Stay In The Loop

Sign-up for texts from Nik on all things DTC, trending business news, and the best place for Pad Thai.

Text With Nik

How Direct-to-Consumer (DTC) Brands Will Be Built Differently This Decade

It's not the same old song and dance that brands like MVMT and Native were able to build their businesses on. Welcome to DTC 3.0.

ArticlesNik Sharma

Brandless was once touted as “the Amazon alternative.” Yet, it unexpectedly shut down only to resurface again months later. Despite attracting customers with the simple promise of making “better stuff accessible and affordable,” Brandless is still trying to find a consumer model that works. Only four years after launching and $292.5 million of funding later, the consumer brand shuttered for a brief time, laying off 70 employees and leaving many wondering what went wrong.

The Brandless story, while unique, isn’t that different from what other DTC brands are facing today. In fact, there has been writing on the wall for a while now about a shift in the way these brands are operating and how future DTC brands will be built. We are beginning to experience a massive transformation in how founders approach, structure, and launch DTC brands. Along with this shift, some common characteristics of today’s most notable DTC companies—multiple venture funding rounds, expansive workforces, rushing into traditional retailers, renowned branding agencies on retainer—will be missing from the leading brands of tomorrow.

It isn’t just the onslaught of global challenges, the skyrocketing unemployment rates, the faltering economy, and other challenges that pop-up and contribute to this shift (although, they do accelerate it). Instead, it's a long list of factors including rising customer acquisition costs on Facebook, increased competition, and the ease of creating a decentralized, yet connected workforce with a supply chain you control.

Today’s world requires us to rewrite the DTC launch plan that so many eCommerce brands like Casper, Bonobos, Glossier, and Allbirds have followed over the past few years. The “replicated formula” that once led to DTC success has evolved, and companies with a higher chance of succeeding will now be fundamentally built differently than their predecessors. In tomorrow’s top brands, you’ll find:

  • Function will trump finesse
  • Increased emphasis on lean operations
  • More bootstrapping, less funding
  • Profitability on the first purchase
  • Scrappiness as a strength
  • Sustainability in focus

Function will trump finesse

DTC brands that have functional, unique products that fulfill an innate human need are positioned to thrive. Products that solve a problem and have a unique functionality will surpass brands and subscription services that sell a readily available commodity wrapped in superficial branding.

That’s why operators need to build and sell products that consumers can use to improve their lives—not ones that are merely aesthetically pleasing or championed by investors or millennials. Unique products lay the foundation of what sets brands apart. Brands that don’t invest into good products won’t be sustainable, regardless of their groovy logo or audience size.

With so many choices online and in-store, brands need to go beyond trying to differentiate from their competition. In today’s world, you need to build something so powerful that the moat lies within the product or service itself.

More bootstrapping, less funding

For years, investors eyed the market hoping to lasso in the next Warby Parker or Dollar Shave Club, investing more than $4B in DTC brands since 2012. With so much capital at play, it’s natural for founders to think fundraising is a necessary endeavor for any successful DTC brand. However, closing a seed round isn’t always the right path when there are other ways to scale.

Today, more companies will be solely self-funded, fueling their growth by bootstrapping and reinvesting in the business. This approach validates business models, hyper-focuses on profitability, and encourages teams to test and iterate based on customer feedback before executing when resources are slim. With the increase in no-code web tools, low barriers of entry associated with starting a business, and investors fearing the DTC bubble is about to burst, we’re going to see a spike in the amount of bootstrapped brands entering the market in a big way.

Profitability on the first purchase

With less funding, more brands will focus on profitability on the first purchase. This means that when the first customer purchases, the business recoups its initial investment for the product and can reinvest the profit for continued growth. There is simply no second option. The path to profitability must be at the forefront of the founder's mind. The company will need the profit to reinvest and buy more inventory. This will help them focus on stabilizing their eCommerce business before they expand into traditional retail stores like Target and Walmart.

As founders take control of their own companies with no outside capital, profit becomes the catalyst to grow the company. Profitability on the first purchase forces operators to be hyper-focused on every dollar leaving the company. To do this, founders must continue to look for more ways to further stretch their dollars—whether it’s finding new ways to optimize their ads for a higher ROAS or negotiating more favorable manufacturing agreements with middlemen.

Scrappiness as a strength

As they constantly reinvest their profit, brands will need to redefine what it means to be scrappy. In-house teams will ideate, test, and learn from experiments as they push forward on product development, branding exercises, customer acquisition, customer experience, and more.

While other brands are spending six figures on branding agencies, shoveling money into Facebook, or paying for flattering advertorials in Forbes, scrappy brands will be taking risks with low-cost, high-yielding growth hacks. This includes mastering and exploiting new platforms before the rest of the competition catches up. Consumer attention is a commodity that can be captured by only the quick and the creative, so new DTC brands will need to take acquisition and branding into their own hands without the safety net of a high-priced, high-quality agency at their side.

Increased emphasis on lean operations

Without funding and marketing agencies on retainer, teams will need to re-evaluate their organizational structure. The way DTC brands operate is changing. Earlier this year, sweeping layoffs occurred at a handful of DTC businesses including 23andMe, Birchbox, Outdoor Voices, Allswell, Brit + Co, and plenty more.

In the future, we’ll see brands leverage smaller, cross-functional teams in distributed (and often remote) offices to cut down on their overhead. Instead of having expansive teams full of specialists, chiefs of staffs, and community managers, brands will champion a core group of builders and marketers that can work across many disciplines in order to create a cross-functional team focused on the road ahead.

Sustainability in focus

Founders are realizing the benefit of investing in long-term growth strategies that enable companies to control and optimize their own channels. Woody and Helena Price Hambrecht, the co-founders of Haus, sent holiday cards to their customers last season. The cards weren’t promotional in nature and didn’t include the Haus logo, yet they were a simple way to connect with their audience in a meaningful, personal way. Acts like these often only involve a minimal investment but can have a profound effect on increasing brand equity and driving sales.

We’ll start to see more of an emphasis placed on increasing brand equity, crafting a narrative and growing a devoted audience that connects with your brand as opposed to spending a ton of money on paid ads to acquire consumers. Paid media shouldn’t be a brand’s main form of media, but rather, an extension of the narrative created through word of mouth, influencers, press and the company itself.

Delivering unparalleled product experiences, investing in sales channels, building your own supply chain, and having a direct, accessible relationship with your customer are all various ways to become a more sustainable brand that is built to last.

A fundamentally different decade

Brandless’ pitfalls will help new brands adapt and chart their own future. As the world continues to change and consumers look for products that make their lives easier, new business opportunities for DTC brands and other startups will emerge.

The brands that capitalize on those opportunities, develop unique functional products, and bootstrap their way to form scrappy, lean teams that focus on sustainability will become the brands of tomorrow that are built to last.