1Mby1M Deal Radar 2017: The BroBasket, Camarillo, CA

The BroBasket is an e-commerce site that offers customizable alcohol themed gifts baskets geared towards men. It caters to the undeserved niche of unique gift baskets filled with things guys love, including their favorite beer, spirits, and/or wine. Launched in December of 2014, The BroBasket has grown from fulfilling a handful of orders per month to over 1,000 on a typical month. 

The idea for the business was born in a California State University, Channel Island’s MBA entrepreneurship class project, of which the founders James Grasty, Kenneth Connell, and Mike Mazza were a part of. Marketing Director James has started five other businesses since he was in high school and currently owns another unrelated business. Managing Director Kenneth was a Bio-tech major with a dual Masters in Bio-tech and Business, but after a few years in the industry preferred to start a business. CEO Mike had worked in the corporate world for a while before he went back to school for his BA and then MBA in his 40’s. He runs a successful medical billing company with his wife but he joined The BroBasket as he wanted the stability of a wage earner in the family.

When they launched, they saw a gap in the gift basket market for men. GourmetGiftBaskets.com sells some gift baskets geared towards men, but they just aren’t manly enough. On the other hand, Mancrates.com, which did over $20 million in sales in 2016, sells some super cool gifts that are super “MAN”-oriented. The BroBasket aims to be somewhere in the middle. It is so versatile that a third of the receivers of its baskets are women.

The BroBasket’s main differentiation from other gifting e-commerce companies is that it allows people to customize their gift baskets. Further, James feels that the complexities of shipping gifts containing alcohol, the front end technical and back end logistical issues of allowing customers to customize gift baskets from scratch, and strong branding offer them a very strong competitive advantage. The learning curve of selling alcohol online and the high capital required to launch such as business also keep away smaller players.

Its main customer acquisition channels are Organic Search Google/Bing/Yahoo, which account for 53% of all visitors to the site. Google/Bing paid search and products ads account for 29%. It also has repeat customers and rising direct traffic.

They initially tried to get seed funding, but only garnered a few thousand dollars. So, the rest of the roughly $34,000 in capital was pooled in by the four initial owners, with Kenneth and James putting up the bulk of it.  After a few months, they burned through most of the capital mainly due to an expensive liquor license, inventory, rent, and a dysfunctional website that was trickling in sales. In March 2015, one of their old classmates invested $10,000 in exchange for convertible debt.

With that, they relaunched a much better iteration of their site, put up some better products, and invested the rest in a revamped and well managed PPC marketing campaign. In the summer of 2015, they were able to finally secure an SBA backed loan from a local credit union for $90k. At the end of Christmas 2015, a year after launching, they were cash flow positive!

Latest traffic data for March shows that it had over 41k sessions, up 74% y-o-y and 993 transactions, up 58% over the year.  In February, a busy holiday month with Valentine’s day, there were over 68k sessions, up by a whopping 187% over the year and 1338 transactions, up 113% over the year.  Despite a 10-20% price increase, December 2016 was one of the most impressive in terms of y-o-y traffic and sales growth with 121k sessions, a 291% increase and 2929 transactions, a 229% increase.

The cost of all its products has around a 60% margin and around $10 for express shipping. About 25% of all transactions go for express shipment. Its Customize Your Own gift basket is the most popular seller.

Their top target segments are white collar working women in the 20s-40s age group who need great gifts quickly and corporate decision makers looking to get something better than the average thank you gift for clients.

The BroBasket had revenue of about $1.2 million in 2016 and is on track to do over $2 million this year. From 2015 to 2016, the company grew over 500%, which was easy with a rocky year. Now, it is on pace to grow at around 75% from 2016 and its marketing spend is around 10% of the gross revenue.

The gifting industry as a whole is estimated to be worth $200 billion annually while gift baskets’ market is worth around 2%, or $4 billion.

They started in a 1200 sq ft office warehouse, but now have 3 units at around 3500 sq ft and are looking to pick up a fourth unit to handle holiday demand. They plan to bring everything into one big office warehouse in the area by next year, and are looking at options for fulfillment, especially on the East Coast.

The BroBasket is not looking to grow at a breakneck speed but wants to grow a stable and sustainable lifestyle business. The company is looking at long-term sustainable cash flow growth so that the partners can have the time and money to live their lives the way they want to. The ideal investors would be someone who will not just help with holiday season inventory build-up but also give them a strategic advantage.

Regarding their exit strategy, James says they aren’t looking to cash out and bro down just yet with The BroBasket, but are looking at sustainably growing the business with a healthy cash flow with a possible exit in the form of acquisition 7 to 10 years down the road.

This segment is a part in the series : 1Mby1M Deal Radar 2017