3 Things VCs Should Know About Direct-to-Consumer Companies

For decades, there has been a major disconnect between manufactures and consumers. Nowadays, though, even the most traditional businesses, like eyewear and jewelry, are entering the ecommerce space thanks to the Internet, and also increasing mobile accessibility.

As more companies have adopted the direct to consumer (DTC) model, it has become increasingly difficult to determine which companies are cut out to succeed and the ones set for failure. I recently spoke with Raphi Mahgerefteh, who founded the jewelry ecommerce company Allurez, one of the country’s leading DTC jewelry brand, and has extensive experience working with VCs (venture capitalists):

“We have chosen to focus largely on long term technology strategy, high growth opportunities, and customer behaviors.”

Long-Term Tech Strategy

Marketing processes can specifically track customer reactions, to ensure strong ROI. To improve this end-to-end customer journey, businesses need to integrate long term technology strategies that collect and store data from all channels. They are using a process called Collaborative Consumption, in which the purchaser’s response actually dictates what the end product will be. Mahgerefteh talked about how his company successfully managed to do so:

“VCs and private equity firms started approaching me around two years ago or so with a strong interest in our successful DTC model because it can be so difficult to maintain a loyal customer base, especially in the high-end fine jewelry industry. We have maintained a strong above industry average customer retention rate and owe that greatly to our customer service concierges.”

High-Growth Opportunities

Consumers are currently benefiting from the price competition created by the growth in direct-to-consumer companies. Eventually industry consolidation will happen, and we will see fewer companies dominating this space. Privately owned companies are very appealing to VCs and equity firms because it demonstrates they are able to properly manage cash flow, and Mahgerefteh says to “bootstrap if you can”. He explains further:

“The economics of the brand must be such that it is a high growth opportunity. For example, think about the differences required to build and scale a software company vs. a brick and mortar retail company – the latter is capital intensive to set up, operate, and scale. Traditional retail has inherent challenges associated with scaling up, which is why we are seeing growth in DTC investments.”

Customer Behaviors

As with many day-to-day communications, it is more important to listen than to speak. Consumers have hundreds of online options to choose from, so it is imperative to create a brand that listens, reacts to and engages with their desires. Some brands even poll their customers prior to creating designs, thus not wasting time or money.

So, the way to go is creating ways for your audience to engage with your brand, and then listen actively to what they are saying. With DTC model, social media and 24-hour customer service, brands no longer need to listen to customer needs through a retail filter.

“The data is becoming so smart and relevant, brands that are savvy on how to leverage this will be of great appeal to VCs,” Mahgerefteh says.

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Written by:
25 y/o, born and living in Portugal. Majored in Biology, but tech and computers were always a passion. Wrote for sites like Windows.Appstorm and MakeTechEasier.
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