What Does it Take to Build a Direct-to-Consumer Brand in 2020?

After working at Senreve, a luxury Direct-to-Consumer startup, for 2 years, I no longer obsess over every DTC brand with minimalist design and beautiful branding. I felt tired after immersing myself so fully in building the next Warby Parker or Away from scratch. However, two months after leaving that world and moving on to Dropbox, I can now look back and feel proud of how much I’ve learned and how far Senreve has come.

This post captures some of my observations and thoughts on what it takes to build a direct-to-consumer brand in an increasingly crowded category. They come from my experience as employee no.4 at Senreve as well as attempting to start a male beauty brand along the way (I’ll refer to it as Morning Ritual, or MR).

Table of Contents

1. The Customer: Product-Market-Fit
2. The Brand
3. Marketing Distribution Channels
4. Growth
5. COVID-19 Impact
6. Concluding Thoughts
7. Bonus Materials

The Customer: Product-Market-Fit

At the end of the day, this is the most important thing to figure out. It will help you evaluate if all of your efforts, sweats and tears, will be worth it.

The Direct-to-Consumer movement threw out the old way of a brand dictating everything about the product, and embraced customer feedback as the holy grail. Glossier started with a blog to understand what customers are talking about in beauty, while Senreve did focus groups with women on what they like and don’t like about their handbags.

Understanding your customers deeply is the most critical step, because it will dictate your branding (how you speak to them), your product (what they want and need), and your marketing (where do you reach them).

For Morning Ritual, we set out to conduct dozens of customer interviews to understand if there is a need for male beauty products, what their pain points are, and who is this person that needs it.

If you can’t paint a vivid profile of your core target customer, including his or her lifestyle, geographical locations, occupations, preferences, etc. then you need to talk to more people.

For example, we always imagined a Senreve customer to be a working professional living in major cities around the world — busy juggling a lifestyle in Tech, Finance or Consulting. Fashionable yet powerful. And this dictated the women empowerment angle of the brand — “for the women who do it all”.

Many eyebrows are raised over new direct-to-consumer brands that make extremely niche products such as toothpaste or canned water, and while I have not done enough research to comment on whether there’s a real need for them, I hope they have.

Many DTC brands argue that customers don’t know that they need a product until you present to them something better. However, the incremental benefit of a “want” product should exceed how much more effort (in time, switching cost, etc.) it takes to acquire the new product. If the difference is very little, then you probably need to meet your customers where they are to lower the efforts.

The Brand

I’ll admit that I started to become interested in the DTC space many years ago because of the beautiful branding. I was addicted to the well-curated Instagram profiles, artistic websites, and millennial-friendly packaging. Even more than that, a brand stands for something — directly speaking to a person’s self-identity and perception.

To love Glossier indicates that you are a low-maintenance girl with natural beauty; to use a Senreve bag means that you’ve made it as a well-paid professional who is stylish and ambitious; to wear Outdoor Voices signals you’re having fun while being fit and chic; to drink Recess shows that you are chill.

These brands represent our personalities, attitudes towards life, and lifestyles. No wonder the modern brands spend so much time and money on choosing the perfect font and email layouts.

I thought a lot about branding with Morning Ritual. Arguably it was one of the biggest barriers for men to start using a beauty brand. There’s a reason why men don’t feel comfortable walking into a Sephora and picking up a tinted moisturizer, even though they also want to look and feel their best. I thought that if I can de-stigmatize with the right branding, then MR can become the go-to skincare brand for men.

In the long-term, building a successful brand is a moat that retains your customers and allows you expand into additional categories that make sense.

I’ll caveat here that although it’s critical to build the right brand voice to speak to your customers, branding alone is simply not enough. At the end of the day, I needed to first validate that there are enough men out there who have a need for the product, then I can worry about the logo and fonts.

Marketing Distribution Channels

Interestingly the whole concept of “direct-to-consumer” means communicating directly to the customers, but a few years after Warby Parker became a household name, it is now all about “omni-channel”. Which makes sense given that you want to be wherever your customers are.

I listed out the most important channels below as well as my thoughts on them, broadly broken out into organic, paid, and offline channels.

Organic Online Channels

• PR (THE most impactful channel if you can pull it off; companies like Away and Glossier do things to get PR coverage and generate Buzz)
• Word of Mouth / Referrals (Having a referral program in place is such an obvious win-win that all brands should have it)
• Organic Influencers (Community engagement is increasingly important, as these organic micro influencers have very loyal followings)
• Facebook Community groups (Don’t underestimate the power of small organic movements of affinity groups. They are increasingly trusted in a world crowded with paid ads)
• Reddit (e.g. /skincareaddiction. Very hard for brands to interfere, which again makes them so trustworthy!)

Paid Online Channels

• Paid Influencers (finding the right one with audience that fits your brand is critical)
• Paid Content (newsletters, dating apps — can work extremely well)
• Digital Marketing (Facebook / Instagram, Pinterest, Bing, Google, YouTube; even though CAC is increasingly high, can’t deny its effectiveness!)
• SMS (less crowded as of now, cheaper CPA)
• Video (an increasingly important form of talking to your audience, through YouTube, TikTok, and other digital channels)

Offline Channels

• Strategic placements (e.g. Barry’s, Equinox, Movies)
• Billboards and Subway ads (Expensive investment! Don’t go this route until you’ve really exhausted all the other channels)
• Direct Mailing (I’ve seen mixed results from this channel. Some brand partners claim this is their holy grail, but probably depends on your product and price point)
• Events (e.g. speaker events with relevant themes such as women empowerment, free facials, etc. I see it as more of a brand building rather than revenue-driving event)
• Retail Partnerships (e.g. Nordstrom, Neiman Marcus, Apple. Retail is not dead after all — but wholesale margin is not as optimal. It probably makes sense for a brand to establish legitimacy through these partnerships in the early days)

In the early days, always start with the organic channels for growth so that you can validate the concept and not overspend on marketing. When a brand can grow organically, it shows sustainability and real product-market-fit.

VC investors always talk about the ridiculously high CAC (cost of acquisition) for many direct-to-consumer brands, which replaces traditional retail stores’ rent as the highest cost that can make a company wildly unprofitable.

The specific paid channels to start with depend on the business. For example, scoring a strategic partnership with Barry’s would be life-changing for a male beauty brand, while investing in paid fashion influencers make the more sense for a fashion company like Senreve.

Growth

Once you’ve determined product-market-fit and have grown a little with organic marketing, you can start playing around with different growth levers:

1. Digital Marketing: Start with lower-cost paid channels (e.g. Facebook, Google), and any channels that make sense for your business (e.g. influencers). There is a wealth of opportunities here, from trying new channels to optimizing existing SEOs. Just Facebook alone can take years to exhaust the potential growth.
2. PR / Celebrity: As mentioned earlier, this is an incredibly effective channel if you can pull it off. It will generate compound interest for your brand.
3. Offline: Activation events to mobilize local communities, direct mail
4. Partnerships: Partner with other brands with the right audience can help you reach new audience very quickly; Retail partnerships can also give your brand a physical presence without having to open a brick and mortar store
5. Geographic Expansion: This seems to be overlooked sometimes, but some brands such as Mulberry is not a household name in the U.S. but has a huge presence in the luxury market of China
6. Category Expansion: Only expand when it really makes sense. Most DTC brands that have forayed into new categories have failed to gain much traction (e.g. Casper trying to become a Sleep company while still mainly known for its mattress; Away trying to become a Travel company but still mainly selling suitcases).

Whether you are VC-backed or not dictates the pace that your brand is allowed to grow at. I’ve heard so many horror stories of VC-backed companies that wanted or needed to grow at all cost, which does not really make sense for many direct-to-consumer brands. These brands either branch out into different categories too early or overspend on discounts and marketing that compromise on their branding and unit economics.

However, partnering with the right VCs will give the brand the freedom to experiment and do something truly innovative or big (such as expanding into international markets), along with other resources.

I think there’s a reason why most VCs don’t love to invest in direct-to-consumer companies anymore. Unlike a typical SaaS company, most DTCs can’t grow at a hockey stick pace unless it hits a viral loop (which is also incredibly difficult to achieve). And VCs are looking for huge exits that most of these brands cannot deliver.

In the last few years, there’s a rise of celebrity brands (e.g. Fenty) simply because they already have a huge audience and following. Building a community of brand loyalists is extremely difficult, especially when many of the new brands rely on their “branding” as the differentiator instead of creating a real product that people need.

COVID-19 Impact

I can’t write a post in 2020 without mentioning the devastating impact of the COVID-19 Pandemic.

Many of the latest generation of Direct-to-Consumer brands are shutting their doors without enough funding and cushion to carry them through the falling consumer demand. However, I firmly believe that the great ones will survive and emerge stronger than ever.

These smart brands will be able to pull back to only spend on the most efficient marketing channels, communicate directly to customers to cater to their changing needs, and take advantage of the fact that the incumbents of their worlds are burdened with physical retail stores.

Concluding Thoughts:

Direct-to-consumer is created as a channel to connect to customers directly, taking in more feedback and cutting out the unnecessary middlemen that eat away at profits.

However, at the end of the day, companies are successful because the products they create fit the needs of the customers they want to talk to. While many brands have gotten creative with their marketing channels, there’s no doubt that in the new phase of the direct-to-consumer era, discovering new mediums for distribution, authentic community building, and keeping a sustainable unit economics will be important for the health of these brands.

I can’t help but wonder, how will the next wave of brands innovate to stay relevant?

Bonus resources

Interesting Newsletters and Accounts:

Lean Luxe

Retales

ThingTesting