Startup Acquisition Stories w/ Lauralynn Drury – VP of Experience, StayTuned Digital

This is a mini-series within SaaS Acquisitions Stories where we profile the top Acquire Private Equity firms and firms acquiring online businesses at scale.

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Transcription –

Andrew Gazdecki:
All right. Andrew, founder of Acquire here. And I’m so excited to be with Lauralynn from StayTuned Digital. Lauralynn, thanks so much for your time today.

Lauralynn Drury:
Yeah. Excited to be here.

Andrew Gazdecki:
So before we started recording, you were telling me about your personal background in operating and growing different startups. Do you want to maybe give a little introduction of yourself and your background for everybody listening?

Lauralynn Drury:
Yeah, I’m probably very different from a lot of the other folks you’ve had on this podcast. So thanks for having someone who’s zigs when others zag, but my background is in operating and product. So I’ll skip a few of the early boring years where I learned how to be an adult, but after playing around with consulting and working at a bank for a while, I decided I want to learn tech. And I went to Warby Parker, kind of tricked them into hiring me, and had an amazing four or five years there on the tech team where I got to build products. So everything from our point of sale at our first few stores, that then became many, many stores. To our inventory management and all the way to an app that lets you take a vision test from home, which is an incredible app that a lot of you should check out if you’re still hanging out more at home than you are in stores.

Lauralynn Drury:
But at the end of my tenure there, I was really curious about this thing called Shopify, because it seemed to make a lot easier that I was kind of doing by hand at Warby. So I left with the intent of learning Shopify and I went to a few brands. First, Faherty, which was a big apparel retailer that had wholesale, retail, e-com. So I was thrown into the world of Shopify, and from there then worked with a handful of other brands and CPG and beauty. Getting them on Shopify, understanding how to use it, how to use it efficiently, and how to grow your business on it. Primarily from the operations product team, customer service standpoint. Less the marketing standpoint.

Lauralynn Drury:
So Serge, our CEO, and I have been friends for years and he had been working on all sorts of things around the Shopify ecosystem. And in the summer, he started incubating this idea, which is a little more popular now, but the idea to roll up Shopify apps and provide a better experience for merchants. And from the moment he said that, I was all on board. It’s really, really fun to be working in the Shopify ecosystem, but the goal of making merchants lives easier.

Andrew Gazdecki:
Nice. So tell me a little bit more about StayTuned Digital. What kind of apps do you specifically look for? Is there a certain category? Is there a certain size? Just anything that kind of really gets you guys excited?

Lauralynn Drury:
Yeah. Does it have to have like a rhyming name? Alliterative. Iambic pentameter. No, we’re trying to focus. We have six apps right now that we’ve Acquired since the fall. And we are focusing on things that make sense to our merchant minds, which is things that increase AOV, UPT, conversion. Which a lot, I know many, many apps you could kind of say they do, but we’re really trying to focus on those. So anything from upsells to bundle builders, things like that.

Lauralynn Drury:
And in terms of size, we’re open to anything. We typically are looking for things over 20K a month in MRR, but really open. And I think the other thing, we’re very opportunistic in terms of who is selling and how they want to grow it. It’s been really nice finding some developers that want an earn out and want to stick with the growth of the app for a little bit. Because they really believe in it and they want to hand it off to a team that believes in their product and their vision and can help them see that through a bit.

Andrew Gazdecki:
Nice. And then I guess this kind of goes into my next question. You touched on it a little bit. How does your firm evaluate certain Shopify apps? What’s maybe some main metrics that you would personally get really excited around?

Lauralynn Drury:
Yeah. We have a handful of team members to bring different perspectives. So I definitely skew on our merchant usability and product perspective. Our CTO evaluates the tech stack and I’ll go into more details on this. And then our head of corporate development really understands the financial modeling around it. What do we want to pay for it? What do we think it’s worth? What are the different ways we could structure it? Knowing what the app developer wants to get out of it. But basically if we don’t think the product is good, it’s a total no go. Even if the revenue is off the charts.

Lauralynn Drury:
One example would be, if your app makes a red button on a site that just says, “Click me.” And people click it and you get a dollar every time they click it, that product doesn’t make sense for merchants. And even if the MRR was crazy, we’re not going to buy it. And there are probably a lot of people who would buy it and that’s great for the developer. And a lot of developers out there who can sell, but we really care that we like the product.

Lauralynn Drury:
And so from my perspective, when I’m looking at the product, it’s what does it do? What are the pain points? How are people using it? And my background is as a merchant. so I can hopefully see those things a little bit faster and just getting in there and playing around with it. We also are kind of hedging a bit and thinking about the future, and I’m sure so many people are right now. And a lot of app developers and folks who want to sell their app are wondering what’s going to happen with all the ever-changing market Shopify earnings?

Lauralynn Drury:
And there’s a lot of interesting apps that are helping take people offline a bit too. We actually just purchased one called EV events that allows store owners to sell events, whether they’re Zoom events or in person events. So first and foremost, going back to your question, the product has to make sense. For a thesis of ours, for future growth, or how current merchants are using it. Before we even evaluate how much money they’re making, how big their team is, what kind of tech stack they have, what they’re spending in marketing, what their content base is today and where we’d like it to go.

Andrew Gazdecki:
Okay, I’m going to throw a curve ball at you. If you could only look at one metric when looking at a product, let’s say you love the product. It’s a great product. It’s not the red button that you hit a dollar for. What would be the main one metric that you would look at?

Lauralynn Drury:
I’m trying to combine two in my head right now.

Andrew Gazdecki:
I’m guessing one is probably churn.

Lauralynn Drury:
Yeah. Yeah. But of course it’s challenging because some apps naturally have higher churn. And so I’m trying not to generalize, but it would be a combination of three. I’m going to break the rules. Revenue obviously, churn, and tenure. And the reason I’m calling out tenure and churn differently is because some apps are so cyclical and seasonal.

Andrew Gazdecki:
I like that. That’s very true. Especially with eCommerce. That’s very, very true.

Lauralynn Drury:
Especially with e-com, especially with the nature of what merchants are going to be doing more and more of, is testing things out on their own. If you look at the uninstall rate for the first 14 days, does that give you the whole picture? No. So I think I’d have to break the rules and combine a few of those metrics.

Andrew Gazdecki:
Yeah. That’s a hard question, but I like your answer a lot. So your firm has Acquired a number of Shopify apps. What’s your personal favorite that you’ve Acquired?

Lauralynn Drury:
Ooh. We Acquired one, I think it was our second app, called Box Builder. And it was an app built by a self-taught engineer to solve a problem. And so off the bat, I love it. The intent was to solve a problem and it was to allow merchants to create their own bundles and add certain rules to them. Whether it’s a buy two get one free, or a whole curated experience of filling up your cart with different products. Let me just explain it a little better before I talk about why it’s my favorite. So one beauty brand sells fake eyelashes and tools to put them on your face. It’s kind of overwhelming, because they all look the same. So they were able to make a three step builder that allows customers to select their style of eyelash and put as many in their cart as they want to trigger a discount.

Lauralynn Drury:
And the next step walked through which glue they need. And then the last step was some accessories. So I love this the most for a couple reasons. One, it serves such a need, not only is this not an innate feature set in Shopify, but this app also allows you to apply discounting in addition to Shopify’s discounting, which has some limitations. The biggest limitation of Shopify discounting is that you can only use one discount code. So this kind of helps merchants get around that. And another reason I love it, is whether merchants have just a few SKUs or thousands, this allows them to make a curated selection.

Andrew Gazdecki:
Mm.

Lauralynn Drury:
So some other merchants have different gift sets. If they sell wax seals or fish, they can really walk someone through it. Almost akin to if you had a personal shopper, that’s saying, “Okay, here are your shirts. Now pick this shirt. Moving on to the belts. This one goes with that. How about that? Oh, do you want to personalize and engrave it? We have a tool for that too.”

Andrew Gazdecki:
That is awesome.

Lauralynn Drury:
It’s so cool. And the other reason I love it is we bought it. I think it was at a 4.4 review rating and now it’s at a 4.8. So it’s a little bit of a first child to me, in that we brought it in and gave it a lot of love. And gave it a lot of customer support and helped merchants out a ton, and it’s been getting better and better.

Andrew Gazdecki:
That’s awesome. I always love stories. Number one, it sounds like a great app, but two is you, after you Acquired it, you improved it. And I’m sure the original developer can look at it and see it still thriving and being used by a bunch of happy customers, so that’s awesome.

Lauralynn Drury:
Yeah, it’s a great story. And it also helped us grow up. So because of that app, it was in our early days, it helped fast forward our hires and our systems and our processes internally. We also Acquired it right during holiday season, which I can personally tell you, my holiday, my Thanksgiving, I was on a laptop in the middle of nowhere answering customer emails. Because I knew how important it was to them to get their builder set up so that by black Friday everything was humming.

Andrew Gazdecki:
Yeah. Nice. Okay. So switching gears here, there’s a lot of Shopify developers and just startup founders that are potentially looking [inaudible 00:11:20] in this next year. If you had to give maybe one or two pieces of advice, you can break the rules again and give three, if you want. What would that be?

Lauralynn Drury:
I think be really upfront about what you’re looking for because there are no issues with that. If you want to sell and have nothing to do with it, that’s totally your prerogative. If you want to sell to someone, who’s going to partner with you in some way to carry it to the Holy Land of where you think it can get because you have all that product knowledge, great. Just be super upfront. There’s no wrong way to do it. There are Acquirers for every type out there. Some that will sign the check and want you to walk away, and others that will want to partner with you. So I think off the bat, make that really clear. Because only when that’s on the table, can you work with Acquirer to come up with a structure that works for both of you.

Andrew Gazdecki:
I love that.

Lauralynn Drury:
Yeah. And we should all be honest with each other too. I think that’s something that we try to do, of what we like to do most. We really like when sellers want to do an earn out. And why? Because they have so much of the knowledge in their head about what works and what doesn’t. And we love partnering and working with great people. We’re having a blast with August Noble from AOV Boost we just Acquired. Working on a product roadmap about where we’re going to take it and how we’re going to grow it. And he’s excited and we’re excited. It’s fun. So I think that would be one piece of advice.

Andrew Gazdecki:
I like that. I was going to say, I like that one a lot too, because you’re right. There are a lot of firms that are looking for 100% buyouts, but you’ll essentially work with an original developer. Maybe they’ve just taken it to a point that you just can’t take it any farther in your firm. We’ll work with them as a partner so they can continue to have a piece in the success of the app as it grows.

Lauralynn Drury:
Totally, and we’re lucky. We are well capitalized. We’re having fun with this. We can be creative and we can be developer friendly, merchant friendly all at the same time, while we’re building our business.

Andrew Gazdecki:
Nice. Do you guys focus on 100% buyouts or do you prefer majority buyouts? Like partnership buyouts.

Lauralynn Drury:
We’re open. I think there’d have to be a reason to not have a majority, like a really good reason.

Andrew Gazdecki:
Well, I guess when I say majority. Founder walks away versus partnership.

Lauralynn Drury:
We prefer partnership and for the intangibles of, it’ll be great to work with them and it’ll attract the type of people who believe in product and supporting merchants like we do. We have had an experience where the original developer walked away and it was a lot harder for us. I think just the handoff, every tech stack is super different. Every historical piece of working with a merchant that has been working with a certain founder or the app owner for a long time and gets transitioned. There’s a lot that you want to make sure is a seamless transition. And so you want to incentivize that and just align everyone to doing that. I think in probably most cases, SAS and beyond, if you can have a seamless transition with anything, it’s going to be better.

Andrew Gazdecki:
Yeah. That can be one of the bumpiest parts, is you Acquire something and then you don’t have the original developer. And then you don’t know how the source code works, and then you have to spend weeks or months finding someone to figure out how it works, if you don’t have someone in house.

Lauralynn Drury:
Yeah.

Andrew Gazdecki:
So it sounds like you create these win-win partnerships.

Lauralynn Drury:
Yeah. And I think we have learned that that’s the way. A little bit the hard way, but I think the other piece of advice going back to your previous question for advice to sellers. So once you’ve sold it or you’re getting to that point, [inaudible 00:15:26] thing to do is tell them which snakes are in which mailboxes. No apps are made perfectly. I think anyone who’s acquisitive in this space knows that. And so just be upfront about where there are weaknesses, where there needs to be more buttressing, and I know it can be super personal because maybe this person coded it in their free time and their code isn’t up to even their snuff. And it might be more emotional, but the team needs to know that or else it can make that transition process more tense than it needs to be.

Andrew Gazdecki:
Nice. Would you agree with this? I meet with a lot of founders and they feel that they always need to advertise. Or when they approach buyers, basically display their app is perfect. They’ve done everything right. All growth channels are perfectly optimized. But it’s almost in my opinion, a benefit to bring your business forward with scars and especially growth opportunities. Like, “Hey, I haven’t done this. Haven’t tried this.”

Lauralynn Drury:
Yeah.

Andrew Gazdecki:
“I tried this and I failed at this.” You know what I mean? Because it shows number one, honesty like you were describing. But number two, potential upside that you could capitalize on that maybe the original owner wasn’t able to.

Lauralynn Drury:
I think you have to assume that if you’re not disclosing it and things get serious, it will come out. Exactly like you said, be honest about what you’ve tried, what’s worked, and what hasn’t. So the companies evaluating you can determine what they would need to put in place. Have you not done any content marketing? Do they need to find someone who’s an expert in your space to do content marketing? That’s not a show stopper. It’s just a consideration that they’ll have to think through. And if you try to hide any of that, it will come out.

Lauralynn Drury:
We were on a call recently with a company that we were like, “Tell us about your competitors, what are they doing well?” They’re like, “We don’t look at competitors.” And to me, that’s a huge red flag of even talking about disclosures. Think about what your competitors are doing. What are they doing well? What aren’t they doing well? When might you refer a merchant to a competitor because they offer something you don’t. What are they doing really well that you’d want to bring into your set?

Lauralynn Drury:
So I think it is, yes. Disclose anything you’ve done and where you think your gaps are, as well as your roadmap. What you want to do, what you think competitors are doing well, how the environment’s changing. Or else you’re just so myopic and have those blinders on, and I think you’ll have a lot of more interesting conversations if you are a little bit upfront.

Andrew Gazdecki:
Yeah. I completely agree. And for this next question, we’re recording this at a very interesting time. So we’re end of the year and it seems like the sky is kind of falling a little bit, specifically for Shopify. I believe their stock is down 80% or something like that. I don’t know. But anyways, what are your predictions? If you had to give one for your head in terms of just acquisitions or eCommerce as a whole.

Lauralynn Drury:
It’s interesting. I think, and these are my personal beliefs, and also call out what [inaudible 00:18:47] things is, everything’s cyclical. I think some of us looking at the Shopify earnings are really surprised and others aren’t. Personally, it was bound to happen with looking at all the different tech stocks. And even all of the different companies that really had a huge growth during the height of COVID, had to come back to reality. We look at Peloton, Zoom. Thank you, Zoom for sponsoring this call, but they all took a hit. So it was about time for Shopify because a lot is returning in real life.

Lauralynn Drury:
I think this less so Shopify’s earnings, but more so the macro economic environment, inflationary environment, will change the acquisition space a little bit. It might take multiples down a hair. They’ve been crazy high. Maybe that’ll happen for those selling. It might have the Acquirers a little more focused on actual metrics and results. I know I’ve been in a lot of conversations where the app seller didn’t really have that hard data, so they might have to provide a little bit more of that hard data to back up their claims. And I think we’re going to see a change in the merchant behavior on Shopify, which will of course have a trickle down effect into the apps. I think we’re going to see a lot more stores closing sadly, and a lot more stores probably that aren’t plus. So the ones that are on there, not paying as high of a premium to be on Shopify. And I think that’s going to affect app providers and app roll ups like ours as well.

Andrew Gazdecki:
Yeah, I would agree with that. Especially the valuation piece. For the last two years, I’m sure you’ve been in this situation where my app is worth 20, 30 times revenue. And it’s like, “No, it’s not.” So I think this is almost a good reset for everyone to really understand this is a true value of a SAS company or a Shopify app or e-commerce store, whatever it is.

Andrew Gazdecki:
And then I don’t know what your take is on this, but even if you bought something at the peak. Not all.com stocks, but if you bought Amazon at the peak, which I think $113 a share and then kept it. I was in college during the great recession, but if you bought anything during that time period and just held it.

Lauralynn Drury:
Yeah.

Andrew Gazdecki:
So I think what we’re seeing right now is just a lot of short term panic. And if you kind of zoom out and look at the bigger picture, there’s still a lot of growth being seen and across SAS, Shopify, everything. It’s kind of just like you said, what goes up, comes down. And then what goes down, goes up.

Lauralynn Drury:
Totally. And we also have to think, and I loved part of what Harley was saying or after earnings, about the goal of Shopify is to support entrepreneurs, right? And we believe deeply in that. We’re a bunch of entrepreneurs that are working at StayTuned. But more so when folks, if they’re getting hit by inflation and just tightening in the economy, they might turn to Shopify. If they lost their job, to try to sell something out of their home. So there will continue to be commerce and not just those people, but everyone, that needs to be supported with great software and excellent customer service.

Lauralynn Drury:
And I think the other thing that tends to happen during these cycles is, oh, there’s this great quote. “When the water goes out, you see who isn’t wearing pants.” Maybe I’m misreading that [inaudible 00:22:40].

Andrew Gazdecki:
Yeah, I know the quote.

Lauralynn Drury:
And I think we’re going to see a lot of, what are the apps that are like Vaporware? And not really doing anything to contribute to a merchant’s bottom line. What are the companies that haven’t been able to add value when they buy up these apps?

Lauralynn Drury:
So I do think for us, if we just keep our focus, help merchants, be great partners to the apps that we buy and the folks we partner with, we’ll be fine.

Andrew Gazdecki:
I think so too. I love the positive attitude. I think long term thinking always beats short term thinking every single time.

Lauralynn Drury:
I think it does. And the other thing I’m spending some time thinking about now is, assuming this is going to happen, and a lot of the app sellers that are out there probably feeling this [inaudible 00:23:31] merchants are feeling it a lot. And they’re probably emailing you nastier notes. Some things aren’t working, when they know things are working. We’re really trying to think through how we can support them better. Of course it’s great customer service and being responsive, but even proactively, what can we do to help out folks that might be going through a hard time?

Lauralynn Drury:
So I don’t know exactly what that’s going to look like just yet, but it is something we’re trying to think through. How can we best prepare for tightening with the merchants that we support?

Andrew Gazdecki:
Nice. I love that. I guess my last question would be, with all your knowledge with eCommerce and Shopify and just your experience, are there any books or podcasts that you would recommend for maybe a person looking to get into the Shopify ecosystem? Or anything that you check on a regular basis.

Lauralynn Drury:
Yeah. Yeah. That’s a great prompt. Okay. What would I recommend? Well, if you are trying to learn Shopify, open a store. Try to put it together and learn the basics there. Shopify help, always going to that website, really wonderful info to learn about that. But if you’re trying to learn about the ecosystem and apps and all that, Shopify partner Slack is great. There’s so many people from developers at Shopify and folks working on their app. It’s very collaborative. People help each other out. If you’re a plus user, I love the Shopify plus community. And then if you’re trying to learn the marketing of it all, go to a Geek Out Conference. They’re expensive and worth every penny. I think they’re having one in Miami this coming weekend. You could probably get a virtual ticket. That’s the best way to figure out how to unlock marketing. I think that’s a good handful.

Andrew Gazdecki:
Yeah. I love the first one. Yeah. I always say, more towards just startups in general. But the best way to learn how to build a startup is to build a startup.

Lauralynn Drury:
To do it.

Andrew Gazdecki:
Yeah. Even if you fail, you learn and then you try again, you keep going.

Lauralynn Drury:
And it’s so amazing how much better questions you can ask if you’re interviewing, if you’re trying to sell. Get in there, download the app that you’re looking at buying. Use it. Everybody should be able to understand it.

Lauralynn Drury:
Back when I worked at Warby Parker, Mickey Drexler was on the board. He was the retail leader who built Gap and J Crew. And apparently he used to have a microphone in his office that would blast out to the entire workforce at J Crew when he was there. And so when he was being asked to be on the board of Warby, he got on his mic and he said, “All right, anyone who wears glasses, come to my office.” And a whole bunch of people ran his office. And then he said, “Anyone here with Warby Parker?” And then he narrowed down the field. And then he talked to them for maybe five minutes and got to the core product issues that Warby was having at that time. Just by asking questions and kind of getting his hands dirty. So I think the same approach added for…

Andrew Gazdecki:
Whoa.

Lauralynn Drury:
…I know.

Andrew Gazdecki:
That’s an epic story.

Lauralynn Drury:
He figured it out.

Andrew Gazdecki:
Yeah.

Lauralynn Drury:
And the same approach here. If you’re looking at acquiring an app and you don’t know the space, download it, use it, talk to people that use it. Try not to just have the myopic lens of like MRR and ARR and IRR, anything that ends in RR. And actually get your hands in there. And I know my perspective is product, so that’s what I always encourage everyone to do.

Andrew Gazdecki:
That’s fantastic advice. Well, Lauralynn, you’ve been a pleasure to have on this podcast some. If people want to get a hold of you, what’s the best place to find you?

Lauralynn Drury:
You can find me on Twitter at LLDRURY or the old LinkedIn.

Andrew Gazdecki:
All right. I’ll put that in the show notes. Well, LauraLynn, it’s been a pleasure and thanks again for your time.

Lauralynn Drury:
Cool. Thanks Andrew. Have a good one.

Andrew Gazdecki:
You too. Cheers.

Lauralynn Drury:
Bye.