It’s hard, but it happens.
We often see “the last email” sent by brands - brands that are closing.
It’s hard - DTC & Ecommerce is, in my humble opinion, entrepreneurship. So kudos to everyone out here building brands!
There are many reasons as to why a DTC ecommerce fails. Could be a lack of sales, too much expenses, a not-good-enough CAC ratio or a non-sustainable ROAS.
We’ve seen it all - but we wanted in this article to lay down a few reasons we often notice. If you are wondering why DTC brands fail, there are often solid reasons for it.
Also - it’s not only about the smallest brands closing down. Some of the largest DTC brands are taking huge hits - the game is brutal. Peloton took historic levels of punishment. Allbirds - a consumer shoe brand’s stock fell from a high of $32.44 before falling to around $4. Warby Parker’s stock ended at $13.60 per share in August, 22 from a high of $60.30 per share.
Haus -- a consumer beverage brand we loved here -- was forced to close. The FMCG brand Brandless -- sells non-branded consumer goods, soups, vitamins, and ketchup and was designed for the Instagram generation -- failed as well.
What gives? Why do some DTC brands fail?
Supply Demand Mismatch → Make sure people will buy
The reason why most businesses fail (over 2 out of 5 fail each year, within a year of operations in the United States alone) is due to supply-demand mismatch.
Several businesses start off on the wrong foot without validating the idea, without measuring demand for products or services, and completely missing out on positioning products in the market.
It’s happening every single day, even for the largest brands. Thing is, when you have a catalog of 50+ products, you only need 2 or 3 best sellers to make it work as a business. 2 or 3 products that are working to acquire new clients within the brand - the rest of the catalog could be specific upsells or to increase LTV.
But your whole catalog doesn’t have to serve your acquisition purposes. Truth is only a few products will, and it’s totally normal. These products are the one you need to focus on.
The Disconnect With Marketing → Find your focus, then keep it (please)
It’s hard to focus on the right acquisition channels. We always want better scores, more sales.
You’re hammered with Twitter threads and fake LinkedIn posts highlighting this new social network is bringing a ROAS of 18+ every 2 days.
Truth is - the first step is to find a reliable acquisition channel for a specific product / collection. Make it work. Turn it into a reliable acquisition channel. Increase your LTV on these customers. Scale this acquisition channel until you’re in need to find another one, and repeat.
This is the hard kind of focus - you’ll always have new acquisition channels to try, but you really need one acquisition channel to start to scale your brand. Finding the right one and scaling it is really the hard work.
Few things (like fuel) sell by themselves.
Scaling Too Quickly, Too Soon → Money management
You can’t lift heavy weights without a strong back. Your house won’t stand a day without a strong foundation.
As such, DTC brands (and many other businesses as well) have a tendency to burn cash to scale up too quickly, too soon, and at inappropriate times without the backing of sufficient consumer demand.
The way traditional large businesses work is to forecast demand and ramp up operations, teams, plants, and investments: customer demand precedes all decisions regarding expansions, production output increase, and boost in marketing spend.
Scaling up too fast requires jumping with two hands and your feet, hoping to be caught and rescued midair.
Lack of Long Term Solid Vision → Keep your eyes open
Let’s be honest - eCommerce DTC is entrepreneurship played hard mode.
Like, for real.
(by the way, all the love to brand owners)
DTC brands (and e-commerce in general) requires product positioning, immaculately executed marketing strategy, branding, and logistical flair. This is on top of excellent customer service to stand any chance of existence (let alone profitability).
To make it all happen, DTC brand leaders, executives, and entrepreneurs must not only do what business leadership demands but more: ability to understand ever-changing consumer preferences, launch quickly, pivot when needed, manage external and internal threats, track and manage competition, and so much more.
The ability to work with varied teams, stellar administration, quick data-based decision-making, tracking metrics are all arrows in the quiver that modern-day DTC brand management requires.
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