Thread by @allthingsmarco

I look at a bunch of DTC brands everyday, and I’m starting to realize that:

1/ The best categories are flexible
2/ The best founders are solution agnostic
3/ The best companies are ambitious beyond their vertical

A thread…

VC backed DNVB staying power has a pretty clear requirement: category ownership and founder ability to expand beyond physical goods (i.e. tech, insurance, hospitality, etc.)

There are many motivators, but the most critical one is financial.

Let’s carry on from where I left off with @away. The luggage is $250-500. With a lifetime guarantee on these bags, each customer will only ever buy one bag at each size.

https://twitter.com/allthingsmarco/status/1150507292510568448

If @away ends up owning 10% of the American urban travelers market, that’s around 27M people.

Assuming a $350 LTV for luggage alone, they’re looking at $10B in sales. With a 30% contribution margin, that’s $3B in leverageable income.
In America.
Ever.

Now, if they own the whole travel category, there’s a lot more upside. This is why I believe the best DTC brands will start with much more tech-capable, solution agnostic founders and CEOs that can navigate other verticals. Why?

Because technology scales muuuch better than CPG. We’ve seen killer valuations with very little money raised. (@NotionHQ just raised $10m at $800m valuation)

https://twitter.com/rrhoover/status/1152222893268336641

If you look at DTC CPG as a wedge into consumer psychology, the importance of brand transcends aesthetic and community, and becomes the beach head for storming adjacent markets.

Bear with me.

The NA travel insurance market is expected to reach $8B by 2022, and $35B globally by 2025. At 10% of the American market, Away could do $800M in sales EACH YEAR just on travel insurance.

And because it’s an in-app tech-enabled add-on (hyphens much?) to your luggage, you start getting as close to pure profit as possible.

Build the tech. Maintain the tech. Get tech margins.

This doesn’t just work for Away.

@GetQuip bought Afora and has begun selling dental insurance in NY.

@WarbyParker could sell vision insurance - much more scalable than offering eye exams.

In the common lexicon, “billion dollar” companies are really billion dollar valuations with a fraction of the revenue. How do you get to a billion dollar revenue company when starting as DTC - through the unsexy tech solutions.

Insurance is an easy example, but VC backed DTC brands all have to return on their investments. It’s part of the deal when you take that kind of money.

Viewing CPG alone as the avenue to billion $ revs is an unsophisticated view of the market.

Flexible categories allow growth in many directions.
Travel (Away): luggage > wellness CPG > travel insurance > airport lounges >
Vision (Warby Parker): glasses > vision insurance > contacts >
Oral Health (Quip): toothbrush > dental insurance > dentist chains > teeth aligners (?)

☝️All of this is what makes the DTC apparel space so daunting to me. The “wedge” isn’t there, and the category to be owned isn’t flexible.

With all DTC apparel brands:
1. What’s considered “fashionable” is ephemeral and constantly shifting
2. Substitution is unavoidable - wardrobe brands change even in the same style
3. Categories and expansion rev are already defined - shirts > jackets > pants > bags > shoes > hats

If you haven’t yet, read @2PMinc's “The Sociology of Brand”. @web says it best:

2pml.com/2019/07/08/soc…

The term “brand” carries the weight of the successes (and failures) of their forerunners.

But not all brands are alike. The path of some DNVBs is category dominance. While other categories appear to be destined for the constant churn of micro brands emerging, rising and dying.

Not all brands need to take the same path. The baked in pressure to achieve unicorn status does a disservice to interesting brands that can passionately serve niche audiences for years, maybe decades.

Don’t compare water to wine, just because they’re both wet.