Is Your New Consumer Brand Old News?
Finding the entrepreneur’s new groove
“It was a Tuesday night. I walked into the ████ store and looked around. It was so difficult to find a simple yet functional ████ at an affordable price. There had to be a better way! That night, I looked online — nothing on the market existed! If only there was a way to make a better ████ without a middle(wo)man / markup / hassle…”
Welcome the direct-to-consumer (“D2C”) entrepreneur narrative we have heard time and time again: on Shark Tank, in glowing articles on Forbes and on podcasts where “we only had $100 left in the bank”. It made for a great story but the reign of consumer startups in its current form maybe coming to an end: venture deals in consumer companies have declined with more investors shifting their focus (and money) into the promise of deep-tech (blockchain, robotics, AI) in recent years. Even with funding secured (in any form), a brand being direct or having chic branding won’t be enough to compete against the ever-expanding Amazon catalog.

Of course, this wasn’t always the case. The early 2010s were the golden age of digital-first D2C brands and all the refreshingly innovative — arguably smarter — marketing tactics that came along with it. For less than the monthly rent of a Manhattan apartment, Dollar Shave Club produced a video that went viral and led to 12,000 new subscribers the next day. Warby Parker leveraged consumer psychology and priced their glasses at $95 to avoid the cheapness associated with $99. Glossier began as a blog that actively involved its community to help influence its eventual product design. As digitally-native vertical brands (“DNVBs”), all naturally relied on a content marketing strategy through social media that emphasized a transparent and interactive customer experience.
At a macro level, the no-frills origin stories of these companies became an integral part of the brand narrative creating overnight celebrities of its founders. It was an exciting time but similar the future of MoviePass, it couldn’t last forever. The proliferation of brands and their tactics in recent years have desensitized consumers towards brand agnosticism. Brand content on social channels have gone from being innovative to teetering on blasé. The maniacal, customer-first experience that Bonobos founder Andy Dunn spoke of has become the expected standard and is no longer differentiating enough to stop customers from jumping ship to a competing D2C brand / Amazon. The plethora of tools today have made starting a consumer business easier than ever and conversely, succeeding more difficult than ever. Founders (and their potential investors) will need to dig deep to find the next unicorn and it’s a pretty crowded forest (please forgive me).
Been there, started that
In order to identify the next, great ████ let’s check out the current D2C landscape to see at least categorically where the opportunity could be. In a compilation of almost 250 prominent brands (full data set can be seen here)*, we notice a few trends that can imply saturation in certain areas:
- Apparel in some form had a clear plurality accounting of about 40% of brands surveyed. Within apparel, the sub-sectors (in descending order) were clothing, footwear and accessories (handbags, watches, socks, etc.)
- Although not included in the above count, some categories such as personal shopping that were “apparel-adjacent” included at least 5 separate companies (Stitch Fix et al)
- Food / beverage CPG came in second with personal care (beauty, razors, vitamins, etc.) coming in as a close third
- The above three categories accounted for more ⅔ of brands surveyed
Seeing apparel, food / beverage and personal care as the dominant categories in the current the D2C space isn’t exactly shocking. These are categories that both traditionally and currently have low barriers to entry across the board: materials are cheap, purchases are frequent and margins have the potential to be high. Leveraging Teddy Citrin’s very insightful post as a starting point, we can see a few other considerations when exploring the whitespace availability of a potential category:
- Is there subscription potential?
- What’s the manufacturing complexity?
- Is shelf-stability a concern?
- Is it part of a regulated industry that can create roadblocks?
- Can it overcome the last mile problem?
While all of the above are important to consider, not meeting those criteria should by no means discourage founders. In the D2C golden years, several floral startups sprouted up (sorry, had to) and proved initially successful despite the fact that flowers are highly seasonal, have a short lifespan and can be a supply chain nightmare. Sometimes, these very issues can also create innovation within the product itself: staying with floral theme, we saw the emergence of floral delivery companies (The Bouqs Company, Farmgirl, UrbanStems) in the early 2010s only to be threatened (or complemented) a few years later with reengineered flowers meant to last up to a year (Venus et Fleur).
Exploring the (not so) dark web
Finding new whitespaces today should force founders to think outside the typical consumer playing field — across the board. Recent years have seen brands foray into categories typically viewed on “taboo”, specifically as it relates to feminine care and sexual health. Thinx and Lola both burst onto the scene in 2014 with feminine hygiene products with Lola further expanding into contraceptives in 2018. Leveraging telemedicine, Hims and Roman arrived a few years later in 2017 focused on delivering erectile dysfunction medication without ever stepping foot in a doctor’s office or pharmacy. These new brands have banked much of their success on (breaking) these taboos with fresh, millennial-friendly marketing that portrays itself as honest compared to their euphemism-heavy predecessors.
Other brands have ventured within industries where the social barriers aren’t as high as the legal ones. Although marijuana is currently only legal for recreational sale in nine US states, the sales in just those jurisdictions alone are expected to grow to $12.5 billion by 2025 at a CAGR of 18.4% — higher than any other consumer category surveyed. The checkered legality of cannabis has also uniquely positioned it to do the seemingly impossible and be Amazon-proof, at least in the near-term. Legalization in these markets has also paved the way for the normalization of the ancillary parts of cannabis including (but not limited to) the rise in popularity of CBD, the non-psychoactive component of marijuana, particularly for food / beverage brands.
Going smaller
While likely not able to grasp the broadest market share of their category parents, going more niche through product / market differentiation can prove to be very lucrative, especially in saturated categories. When D2C apparel company (and airplane magazine ad staple) Untuckit first began in 2010, their target demographic had an extremely wide array of options to say the least. The urban adult male looking for premium-casual shirts had his pick of the litter from the established (Banana Republic, J. Crew) to the new players (Bonobos, Indochino). Untuckit sought to differentiate themselves in their early years by banking their entire value proposition on not just shirts, but shirts you could only wear untucked. While potentially seeming very niche, the targeted approach worked: the company was profitable by year two with sales doubling every year since it began. Untuckit has since leveraged their loyal and growing base by expanding outside shirts and after five years of being direct-to-consumer, almost 35+ brick-and-mortar locations across the US today.
Consumer startups have also found success by taking a segmented approach to focus on the needs unique to a specific community. In his strikingly familiar origin story (see: first paragraph of this post), Tristan Walker was frustrated there didn’t seem to be a decent product on the market to address the shaving needs of black men and founded Bevel in 2013. A few years later in late 2015, Bevel raised $24M across several VC heavyweights, boasted a 90%+ retention rate among customers and had just inked an exclusive deal with Target. From a category selection perspective, Walker’s light bulb moment could not be a better fit: Nielsen found that African-Americans consumers have an outsized influence in men toiletries (among other personal care essentials) accounting for 20% of the total spend despite making up only 14% of the US population. When Bevel first launched, the broader D2C men’s shaving category had very much been tapped: Harry’s and Dollar Shave Club would go on to raise the first and fifth-most VC funds respectively ever among D2C brands and occupied a collective 60%+ of all online razor sales. Nevertheless, Walker saw an opportunity to serve an underrepresented group that has paid off handsomely — by 2016, Bevel’s revenue had grown 300% year-over-year.
Channel-surfing
Being first or early to market in a whitespace might not be enough for you and your Shopify account — you will likely need to go multichannel. The latest Amazon-doomsday statistics have the Internet conglomerate accounting for 49% of all US e-commerce in 2018, up from 43% just the year prior. Going up against Amazon can be a losing battle but it doesn’t have to be: as the saying goes, if you can’t beat ’em, join ’em. The company’s Fulfillment by Amazon (FBA) service has removed the guesswork of inventory, shipping and customer service and enabled aspiring consumer entrepreneurs to scale their businesses much quicker than ever before. Products in more niche categories have found success on other platforms such as eBay and Etsy. Often any of these marketplaces are also the first places consumers go for product searches and are considerably more affordable than a solo SEO effort. Innately though, whichever platform consumers use may be irrelevant: D2C brands appealed to consumers in their early years by (a) offering high-quality products without a seemingly high markup and (b) not having to deal with the inconvenience of going to a store. So if price isn’t affected and consumers still don’t have to leave home, does it matter if it’s through Amazon?
The irony of the middle(wo)man’s return aside, going brick-and-mortar has also proved to be a successful channel and marketing tactic. Several of the more successful D2C brands (Warby, Away, Casper, Untuckit) have leveraged their online-only success by opening physical locations at high-profile locations in key markets (Venice in LA, Soho in NYC). Often initially opened almost strictly as showrooms to drive e-commerce sales, several of these companies have now expanded to maintaining inventory for in-store purchases. However, in era where malls are on their last legs, going full brick-and-mortar isn’t for the faint of cash and would only be recommended if the brand found significant success online-only. A considerably less risky option has involved D2C companies partnering with existing physical spaces to sell or showcase their products: today both Bevel and Harry’s shaving products can be found in Target, meal-kit service Blue Apron is now in Costco and luxury stationary bike company Peloton partnered with hotel chain Westin to be featured in 30+ hotels nationwide. Other smaller brands have found immense success with pop-ups, experiences at festivals (SXSW, etc.) or trade shows that require both minimal maintenance and funds.
Fear not future visionary — it’s not all doom and gloom. As mentioned a few times here, getting started has never been easier or more affordable but any success will greatly depend on product differentiation to whatever degree possible. If the market exists and can be proven out, the funding will come as we see investors focusing on quality over quantity: while consumer deals have decreased in recent years, capital has not: 2018 is expected to see $1.5 billion in venture funding — almost double the $764 million invested in 2016. We don’t need another “lifestyle” brand — we need targeted brands. New consumer companies need to focus on the fringe / underserved spaces and multichannel availability. The only consumer brand to crack the top 10 acquisitions by mid-2018 was…a doorbell company (Ring) for a staggering $1.2 billion. While your golden ticket may not be doorbells (clearly, you’re too late), it’s important to remember that whitespace availability is dynamic. Changes in technology (reengineered flowers), regulations (cannabis) and supply chain (FBA) have created substantial opportunity for founders and consumers alike. So who knows, your future disruption of the ████ industry may not even be an option yet.
*This is by no means meant to be an exhaustive or most comprehensive list of D2C companies and intended to be used directionally. All of the above are just my personal thoughts and observations. Thanks to those helped in reviewing — always welcome any other thoughts/feedback!
