Ranked #1 on Netflix as I write this, Virgin River is apparently taking the world by storm. Without hyperbole, it’s literally one of the worst things I’ve ever passively watched in my life (why am I even admitting to this in print?!). Here’s the thing about Virgin River: it has enough elements of a good story that people enjoy enough to watch it. Intrigue, crime, love lost, love won, death, children, the list goes on. However, the rough poignant edges of what makes a small-town drama actually compelling have been smoothed off to make the show as unoffensive as possible.
The great trick of gaining a large enough audience is to make something that is just compelling enough to garner engagement or purchase without including any features that appeal to some people but not to others.
This is why the so-called DTC success stories seem so boring. Casper, MVMT, Harry’s, Away are good products but built for mass consumption. Unique audience-specific brands don’t make billion-dollar brands. And I get it. The acquisition landscape supported the thesis that the less niche your product(s), the more people will purchase.
These companies have focused on a small set of products or simple product lines, which enabled them to narrow choice, focus, brand, and supply chain. The path to scale was a straight line to scale effectively a single SKU. It had to have broad appeal to be worth anything.
The emphasis on mass appeal made sense at the beginning of DTC, but it has left a lot of lingering questions about the model. The sentiments I’ve heard lately are questions like - does this model have legs to continue into the future? Are we headed back toward classic methods of distribution like wholesaling or working with retailers? Native is in Walgreens now. Ugly Drinks are in CVS. Is this where all DTC is bound?
The massive exits and Twitter hype cycle are pushing us toward the trough of disillusionment. A few weeks ago, our Creative Director, Jesse Tyler expressed his feelings when receiving a Twitter-hyped product in Insiders #092: “When the product arrived, I was disappointed.”
We’re actively feeling bamboozled by the premium price tag for the mass market product that offers us nothing beyond products that are already on the market (besides the name of the brand).
The Future Is Going to Be Diverse
“DTC” (ugh new term plz) is actually just getting started. The rise of Etsy and other creator marketplaces is proving out that niche groups and product types can have a real, large monetary footprint. The best of Etsy are now often graduating to Shopify and other direct-to-consumer platforms. The problem with this graduation process is that there is a host of scaling problems that these small operators are unequipped to face. As demand grows, supply chain gets harder. As the company matures, the amount of content and branding necessary gets burdensome. As business needs grow, the needs for new expertise also grow.
In an upcoming episode of Future Commerce, we’ll be releasing our chat with Emmett Shine, co-founder of Pattern Brands. Pattern underwent a change in strategy recently, shifting from building in-house brands to acquiring burgeoning Shopify brands, giving them a platform and expertise to sell their already-beloved products. “For every one of these brands [Warby Parker, Tom’s, Glossier, etc], there are a million small ones that find a niche audience. It’s almost like a professionalized version of Etsy.” Emmett recognizes that while these brands are small, they are mighty en masse. He goes on, “[these small DTC brands are] taking away business from legacy and incumbent businesses, but it’s a little bit like death by a 1000 papercuts.”
Capital Must Change
Back in February, Ben Evans also recognized the change in how we’ll interact with experiences online:
“I described retail as logistics and experience, but it’s also culture. What will happen as the generations that grew up with eCommerce no longer see it as new and exciting but instead internalize it, and take ownership? Retail is pop culture, and that’s live streaming but it’s also the shop that only you know about. Maybe the internet is due for a wave of things that don’t scale at all.”
For Ben, “things that don’t scale” means that these very niche experiences aren’t going to become unicorns. This is interesting because it represents - as Emmett calls it - a “West Coast” understanding of VC money to a very real and true observation. West Coast thinking is that you make many multiple bets on companies - most flame out and a few payouts with a huge multiple. Emmett’s take is that this doesn’t work because you can’t really architect a lot of consumer business to become “a winner take all” type business within three years, but it can be profitable and sustainable. Ben’s observation starts to get extra exciting when we apply Emmett’s death by 1000 papercuts logic - the opportunity is in a breadth of offerings targeted at deeply understood niches.
Pattern is going to focus their money on Shopify. “There are two major US ecosystems for ecommerce - there’s Amazon and the world of Shopify… The Amazon space is going to see a lot of money into it and then you look at Shopify and no money has been put into it… there’s going to be a lot of consolidation.” The beautiful thing about Shopify is there are some clear signals of success. If an Etsy brand can successfully launch and run its own brand site, that’s a great indicator of maturity. If they move from Shopify to Shopify Advance or even Shopify Plus, that’s a great indicator. Also, typically brands that are focused on Shopify already have a better connection with their customers than an Amazon brand does because they have much better data and access to them than the alternatively platformed Amazon brands.
But there’s a case to focus on Amazon brands, too. Amazon creates a different ecosystem - in Emmett’s words, they’re the “consumer-led ecosystem”. Consider Boosted Commerce, an acquisition holdco designed to roll up Amazon FBA brands. Co-founder and CEO, Keith Richman, said in this week's podcast interview that “we are still in the beginning phases of these generational shifts towards brands.” For Boosted, Amazon brands are just easier to evaluate if they’ll be successful: “Amazon remains extremely appealing for a few reasons. From a diligence standpoint, it's sort of a unifying factor and it's a level setter so that when you look at businesses, you're looking at a single source of truth from the Amazon ecosystem. And that makes comparing businesses really simple… it makes everything from the due diligence to the closed process much more efficient.”
Keith also sees more qualified opportunities on Amazon and has identified over 40,000 brands that seem like a fit for Boosted on Amazon vs only 6,000 on Shopify. And even though Emmett was focused on Shopify, he agreed that there was still a ton of space for consolidation on Amazon.
Emmett and Keith seemingly agree on this - these companies are worth investing in. “What's really exciting is even when we look at people and founders who have packaged or created a business that they knowingly were going to try to sell within a relatively quick timeframe, at least they've done what a lot of companies in the traditional Silicon Valley ecosystem hasn't. They've managed to show a profit.” Investors’ mindset must change - a broader portfolio of smaller sustainable businesses is also a winning strategy.
There is a wealth of product creators out there that don’t want to scale businesses, they want to build awesome products that serve the communities they’re passionate about. Those that do know how to market and scale business can empower these people to build best-in-class products.
Required Toolset To Make It Work
When consolidating a bunch of small brands, it can be a lot of work to manage them all efficiently, especially if the assumption is that the tools they bring to the table are going to be sufficient for the growth process. Many of the most successful SaaS products are based around having a single brand and maybe a few customer segments. If you’re trying to manage multiple brands, inventory sources, warehouses, email lists, customer service teams, and massive amounts of product data, you’re going to need some enterprise-grade tools to do it.
There are tools out there to do this, but they’re expensive and clunky. If you’re in commerce software, I see this as an opportunity to skate to where the puck is going. Most of all y'all's roadmaps must include a way to manage split experiences from a single backend - and have permissioning that can limit internal access to those experiences. I’m still waiting… Shopify doesn’t have a native way to manage multiple brands from a single instance (long on their roadmap). Don’t let these kinds of initiatives sit around.
Where Things Could Ultimately Go
What if the idea that “we do X product really well” transformed to “we serve X niche really well”? Another way of saying it: build mini flywheels around smaller groups that you deeply understand and love. This could be done by recognizing people who are already in those communities that have started to serve them and then give them the infrastructure and expertise to better do what they are already doing. If you do this with one small-time creator, that’s not necessarily going to be all that impactful. But if you do this with 1000 creators in that community that is averaging $500k in annual revenue, you’re starting to talk about real power, real scale. The best product makers are already out there in public, unbundled, waiting for the right offer to be bundled.
In other words, there are efficiencies to be found in all the fragmentation.
Perhaps this is accomplished through niche marketplaces, or maybe it looks like community-specific holding companies, or maybe some kind of other creative collectives. Regardless of the structure, the outcome should be a more diverse and better product. Blandness will give way to the weird, zany, and ultra-specific. And we’ll be happier with the products that do resonate with us - that we purchase and own. I’m ready to see what the graduating classes of Etsy bring to market.
Hopefully, I’ll be able to throw all of my proverbial Virgin River products directly into the recycling bin.
Subscribe to Future Commerce on your podcast streaming service of choice to hear the whole conversation with Emmett, to be released on August 20th.