Mike Duboe, general partner at Greylock, is an expert on DTC trends. As a growth leader in user acquisition at multiple ecommerce companies, Mike has seen the evolution of DTC firsthand. Today, DTC is less of a category and more of a channel. Whether it’s a new subscription model or NFTs, if you want to grow your DTC brand, you need to diversify your channels. On this episode of Subscription Radio, Ben and Mike discuss what growth looks like in a DTC brand, the rise of NFTs in commerce, and how to build the best subscription experience for your customers.
- Growth differs depending on context
- Optimize for profit over growth
- Diversify your channels
- Understand the commerce NFTs enable
- Use NFTs for subscription loyalty
- Don’t force-feed subscriptions
- Increase your keep rate
- Build a subscription experience
- Check out Greylock
- Connect with Mike Duboe on LinkedIn or Twitter
- Check out Rodeo
- Connect with Ben Fisher on LinkedIn or Twitter
4:34 – Growth differs depending on context
In traditional marketing people tend to focus more on product and product-oriented principles around growth, whereas in DTC and ecommerce the main focus is on marketing channels.
“The VP growth role is very different depending on context. So actually a lot of my friends from Reforge, which is really a great program for training growth people, tend to focus more on the product and product-oriented principles around growth. Versus I think in DTC and ecommerce, really the main levers that you have are marketing channels, and so it tends to be more of a marketing function. I've lived both, and I feel like there's a set of common principles that underpin both. But I feel like most of the time when we talk about growth in ecommerce, it's performance marketing, which by the way is part of the problem here, in that, for a lot of these brands you actually don’t have too many mechanisms to grow other than spending money on marketing. And as we've learned, the laws of gravity tend to kick in with scale, acquisition becomes more expensive over time. So, these things tend to not compound, or it's harder to grow them exponentially versus linearly. That doesn't mean those are bad businesses. It just means that as a VC, I tend to look less at those brands, and I also think for brands it's more important to think about operating with a constraint of profitability early on.”
6:14 – Optimize for profit over growth
Instead of focusing on growth at all costs, work on making your growth model more sustainable. Optimizing for profit over growth keeps your business model steady.
“Famously, the company had a hard time raising money and had made the decision quite early on to optimize for profitability and predictability over growth. Part of the reason why was because we were actually holding inventory and so the model was actually highly risky to be growing too fast or too slow, I guess. Buying too much inventory obviously has its implications, but actually growing too fast in terms of demand acquisition would mean customers would just be dealing with really long wait times and that wouldn't be a good experience for anyone. And so it was this interesting dynamic where we had to build out a stronger engine around predictability early on, partially because that was the core product was this personalization engine for ecommerce. But also around data science, around optimizing for demand planning was a muscle that the company built very early on. So, we actually didn't do anything on user acquisition until pretty late in the game.”
8:55 – Diversify your channels
DTC is more of a channel than a category, which means if you’re a DTC brand you need to focus on diversifying your channels.
“There's two levels of channels here. So I think, one, you asked the question that I didn't answer, which is how's DTC changed. And I've held this point of view for some time, but I think it's now becoming more common, becoming more consensus, that DTC is more of a channel than it is a category. And if you're a brand that gets started on DTC, over time, you should think about diversifying not just your marketing channels, but actually, the channels through which you sell, including through other retailers, wholesale, digital wholesale, that type of stuff. And then there's the marketing channels around DTC. And how do you actually continue to grow your DTC business? In both of those levels, diversification is becoming more important just because we've seen what happens when you become too concentrated in any one channel, including both marketing or selling through DTC or through Amazon or whatever it might be. So I do think that has been a thesis behind some investments like Postscript, which is not just like, ‘Hey, this is a marketing channel,’ but actually we believe that SMS is a channel by which brands are going to do commerce as well and view SMS as a platform.”
12:53 – Understand the commerce NFTs enable
NFTs are often oversimplified as high-priced JPEGs, but they can actually be used to enable new types of commerce.
“We’ve made some pretty significant investments around different parts of crypto. For me personally, I am interested in the intersection of commerce and crypto, and that's manifested around investments in NFTs and NFT infrastructure, which I do think is maybe misunderstood or oversimplified into high-price JPEGs, which there is some of that, and I think that's been a tip of the iceberg on how people could understand some of what types of commerce NFTs enable. I'm personally less interested in, when you talk about brands getting involved in this stuff, there's one angle which is like, ‘Hey, you could sell new digital SKUs alongside Gucci selling digital purses, limited edition bags alongside your physical bags like that.’ That's interesting to some people. I'm not personally as interested in that angle. What I do think is becoming more interesting is, and actually, I would put a plugin for Alex Danco at Shopify is doing a lot of this stuff there. He's talked a bit about token-gated commerce recently, and about how if you have wallet-aware commerce, if you actually as a brand, if you have a view into what is in a customer's wallet, crypto wallet, MetaMask, whatever it might be, Shopify native wallet. Then you actually can provide a different customer experience to that person based on what they're holding.”
14:46 – Use NFTs for subscription loyalty
NFTs can also be used as a new kind of subscription model, where the owner of a particular NFT has access to certain benefits or perks.
“There’s another, and this ties into the topic here, which is subscription loyalty, things like that. I am seeing a lot of, it's starting with artists and musicians using NFTs as essentially membership passes and different ways for artists to actually assess who are your super fans and providing differentiated experiences to people based on different NFTs that they hold. And for a consumer, it is liquid. You could go and sell that if you're not getting the, if you feel like the value’s appreciated or if you're not getting what you want out of that anymore. But I do think that's another angle that brands are starting to think about, which is how could I both serve my super fans and build a more loyal community using this? And I think that's more interesting personally than having other digital assets like SKUs live alongside my physical catalog.”
18:23 – Don’t force-feed subscriptions
Subscriptions are a good model for some types of businesses, but they don’t work for every product. If your product isn't built for subscriptions, don’t force that on your customer base.
“We got more sophisticated with this over time to opt people into the cadence that we thought they wanted because the best way to actually lose a customer is to actually send them stuff too fast so they burn out. Even though that might optimize for one year LTV, but probably not five years, which is what we wanted to think longer term. And that was a key part of our messaging, when we're going public and all that. And I think that carries over to what a lot of Shopify brands are thinking about nowadays, which is, it is tempting to want to opt people into subscription for categories that really might not need one. You want to provide customers with optionality, and you want to reduce friction to people getting the product when they have an intent to, but you also don't want to force-feed them. And I think too much of what I've seen falls into the latter camp because it's tempting to see that near-term revenue spike, and I think it actually is a very shortsighted approach.”
22:38 – Increase your keep rate
Don’t just focus on short-term sales. Instead, try to increase your customers’ keep rate, which is the number of things per order that customers decide to keep.
“I think what's key is that you actually have enough margin so that you're not forcing yourself to do the short-term stuff. Because the reality is there's existential risk to you not being able to get positive economics in a matter of months. That can be problematic, and you run the risk of sucking up a bunch of venture funding to get something that's really never going to get to a real business. So there's first-order profitability. There's different ways of looking at this, but we basically knew for us the key variable was keep rate. If we sent someone five items, there is a number which you need to keep for that order to be profitable. And we built a bunch of, I mean, that was our core product. It was the styling algorithm to actually make sure that people were happier with what they got and keep rate was really the main metric we were trying to optimize. If you have a keep rate of one on multiple orders, that's not going to close the gap. So that was the nuance with our business.”
24:06 – Build a subscription experience
If you want to introduce a subscription model to your audience, make it one that works for them and is a true buying experience.
“I mentioned trade coffee, but actually, I'm friends with the team at Fellow Coffee and they actually make great coffee gear, which you wouldn't need to subscribe to, but you should own this stuff. But I think they, as a subscription, they've now built an experience where they source different high-end beans, and it's different than trade where you get a new roaster every week. With them, I will get a text from them. And obviously, I'm a big fan of SMS, but they have my credit card stored. And I could just respond with if I want 1, 2, 3, 4, or not respond at all, I won't get any bags, but whenever I get a text from them, it's basically a semi-subscription where I'm subscribed to the text, but I don't have to buy anything. And I think they built that experience natively, but that's cool.”