For the past five years, we’ve seen brands quickly attain highly coveted unicorn status while other brands scrambled to follow in their footsteps. We’ve watched brands that arrived early to the DTC startup party like Casper, Warby Parker and The Honest Company strike gold while others struggled to chase the largely unreachable pot of gold at the end of the rainbow. There’s no denying that making it today can be an uphill climb. The good news is that we’ve learned a lot from the current (though volatile) DTC market.
And for the latest and greatest brands looking to make a splash, here is our best advice:
Rethink Series A
When Series A funding is coming in, the prospect of a billion-dollar valuation can feel not just very enticing, but very possible, too. In reality though, impressive funding at the onset is increasingly being met with crippling investor expectations, which can then only be met through additional funding and efforts to further increase top-line revenue, and that pattern continues until unicorn status is achieved (or in most cases, not achieved). This is why it’s important to reframe how brands think about Series A funding.
Yes, some will be lucky enough to reach the golden pinnacle, but many will find success by building their brand in a more traditional and proven way; one that values sustainable growth over fast-tracked success. While this kind of growth happens at a smaller-scale, it is also the kind of growth that possesses staying power for longer periods of time and that helps brands develop incremental traction when first entering the market.
Build Categorical Diversity From The Start
Even early entrants to the DTC marketplace that experienced initial success found that one of the reasons that success ended up leveling off or dipping was because they lost their allure. Casper’s limited product offering with mattresses is a solid example of this as the company is trying mightily to reposition itself as a sleep solutions company as opposed to how it positioned itself at the onset: solely as a mattress company.
With this in mind, new DTC brands can do themselves a favor by offering a wider range of products and categories from the start instead of adding on layers as they grow. The brands that are taking more of a holding company approach –– creating a portfolio of products and leveraging owned audiences and shared resources across their portfolios –– will find that this strategy can yield a greater likelihood of success.
Zero In On The ‘X’ Factor
With today’s DTC landscape offering a relatively level playing field and limited barrier to entry, more and more brands are trying their hand at success. At the same time, perhaps now more than ever, figuring out what makes your brand unique could be the deciding factor. This doesn’t mean the answer is walking down the aisles of your local retailers and building a business around revolutionizing a pre-established category. Rather, the key is in making sure that what your brand offers is valid and differentiated, and that you believe in your value proposition. It’s easy to follow the trends and become a “startup hobbyist,” but it’s much harder to find and build something that truly stands out from the pack.
Develop Competitive Advantages First
If your brand can’t answer why you’re a better fit than the competition, you should probably find another idea. To do that, brands are honing in on their unique advantages, and developing proprietary tools, knowledge, and platforms that give them a leg up over the competition rather than relying on pure luck. Too many brands have sat back and allowed the market to dictate brand success, but the biggest winners have carved out their competitive advantages actively and decisively.
Launching a new DTC brand comes with its own set of challenges –– everything from funding to scalability to growth. While every brand may have visions of becoming the next unicorn, chances are that only a select few will reach that goal. It’s how each brand works through their obstacles that can truly separate the winners from the losers.
Alex Song is the CEO and Founder of Innovation Department, a tech and investment company that creates and develops e-Commerce and media brands. Previously, Song worked at Goldman Sachs and Pershing Square. Twitter: @1alexsong1