This Founder Sold His Company for $500 Million then Started a Different Kind of Incubator
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Carey Smith is the founder of Unorthodox Ventures and Big Ass Fans, a company that he built to $250 Million in revenue and then sold for half a billion to a private equity firm.
We asked Carey Smith how he built Big Ass Fans from scratch, why he sold it, and how he chooses the entrepreneurs to support for his new business Unorthodox Ventures.
A Unique Take on Business Incubators
“There are an awful lot of incubators out there,” says Carey Smith, “but they’re run by people who don’t have a lot of experience in starting businesses.”
Unorthodox Ventures looks at the business, the individuals running it, and the sector to see if it has the potential to grow. If it does, they work with the entrepreneur to determine what it's going to take to do that.
“It's easy to give away equity. But if you're successful, the worst thing in the world is to lose your equity to a partner that is of limited value.”
Smith brings engineers and marketing specialists he’s known since Big Ass Fans together with the entrepreneurs of new businesses to compress the time frame that's required to take a business from inception to a break.
“It took me close to twenty years to take Big Ass Fans from zero to $265 Million,” Smith says. “And that's because I did everything serially. I did everything one at a time, one thing at a time, simply because it was only me doing it. I recognized that many entrepreneurs are in the same situation.”
Unorthodox Ventures is not interested in anything other than helping the entrepreneur run his or her business. “We're not greedy for equity,” Smith says. “Our stake is relatively small, somewhere between 25 and 30 percent, and for that, the entrepreneur gets the money required to make the business break even.”
Smith works with the entrepreneur to make sure they hire the best CEOs or marketing experts. “It is one thing just to throw money at a problem,” he explains. “But if you don't know how to use it, it’s a waste. That’s the difference between the way we approach a problem and the normal incubator.”
Smith believes that most angel investors out there today give bad advice. “They tell these poor kids to get their products made in China, to make it cheaper, and sell it on Amazon. That's the worst advice in the world!” he says. “They induce entrepreneurs to waste incredible amounts of money and get absolutely no return. They’ve never done anything in terms of starting a business. They may have managed an office or they may have run a department far for a particular company. But that's not starting a business.”
How Does Unorthodox Ventures Find Companies To Back?
“We're interested in hard products,” Smith says. “That could be yogurt or a medical device.”
Unorthodox Ventures gets a lot of calls from companies, but they also call people when they see something interesting, be it at a shelf in a store or online. “We're not passive,” he underlines. “If you're just going to sit on your duff and wait for things to come to you, you're going to lose.”
Refreshingly, more than half of the businesses Unorthodox Ventures works with are owned by women.
“Software in the main is a bunch of little boys,” Smith says. “I like little boys and all, but in terms of being serious and actually running businesses, they’re few and far between. Women take life and take this sort of thing much more seriously and more adept at planning.”
Awkward Essentials: A Perfect Unorthodox Venture
Frances Tang, founder Awkward Essentials. Image credit: FemTechInsider
Frances Tang, who founded Awkward Essentials last year, had never run a business before. She came up with the idea for an after-sex cleanup product for women, which Smith thought was fascinating. Unorthodox Ventures worked with Frances Tang and put everything on a schedule.
Tang was initially manufacturing in China because that's what she was advised to do. Currently, Unorthodox Ventures is trying to bring manufacturing to the States. They also helped her set up accounting and marketing, and finally, they’ve assisted her in hiring two new employees.
“She had a great idea,” Smith says. “We invested money that was required to get her to break even and structure an operating business.”
Big Ass Fans: A Simple Idea With a Catchy Name
Smith came up with the idea for Big Ass Fans after he created a complex system to cool buildings, which didn't work, but made him realize that there was a much simpler solution: just have a big fan. A lot of entrepreneurs have a highly innovative, complex idea that doesn't get commercial traction. We asked Smith to tell us what he learned from his Big Ass Fans journey.
“I started a business that involved cooling large industrial buildings via the application of water from the roof, which is something that actually works but is very complicated,” Smith explains. “It was overly complicated, very difficult to understand, very difficult to sell. The upside was learning quite a bit about a particular market.”
The particular market was industrial facilities, warehouses, distribution centers, manufacturing plants, and the people that run them.
“People that run plants like that are not CEOs. They’re maintenance supervisors and department heads,” Smith says. “I worked with them for over ten years and learned about their problems, the way they solved problems.”
“Big Ass Fans went from zero to $265 Million, but it took nineteen years to do that.”
“We were never able to build that company to over a million dollars a year,” Smith says. “It was not a success.”
That is, until Smith happened to cross a company that was manufacturing the big fans. “They had just started,” Smith says. “They didn't know what they were doing.”
Smith started marketing for them and made an agreement that when they got to a certain point, he would be able to buy the intellectual property.
“We hit that point. I did. And I changed the name to Big Ass Fan Company.”
In the beginning, they introduced themselves as H.M.S. Fan Company, high volume, low speed fans. Inevitably, the person on the other end of the phone would ask them, “Are you those guys who make those big ass fans?”
“Took us a while to change the name, but when we did it was well-received. We got some pushback. But I knew the people that we were selling to: a down to earth bunch of people that loved it.”
How Did Smith Get Into This Industry?
Prior to starting his company, Smith worked in reinsurance. “You don't have to come from one industry to start a business in it,” he says. “Frances Tang, who runs Awkward Essentials, has never been in that business either. That's not what's important. It's creativity, it's imagination.”
“I saw the opportunities because I was looking for opportunities.”
“When somebody works in a particular type of company for years, it's difficult for them to see anything outside of the ordinary. As an entrepreneur, you have to see beyond what those people see.”
Why Did He Decide To Get Out?
Too many founders describe their company as their baby, and are loath to ever let it go. How did Smith decide he was tired and wanted to sell?
“It was my baby,” Smith says. “But it was a 20-year-old baby. You raise a baby, it gets 20 years old, you want to see it out of the house.”
He finds it much more interesting to run Unorthodox Ventures, evaluating lots of different ideas, talking to lots of different people.
When Smith sold Big Ass Fans, he gave his former employees about $50 Million in checks.
Two Companies Carey Smith Admires the Most
Spanx, founded by Sara Blakely
“Sara Blakely recognized that there was a problem with the women's pantyhose and she solved it. She made a large business over a couple hundred million dollars using manufacturers in the States. She recognized that the object of the game wasn't to just create a product that costs less. It was to create a product that actually cost more but was a superior product.”
Zingerman's Deli, a deli in Ann Arbor, Michigan.
“And really, it's just a deli,” Smith says. “But what I always found fascinating is how they looked at life the same way that Sara Blakely did with Spanx.
Their employees were well taken care of. When you walked into this place, if you asked about a particular cheese, the person behind the counter would tell you every single thing about that cheese, where they got it, what it tastes like. It was always more expensive, but if you wanted cheap cheese, you could go to Kroger's.”
Smith’s One Piece of Advice to Entrepreneurs
“Life isn't run on commodities. Always have very high quality and the recognition that you can provide very high-quality products. You can demand a higher price on them. Take care of people, recognize that what goes around comes around. Market research is something that people overlook. You really do have to know who your customer is.
Who's the customer? What moves the customer? What's the demographic? If you don't understand what makes your product interesting to your customers, you can waste a lot of time. I wasted years on my first idea because I thought I knew something when I didn't even ask the question.”
