In episode #2639, We discuss the recent bankruptcy of Thrasio, a $3.4 billion aggregator that acquired Amazon businesses. We talk about the risks of relying too heavily on one formula or platform and emphasize the importance of being cautious and responsible when scaling a business. We highlight the need to save for tough times and avoid over-leveraging oneself. Additionally, we share a cautionary tale about a friend who regretted raising unnecessary funding and the negative consequences it had on their company.
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All right, so three point four billion dollar aggregator, Thrasio has gone bankrupt. So Neil, do you want to explain what an aggregator is and then we'll share some takeaways for everyone.
Yeah, what an aggregator is, at least in Thrasio's case, is they're buying up a lot of Amazon type of website or Amazon sellers, people who are selling on Amazon, aggregating them into one business and rolling them all up into one.
They're assuming that they're going to get a higher valuation because they're at scale yep.
And so what they were doing this is probably starting around I don't know when they started, maybe twenty eighteen, twenty nineteen, maybe twenty twenty or so, but they started buying Amazon businesses that were doing well. And their whole thing was like, look, we can we can have efficiencies with like a like a front office or shared resources, which means you're sharing like HR finance or whatever. And you are basically you're arbitraging. And in the last episode we talked about arbitraging, right, So you're buying ads on Facebook or whatever. And this was before all the iOS changes, before the tracking changes and all that, right, And it was you know, pretty it was. It was easier to get a high return on ads spend, so ROAs right, and you know a lot of people were doing it also. At the same time, I believe Amazon's take was like fifteen percent or whatever. They've actually increased that take to I don't know, twenty twenty five percent or whatever. Right, I could be wrong on that, but my point is at a certain point, once twenty twenty two hit, when interest rates started going up, the arbitrage no longer worked because Amazon's take great went higher. And then also the calculus on running the ads, the ad arbitrage, it was no longer working. So everything went reversed. Like even though they had these interesting e com businesses that they all rolled together, it didn't It didn't work anymore, and so everything because of the high interest rates, everything started going down. And I believe that they took on I could be wrong here, but they took on debt as well, and so well.
To be clear on what Eric's trying to say, is Rasio file for bankruptcy. But the company's not going away. They're just trying to restructure, re organize, stay less. That's it. They just took on too much debt when they shouldn't have and the people who lended the money are kind of screwed.
Yeah, they're trying to call it too.
Yeah, the investors may lose some money or whatnot, but they're trying to restructure it so then that way they just don't have to pay all that debt.
They just say, oh, we're not making a lot. We borrow a billion dollars, so we don't want to pay the billion dollars. We really want to give you a hundred million dollars.
Yeah, well pretty much. I think they're trying to pull off. And we know some other people have pulled that off, and uh, kind of quite well.
Yeah, I mean, look, the lesson is I think the lesson here is.
You can't.
I mean, in the last episode we talked about not relying all on I think betting too much on one formula and betting the house on it. And and there's there's platform risk, right because you're betting on you're betting on like Facebook and Meta, but you're also betting on Amazon as well, so this is actually triple risk. So so I think that makes it a risky type of thing. And at the time it seemed really smart because everyone's like DDC Shopify, shop AFY, Shopify Shopify, and then like it's like, yeah, let's roll them all up. And then everyone's like yeah. And so it's like, I think the mania caught up. But it all comes down to one, not over leveraging yourself, but also two not not relying on platforms too much.
Yep. So you know the other thing too, is it's like just be cautious. You can grow, you can grow fast. And you know, in marketing you can spend up money and turn up the knobs and just spend a million dollars a day on Google and Facebook and all these channels, but you got to be responsible about it. And a lot of these companies when things were great, they weren't responsible. You know, they were just thinking about the good times loading up that they weren't running the businesses profitably, and you know they were just like, oh, everything's fine, all this kind of stuff, and the way the world is, it just keeps going this way. You know, what goes up goes down, and what goes down also can go up. You know, business is like a roller coaster. There's ups and downs and scary moments and happy moments, but you got to be prepared for bad times. And I think that's what a lot of these companies didn't do. You know, when you're scaling up your business and your marketing and things are going well and you have all this profit, doesn't mean that you should just distribute the profit in you know, go buy fancy houses and fancy cars. You know, you got to say for the bad times as well.
Focus creates discipline. And we have a friend he raised a couple hundred million dollars for a company and he didn't need to do it, and he he regrets it because they ended up getting blown.
They two hundred million dollars at a multi billion dollar valuation. Never needed the money. It was a bootstrap company. And you know what, if you ask him, he regrets taking it on.
And he's working harder than he's ever worked at the company to move in the right it's moving in the right direction. But they they hired a bunch of people that they didn't need to hire, and it was a lot of people that didn't align with their culture. There was a lot of people that were seasoned executives that weren't quite ready for the stage that they hadn't been at the stage that they're trying to go to. Maybe they had been at a really senior stage already, but maybe not a public traded company, but they hadn't been at a stage where it's like we're getting ready to take this from a scale up to a publicly traded company.
Yep. Yeah, no.
Look, it's the big mistake that people are making is they're just getting too aggressive and they're not really.
Thinking things through. But you know, I think you guys get the point.
And keep in mind when you read a lot of articles about people going bankrupt and stuff like that, a lot of times they're just doing stuff so they don't have to necessarily pay bills.
That's correct, all right. So that is it for today. Please don't forget to rate review, subscribe and check out this video over here if you want to continue to get better at marketing. And we'll see you tomorrow.