Month: April 2019

Challenger brands face challenges

Challenger brands are sparking a retail transformation, and the fragmentation and diffusion of consumers and retail channels runs parallel to the changes in TV audiences. Times have changed, and tens of millions no longer tune into shows on the big three or four networks. Viewers are harder to reach at scale because of expanded television viewing environments (Linear, VOD, TVE, Connected, OTT, etc.) and more content than ever before.

As the DTC space matures, reaching the right audience on the right digital platform with the right message is getting more expensive. As DTC competition increases, multiple brands are fighting to reach the same audience, digital ad costs are on the rise and it’s getting harder and harder to break through to potential customers.

Tactics like influencer marketing and hyper-targeted digital advertising initially won favor with these efficient businesses. Traditional channels like TV advertising were avoided because historically, they were considered effective only at delivering ads to broad demographics — not highly targeted audiences. It’s rare to see a DTC brand wasting precious marketing dollars on a big broadcast ad buy.

But as these brands continue to grow, they’re learning that some DTC go-to tactics (like influencer marketing) aren’t everything they were cracked up to be, with a loose focus on metrics and too many variables. Luckily, just as these brands are growing and getting smarter, TV is as well.

A one-to-one connection at scale

Addressable TV offers marketers the ability to find and target precise audiences at scale, with the power of sight, sound and motion — not to mention brand impact — that only television delivers. Data and analytics come together to give DTC brands the ability to extend their precise digital campaigns to a powerful television platform, a far cry from the scattershot approaches of yesterday.

Challenger brands are built on the power of their connections with audiences (and customers). They’re consumer-first and digital-first; as a result, they’ve amassed an abundance of rich first-party CRM data. Addressable TV makes that data work harder across channels, precisely targeting desired audiences at the household level and delivering the right brand message to the right people.

Brands that want to grow their scale and reach with precise audiences can now generate massive ROI with addressable TV advertising. For example, we saw a DTC brand’s holiday campaign leverage the hard work of their efficient digital programs and sophisticated audience segmentation efforts. They took a first-party audience segment of existing holiday shoppers, precisely targeted them with a TV campaign, and drove more than three-times higher return on ad spend versus digital. For all campaigns, we can calculate the value of an impression based on the viewing environment.  

Addressable TV gives brands visibility into exactly which households were exposed to brand messages, and who took action as a result with deterministic measurement. The path to success for upstarts has been built on using the most efficient marketing strategies to raise awareness, build audiences, drive sales and increase loyalty. Data-driven tactics that are measurable and impactful will continue driving that efficiency.

There are over 90 million households across STB (set-top-box) and IP addressable TVs that can be aggregated to send targeted messages to high-value audiences at real scale. As consumers move across devices, addressable campaigns can be optimized to ensure the right frequency and maximum efficiency across all screens. Now every channel, including TV, is accountable to the same metrics that DTC brands were built on. Brands and their consumers have changed, and TV is changing right alongside them.

The post Why addressable TV is the logical next step for DTC brands appeared first on Digiday.

Digiday spoke to 12 executives for this article, ranging from agency CEOs to agency directors in charge of billing, as well as two more junior level account managers and two chief marketing officers. None of them agreed to speak on the record.

The issue falls into one of two: under-billing and over-billing: Some agencies allege that they’re working very hard and not getting paid for it, because they often over-service accounts and can’t scope projects accurately. Brands say that agencies are actually over-servicing, then handing over bills that weren’t agreed upon. And in some cases, that’s leading to practices of “padding” billings that may not be illegal, but can be considered murky.

For one director at a West Coast creative agency, the issue has come down to procurement. Procurement has become a much bigger part of a pitch process, whether for an agency of record or retainer relationship, or for project-based work. “It’s kind of like, you see these happy, shiny, smiley clients, but before you can get to them, you’re led down this dark hallway where you first face procurement, which forces you essentially to justify your entire existence.”

In most cases, here’s how the process runs. When a project is brought on, there is an equation that needs to be worked out. That should be simple mathematics: Who are the people who do the work, what is the rate for those people, and what hours will be necessary to do the work. (For the last one, some agencies rely on experience, as well as benchmarks set by the 4A’s.)

“It’s really only a place to start. What is the only thing we can be certain of is the outcome at the end will be different,” said the West Coast director.

That’s where the problems begin. Clients can push back, and do so, right at the beginning. But once the initial scope is agreed on the work begins, things change. Sometimes it’s that clients have underplayed what exactly it is they need to be done. Sometimes it’s that the agency itself realizes it’s underestimated the amount of work needed.

In these cases, an agency can go back to the client. Monthly burn reports generally show if an agency is running hot or cold. If it’s running hot, an agency can tell the client, and ask for a change order to essentially re-do the scope. “Clients don’t like to be change ordered,” said one account director. “So instead, we sometimes simply don’t, and eat the costs.”

In other cases, agencies will do the work, losing money in the process, but then present the client with a higher bill — in two cases reviewed by Digiday, that bill was twice the number of hours agreed on at the beginning — with the argument that they had to do this work.

“I’ve seen this my whole entire life,” said one exec who works brand-side now but worked at agencies before. This person said at one point they were in charge of double checking billings, hours, and people assigned. But now that she works at a brand, she has in the past been handed a bill that she simply hadn’t approved. “The problem is, I didn’t approve it, and yet they did the work, so it’s hard to simply say you won’t pay it,” this person said. “But the crux of the matter is, it wasn’t their money to spend. Why did they spend it?”

In one case, one agency offered to split the cost. In another, the agency ate the cost.

It’s that latter situation that leads many execs to posit that the big problem isn’t overbilling — it’s actually under-billing and over-servicing, that agencies are desperate enough to land businesses that they’re under-scoping on purpose, then eating the cost because it may mean repeat business. And sometimes under-billing is the only way to stay competitive for larger agencies who have bigger costs with overheards.

‘We suck it up’
“Things have become so transactional,” said one agency CEO. “Yes, there needs to be an agreement between agencies and clients about what clients are paying for.”

In a healthy client relationship, you can change it around and re-assess projects and hours and cost. But in an unhealthy relationship, said this CEO, the agency will more often eat the cost than present a high bill. “We kind of suck it up. We just want to work on something.”

“The story is really in the value of the agency,” said another agency CEO. “What we hear from clients is they’ll pay Deloitte five times more than they’ll pay an agency for the same work. That means we end up just conceding on cost.”

And this idea that marketing is essentially a cost, while “transformation” is an investment remains a problem. So when procurement comes into play and agencies compete on cost, with clients shopping around for agency capabilities, at essentially commoditized rates, problems arise.

The business has undergone a shift because of budgets moving to digital. And as clients cut fees and move capabilities in-house, scope of work has increased — making 10 YouTube videos isn’t the same as making one TV spot. It’s a fundamental Catch-22: Agencies have to do more work for less money.

Plus, brands often add more deliverables to an ongoing project, a phenomenon dubbed as “scope creep.” Ann Billock, who runs search consultancy Ark Advisors, said scope creep is definitely happening. And, “the problem is more that nobody knows what it’s going to take.”

‘Padding’
Avi Dan, agency search consultant, said that what has seen is what he calls “padding billings,” where agencies charge clients at a rate for “senior” people while putting “junior” people on the job. Here’s how that could work out. At one agency, the most expensive roles bill at $600 an hour. The next-most senior roles could be in the mid-$400/hour range. A creative director could be $325, while a more junior team is $145. If a client has $500,000 to spend, the agency will decide a mix of people and what percentage of those people will be billing and assigned to the project.

Dialing up and down on staff is common, but agencies can also show burn reports that match total hours, but have far more junior staff working those hours than the senior ones initially promised. “It’s not illegal, but it’s fuzzy,” said one agency executive familiar with the practice. “The services agreement doesn’t ever say exactly who will be working on the account, so it’s possible.”

But agencies say what actually happens is often the opposite: Often, agencies end up staffing projects with senior talent instead of junior because there is more turnover in junior talent, so backfills are often with someone more expensive, not less.

Dan said that in his experience, this can lead to a margin imbalance, and an inflation of up to 40%. Whether it’s hours worked or the wrong people working on the case, the issue, said Dan is the “agency moving the goalposts.” It’s not illegal, and it’s not even cheating. “It’s just messy.”

The post ‘Things have become so transactional’: Clients are scrutinizing agency billings more than ever appeared first on Digiday.

Hulu and YouTube will continue to lead the NewFronts pack in securing upfront TV ad commitments, according to multiple ad buyers. Twitter, which will host its third NewFronts presentation on Monday, is also inching into this category; and Viacom, which is no stranger to the TV upfronts, is also eliciting interest as the cable giant makes its $340 million streaming video acquisition, Pluto TV, a core part of its digital ad pitch, buyers said.

“Mass reach is still a thing,” said Michael Piner, svp of video and data-driven investments at MullenLowe’s Mediahub. “And there are certain partners that are being prioritized because they can achieve the mass reach of TV.”

For Hulu and YouTube, prioritization from TV ad buyers is unsurprising. Hulu, which made $1.5 billion in ad revenue last year and now has 55 million ad-supported unique viewers per month, according to Comscore, is basically digital TV. Eighty percent of Hulu viewing happens on TV screens, according to Hulu’s svp of ad sales, Peter Naylor. YouTube, meanwhile, remains the biggest ad-supported video platform on the planet and recently told Digiday that the number of hours users spend watching YouTube on TV screens has grown from 100 million hours per day as of last October to 200 million hours per day today.

Beyond that scale, both companies also have new TV products to pitch to advertisers, including competing live TV services in Hulu Live TV and YouTube TV. (Hulu’s live TV service already has 2 million subscribers, and YouTube TV reportedly has 1 million subscribers.)

“These are the events that TV buyers go to,” said Piner, of Hulu, YouTube and “full-episode player” providers such as Viacom. “They have scale on digital, make it possible for you to buy based on Nielsen age-sex demos and help you fill some of the cracks that have opened up in linear TV.”

Twitter, which plans to do content deals with more than 950 media partners this year, is drawing greater interest from ad buyers. Similar to YouTube, Twitter offers a platform with huge reach — 134 million daily “monetizable” users, according to the company’s most recent earnings report — and a pre-roll ad product that buyers are comfortable with.

Kay Madati, Twitter’s head of content partnerships, did not say that Twitter is exclusively chasing TV ad budgets, but did not rule that out either.

“I’m not sure a CMO of a company today is saying, ‘Oh, that’s my TV budget and that’s my digital budget,’” said Kay Madati, head of content partnerships for Twitter. “They are looking to create multiplatform experiences with the things they want to associate their brands with, and they are going to fund that in the way they think it’s most appropriate.”

A big reason why digital media companies don’t command as much upfront interest as the platforms is the very fact that digital media still fundamentally does not have a scarcity problem. Where linear TV ad space is limited — and, to be fair, this will become less so as TV advertising itself undergoes a digital revolution — there is an infinite supply on digital media. This is a big reason why even YouTube has Google Preferred, which reserves top YouTube channels for marketers in an upfront.

“The nature of what [digital publishers] are selling does not require an upfront market,” said Kait Boulos, vp of strategy and partnerships at Varick. “There are also certain partners where you don’t even need a meeting to understand their offering.”

Over the years, the NewFronts have also focused on non-video media including audio and mobile and social gaming. This has sometimes created a mixed bag of information coming from event to event, presentation to presentation, for what was originally envisioned as a marketplace for digital video.

That said, there is still some value in hosting a NewFronts presentation, ad buyers said. For some presenters, hosting a NewFront still creates a sense of legitimacy, Piner said. NewFronts can also allow presenters to show off to existing and potential clients, and gives clients a physical “touch point” for a media brand, said Boulos.

It’s also not impossible for a digital publisher or studio to land upfront ad commitments off of the NewFronts. As much as 85% of Studio71’s revenue every year from direct sales comes from yearlong upfront ad commitments, according to Studio71 CEO Reza Izad. The company, which is owned by German broadcaster ProSiebenSat.1, has hosted its own NewFronts presentation since 2016.

Izad said Studio71 is able to close its upfront ad commitments by the fall — typically after agencies have signed deals with TV networks and platforms such as YouTube and Hulu. Studio71’s pitch is that it can offer scale — 100 million unique viewers per month on YouTube alone — with brand-safe inventory since the company vets every piece of content published by its network.

“[The NewFronts] is when we have an opportunity to present ourselves to the market, and so we take advantage of it,” Izad said.

The post At the scaled-down NewFronts, the platforms continue to command upfront deals appeared first on Digiday.

Customers looking on Amazon for Rothy’s, another DTC brand ranked in the top search terms, most often end up purchasing ballet flats from Ollio or Sketchers, whose popular flats resemble Rothy’s 3D-printed style.

According to Amazon search-term data shared with Digiday by an agency that works with brands on the platform, customers frequently name brands when looking for items on the marketplace. The most-searched brands include Nike, New Balance, Vans, Sorel, Vera Bradley and Tommy Hilfiger — all of which can be bought on Amazon, and the products with the highest conversion rates in alignment with those search terms are from the brands themselves.

Amazon did not respond to a request for comment.

Amazon has built a win-win situation by way of a search algorithm that rewards competition, letting imitators fill in the blanks left by brands that aren’t in its inventory. If brands aren’t on Amazon, customers can find something similar — sometimes exact copies — of what they were looking for. But Amazon has been shifting its marketplace strategy to be more brand-friendly in order to improve overall customer experience, and that means it wants customers to be able to buy from the brands they set out searching for.

In order to try fix the problem, Amazon has a seller development team dedicated to tracking search data, finding the brands that customers are looking for but unable to buy on the platform, and recruiting them to sell on Amazon. According to an agency that works with both Amazon’s team and brands that sell on the marketplace, Amazon offers these brands “better treatment” than other sellers receive from the platform. That’s a trend we’ve reported on in the past: Amazon is looking for sellers with strong brand recognition to recruit to its platform. It’s using search data to target them.

“These brands — the ones that see high search volume but aren’t converting on Amazon — are really coveted. The team at Amazon that we work with is keyed in on these brands, and they have a list they work from, directly from search results, to do outbound outreach,” said the agency founder.

According to the agency founder, the most coveted brands receive offers for dedicated account managers and analytics, and right now, they’re currently being offered for promotion on Amazon’s homepage and in marketing for Prime Day.

“For us as a brand, that’s an easy give,” said one brand founder who’s launching a new product exclusively on Amazon for Prime Day, but was asked not to disclose details. “What they want is to be able to tell a story about brands being successful with Amazon as an early partner, and they’re willing to work with us on that.” — Hilary Milnes

Walmart IRL
Walmart’s AI-powered store of the future, Walmart Intelligent Retail Lab, or Walmart IRL, is a testament to how next-gen technology like AI and robotics are ushering in not a new era of retail, just a better managed one.

Rather than Amazon Go, Walmart’s tech-integrated store doesn’t allow for automated checkout. It can, however, identify individual items by SKU like Amazon Go — technology that Walmart uses instead to track inventory levels and ensure items never go out of stock.

Retailers are on a mission to fix their physical stores, turning them into competitive advantages in the age of Amazon’s dominance rather than sprawling liabilities. One area of reinvention: fixing store inventory management.

It’s not jazzy, but it’s critical. IHL Group reported in 2018 that retailers are missing out on $1 trillion in sales because items aren’t in stock. So, stores are investing in technology that closely monitors inventory levels, improving efficiencies in the supply chain and customer experiences. Outside of Walmart IRL, Walmart has tested in-store robots to prowl aisles and check for low-inventory items, technology that’s also been tested by Target, Lowe’s and grocery stores like Giant Eagle and Stop & Shop.

“It’s about using technology to augment the customer experience, not change it,” said marketing analytics RevTrax CEO Jonathan Treiber.

Retail’s future is here, and the result: better-maintained store inventory.

Breaking down Tecovas’ hyperlocal DTC strategy
Five-year-old Tecovas is operating in a category that’s so far been untouched by direct-to-consumer brands on the West and East Coast: cowboy boots. “This category has been slower to evolve with modern commerce than others, and I think it’s a much bigger category than people realize,” founder Paul Hedrick said. Founded in 2014, Tecovas did $10 million in sales in 2017, and triple that in 2018. In December, the company raised $24 million in funding. Here’s how the Austin-based company is building a national brand centered around a regional product.

Customer base: Hedrick said that about 30% of Tecovas’ customers are located in Texas. A significant portion of sales also come from California and Georgia. “Our customers may not be in Manhattan, but maybe an hour north,” Hedrick said. “They may not be in Los Angeles, but maybe an hour east.”

Real estate: This spring, Tecovas opened its first permanent brick-and-mortar store in Austin. The plan is to open four more stores, all in Texas, by the end of the year. “It’s frankly a little bit easier to open retail in Texas than SoHo where every brand is trying to open a store,” Hedrick said. Hedrick built the Austin store with a showroom vibe in mind — it offers complimentary boot shines, and like the storefronts of many other DTC brands, also often doubles as an event space. The store has live music and a bartender on the weekend.

Marketing: Tecovas’ biggest marketing channels are Facebook and Instagram. Hedrick said the brand has also had some success with a periodic catalog and is testing television.

Funding: Before the December fundraiser, Tecovas had taken on just over $4 million in funding. But most of the money Tecovas had raised up until that point had come from angel investors, and had been spread out over the course of four years. Brian Spaly, the founder of Bonobos and Trunk Club, is one of the investors in Tecovas. — Anna Hensel

CAC Watch: Snap builds an integration tool for Shopify
Brands and sellers using Shopify can now buy and manage Snapchat ads directly on Shopify using the Snapchat Ads App. The tool lets sellers set up Snap Pixel, sync product catalogs into Snapchat, and create and manage shoppable Snapchat Story ad campaigns, targeting viewers by demographic, location and interests.

Snapchat is the third platform after Facebook and Google to launch a Shopify integration, and the tool will roll out over the next few weeks. It comes as Snap is pushing to grow its ad revenue, and make its ad managers easier to use. So far this year, in addition to the Shopify integration, Snap has added tools like target cost bidding, bulk ad uploading and editing, reach and frequency buying — all tools that buyers had been asking for in order to make running large campaigns on Snapchat easier, according to Digiday reporter Kerry Flynn.

By setting up a Shopify app, Snap is now targeting the small- and medium-sized sellers, largely DTC brands, that have set up shop using the company’s software. Snap ads are targeted to a younger audience: According to the company, 92 million people are in the app’s addressable market, and 34% of those are in 18-to-24 range. — Hilary Milnes

What we’ve covered

The CVS smile: SmileDirectClub’s retail strategy is growing at a rapid clip.

Breaking down Amazon results: Here’s how Amazon fared in the first quarter of 2019.

The post Amazon is using customer search data for to find brands to target appeared first on Digiday.

“News can’t be happy all the time; that’s the reality,” said Ventura-Sanchez. “We’re general news, so like the Guardian or Le Figaro, we cover a broad spectrum, and, of course, much of that is terrorist-related news or the Catalonia conflicts. Advertisers just don’t want to be near that.”

But the way hard news is currently defined is too blunt, he added. For instance, a story about a lost child that’s been rescued shouldn’t necessarily be lumped in with hard news and not open to advertisers that want to appear alongside content that evokes a feeling of happiness or satisfaction with the reader. Currently, verticals in which many advertisers are particularly sensitive to any hard-news item, like telcos and luxury, simply don’t advertise across a large proportion of El País.

The publisher has a dashboard that isolates the articles — of the 15,000 articles published each month on El País — that are potentially risky for brands. To determine how people respond emotionally to its articles, the team worked with market research firm Cocktail Analysis to monitor the responses to articles supplied by 2,000 participants. That data is then fed into the algorithm. This method will be used for the next year. “Having that human element is important in order to train the algorithm,” added Ventura-Sanchez.

So far the publisher has created 32 audience emotions and created “happiness” segments among others, to put advertisers at ease. It will charge a higher fee for those that want this option on top of regular targeting. So far, it has pitched the tool to some major brands that have shown interest, and tests will start in the coming months, according to the publisher.

Publisher tools like this are welcomed by agencies. “A machine learning-driven approach presents an opportunity to capitalize on the power of context at scale while ensuring brand safety,” said Ryan Storar, svp and head of media activation at media agency Essence. “We’re keen to understand the effectiveness of solutions such as this at scale in terms of delivering brand outcomes.”

It’s not always a clear-cut response. Responses to political topics like Brexit or others like government corruption can have polarizing effects and are subjective. That’s why the team will track the responses of between 20 and 30 participants for each article. If responses are split they will create an average across the responses, and feed that back into the algorithm. If the responses are too polarized the team will dismiss any impressions around the article.

Such a large technology investment is a lot for a legacy media publisher to shoulder. The media group applied for additional funding from Google’s €150 million ($167 million) Digital News Initiative. Publishers can receive up to 1€ million ($1.1 million) for large projects, €300,000 ($335,000) for medium ones, and €50,000 ($56,000) for smaller prototype schemes via Google DNI. Prisa won the middle-tier category, which will fund 70% of the entire project, according to Ventura-Sanchez.

Prisa dedicated four developers to the project, and worked with 10 people externally spanning expertise including data engineering, data science and staff from Cocktail Analytics and tech consultancy Indra.

Although Prisa Media and El País generate subscriptions revenue, advertising represents the majority. Digital ad revenues accounted for 53% of total revenue in 2018, and grew 13% compared to the previous year — while print advertising dropped 11.5%, according to the company’s last financial statement. In 2018, Prisa Group, which spans several continents including Europe and Latin America, and includes radio stations, generated €228 million ($255 million) in the first nine months of 2019.

While general-news publishers have always wrestled with the challenge of monetizing hard news, the continued decline of print advertising, alongside the competition from Google and Facebook for digital display advertising revenue, makes finding alternative product solutions to appeal to cautious advertisers critical, added Ventura Sanchez.

Publishers have experimented with different ways of addressing the challenge of monetizing hard news for years. Developing new lifestyle and entertainment or sports verticals is the well-trodden route, in order to open up inventory for advertisers that feel safer targeting ads around articles in those environments. More recently, a string of publishers, including the New York Times, ESPN and USA Today, has also rolled out ad products that they claim can match ads to people in certain moods. The BBC has also experimented with tracking emotional reactions to ads for years to prove the value of its branded content.

In time, Prisa hopes to develop English- and French-language versions of the tool, which it can then license to external publishers, potentially opening up a new revenue stream.

The post El Pais owner Prisa Media built a brand-safety tool to reassure news-wary advertisers appeared first on Digiday.

For direct-to-consumer brand founders, venture capital is more readily available than ever before. According to CB Insights, DTC brands have cumulatively raised $3 billion in venture capital funding since 2012, with $1 billion of that coming last year. That’s led to consumer brands with whopping valuations: This year, mattress brand Casper and beauty brand Glossier each raised $100 million rounds, pushing them to unicorn status, valued at $1 billion.

But there are a growing number of DTC brands going down the route of Coddou. Mattress brand Tuft & Needle merged with Serta Simmons in 2018 and did $170 million in sales in 2017 without funding. Watch brand MVMT crowdfunded on Indiegogo; Movado spent $100 million upfront to acquire it last year. Nativ, a natural deodorant brand, was acquired for $100 million in cash by Procter & Gamble in 2017. Nativ did take on $500,000 in angel-investing funding early on, but it’s a drop in the bucket compared to the hundreds of millions raised by Warby Parker, Casper and Glossier. 

“The business started funding itself — it was growing 20-30% month over month,” Nativ founder Moiz Ali said, when asked why the company didn’t take on further funding.

Ali and JT Marino, co-founder of Tuft & Needle, both say that collecting customer feedback themselves was one of the most critical steps they took in the early days to grow their business. Because they had almost no money to spend on paid advertising, they had to rely entirely on word of mouth. By telling customers when they fixed something about the product that they disliked, it increased the likelihood that they would organically tell their friends and family about it.

Marino and Ali say that one of the hardest parts about bootstrapping a business is that you have to keep your team lean, even more so compared to other startups. “Even today — my engineering team is [about] 20 to 25 people, and my biggest direct competitor has 90,” Marino said.

Both said one of the biggest reasons why they ultimately decided to sell their business — or, in Tuft & Needle’s case, merge with a competitor — is that they felt it was necessary to scale to a point where they could become a category leader.

“I didn’t have the know-how to build [Nativ] from a $100 million to a $250 million business, and I knew I needed outside help to do so,” Ali said.

Coddou said that it’s ultimately the success of brands like Tuft & Needle that convinced him to stay bootstrapped. But Coddou said Kickstarter, the channel he used to build his business, has become more and more competitive.

“Things have changed to where crowdfunding is no longer like free marketing,” Coddou said. During his first Kickstarter campaign, he said he used almost no paid marketing, but during his second, he did spend money on Facebook ads.

Platforms like Facebook have also become pay-to-play, meaning brands with less to spend on big campaigns are at a disadvantage.

In lieu of funding, scrappy founders are relying on previous expertise to save money where they can. Jacquelyn DeJesu, the founder of Shhhowercap, another self-funded DTC brand, said that she decided to forgo venture capital money because, having spent 10 years in advertising, she felt that she had the expertise to acquire customers without putting a ton of money into paid advertising.

“That specifically is what a lot of venture money — in my experience — goes to in the beginning,” DeJesu said. Lerer Hippeau principal Andrea Hippeau said in a previous interview with Digiday that companies that take on too much venture capital money risk not figuring out whether or not they actually have sustainable customer acquisition channel, because they have a ton of money to pour into Facebook or Google. Self-funded businesses are forced to grow more slowly on these channels, albeit more sustainably. 

When Shhhowercap launched in 2015, DeJesu designed the logo, shot photos and built the website herself, with help from friends. Like Coddou, DeJesu has kept her company lean in the years since — she has six full-time employees, and says her company did “a few million” in sales last year.

That’s not to say skipping VC is in any way easy. Brands that have built large-scale businesses without venture capital are the exception, not the rule. The DTC market has become so saturated, it’s hard to find a product category where there’s not a competitor with VC backing. When asked if they thought they could start the same business today, Nativ’s Ali and Tuft & Needle’s Marino both replied the same: not in the mattress or deodorant categories.

“I think it has gotten significantly harder to build a DTC startup without taking any venture capital over the last few years,” Kevin Lavelle, founder of menswear brand Mizzen + Main, said in an email. “The changing nature of the digital advertising world, and the flood of money into every channel, has made it very hard to compete without significant spend behind your efforts. It doesn’t mean it’s not possible; it’s just harder than it’s been in a long time.”

Neither Coddou nor DeJesu has ruled out taking on venture capital funding entirely. As DeJesu put it: “If I see someone with a great portfolio reaching out, I always have the conversation.” Coddou said that he’s interested in looking at new firms that are pitching themselves as an alternative to VC funding, like Clearbanc. Clearbanc doesn’t take a share of equity in order to fund a company. Instead, it asks to receive a share of revenue until the amount of funding given has been paid back in full, with 6% interest. 

Marino said that he’s also seeing more companies bootstrap to find a product market fit, and then take on venture capital or private equity funding later on. It’s a path that’s been followed by Rothy’s, Mizzen + Main and Tecovas, a direct-to-consumer cowboy-boot brand that raised $24 million in funding in December after launching in 2015. Tecovas did take on just over $4 million in funding during the company’s first three years, but having previously worked in private equity, founder Paul Hedrick said he wanted the company to be “as lean as possible and not get over our skis,” during the early years. 

“The balance of significant growth and long-term viability against the ability to retain more control and manage more sustainable efforts is a decision with no ‘right’ answer,” Lavelle said.

The post How bootstrapped DTC brands navigate a VC-saturated market appeared first on Digiday.