Member Exclusive   //   February 20, 2024

How cash-strapped DTC brands are finding ways to slash R&D costs

Efficiency has become the theme of startup brands — whether it’s shifting marketing budgets or cutting internal operational costs. 

But design and manufacturing are two parts of the business that are difficult to do on the cheap, as they rely heavily on external vendors and manufacturers. Just a few years ago, digitally-native startup brands swimming in venture dollars were able to spare no expense when creating Instagram-friendly products geared at millennials. Brands like Away and Harry’s became the face of design-forward products sold directly to consumers, hiring specialty design agencies or building in-house teams to bring these products to life.

But with pressure to operate profitably, today’s slew of DTC brands are approaching R&D in a more money-conscious way. For instance, some brands are skipping agencies altogether and designing with the help of eager manufacturers. Others are scrappily finding materials in a treasure-hunt type of fashion. Meanwhile, the design agencies that once catered to startups with deep pockets are offering new and cheaper types of services to help more budget-conscious founders get their ideas off the ground.

Developing new products under tight constrictions 

Luke Barkley Young, co-founder of Outlines, a subscription brand specializing in home and bath products like shower liners, said over the past six to 12 months the company shifted its R&D strategy to cutting the middleman and working directly with its factory overseas. “With the lack of venture dollars going into consumer brands, that’s obviously going to stifle innovation of physical products,” he said. “So brands now have to get resourceful to get products across the line.”

On top of standard design and engineering fees, Young said agencies also tack on a percentage for taking a product through the manufacturing stage. All of these fees and services add up quickly, especially for a bootstrapped startup trying to expand a product line in an affordable manner. 

With that, overseas manufacturers, especially in China, are adjusting their offerings to accommodate brands that want to directly work with factories and not go through an agency – whether it’s for sourcing or engineering. 

For its latest product R&D, Outlines ended up working with its manufacturer — Shanghai-based Velong Enterprises — after finding it through a design agency. In the end, Outlines didn’t need the agency altogether. “The factory approached us saying they have a team now of English-speaking engineers and sourcing people,” Young said. These new offerings also include the waive of the design fee if the brand produces the product with the factory. 

Outlines is part of a growing business for Velong, which launched its own design arm, Platform88, to cater to the growing demand from the U.S.-based startup consumer brands. According to Velong, Platform88 is considered a “product accelerator” and is led by factory owners, with services like small-batch manufacturing and product certification, among others. 

Aside from cost, there are also some efficiency-related advantages of working directly with a manufacturer, said Young, like a speedier turnaround time from creating a prototype to the production run. All in all, Young estimated Outlines is spending about 10% of what it would have cost to develop its products in partnership with a U.S.-based design firm. 

Meanwhile, the go-to agencies that built their business around creating well-known DTC products are seeing a shift in their model based on the changing retail startup landscape. New York-based product development agency Doris Dev — whose clients include Lalo, Curology and Blueland — has been shifting its offerings to accommodate the design needs of budget-conscious brands. 

“Deferred payments is one way we do this,” Joseph Guerra, partner at Doris Dev, said, in which brands pay Doris Dev from revenue after making a purchase order. Other cost-cutting measures include lowering upfront spending, such as creating lower-lift products with simpler molds. 

“In general, our structure has stayed mostly the same, but the type of portfolio company we work with has changed,” Guerra said. “It’s a lot more ex-corporate solo entrepreneurs who don’t have plans to fundraise.” 

For now, Doris Dev has kept its design rates the same and is working with clients based on budgets. Moreover, industrial design agencies like Doris Dev are finding other business opportunities to make up for reduced DTC brand spending. “There are lots of opportunities in CPG, especially in packaging,” Guerra said, given the increased retail distribution many brands are getting.

Getting scrappy at the early stage

While some established venture-backed brands are cutting back on paying for full-service product design, newer brands have the ability to keep R&D costs minimal from the start. 

That’s how Serena Advani, founder of Seadrop Skincare, approached product development before the brand launched in 2023. Seadrop’s flagship waterless, crushable facial cleanser comes in refillable jar refills that come in a cylinder paper container without plastic coating. The product took her two and a half years of legwork to source and produce. 

“I just started cold calling dozens of MRFs [materials recycling facilities] and trash collection firms to determine what gets recycled,” Advani said, citing statistics like 95% of paper in the U.S. actually gets recycled while about 30% of plastic that makes it to a recycling bin being considered contaminated and can’t be recycled. “This led me to seek paper refill tubes that are uncoated, with no plastic lining.” 

To do this, Advani started by using to reverse search for suppliers that ship into the U.S. for beauty brands, and found some U.S.-based suppliers that have small MOQs (minimum order quantity) that stockpile inventory from abroad. However, she said “these were super expensive.” 

“Scrappiness was my main goal,” Advani said. “Once I learned to speak the packaging lingo, I realized it’s a small industry where everyone knows each other and used that to my advantage.” 

Through her search through one of these stock packaging sites, Advani ended up finding an ideal air-tight glass jar to house Seadrop’s dry cleanser tablets, which happened to be a cannabis jar. “But I wanted to find it for a lower price so I reverse image-searched the photo the packaging company listed, found the supplier directly, and ordered from them,” Advani said.

There are some trepidations at first when working directly with a manufacturer on creating a product, Young said. One of the main concerns for the Outlines team was the use of technical industrial design terms to communicate with people for whom English is a second language. Another operational challenge is coordinating with people on the other side of the world. “Asking staff to take calls with China at 9 p.m., there is a line to toe,” Young said. “To make these savings, you’re adding operational complexities.”  

Guerra said the scrappy approach to industrial design is likely to stick for the time being. “Unless some tectonic shift takes place, it will be mostly bootstrapping and brands seeing what they can do with limited funds,” he said. 

Similarly, Young predicts the days of getting a check for hundreds of thousands dollars for designing a venture-backed product like razors or luggage are long gone. But saving on R&D costs will be a balancing act for startup brands. “The big question is: by passing the big step in design, are you still going to make products people love and can’t live without? Or are you making them cheaply, but with less consideration?”