Riding the Wave of Social Commerce

You might have watched Dollar Shave Club’s brilliant Youtube promo from 2012. The video, which was uploaded less than a year after the company was founded, has been watched by more than 23 million viewers. Quite impressive for a razor promo from a company no one had heard of. The thing to understand is that it wasn’t ‘just’ a razor promo — it was a show of perfect understanding of audience, channel and timing. Fast forward to 2016 and Dollar Shave Club (DSC) just got acquired by global FMCG giant Unilever for a whopping $1 billion, about 5x DSC’s revenue this year (to add context, ‘traditional’ e-commerce companies are typically valued around 0.75–2.5x revenue depending on growth and profitability). So how could they achieve this outcome in just a few years?

Take Warby Parker, the digital-first eyewear brand founded in 2010 and now valued at more than $1 billion. Or Bonobos, Walker & Company or Harry’s. Or look at the Nordics and Daniel Wellington, the young, affordable preppy watch brand that reached $200 m in sales last year — with a profit margin of 50%.

What do these companies have in common? Plenty of things, of course. You could say they are digital-first; innovative; design-focused; visionary; customer-oriented, and so on. This is all true, but above all they have created their own brands from scratch, enabling high margins and a high degree of independency. By creating completely new brands they have been able to approach brand building in a novel way. The key to being able to build such powerful brands in such short time is spelled social. These companies are dedicated to perfect execution in social marketing — even while growing at supersonic speed.

This is the promise of digital brand building, and what keeps many traditional giants nervous as they know that they are lagging behind. Today it is possible to create a billion dollar consumer product brand from scratch in just a few years. But these companies do not see themselves as ‘e-commerce companies’. They are simply using the best available tools at each given moment to help them get ahead. If that is Instagram and Facebook, great. If it is Snapchat, sure why not. Etsy? Twitter? TV ads? Influencers? No problem, just figure it out by rigorous testing and analysis and keep going. This mindset is not just prevalent in branding and marketing, it is an essential cornerstone in all parts of the business.

Getting a company like this off the ground of course brings a myriad of challenges. One such challenge is financing, as any company selling physical goods will have to keep close watch on its working capital. A common way to finance strong growth is to raise venture capital. Companies like Dollar Shave Club, Warby Parker and Harry’s are all venture capital-backed. But there are also notable exceptions, especially in how to get a company started with limited or no external capital early on. These companies come up with more or less creative ways to keep working capital in check and making sure that they can grow in a sustainable, although at times slightly more modest, way.

One such method is drop shipping, i.e. manufacturing upon order instead of holding stock. This typically works well with smaller volumes and less complicated products that can be manufactured and shipped quickly, as consumer’s typically don’t want to wait for months to get a consumer product. Another example is the invite strategy, pursued by companies such as OnePlus, the Chinese smartphone company founded in late 2013 by Pete Lau and Swedish-Chinese Carl Pei. Invite-only means you can get the hype working for you by lowering customer acquisition costs as it can drive PR and word-of-mouth marketing. It is also a way to manage demand, by limiting invites to match production capacity.

A big part of accelerating brand building today is also of course that new companies can integrate cheap, standardized solutions instead of having to build everything themselves. Plug-and-play services from companies such as Amazon, Shopify, Tictail, Klarna, Stripe, Google and Intercom, as well as our portfolio companies Funnel and Now Interact can today streamline and enhance many crucial aspects of running a commerce site.

It’s no longer about e-commerce vs traditional commerce. Everything is commerce today, and the most successful brands will realize that there is no point in making a strategic distinction between the two. Just like ‘digital’ strategy shouldn’t be separated from a company’s overall strategy, there is no point for today’s brands to have completely separate silos for online and offline sales.

Interesting reads:

Benedict Evans — The Facebook of Ecommerce

Farhad Manjoo — How Companies Like Dollar Shave Club Are Reshaping the Retail Landscape

Michael Jones — What the Next Dollar Shave Club Can Learn From Failure

Carl Waldekranz — The Death of Webshops

Cheryl Wischhover — Hollar, the Fastest Growing Online-Only Dollar Store