Blog post by ELP Student Sakina Tinwala (Industrial Operations and Engineering | Class of 2020)
Many VCs and tech investors invest solely in software, because it’s predictable and ‘high growth’. Investors shy away from consumer focused startups because of its ambiguity; But with companies such as Glossier, Everlane, Bonobos and Birchbox taking over the focus of gen-Xers and millennials, let’s take a look on what characteristics I found these retail startups tend to have, and how they think about their business model.
These brands are often termed as digitally native vertical brands (DNVBs). Here is an excellent blog post by Andy Dunn explaining in detail what these brands entail.
TLDR for the lazy ones; It is a brand that’s born online and connects with their consumer through storytelling via social media outlets. Since they have data on each individual customer, they are better able to stay close to them. They are characterised by higher profit margins as they cut out the middleman, and tend to extend their brand to a physical presence at some point, like a pop up store or physical retail experience.
There are specific characteristics of these DNVBs that I’ve found during my experience working at a startup called Floyd, and extensive research of similar companies.
One is that they are customer obsessed. In the age of Amazon, consumers are getting used to and expecting the best experience out of their online purchases, whether this be ease of return/exchange, longer trial timeframes or quick response to problems.
Secondly, these brands have a secondary selling point other than their main product that differentiates them and really appeals to their target consumers. This could be in terms of sustainability or the convenience of curated items shipped to their doorstep.
Increasingly, many brands find transparency very important and are taking steps toward informing the consumer about their product as much as possible. This could be in terms of sourcing, cost of materials or why prices are being changed. For example, when Floyd changed its prices, a note was sent out to their customers and put up on the website about when the price would change and what prompted its necessity.
DNVBs are also identifying quality as a huge driver of customer enthusiasm, and since they receive feedback so often and can be reached online so easily, quality is a factor that is not compromised. Consumers are leaning toward to end of the fast fashion era – and want to make good investments with their purchases.
Overall, like Andy Dunn mentioned in his article, DNVBs don’t have to adapt to the future, they are the future. They are quickly replacing the dying retail industry, and are an incredibly lucrative – albeit longer timeframe – investment opportunity for VCs and investors.