In my current day job I’m working on creating an education program for our sales force on how to have conversations with online retailers. One thing I know about human nature is that no one likes to be caught off guard, especially when it comes to dealing with your customers. Good sales people want to prepared and have an answer for any questions a customer might ask them. To make this happen, they need to have a basic understanding of online retail businesses and know what things are important to the owners or other people who work there.
I was chosen for this task because of my side hustles having launched several online brands myself, being captain of my local Etsy Team, and consulting with folks on the team about how to launch and grow their online businesses. The lesson here is that the job I have today is not a result of my formal education or previous professional work experience. It’s a result of my side hustles – those things that I was interested in and pursued on my own. I’m a firm believer in lifelong learning. Nothing you learn is ever wasted. It’s also providential that I’m being paid to learn more about e-commerce at a time when I just may be going all in on my own online ventures.
Digital Native Vertical Brands
Like all things tech, change is happening almost every day so keeping up with the latest industry trends, statistics, and technology takes some effort but it’s worth it to be able to identify opportunities. What I’m most excited about now has been around for some years and it’s growing in popularity as a business model. Digital Native Vertical Brand (DNVB) is a term coined by Andy Dunn, one of the founders of one of the first DNVBs – Bonobos. In simple terms, it’s a company that creates its own products, has them produced, and sells them directly to customers (D2C) online. While DNVB may be a new term, I’d be shocked if you haven’t heard of brands like Warby-Parker, the sunglass people; Glossier the beauty company that started from a blog, or Casper the mattress folks – all of whom are quickly becoming household names. These brands were born online and are notable because they are disrupting the industries where they operate with consumer-driven product design and technology-driven sales channels.
Of particular interest is their financial performance. DNVBs are #winning because they control the distribution of their product. To see why this is important, let’s look back to the industrial age where the consumer product industry began. Typically companies focused on one thing – making a product or selling a product to the end consumer. Back them businesses didn’t do both. If you were a manufacturer your focus was on making the best product you could. You would then double the cost to make it and sell it wholesale to a general store who would double that price to get the final selling price customers had to pay to purchase this item. This practice is commonly called keystoning and it exists to this day. By nature, keystoning requires that the profit be shared between the manufacturer and retailer. It also means that the final consumer must be willing to pay the market value of the product for it to be a success.
We’ll use a real life example to illustrate how DNVBs are disruptive. Let’s use socks as our example. It costs ABC Company $3.50 to make a pair of 100% wool socks which they then sell to Macy’s in bulk for $7 each. Macy’s sells them to you for $14. In this model ABC’s profit is $3.50 and Macy’s is $7 on each pair of socks sold. Enter Sokks, an upstart DNVB. It may still cost Sokks $3.50 to make a pair of socks and the market value for a pair of 100% wools socks is still $14. The difference is in Sokks having using an online, direct-to-consumer sales channel allowing Sokks to keep the entire $10.50 of profit – no middleman.
Before the internet, the cost to operate a sales channel whether a brick & mortar retail store or traveling sales person was a lot higher and this cost had to be accounted for in the price of goods. Today it’s relatively in expensive to open a Shopify store or Sell on Amazon. The only real selling costs are those for operating the online store and packaging and shipping the goods to the customer. The result is that with careful planning DNVBs tend to be more profitable than a legacy offline brand.
Another major benefit in the e-commerce age is the customer loyalty these brands enjoy. While almost everyone else is having sleepless nights over how Amazon will negatively impact their business, DNVBs are hyper-focused on their customer’s needs and producing products their customers really want. This sweet spot means that their customers + fans + followers are pretty loyal and not as susceptible to jumping ship to a cheaper-priced competitor on Amazon at the first sign of a discount.
Like everything on earth, there are challenges to this type of business model. Namely the cost to acquire a new customer is pretty high. Most of the big name DNVBs grew with the help of millions of dollars in funding to pay for all sorts of marketing satrategies to get known.
That said, I still see a lot of opportunity in this space. My theory is that there is a playbook for creating a DNVB that can be leveraged to increase the odds of success for a new venture. My next steps are to learn more about the startup stories and decisions each ownership team made and identify what I can apply to my own brand.
What about You? Do you have your own product that you think would make a great brand? Consider putting DNVBs on your short list!