Is D2C the Only Way to Grow a Unicorn Startup?

You hear their names almost daily – Airbnb, Uber, Harry’s, and many others. However, there’s a chance that you’re unfamiliar with their status. These are so-called unicorn startups, and they’ve achieved industry disruption through one particular strategy: D2C marketing.

 

Table of Contents

What’s a Unicorn Startup?

Is D2C the Best Way to Scale a Company to Unicorn Status?

Harry’s: A Roadmap to D2C Success

The Growth of D2C Marketing

Factors That Affect D2C Success

Scalability

Quality

Market

Distribution

Regulations

Marketing

IRL

Conclusion

 

What’s a Unicorn Startup?

First, let’s address what might be the top question on your mind. What is a unicorn startup? Simply put, it’s a privately held startup that achieves $1 billion in value. The companies mentioned earlier – Airbnb and Uber – are good examples of this, but there are plenty of others that have become household names without going public and without dealing with a middleman in their quest to build profitability. Some of the most notable unicorn startups include the following:

 

  • SpaceX
  • Instacart
  • DoorDash
  • Robinhood
  • Wish
  • Ripple
  • Warby Parker
  • Magic Leap
  • Niantic
  • Houzz
  • Discord

 

The list above represents just a fraction of the unicorn startups out there. And, while not true in every case, many of these businesses have achieved $1 billion in value without dealing with a single reseller or retailer and going directly to their audience. D2C marketing is the key here. However, would-be unicorns must know a few key things before leaping into the fray.

 

Is D2C the Best Way to Scale a Company to Unicorn Status?

Looking for a way to maximize your profits while cutting out unnecessary costs and middlemen who steal pieces of your pie? D2C (direct to consumer) marketing might be the best option. Is it the only way to scale a company to unicorn status, though? Yes, but also no. To understand that seemingly contradictory answer, you must understand a bit more about D2C marketing and how things have changed over the years. We also need to explore other factors that will affect your ability to succeed.

 

Harry’s: A Roadmap to D2C Success

Before we dive too deep into our discussion about D2C marketing and how it may or may not support your startup’s scaling, let’s take a look at how one particular unicorn earned its status: Harry’s.

 

The men’s grooming industry didn’t seem like a place to look for a unicorn. Sure, there was some growth as Millennials began to come into their own and demanded a return to a time when men could take pride in their appearance, but it didn’t seem like anything that would support a billion-dollar startup. That was in large part because the shaving segment of the industry was dominated by just two companies – Gillette and Schick – and had been for well over a century.

Harry’s was determined to break that duopoly and earn its place in the industry. To do so, they took a very different path from the two mainstays. They went the D2C e-commerce route rather than spending time and money trying to hammer out distribution agreements with retailers.

Instead, they took to the web, where they competed with Dollar Shave Club, at least ostensibly. However, there wasn’t any direct competition, as the two companies occupied very different ends of the industry. DSC was value-oriented, whereas Harry’s went for a more bespoke, higher-end vibe while still managing to remain approachable in terms of price.

Within a single month of launching, the company had sold through its entire inventory. That was due to a couple of critical factors:

 

  • Online availability meant no need to go through the hassle involved with in-store buying.
  • A well-executed email campaign reached buyers where they lived, bypassing the disconnect built into the standard retail model.
  • Word of mouth got customers talking and recommending the razors to one another.

 

Today, it’s all history. Harry’s stands as a mainstay of the industry – a success story powered by innovation, vision, and a willingness to do what others had not (going direct to consumer). However, things have also changed over time, as has Harry’s. For instance, you can pick up Harry’s razors at pretty much any big box store today, so while D2C was crucial in the company’s rise, it is no longer the cornerstone of their success.

 

The Growth of D2C Marketing

Back when Harry’s first started up, the D2C model was a novel approach. It was what had helped propel Warby Parker to prominence in the eyewear industry and what fueled the rise of later comers, such as Casper and MeUndies. However, as more and more companies chose to go the D2C route, it lost some of its luster.

In fact, DTC companies have become a dime a dozen, and success stories like Harry’s have become increasingly rarer. As Ben Lerer noted in an article for Harvard Business Review, “DTC was an insight 10 years ago. There’s still a lingering idea that DTC is innovative. That simply isn’t the case anymore. It’s about how you do it now that’s innovative.”

Simply put, creating an e-commerce website and then sending out a handful of emails just isn’t enough to guarantee success, much less scale a business to unicorn status. To do that, you need more.

 

Factors That Affect D2C Success

Many different factors affect the success of a D2C business (or the lack thereof). Simply choosing to sell directly to consumers is no guarantee that you’ll turn a profit. In fact, many previously successful D2C companies have experienced some pretty significant setbacks. Look at the failure of Outdoor Voices or the reversals that Casper experienced. These are just the tip of the proverbial iceberg.

Couple that with the increasing number of D2C companies in operation and you begin to see something of the challenges involved. Choosing this particular business model is a good step, but it is only the first step. Moreover, it may not be the right step for all businesses.

 

Scalability

First, we need to consider the scalability of the business in question as to whether it is even worth considering going the D2C route. One thing that many people don’t know about Harry’s and the company’s success story is that to scale efficiently, they had to purchase the razor blade factory they had initially partnered with and then had to build out ownership of the entire supply chain. Plus, they were faced with that prospect within the first couple of months of opening their virtual doors.

Would all businesses be able to scale in that manner? No, they would not. For instance, a single vineyard would be unlikely to make the leap to a grape-to-table model simply because they could not scale a single vineyard to make that work. So, scalability plays a central role in rising to unicorn status. That does not mean that a single vineyard could not go the D2C route to some extent – it simply means that scaling to $1 billion with the D2C model might not be possible for that vineyard.

 

Quality

One of the most significant considerations in scaling a D2C brand into a unicorn company is the quality of the product or service being offered. If the quality isn’t there, any early success will evaporate. For instance, if Uber’s app was only functional sometimes, would anyone care how timely the drivers were?

What this means for D2C companies is that supply chain partnerships are critically important. To go back to Harry’s once more, the company originally partnered with a German razor blade manufacturer, and one of the few in the world that had mastered the “gothic arch cut”, which was essential for creating a sharp, yet durable double-edged blade that would deliver a great shaving experience.

If Harry’s had gone with a lower-quality manufacturer, would the company have scaled to unicorn status? It’s doubtful. D2C brands face many challenges, but partnerships with reputable, high-quality suppliers are at the top of the list.

 

Market

The market for your business will also play a role here. For instance, Uber ostensibly relies on several factors that are in existence pretty much anywhere – people that need to go somewhere and people with vehicles willing to take those passengers to their destinations. Seems pretty cut and dried, right? That market is everywhere.

Not so fast. The real issue here is that to sell their services directly to consumers, Uber uses a smartphone app. If you lack a smartphone, it’s pretty challenging to take an Uber. So, this automatically means that Uber (and companies that rely on smartphone usage to sell their products or services) will be at a competitive disadvantage in markets where that technology isn’t widely used. In short, developing nations will always be challenging for tech-reliant D2C companies.

 

Distribution

How will you distribute your product? D2C companies can only sell to consumers with a distribution network in place. You must be able to get the product order from your website to the fulfillment team, then the product from the warehouse (or the manufacturer in some models) to the consumer with a minimum of fuss and hassle.

Do you have the distribution partnerships and technology required to scale at speed? Ron Volpe, writing for WWD, explains that, “If the strategy is successful…their existing network footprint may become obsolete. As a result, companies will need to redesign their networks to accommodate the shift, for example by rethinking distribution points, contractual agreements with 3PLs, warehouse designs, or the level of automation.”

 

Regulations

If there is one thing that can put the brakes on unicorn-focused growth quickly, it’s running headlong into government regulations. That’s exactly what happened to Harry’s at one point during the company’s history.

In February 2020, the FTC put a halt to Harry’s sale to Schick, which would have been worth $1.37 billion. Why did the FTC do that? It was felt that the deal would have removed a competitor, fostering the chance of a monopoly developing and giving Schick’s parent company Edgewell an unfair advantage. The FTC’s statement explained that it would “remove a critical disruptive rival that has driven down prices and spurred innovation in an industry that was previously dominated by two main suppliers, one of whom is the acquirer.”

 

Marketing

To scale a D2C company to unicorn status, a great deal of strategy must go into the marketing plan. Digital native brands must be able to do more than just engage in email marketing. Embracing social media is a must, as is using other digital marketing tools, such as ad retargeting.

The point of marketing must always be to support the brand and connect with the audience, though. It’s not just about “getting eyeballs”, and too many marketers are swayed by the rise in clicks when their sales figures don’t reflect any increase in popularity. Marketing must be done correctly, and increasingly, that means going the omnichannel route.

What is omnichannel marketing? Simply put, it is the ability to use as many available marketing channels as makes sense to create a single, streamlined, cohesive user experience. It’s about uniting your various marketing efforts and sending a single, clear message that communicates your value proposition and engages audience members, encouraging them to convert into customers.

 

IRL

Finally, as we saw with Harry’s, to scale to true unicorn status, businesses may need to break with the digital-only mode of operations. It is becoming crucial that companies forge partnerships with physical retailers and have their goods showcased in the real world. The good news is that this particular step can be left for last, allowing you to focus on digital growth first.

 

Conclusion

Scaling a DTC company from a small startup to a unicorn valued at over $1 billion requires many things. You need vision and the ability to innovate. You must have a product or service that meets consumer quality expectations, the ability to identify the right partners in terms of distribution, and an eye for which markets are ripe for your offering. It also requires knowledge of your goals and the ability to stay the course even when faced with increasing competition.

If you have questions about D2C/omnichannel marketing, reach out and connect. I would love to hear from other businesses about how you’re challenging the status quo.

 

about jay sungAbout the Author

 

For over 25 years, Jay Sung has been a passionate leader in driving sustainable growth through direct-to-consumer, e-commerce, and customer acquisition strategies. Mr. Sung oversees corporate branding and growth initiatives utilizing a continuously evolving toolkit of digital marketing strategies and technologies to drive innovative direct marketing programs for portfolio companies – from startups to Fortune 500 organizations.

 

Previously, Mr. Sung served as the Chief Marketing Officer for Guthy-Renker, a $1.3 billion industry leader in the direct-to-consumer health and beauty market. He is best known for developing consumer acquisition and marketing strategies for leading brands such as Meaningful Beauty® with Cindy Crawford, Wen® Haircare by Chaz Dean, IT Cosmetics™, and many others. In addition, he served as the CEO of such well-known brands as The Proactiv Company and Lot18.

 

Mr. Sung lives in Los Angeles, enjoying all Southern California has to offer. You’ll frequently find him reading the latest business journal, cooking, or practicing the piano to relax. Mr. Sung earned his Bachelor of Science degree in economics with a double concentration in marketing and accounting from the Wharton School at the University of Pennsylvania.

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