Brand founders and investors weigh in on the 'post-peak' state of affairs for consumer brands . . .

The wake of the ‘direct-to-consumer boom’ of the last decade, peaking in 2021, has created a massive shift in priorities and challenges for the companies who have made it to the other side. The very nature of succeeding in today’s environment implies pivoting in some way shape or form, just in order to adapt to this ‘new normal’. 

At a macro level, what we’ve arrived at is a more competitive market in consumer, with steeper barriers to entry, particularly when it comes to advertising, along with reduced consumer demand overall. We’ve seen a massive shift in the importance of metrics like profitability and efficiency over top-line revenue growth, and as a result, brands are growing much slower. Consumer brands, while less trendy than before, are still attractive to investors. Yet, when it comes to venture capital alone, investments in consumer are down a staggering 97% year over year.

Ironically, we’ve come almost full circle from where we once were. The initial allure of DTC models was to bypass traditional middlemen like wholesalers. Now, omnichannel or ‘hybrid’ operating models have prevailed over ‘pure play’ DTC, bringing back the need to build out scalable forays into legacy channels like wholesale, marketplace, and retail. At the same time, we’re faced with a new kind of middleman that adds to the challenge: costly advertising platforms from tech giants like Meta, Google, TikTok, and Amazon. 

Check out the full discussion here featuring insights and perspectives from our panelists Amanda Zuckerman, Jennie Baik, Laurent Ohana, and Jeremy Horowitz. You can also scroll below for a summary of key takeaways, as well as panelist bios.

Omnichannel as the Prevailing Path Forward

Just like nebulous references to 'AI', 'omnichannel' has become a bit of an overused buzzword. How should brands approach a pivot to a multi-channel operating model? Amanda Zuckerman, co-founder of Dormify, emphasizes the importance of setting clear goals in advance with partners when expanding into new sales channels like wholesale and retail marketplaces. She highlighted the need for a balance between protecting the brand's identity and leveraging external channels for growth. Jennie Baik, co-founder of The Mile, adds that it's important to consider outsourcing certain functions when considering different distribution channels, which requires assessing your internal team and budget's capacity to execute effectively and efficiently. 

On the marketing side, one of the pivotal shifts in the DTC space has been the escalating costs of customer acquisition. With the heyday of easy customer acquisition and targeting behind us, brands are facing the harsh reality of increased marketing expenses across all channels. How can this margin hit be offset? For one, Jeremy Horowitz highlights an emerging trend dubbed "negative CAC," where brands explore avenues to offset customer acquisition costs through innovative strategies like affiliate marketing. He cites examples like Amazon's burgeoning ad revenue, showcasing the industry's shift towards leveraging alternative revenue streams to sustain growth.

The Quest for Organic Growth

Organic customer acquisition is now more than ever seen as a bellwether for cautious investors. Our panelists emphasize the significance of fostering a genuine connection with customers, cautioning against relying solely on aggressive marketing tactics. They underscore the need for brands to focus on building authentic relationships and delivering tangible value to customers. However, the key characteristic amongst brands able to drive the most organic growth in today's highly competitive market is the ability to be disruptive, whether its in your product offering, advertising tactics, pricing strategy, brand story, convenience, or all of the above.

Laurent Ohana adds that it's imperative to address your brand's value proposition from the perspective of what you are 'solving for' in the eyes of consumers. On the surface, a mattress company sells mattresses, but what they're really solving for is restful sleep. Reversing your strategy backwards from the 'solution', with the customer's needs at center of the equation, is not only best practice for fostering a lasting connection to your brand, but also helps to cut out the noise, eliminating components of your product strategy that don't lend themselves towards that north star goal.

Leading Through a Pivot

When it comes to making the kinds of challenging leadership decisions required in adapting to today's 'new normal', Amanda emphasizes the critical role of transparency in aligning teams during periods of change. Sharing detailed financial information and fostering a culture of open communication enables team members to understand the strategic direction and contribute effectively to the company's goals. Jennie underscores the necessity of stress-testing team beliefs in a pivot. Leaders must encourage team members to pitch back the pivot strategy, fostering critical thinking and ensuring alignment across the organization. Honest feedback, even if it challenges the pivot, provides valuable insights for decision-making.

As businesses navigate new initiatives, Amanda highlights the importance of repurposing skill sets and empowering team members to take on new responsibilities. By tapping into hidden talents within the organization, companies can maximize resources and drive innovation. Jeremy emphasizes the strategy of  "zero-based budgeting" during pivots. Rebuilding the P&L from scratch and reassessing hiring needs based on the new business model ensures alignment between resources and strategic objectives. This is the time to be brutally honest about your business, and sometimes, this may mean 'firing fast' in order to stay on track with your goals.

Assessing Investor Sentiment: A Cautious Optimism

Laurent notes that there is an emergence of funds facing difficulties in raising new capital due to lackluster returns from previous consumer investments, along with a trend among some traditional investors moving away from the consumer space altogether. Despite these challenges, new funds are entering the scene, seeking opportunities in companies capable of pivoting or adapting to market shifts.  It's of utmost importance to understanding what a potential acquirer values in a company.

What are investors looking for besides profitability and organic growth? Laurent stresses that gross margin is the most critical metric to pay attention to. Jeremy adds to this by emphasizing the importance of a turnkey business with minimal key person risk and strong cash flow fundamentals. He underscored the significance of being transparent about the true value a business offers and finding the right fit where the combined entity generates greater value.

With respect to approaching a potential exit, Jeremy cautions that the dislocation in valuation hasn't fully reflected in the exit market yet. He advises entrepreneurs to be cautiously optimistic but not to expect the same multiples seen in recent years. 

About Our Panelists . . .

Amanda Zuckerman | Amanda is a co-founder of Dormify, a digitally-native home decor brand dedicated to fashion-minded college girls and first-time apartment dwellers. Today she serves as the company’s President and Chief Brand Officer and is also a member of the non-profit leadership organization YPO.

Jennie Baik | Jennie is a co-founder and board member of The Mile, an app-based retail marketplace representing over 200 global luxury brands. Prior to The Mile, Jennie served as Director of Strategy for Burberry, and today, she is an avid startup advisor with a focus on consumer tech and marketplaces.

Jeremy Horowitz | Jeremy is a consumer investor and managing partner at Because Ventures with a focus on both advising and acquiring Shopify-based brands and apps, from idea to Series A.

Laurent Ohana | Laurent is a senior advisor for Ohana & Co., an international investment banking boutique providing M&A and Capital Raising advisory services to luxury, fashion, beauty, lifestyle and technology companies. He is also a former operator and CEO.

For any questions on the topic covered in this session, or to connect with our panelists directly, reach out to hello@theden.co.