{"id":437,"date":"2017-02-16T13:14:30","date_gmt":"2017-02-16T13:14:30","guid":{"rendered":"http:\/\/reformingretail.com\/?p=437"},"modified":"2019-01-23T07:47:24","modified_gmt":"2019-01-23T13:47:24","slug":"another-investor-enters-brick-mortar-will-likely-regret-it","status":"publish","type":"post","link":"https:\/\/reformingretail.com\/index.php\/2017\/02\/16\/another-investor-enters-brick-mortar-will-likely-regret-it\/","title":{"rendered":"Another Investor Enters Brick & Mortar – Will Likely Regret It"},"content":{"rendered":"

Last week Fishbowl Marketing was acquired <\/a>by Symphony Technology Group. I’m always a little leery of private equity ownership because many of these funds use financial engineering to steal their IRR instead of digging into the operations and making improvements at a more fundamental level. Classic example is Golden Gate Capital stripping the real estate off Red Lobster<\/a>.<\/p>\n

But Fishbowl made a good move years ago in buying Mike Lukianoff’s analytics company. Mike was one of the first people I heard of doing legitimate data science in the brick and mortar space. Many retail executives will tell you they’re using “big data” or “data science” but that’s just verbal masturbation to make it look like they know what they’re doing. So because of Fishbowl’s willingness to involve themselves in real<\/span> data science by aligning with Mr. Lukianoff, they’re probably making a good move by partnering with Symphony.<\/p>\n

Though with all respect to Fishbowl, I’m not sure it will be a (relatively) good deal for Symphony.<\/p>\n

Start with this question:<\/p>\n

Why are there so few private equity (PE) investments in brick and mortar service providers, particularly restaurants?<\/strong><\/p>\n

Our observation is two-fold, and we’re not shy about providing data<\/a> to back it up<\/p>\n

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  1. Merchants are really unsophisticated and thus sales cycles are forever long<\/li>\n
  2. Merchants are really broke because they don’t run their businesses well so solution provider revenues are low<\/li>\n<\/ol>\n

    On the whole, this truism is bad for the industry. It means external sophistication continues to pass it by because growth is hard to come by. Think of it like this.<\/p>\n

    The US restaurant industry is huge. It’s $700B in sales, employing over 14 million people – 10% of the workforce. Yet you’d struggle to find 10 restaurant technology companies that meet the PE threshold of investment interest ($10MM annual revenue).<\/strong><\/p>\n[bctt tweet=”Think about it: here’s an industry that’s the 2nd largest employer yet you can’t find 10 tech companies that earn $10MM in revenue…” username=””]\n

    What does that say about the sophistication – and thus potential – of the industry?<\/p>\n

    This is a list of tech companies that might reach this revenue minimum. (I’m going to ignore payments companies because they’re ultimately not constrained to brick and mortar like a restaurant marketing tool might be.)<\/em><\/p>\n