5 Things to Consider as You Scale a D2C Business
COVID-19 transformed commerce. But looking to the recovery, we sense a return to D2C's first principles.
In the early 2000s, it seemed almost easy to launch a successful direct-to-consumer brand. We saw it time and again: a fresh D2C business would apply a standard business launch model to any sleepy, overlooked market, and find success. It happened with mattresses, with eyeglasses, with shaving products. But by 2020, the model was no longer fresh, and founders were having a more difficult time finding success as competition increased, social media ad prices rose, and funding dried up. Those who would succeed with a D2C model would need to be savvier about their plans for growth, and rely on four factors to build a functional foundation: omnichannel distribution, community, vertical integration, and conversational commerce.
Of course, one year ago, the pandemic hit and changed everything about our world — including commerce. As we inch toward recovery, there’s reason to feel optimistic for D2C brands that are committed to returning to those foundational principles: seize a favorable window of opportunity, apply a standard growth model, experiment with distribution, call upon community, and lead with purpose. Still, it’s important that founders and business leaders consider the changes still leaving their mark on our economy and commerce. Here are five to consider.
1. There’s new room to run online, but digital-only D2Cs will crash into a wall.
Recent months echo the halcyon days of DTCs: Digital ads are once again efficient, and there is a windfall of online spend to claim. In these favorable conditions, digital-only D2Cs can win more customers, build stronger brands, and earn more profits. But in order to truly scale omnichannel distribution will be crucial. When that point comes, D2Cs can use the strengths they honed online to make a powerful debut offline.
2. Successful founders will call it quits on blitz.
Early D2Cs succeeded by blitzscaling: deploying capital to snap up inexpensive social media ads and claim share in sleepy total addressable markets (TAMs) before the window of opportunity slammed shut. With today’s increasingly expensive ads, crowded TAMs, and skeptical investors, D2Cs can no longer spend to succeed. They need discipline: a focused mission, lean operations, and first-order profitability.
3. The cost of a retail experiment will approach $0.
A physical presence can be a boon to a primarily digital D2C brand. Following the slow death of shopping malls and sudden decimation wrought by the pandemic, brand-friendly terms emerged from the smoke: short leases, flexible financial arrangements, and experimental layouts. It is more affordable than ever for a D2C to test whether and how it can benefit from a physical presence ‒ if it can generate sufficient foot traffic to gather its learnings.
4. Big-name partners will roll out the welcome mat.
D2Cs have always counted on a direct community: customers that they can reach for free, tap for product development ideas, and rely on to evangelize the brand. Once DTCs have exhausted organic growth, high-profile partners offer a means of reaching new followers. DTCs may feel intimidated to approach a Fortune 500 company or a celebrity. But the onus now rests on the giants to partner with a cool D2C for both financial gain and brand “cred.”
5. D2C sainthood will demand more.
In the beginning, a righteous D2C adopted branding that enlightened the customer to his or her mistreatment, built a supply chain and distribution to cut costs, and shared the savings through low prices. These once saintly stances are now table stakes. Moreover, rising environmental awareness, social movements, and the human toll of the pandemic have fostered a community orientation among consumers. The righteous D2C now serves multiple mistreated stakeholders (from suppliers to consumers), builds a supply chain and distribution that do good by all, and charges fair — not low — prices.
Matt Higgins is co-founder and CEO of private investment firm RSE Ventures and an executive fellow at Harvard Business School, where he co-teaches the course Moving Beyond DTC. He was a guest shark on ABC's Shark Tank seasons 10 and 11.
Len Schlesinger is Baker Foundation Professor at the Harvard Business School, where he teaches in both MBA and Executive Programs and chairs the school’s practitioner-based faculty. The (co)author of 13 books, he has had a 50-year career moving between academia and industry in a variety of senior roles.
Rachel O'Connell is an MBA Candidate at Harvard Business School. She has served as a business strategist and analyst at style-driven, direct-to-consumer brands spanning fashion and beauty.