What happens when a subscription aficionado becomes a DTC investor? Alex Malamatinas is the founder and managing partner at Melitas Ventures, a VC fund that partners with innovative early-stage food and beverage companies like OLIPOP, Verb Energy, and MUD\WTR to take them to the next level. Alex joined us on Subscription Radio to share why customer experience is so important, and the different ways that the brands backed by Melitas are standing out to customers and investors alike.

Show Topics

Customer experience is key
Leverage the potential of SMS
Look at owned tech as IP
Introduce subscription flexibility
Seek out new platforms to acquire customers

Show Links

Check out Melitas Ventures
Connect with Alex Malamatinas on LinkedIn
Check out 1-Click Pony
Connect with Ben Fisher on LinkedIn or Twitter

Show Notes

2:05 - Customer experience is key

A great product is critical. After that, it all comes down to the customer experience. From your website to the unboxing experience, it’s important to think about every step.

“The customer experience is key. Jeff Bezos has famously been talking about this for 20 plus years. And so for the companies that we invest in, of course the product itself is critical. You know, the ingredient profile, the taste. The branding is also very important and that needs to be something that resonates with customers, and specifically certain demographics that the brand might be targeting. The customer experience is everything from when you first discover that brand on their website or on social media clicking through, and then ordering the product for the first time, to it being delivered on your doorstep. Perhaps getting text messages, email updates, before and after. And some brands do this very well, others, not so well.”

3:05 - Differentiate with timely & educational content

Instead of inundating customers, think about communication that will be helpful and informative. Alex cited OLIPOP and MUD\WTR as doing an exceptional job.

“An example of a brand I think that does it extremely well is OLIPOP. It’s a very cool brand that resonates with customers. It's a great tasting product. It's functional. And you get the product in a beautiful box with great messaging. And then post-purchase, you get several emails that follow up with you. And they do it in a way where it's non-intrusive, or feels non-intrusive. And your connection to the brand just grows over time. And it's educational. You know, it's fun. They really sort of vary the tone of the messaging, so that's very important. Other brands like MUD\WTR, for instance, which is a plant-based coffee alternative company that we're invested in, provides a lot of content on their website. And it's a new category, they're a leader in the space. And so consumers really look to that not just for the product, but to learn more about the space.”

4:23 - Leverage the potential of SMS

Text messages provide a more intimate channel of communication for DTC brands. Verb Energy uses text to share new products, sneak peeks, and order details.

“Verb Energy - text message you. And that's pretty innovative. I mean, now more brands are using that approach. But what's really cool about that is that it's quite personalized. So we all get inundated with emails, apps. The text messaging is typically reserved for your close friends. You know your husband, your wife, your girlfriend, your boyfriend, your mother, your father, and now some of these brands. So, you know, when I get a text message from Verb, it's like receiving a text message from a friend, it's exciting. And the tone is very important, right? They're offering sort of new products. They're giving you a sneak preview of what's to come.”

7:01 - There are no cardinal rules

In the modern tech environment, things change too quickly to embrace concrete methods. New brands are known for being experimental and outsourcing portions of their process and tech stack.

“One cardinal rule these days is not to have a cardinal rule. Because things are changing so quickly, and what works for one brand doesn't work for another. The old-school approach of marketing distribution has been disrupted. Some of these brands that are doing a really good job, like MUD\WTR, like Verb, are taking a unique approach. And sometimes there's overlap, but each of these brands are also to an extent doing things differently. Generally speaking, as you know, most brands are outsourcing everything from production to some of the technology, text messaging, etc. And let's say in the case of MUD\WTR, it's working extremely well. MUD\WTR really owns the connection with its customer, driving content and being a leader in that space.”

11:50 - Have a clear mission

All of the brands Alex works with have a clear mission. In addition to chasing profit and wooing investors, they are offering products that make consumers’ lives more wholesome and healthy.

“Each of these companies have a very strong mission. I mean, at the end of the day, they are offering products to consumers that are better for you. That use healthy ingredients, transparent labels, and offering some good to people's lives. And in some ways helping reduce obesity, diabetes. So very important missions. And then they're also - when we’re investors, they're looking to build rapidly growing businesses that can be profitable over time. And because the world is changing at such a rapid pace and digital marketing is evolving so quickly, they're using different tools to figure out how to acquire customers at an affordable price, and how to extend the lifetime value of these customers. So I'd say those are probably the key goals.”

12:48 - Look at owned tech as IP

Creating your own technology can be seen as risky. But Alex mentioned that some brands are creating tech solutions that have intrinsic intellectual property value and thus can actually increase business value when done well.

“For some brands it might be an IPO, like Beyond, for instance. For many others, and the successful ones in the space, they're being actively acquired by large food and beverage companies, because those companies are looking to diversify towards healthier, better-for-you products. So it really will depend obviously on the company, and the aspirations of the founders and the investors at that given point. I guess more specifically, like you were asking about the technology, which is a good one, right? For most CPG businesses, again I'm simplifying, but there will be certain sales. And then you'll put a multiple on that. And typically that multiple will depend on what the market multiple is for these kinds of businesses. Obviously, depending on how rapidly growing they are. I think if you have another element to this, let's say technology, and you own a text messaging platform that could potentially be licensed out to other companies, and there's some true IP there. Then that increases the valuation of the business.”

18:04 - Cultivate self-awareness as a founder

Founders need to know how to execute. That means an ability to identify what’s missing and hiring a CTO or wholesale specialist if you need one.

“What's important for us is to see that the team, the co-founder, has the abilities to execute at least initially on the type of business that it is. As we were talking about, if there is let's say a text messaging platform internally, you want to make sure you have a strong CTO. Or we're seeing that if it's a beverage business, let's say OLIPOP or Lemon Perfect where in the early days there wasn't as much of an e-commerce business, then you want to make sure you have a founder and or sales team or salesperson that really understands the wholesale part of the business. And then ultimately we want to see that the founders recognize what they are missing, what their skill sets are and what they need to build out. And that introspection, I think, is critical.”

19:49 - Introduce subscription flexibility

There is only so much bandwidth that consumers have for subscriptions. Customers are more likely to try a new subscription if it is flexible.

“What we're experiencing these days is so many brands out there, and the engagement is over email, over social media. And so we're being inundated with messaging from existing and potentially new brands. I think for many of us, we have probably several subscriptions going on at once. And I think depending on the person, you have limited bandwidth, right? There's only so many subscriptions that you want to pay for, that you want to keep track of. And so there's sort of commitment fear, I guess, with different thresholds for consumers. When you're finding a new brand, do you really want another subscription that you're paying for monthly, that you have to keep track of? So with that in mind, I think the brands that are doing this very well are introducing an element of flexibility in that subscription. And again, to use Verb Energy as an example. You subscribe. You will get your monthly orders of Verb Bars, But they will text you every month before you're about to get that new order.”

22:28 - Seek out new platforms to acquire customers

Alex thinks that Facebook and Instagram have limited acquisition value due to rising costs. He thinks what’s needed are additional platforms like TikTok and new alternatives.

“Facebook and Instagram helped give rise to this direct-to-consumer boom, if you can call it that. Which really accelerated during COVID, with many of us spending a lot of time at home. And so a phenomenon that virtually all brands are experiencing now is that customer acquisition costs have risen so much on Facebook and Instagram. And they're trying to find other platforms to acquire a customer. So there's TikTok, there's obviously podcasts, and there's other ways of acquiring customers. But I think finding more of these platforms, or sort of a Facebook alternative or something complementary to Facebook, I think would be very helpful for these direct-to-consumer brands.”