Credit from Scott McLeod
Everyone from Procter & Gamble to Amazon to Walmart is acquiring or building Direct-to-Consumer (DTC) companies now. But this effort should not be limited to the big players.
While traditional brands need this kind of radical change the most, being proactive before you become a legacy company is the time to think about creating a DTC business. Big companies have now upped the stakes for everyone. The moment when Unilever purchased Dollar Shave Club should have sent a shockwave through every company — not just for the selling price — but for the realization that everyone will soon be at a disadvantage from similar acquisitions.
Most of the Fortune 500 companies are investing in DTC startups and you should be too. Even if you are raising your Series B or C funding, it is still not too early to be considering DTC products and tactics. Nectar, the mattress and furniture company I work for, is only two and a half years old but we are already developing a diverse portfolio of new businesses. Here is a quick primer on how your company can do it too.
Build a Growth Team Informed by DTC
You may not be able to acquire the same kind of talent and knowledge this way, but you should be budgeting to make sure that you can afford to hire someone well versed in the DTC space. Every company needs help in understanding the opportunities for innovation that DTC startups have created, and who can help them to assemble a team to explore those opportunities.
Look internally for people who can be Creative Generalists. You want people who are very good at products, intrigued by marketing, or are willing to learn. You are not looking for a single expertise, but for people who can act as growth hackers. This core group has to be able to look at the big picture; from the product you intend to sell to the postcard you will send as a follow-up after the sale.
Use the Right Kind of Timeline
You need to develop a timeline to understand if your product is something worth investing in. Depending on the product and the market, that timeline may change, but it could be as short as 30 days or as long as a year.
There are two kinds of timelines: one contains the mix of finding product market fit and the other is for actual profitability. Larger companies have the luxury of doing this, and can defer profitability for the sake of time. Smaller companies do not have that luxury.
Test Your Assumptions in the Marketplace
You will begin with a number of assumptions:
You have found a hole in the marketYou have a product that customers care aboutYou can make a product that customers wantYour price will be within reason for your customer
Depending on the product, it will likely take from 30 to 90 days of being in the market and testing with real consumers before you know if these assumptions are true. At this point whatever you put out is just a hypothesis. I think it is a fair statement to say that wherever you are on day one is probably not where you will be on day 90.
Pivot, Persevere or Kill Your Product
There has to be that flexibility in an innovation group of constantly asking questions and testing the answers in the marketplace:
What else can we provide?
What other problems do our customers have?
Are we solving the wrong problem?
Is there a variation of the same product?
Is there a different/better price point?
Should we consider different messaging?
When building a new business at Nectar we follow the Pivot, Persevere or Kill methodology. We went through this process recently in developing our DTC rug business. You make a series of pivots to ensure your product work, but if no amount of pivots or perseverance can satisfy your assumptions or market challenges, you kill the idea.
Make a Funding Plan Matched to Your Company Plan
DTC funding happens in two different ways. One is that companies are bootstrapping through fundraising on sites like Kickstarter or Indiegogo, or they are starting with a small amount of their own capital. Some companies are taking a year or two to get to a place of reaching scale and I think that is because they are focusing on profitability and product improvement, so their trajectory is long, with lower growth rates. The second kind of funding comes from raising capital against one of these products, often at the cost of revenue or contribution margin. A big part of determining your ability to scale is determining what kind of company you want to be.
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