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Richard Kestenbaum from Triangle Capital LLC on Handbag Designer 101 Podcast




Emily Blumenthal

Host

00:00

Hi and welcome to the Handbag Designer 101 podcast with your host, Emily Blumenthal, handbag designer expert and handbag fairy godmother, where we cover everything about handbags from making marketing, designing and talking to handbag designers and industry experts about what it takes to make a successful handbag. Welcome, Richard Kestenbaum of Triangle Capital LLC, the illustrious company that everybody needs to know and needs to be part of. I think I can confidently say, richard, I can always keep you laughing and I don't know if you laugh as much if you're not speaking to me and I noticed for people who obviously can't see you. Are you done with the bow tie phase? Is that done? 

Richard Kestenbaurm

Guest

00:48

Did I have a bow tie phase? Yeah, what is? 

Emily Blumenthal

Host

00:50

that you did. I got you a bow tie when you helped me with one of my deals. 

Richard Kestenbaurm

Guest

00:55

Well, that would be a bow tie day, and it's always a happy day when I see you, emily, so you are a force of nature, and it has been my honor to know you for a long time. And a pleasure. 

Emily Blumenthal

Host

01:10

So thank you, well said and appreciated. I actually met you and I know you would probably know this because you were one of these very impressive people that keeps notes in your phone for how and when and where you meet people, and I tell my students that all the time that is a secret sauce for relationships. You were actually speaking on a panel at a women in business conference at Fordham where I got my MBA, and I made a beeline to you saying we need to be friends or something. So I would love to talk to you about and again, this isn't so much what the podcast is about, but like who you are and what you do and how you stumbled upon this whole buying and selling companies so politely. 

Richard Kestenbaurm

Guest

02:06

Street my entire career, which is now more than 40 years, and I got an MBA and I went to Wall Street not really knowing what it was and what it was about and what investment bankers did, and I sort of didn't understand what the business was. And over time you come to learn about it and I wound up developing a specialty in consumer, particularly companies with high merchandising content, one of the things that I've learned. When I started, I said to myself if I could ever understand the numbers, I could be a good banker. And then time passes and you sit at your desk one day and you realize I do understand the numbers now and what I realize is this isn't really about the numbers, it's about the people. And you spend the rest of your life trying to understand the people. And I say that because when you buy and sell a company and most of our business at Triangle Capital is representing sellers in the sale of control of their company and in having liquidity events, that is to say, where they turn their illiquid business into capital Most of our sales, then, are doing transactions that, for our clients, are the most important transactions they've ever done. 

03:19

And what you're doing when you do that, if you're us is, of course, it's about the numbers and getting the highest value, but the way in which you do that is trying to understand what's the motivation of the people at the table. 

03:30

Of course, our clients, but, more challengingly, the people on the other side of the table. What you're trying to figure out is what's their motivation. And, of course, yes, that's always about the money, but there's always another part to it. There's always something that makes them want it more than someone else. And if you run the process right out of the bottom of the funnel come the people that value the company you're selling most highly. And if you understand why they want it, you can understand how much you can get them to pay. And so you play them off against each other, and that's how you maximize value. And that's the me who began in this business would be surprised to hear that, because he would have thought this is all about spreadsheets and numbers and the answers are always in the spreadsheets. Well, you got to understand the spreadsheets, but there's a lot more to it than that. 

Emily Blumenthal

Host

04:26

Before your MBA, though, what did you do? Did you go straight into business school? 

Richard Kestenbaurm

Guest

04:30

Yeah, what did I do? I was a child. 

Emily Blumenthal

Host

04:36

So you were one of the advanced people who went straight from undergrad directly to MBA. 

Richard Kestenbaurm

Guest

04:41

I went from undergrad to get my MBA, yeah. 

Emily Blumenthal

Host

04:43

Okay, you're a clever person. Look at you. 

Richard Kestenbaurm

Guest

04:46

I don't know, Maybe the people giving out MBAs weren't so clever. But here I am. 

Emily Blumenthal

Host

04:51

Well, look at you learning how to beat a system early. So I want to understand something. So do you think, coming from Wall Street, you are unique in the sense of understanding this whole retail anthropological mindset, of understanding the how and the why we shop in terms of you know? This almost makes you an outlier of saying, OK, I don't want to do what everybody else is doing. I think I can do this on my own. How did that all come to pass? 

Richard Kestenbaurm

Guest

05:19

Well, I'm not a merchant, I'm a banker and my outlook on the world is as a banker, and we look at everything through the numbers. But one of the things we understand is that the reality is not the numbers. The reality is what the numbers represent, and that's not something that I find on Wall Street people typically express. You think it's tempting to believe that you can control the world through a spreadsheet, but you can't. The spreadsheet reflects the world, not the other way around. So I never set out to be a merchant and I'm not a merchant, I'm a banker. 

05:56

But we've spent so much time, my partner and I, with merchandising companies that we've come to learn a lot from the CEOs we talk to every day about their businesses and what drives them and what makes them unique. They're incredibly creative businesses, and creative businesses are more dependent on specific individual people than most other businesses, and that makes structuring them different than if you were selling a bull bearing company, for example. So creative businesses have different points of value and they are more volatile in their performance and they are more, as I was saying, dependent on an individual or a small group of people, and that makes doing transactions for them different than doing transactions for other businesses, and that's one of the reasons we have a specialty in doing what we do. 

Emily Blumenthal

Host

06:52

Do you think, though, that Richard of today, who has had this company for the better part of 20 years, at least talking to the deals you did so long ago, what do you think has changed in terms of the structure of how products are being sold and how companies are being sold? Was it? Do you believe that back then and to that point, you know one of the lessons I teach in my class is this outdated concept? Is this outdated concept, in theory, of doing a business plan right Right now? The market, the life, the world is so volatile there's only so much you can control. So do you think now you're analyzing more about the people with the product they've developed, less so than before because of what's going on in the market? Or you think, next, think nothing's changed? 

Richard Kestenbaurm

Guest

07:47

No, the world's changed very dramatically. One thing that hasn't changed is what do investors and buyers want? They want profits and growth, and they don't want one or the other, and they don't want to trade them off. They want them both. And the extent to which you do trade them off, them both and the extent to the extent to which you do trade them off, that's a ding on the value of a company. But what's changed is how you get there, because what's changed is what consumers want. 

08:13

When I started in this business, consumers wanted the highest ingredients and the highest status, and retail and consumer was about status. That is out the window, unless you're a super euro luxury brand. That's not what consumers are looking for. What consumers are looking for now is values, personal values, things like sustainability, transparency, how you treat people, transparency, absolutely local production, what does your product do to the environment all those things that are trending in consumer values now, and those are the things that produce the earnings and growth that investors want. So it doesn't mean that if you have all those things, you'll make a lot of money, but it does mean that without them you can't. 

09:12

One of the surprising things is that being big used to be a barrier to entry in consumer. It isn't anymore, because those legacy brands find it super challenging to graft those personal values onto the way that they've been presenting themselves for decades, and so that's given an open, it's created an open door for new brands whose personal values are foundational to gain a foothold in the market and grow and be successful. That's interesting for us because young brands that are growing need to be sold. There's this constant creation of new brands in consumer that makes our business a business, which is to say there are always new brands being created and finding places, white spaces in the market where they can grow. That will ultimately need to be sold, and that's why we have a business Right that will ultimately need to be sold and that's why we have a business, Right? 

Emily Blumenthal

Host

10:09

Do you think? And it's so interesting you say that the movie Unzipped with Isaac Mizrahi and I used to show that to my students 800 years ago Right, and it was when he was at the pinnacle, the peak of his brand, his business, his notoriety. And Terry Agans, who used to be the head fashion writer for the Wall Street Journal, wrote this book called the End of Fashion, and she speaks to all of that. She's got a couple really interesting case studies in there, Like when Donna Karan tried to sell her company to LVMH and she put on this runway show with candles and beautiful stuff that you know, scents and all the things to imbue excitement and the finance. 

10:53

People were like just show us your books, Let us see what you're doing. Why is your brand being sold in 10 different thousand places? You know, we to the ground, and it was very klitzva of him to say otherwise and that led to the downfall of his company, at least at that time, when you're evaluating companies and obviously it comes down to what you said, but in terms of evaluating the person running the company, delusions of grandeur, I call it. Basement to Beyonce, that's what I call it, because they go from nobody to somebody and then all of a sudden, everything they do they think is worth so much more. How do you deal with them? Because younger companies tend to typically carry that kind of I don't think it's unique, but they tend to kind of carry this notion of like I'm splitting an atom here and that's what my value is. 

Richard Kestenbaurm

Guest

12:01

So in creative businesses, what you find is there's a need for balance between artistry and commercial performance, because so many of the products that you sell a lot of, and perhaps that become your hero product, don't excite the founder in terms of their vision of what their brand should be. 

12:25

One of the reasons I believe you see so many startups that don't wind up getting a lot of traction in creative businesses is because they won't do things that are commercial, and consumers want what consumers want. 

12:39

You don't tell them, they tell you, and so you have to strike a balance between because if you go too far on the commercial side, you destroy your brand because you flood the pipeline with just stuff that you can sell at a moment in time and then, when that moment is over, nobody wants it anymore because it's not interesting. So you need to have a certain amount of window dressing and you need to have a certain amount of truly creative product. One of the issues with truly creative product is not everybody can wear or carry truly creative product. One of the issues with truly creative product is not everybody can wear or carry truly creative product, and those that can can't do it all the time. So you need to have products that are commercial too, and how do you balance that? The answer for that is different with every brand. The way we tell the difference is based on the numbers. 

Emily Blumenthal

Host

13:28

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14:09

For the past 20 years, I've been teaching at the top fashion universities in New York City, wrote the Handbag Designer Bible, founded the Handbag Awards and created the only Handbag Designer podcast. I'm going to show you like I have countless brands to create in this in-depth course, from sketch to sample to sale. Whether you're just starting out and don't even know where to start or begin, or if you've had a brand and need some strategic direction, the Handbag Designer 101 Masterclass is just for you. So let's get started and you'll be the creator of the next it Bag. Join me, emily Blumenthal, in the Handbag Designer 101 Masterclass, so be sure to sign up at emilyblumenthalcom slash masterclass and type in the code PODCAST to get 10% off your masterclass today. 

Richard Kestenbaurm

Guest

15:18

You got to look deeply into the numbers to see what's selling. Why is it selling? How steady is it and what does that mean about where the business is going? When you sell a company, what reinvent? It's something you need to do more of in order to double, triple or quadruple or more the value of a business over time, and when people believe that is when they will perceive the highest value in the business. 

15:42

So, as I was saying before, that's about people. How do you get people to believe that this business is going where consumers are going? Because you can't change what consumers are going to do, but you can go in the flow of it, and when you do, you can make a lot of money. So what is the balance of artistry and commercialism that you have to strike in order to be in that flow? Brands that demonstrate that they have the right balance are worth a lot, because their history is a history of growth in profits and revenue, and when they do that, they typically have high margins One of the things that's interesting about what's changed over time. To come back to your earlier question, when brands do that what you see is they spend a lot less than other brands on marketing and customer acquisition. Cost has become insane. The poison of brands. 

Emily Blumenthal

Host

16:39

So you know, there's an article that just came out about DTC businesses being so much more expensive to run now versus having a stronger balance to make sure your bags are your bags. Excuse me, and that's the only thing I can speak of. 

Richard Kestenbaurm

Guest

16:54

Your product is sold at retail so how is it that there are brands that can have low marketing costs and high growth and profits? 

17:03

And the answer is they have found a way to convey their values to consumers who appreciate those values and are willing to pay high price and who wind up telling their friends in person and on social media. And so every dollar the brand spends on marketing gets turbocharged by consumers who share what the brand is doing and who identify with the brand because of the personal values. That doesn't mean that the product itself can be second rate it can't. It means that there's an additional criteria of having a first rate product and values in the brand that consumers identify with, and when you do that, you are likeliest to be able to have a lower marketing cost because consumers will do some of the work for you. One of the things we also find is that successful brands have a unique way to reach their consumers. Yeah, it doesn't always present itself as community, but consumers wind up doing some of their work and that makes a huge difference in the ultimate profitability of the company. 

Emily Blumenthal

Host

18:17

You know, the first brand that comes to mind is, for that matter, is Atelfar, for example. I mean, I knew him. He's been around for a long, long time and I think not as many people are aware. You know, it's like when I would tell my students that Kate Spade was a human. You know people didn't know. Or, like Liz Claiborne God forbid that's going way back to the archives was a human, but his ability to capitalize on his consumer I mean, I personally don't know him anymore. I've met him, like I said, years and years ago but his ability to tap into community, how he sells and you know, truth be told, his bags are not leather, they're very simply made. The labor on them is not high, but he's able, purely as a result of his strong understanding of who his customer is, that he can, he's got the ability. He came up with this very unique way that making it open market, to determine how much to charge for his back for a short period of time and then boom, he's in control. I find that fascinating. 

Richard Kestenbaurm

Guest

19:26

So the challenge is finding your own unique way, because when you copy someone else's way, they say we already have that, why do we need to? 

Emily Blumenthal

Host

19:35

Yeah. 

Richard Kestenbaurm

Guest

19:35

So when people come to my office and use the expression we're the next fill in the blank, well, we don't need another one, right so? And when I hear them tell me we are the Uber of handbags, well, yeah, absolutely. 

Emily Blumenthal

Host

19:52

Do we need an Uber of handbags? Be your own thing. 

Richard Kestenbaurm

Guest

19:55

Yeah, and when you, if you can create your own identity, that's what's going to give you ultimate value, if it's resonant with consumers. 

Emily Blumenthal

Host

20:07

It's so interesting you know like and again speaking purely of handbags how a way the luggage brand was so innovative at that time when they came out the first hard case pop of color having the chargers, and then within it felt like a blink. Tons of hard case companies came out and then there was some drama that went on inside between the female founders, which was so unfortunate. That really made me so sad. Again, I didn't have anything to do with the company, but just to see how all the stuff that came out, especially from a female founder perspective, nobody needs any more negative press, especially within that space. Is there anybody that you know in your professional opinion that has impressed you? Not perhaps for an acquisition, but you think like, oh, I see something unique within that space. 

21:08

If you don't want to say that's. 

Richard Kestenbaurm

Guest

21:07

OK, but I would love to hear you know you raised a way. Let's talk about them. I think one of the challenges there is are you sure that you're creating a brand or are you creating a product? A product can only endure as long as the product is needed and no one else has it. When people copy it, then it's not as important or impactful or profitable. When you create a brand, that's a different story. 

21:37

One of the things that I heard about away all the time in their early days was customer service. Customer service is part of customer experience and that is so important. So what you're thinking about here in creating your unique position is what is my relationship with my consumer? And that's kind of a new concept because social media and the way media works generally has allowed us to have many people who can relate one to many and brands can do that now, and so when you relate to one to many, you can create a relationship. Away did a fantastic job in its early days at creating a really important and continuous relationship because the product was unique and because of customer service, and when people find out things about your culture that isn't consistent with that, that's really a conflict for them in continuing to associate with the brand. I saw a bumper sticker on a Tesla. It said I bought this before I knew he was crazy. Well, you know, that's really interesting because it was very cool to own the car. 

22:53

But, when you learn more about his personal value systems and you don't associate with them, the brand is less attractive. 

Emily Blumenthal

Host

23:01

Yep. 

Richard Kestenbaurm

Guest

23:02

So it's personal and that also relates to some of the things that some of your listeners might be considering, which is when to put your own name on the brand. 

Emily Blumenthal

Host

23:13

I talk about that all the time. 

Richard Kestenbaurm

Guest

23:17

So you know who you want to be is the question and relating to our business, when you sell it, you're selling your name, that's it, and you have to be okay that someone else is going to own it and that they can do whatever they want with the thing that they own, and that includes the worst thing in the world taking it to Walmart. 

Emily Blumenthal

Host

23:41

Yeah, I mean Monica Bakir struggles with that. She came and spoke to my students and she said, like it still breaks her heart that you know what they did to her brand and she says, you know, unapologetically, it's garbage. Now it kills me. So to see something like that that you built with your name on it, I always say, like, think about it. Like a Kickstarter, you can't fix. You know, like Kickstarter, you can only get the money if you raise exactly a number. If not, it is there in perpetuity that you weren't able to do it. So think twice about that. 

24:17

I want to finish with one more question. There has been a high trend, which I'm sure you're aware of, of clever people, marketing people, so forth, who set out to create brands that fill a space, as opposed to designers who are creating a product. Do you have an opinion about that, at least speaking within handbags, because it's been an interesting trend and I've spoken to a lot of designers about this who've been, you know, frustrated and saying, hey, they came in and you know they found a hole in the market and they created something, but they're not designers, they don't understand and, you know, being somebody who's right, left brain and kind of did a little of both, not to the extent of what they've been capable of. I'm curious to hear what you have to say in terms of how long that longevity can go, because the ability to constantly reinvent yourself is very difficult for a marketing person not so much a design person who'd have the foresight to do it, but I'd feel like you know. It's definitely something interesting to hear. 

Richard Kestenbaurm

Guest

25:22

There's a place in the market for both those things, because you know what are you creating, what does the product stand for? A brand that has a niche, that's consistently performing in the niche and the niche will continue has a place in the market. A designer can do all kinds of things, but they need to be consistent, and you know they can't have things happen in their personal life that are inconsistent with how they present the brand. I think one of the questions that that also relates to is what is your name or brand targeting? Are you a handbag or are you a brand that can be a lifestyle, whether you're a designer or not? So Ralph Lauren made ties and that's how he started, and now he's who he is. 

26:16

That's how he started and now he's who he is. A lot of brands find it really challenging to break out of the place they started. Ralph did that a long time ago and he created a new way of doing it. Can anybody do that again? 

26:33

Investors often ask me will anything be big again? You create something that can be many billions from where it is. It's not reasonable to say, well, they did it in the past, so they can do it in the future, because that may have been a moment in time communications world where people want their own thing, that are relatively small audiences and people use the expression sliver brands that are no longer lifestyle, but they fit in a certain channel, to a certain marketplace and investors show me or investors have shown me how, when they identify their super fan and they target only their super fan, they get a much higher return on ad spend and they are much more effective with their marketing and much more profitable. So are sliver brands the future, or can you invent a brand or designer approach that will be as broad as some of the big brands we've seen in the past? We don't know yet. 

Emily Blumenthal

Host

27:41

I mean that just goes down to that 80-20 ratio, that 80% of your business comes from 20% of your customers. So protect and foster those 20% Like they're your Jesus. That's going to go out of style. I always say, like as much information as you can know about them to celebrate them for supporting your brand. It will go much further than trying to find new people. 

Richard Kestenbaurm

Guest

28:06

But I think the question is also if I sell them a handbag, can I also sell them a jacket, shoes and a dress? And what do I need to do when I make my first handbag to make consumers understand that I expect to sell them footwear, a jacket and a dress? And how do I need to present myself if I am going to use my name? What should my jacket, dress and shoes do that I wear myself personally when I make my first handbag? I don't know the answer to that, but I think that's an important question. 

Emily Blumenthal

Host

28:44

I don't know, man, you sound like an oracle to me, so I'm sure you do have the answers and you're just not telling us. So I think we might have to save this. 

Richard Kestenbaurm

Guest

28:52

Well, I'm glad I left you with that impression. 

Emily Blumenthal

Host

28:54

I mean, yeah, that's a dangling participle. That's what I feel like a dangling participle right now. Richard, it has been an absolute pleasure. How can people find more? You have this amazing, phenomenal thing. You seem to write frequently because you are you are a rock star on LinkedIn, so share away. 

Richard Kestenbaurm

Guest

29:16

Well, I write for Forbes and I share those articles, and the question I'm trying to answer when I write is what do we see in the world right now that helps us understand what the world will look like in a year or two or five? That's what interests me, and I think it's all the things we use to give the companies we sell more value. So I'm easy to find. Our company is Triangle Capital. Our website is TriangleCapitalLLCcom. If you Google my name, richard Kestenbaum, you'll find my articles on Forbes and you can click through. And, of course, I'm on LinkedIn and love to hear from any of your listeners anytime. 

Emily Blumenthal

Host

29:53

Thank you, richard. By the way, if you Google me, there are other people with my name, but I'm still at the top, so I try to keep it that way. 

Richard Kestenbaurm

Guest

30:00

Well, you'll always be at the top for me. 

Emily Blumenthal

Host

30:03

Thank you so much. Thanks for listening. Don't forget to rate and review, and follow us on every single platform at Handbag Designer. Thanks so much. See you next time. 



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