A decade ago, you could spin up a website and launch a DTC product, and the mere fact you were “DTC” made you competitive.
The space was still getting started.
A lot of brands found success simply because they grew up in the heyday of DTC, or were quick to follow on. That’s not to say you can’t quickly launch a direct-to-consumer product today and not find success, but it’s significantly harder. More tools (like Shopify, Squarespace, and Stripe) mean lower barriers to entry, which means more competitors. As a result, differentiation quickly transitioned from being about whose product was first to market, to becoming a game of who could spend the most on paid advertising.
Most DTC companies today do not go through long, expensive development processes, working to create the best possible product they can for the customer.
Instead, they aim to put a quick spin on an old or outdated product category and extract as much value in the short term as possible—ultimately leaving them very vulnerable to competition (and quickly being replaced by the next quick-spin product, and so on).
Casper is a classic example. They are a DTC company that saw a huge burst of success selling mattresses made out of a type of foam you could compress and ship in a box the size of a rolled-up rug—until IPO time came and barely made it across the finish line. Why? Because Casper is still losing money like crazy. Amazon has ripped them off. And they don’t have anything proprietary about their product. They have quickly become commoditized, which is the same fate most DTC brands are facing today.
So, how do you avoid commoditization? How do you build DTC products the right way?
1. Think 10 moves ahead, and set yourself up for scalability from the beginning.
I have been building a DTC water filtration company for the past few years—called Hydros.
Even at the foundational level, we have to think about how far we imagined this company going. We wanted to build filtration products, but maybe one day we might want to expand into something more. In our case, we named the company and built the entire mission around clean, accessible water—giving us the flexibility to expand into other areas, if and when the opportunity presents itself.
Many DTC companies do not think this way. They come up with a quick product idea, and then they name the company the name of the product. And that’s it. That’s as far as they’ll go—and if and when they decide to scale further, now they’re presented with a problem. The customer only knows them for their one product and isn’t interested in going with them on that journey.
2. Extend your time horizon and choose investors accordingly.
If you want to build a sophisticated consumer product, you have to think long-term.
In addition, you have to have aligned shareholders who understand the pitfalls of the time horizons necessary to build a truly outstanding business. Because you might get a much quicker start just picking something off the shelf and running with it, but that sort of decision-making is going to constrain you in the long run as the space gets commoditized.
Of course, you don’t want to fall into the same trap Casper did. Somewhere between bringing a plastic product to market in just a few weeks and a startup burning through venture capital for years on end is where you want to be.
3. Pay attention to how your customers are engaging with your product—and build on it.
One of the first things we noticed when building our company was how many businesses wanted to “gift” our glass pitchers.
You would never gift a Brita. But you might gift a Hydros glass carafe.
The reason is because Brita is considered a low-grade product. You’d be embarrassed to give somebody a Brita for their birthday or Christmas. But a glass, elegant, modern-looking pitcher is a completely different product. Which means customers are going to interact with it in different ways—including giving it as a gift.
The second thing we noticed was how many big companies are under pressure these days to be more sustainable. They will spend $200,000 on “sustainable water pitchers” in a heartbeat if it means reducing their plastic bottle consumption around the office. Seeing this revealed to us another interesting growth path, and one none of our competitors could take advantage of (since they are all plastic, lower-end of the market products).
The last thing I’ll say here is: don’t think for a second that having access to more capital means you will win.
A lot of venture firms love to say, “Let’s finance this thing, spend more money than all your competitors, and take over the market.” That sounds great in theory, but money and advertising spend usually isn’t your best moat. In addition, you may grow quickly, but you can fall apart just as fast.
It’s not about just bringing a product to market. Success in DTC is about building a product that is very difficult to rip off, highly differentiated, and deeply embedded in the life of the customer. Because the harder it is for them to switch, the more likely they are to remain loyal to you for a very long time.