The Secret to DTC is Wholesale
The Secret to DTC is Wholesale
8 takeaways from one of the most badass business evolutions I’ve ever seen.
Yesterday I wrote a post on LinkedIN about how we are growing Monica + Andy in two unexpected ways given our origin story.
Going deeper
Alright let’s go a lil deeper than LinkedIN headlines.
1. Don’t rest on your DTC laurels. Add wholesale.
Sometimes the answer isn’t to improve what you have, it’s to add to it in a way that improves what you have. It’s like a good marriage. Having kids can make it even better.
The same is true of launching wholesale for a digital brand. It takes a strong brand and turns it into a strong business. Rather than permanently raising venture capital, the cash flow from wholesale creates the leverage to build a business that generates cash.
2. Don’t just transfer money from VCs to Meta.
DTC math is tricky. The P&L has too many variable costs, semi-fixed costs, and fully burdened marketing expense eats whatever’s left.
Wholesale is paradoxically better at generating cash, because even though it’s a lower gross margin, it’s not burdened with paying Meta 30% of net sales for people to go to your website — let alone fulfillment expenses for free shipping both ways, customer service and credit card fees.
3. Shrinking your % to total isn’t the same as shrinking your business.
It’s not that you shrink your DTC business in volume, it’s that you shrink it as a percent to total of a larger pie. Meanwhile as your top line grows without incremental marketing spend, your marketing % of sales moves to something more reasonable, like 10% of total brand net sales, not 30%.
Now your P&L waterfall makes more sense, and your digital business goes to positive contributed profit margin because marketing has come down.
If you have 50% blended gross margins across channels, marketing now at 10% of total sales, and G&A at 20%, now we’re talking about a 20% EBITDA business.
4. You are the head of sales.
A lot of founders think they should hire a great head of sales. YOU ARE that head of sales. Certainly for the first $10 million of wholesale revenue. Once you’ve built that, now you’ve earned the right to make that hire. Don’t send someone to Walmart. You go to Walmart and tell the story and build deep relationships and do the thing that only you can do — which is inspire people on an emotional level about your brand.
5. New channels and categories are how you fall back in love with your company.
Don’t be comfortable building out multichannel for the category that you’re in. Add more categories. Now, with wholesale, you’re getting a force multiplier on your sales and your reach. And the awareness that comes from selling in wholesale will loop back to a virtuous cycle with your DTC business.
Pivoting from DTC to omni, and launching new products, is a chance to return to your roots. To the joy you had when you started the company. I joked with a famous founder recently that startups begin because a founder wants to escape a more boring professional path, and then they end in the founder trying to escape their startup. Launching new categories and channels is among the most fun things you can do to rekindle your love for your own company.
Contrary to the popular startup advice, don’t give up on what you’ve got until it’s a winner. Love what’s in front of you.
6. Brand extensions: let the customer tell you who you’re allowed to be.
You can’t just extend your brand into whatever you want. It doesn’t make sense to go from children’s apparel to adult apparel. It’s a different animal in the customer’s mind. But it turns out that if your brand is about soft and organic on baby’s skin, you can go from bodysuits to baby shampoo. Yes you can do customer research, but where you really find out is when you try to sell it. This is where wholesale partners make sense, because whether or not they’re willing to bet on it is real signal. They’re good at running their businesses, and they are a check on your thinking. It still doesn’t mean it’s a slam dunk, but outside validation is just as good as customer research at evaluating brand extensions and evolutions. And it helps when others are taking the inventory risk with you.
7. Enough with the founder struggle porn.
Yes it’s hard. Yes it’s like eating glass. And you know what? Being a founding CEO is the coolest fucking job on the planet. Who else gets to put something in the world that doesn’t exist with a spectacular team that they assemble and a board and group of investors that they get to select and run? Yes I know raising money is impossible, blah blah blah. Just look around. Regardless of demo, your peers are doing it. So you can too. And it starts with being grateful for the chance to do the job rather than feeling bad about how hard it is. If that’s how you’re feeling, do something else! Something easier!
8. Invest in PR — as an embedded team, not an agency.
Some founders don’t invest in PR. I think it’s important to — for call it 50% of your startup’s journey — have a great PR firm on retainer. Don’t expect that they’ll just go get you on the cover of the New York Times. You have to spend hours a month with them, riffing on what the story is, transferring context on what you have coming up that’s newsworthy, and working together on it. It’s more like hiring an embedded team than an arms-length agency.
People don’t believe what you say about your company, but they do believe what others say.
Before I go deeper on each of these takeaways, I want to share the PR that cemented this evolution. No one believes what you say about your business, but they will believe what other people say. Screenshots of each cover story below, with links.
https://www.purewow.com/family/monica-and-andy-baby-care-bath-products-review
https://www.modernretail.co/marketing/monica-andy-expands-beyond-kids-clothing-and-into-baby-care/
Okay now go have fun.
Gratefully,
Andy
Yesterday I said I’d do an at least monthly essay. With a bit of space to breathe after some wild times, I guess it might be more than monthly.
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