Lots of people start new businesses. Not so many sell them for more than $10 million. Two sisters tell Christine Nikiel how they did it - and why lunch matters.
When they chose the team to help sell their business, Wellington entrepreneurs Catherine de Groot and Sarah Gibbs applied the "lunch test".
"We don't work with anyone we wouldn't want to have lunch or a coffee with," says de Groot.
"We also don't put up with any negativity ... and
that can be construed as slightly gung ho, so we need people who'll say, 'go on then, go for it'."
The test obviously works. The sisters nicknamed the four legal and financial advisers who guided them through the process of selling their Trilogy skincare business their "dream team".
Their strategy was rewarded with the sale of Trilogy last month to Ecoya, the candle and natural fragrance company listed on the stock exchange.
Of course there's more to it than bonding over lattes and grub, but the lunch test is an example of the pair's instinctive approach to business.
Trilogy's range of 40 products sells in 3500 outlets in 16 overseas markets and the company has won multiple awards and mentions in the world's glossiest titles such as Elle, Vogue, Harper's Bazaar, the Times, and the revered British publication, the Natural Beauty Bible.
Last year, Trilogy generated revenue of $9.3 million and growth in all markets was 48 per cent.
The "dream team" started with two members of Trilogy's business advisory board: Mark Matthews and Deloitte partner Dean Ellwood. They brought in Matt McKendry, another Deloitte partner, and lawyer Greg Horton.
The four often gave the sisters a "hard time", de Groot laughs. "Sarah and I tend to agree with each other on most things and they'd play devil's advocate."
However, the team supported the sisters' desire to match Trilogy with a buyer that was "the right fit".
Emotional attachment to a business can often get in the way of negotiations, says de Groot. But the deal came together like a "textbook case".
With the executives of vodka company 42Below at the helm, Ecoya was clearly brand and marketing savvy - something Gibbs and de Groot believed Trilogy needed.
"One of the key reasons we were attracted to Ecoya was that we feel they understand that side of Trilogy and will preserve and probably enhance it," says Gibbs.
Trilogy has been on the radar as a business to watch since it appeared on the Deloitte Fast 50 list three times in a row (2006, 2007 and 2008).
There were "quite a number" of approaches from local companies keen to snap up the fast-growing business.
But the sisters discounted the offers, preferring to wait until Trilogy was the size and financial shape it is now. Even then, said de Groot, they would have kept holding on until they'd found the right buyer.
For now, the sisters will keep managing the business for a further 16 months, overseeing a bigger push into established markets such as Britain, Ireland, Australia and Asia.
They have set up a company to manage their earnings from the deal, which left them with $10 million cash and a further payment of up to $10 million - a maximum of $5 million in cash and $5 million in Ecoya shares - depending on Trilogy reaching earnings targets next year.
Gibbs and de Groot clearly share the family nose for business. The New Zealand-born sisters spent their teens on the family avocado orchard in Queensland and Gibbs recalls "lots of conversation around the dinner table" about creativity.
Back in New Zealand, their father set up a company called Super Critical Extraction, extracting rosehip oil. Gibbs, a trained accountant fresh home from her OE, took over the business reins and eventually formed Trilogy. In 2001, de Groot - a former fashion and beauty journalist - came on board to research the potential of rosehip seed oil, one of the ingredients that Super Critical Extraction had been producing.
Rosehip oil is one of Trilogy's biggest sellers and is an ingredient in many of its products.
Family helped finance the sisters in the early days and, like most start-ups, they made little money for several years.
To keep costs down they outsourced everything - manufacturing (which is still all done in Auckland), sales, distribution and design.
The biggest challenge in the early days was making sure they worked with partners who "got" Trilogy, said Gibbs.
They learned to follow their instincts about who was a good fit - and that's where the lunch test came in.
"They need to have a bit of your passion to make the brand successful. In the early days we did allow the odd person who was just there to make a bit of money and luckily it happened very early on and we learned a lot from that. Whenever you stray from your instinct you've made the wrong decision."
That wrong decision involved an Australian distributor which folded soon after Trilogy started working with it and took $50,000 - the company's first three months worth of sales - with it.
De Groot says they had reservations about working with the distributor but ignored them because it sold a lot of product.
They were a bit "louder and brasher" than she and Gibbs and not as "frugal" as the little Kiwi start-up company.
For many companies the loss could have been the end of the road, but Gibbs went back to Australia, made sure the stock was secure and found new distributors.
"You have to hold on to your beliefs despite the obstacles," says de Groot.
It didn't take long for Trilogy to bounce back and three years later the company was fielding orders from French department store chain Printemps. That year, Trilogy was also namedthe emerging exporter of the year at the ANZ Wellington Exporter of the Year Awards and, incidentally, Gibbs was named young accountant of the year for the central region by the Institute of Chartered Accountants.
However, cracking the Australian market was a real challenge, said Gibbs. She reckons New Zealanders underestimate the difference between the two countries.
"When you're talking to the Australian market you've got to be more direct," she says. "New Zealanders are a little more laidback and reserved.
"You can't underestimate the size of the country either - it's massive. And it's a little more formal - the only time I tend to wear a suit is when in Australia."
The sisters work hard, says Gibbs, but not too hard.
"We're nine-to-fivers, we don't work around the clock."
Their rule of thumb, says Gibbs, is "if you don't have half a day to think a week, you need to hire more staff".
Trilogy has 13 staff in New Zealand and seven in Australia, Britain and Ireland. It also employs trainers part-time to educate retail salespeople about its products.
And there's no question that the pair work well together.
"You'd be amazed at how harmonious our relationship is," says Gibbs. "[Catherine] makes decisions around her strengths and I around mine. The relationship has worked phenomenally well." The deal with Ecoya will be financed through a mix of debt and new equity organised by Craigs Investment Partners and supported by The Business Bakery - an investment company owned by Geoff Ross and his former 42Below colleagues, Grant Baker and Stephen Sinclair. The Business Bakery owns 65 per cent of Ecoya.
As well as their management roles, Gibbs and de Groot hope to hit the road next year and take a few local sales trips, meeting customers and training sales staff.
It'll be like the old days, says a nostalgic de Groot, when they hauled products around the regions in the boot of a car.
Brand building
* 2003: Trilogy launches in New Zealand and Australian health stores.
* 2004: Launches in New Zealand pharmacies and Myer department stores in Australia.
* 2005: Launches in UK.
* 2006: Launches in United States. Ranked third on Deloitte Fast 50 index with 690 per cent growth.
* 2007: Launches in Hong Kong, and in Farmers department store chain in New Zealand. Trilogy again on Deloitte Fast 50 index with 198 per cent growth.
* 2008: Opens Melbourne and London offices. Launches in Japan. On Deloitte Fast 50 index for third time, with 156 per cent growth.
* 2009: Launches in Britain's Boots Beauty Superstores and John Lewis department stores; in Irish pharmacy, health and department stores; in several Australian pharmacy chains; and in Malaysia concept store chain.
* 2010: Launches in Korea with retail websites. Sells 100 per cent of shares to Ecoya, the listed natural fragrance, bath and body company.
