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The Money Dump: Why Consumer-Facing Ecommerce is Broken

The Money Dump: Why Consumer-Facing Ecommerce is Broken

Join a panel discussion with VCs and brand experts, like Sindhya, at OS Fashion’s next event: The Founders’ & Funders’ Dilemma which will discuss the current state of e-commerce: VCs, start-ups and all.

[Original article published by OSF contributor Sindhya on Business Insider.]

I finally found panties on True&Co., an ecommerce lingerie company. It took them nearly one year to start selling panties. They allegedly sold them when I mentioned them in a viral article titled VCs Think My Boobs Need An Algorithm in January, but the panties were impossible to find. Nobody could find them. Now you can find them after about 6 minutes of multiple choice questioning and some scrolling around online. But you still won’t get a “true” fit from their algorithm.

Another startup that I discussed in that article is Dollar Shave Club (DSC) which is now raising yet another round of funding even though they raised a total of $10.8M in venture funding last June. Earlier this month, DSC finally launched their 2nd product – Dr. Carver’s Easy Shave Butter. Who on earth is Dr. Carver and what does he have to with DSC, you ask?? Is Dr. Carver a new brand? Well, I bet your guess is as good as Dollar Shave Club’s. I’m not joking.

Consumer marketing is an art AND a science. It’s something that the founders of many consumer-facing ecommerce companies and their investors don’t understand. The Science Lab in LA, which launched DSC, and the DSC management team and their investors clearly don’t comprehend it. That’s why consumer-facing ecommerce is broken.

 

To date, all that DSC has done is create one funny video that went viral. DSC’s second video was a complete failure so they pulled it from YouTube. Interestingly, Grumpy Cat is a damn funny video that went even more viral, and it has more brand potential than DSC. Grumpy Cat could be branded similar to Angry Birds with games, lunchboxes, candy, etc. Naming a brand Dollar Shave Club is problematic since DSC’s intent was to build a global lifestyle brand. The name limits them to “dollar” and budget pricing and also to the shave category. Will they call their shower gel “Dollar Shave Club Shower Gel”? That doesn’t exactly make sense. On that note, Dr. Carver’s Easy Shave Butter, its newest product, doesn’t make sense. The management team doesn’t understand branding, positioning and pricing. The cost of the Easy Shave Butter product is $8 while the average shave cream or shave gel from leading brands like Edge or Gillette is $4 or less (even $2) – everywhere, even at the corner CVS or Duane Reade in Manhattan and on Amazon.com. If DSC’s goal is to disrupt the industry by offering cheaper products, they are certainly NOT doing that with Dr. Carver’s Shave Butter.

What I don’t understand is what exactly is DSC doing with $10.8M? What took them so long to launch the shave butter product? It is stock packaging (which means it’s off-the-shelf without distinct custom design). It’s also a stock formula that they sourced from lab in Dallas, Texas. Just like the non-proprietary blades that they source from Dorco, a Korean company, DSC’s Dr. Carver’s Shave Butter is not a proprietary formula. The packaging is a knockoff of Kiehl’s with its apothecary-esque branding which is a very inconsistent departure from DSC’s budget branding. Product lead time for their stock packaging and stock formulas is NOT 1 year. They also don’t need $10.8M in funding to sell non-proprietary products with stock packaging. Here are the facts: For a product with stock formula and packaging, it should cost: less than $25K for a small production run of 7,000 units with a lead time of 2 months. The cost of goods per unit should be no more than $3.57. With a COG of $3.57 and retail price of $8, their markup is 55%. That should yield about $56,000 in sales. Keep in mind that this inventory is seasonless, trendless and sizeless too. It’s a very lucrative business for those who truly understand it.

The fact that DSC waited one year to launch a shave butter/cream demonstrates that they: 1) don’t spend their cash wisely, and 2) they don’t understand consumer psychology. When products are used in tandem, marketers should pair these products together and so that the consumer can buy them together. When most people buy a cup of coffee at a coffee shop, they will go somewhere where they can also get milk and sugar. The only exception to this pairing rule is when a product has superior performance and distinction. That’s not the case with DSC’s razors.

The biggest question I have is: why on earth is DSC raising yet another round of funding? Word on the street is that they are now hoping to close a Series B of $45M in June. I’m still unclear on what they did with $10.8M which they raised at a hilariously healthy $30M pre-money valuation – they’re hemorrhaging their investors’ money! In addition to STILL offering free razors for a month to new customers, they are now also doing radio ads and TV commercials during the NBA Playoffs! The going rate for a 30-second spot during the NBA Playoffs is $500,ooo. At this rate, I predict that DSC is going to follow in the footsteps of hyper-inflated, struggling companies like Groupon and BeachMint. It makes no sense to keep pouring money into a brand that isn’t really a brand, doesn’t have special products and doesn’t understand its industry. Without great branding and experience, you’re just another product.

 

Harry’s, a new grooming brand that launched online last month with upwards of $4M in VC funding, isn’t much better than DSC. Marketing and branding aren’t their forte either. The funniest comment I saw on their Facebook page was: “Is this razor only for white people who all look the same?”

They are definitely too niche if people are saying things like that. Their logo is quite possibly the ugliest logo that I’ve ever seen. You cannot just reapply the same formula that worked at Warby Parker and move it to Harry’s and expect success. You cannot just shift one executive/founder from a successful company to another company and category and expect success. We already learned this lesson with Ron Johnson and J.C. Penney. The minute more compelling grooming brands launch DSC and Harry’s will be in serious trouble.

 

Here’s another shocking startup story: A NY-based luxury goods and fashion curation startup which closed $2M in venture funding in October 2012 and was slated to launch in November/December 2012 delayed its launch by one whole year. The only reason for the delay is poor planning. Unlike many other startups, this startup isn’t stuck due to lack of funds. The founder of this startup, who does not have a background or understanding of fashion, luxury goods, buying, or ecommerce, did not understand the buying cycles for purchasing products from third party brands. Her prior work history included being a Co-Founder at a food-focused picture sharing app and doing digital partnerships for a leading media company. In my opinion, this founder should have never gotten funding. There is no excuse for a one-year delay when this startup has cash and resources. More importantly, this founder failed to establish an iota of traction since her company was pre-launch and even pre-business plan and branding. She clearly lacked domain expertise or even a basic understanding of the luxury goods and fashion industry. She should have established all of that before getting funding. Her investors from leading VC firms failed to do proper diligence and gave her $2M in VC funding at a $5M pre-money valuation.

Clearly, many VCs don’t really understand which founders to fund, and they don’t really understand consumer-facing ecommerce. Entrepreneurs shouldn’t look to these VCs for validation especially if these VCs are funding founders without plans. Some common threads with these flawed startups include having founders who do not understand:

1) basic business, understanding of retail, how to scale a company, pair and group products to drive more sales
2) branding and marketing
3) consumer psychology, purchasing habits

It seems that a lot of founders and VCs think that marketing and branding aren’t that important and can be outsourced. That’s clearly apparent in all the aforementioned startups. Without a great brand experience, you’re just another product. Marketing and branding are conceived in the heart and mind first, then applied to product and finally applied online. Marketing is an art, a science and also a spectator sport – online it’s become a shit show that’s providing me a lot of laughs.

Original header image created by Steve Mueller.

Posted in: Vision & Opinion

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VCs Think My Boobs Need An Algorithm

VCs Think My Boobs Need An Algorithm

[Opinions held by the contributor do not necessarily reflect the opinions of OS Fashion and its members.]

VCs think my boobs need an algorithm. My boobs don’t need an algorithm. If that’s not enough, VCs also think that women need a bra subscription. They gave $2M in seed funding to True & Co., an e-commerce bra company with an algorithm and subscription model. Never mind that the clear majority of women don’t buy bras every month. This start-up’s algorithm involves answering questions online for about 3 minutes that’s not only boring and painful but also futile. The algorithm, like the brand’s name, is ridiculous. An algorithm cannot provide you with a better fit just as answering questions online cannot help you find the best pillow for your preferences. Some products need to be touched and tried on. An algorithm cannot account for technological advancements like soft stretch in bra straps, seamless fits, softer lace with stretch, and good quality padding that isn’t cheap and itchy. Finally, as a lingerie brand, this start-up lacks fun and sexy branding. There’s a place for an algorithm–it isn’t my bra. VCs simply don’t understand consumer psychology, consumer purchasing patterns and what it takes to build a great brand or product. It seems as if they think consumer tech is easy and that anyone can do it. This misunderstanding is a big problem, and VCs are screwing up the ecosystem.

Charlie O’Donnell (@ceonyc), a VC at Brooklyn Ventures, recently tweeted in reply to Sanjay Raman (@sanjayraman), a VC at Greylock Ventures:

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Posted in: Vision & Opinion

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