Month: December 2020

The week-long conference may be a boondoggle, but for agency execs like Hofherr, chief strategy officer and co-founder of San Francisco-based full service agency Mutayzik Hoffer, it made networking a breeze.

“It used to be so easy,” said Hofherr, adding that some agencies have been too dependent on industry events like Cannes, Shoptalk and CES, among others, to cultivate new relationships and drum up new business. Without those events, “the one and done meeting is done — we’re not having spontaneous exchanges anymore.”

For many, the ad business’s reliance on industry events — the conferences, trade shows and awards dinners that key players attend annually — to facilitate networking and relationship building became clear this past spring. Since then, marketers, agency execs, consultants and vendors have had to find new ways to connect as the in-person events they’d usually fall back on weren’t possible.

Without those spontaneous exchanges at events or the ability to meet up for coffee in person, networking has gone virtual. Custom-made meet-ups for start-up execs or “speed dating” with potential clients over Zoom are new ways to foster relationships, according to agency execs and vendors, who say the efficiency of networking digitally has them rethinking the frequency with which they’ll attend in-person events to network when they’re able to do so.

“It played a big role in trade shows and conferences,” said Josh Wand, founder and CEO of recruiting firm ForceBrands. However, connecting after panels during a happy hour where “people lined up to talk to you afterwards, those days are gone. It’s not to say they’ll never be back but they’ll never be back the way that they were. They were very inefficient. You spent two days traveling to track one person down.”

Wand believes the future of networking will be omnichannel rather than primarily in-person as people have realized they can continue to make new connections — sometimes getting the attention of previously unreachable CMOs who are now more available at home — without shelling out for flights and lodging. That’s not to say that the virtual events, bespoke Zoom meet-ups or rounds of “speed dating” that have cropped up as alternative ways to network during the pandemic have been perfected.

Regular attendees of virtual networking events bemoan its inability to replace networking in person. Even as people work to find new ways to connect it can be difficult to feel like you’re building a true relationship over Zoom, especially in groups of 20, 30 or more, according to agency execs and regularly virtual networking attendees.

“There’s a lot of gaps in the way we’re able to network now,” said Lauren Murphy, director, research scientist at the Pragmatic Brain Science Institute at LRW, a Material Company. “We’re not able to communicate in the same ways we’re accustomed to and we’re missing some cues that can help create strong social bonds.”

One of the challenges of networking now is that “in a lot of situations networking is almost a secondary objective,” said Murphy. “With a conference, the primary objective is to learn new things. Networking is a bonus.” And when it comes to conferences or events of the last few months, much of the attention by event organizers has been focused on simply making the event happen virtually. “The more challenging piece is creating space for less formal conversations where people can share intel and create bonds and relationships,” said Murphy.

While virtual networking meet ups have become common and create space for less formal conversation, agency execs say that at times it can feel hollow as people are sharing their stories but there’s no need to connect further. Jen DaSilva, president of creative agency Berlin Cameron and founder of the networking group Connect4Women, believes part of the problem with virtual networking is that it doesn’t feel actionable.

“A lot of the networking groups you go to over Zoom you’re talking and introducing yourself to each other but it doesn’t take that next step,” said DaSilva, adding that she attends a number of other networking groups. “Giving networking a path forward is something we need to do in a digital environment.”

Whether people connect virtually or in-person once it’s safe to do so, Hofherr suggests playing the long game when it comes to networking. “Networking today is about empathy building,” said Hofherr. “Listening, understanding and earning trust. You should be trying to develop deeper, more meaningful relationships. No one wants to be sold.”

What began as a warning in 2019 has become a reality in 2020. Most consumer-facing retail startups quite simply won’t reach the scale worthy of mid- to late-stage venture capitalist dollars. In the DTC space, that means the mindset is shifting — and alternatives are being sought out.

This year, Clearbanc — a firm that offers alternative forms of funding to startups — said it has invested more than $1 billion into 3,300 companies; in 2019, it invested in about 2,000 businesses. Shopify Capital, which offers Shopify-run businesses money to help them grow, doled out $252.1 million in cash advances and loans to merchants in the third quarter this year, up 79% from the year before. 

It’s not that venture capital — or the prospect of going public — has disappeared for DTC goods startups. But most companies — especially brands that sell physical goods and have higher margins than, say, a piece of software — can only grow so much, and so a sobering shift is underway.

“There was a period of time when venture money was free,” said Melanie Travis, founder of the swimwear brand Andie. That period created and defined the DTC landscape through 2018, as companies like Away and Casper raised hundreds of millions of dollars at valuations exceeding $1 billion. 

“I do think there is a sort of renewed diligence on investors’ parts,” said Travis. “A coming back down to Earth on the valuation side.”

For her, and for many other founders, that meant understanding the pros and cons of raising certain types of capital, and going at things with a more level head. Andie was able to close a $6.5 million Series A round of funding in October, but has used many other funding sources. It also turned to Clearbanc — which offered money at what she described as “a compelling interest rate” — to fund the company’s digital marketing costs. “That has been a really efficient use of capital,” she said. She uses VC dollars to grow head count and towards more splashy marketing initiatives.

Cash is cash, yet the sources of capital — and the strings attached — lead founders to make different business decisions and set different targets. Venture capital allows startups to take chances. They’re given free rein to grow, but the expectation is that they’ll provide a return on investment. In contrast, alternative forms of funding — like debt and other business capital programs — require some form of pay-back. Those are seen as often necessary vehicles to grow fundamentals — funding inventory, or paying for other low-risk business needs.

Zoomed out, this has changed how founders perceive success and where they look for growth assistance. For retail startups, it’s a back to basics — operating with the understanding that growth likely won’t hit the billions of dollars and instead should focus on sustainably growing fundamentals. The new runaway success is no longer getting a unicorn valuation, but instead thoughtfully using capital to reach profitability while growing at a healthy clip.

Throughout venture capital, said Aubrie Pagano, general partner at Alpaca VC, there’s been a changing understanding of what is considered a fundable pursuit. The multiple required for a mid-stage investor to really feel good about putting down many millions of dollars is likely out of the question for most consumer-facing brands. “If you come into a Series A at a $20 million valuation, that brand has to get so freaking huge,” Pagano said. 

The brands trying to reach the necessary scale to attract either an acquirer or Wall Street’s eyes likely won’t make more than four times its revenue at the time a Series A usually comes along. “The exits aren’t these traditionally multi-billion dollar outcomes,” she said.

This isn’t a new phenomenon by any means. When asked in 2019 about the startups hitting a wall, one VC put it bluntly to Modern Retail: “I think people will raise less money.” What’s changed, however, is the scale of this realization. Brands are launching, but fewer are exiting. The FTC recently sued P&G over its proposed acquisition of the razor brand Billie, which makes the M&A landscape — from the startup brands perspective — even more bleak. “I’m worried it might make brands think that they have to sell earlier than they necessarily want to, before they get too large,” one startup founder recently told Modern Retail, in response to the FTC’s move.

This phenomenon isn’t bad, but it could change the trajectory for many brands — especially those that see recent IPOs as a beacon of light. “There’s not this rabid VC ecosystem waiting to write them a check,” said Pagano. Instead, investors are looking at what the most realistic exit scenarios are.

So too are founders. “I look at a lot of notes,” said Travis. “The caps on those [recent] notes are a lot lower than they were a few years ago.”

According to Kline Group, the U.S. market for hair tools and appliances in general declined by 1% in 2020, brought down by a slump in blow dryer purchases. The hot tools category is not expected to return to normal until 2023, when it is projected to reach 2% growth. U.S. salon bookings declined by 60% nationwide in the spring, according to SafeGraph.

“The professional channel was hit especially hard with temporary closures of salons and beauty supply stores,” said Shivani Singh, the project lead of Kline’s consumer products practice. Retail was “the saving grace for the hair tools and appliances market.” 

“We opened up more products to the consumer” that had been exclusively B2B, said Lisa Marie Garcia, president of innovation for Farouk Systems, the parent company for Chi hair tools. 

“At the beginning of the epidemic, we had lost 98% or 100% of our business, but we were able to make it up” with the pivot to consumer-facing marketing, said Farouk Systems chairman Farouk Shami. He said the company’s DTC e-commerce sales grew by 600% from April to August, and is now growing at 200% per month. 

The professional channel’s decline meant that consumers did more at-home styling. 

“There are a lot of people who would normally go and get professional weekly blowouts” before the pandemic, said Sandra Lup, lead design engineer at Dyson. The brand has seen new purchases by “people who wouldn’t normally style their hair themselves at home.”

“We’re seeing a lot of air drying and using tools in different ways,” said Mary Burns, the CMO of Rusk parent company Beauty Quest Group, which relied on professional for 80% of its pre-pandemic business. “Instead of blowing out your hair, it’s air drying and then using tools for touchups.” The company is seeing “double-digit” growth in consumer-facing Amazon sales. 

The hot air brush has replaced blow dryers during quarantine. Revlon’s Pro Collection Salon One Step Hair Dryer went viral on TikTok in May, spurring demand in the category. The brush has been so popular this year that Amazon named it as one of three main highlights for Black Friday best sellers.

Dyson and Conair have also seen growing hot air brush sales. Robin Linsley, a Conair vp of marketing, noted, “There was a decline in blow dryer [sales],” citing the impact of the pandemic and the rise of the hot air brushes. 

Cordless tools startup Lunata Beauty will introduce a hot air brush in 2021. The brand has seen a 30% increase in revenue from 2019-2020 after securing distribution deals with Kohl’s and Costco. It secured $3 million in Series A funding just before Black Friday.

“The minute we got the money in the bank, we started discussing with our engineers” its next product launches, said Lunata‘s co-founder Stacey Boguslavskayahe.

The trend also ties into what Burns described as a move “away from styled hair to much more authentic looks.”

“Right now, we see a huge demand for curl,” said Garcia. “People still want to look good on Zoom.”