Alicia McKenzie (00:01.048)

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as a founder and as a business owner, you think everyone's negotiating with you in good faith and everybody has your best interest in the business's best interest at heart and that you're all doing this to be on the same team. And I think everyone feels that in the beginning because everything is great and they want to get the deal done. So they're saying whatever they need to say to make you feel good about it. And as soon as things got going and maybe they hit a bump or two, they pushed them out.

when you negotiate all those things, negotiate it worst case. What provisions do you have for yourself?

Welcome to Married to the Startup. I'm Alicia MacKenzie, a wellness entrepreneur and digital creator. Alongside me is my amazing husband, George, the CEO who's always ready for a new challenge. We've been navigating marriage and running startups for over a decade, and we're here to share the real, unfiltered journey with you. Join us for insights and candid conversations about integrating love, family, and entrepreneurship. This is Married to the Startup, where every day is a new adventure.

Welcome back to episode number 51 of Married to the Startup. I'm your host, Alicia McKenzie.

George McKenzie (01:31.51)

And I am the co-host, George McKenzie. Hey, babe. Hey. New setup here. It's like a brand new pod. Yeah. I'm not sure I'm camera ready. I think I have a face that was made for radio. It's not necessarily television. It's true.

Nobody's looking at you. True. All right. When we went to New York this past week, we spent about four hours wandering the streets of Tribeca and going in and out of all the stores and the antique shops and...

probably the coldest day of the week. Friday when we walked in. Tuesday when we did it, it was freezing, absolutely frigid.

Yeah, no, Friday.

Alicia McKenzie (02:13.166)

But thankfully on Friday it warmed up a little bit. But we walked into Mackenzie Childs. And that is one of my favorite stores. I love the designs. And naturally I made a TikTok on my travel TikTok and it said, if I'm ever single again, you won't know it, but there will be signs. Right? And it's just Mackenzie Childs is...

so obnoxiously glorious. And when I posted that somebody responded to my TikTok and they're like, don't support the new Mackenzie Childs. Look what they did to her. And I was like, what did they do to her?

Exactly what must tell.

But apparently, long story short, and we're gonna dive into this because it's actually a really interesting story, but Mackenzie Childs is no longer run by Mackenzie Childs. So it was originally run by Victoria and Richard Mackenzie Childs, and they were the original creators and the original sculptors and built the business from the ground up. And then...

lost it to include their name. So now the business is run without them involved, still using the McKenzie Childs name. that's like the overview of it. But it's really interesting because, and I kind of just want to go over like the brief origin story of McKenzie Childs because they're both really creative people.

George McKenzie (03:53.966)

Yeah, yeah, I think we can put a pin in it. interesting that if you were find yourself single again, the signs would be you would chop a Mackenzie Childs.

Exactly. The sign is that my house would be top to bottom. Mackenzie Child, because it is just you would never.

No, I've never even heard of it until we went to that store. Really? Shop at Neiman Marcus. Yes. When?

Neiman Marcus carries their stuff. don't. You do. When we walk into the Neiman Marcus, you go through the Home Good section. I don't pay. my gosh. It is all Mackenzie Tiles.

attention to that.

George McKenzie (04:27.158)

Okay, well don't really look at it, so.

But yes, if I were single, I would absolutely decorate my house top to bottom, Mackenzie Child.

Wow, you know, quite the decorating bill as the boys and destroy and break it constantly.

why we can't have nice things. But, so going back to like the brief origin story of Victoria and Richard Mackenzie Child. So I guess they met in the 70s. Apparently she's a former nurse, Hernd Potter. But you and I both watched that YouTube video.

Yes, I am dumber for having watched.

Alicia McKenzie (05:02.862)

We did a little bit of a deep dive into the story that is Mackenzie Childs because... Yeah, but listening to this woman ramble on, and I think the video's like 45 minutes long on YouTube, we made it maybe 10 minutes. It was very hard to listen.

I think it's a fascinating business case.

George McKenzie (05:18.626)

think we made it 10.

George McKenzie (05:25.582)

It's not even the listen, the watch. I I didn't watch. I just looked at your screen, but just the fact that she was in a field up in a tree. She was in a tree in a field with the camera maybe 50 yards away, like pointed at her. And then the audio is like cutting in and out with wind and everything else. And her voice is just like, it's like nails on a chalkboard to me. The way she talks.

No, she was in a tree.

Alicia McKenzie (05:52.046)

Yeah, she sounded like she sounded like a creative right a very free spirited Light-hearted. I'm trying to be positive here

If I were to define a potter, that's who would come

Yes, but that's what they were, right? They were potters. They were deeply creative. And she has an eye for color and it's built with whimsy, right? Like everything about that store is so whimsical and I think that's why I love it. Like it's just anti...

I my whimsy Disney. That's my version of whimsy.

But needless to say, like, their style took off, right? It was... They created a business around their art, and everything Mackenzie Child was synonymous with luxury. Right? Like, was stuff in New York. It was multi-million dollar businesses and farmhouse studios, and like, it was great. They made an amazing name for themselves. But the problem comes when you try to scale too fast.

George McKenzie (06:33.803)

So they created a business around

George McKenzie (06:59.468)

Yeah, rapid expansion.

Right? So rapid expansion. And I think that's that is what led to their demise.

some of their downfall. I wonder if they were like getting outside counsel or business advice to why they would want to scale so fast or do you think it was just their own ambition?

So according to the research that I did, the demand exploded, right? More and more people wanted Mackenzie Child's products in their home. And they took on significant debt to fund production facilities, more staff, national distribution. And I think they just tried to get too big too quickly.

Yeah, I think that's a common issue for businesses, right? Where you're having success in one area or one place, and then you decide, hey, I'm going to take this model and scale it. It's scalable, and then I'm going to inject capital. I'm going to take out loans, most likely. And a lot of times, those business loans are based on a moving average of LIBOR or whatever.

George McKenzie (08:09.39)

you get this money at a cheap rate and you grow and as long as demand continues at this, you know, exorbitant pace, you're going to be able to continue to make your debt payments. And a lot of times growth isn't linear, right? You can have that rocket ship growth one year and then maybe you you tail off and you don't have 20 % or 100 % year over year growth. And then interest rates rise.

And when you have to service all that debt, it's kind of hard to cut costs. You can cut some costs, operational costs, but you can't cut your debt service. I think Trump, a lot of people got into problems with that. I think when we watched, I think I watched a documentary on Trump at some point, but he basically just went to the banks and said, you've lent me, let's just say a hundred million, 500 million, a billion dollars.

the risk is now on your end, not my end. Because you have so much lent to me in real estate that you don't wanna foreclose on this. So we need to renegotiate a debt. Whereas when you owe 10 million, 50 million, then it's not a big deal for the bank to foreclose. They have all the power, all the risk is on your end.

And I think that's what happened, right? They took on significant death. They grew rapidly. And then they brought in investors.

They grew rapidly.

George McKenzie (09:33.612)

They brought in investors to grow and they brought in investors to. I think.

In order to consolidate that day afloat, they brought in investors to grow. But then they ended up filing Chapter 11 bankruptcy.

Post investor? Okay, so they brought in private equity.

Yep. And this is all here to say, right? This is, this story wasn't widely covered, but I just found it really...

I mean, I think it's a private transaction, right? So a lot of the details aren't going to be public and probably they are under NDAs to not disclose everything. But I can imagine what would happen, right? So they try to bring in a private equity group that's going to consolidate the debt, maybe refinance it because now they're running the show and they're going to acquire majority of the equity. So they're basically buying the business.

George McKenzie (10:24.012)

most likely for pennies on the dollar because of the debt load and they're going to come in as business owners to run the company.

Yes. So they ended up pushing out Richard and Victoria because it's obvious they were struggling figuring out how to stay afloat and run this business.

Right. And I think at that point, if you look at the assets of the business, if I were a crude private equity person, the assets of the business is the name. It's the biggest asset. You already have an archive of art that they have created that you're now mass producing. And then any derivatives therein or new things you want to bring to market, as long as they're in the same vein, it doesn't matter if it wasn't created by Victoria or Richard. It doesn't matter if it was created by, you

Joe Schmo in India or China, it doesn't matter because it's going to have the same Mackenzie Child's mark on it. And as long as it looks like it's a knockoff, you can just keep turning the money tree.

what it seems like is that during the acquisition, they kept the name, right? They bought the trademark Mackenzie Child's name.

George McKenzie (11:30.806)

Yeah, I mean, that's the only thing that was the real asset, right? So if you have a company and you sell that company, they own that company, they own that domain, they own that name. And when you name your company after yourself, you've kind of lost your ability to continue with your

Yeah, so the couple attempted to buy back their naming rights, but the court awarded the brand to the new owners. So from there on, Victoria and Richard McKenzie Childs were no longer allowed to use their own name in any new companies that they started. Right, so they essentially, not only did they lose their company, they lost the right to use their own name. And then when they went, they tried to start a new company using, I think it was like...

Yeah, mean, because that's what they bought. That's the name of the company.

George McKenzie (12:07.363)

Yeah.

Alicia McKenzie (12:17.26)

Victoria and Richard, they got sued and they were not allowed to use that name either. Right. So they bought, it was associated with the trademark.

associated with the other. Yeah, I mean, you could see it from me from a private equity perspective. I paid all this money to get you out of debt. So you didn't go bankrupt. Yeah. And what I bought was the trademark, is the name of which is the name of the company, which just so happens to be your name. Yeah. And you know, that's what I bought.

Yeah. So I mean, as a founder.

Yeah, I think there's some lessons here for founders, right? One, a scaling lesson to understand how to leverage debt. You always want to think brighter roads, brighter times are ahead, but you got to plan for the bumps.

scaling

Alicia McKenzie (13:01.486)

Okay, so let's talk about the fact that can somebody who is truly creative, like brilliantly creative, I have a design eye and I can see everything and the coloring and all of this and what is it? Like color theology and there's all sorts of names for that in the art world that I have no clue because I have zero fucking creativity in my body. Can that brain exist?

with a business-oriented brain. I don't think so. I really don't.

Yeah, I'm sure.

I mean, I think some if you look at like a Sam Altman or some of these like highly intelligent

different kind of creativity though. Like I guarantee you, couldn't give...

George McKenzie (13:46.286)

I like to be talking about artists. Yeah. Okay. Yeah. No, I get it. Yeah. I think there's some people that are innovators and not necessarily business people.

Right, like you look at, even artists in general, like look at your Michael Jacksons or your princes or anybody that has the ability to produce music, pottery, ceramic.

To be that kind of artistic, you gotta be disconnected from some of the normal rat race, treadmill stuff. Yeah, I get it.

Like, I feel it, and when you listen to Victoria Mackenzie-Tildes speak, I feel like maybe she didn't quite read the terms and conditions of the sale.

Yeah, probably not. I mean, I think that's another thing founders a lot of times, it's kind of it goes along with scaling, but it goes, you even more so with, you know, transactions, especially when you bring in outside capital or private equity is as a I'm falling victim to this too, as a founder and as you know, a business owner, you think of, you know, everyone's negotiating with you in good faith and everybody.

George McKenzie (15:00.376)

has your best interest in the business's best interest at heart and that you're all doing this to be on the same team. When I'm sure she, when she entered in that deal, whether she knew it or not, when it comes to the naming rights and stuff like that, she had thought that, hey, this is someone who's coming in to be my partner, they're bringing capital, we're gonna renegotiate all this debt, we're then gonna be able to get it back on track, I'm gonna continue to run it in the way that I've always run it and.

brighter times are ahead. And I think everyone feels that in the beginning because everything is great and they want to get the deal done. So they're saying whatever they need to say to make you feel good about it. And yeah, I'm sure there are good private equity and debt people out there that really believe that. then once the transaction closes, right? And I think that's the difference. Like she thought, I imagine,

Do you really believe that? It's a good story.

George McKenzie (15:57.386)

she would have thought that, the good times are coming. I'm gonna be able to continue to run this. And as soon as things got going and maybe they hit a bump or two, they pushed them out. And she probably had no clue that's what would happen. So you don't think about it. I think that's my advice to founders is when you negotiate all those things, negotiate it, worst case. Worst case, when you're looking at this, if they were to push you out, what provisions do you have for yourself?

Yeah. And then looking at non-compete terms like, yeah, it's great because you're like, well, I'm not going to leave. So what does it really matter? No, that shit matters. Yeah. So think about it when you go. Think about when you go in and be like, yeah, if this relationship goes south in six months, what provisions are here for me? Yeah. And I guarantee you, whatever they send you, that is not in there. There's very little provisions that benefit you.

So, I mean, I don't even know why I was gonna ask this question, but do you think they missed something in the due diligence? Obviously they missed something during due diligence. And do you think they even did a real due diligence?

No, I mean, I think they probably did. And I know whether they missed it or not. I mean, I imagine they couldn't have got a deal done without selling the naming rights. Like, that's the company. There's no way they probably were able to negotiate around that. But they had to have thought about, and that's what most founders don't think about, is what happens next. What happens day one of NUCO? And if they push you out, what happens?

Yeah.

Alicia McKenzie (17:33.612)

Okay, so how is it watching a company be run by somebody who is, I don't want to say capable, not quite capable, but you know can't do it the right way.

Yeah, no, I mean, it's incredibly frustrating to see.

Something that you feel.

that you've built go in a direction that is not what you wanted, what you had thought, right? then, yeah, so I can see that. And I imagine that they felt the same way as like, hey, I'm a creative, this business was successful because of me. Right? That's how we got to this phase. And yeah, by the way, it was unsuccessful, most likely because of me too, because of the scaling issues that we had. But

or what you were told.

George McKenzie (18:19.072)

if we were to cut back and be able to get back to what made us successful is being maybe more niche, maybe less mass produced. And then, you know, she could still or they could still have that success trajectory. But I imagine that the private equity group didn't really see it that way.

And I mean, considering where they're at now, they're still creating pottery and they're still...

That's what they say, a cobbler makes shoes, right? Yeah. You can't, you know, all of a sudden one day wake up and be like, oh, now I'm going to be a tech.

once I learned this, like I went to go find their company, and I honestly can't even remember the name of it right now. They said like they launched Victoria and Richard, but it's not called that anymore. They switched the name to something else. But the quality, don't, it doesn't seem the same. I still love Mackenzie Child.

Yeah, I wonder if they're not able to make similar pieces.

Alicia McKenzie (19:17.078)

Maybe. I don't know.

Yeah, like what's their signature the checkerboard? Yeah, like that's their signatures. Yeah

I mean, that's what I associate with Mackenzie Childs. It's the signature checkerboard ceramic, like, hearty feeling pieces.

Yeah, so they probably that's probably the IP that was sold and trademarked. And they can't use it. Well, you know, it's kind of. It's challenging, right, like to reinvent yourself and do it again, you got to come up with another idea.

Yeah, so I mean, they launched their YouTube channel, right? That's which that video that we were talking about in the beginning still got like, I want to say like 400,000 views or something like that. It was some obscene amount for what the content was. like...

George McKenzie (20:04.814)

There's a lot of a lot of people in middle America that have the you know, they're earned and not earned What do you call it? What the hell's the the bake pottery in? They have their kiln in the backyard and they're out there doing their ghost moment and they love they love her and think that you know She's probably someone they aspire to be

Go.

Alicia McKenzie (20:24.504)

You know who's really good at ceramics? Our daughter. It's, it's, wow. It's really impressive. Like, we have a lot of her pieces, and she came home with one from school one day, and I wrapped it up and I took it into it. was like, look what I got from Neiman Marcus. And George was like, really? That's so pretty. I was like, no, our daughter made this.

Eva.

George McKenzie (20:30.254)

Yeah, she has a talent for that.

George McKenzie (20:46.85)

See? That's why I don't chop it anymore.

I know, we have it at home. We have it at home. Right? So I think branding is really important. Protecting your IP is really important.

And scaling, like understanding scaling. I think that's, mean, there's probably, MBAs taught about multiple businesses that have fallen to that same trap of everything's working great. Let's scale. The price of debt is cheap. Let's scale. Let's manufacturing.

So where's the tipping point?

Where's the tipping point, right? Like, what could they have done differently?

George McKenzie (21:29.262)

Yeah, I don't know. I guess I'd have to figure out the terms and know. But it'd be really what were they scaling? Was it the manufacturing and stuff? Could they have just used a third party to do that? And then same with distribution, right? You're just signing contracts with outside distributors. The problem is, hey, you you're cutting other people in on the profit. So, yeah, if you had enough capital and everything goes right, you would cut out the middleman. You'd vertically integrate, vertically integrate, and you could do it end to end.

Probably distribution.

George McKenzie (21:59.374)

And, but that requires a lot of capital and also a lot of risks. So if you wanted to control your manufacturing, so you bought your own plant and you were manufacturing your own. So, no, and you've been doing your own ceramics, right? Then you bring the unit costs down because you control the manufacturing. So there's no profit built into that and you can control, you know, timelines and inventory and everything else.

Have you been researching CPG?

George McKenzie (22:26.99)

But the risk with that is it's a lot of capital. if something goes wrong, you have a warehouse you have to pay, you have workers you still have to pay, you have machinery that you still have to pay for. Versus a third party, yeah, you're paying more per unit, but there's less risk there because you could turn it off. I think there was a, I remember when we renovated our house in Fairfax Station, there was, I was talking to the builder and he was talking about the windows and that they.

It's a similar story. There was a window manufacturer in the area. They made windows. It was a generational, multi-generational business. They made amazing windows. And then when it transacted from the grandfather to father, and then when the father to the son, the son decided, hey, I'm scale and we're gonna build our own factory and we're gonna get bigger. We'll bring our costs down. We'll have more profitability. We'll have a service, a larger area. And the same thing happened. Then there was a housing crisis. So the buildings.

There was less demand for the windows and he had this big factory and with the big note. then the family business ended up going under. And it's a lesson in, know, and it's not like all those can be predictable too. Like for every one of those or a hundred of those stories that, you know, they take on more debt and they scale and fail. There's the one that did it, right?

But I think that's what you hear.

They bring it all they vertically integrate and they grow and they continue to grow and they get bigger and bigger

Alicia McKenzie (23:59.042)

You hear more about the... Yeah, you hear more about the success. Like this was, I'm sure they made a little bit out of the sale and the transfer of... Hopefully. I mean, hopefully, but they also lost their name and their ability to create what they want. Yeah. Right? So that's... I don't know. For every one Poppy, you've got a hundred Victorian Richards. Right? So...

Yeah, I'm sure.

I know what the moral of the story is. Scale smart?

I think it's, yeah, it's to always, you know, look at every deal. I'm not to be a pessimist, but you should look at everything with, you know, what's worst case? What's going to happen worst case?

Well, we do that with our kids though too, right? Like, what is the worst thing that could possibly happen? Right? Worst case scenario, even just to talk through like some of the anxiety, like test anxiety or anything like that, right? What is the worst thing that could possibly happen? And then work your way back from that. Because worst thing is probably not gonna happen. And she's like, well, I fail a test. Okay, and you'll be mad at me. Wrong, we've never been mad at you for failing a test. Right, so it's really worst case scenario, work your way back.

George McKenzie (25:11.47)

And then, yeah, from the worst case scenario, be able to say, okay, you know, what am I going to do when that happens? If that were to happen. So, okay, I'm going to buy this factory and I'm going to produce my own mugs. Right. Yeah. And okay, that's going to bring my unit cost down X percent, but I'm going to have this monthly debt load that I'm going to have to service. Yeah. And then, okay, what happens if sales decline? Okay. To what point can sales decline? I can still make my debt load.

Okay, what if that happened? What if we go beyond the tipping point? What do I do then? Yeah. And if you don't have that plan and have it mapped out when it happens, right, you're kind of shit out of luck. Yeah. And not to say you should go into it thinking it's going to fail, but you should at least understand what your options are.

I mean, statistically speaking, you're more likely to fail than you are to succeed.

And I the same and and that's where I'd caution all founders especially when you're you're selling the business or you're bringing in a partner financially is it's it's the hardest thing to do especially when you have other business partners because Once that dollar figure that yeah, once the dollar figure comes up Everybody gets excited no matter what yeah, and they're already making plans to spend that money. Yeah, they are right

Yeah.

George McKenzie (26:28.032)

So it's the, and I say it all the time, the worst lies are the one you tell yourself. And what happens is you get into that and the private equity folks are not emotional about the deal. Yes. Right. But the founder, you very much are. This is your baby. This is your liquidity event. This is everything to you. To them, it's another transaction. Yeah. And they are going to be negotiating for what's the best interest of them all the time.

And I think what happens to founders and stuff is you start to compromise and negotiate against yourself because of that dollar. And the speed that the private equity group puts on you, the pressure, right? And then you got lawyer's fees and you maybe have an investment banker and you got all these people you're paying money to and the bills are coming in and you're like, I gotta get this fucking transaction done.

And so and so partner's already complaining, hey, is this still gonna happen when I'm gonna get my money? And everyone's pushing and then you start to compromise on things you probably wouldn't have. Or if you were able to be objective about it, you would say, hey, that's not a good deal for me. So I'm not gonna do it. But then you're saying, okay, I'm not gonna do it because it's not a good deal for me. And then your other partners are like, hey, what's a good deal for us?

Compromise

George McKenzie (27:51.182)

and being able to stay level-headed about it and being able to articulate that back to your business partners of, a non-competitive this duration is bad for all of us, or hey, they want to keep the naming rights for 10 years. That's not good for us. Maybe five years is better.

or they want an earn out over 15 years.

Whatever but yeah a lot of times it's it's hard and that's what I would say is if you have To be able to have someone to help mentor you and push like you got to push back on this this is not and Yeah, I think there's a lot of good lawyers out there but Even those like yeah, they're just there to advise you they're not gonna help you Right, you know, they're saying this is average or this is this is you know standard. Yeah, and you're like, well Exactly

Yeah, they're not going to tell you what to do.

Alicia McKenzie (28:40.078)

What does that mean? Should I do it? Is it a good deal? Exactly. Or is it bad for me?

Or do I push back? And when you push back and you got to and I would say that, you know, one piece of advice I would give is that when you're in that situation in the very beginning, before you even get the, you know, purchase agreement is to write down your non negotiables. Like it has to be this purchase price. It has to have this long of a non compete. If they were to terminate me, this is how much money I would want. Yeah. Write those things down.

before you get their offer. And then hold on and say, this is what I'm gonna go to the mat with. And either they agree to my terms or I'm not doing it.

You did that with DPS. Yeah. could have sold multiple times before you actually sold.

Yeah, and you know, I think when you have that approach, it's better. Yeah, because it's in its emotional moment. It's very emotional moment for the founder. And that's I think it's hard. And, I would caution everyone to get outside advice. Yeah. Because your investment banker, right, their commission, they're trying to make money on the sale. They want this deal to go through. Yeah. Your lawyer is getting paid by the hour or per the retainer. So they're going to fucking milk that shit all the way down the bottom.

George McKenzie (29:56.038)

They're gonna go back and forth red line red line red line red line red line over shit. That's boilerplate They're gonna argue with ten lawyers on a fucking call and then at the end of the day They agree to what you could have agreed to on the first fucking call. It's just so annoying I am I I remember being on the you know the day of closing and Lawyers kicking stuff up and being on a call and then I just had to shut everybody else, you know

Are you speaking from experience? I am.

George McKenzie (30:21.804)

Like, no, talk, you know, everyone wants to hide behind their lawyers because it's easy. Yeah. Yeah. If you're gonna be the asshole, be the asshole. Say it to me. Don't hide behind your lawyer. Have your lawyer say it. They go, well, that's what my lawyer, my lawyer said this. my lawyer, no, it's a business decision. It's not a lawyer decision. Yeah. So if that's what you say, then say it.

Be a man. Say it with your chest. Exactly. it with your chest.

Just say it. That's what drives me crazy. I don't like, I have a hard time respecting people that don't just say it. Like if I have more respect for you and I think we'd have a better working relationship if you were just honest. Be authentic and be honest about it.

Aggressive.

Alicia McKenzie (30:58.178)

Yeah.

Alicia McKenzie (31:02.209)

And on that note.

Yes, I'll be honest, I'm done.

Yep, we're done. We'll be back next week.

Alicia McKenzie (31:10.754)

Thank you for tuning in to Mary to the startup. We hope you enjoyed today's episode. If you did, please take a moment to like, rate and subscribe to our podcast. Your support helps us reach more people and keeps the conversation going. If you have any questions or topics you'd like us to cover, drop me a message. I love hearing from you guys until next time.