Some Thoughts About Direct to Consumer Startups

Originally posted 7/10/2018.

I just finished reading a very insightful article entitled The Race To Reinvent Everything by Tom Foster in the May 2018 edition of INC Magazine.  The article is about direct-to-consumer (DTC) startups, companies that are emulating the Warby-Parker model for many other product categories.  Products currently offered by more than 400 DTC startups range from bras to tampons.  While the article made many interesting points about the challenges and opportunities these startups are faced with, two points resonated with me.

1. Not All Products Offer the Same Opportunities – Warby-Parker has been extremely successful due to two main factors:
   1. They offer superior value to their customers. Warby is selling a formerly $500.00 item for less than $100.00
   2. This value proposition enabled their customers to own many pairs of glasses, converting a category that was a necessity into a fashion category

The article went on to compare several other products where either the value proposition is not strong enough (sofas), the category is flooded with many DTC startups (Razors), or the major players in the marketplace have the technical resources to jump into the category on a DTC basis in addition to their customary channels of distribution (Razors again).  If you are considering starting a DTC company, you must carefully consider your proposed value proposition along with product costs, including sales and marketing.  Further, this article is a strong primer on the DTC landscape.

2. Key Performance Indicators – DTC vs. Bricks and Mortar – The article mentioned some major differences between DTC and traditional retail’s ability to collect actionable KPI’s, giving the advantage to DTC. Specifically, DTC companies can capture essential KPI’s, such as customer acquisition cost, number of leads by source or campaign, and conversion rate by source or campaign more rapidly and accurately than traditional retailers.  Customer lifetime value is another very important KPI which is just as hard to predict for DTC startups as it is for traditional retailers.  However, DTC companies can have statistically valid lifetime value data sooner than traditional retailers.  The increased accuracy and timeliness of KPI’s allows DTC startups to finetune their model as early as possible.  Traditional brick and mortar retailers are faced with the need to collect these same KPI’s.  However, it can be more difficult, be less accurate and take more time for traditional retailers.  The section of the article where this is presented is a good summary of Buying Customers a book by Brad Sugars, Founder and Chairman of ActionCOACH.

Whether you are starting a direct-to-consumer or traditional retailer, you should read this article to achieve a strategic advantage over other potential startups in your planned marketspace.  The article contains lots of additional information you will need BEFORE you get too far on your startup journey.  My colleagues and I at ActionCOACH can further assist you in sorting out your options and planning your success.