2021 Annual Letter

Kelcey Lehrich, co-founder of 365 Holdings, reveals 365's refined mission statement, reflecting its core values and 'Micro Brand' thesis. Looking back at 2021, the letter celebrates significant achievements and outlines the organization's ambitious plans for 2022, emphasizing a focus on systematizing operations for enhanced scalability and dynamic growth.

January 4, 2022

I have had a written mission statement for 365 since we started. It has been tweaked and improved through time but there hasn’t been a significant focus on talking about it. This year, it has received what I think will be its final edit. The statement concisely summarizes both our company culture and our ‘Micro Brand’ thesis.

365 Holdings is a Vertically Integrated Holding Company of DTC-centric brands. We exist to build a high-performing team of growth-minded professionals that makes an impact on the landscape of consumer brands.

I am starting this second annual letter with this topic because I think the organization is at a place where we can tangibly execute on this mission in 2022. At our Q3-21 kickoff meeting, I told the team that I felt we had met a milestone in organizational maturity. We were rounding the corner from being a small business to evolving into a true platform. In that conversation, I defined a platform business as one with:

  • A Complete Org Chart — Gone are the days when Justin and I had our names in two, three, four, or even five functional roles on the team. Both of us still have operational responsibilities (Justin moreso than me), but the organizational design today is significantly more complete and mature. The org chart continues to evolve, but our original vision of team members in dedicated roles has largely been achieved.
  • Multiple Profit Centers — Today we own six brands. Each brand has multiple revenue channels (DTC, marketplace, and wholesale) and diversified sources of website traffic. We continue to be DTC-centric but can now be much more strategic in our decision-making and resource allocation.
  • Infrastructure — I will get into the details of our ERP implementation later in this update, but the maturity of everything from our shopping carts and project management tools to our accounting and warehouse management systems is greatly improved. We now have the tools in place to drive scalable growth without the need to replatform again (our ERP is our fourth WMS in just four years).

This meeting was held just four years into our existence, the first two of which look nothing at all like the organization that we have today. It would be easy to mistake this milestone of ‘platform status’ as somehow bragging that we have arrived at some destination of final success. On the contrary, it was the announcement that we were just arriving at the starting line of what will be a marathon. It’s been four years of work, and we’re literally just now getting started.

A Quick Year in Review

We began the year by closing three transactions within the span of several days. The team (specifically Jerrica, our VP of Ops) has made it clear to me that going forward we have a ‘one deal at a time’ rule. In January, we divested a sunglasses brand (KZ Gear) that was no longer a fit strategically, and we acquired AlternaScript and Cultures for Health. With the Cultures for Health acquisition, we received a team and production/warehouse facility in North Carolina. At the outset of the transaction, it was unclear what the plan for the team and facility would be. It wasn’t long after the transaction closing that it became clear that relocating the facility to our HQ in Akron was the best path forward. We then embarked on a relocation process that took until the end of Q2 to complete. With the relocation, we welcomed Cara and Dan to Ohio as they chose to relocate with the business and join the 365 HQ team. We couldn’t be happier to have them aboard. Around the time this relocation finished, we also closed our third acquisition of the year with the purchase of Hair Restoration Labs.

2021 proved to be a year of headwinds from big tech. The tracking changes forced on the Ad Tech ecosystem by Apple’s iOS updates have made decision-making much more difficult. What used to be cut-and-dry math to measure performance became blurry, and decision-making around web analytics and marketing attribution got much more difficult. We have invested heavily into data integrity resources and are now ending the year with a much more stable tech stack to make decisions with (hats off to Elevar, Nautilus, WickedReports, and Chris for quarterbacking this!). Our marketplace business grew this year, both on Amazon and elsewhere, but it felt like pushing a boulder uphill all year long. From inventory issues and platform errors to the setup and integration of ChannelAdvisor, each step forward felt like it was the net of four steps forward and three steps backward.

Each of our functional teams also took some big steps forward this year. Just a few highlights for each include:

In Data, Development, and Technology (DDT):

  • We parted ways with our offshore team and have hired a team of in-house developers.
  • We finished our 18-month-long setup and integration of our ERP system!
  • We now have an FTE dedicated to onboarding and training all users of our core systems.
  • Joe’s long-time dream of running the DDT team on Scrum project management also came to fruition!

In Marketing:

  • We organized the team around dedicated roles for Customer Acquisition, Customer Experience, and Customer Retention.
  • We had a giant summer intern class of content creators (thanks to Allison and Kristen for running that!).
  • We grew the Creative team to four FTEs.
  • We built and ran a comprehensive full stack marketing training program.
  • Yours truly no longer runs our ad spend (thanks Miranda!).

In Operations and Finance:

  • We completed an outside review of our financials and have begun our audit for this year.
  • Our supply chain processes of forecasting and purchasing have matured significantly.
  • We welcomed experienced leaders into the team to run our finance and HR functions (glad to have you Dan and Lindsay!).

Results of 2021

As we close our books on 2021, the financial outcome of the year is within a percentage point or two of our projections from the beginning of the year. While the path to our goal took many twists and turns, we largely found ourselves at our intended destination. With this, we will soon be announcing our second profit sharing payout for the team (365 Core Value: Winners Keep Score)!

Perhaps more important than our financial outcomes from the year is the result of our leadership team establishing a management cadence. We partnered with the Telos Institute to help our VPs through a leadership development program, and the outcome was the formation of what they call Team 1. Team 1 does not include myself or Justin as founders. Team 1 now runs much of the weekly operational cadence of the company and is a significant step forward in our organizational maturity.

There is a concept in software engineering called ‘technical debt.’ It’s when you cut corners to go faster and have to redo work in the future to ‘repay the debt.’ As we put our ERP in place this year, we found ourselves repaying lots of ‘management debt.’ We were forced to address processes and systems that were built as shortcuts. The entire team was confronted with the work of maturing and systematizing our businesses. That work is not done yet and will continue into our theme for 2022. We have a roadmap now for the work left to accomplish.

Some Context on 2021

When I wrote my first annual letter last year, I decided to always intentionally include some historical context so when I look back on where we have come from I don’t forget the circumstances we encountered.

  • Covid-19 Continued — We saw variants ranging from Delta to Omicron.
  • Supply Chain Got WILD — The ports on the West Coast reached peak delays while every business simultaneously tried to move from Just-In-Time inventory to targeting three to six months of stock on hand.
  • eCommerce CAGR Normalized — The growth rate of eCommerce as a percentage of retail sales spiked during spring of 2020, and based on data from the St. Louis Fed is now back to matching the long-term growth curve. The acceleration was only temporary.
  • Crypto Went Mainstream — We were all asked about Bitcoin at Thanksgiving last year. This year, it was NFTs, Defi, Web3, and alt coins. Some publicly listed investment vehicles for crypto launched, and it feels now like crypto is here to stay. The future implications for consumer brands range from ‘totally obvious use case, it’s only a matter of time’ to ‘ridiculously, sublimely absurd.’

A Brief Word on Aggregators

365 is sometimes lumped into the ‘eCom Aggregator’ category of business. While I consider companies like Elements Brands, 4x400, WIN Brands, or Karta Ventures to be our industry peers, there is much more news coverage of the FBA Aggregators like Thrasio and Perch that seem to make fundraising headlines weekly.

I don’t believe that smaller DTC-focused holding companies should be compared to venture-backed Amazon FBA roll-up strategies. From talking with my friends that run some of the aforementioned industry peers, I think our collective strategies are markedly different from the one employed by the FBA roll-ups.

While I don’t normally like to make predictions, I think that the writing is on the wall that in 2022 we will see news of big changes across the spectrum for multi-brand eCommerce organizations. Some of the big FBA aggregators will either blow up or get sold, and some of the smaller DTC-focused holding companies will announce meaningful changes in structure and strategy.

2022 Business Plan

Our theme for 2022 is the ‘Year of the Process.’ While we have many objectives and goals, our top priority is to finish systematizing the operational aspects of the business. This will make the organization more scalable and dynamic. A core part of this effort will be developing our long-term org chart roadmap with career tracks.

Another key focus is building a process for the brand management function. Brand management is an ongoing need for operators of consumer brands (DTC or not). To support this effort, we are building out an entire Brand Management Team to execute on projects including:

  • Market Research
  • Competitive Analysis
  • Product Development
  • Continuous Improvement Projects

In HR our ‘Year of the Process’ will include:

  • Implementing Culture Index (365 Core Values ‘Team and Culture First’ and ‘EQ over IQ’)
  • Expanding our Management Training Process
  • Doubling down on our Internship Program
  • And much more

As we execute on our plan for the year, we are looking forward to finding a new financing partner to fuel our growth. And last, but not least, we are looking forward to adding another brand (or two?) to the 365 family.

Thank You

As I write my second annual letter, I think of the stakeholders who may take the time to read this. Employees, friends, family, business contacts — the list is long. Everyone I interact with shapes my thinking and guides the future plans of our organization. Thank you all for your support.

When people sometimes ask me why Justin and I started 365 Holdings, the answer usually goes something like, “Well, we’re not really employable so we had to build the company that we would want to work at.” I owe the biggest thanks to our team who shows up daily to execute on our business plan (365 Core Value: Relentless Execution). Here’s to a great 2022 when we’ll do it all again!

— Kelcey Lehrich

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