudkoff:

Well, yes. And by never taking a chance, they're likely to end up worse than if they didn't take their best shots at some risks. You're in a perfect position to reflect on this. As you look back, how do you feel about the risk of entrepreneurship that you took versus the risk embodied in a regular professional career working in someone else's company? How do you assess the two?

Robin Kovitz:

I look at it as our family. I think one person in the family should take the risk. I don't think it's great for you both to take it. For example, Sam didn't join the business until we were certain it was going to be a success. I have always known that I focus in on things and dedicate myself a hundred percent. I used to go above and beyond for any firm I worked for. And for me, entrepreneurship really appealed to me because truly your performance, your compensation is directly – you know, often there can be things like bad luck and whatnot, but if I want to work a hundred hours a week, hopefully I'll make more than I would if I was working 40 hours a week. There's a direct correlation between my compensation and performance and my effort.

Rick Ruback:

When you're about to embark on one of these adventures. So, you go home and tell Sam, "Sam, I'm going to buy a newer building, a bigger building." And he says, "Robin, that's crazy."

Robin Kovitz:

Yup. That's exactly what happened. I spent a year driving around figuring out which building I wanted to buy, figured out who owned those buildings, called them all, asked them if they ever wanted to sell their buildings to call me. And then COVID hit and one of those guys called me back and said, "I actually really need to sell my building."

Rick Ruback:

And then you said to Sam, "Sam, I have a building to buy." And he said, "I thought we talked about this and agreed it was a bad thing to do."

Robin Kovitz:

He said, "We don't have any money." And I said, "You're right." And I think this brings me back to the actual definition of entrepreneurship, which is the relentless pursuit of opportunity without regard for resources currently under your control. And I said, "Well, we'll find the money." And I went to the BDC, the Business Development Bank of Canada, and got a hundred percent loan. So, I think the difference between an entrepreneur is that they have this relentless pursuit of some sort of vision or goal, and they're not really living in reality of what their current resources are. Sam said, "We don't have the money to buy an X million dollar building." And I said, "That's okay. This building is the right decision for the business. Now we're going to go find the money."

Rick Ruback:

I love it. I love it. But that ties back into this view that it's not so much careful analysis in your mind. It's a level of confidence that things will work out.

Robin Kovitz:

I have so many advisors, and count you guys among those, and I'm so grateful to have so many incredible people providing advice. And one of my advisors in Canada said to me... I remember when I was struggling with this. "Can I ever go back to Bay Street if I'm not successful in my search? And is this the right thing for me to do?" And he said, "Robin, you have to bet on you." He said, "I would bet on you. You have to decide that you're betting on you." And that's what I guess I've developed the confidence to do.

Rick Ruback:

To bet on you?

Robin Kovitz:

To bet on me. When the deal closed for the building, it was a beach volleyball facility prior to closing. And we'd negotiated a deal where it was the seller's responsibility to get rid of the six million pounds of sand in the building. And on closing, he basically handed me the keys and it was like, my problem. I'm not going to sue him over that. I'm not going to... But as an entrepreneur, that's what you do, right? So first figured out it would cost $300,000 to remove that sand. Then ended up selling it.

Rick Ruback:

Selling the sand?

Robin Kovitz:

Selling the sand.

Rick Ruback:

To who? Who bought the sand?

Robin Kovitz:

To some golf courses, a cement factory. I'm betting on me and you find solutions, and that's what an entrepreneur does.

Rick Ruback:

Tell us about the curse of running a seasonal business and how you think about that.

Robin Kovitz:

It's interesting because when you work in private equity, there's sort of this handful of “don'ts”. You don't invest in real estate, you don't invest in oil and gas exploration, you don't invest in seasonal or cyclical businesses. These are just like the ten commandments.

Rick Ruback:

That was the other tablet that Moses brought down and then dropped along the way.

Robin Kovitz:

Yeah. All these things you should never ever do. And so no, to be honest, I probably would never buy a seasonal business again. I think there's a reason why it's on the ugly list. It's ugly. It's really, really ugly. But I also knew… My father ran a seasonal business, he was in the hamburger business, so opposite seasonality, ironically, where his busy season was in the summer, but I knew if you could fill the hole that it's incredibly profitable and successful, right? If you can just bet on yourself to find a creative way to make the business operate for twelve months of the year that it can be quite profitable.

Rick Ruback:

Royce, let's just take a minute and talk about the things we hate about seasonal businesses. I'm going to start. The thing that drives me crazy about seasonal businesses is I'm a big fan of this idea that you learn by experimenting. You try small changes, you see how those go, you adapt to those small changes, and with each change you learn more about what your customers want, what your suppliers can supply, what your employees can produce, and you take that learning and build something which is stronger and better than it would've been if you just drew it up at the start.

Royce Yudkoff:

Well, for sure, that's an unpleasant part of running a seasonal business because you can only test your changes once a year, in the high season. I agree with that, and I'd just add, on top of the tough job of being a CEO, you're adding all these wrenching changes you have to keep making during the year. You have to take up your employee count at the start of busy season and then bring it down at the end of busy season. You have to bring your inventories up and you have to bring your inventories down. So, unlike a business where the steady state is a steady state, you've got a business where the steady state is wild changes back and forth one or two times a year.

Rick Ruback:

Yeah, I think about what Robin must go through in October and November, and it must just be awful because she's living a relatively quiet life over the summer months. It ramps up, I think, very slowly in the fall, and then suddenly it takes off like a rocket ship. It must be really hard to figure out how much excess capacity, how much personal excess capacity, that she needs to keep. Yeah, you can plan on working on eighty hours a week during your busy time, but what if something goes wrong and it needs to be a hundred or a hundred and twenty hours? You are going to run out of time.

Royce Yudkoff:

And your whole year can be made or broken by what happens in a single busy season. You know, you commented earlier that no business is perfect and it's true. When you're looking at a business, the searcher is going to make a list of positive qualities and negative qualities and you really have to use judgment to weigh that out. This is a pretty big negative, I think for you and me.

Rick Ruback:

I don't think that means you never buy a seasonal business. Anytime you evaluate a business, there's going to be pluses and minuses. You'll hear throughout this podcast series that there are some things that really make us nervous about acquisitions. Customer concentration is a big one. Supplier concentration is a close second. Entering into a negotiation when there are multiple owners and multiple family members that have ownership interests, all are red flags. Sometimes you can overcome those red flags and have a great success.

Rick Ruback:

And then my last question is, it seems like you want to run this business for the rest of your life. You don't have any interest in selling it at this moment in time?

Robin Kovitz:

No. I get calls all the time. I am going to be one of those people, you know, like eighty, ninety years old, and I still pull up to my parking space and I come in for ten minutes, but I come in every day, I hope. I think a big part of it is having purpose. Baskits is so much more than a job. It's a purpose.

Royce Yudkoff:

Robin, I wanted to ask, you took this business that had been around for a long time and you bought it, and then over less than a decade you've grown it explosively into a big success. What is it that you did differently from the couple of owners that founded it and built a franchise, but a fraction of the size that you've created? What's the difference do you think?

Robin Kovitz:

What's different, I guess, about me is that I looked at it as a business. I'm so grateful to have had training here at HBS and at Queen's, in Canada, some of the best business school training in the world, and experience prior, and I really looked at it as a business analytically and thought about it as a business. I think a lot of small businesses don't have that rigor of an analytical analysis informed decision making. I'd say that's the difference. What was interesting about this business is that the industry dynamics were starting to change. That's where I entered. And I think truly, if I hadn't made all those changes, I'm not even sure if the business would've survived. They could afford to live that lifestyle business because they were first but I think as e-commerce came and a bunch of competitors came in, I think I sort of inherited this really downward trajectory.

Rick Ruback:

We've talked about that before, the kind of Amazon effect. Nobody really asked them when their baskets were going to be delivered but your customers expect to know the moment a basket gets delivered.

Robin Kovitz:

Exactly, with a picture.

Rick Ruback:

Yeah, with a picture. Different world. Different world.

I'm pretty good. I'm a happy guy. How about you Royce?

Royce Yudkoff:

Me too. This was great, Robin. Thank you so much.

Robin Kovitz:

This is great, guys. 

Rick Ruback:

Robin bought a company that has many of the qualities that lead to success for first-time CEOs. It had recurring customers. The company had years of profitable operations behind it, and it was a business which Robin could envision herself running, particularly with a transition agreement in place with the sellers. Like many search acquisitions, Robin brought energy and big ambition to a company that had been run with smaller growth goals by two founders that were nearing retirement.

Royce Yudkoff:

You and I see that a lot in search acquisitions. The positive effect from replacing a retiring founder, who has more money than time and behaves accordingly, with an ambitious younger searcher, who has more time than money, and yet there are a few parts to this acquisition you and I do not love.

Rick Ruback:

Like most businesses, it wasn't perfect. One big negative is the business is highly seasonal and seasonal businesses are much harder to run, and they're a real challenge for any first-time CEO.

Royce Yudkoff:

That seasonality also caused Robin to move quickly to make major changes to the business because she only gets one time a year to test her changes, the busy season of her fourth quarter.

Rick Ruback:

She added hugely to her risk with her decision to buy a seasonal business and then to move quickly on big changes. I'm still not persuaded that making those changes so early was necessary. Nevertheless, it is clear she’s well on her way to a big success and that's great.

Royce Yudkoff:

You’ve been listening to Think Big, Buy Small. We’re your hosts Royce Yudkoff…

Rick Ruback:

…and Rick Rubak.

Royce Yudkoff:

Katie Zandbergen produced today’s episode. 

Rick Ruback:

Craig McDonald is our audio engineer.

Royce Yudkoff:

We’ll be back next week with another episode of Think Big, Buy Small.