Decoding the D2C SaaS playbook

-In conversation with Nikhil Gupta, Co-founder, LimeChat

Just over half a decade ago, D2C as a concept was almost non-existent. Today’s consumer world however is witnessing secular shifts from e-commerce to D2C with titans like Shopify, and Bigcommerce allowing retailers to operate online stores among companies like Wix that help build an online presence for retailers. To understand why, we need to take a quick look at the evolution of consumerism from its inception back in the early 2000s.

The dawn of the 21st century saw the rise of consumerism along with the rapid globalization of economies around the world. The next decade circa 2010 paved way for the eCommerce era with companies like Amazon, and Flipkart becoming mainstream among consumers. We’re at the onset of the next wave that will see the rise of conversational commerce along with a generation of D2C companies catering across verticals to global markets.

If you’re a founder looking to capitalize on this shift and build companies in the D2C space, you do not want to miss out on our SpecialeTalks with Limechat Co-founder Nikhil Gupta where we decode the D2C playbook right from market research to customer experience. Read on!

What should new founders looking to build for the D2C space be aware of?

A great starting point is to know about the big shifts and trends in the D2C market. The previous avatar of D2C were simply the marketplaces we see everywhere. Those worked perfectly fine until a while back, but what triggered the big shift from marketplaces to D2C platforms? Well, the answer to that question is two-fold: Access to customer data and the ability to build relationships with the customers. With D2C platforms allowing retailers to completely own their customer data, the equation slowly started to change as did the prospects of selling better to the ideal customers. However, marketplaces like Amazon made the job of selling products online much easier with their end-end support and robust logistics supply chain. With D2C, companies that are not Shopify-first need to set up their own infrastructure to sell online. While the convenience of Shopify attracted millions of brands to set up shop, it also opened up a new ecosystem of problems and possibilities. That is why today, the Shopify app store hosts over 10000 apps solving a gamet of niche problems for the D2C stores built on top of it.

Opportunities and Gaps in the D2C space

The D2C world however is not just Shopify alone. There are tons of other platforms with their own ecosystems of problems and possibilities. If you’re building D2C products, the Platform in itself could be your biggest differentiator. Having said that, here are a few opportunities that upcoming D2C founders can capitalize on:

• With the upcoming economic downturn, reducing CAC will be the primary challenge for D2C founders. The playing field is open if you’re solving for problems concerning customer acquisition costs.
• Whatsapp API has opened doors to potentially the biggest marketing channel and there’s no well-defined playbook to crack the WhatsApp-first space yet.
• D2C founders who once wanted to build everything in-house are now more open to buying tools that support and enable business on the platforms.
• Shopify is a behemoth and there are tons of apps in that space. But it’s not the only platform and each one has a unique set of problems and challenges to solve for.
• Look out for geography-specific problems. Ex: Return-to-Origin and Cash-on-Delivery are not seen very actively outside of India and SE Asia.

The various stages of a D2C company — know where you are!

When it comes to D2C, a big part of how you look at customer segmentation and ICP depends on the stage of your company which is broadly split into SMBs, Mid-Market, and Enterprise.

SMB — Most companies that fall under this category launch with a single hero product that is largely popular. Brands at this level wouldn’t have to deal with complex problems like catalog management, logistics, integrations, etc that usually occur when operating at scale. Players in this space ideally tend to optimize for visibility and therefore invest heavily in marketing. The real challenge is to make the subsequent products sell as much as their hero versions did. This is the chasm of death for companies in the SMB D2C segment.

Mid Market — The next stage in the ladder is mid-market. A numerical way to look at it is to analyze the sales data of the top 10 SKUs of your company at this stage. If your top product drives over 50% of the sales, then your brand is really just the one product, and that isn’t how you progress either. If 80% of your sales are driven across your top 10 products, then you’ve really spread out with a product line that establishes your company as a well-known Brand. Problems at this stage are usually of scale like inventory management, and Ad costs are relatively high. Founders of mid-market companies start to optimize for burn and prioritize decreasing cost centers. Perhaps, that is why Mid-market companies are most primed to buy many tools that enable their business.

Enterprise — Companies at this stage are usually well-established with a huge customer base and a rather long product catalog. Challenges at this level are particularly the hardest to solve like customer retention and customer experience. Founders start to strategize ways of building customer loyalty to improve retention and invest heavily in support and tools to provide seamless service. However, a very high CAC in a hyper-growth landscape still remains to be the #1 problem for companies at this stage.

How did you get your first 100 customers?

Exploration Vs Exploitation — When we started Limechat, the first thing we did before rushing to build a product was to perform thorough market research. We spoke to about 50 to 60 D2C companies across stages and domains to understand their pain points and modus operandi. We started to develop our own hypothesis as soon as we spoke to our first 5 customers. The strategy later was to see if the next set of leads would fit into the hypothesis and alter it along the way until it was substantial enough for us to work with. Watch the video snippet where Nikhil shares how Limechat landed their first 100 customers:

Should D2C founders focus on ACV right from the beginning?

The TAM during the inception of Limechat was very low at approximately 10 Million USD. However, we didn’t focus on the current market value, and instead took a thesis-driven approach of predicting the market 5 years down the line. The price is definitely crucial, but it also depends on your target segment and the type of product. A lower price point is very hard to monetize at scale unless the focus is on building a low-touch product targeted at the long tail. Ours is a high ACV high touch product with significant effort required for set up.

Founders need to look at how they can create more value and add more features for the existing customers. This could help improve the ACV.

Upcoming trends in the conversational commerce domain

There are tons of new channels and APIs like Whatsapp, and Instagram opening up that are creating new worlds to sell to. As we move forward, we will leverage image and voice from a conversational AI PoV to improve our product.

We’re definitely heading towards a point where companies will start to figure out what customers want even before they do. Improvements in NLP and AI are now helping us push boundaries farther than ever before to revolutionize the next wave of consumerism and we hope to be the pioneers.

SpecialeTalks — check out the full conversation with Nikhil Gupta by clicking on the video below:

and catch other SpecialeTalks episodes with 25+ founders by clicking the link here: https://www.youtube.com/channel/UCEpy-8zjEVp-m2yoKMyGiyA