the Founder Files

Investing in Consumer Brands with Purpose - Paul Cook, Silvertree Brands

Season 4 Episode 2

In this episode, we welcome Paul Cook, the co-founder and managing director of Silvertree Brands. Join Cameron as he dives into Paul's incredible journey of building not just one, but a portfolio of purpose-driven, direct-to-consumer, and niche e-commerce businesses.

Listen as they discuss:

  • The innovative strategies behind Silvertree Brands' growth and portfolio selection
  • Lessons learned from good and bad business models
  • The critical importance of customer experience in scaling a business
  • Transitions founders face when merging with larger groups
  • The founder to CEO journey and founder exits

Tune in for an engaging and insightful conversation filled with actionable takeaways and personal growth experiences.

Too Long; Didn't Listen? Here's what to look for:

Origin of Silvertree Brands - 4:20

Silvertree Brands was founded by Paul Cook, Peter Allerstorfer, and Manuel Koser, who initially came to South Africa to start Zando, a venture backed by the German incubator Rocket Internet. After working on Zando, they saw the need for a different approach tailored to the African market, where the main challenge was market readiness rather than speed. Recognising the smaller market size in South Africa compared to larger economies like the U.S., they decided to build multiple businesses under one umbrella rather than focusing on a single venture. This approach allowed them to maximize growth potential within South Africa and efficiently manage their portfolio, finding it more practical than spreading efforts across multiple African countries. Their focus has largely been on e-commerce and consumer-facing brands, leveraging their collective expertise to navigate the unique dynamics of the local market.

Why Multiple Businesses - 10:00

Silvertree Brands chose to run multiple businesses primarily due to the market size limitations in South Africa. Unlike larger markets where a single business can achieve significant scale, South Africa's smaller economy necessitated a different approach. By developing multiple businesses, they could collectively reach a substantial market size and create impactful opportunities. This strategy allowed them to diversify their portfolio, mitigate risks, and become market leaders in various sectors, such as with their brand UCook. The decision to focus on multiple ventures was driven by the need to make a meaningful impact within a constrained market environment.

Scaling Internationally - 10:55

Paul Cook believes that while scaling and growth are crucial for startups, particularly those that are venture-funded, immediately aiming to scale internationally isn't always the best strategy. He notes that the transition out of a hyper-growth phase is challenging, and many use international scaling as a solution to problems faced in their home market. However, if a company isn't dominant locally, it is unlikely to become dominant internationally. Success should be established in the local market first before considering expansion. The emphasis should be on achieving significant growth and momentum in the home market, and only then should international scaling be pursued as a viable strategy.

How to Start a Multi-business Business - 13:14

Silvertree decided to start a multi-business company rather than a traditional venture capital (VC) fund due to the specific economic and market conditions in South Africa. By operating as a company, Silvertree could raise money directly onto its balance sheet and allocate it as needed, rather than being restricted by the rigid structure of a fund. This approach allowed them to avoid the economic difficulties associated with smaller VC funds and ensured better capital efficiency. They pitched themselves as a startup with a clear thesis focusing on high-margin, purpose-driven consumer brands and leveraged M&A opportunities. This model resonated with investors, especially those interested in the African market but unable to conduct due diligence on smaller investments. By becoming a company with direct investment in multiple businesses, they maintained significant equity, incentivising careful and efficient use of capital while aligning interests with their shareholders. This structure simplified governance and focused on growing their portfolio companies rather than managing the potentially competing interests of limited partners (LPs) and portfolio companies.

Managing Shareholder Relationships - 18:25

Silvertree navigates investor relationships by ensuring clear, concise, and professional communication with their shareholders. They structured their company documents to minimise accountability to shareholders, allowing them to make independent decisions while assuring investors that their investments were in capable hands. Early on, they prioritised high-quality shareholder reporting, understanding that well-crafted, visually appealing reports would make investors feel valued and build trust. This approach fostered investor support, especially crucial when additional funding was needed quickly. By investing in graphic design and focusing on short, impactful reports, they demonstrated professionalism and maintained strong relationships, ultimately earning the confidence and backing of their investors.

Silvertree Thesis and How They Executed - 21:18

Silvertree's thesis was to operate multiple businesses focused on high-margin, purpose-driven consumer brands, particularly in e-commerce. Initially, their approach was broad, considering various business ideas, but over time, they narrowed their focus to consumer-facing, strongly branded e-commerce models. They avoided inventing new business models due to the high risk, instead opting to adapt successful models from other markets to the South African context. They either invested in existing startups or started businesses themselves based on these models. For example, they identified the meal kit market's potential, found three local startups, and invested in UCook, which eventually dominated the market. They also attempted to create support agencies in recruitment, software development, and digital marketing to serve their portfolio companies. While some agencies didn't succeed, others like the digital marketing agency flourished but ended up focusing on external clients rather than their portfolio companies. This experience highlighted the challenges of driving synergies between different companies.

Choosing Business Models That Work - 28:24

Silvertree selects business models that work by focusing on B2C, high-margin, frequently reordered consumables with a geographic moat. They avoid inventing new business models due to high risk and instead adapt successful global models to the South African context. Their e-commerce approach involves owning the products they sell rather than operating as a marketplace, ensuring better control over margins. They emphasise high-margin products to achieve profitability and avoid the challenges of low-margin, high-volume models like Takealot. Their strategy includes understanding industry nuances, focusing on scalable and sustainable business models, and ensuring excellent customer experience from the start. They avoid overly ambitious, broad market entries and instead start small, ensuring quality and customer satisfaction before scaling. This approach has allowed them to build a profitable, resilient portfolio of businesses.

Competing On Price - 48:25

Competing on price is often a flawed strategy unless you have a structurally lower cost model. Paul Cook emphasises that being significantly cheaper than competitors usually means lower profitability, reduced marketing budgets, and a subpar offering. This approach may make some initial customers happy, but it isn't sustainable for long-term success. Cameron adds that while starting with lower prices can help attract early customers and validate an offering, it shouldn't be the long-term strategy. Instead, businesses should focus on developing other competitive advantages. Paul cautions that raising prices later can be challenging once customers are accustomed to lower rates, sharing an example of a failed venture where low commission rates couldn't sustain operational costs, making it difficult to renegotiate with key customers. The key takeaway is that while low prices can be a short-term tactic, businesses should plan for sustainable competitive strategies beyond pricing.

Pitching to Investors - 51:54

When pitching to investors, it's crucial to understand that an investment is a business transaction where both parties seek to meet their needs—funding for the entrepreneur and returns for the investor. The pitch should be balanced, avoiding both overly humble, begging approaches and overly aggressive confidence – focus on demonstrating why your business will win. Paul Cook emphasises that your pitch should quickly convey what sets your business apart and how it will succeed. This includes highlighting unique relationships, team expertise, proof of concept, or strategic partnerships. Keep your pitch concise and straightforward, prioritizing the main reason for your anticipated success right at the start. Backup information should support this central point, making it clear why investing in your business is a smart decision. Engage in a genuine conversation, showing confidence and clarity about your strategy and goals. This approach simplifies the decision-making process for investors, whether at an early stage or during later funding rounds.

Growing Companies & Founder Exits - 1:03:00

Silvertree faced the challenge of maintaining coherence in their growing portfolio while addressing the necessity of founder exits. As the company grew, it needed to tell a more coherent story to attract and satisfy investors, who typically expect returns within a specific timeframe. This often involves selling businesses, which requires founders to confront the complex decision of whether to continue growing their company or exit.

When founders choose to exit, it's often because they no longer find the role fulfilling or they prefer not to transition from startup founder to professional CEO, a role that requires implementing HR processes, maintaining customer feedback systems, and potentially developing new business lines. This transition can be unappealing for some founders who thrive on the initial thrill of building a business.

For investors, founder exits can be a double-edged sword. While it can be exciting for founders who have achieved their goals and received a financial return, it's challenging for investors who must replace the founding team and maintain the business's momentum. Successful exits are about recognizing when it's time to leave and ensuring the business can continue thriving under new leadership.

Moreover, founders often struggle with the aftermath of exiting their business. Many experience a sense of identity loss and purposelessness after the exit, emphasizing the need for a clear post-exit plan. It is crucial for founders to focus on the new opportunities they want to pursue rather than just exiting to escape current challenges.

Ultimately, successful founders should understand their evolving roles and either grow with the company or make strategic exits that benefit both them and their investors. The transition from founder to CEO, or moving into a new business area, requires recognizing and addressing these shifts in responsibilities and maintaining a clear vision of the company's purpose and goals.

How Do You Merge New Companies Into Your Portfolio - 1:15:53

Silvertree's approach to merging new companies into their portfolio involves balancing synergies and independence. The primary motivation for merging companies is to leverage shared talent and problem-solving capabilities, particularly in operational areas where businesses have similar needs. For example, they merged the operations teams of Faithful to Nature and Pedeva when both required the automation of their pick and pack processes. This allowed them to apply the expertise and systems developed at Faithful to Nature across both companies, achieving efficiencies and improving performance.

However, Paul Cook emphasizes that not all mergers or synergies are beneficial. It is crucial to be intentional about merging functions, as the process comes with significant challenges. One major challenge is managing multiple stakeholders. When a leader is responsible for operations across multiple brands, they must juggle competing priorities and manage different contexts, which requires a higher level of skill and capability. If not managed well, this can lead to inefficiencies and negate the benefits of the merger.

What is Your Secret Sauce - 1:19:45

Silvertree’s secret sauce in any business is identifying the unique set of capabilities that a company has, which are difficult or expensive for others to replicate. This secret sauce is often deeply embedded in daily operations, making it challenging even for founders to pinpoint. For example, UCook’s ability to efficiently produce 16 new recipes a week, including sourcing, portioning, and logistics, is a complex system that would be hard for competitors to duplicate.

However, the secret sauce can also be cultural or tied to specific individuals, making organizational changes risky as they might inadvertently disrupt these critical elements. When integrating new companies into their portfolio, Silvertree focuses on maintaining these unique capabilities while seeking synergies, particularly in operational areas where skills and processes can be shared. This approach ensures that while efficiencies are gained, the core strengths of each business are preserved.

Why Join a Group Of Companies - 1:25:08

Joining a group of companies like Silvertree offers several benefits for founders and their businesses. Founders can leverage additional resources such as funding, people, facilities, and technology, which can help scale and optimize their operations. Silvertree's approach is not just about providing capital but also about active operational involvement, which means they work closely with the businesses to drive growth and solve problems. This can be particularly valuable for founders seeking mentorship, support, and the opportunity to step back or exit eventually. Being part of a group also mitigates the loneliness of solo entrepreneurship by providing a network of peers to share challenges and insights.

However, joining a group means embracing a level of corporate structure and oversight, which might not appeal to all founders, especially those who prefer autonomy. The transition from being an independent entrepreneur to integrating into a group can be challenging but rewarding if the founders align with the group's values and goals. The ultimate aim is to create synergies between the businesses, leveraging shared talents and resources while preserving the unique strengths and secret sauce of each company.

Why Do Founder Choose To Exit - 1:32:35

Founders often choose to exit their companies for several reasons, one of the most common being the increasing need for professionalisation as the business grows. As a company scales and attracts significant external investment, it must adopt more formalised structures and processes, which can conflict with the founder's initial vision and operational style. This shift can make founders feel disconnected from their business and lead them to leave.

Additionally, the role of a founder naturally evolves over time, requiring them to take on more specialized C-suite roles or step aside for someone else to manage the growing company. For founders who thrive in the startup phase but dislike the corporate management aspect, exiting becomes a preferable option. This allows them to pursue new ventures or enjoy the fruits of their labour without being tied down to the evolving demands of their original business.

Growth - 1:37:05

Paul Cook discusses the two essential aspects of growth: increasing revenue and improving efficiency. Growth isn't just about expanding revenue but also optimizing processes to drive profitability. During COVID-19, e-commerce experienced a boom, but later, market corrections required Silvertree to focus on cutting inefficiencies. This involved critically analysing and streamlining processes, like eliminating back orders at Faithful to Nature, to ensure better customer experiences and cost management.

He emphasises the importance of balancing experimentation with optimization. Companies must learn from market feedback and make adjustments before fully committing to new initiatives. This iterative approach ensures that businesses are not only growing but also stabilizing their operations periodically to handle new growth challenges effectively. This balanced strategy allows for sustainable long-term growth.

Becoming a Leader - 1:53:17

Becoming a leader, especially a CEO, is a challenging and often lonely journey. Paul Cook talks about the importance of self-reflection and staying connected to the initial motivations for starting the business. Writing down goals and the reasons for pursuing them can help maintain perspective and celebrate successes. Leadership comes with responsibilities that are not always glamorous, such as managing personnel issues and making tough decisions.

Maintaining a positive outlook while being confident and honest is crucial. However, leaders often can't share all their concerns with their team without causing worry, making the role isolating. To combat this, it's essential to have a support system, whether through co-founders, investors, boards, entrepreneurial communities, or coaches. This support can provide a space for leaders to discuss challenges and gain advice, helping them navigate the complexities of leadership.

The Future of Silvertree and Paul - 1:55:30

Silvertree Brands is currently focused more on organic growth and optimising its existing portfolio rather than making new investments. The tougher capital markets and the need for significant investments to move the needle on Silvertree's impact drive this strategic focus. Efforts include enhancing current operations, exploring adjacent growth opportunities, and expanding omni-channel presence, particularly for Faithful to Nature, which is set to grow its retail footprint. Additionally, the company is engaging in interesting partnerships that leverage its well-known brands to create synergies and reach new markets more effectively.

Paul Cook is shifting his focus back to his technical roots to work on data, and AI within Silvertree. He aims to enhance both operational efficiency and customer experiences through these technologies. With a co-CEO now managing Faithful to Nature's day-to-day operations, Paul can dedicate more time to these initiatives. He also serves on the board of a large corporate, which provides him with valuable insights and experiences that can benefit Silvertree's growth and professionalisation efforts.

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- Paul Cook on Linkedin and via Silvertree Brands

- Cameron on Linkedin and on TikTok

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