A Fresh Perspective with Jaime Schmidt

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Stacie Jacobsen: [00:00:00] Hi, I'm Stacie Jacobsen. Thanks so much for joining us on The Pulse, where we bring you insights on the economy, global markets, and all the complexities of wealth management.

This week we're introducing our inflection point segment where senior managing director Brian Haloossim, interviews entrepreneurs about pivotal moments in their business journeys. Today's guest is Jaime Schmidt of Schmidt's Naturals. Schmidt's story is remarkable. Back in 2010, she started making naturally based personal care products in her Portland kitchen.

Now, seven years later, Schmidt's Naturals was selling to over 30,000 retailers in 30 different [00:00:45] countries. And then in 2017, she sold the company to Unilever for a nine figure sum. Since then, she hasn't stopped. She co-founded the VC firm Color Capital, which they'll talk about more in their interview, and she wrote the book Super.

[00:01:00] Crafting business on your own terms, and Forbes has said, if you have an idea, follow Schmidt's playbook as we'll hear in her discussion. It wasn't always smooth sailing. There were certainly some rough patches along the way, and she had plenty of big decisions to make, [00:01:15] including whether or not to take on a venture capital partner, which by the way, she did not.

So how did Jaime know it was the right time to sell, and how did she choose her buyer? We'll find out when we come back right after the short break, stay with us.

I am Clare Golla, host of Inspired Investing, a podcast for those engaged in the nonprofit, philanthropy, and broader social sectors. Be sure to tune into our latest episode where Maryellen Gleason shares wisdom. She's gathered from more than two decades leading social sector transformations.

Stacie Jacobsen: Welcome back to. Here, senior managing director, Brian Haloossim, talking with Jaime Schmidt of Schmidt's Naturals. [00:02:00]

Brian Haloossim: Well, Jaime, first of all, I want to thank you for joining me on the inflection point. I appreciate, I know you just got back from traveling internationally, but I'm really looking forward to this dialogue.

Jaime Schmidt: I am too. Thanks for having me.

Brian Haloossim: Yeah, my pleasure. I, I have to [00:02:15] tell you that I was on a quest a number of years ago for finding. Uh, an aluminum free deodorant first for my, for my kids. They're all athletes, and I found it really hard until I ran into your company and [00:02:30] my wife and I first became users, and then my four kids all use them. I wanna start there because I feel like you solved a problem that maybe a lot of people didn't know existed, and I'd love to get a sense of how you [00:02:45] even. Came up with this, um, you know, what was the impetus for starting the Schmidt Natural Deodorant brand? And maybe we could go there.

Jaime Schmidt: Yeah, it's great to hear that your family is a family of users. Thank you. I, I started Schmidt's [00:03:00] back in 2010. Um, I was living in Portland, Oregon, and I think many, um, are aware that Portland is a city of makers, creators, artists. And at the time when I moved there, you know, I didn't have a plan to start a deodorant business. [00:03:15] Um, but I did have a plan to get my hands dirty and figure out what I was good at and what I liked doing.

Jaime Schmidt: I was at a pivotal moment in my career where I had been working my way up the corporate ladder in a different job and just wasn't feeling it. And I knew that it wasn't the long term thing for me. I just, but I didn't know what [00:03:30] that looked like. And so, um, being in Portland, I had a lot of opportunity to try different things.

Jaime Schmidt: I also got pregnant, and I was paying closer attention to the products I was using on my skin and started making a bunch of my own things. Lotion, sunscreens, deodorant, and, and was using them more just, you [00:03:45] know, just for, for my own personal enjoyment. Uh, but then as I started using them, I realized they, they were pretty good and they smelled nice.

Jaime Schmidt: They were effective, and they were really, really clean. And I felt, um, that more people deserved to try them. So I started taking them out to the farmer's markets and that's when [00:04:00] things started to, to take off.

Brian Haloossim: As you're scaling the business now, uh, there's always. So many challenges and obstacles that you run into, and I'd love to get an understanding from you of, you know, what some of those [00:04:15] challenges were, how you actually got to the point that you, you know, you did, where the company was really scaling and growing and, and what that looked like.

Jaime Schmidt: yeah. Every stage of the company had different challenges. Um, but I think the [00:04:30] consistent theme was that I didn't know what the heck I was doing . It was the first business I'd built. You know, I didn't have a background. I, I, I had a degree in business actually, but, um, didn't take it very seriously, to be honest.

Jaime Schmidt: Cause I never expected myself to become an entrepreneur. Uh, so I started, jump, jumped [00:04:45] into this, you know, I didn't come from a family of entrepreneurs. I didn't associate with many and. Really had to learn everything along the way, you know, from the administrative side of things, the financials accounting, but then of course the operations in terms of, uh, you know, production, [00:05:00] manufacturing, uh, supply chain and all that.

Jaime Schmidt: Um, and one thing that I think put me in an especially unique position as a new entrepreneur is that I had built my own factory, you know, not the building itself, but had leased out a space and, you know, brought in all the equipment and the machinery and set up the assembly [00:05:15] lines and things. And so I didn't outsource my manufacturing.

Jaime Schmidt: I, I started. In my kitchen on the stove of top and then ended up moving to, um, a large space, you know, actually multiple moves over a few short years. Um, and there was just so much to learn, you know, in [00:05:30] terms of setting up a, a manufacturing line, right? Like what does that look like? What's the way to be the most efficient?

Jaime Schmidt: And, and with that, I actually was bootstrapping the business too. So I did not have an abundance of capital. I had to be very mindful and strategic in what I was spending my [00:05:45] money on. And that gets a little tricky when you're investing in things like machinery.

Brian Haloossim: Yeah, it does. I want to talk a little bit about the capital part, because you didn't go the conventional way, if I understood correctly, where people go out and, you know, obviously looking for VC capital and stuff [00:06:00] like that.

Brian Haloossim: Talk a little bit about the journey of how you dealt with the need as you're scaling to, you know, fund all those endeavors.

Jaime Schmidt: Yeah, in the first couple years, you know, I, I really took things slowly. It was more of a kind of a side hustle, so I [00:06:15] had a couple jobs on the side, but I was strategic in what those jobs were.

Jaime Schmidt: I wanted to work in the industry and I wanted to. You know, learn more, um, and position myself to be at an advantage as I did continue to mature as an entrepreneur. And so I got, um, a [00:06:30] position at a local retailer so I could understand, you know, the inner workings of retail. I worked for an e-commerce company so I could understand what that all meant and what that looked like behind the scenes.

Jaime Schmidt: And so, um, I had a little bit of income there and I, you know, considered that income, the seed money for the business. So [00:06:45] that sort of, you know, kickstarted the original expenses. But then it was just a matter of recycling profits, you know, immediately back into the business. But to do that, I had to be really intentional with, you know, how, who and when, and I was hiring, you know, any, any [00:07:00] purchase had, you know, a lot of thought had to go into it and they had to really deliver.

Jaime Schmidt: And as the business continued to grow, you know, again, recycling money back in further on, you know, about five years in, I did, I ended up taking out, uh, a small bank loan, um, but never took on VC money. You know, there was, there [00:07:15] was certainly some interest along the way. But I think, you know, I really, I saw it as a distraction.

Jaime Schmidt: You know, when I did get that interest, I just wasn't, I wasn't interested in pursuing it because, one, I didn't want anybody to answer to. Two, it was, um, frankly, very overwhelming . [00:07:30] I didn't know how to have those conversations and I didn't wanna distract myself with it. And thirdly, I didn't understand yet the, the major potential of the business.

Jaime Schmidt: I didn't know where I wanted it to go. I never, you know, jumped in with a plan to, to scale it and to sell it. I just really enjoyed what I [00:07:45] was doing and I never, you know, looked too far ahead and thought of the, the bigger potential. And so with that mindset, I think it positioned me in a way where, you know, having, um, a lack of capital was actually, um, you know, worked in my advantage.

Brian Haloossim: As you look back and you think [00:08:00] about, you know, where you are now and what. What it took to get there. I know it's hard to pick one or two things, but, but what were the one or two things where that, where the catalyst, where you realized, wow, this is really happening? [00:08:15]

Jaime Schmidt: I mean, our customer base was so loyal, um, and kind of cult-like and a lot of that started at the farmer's markets and building those relationships in person.

Jaime Schmidt: Um, as a business skilled, you know, I continued to keep the customer at the forefront. [00:08:30] And I think that was just the key, right? Because I was competing against some of these, the bigger names and deodorant that didn't have those relationships and, but it was challenging, you know, as you grow to, to keep that.

Jaime Schmidt: I think what also helped was, you know, we started pushing this message [00:08:45] around natural clean. But then we realized, you know, we were actually competing with some of these bigger names and deodorant, the more conventional, uh, brands like, like Dove and Axon Secret, who weren't pushing that, that clean message as much.

Jaime Schmidt: And so we wanted those customers, right? [00:09:00] We didn't want just the, the, the natural enthusiasts, um, and, you know, the green consumer. Um, and so in recognizing that, you know, we started to open up our minds to different distribution channels. So we were willing to sell in retailers like Costco, Walmart, target, where [00:09:15] some of the other natural brands that we were competing against weren't, weren't interested in those channels.

Jaime Schmidt: I really saw an opportunity to make natural's mainstream. Um, but there's a challenge that comes with that messaging, you know, and something that that's gonna resonate with customers outside of that niche.

Brian Haloossim: And Jaime, [00:09:30] what made you decide, okay, you know what, it's time to. and maybe you could share the process there.

Jaime Schmidt: Yeah, you know, I wasn't shopping for buyers. We were certainly at a turning point in the business though. We had established distribution [00:09:45] across, you know, some major, major retailers and, you know, money was certainly tight. It was all tied up on shelves. Uh, so for example, you know, launching a Costco, Walmart target within just a few months of each other.

Jaime Schmidt: All our money was sitting in inventory on shelves. And so it was, you know, [00:10:00] either let's, we do need to actively raise capital or we need to go get more bank loans, or maybe there's a strategic partner. Um, and started to get some interest and started to take that a little more seriously. So we had, uh, somebody helping us broker the deal and having their support.

Jaime Schmidt: Um, you know, we were, they were able to, [00:10:15] to go shop around and get interest from potential buyers. Um, you know, there were several, we were entertaining. Uh, Unilever was the one that really caught my eye. I was attracted to a lot that they could offer, you know, of course, um, greater distribution, you know, being a huge global [00:10:30] company, really sophisticated consumer insights.

Jaime Schmidt: Of course, their supply chain capital, . And then, you know, holding a unique position in their portfolio I think was really attractive to me because they had other de deodorant brands of course, but they didn't have any natural ones. Um, so I knew that when [00:10:45] we were joining them, we'd be joining a family of other deodorant brands, which could be helpful.

Jaime Schmidt: And I think the biggest piece was they knew what we were good at and they didn't have intentions of shaking that up. Sometimes in acquisitions, you know, the, the parent company will come in and just change everything, but they [00:11:00] recognized, you know, our strengths were in brand building and marketing, and there were certain teams that they just wanted to leave alone and actually learn from.

Jaime Schmidt: Um, so that was really attractive to me too.

Brian Haloossim: Yeah. And so post exit, what did life look like?

Jaime Schmidt: Yeah, I mean, the first thing I did was take a deep breath and think what the heck [00:11:15] just happened over the last seven years. And then I realized, you know, there was more I wanted to do. Um, wrote the book, uh, started an investment fund called Color.

Jaime Schmidt: You know, even though I didn't take capital, I saw an opportunity to invest my capital into other companies. Um, and [00:11:30] having been an active operator, I felt like I was coming from a unique angle over it because I'd been through it. And so I think that gave me, um, an edge as an investor. Um, and, and have just done some advising and that today I'm, you know, still doing some consulting and things and, and [00:11:45] still investing in the consumer space, but also have opened my interest a little bit to, to this kind of Web three crypto world as well.

Jaime Schmidt: Yeah, and that's, I think, the impetus a little bit behind color capital. Um, do you mind if we dive just a little bit into that? I know it's, it's quite complicated. I was [00:12:00] looking at it and trying. Get it, but I, I understand for the most part, you're an active investor and you're supporting other brands coming up, but there's a lot more to it.

Jaime Schmidt: Yeah. You know, we, it's, when I say we, it's, it's just my husband, um, and I, Chris Cantino is his name. We, he had [00:12:15] helped me scale Schmidt's. Um, he really led our marketing and communications and so together we have, you know, a wealth of experience. And it's great because we're a family office. We don't have any, Investors to answer to or, you know, to, to get approval from.

Jaime Schmidt: And so we can take our time [00:12:30] with things, we can, you know, vet them as much as we need. We have a, a back office who helps with diligence, but, you know, for the most part, it's just the two of us making decisions. But we're really passionate about, of course, consumer products. Um, you know, that's where their expertise is.

Brian Haloossim: Yeah, it's fantastic. There's a common [00:12:45] theme of, uh, you guys making sure there's no one to answer to. I do want to just ask one final question. You know, as a female founder and we run into a lot of consumer brands now that are run by strong female founders, I, is there a sort of [00:13:00] commonality in the kinds of companies that you're investing in to help other female founders just kind of wanna get an idea of like what the themes.

Jaime Schmidt: Yeah, i, you know, when we started color our fund, we were targeting specifically, um, founders that were, you know, [00:13:15] overlooked generally women, people of color. Um, and that's still very much, you know, in our thinking. Uh, but we've also found that people starting amazing businesses are, are often people, you know, from those backgrounds, which is really cool.

Jaime Schmidt: And so I think we just surround ourselves with the right people [00:13:30] that we see opportunities where others, don. , I do get particularly excited about women founders. You know, they come to me often and, um, with different types of struggles, right? Like that we can't pretend that, you know, being, um, an entrepreneur is the same across the board.

Jaime Schmidt: Right. As women, we [00:13:45] generally are just more overlooked and underestimated. And so I'm always there to help, um, kind of give that extra boost of confidence.

Brian Haloossim: Yeah. Well, your story's amazing. I really appreciate the time that we spent today.

Jaime Schmidt: It was my pleasure. Thank you.[00:14:00]

Stacie Jacobsen: That was the inflection point. Segment host Brian Haloossim interviewing Jaime Schmidt of Schmidt's Naturals to follow up on how and when an entrepreneur decides to sell her business. I'm here with Sean Sullivan, associate Director in Wealth Strategies. He co-authored the Bernstein blog [00:14:15] entitled, when to Sell Your Business, take The Money and Run.

Stacie Jacobsen: Sean, thanks so much for joining us today. We just heard a great interview between Brian and Jaime, and as a follow up to that, I wanted to discuss a little bit about the blog that you wrote and what some of the factors are that go [00:14:30] into a business owner who is thinking about selling their business or at least ramping up to do so.

Stacie Jacobsen: So look, there's so much more that goes into that decision. besides just the finances. So let's start there. Let's talk a little bit about how somebody starts to think it's the [00:14:45] right time, and then how do they start to actually look at it from evaluation and analytical perspective?

Sean Sullivan: Absolutely. And Stacy, thank you for having me excited to be here today.

Sean Sullivan: I think that question around when's the right time to sell my business is arguably the most common [00:15:00] question in my day-to-day, and I think. Really makes business owners struggle with the answer is that it is too pronged. As you mentioned, there's the obvious financial aspect. This could be a considerable amount of money, and I think we heard that in Jaime's [00:15:15] interview talking about having all of her product and essentially all of her net worth stuck on shelves.

Sean Sullivan: That's daunting. Uh, but there's also a very personal element to this and you know, I think you also heard that in Jaime's story when she's talking about, I used to make [00:15:30] this deodorant on my stove top at home, and now I'm setting up a manufacturing plant. Like that's a big difference. and for owners to part ways with something that they've taken from the stove top all the way to a factory floor is [00:15:45] really difficult.

Sean Sullivan: And I think where we start on the non-financial side at Bernstein is with our family engagement and family governance teams who do a great job of sitting down with business owners to unlock those values and priorities behind the money. [00:16:00] So after a sale event or taking some chips off the. What will these assets will allow you to do, and how can you position yourself for that next phase beyond the business?

Stacie Jacobsen: Yeah, and that's such an important place to start, right? So understanding the [00:16:15] motivation behind selling, and then getting into the numbers a little bit. For business owners that do have an offer to sell or even multiple offers, it's often hard to quantify the difference between all of them. So how does Bernstein's proprietary modeling help?[00:16:30]

Sean Sullivan: We like to use our modeling to demystify what some of those offers may mean for the business owner. So we like to use the word pre-experience, but what we do is we take the deal structure or multiple deal structures [00:16:45] and we'll run analytics to show the business owner, not just what today looks like, but how the deal will impact them and their family over the next 5, 10, 20, 30, even 40 years.

Sean Sullivan: And so we're able to take that data. Uh, looking [00:17:00] at current deals or if there's an opportunity to wait and say, can I grow this business a little further? We could look at that as well.

Sean Sullivan: Yeah. And it's often extremely helpful to have a lot of different complicating factors almost just laid out so somebody can look at [00:17:15] it quickly and help to make a decision and move forward.

Stacie Jacobsen: So, Sean, after you've done your deep work on the analytical side, If it comes out that there's a significant monetary benefit to actually holding onto the business for a little bit longer, [00:17:30] how do you talk about that with a business owner? Because often on paper it can seem obvious that maybe they should hold, but there are certainly some risks associated

Stacie Jacobsen: with it as well.

Sean Sullivan: And so the way that we help business owners think through those risks. Sales are often priced [00:17:45] on what we call a multiple basis, and as the enabled imply, that's a multiple of a metric at the business. Typically speaking, it's based on something called ebitda, which is earnings before interest, taxes, depreciation, and [00:18:00] amortization.

Sean Sullivan: A fancy way to say how much money does the business make? So for example, if I have a business and my EBITDA is 5 million, and the market's willing to pay me a multiple of five times, my company would be worth $25 million. [00:18:15] If I wait five or 10 years into the future to sell my company and I'm able to improve my EBITDA to say $6 million, and the market's still willing to pay five times, I could get 30 million.

Sean Sullivan: on the flip side, if [00:18:30] something happens in the economy outside of my control. The market might only be willing to offer a four times multiple, in which case I would be selling for 24 million, which is slightly less than I would receive today. So there are these trade-offs in the way that we help [00:18:45] investors think through that is by showing them a range of multiples and ebitda or whatever metric they wanna look at to show how the business would need to grow.

Sean Sullivan: Where even if some of these things they can't control work against them, and they could sell into the market in the [00:19:00] future at an attractive valuation.

Stacie Jacobsen: Look, I can't let you go without bringing up taxes. I think that's a major concern for all business owners. So when we think about the tax environment, there's income taxes and there's estate taxes.

Stacie Jacobsen: Right. Can you just give us a, an overview as to [00:19:15] how we address those issues? .

Sean Sullivan: Yes. And I think the two of us could talk for a while on this, but to keep it simple today, as soon as you incorporate your business, you have a silent partner, whether you like it or not, and that's Uncle Sam. Um, on the income and estate tax side, though, the one thing [00:19:30] business owners should know is just because you're selling an entity for a large amount of money, It doesn't mean that you're resigned to paying an incredibly large income or estate tax bill.

Sean Sullivan: There are things that you can do to mitigate both of these. So on the income tax side of things, it [00:19:45] is a little bit harder to manage around. But owners should think through options like qualified small business stock, which can allow you to avoid up to 10 million of gain or 10 times your basis, whatever's larger.

Sean Sullivan: Investors should also think about making [00:20:00] charitable gifts with shares of their company, which is a more advantageous and tax efficient way to make gifts. There are also various trust structures that may help save on things like state income taxes as the deal's going. Or even multiply that Q S B S [00:20:15] qualified small business exclusion that we mentioned earlier.

Sean Sullivan: And to just quickly touch on the estate tax side, it's really important for business owners to engage their trust in attorneys, CPAs, and financial advisors. Because there are a plethora of options and [00:20:30] opportunities to do some really significant planning, especially before a deal closes.

Stacie Jacobsen: Look, what I'm hearing and what we know is that the planning that goes in prior to the transaction is essential and it can actually increase the amount that you get to [00:20:45] keep along

Stacie Jacobsen: the way.

Sean Sullivan: Absolutely. And the earlier that you're able to engage in that planning, the more leverage you have to save on both the income and the estate tax side of the. All right,

Stacie Jacobsen: Sean, thanks so much for joining us today and sharing all of [00:21:00] your insightful tips.

Sean Sullivan: Thanks for having me. Stacy,

Stacie Jacobsen: check out our show notes for the link to the Bernstein blog.

Stacie Jacobsen: Sean co-authored with director in our Wealth Strategies Group. Andrew Bishop, when to Sell your business, take the Money and run There. You'll [00:21:15] also find a link to the extended interview with senior managing director Brian Haloossim, Luci of the inflection point segment, and his guest, Jaime. Big thanks to Brian, Jaime and Sean for coming on the show today.

Stacie Jacobsen: And thanks to everyone for tuning in. You'll hear from us again on March [00:21:30] 28th when Women and Wealth's Beata Kirr is our guest host. We'll hear her interview with Jody Gunderson of ABCarval, where they discuss investment opportunities in clean energy. Make sure you catch it. Don't forget to subscribe to The Pulse by Bernstein wherever you get your podcast.

Stacie Jacobsen: To [00:21:45] ensure you never miss a beat. I'm your host, Stacie Jacobsen, wishing you a great rest of the.