Transforming a Vintage Car Carpet Business: Lessons from Lucas Phillips' Acquisition Journey

The Journey to Business Ownership

Lucas Phillips decided to pursue entrepreneurship through acquisition (ETA) at age 23, after spending 5 years building a venture-backed startup while in college. His experience with the startup world left him wanting more control and less pressure to constantly raise equity financing.

Phillips was drawn to ETA for several reasons:

• Desire to be an entrepreneur without starting from scratch
• Preference for bootstrapping over raising venture capital
• Family background in small business ownership
• Goal of having freedom and control over his time

He joined the Acquisition Lab program to help focus his search efforts. Phillips developed a thesis around finding physical product businesses with B2B distribution that could be modernized and expanded into direct-to-consumer e-commerce.

Acquiring New York Auto Carpet

After just 60 days of searching, Phillips found an ideal target - a 120-year-old manufacturer of replacement carpets and interior parts for classic cars. The business had several attractive qualities:

• $300,000 in seller's discretionary earnings (SDE)
• B2B distribution model with potential for D2C expansion
• Intellectual property in thousands of carpet patterns
• Inefficient, manual manufacturing processes ripe for modernization

Phillips moved quickly to acquire the business for just under $1 million, using a 90% SBA loan with a 6% fixed interest rate. He put down a 10% down payment with help from family.

Challenges of the Transition

Upon taking over, Phillips faced several major challenges:

• Unreliable workforce with attendance issues
• Outdated, inefficient manufacturing processes
• Lack of modern systems and software
• Need to learn the business while also transforming it

He implemented changes to address these issues:

• Offered raises tied to attendance and productivity goals
• Replaced problematic employees over time
• Implemented cloud-based ERP and inventory systems
• Digitized patterns and introduced CNC cutting machines

These changes required significant capital investment, creating a "J-curve" where profitability initially declined before improving.

Modernizing and Expanding the Business

Phillips focused on several key areas to modernize and grow the business:

E-commerce Expansion

• Built a Shopify website to sell direct-to-consumer
• Iteratively improved the site through ongoing optimization
• Grew D2C sales to exceed B2B dealer sales

Manufacturing Efficiency

• Digitized thousands of paper patterns
• Implemented CNC cutting machines
• Streamlined production processes

Data Management

• Created comprehensive database of vehicle models and carpet options
• Developed systems to efficiently list products online

Pricing Strategy

• Implemented value-based pricing model
• Established MSRP with fixed dealer discounts
• Protected dealer relationships while expanding D2C

Results and Growth

Through these efforts, Phillips has grown the business significantly:

• Revenue increased from $1.25 million to nearly $2 million
• Carpet sales more than doubled (excluding rubber mat distribution)
• E-commerce now accounts for over 50% of sales

Strategic Acquisitions

Phillips has leveraged his position to make several strategic acquisitions:

1. Headliner manufacturer ($50,000 acquisition)

   • Added complementary product line
   • Integrated manufacturing into existing facility

2. Porsche interior parts maker ($50,000 acquisition)

   • Expanded into high-end European car market
   • Grew to become largest single make for the business

3. High-end European car interior manufacturer (asset purchase)

   • Acquired patterns and equipment from bankrupt competitor
   • Potential to add over $1 million in annual revenue

These acquisitions have allowed Phillips to expand his product offerings and enter new market segments with minimal additional overhead.

Key Lessons and Insights

1. Value of being in the game: Owning a business opens doors to opportunities and industry connections.

2. Importance of modernization: Updating systems and processes can dramatically improve efficiency and scalability.

3. Power of intellectual property: Unique patterns and data create a strong competitive moat.

4. Benefits of vertical integration: Controlling manufacturing allows for better quality control and margins.

5. Strategic use of acquisitions: Bolt-on acquisitions can rapidly expand product lines and market reach.

6. Long-term mindset: Willingness to reinvest profits for growth rather than taking large distributions.

7. Iterative improvement: Continuously refining processes and systems rather than one-time overhauls.

8. Value-based pricing: Setting prices based on market value rather than cost-plus formulas.

9. Balancing channels: Carefully managing the transition to D2C while maintaining dealer relationships.

10. Data as a competitive advantage: Comprehensive product databases create barriers to entry for competitors.

Future Outlook

Phillips remains focused on integrating recent acquisitions and scaling the business further. While not actively seeking an exit, the company's unique position in the market and valuable intellectual property could make it an attractive acquisition target for larger industry players or private equity firms in the future.

By transforming an old-school manufacturing business into a modern, e-commerce enabled company, Phillips has created significant value and positioned New York Auto Carpet for continued growth in the classic car restoration market.

Article created from: https://www.youtube.com/watch?v=ogt627wKLBE