Attack Of The Micro Brands
In just ten minutes or so scrolling on Instagram, I counted over a dozen brands I had never heard of selling a product that caught my eye. There are so many direct-to-consumer brands we’ve never heard of these days, and I’ve patronized more than I care to admit.
For the past decade we’ve invested in and celebrated companies through the lens of network effects, Amazon’s power in retail, and measuring the potential of a brand by its scale and path to category dominance. We assumed that antiquated monolithic brands would be attacked by new modern brands that take over consumer consciousness enmasse. But instead, old and big brands are fighting against thousands of tiny brands with low overhead, high on design merchandise, and supremely efficient customer acquisition tactics. Many of us failed to recognize the collective impact of the long-tail of micro brands.
I think this mass of micro brands with massively efficient marketing are, in aggregate, having a much bigger impact than anyone thinks. Using hyper-targeted marketing, just-in-time manufacturing, and social media, these brands find and engage their audience wherever they may be. Of course, small brands are nothing new, but they typically remained small companies. Now I’m hearing about more and more of these brands with tiny teams generating over $10M in sales, with higher-than-normal-retail profit margins. What is driving this new wave of commerce, and what are the implications?
Designing & Launching Brands Without Inventory Risk
A little digging unearthed a few realizations. For starters, many of these brands carry no inventory — they are designed with tightly constructed and managed supply chains that can manufacture and ship product in small batches on demand, often in coordination with a partner in China. I heard about a few of these brands that launched and sold merchandise essentially as a design test, and then informed customers that shipping may take a couple months as the first round of inventory was made. In such a world, a new company that makes socks or bathrobes could conceivably launch three brands at once and then only develop the brand that performs the best. These brands can be spun up and wound down quickly, and they are managed with an eye on cost of customer acquisition and the achievable spread on Instagram.
Modern & Accessible Hyper-targeted Advertising
I am no expert on playing the customer acquisition (CPA) game on Instagram, but I have met a few people who are and they have it down to a science. No surprise, these brands are targeting by age, geography, and interest among other criteria. But they’re also leveraging each other to zero in on customer preferences in ways that nobody else can. For example, if I engage with and/or follow particular micro brands on Instagram, I am better targeted by other micro brands. All of this makes me wonder just how targeted brands will become? When brands have access to such sophisticated data that they know what we want more than we do — reaching a commerce singularity of sorts — will brands be made for each of us? Which prompts the question, is brand affinity driven by our identification with the brand itself or its community of customers?
Implications Of The Micro Brands
So who wins in the world of micro brands? Social networks that are truly social (as opposed to news oriented) and enable lifestyle discovery are perfect for this world, and nobody does this better than Instagram. But I do think there are opportunities for platforms such as Pinterest among others to facilitate the discovery of micro brands. And the issue of data privacy may mixup the landscape. On the seller side, the winners are clearly designers (who can rapidly develop brands and iterate design at the top of the funnel), companies like Shopify (that integrate with social networks and empower anyone to be a merchant), key suppliers to micro brands like Lumi (that develop distinguishing packaging and support the just-in-time needs to micro brands, in which I am an investor), and streamlined fulfillment services like Shipwire among others (that manage all the logistics of fulfillment). As for VCs, I wonder if they’re even needed. While I’ve invested as an angel in a few modern larger brands like Warby Parker, Roman, Primary, and Outdoor Voices over the years, some of these new micro brands I’ve heard about haven’t raised any capital at all.
Among all the players, designers have a very special opportunity. With the power to conceive, test, and execute ideas without much overhead, the creativity and ingenuity of designers is at the center of the future of brands.