Eric Liaw, General Partner at IVP, counts some serious ecommerce heavyweights among his list of notable investments. The Honest Company, Mindbody, Glossier, and Supercell are all on his recent roster, and the list extends into software and FinTech, as well. As an experienced late-stage investor - mostly late B, early C round investments - we were thrilled to have Eric lead the discussion at last week’s Primary Table Talk, where 15 of NYC Tech’s leading ecommerce brand makers broke bread and discussed their observations, challenges, and upcoming trends in building D2C consumer brands.
What’s top of mind for these D2C leaders? We covered a lot of ground, with omnichannel, customer experience, sustainable growth, and brand-building topping the list.
Omnichannel is here to stay
The National Retail Federation predicts that total retail sales will grow 3.7-4.2% in 2017, with online retail projected to grow 8-12%, and offline estimated to grow just 2.8%. So while NextGen Commerce continues its steady climb as a percentage of retail sales (currently around 8.5% in the US), a D2C company should never close the door to the possible benefits of an alternative channel.
Eric spoke of the success Honest had in going from online to offline. Initially, investors thought the company would be 100% ecommerce subscription to optimize for convenience, but as the story unfolded, Eric admitted that they were “dead wrong” in their predictions. Two years post-launch, the company started seeing a lot of inbound interest from retailers. For a while Honest held out, but they decided to experiment first with Costco, and eventually moved into Target and others, due to ongoing demand. Offline has since become a very successful channel for Honest, with revenue fairly balanced between the two sides of the business.
In going offline, Eric explained, some of Honest’s challenges included losing the ability to track marketing investments and flow of goods as closely as they could in the online world, as well as the need to recruit new leadership with offline experience to drive the new strategy. Calling it the smoothest leadership transition he’s ever witnessed, Eric praised Honest’s founding team for making responsible and selfless decisions that were in the best interest of the company.
So when is the best time for an ecommerce company to move offline? “I would rely on inbound interest from your customers and the retail channel to be your signal for when the time is right,” Eric advised the group. “It’s near impossible to time anything perfectly, so it’s better to be a little too late than too early,” which would result in big capital investments without truly gauging market demand.
Never lose sight of your customers
The paramount importance of the customer voice was a recurring theme that night. Day Kornbluth, now Chief Digital Officer at Restoration Hardware, served in a former life as Chief Merchandising Officer at One Kings Lane before its disappointing $30 million buyout last summer. Citing a growing disconnect between its brilliant operators and its end users, Day noted the critical importance of bridging that gap. “Find a way, on a daily basis, to stay connected to your customer experience,” she insisted. OKL staff had extremely smart employees, amazing data and rock-solid internal processes, she said, but at some point they stopped talking about the customer and lost track of why they were doing what they were doing. “None of us in the startup world are big enough to be far away from our customers,” she said.
Day’s former OKL colleague, Chris Raabe, now COO at Dia & Co, was also a guest. Having learned about the importance of customer experience the hard way, he now makes a point of meeting with Dia’s head of sales first thing every Monday morning. “Everything I look at now is through the lens of the customer. If you’re not landing the customer experience, you can’t build your metrics in any meaningful way.”
Sustainable growth trumps rapid growth
Of course all startups want to grow quickly, but rapid, unpredictable growth isn’t always the answer. In fact, unchecked growth, without accounting for customer experience, quality of goods, run rate, and the ebbs and flows of your vertical is actually quite dangerous.
Philip James, Founder and CEO at Penrose Hill, offered his own track record as an argument for slower but sustainable growth. He co-founded Lot18 in 2010, where they raised over $50MM and sold $25MM in their first year, but barely survived the flash sale shakeout soon after. Philip points to the common misstep of focusing on rapid growth at the expense of monitoring core metrics and customer experience. In contrast, he runs his new company, Penrose Hill, with the goal of measured but sustainable growth. He’s highly focused on his margins, his backend, and customer feedback, and notes that building a sustainable business ultimately adds value to the customer.
Growth vs. brand-building in early-stage startups
It’s hard to find any category where brand doesn’t matter - especially for D2C companies. Having a solid brand builds an emotional connection, which compels the savvy customer to purchase your product.
A huge part of brand-building for early-stage startups comes down to really nailing the core customer experience. Alex Douzet, co-founder of fresh pet food company Ollie, lives and breathes this concept. Most people treat their pets as children, and Alex recognizes that one misstep in his product could result in a huge loss of trust. That “zero tolerance” attitude is why the company invested heavily in making sure they were completely transparent about their ingredients, where they’re sourced from, and how they’re cooked, and they’ve made sure that every batch of food is lab tested. The team has vowed not to jeopardize Ollie’s brand by taking any shortcuts along the way just to get a few more customers or achieve faster growth.
Find your authentic voice
One of the most critical pillars of any D2C startup is authenticity. Barraged by thousands of marketing messages each day, today’s consumers can sniff out a fake from a mile away. If a D2C business invests in an influencer or celebrity spokesperson to back their brand, that individual must be legitimately passionate about the brand, rather than just a paid figurehead.
Offering up Honest as a prime example here, Eric noted Jessica Alba’s commitment to Honest from the very beginning, when - seven months pregnant - she was flying around the country fundraising. Despite some recent bumps, Eric attributes Honest’s continued growth to the fact that Jessica is such an authentic voice. “I think a lot of our customers have stuck with us because they know the company is trying to be the best it can be, and because we’re so focused on our mission. If they felt we were just trying to make a quick buck, we wouldn’t have earned so much of their goodwill over the years.”
NY-based Glossier is another good example of the value of authenticity. Started by influencer Emily Weiss, founder of beauty blog Into the Gloss, Glossier has amassed a huge following (and, incidentally, has also successfully incorporated an offline component to its business, having recently opened its first showroom on Lafayette Street at the end of last year). As an investor in Glossier, Eric notes that what drew him to the business was largely Emily herself: her energy, curiosity, and desire to build something big, and her ability to inspire those around her. In Emily’s transition from influencer/curator to product retailer - which has the potential to be a total failure in the wrong hands - it’s her authenticity that has enabled her to continue building a real and supportive following. A big part of this, Eric says, is that Emily truly understands her customers; she knows that customers are not going to buy Glossier products exclusively, and she accepts that there are other good products on the market. Being able to look objectively at customer preferences has helped her maintain the trust she had built up from In the Gloss.
Thank you to Eric for leading an outstanding event, and to our roomful of passionate brand leaders who continue to push the boundaries of the D2C market in new and exciting ways: Day Kornbluth (Chief Digital Officer, Restoration Hardware), Chris Raabe (Chief Operating Officer, Dia & Co), Philip James (Founder & CEO, Penrose Hill), Michael Silverman (COO, Raden), Rachel Blumenthal (Founder & CEO, Rockets of Awesome), Alex Douzet (Co-Founder & CEO, Ollie), Becca Freeman (Marketing Lead, LOLA), Ryan McIntyre (Chief Marketing Officer, JackThreads), Brynn Putnam (Founder & CEO, Mirror), Anne Kofol Hogarty (VP International, Buzzfeed), William Wai Wong (Founder, Mission Street), Justina Chiang (VP of Business Operations, S’well).