We followed up with Joe Schaefer to learn more about the sale last month of industry backend stalwart Innovative Systems — best known for its Full Circle, Full Circle Lite and EDI Direct software services. Their growth in many ways traces the rise of action sports consumer goods as an industry. So many brands grew up with Full Circle — from early-days Stussy, Hurley, Volcom to latter-day Stance, Pura Vida and many, many more. In the 26 years since Joe and co-founder John Tengwall launched their company, it’s become the software of choice.
Joe Schaefer, Co-Founder and Partner of Innovative Systems
Full Circle’s software handles every aspect of a brand’s operations, including accounting, supply chain management, production administration, purchasing, manufacturing, trafficking, and distribution of finished products to customers.
Joe’s customers know him as a hard-working, straight-talking problem-solver and a non-stop storyteller, and in our talk Joe shares why he and his partners chose to sell to ERP specialists Aptean Inc., what it means for brands who use their systems, and what it means for him.
SES: Joe, first up, congratulations on the sale of the company you co-founded 26 years ago. Why did you decide that now was the time to sell?
Joe Schaefer: My co-founder and partner, John, he’s five years older than me, he’s going to be 62 this month (September), and two years ago he stated that he was going to retire in December 2020.
So that got the ball in motion, and we thought, well, where do we go from here? Our first thought was what about some sort of employee-owned, profit-sharing arrangement, with the proceeds going to John and our partners Del Newman and Matt Sperr if they wanted to retire.
But, then we went and got our valuation in May of 2019, and … the number was a Big Number, and let me tell you, if we were going to go employee-owned, that was going to be a big ask.
SES: So, how did you figure out what to do next?
Joe Schaefer: I called Rich Anderson over at Moss Adams Capital. He and Johnny Sherwood put together our investor document, highlighting our company and revenues, and they put it out to a list of strategic partners and private equity. Six came back interested in buying us, and four did legit LOIs (letters of intent). Then we had calls with all of them — two were strategic, and two were PE. A lot went into it, but we had a partner meeting, and some of the offers were higher, but all three of the partners on the call before me were, “Aptean,” and that’s where I was. And let me tell you, I was thinking, for the first time ever us working together, we agreed right out of the box? That was amazing.
SES: Did you know Aptean? What was it about them that all the partners liked?
Joe Schaefer: Well first, we all agreed to not go to PE, it was clear that they just don’t understand our industry. When we did our reference checks, it was clear that they’re looking to turn-and-burn in five years.
But Aptean, they are in our industry. They are a strategic buyer, they have over 20 ERP packages. They do exactly what we do, everything we do just plugs in to them.
But to answer your question, no, we’d never heard of Aptean. Rich and Johnny found them. They’re in a number of industries, but they hadn’t been in apparel, so, honestly, it’s a great fit for everybody. Regardless of industries, they do what we do, and that’s why we liked them.
This sale, it was new turf to us, but our standpoint as partners was, “We have nothing to lose by taking a look.” And the LOIs came back way more than we imagined, and we didn’t imagine that we’d end up with someone we meshed with so well.
SES: Buyers are always looking for acquisitions to add something — what do you think they liked about you?
Joe Schaefer: We are their first apparel, footwear, and sized-accessories company. Let me tell you a story. When we did the demo of what’s inside Full Circle, well there are pretenders and there are the players — you know how complicated it is — and we just blew their mind.
When we got into showing them denim, Lucky Brands farms out the manufacturing steps to local contractors in California. So if you take colors, there are going to be up to seven different vendors doing the dye lots of the same color. And so what we do is match the dye lots so all same shades of blue and black are grouped together, and so customers don’t ending up getting back seven shades of the same blue. We can keep the inventory at all the different shops and warehouses. That sets us apart from our competitors.
Something else. We’ve been in business 26 years, and we’ve never financed anything, our accounting books are super strong, we’ve never had a company or employee lawsuit. We’ve had very little turnover. They talked to our top 10 revenue customers, and they found out that we do customer service right, we go above and beyond.
SES: Ok, so now what? What changes for you, and the company?
Joe Schaefer: They have a university, for training staff, and right now, they’re reviewing our talent to find who they need to groom and grow and take to their university, so there are going to be a lot of opportunities for my team.
They’re taking over all the accounting, payroll, HR. I have a new boss. We’re going to have the resources of Aptean behind us. And some fresh eyes — after 26 years, you begin to feel like you’re running on a gerbil wheel. I think some fresh eyes will be neat for everybody.
SES: And what will your customers notice?
Joe Schaefer: We’re still here, we’re not dissolving Innovative Systems. I’m a full time employee on contract, our staff is completely untouched.
Their CEO, TVN Reddy, he talked to all my people. They’re not coming in to let us be stagnant. Aptean has so many bright people we’re dealing with, we hope to sit down with them and show them items we’re stuck on, from our key clients, and have some fresh eyes to find solutions.
Let me give you an example. I’m a dreamer, and if i could do Full Circle again from scratch, I’d build in AI. I’ve always considered we are agents of change, and I believe AI will be a big player in the future.
SES: What it was like, from the time you decided to sell to Aptean until the transaction closed? Do you have any advice for others contemplating the same move?
Joe Schaefer: Numero uno, most important, you better have a damn good mergers & aquisitions firm like Moss Adams Capital and MA attorney, like Scott McConnell, that’s all he does. Do your due dilligence. A lot of things you might think are negatives — about your company, or what you get asked by the buyer’s reps — they’re not that big a deal. Don’t lose hope, have faith — there’s a reason why they’re looking at you.
Oh, and let me tell you, it was 7 months of hell. I learned that they’re going to press you for every little detail, every contract going back 26 years, and they do it because they want to know you have it, but they don’t look at it. So, take everything with a grain of salt. They got to the LOI stage with you, that’s because they want you, so just grin and bear it.
SES: All these 26 years, you’ve accumulated a lot of great stories, great friends, great business. Anything you want to say to people?
Joe Schaefer: I have so many people I want to thank, through the years. Ian Forman gave me my first job in 1985 right out of the Marine Corps, he was the owner/CEO of Catchit Sportswear. Eric Singer was the production manager and I learned apparel from him. Then he went on to become one of the partners at Obey, and hired me there. Frank Sinatra, he took a chance on me when we started out on our own with Stussy in 2001, he did our beta. I’ll never forget that demo until the day I die.
Next to take me on were Bob Hurley and family at Billabong USA and then Hurley. And the whole Hurley family, Bill, Rachel, Chance King, and partners Mike Ochsner and Joe K. Just a class act, the whole family.
Rich and Rene Woolcott and Jason Steris and Doug Collier at Volcom, that was the next install I did, and instead of a discount they wanted me in their office every Friday for six months, and we developed a lot of key functions that are just killer in our software.
Gene and Barry at Lucky Brands, oh I can tell you some stories, and so can they. We’re still friends to this day. Robert and Zack Wright and Charlie Moorhead at LRG. Mike West and Doug Sumi at 686. Jeff Kearl and John Wilson at Stance, Will Smith at Dragon, James Perse. And, in memory, Dick Baker and Carl Heyward.
Thanks to them and so many more.
