RSE Ventures’ Matt Higgins: We’re having a little bit of a backlash against DTC

“I think it’s amazing that you can come along and challenge taboo thinking around ED, or you can go ahead and create an entirely new cereal brand, launch it right away and get scale. That’s not going away,” Higgins said on the Modern Retail Podcast.

What is going away, he added, is the idea that digitally-native companies can stick solely to the online world and survive. “That part is not true,  but it’s kind of obvious, looking back,” Higgins said. “You’re going to go where the customer is.”

Higgins talked about his prescription for Casper, Harvard Business School’s week-long course on the DTC model and how it’s time for a brand affinity metric.

Here are a few highlights from the conversation, which have been lightly edited for clarity.

The DTC backlash
“We’re having a little bit of a backlash against DTC — that the term is kind of irrelevant, there’s no such thing as DTC. It’s in vogue now to dismiss the entire space. My view is DTC is a launch vertical first and foremost, [and] that no one’s going to survive very long without an omnichannel strategy. I think that’s become more obvious and proven out. But to dismiss the entire space and say it hasn’t really revolutionized consumer goods is also not true. You had this period of stagnant innovation from 1923 to 1983 where the same category killers controlled categories — Coca-Cola and so forth. But what DTC has enabled upstart brands to do is to have an intimate conversation, one-to-one, with their customer, and bypass everything about the supply chain and about the retail chain. That’s not nothing. There is no Hims 15 years ago. It’s talking about a taboo topic to an entire group of people who were harboring a desire to address a problem but had no outlet to do it.”

No, we’re not running out of disruptable markets
“I think that innovation cycle is never going to end, and here’s why. There’s a sleepy TAM [total addressable market] waiting to be disrupted by a DTC company that launches digitally and then quickly morphs into all the typical distribution channels: retail, storefronts… that’s the evolution of thinking, this notion that you could have DTC businesses that stay entirely digitally native, and they can both get funded and exit. That part is not true, but it’s kind of obvious, looking back. You’re going to go where the customer is.”

What the Shark Tank investor considers before going in on a DTC brand
“In the DTC space, I first look to see who else is working on it and does the founder have what it takes? And then, is this business big enough to make it worth my time? I find a lot of founders bypass that question because they’re afraid of the answer. Most of the time the answer is no. If you project out the course of your life and realize the other things you’re going to have an opportunity to do, the thing you’re about to do may not be worth your time.”

Low CAC wasn’t everything
“The ability to acquire customers cheaply is not the essence of the DTC phenomenon, in my opinion. That was a tactic. The ability to create brand affinity quickly and personalization at scale is what sets a DTC apart from a company whose only ability to reach a customer is through an intermediary, which is Whole Foods.”