Hi, this is Dan Morrell, host of Skydeck.

On this episode, we’re featuring an excerpt from a new HBS podcast called Think Big, Buy Small. The show is hosted by Professors Richard Ruback and Royce Yudkoff and features stories of acquisition entrepreneurship—which involves acquiring a small business and running it as CEO. It’s an incredibly enjoyable listen, filled with vibrant, human conversations about the challenges and opportunities of this path that so many HBS alumni have chosen.

In this excerpt, Ruback and Yudkoff talk to Robin Kovitz (MBA 2007), president and CEO of Baskits, one of Canada’s leading gift services companies, about why she chose Baskits, how she weighed the personal and professional risks, and how she found a competitive advantage in complexity.

If you like what you hear, be sure to check out the full episode over on Think Big, Buy Small, available on Apple Podcasts, Spotify, and wherever you get podcasts. And tell them Skydeck sent you.

Courtesy Robin Kovitz / Baskits

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Royce Yudkoff: Robin, let’s start by talking a little bit about your journey into search. You graduated from business school and worked for about half a decade and then left to look for a smaller firm to buy. Tell Rick and me about your career and what made you decide to leave your job and buy your own business. Is it because you had a terrible job? Were you a coal miner or a hitman for the mob?

Robin Kovitz: I was definitely not a coal miner nor a hitman. So, I worked in private equity and I loved it. I loved what we did. We raised money, we learned a lot about various businesses, bought them, fixed them, sold them. I loved the job. But when I started a family I couldn’t reconcile how I could keep doing that and be successful doing that and also be the kind of mom that I grew up with, which was a stay-at-home mom. So, we came up with the bright idea – actually, my husband encouraged me – to buy a small business. And I knew I wouldn’t be working less but I knew I would have more flexibility to be a mother and work from home, and so I decided to try and buy a small business on my own.

Rick Ruback: A couple questions about your search. First of all, why did it take so long? I mean, your search took three years.

RK: Yeah, a little bit more than three years. It was much longer than the average searcher. And that’s a great question. Obviously, it was grueling and I wanted it to be over every minute. I was using my own money, so I was looking for something that I could be passionate about, and I think that passionate factor is not a typical investment criteria. Number two, I think because I was using my own money, I was scared. So, when you’re investing your own money, you’re very, very cautious. So, I got close a couple of times and then didn’t get there. I think part of it was luck. I got close on a couple of deals that just didn’t work out for various reasons. But ultimately, I’m thrilled. What’s the difference between two years and three and a half years or two years and a half? Like, find the right business. That’s the objective here.

RR: And when you said it was your own money, you meant, I think, not so much that you were funding the search yourself, but you’re planning on also providing the equity for the business. Whatever it would’ve been, you would’ve borrowed some money, but you wanted to be primarily family money, your money.

RK: That’s right. Yeah, and a small loan from my parents.

RY: There are two ways in which searchers pay for their search and the companies they buy, and both have merits that we’ll dive into again and again in future podcasts in the series. One is what’s called a funded search. There’s a population of investors who are eager to invest in searchers, and they do this again and again. And in a funded search, a group of these executives come together and they will actually pay you a salary and cover your costs while you search for a business to buy, in return for having the right to invest in that business on terms you and they agree on upfront, and they’ll put up the equity when that business is identified. So, you’ll earn a salary along the way, you’ll have a significant piece of ownership, and that group of search investors will be your partners. That’s the funded search.

RR: And the downside of that is that they take a lot of the ownership for themselves. The alternative is to cobble together enough money so that you can fund the search yourself. When we say, “fund the search themselves”, don’t imagine an intricate bank or something like that. Think about being frugal, searching locally, not nationally. Those kinds of things allow you to keep your search costs really low. So, Royce, you were talking about funded searchers. We talked about that in class. The typical funded search is a partnered search and they’ll have expenses running near a million dollars.

RY: All of which are covered by a group of recurring search fund investors to get at that company you might buy.

RR: Yeah. And they’re boiling the ocean to find that company. Alternatively, we see people, and we had a few in class, that funded their own search and they did it for less than $50,000.

One of the things that’s really special about entrepreneurship through acquisition is people who have never owned a business can buy a business even though they don’t have any personal wealth. They don’t have any money in their savings account. They can still do it. And the reason they can do it is because what’s really hard is finding the business, and that takes a lot of persistence and energy and thoughtfulness and care. And investors and banks are looking for people just like that. If you decide to go down this path, you don’t need money. That’s not what’s required. What’s required is some creativity and persistence.

RR: And you really wanted to be in Toronto. Did that matter?

RK: Yeah, I’m sure many people listening are thinking about whether they should have a geography-based search. For me, my husband, who was paying the mortgage and the bills, at the time was a lawyer based in Toronto, so we were quite limited to that region. There’s pros and cons to having a geography-based search. Sure, it limited the amount of businesses in the pool that I could acquire, but at the same time, it helped focus me, right? I wasn’t looking at everything and anything all over the map. It did help narrow the pool.

RY: Robin, I think a lot of listeners might be wondering, “Gee, if I quit my job and I go search and the search doesn’t work out, what do I do then?” Tell us a little bit about your thoughts on, “What do I do if the search doesn’t work?” What do you think you would’ve done?

RK: I remember being terrified of that. I remember being so scared that I invested ten years of my career, built a reputation, and that I would never be able to come back from it if it didn’t work out. But being a CEO now for nine years, being in my 40s, I can tell you, it’s totally foolhardy. I would absolutely hire a failed searcher. And so I really would encourage anyone listening not to think about search as like, “Yikes. I go back to Wall Street or whatever with my tail between my legs.” The right firm or the right employer would really recognize, view, and value that experience.

RR: Tell me more about the two pregnancies during search. So, did you have one child when you started searching, or were you pregnant with your first child when you started searching?

RK:Yeah, so I had a newborn at home when I started searching and then had a pregnancy and another baby right before, my second child, before my acquisition.

RR: So obviously, I guess, having an infant during search must have been okay or else you wouldn’t have had the second one right away.

RK: Truly. I mean, I used to take the baby with me all the time on the road looking at businesses. It was often an icebreaker and chatting with business owners, you know, it was just what I did because I used to drive around industrial parks within 30 minutes of my house and look at businesses, and I was just a person with a baby walking in. Search is a great thing to do while you’re having kids because your schedule is your own.

RY: Well, maybe this is a good moment to talk a little bit about the business that you ended up buying, Baskits. What does the business do and why did you like it?

RR: So, it’s a big gift basket company!

RK: Yes. It’s a gift basket company.

RR: What a weird company. Sorry. I mean, the idea that there’s going to be a company that actually just does gift baskets.

RK: Yeah, not your typical search company, right? I remember asking you guys, “So, I’ve come across this company…”, I was almost embarrassed to tell you, “…and they make gift baskets”, and you had the same face.

RR: That I have now.

RK: Yup. Royce, you encouraged me. You said, “Look at the margins and there’s something there. There’s some sort of competitive advantage. You just don’t know what it is yet.”

RY: Right.

RK: And that inspired me to dig and understand the business.

RY: Tell us how the business operates. Who does it sell to? What does it do?

RK: Sure. So, the competitive advantage or the sort of barrier in this business, is the complexity. So, you can imagine that a gift basket has a number of components, some of which are perishable. So, you could have anywhere from five to twenty-two items that go into this gift basket. It needs to look a certain way. It needs to be designed beautifully and have a theme. It’s actually quite complicated to do. And then it needs to be attached with the correct card, delivered on the right date to the correct location. There’s just an enormous amount of complexity. On top of it, what we specialize in is large orders. So, we have a large B2C, or a business-to-consumer business, that particularly grew during COVID. So, you need one baby gift? Great. We’d love to help you with that. But the core of our business is our B2B business where, say Harvard wants to give all 300 profs a holiday gift. I’m available, by the way, if that’s what Harvard wants.

RR: That would be nice, would be nice. Except it would probably be a ham. What would I do with a ham? But go ahead.

RK: Harvard would send us a list, right? With three hundred names, three hundred addresses. Some might be wrong. And that’s the value that we bring, is that we would ensure each one has the correct card and the correct message delivered to the right address, at the right time. We’re really experts in large order gifting to multiple addresses.

RY: Give us a sense of how big the company was when you bought it. How many gifts did you send out? How many employees?

RK: We had twelve employees when we bought the business and now we’re over a hundred.

RY: Lots of growth. And roughly how many gift baskets did you send out last year?

RK: Oh, hundreds of thousands.

RY: Hundreds of thousands. So, you must be Canada’s largest gift basket company by far?

RK: I think so. I hope so.

RR: A hundred employees now?

RK: Yeah, seasonally. Full-time, just under a hundred. But at the top of the season, yeah, way more than a hundred.

RR: Wow. I remember when you went from fifteen to twenty-two in your first year and I thought, “Oh my word. She’s out of control.” You really are out of control.

RK: It’s definitely more complicated in Canada, for sure, employment at will. It’s that age-old, you build it, they will come. Or do you need to build it first and they’ll come, or do you build it as they’re coming? This whole fixed cost conundrum is difficult for any business owner.

RR: I kind of like it when they come first and then you build it.

RK: You just hope the service level is okay when they get there when it’s not built.

RR: Yeah. Yeah. Yeah, yeah, yeah.

RY: Part of your challenge, and we’ll come to this later, is that it’s a seasonal business, so in some ways you have to get ready for these big seasons that come by the mouthful. But at acquisition you had gone through this very long search. You described yourself as being quite particular about the company you bought. What was it that arrested your attention at Baskits? You certainly have told us one thing, which is there are big barriers to entry here. It’s a complex product to deliver right, and you get loyal customers who order year-after-year, particularly these companies. But what were the things that most arrested your attention about the company?

RK: I just fell in love with the business. I always joke that it’s my third child, the one that’s not going to leave me. And maybe that’s not the best lens or example for you future searchers, but I love it. I mean, I spend more time on my business than anything else. It’s part of my passion. I’m so passionate about the products that go into our gifts, about the connections and help that we offer our customers in connecting with other people and the happiness that it brings to people all across North America. We serve customers all around the world. It’s a happy, fun business. I just love it. I love what I do.

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