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Ethan McAfee Contact Information

LinkedIn: https://www.linkedin.com/in/ethanmcafee/

Email: ethan@driftwood.ventures

Elizabeth Shea (00:43)

Hello and welcome to Branching Out. we're excited to bring Ethan McAfee into the studio today. Thank you for being here, Ethan.

Ethan McAfee (00:50)

Elizabeth, it's great to see you. Thanks for having me.

Elizabeth Shea (00:52)

I've known Ethan a long time through EO, and he was a former client many years ago. So, Ethan actually had one of the largest Amazon agencies in the country and so he exited probably two years ago almost. We're going to hear his story today. Thank you for being here again.

Ethan McAfee (01:10)

Yeah, so a little bit my background. I graduated college right at the beginning of the dot com bubble in 1998 and spent about 11 years as an investment analyst covering internet stocks and really had seen Amazon grow from a small little e-commerce company that sold mostly books and CDs to a kind of "everything store.”

So, in 2010, I started a business that eventually became called Amify. But it started out in my townhouse in Arlington, Virginia. And my to-be claim to fame, I was the first person selling pickleball paddles on Amazon before anybody knew what it was.

I ended up growing that business for about 15 years. We became one of the largest Amazon agencies. And what that really meant is that brands would hire us to help them with their Amazon strategy content, advertising, supply chain. We always said, think of us as like your outsourced Amazon team. But we worked with some of the Procter & Gamble brands, Swiss Gear, Dr. Squatch, a lot of your leading direct-to-consumer brands. So, it had a really fun growth. Obviously, Amazon has grown dramatically over those 10 or 15 years. I grew the company from basically my townhouse into about 100 people, then we ended up selling it in 2024.

Elizabeth Shea (02:37)

Well, congratulations. So, tell us a little bit about what drove you to think about exiting. Was it something you had thought about for a long time? What was your thought process like there?

Ethan McAfee (02:49)

Yeah, I think a couple of things happened. One, we had taken venture capital investments in 2019, and usually they have about a five-year time horizon or so. I'd say that the business had grown quite a bit. And I think over time, at least for me, it went from me being in the business and really focusing on helping the brands, to my job as CEO / founder being much more about dealing with investors and dealing with HR issues. And I think like we had kind of found product-market fit. For me, it wasn't as exciting anymore because it was like, all right, we now figured out how to make the widget. And now the goal is to make 10 times as many widgets. I think as any entrepreneur, like after a while you get kind of tired.

So that was all going on. At the same time, my wife and I started having quite a few kids. We now have three kids. And so, we ended up selling the business and having twins within a month of each other in 2024. So, it was great timing to exit and sell at the same time.

Elizabeth Shea (03:57)

So, what was the process that you went through? How did you educate yourself and to whom did you sell? A private equity firm or was it a strategic acquirer?

Ethan McAfee (04:14)

Yeah, I had come from the investment business. So, I really kind of understood who like the potential buyers were, you know, is it VC funds, is it private equity funds, is it strategics? I think ours was a little bit of a unique situation where our lead investor was also the lead investor in this other company called Cart.com.

And so Cart.com ended up acquiring us in 2024. Cart, you know, is a dot com unicorn. It has, give or take, a $1.5 billion dollar valuation. And so, it was a very friendly introduction. We'd been talking about being acquired by them for several years. Then kind of the timing just started to work out in 2024, where like our revenue had really started to go up and grow a lot. The valuation started to improve in the marketplace after the 2021 decline in tech stock valuations. So, we didn't go through like the formal process that most did. They came up with a solid offer and then we accepted it.

Elizabeth Shea (05:22)

Negotiated and then the deal was done. How long did that process take would you say?

Ethan McAfee (05:26)

Well, we kind of “dated” for probably three years. I think our original conversations started in 2021 and ended up being bought out in 2024. But once they really started heating up, I think it was kind of October-ish of 2023 and we sold in March-ish of 2024. So, it was about six months between getting the offer and officially closing. And I think with any deal, the devil is in the details, and you think you're 90% done and then the last 10% kind of drags out.

Elizabeth Shea (06:05)

Sure. So, let's talk about that a little bit. Let's talk more about the process you went through and what potential curve balls you came across.

Ethan McAfee (06:18)

Yeah, I think for me, a lot of the questions for myself were like … After being in this business for 14 years and now just starting to have kids, I felt like one chapter of my life was closing and then allowing me to open up for another chapter of my life, largely with dealing with twins and family and stuff like that. And about a year before we sold, I had also stepped down from being CEO to chairman. I was still fully involved in the company.

So, a lot of it for me was like, what do I want this next chapter of my life to look like? And I think a lot of the things I learned along the way was that, if you're trying to sell a business, one of the problems that founders have is that usually you're pretty valuable to the business and buyers want you to stay around and like want to lock you up with earn outs and long-term employment contracts. So, ahead of time for me, I was like, how do I make myself less relevant to the business so that when a buyer does come along, it will allow me to move on?

I think a lot of entrepreneurs think like, oh, my company is my baby and therefore I can't believe I'm selling my baby or whatnot. I think like for me, I really viewed it a little bit differently in two ways. One, I felt like this baby had grown up and is off to college, and it's now time for both of us to move on. And then also like, yes this is one of my babies, but I will probably have other babies in the future. So, if I sell it, I can move on and that is okay. It's not like I'm selling the company and just going to be miserable and depressed and bored for the rest of my life, right? And so those were kind of the two of the considerations I had going into it.

Elizabeth Shea (08:17)

So, you went into it with your eyes wide open knowing that you were going to be exiting the company and not a part of the day-to-day operations — that was never the expectation.

Ethan McAfee (08:26)

Yeah. So, I had moved to mostly like an individual contributor sales role. I mean, I always liked dealing with brands. I was really good at it, but it meant I didn't have to deal with all the employees and HR and organizational issues. I always say like revenue solves all problems and having a founder-led sales team is usually quite successful. And it's also something I really like to do. So, I stayed on for about a year after the acquisition closed and then left a couple of months ago.

Elizabeth Shea (08:45)

So just a few months ago, that's great. So, what's next for you? What are you thinking about? Are you cooking up some things?

Ethan McAfee (09:02)

Yeah, I mean, I have basically had two careers — 11 years in the investment business and then 14 years in the Amazon business, in the CEO / founder business. So, a lot of that stuff kind of made me think about like, how can I have the best of both worlds? And so, I recently have started working for a large private equity fund as a senior advisor role.

Basically, what that means is these private equity funds own brands, and those brands need help on Amazon and direct-to-consumer websites. So, for me it's great because I get to kind of date their portfolio of brands. I get to step in on helping the brands that are struggling. I’m also kind of being a coach and mentor to the ones that are doing quite well.

There's also a lot of work to be done in M&A and whether is there any Amazon or e-commerce thesis around these new brands that they might acquire. So for me, it's like I have my investor hat on. I can speak the investor language, because that's what I used to be, and this is an investment firm I'm working for. At the same time, I also have the operator language so I can get my hands dirty if I want to. I think there's this alignment of interest. My goal is to make the brands do better and use my knowledge of doing this for 15 years to help them. For me, one of the best things is that I went from a lot of direct reports to zero direct reports. So, I really get to do interesting work without having a huge team behind me that can be an emotional drag over time.

Elizabeth Shea (10:37)

Okay. Right, right. So just out of curiosity, did your team know? Were your employees aware of the process and the fact that they were a potential acquirer?

Ethan McAfee (11:01)

I'd say over the years, a lot of people had come to us and were somewhat interested in acquiring us. I think we were always like somewhat honest that eventually we'll probably be acquired. If you start talking to your teams about how you might get acquired, can go down this like big rabbit hole of massive distractions. I think most founders would tell you that like, only one out of five deals actually goes through or whatever. So with any deal, until it's closed, you don't know what's going to get closed and how much do we want to actually tell everyone. And so we kind of had said like, hey, this is business as usual. I mean, a few people had known internally, but like, at the end of the day, for most of the employees, there wasn't a dramatic change before or after, and we didn't want it to be a big distraction for them.

Elizabeth Shea (12:04)

Right, right. That's always a big question though that I know people have is, how and when do you tell your team? So, talk a little bit about what you might have done differently. I mean, is there any advice you can give to our listeners on what would you have done differently?

Ethan McAfee (12:19)

Yeah, I think if we look back, I think I'd probably fall into a group of entrepreneurs that probably sold the business too late if that makes sense, right? What I mean by that is for founder-led entrepreneurial businesses, the drive and the mental health of the founder is like a big driver of how successful this business can be, right?

So, what ends up happening is that a lot of founders get burnt out after ten years or even five years or two years or whatever the number can be. When you're starting to think about selling your business, you probably need to do it like two or three years before you actually want to sell it, right? Because like you need to prepare to sell the business. You need to get ready to be sold. In many cases, you need to start talking to people to get it sold by, and then many of the times they're going to want you to stay on after the business closes.

So, I always say like, you want to be thinking about selling your business like when your business is doing really good, not when your business is doing really bad, because you're going to get a much better valuation. And you probably need to be doing it two to three years before you actually think you want to do it. So that's kind of the main thing.

And then I think also it's what you want your role to look like after the acquisition, right? Like, do you want to be super involved, or are you ready to take more of an individual contributor role or do you want to quickly exit? And based on that kind of decision, it's like, okay, do we need to start? So, in my case, I promoted someone internally to be CEO, I moved to chairman, which kind of allowed me to exit much easier than it would have been if I was CEO still when the company got acquired.

Elizabeth Shea (14:09)

Yeah, so you thought through all those things, which is really important just to have a sense for what does your life look like afterwards. So, is there anything else you would have done differently or is there advice that you can give to listeners about what kind of minefields might have been out there?

Ethan McAfee (14:16)

Yeah, I always say like, the main thing from a business's perspective is that you want to control your own destiny, right? And the best way to control your own destiny as a business is to be profitable and to not have big bank debt or something that would force your hand along the way. So, I think with us and a lot of other technology and VC-backed investments, finances and burn rates and stuff like that really matter and kind of help drive and push sales. And so, in hindsight, it's thinking about how much you want to hit the accelerator on revenue growth versus burn. I come back to it as like, the less money you lose, the more likelihood you can control where you're going to go.

And a lot of the investors these days will tell you that they want to hit home runs. So, you should increase burn, whereas I think a lot of founders want to hit singles or doubles and just to understand that you're playing different games of baseball here. And then the lower your burn rate is, the more likely you're going to hit a single or double.

Elizabeth Shea (15:32)

Right. Right. So, what has your life been like since the transaction? Is it what you expected?

Ethan McAfee (15:43)

So, we sold the business, give or take 18 months ago, and then I ended up working there for about 12 months afterwards. I think going from a very entrepreneurial-feeling company to a much larger company, obviously, it just doesn't move as fast, there's more people to talk to and more rules. But that was all fine and expected.

When I sold the business, I knew I wanted to do something different. I just didn't exactly know what I wanted to do. So, I kind of did what I call my “lunch tour.” The important thing is just to spend time and reconnect with all your old friends and just have conversations. You never know where they're going to lead. So, one thing led to another, and another to another. Then all of sudden, I'm talking to private equity funds about going to work there as their e-commerce expert.

For me, it's just very refreshing to try to do something new. For me, it's really exciting to be back on the investment side because that's sort of where I came from. Obviously, I was more of an investor running a company than a company manager that happened to know about investments.

There's just something great about doing resets every once in a while, right? I know a lot of founders who've been 20, 25, 30 years in their business and that's great. But also, I think you stop learning a little bit along the way and learning is great. So, I feel like I'm learning again. I feel like I'm working with great team members. And I actually feel like I'm really adding value, too.

Elizabeth Shea (17:34)

So, you're doing a lot of mentoring. You'd mentioned that in our earlier conversations. What does that do for you?

Ethan McAfee (17:42)

Yeah, well, I've always been interested in mentoring and coaching people. And it makes you feel good about yourself a little bit, and you also realize how much experience you've had. As a founder or CEO, you have seen a lot and got punched in the face a lot along the way. So, you can really relate to other people. I do some mentoring and coaching of startup founders. It kind of brings me back to the days of when I was one person in a townhouse and didn't have any money. And it's just really interesting to hear all these different ideas.

The way that startups work now between 15 years ago when I started Amify is just so different. It's so much easier to get things done with technology changes and AI and whatnot. At the same time, it's now much more competitive as ever. Even though the businesses are dramatically different and times dramatically different, the basics of how you start, how do you prioritize, and how do you run systems is still the same.

I always had great mentors when I was growing up and I had joined a group called EO, Entrepreneurs Organization — which I was obviously a member with you, Elizabeth — and learned a lot from those people. And I always felt like I was the young, inexperienced rookie and all these other expert businesspeople were there. And so now I kind of feel like it's time to give back a little bit to some other founders.

So, in the private equity fund we own brands and some of those brands have really good managers in place managing their e-commerce divisions and I can help coach them along the way. And other times, there will be either no team or a very basic team. And I have to come in and actually get my hands dirty and do the job for a while and help hire and train up new people. And that's fun too. So for me, it's like a lot of different challenges there.

Elizabeth Shea (19:44)

Yeah, and I know you're also in Mindshare, which is a group for CEOs in the region, the DC region. I do think that one thing that's been consistent with the other people that we're talking to has been that you do need to surround yourself with people that can help you. And a group like EO, a group like Mindshare, being able to ask for help, I think really matters, particularly because you come with a background in investment banking, so you kind of know the drill.

Did you feel like you were ready when the deal finally went through? Was it the right time? Any regrets on that, or does it feel like, hey, you were ready, you know exactly what they're going to be looking for and how to get the best valuation?

Ethan McAfee (20:27)

I mean, I think like no business is ever 100 % ready to sell. But I think in my mindset, I was ready. Right? Like the business had grown, we had done a lot. I felt that I was kind of tired and ready for a new challenge. It wasn't the same excitement as it was before. And so like, hey, here's a good opportunity to close one chapter and open another chapter.

Elizabeth Shea (20:59)

Right. So, you think you'll do it again?

Ethan McAfee (21:01)

I mean, I'm having a lot of fun right now. I'm three months into a new job at a private equity fund. My gut is somewhere along the line — I don't know if I ever start a company from the beginning, but like, hey, you know, take over managing one of the companies and the portfolio or something along those lines. Yeah. I mean, I'm still young and still have a lot of energy. And I'd say the last year or so has been kind of recharging my batteries a little bit.

I think that it's super important to have fun, interesting jobs where you learn and you grow. And I feel like I'm doing that now. And I hope it stays fun and interesting. For me, it's really interesting because I now get the opportunity to “date” lots of different companies.

Elizabeth Shea (21:47)

Right, right. Well, a lot of our listeners are companies that are looking to potentially exit their business at some point. Is there any advice that you can give to them based on your experience of the lessons that you learned along the way?

Ethan McAfee (22:00)

Yeah, I mean, financials matter. Right? So, the main thing to always think about is like, who are the potential buyers? What they're looking for is profitable businesses that are growing that have recurring revenue and high margins. So, understanding that ahead of time and realizing that's what they want and what they're going to get.

And I think like it's important to educate, like, hey, you know, a business that has, you know, one to $10 million of revenue and $1 million of EBITDA probably sells for five X EBITDA and a $50 million business probably sells for seven or eight X EBITDA. Just understanding like what likely outcomes are and what drives value for like a private equity or venture capital fund is like super important to know ahead of time.

The other thing I would just say is that your business is worth what your business is worth, and that's usually determined by the outside markets and those valuations can change up and down dramatically based on what the economy is doing and the venture capital and interest rates and stuff like that. So, there's a lot of things that are out of your control. So, it’s important to sell when things are good and not be forced to sell when things are bad.

And I think lastly, it's really thinking about what your definition of success is. I think a lot of people say something along the lines of like, I'm going to sell my company when I can make X million or whatever it is out of the sale. Oftentimes that means that they wait around a really, really long time trying to hit this number that they're never going to hit. And that a lot of it instead of it was like, how is your energy feeling and how is your motivation feeling? Selling before you want to sell is often the best solution.

Too many times, I've seen businesses where like the founder gets burnt out and then the business starts to flatline or decline. Then the amount that they can sell it for goes down a whole bunch. And they're still hoping that they eventually turn around the business and get back to some magical number that they're never going to hit. It's better to get out before that all happens. Again, like it just keeps on coming back to, like, if you've done this once, you can probably do it again and don't give up on yourself.

Elizabeth Shea (24:28)

Very true. Very true.

Ethan McAfee (24:39)

Yeah. Then I mean, hey, you're throwing something new and I'm sure it's going to be exciting. And hopefully you'll learn the lessons from the last time around and, you know, take five years to make it one year. Yeah.

Elizabeth Shea (24:47)

Yeah, exactly, exactly. That's great. Well, any lasting remarks before we wrap up this show? This has been amazing.

Ethan McAfee (24:58)

Thanks, Elizabeth. It good to catch up. Thanks for your time today.

Elizabeth Shea (25:00)

Alright, thank you. Bye bye.