How to build a high growth DTC brand

Hey everyone, 

Welcome back for another bite to chew on. 

Not too long ago, we cautioned against becoming obsessed with being a high-growth brand. 

Every business is different. And many companies can be good ones without posting double or triple-digit topline growth rates every single year. 

However - 

If you’re a founder or an investor who is only interested in the opportunity to grow big and grow fast, then you’ll need to find something with a handful of key ingredients to make it happen. 

Sure, growth rate and profitability will partially depend on your skill, dedication, and fortune as an operator.

But if your brand doesn’t have at least some of the factors we’re going to talk about today, then you’re never going to be a rocket ship.

On the other hand, the more of these boxes you tick, the more runway you’ll have to scale to the moon.  

On the menu

• Macro factors

• Product factors

• Brand factors

Macro factors

Find a big TAM 🏔️ and ride a wave 🌊

The first two things to consider include the size of your total addressable market (TAM) and whether your brand can be part of a larger trend. 

Selling into a big TAM is key for a few reasons. 

First, because it’s easier to grab a small piece of a very large market than to dominate a large percentage of a smaller one. 

If your global TAM is over $200 billion (as is the health and wellness supplement market), then accessing just 0.1% of that market = $200 million in revenue.

That’s a very big number despite only appealing to a very small percentage of your target audience.

Second, a large TAM gives you somewhere to grow, so to speak. 

If you find product market fit and gain some traction, then you can pour your efforts into growth without worrying too much about saturating an audience.       

It also means you probably have viable regions outside of the United States (if that is where you start selling), which could become new growth pockets as you scale. 

But beyond TAM, it also helps to ride a wave. 

In finance terms, you want your relevant industry to have a healthy compound annual growth rate (CAGR), because it means the market itself is reliably getting bigger. 

So for the health and wellness supplement category above, the CAGR is projected to be +6.5% over the next decade or so, with the market breaking $360 million by 2030.

Your 0.1% opportunity has ballooned from $200M to $360M.

In more qualitative terms, being part of an exploding trend will add rocket fuel to your brand.

Think of the recent “Stanley cup craze”. It increased Stanley’s tumbler revenue to $750 million from $75 million (10X!) in a very short period.

@taylorwingg

I get an instant headache #stanleytumbler

But, this trend also drove increased interest and buying behavior in the portable drinkware category in general. 

So if you were, say, Simple Modern, then you probably didn’t get the bump that Stanley enjoyed, but the entire category grew and added something to your topline revenue anyway.

A “high tide raises all boats” as they say.

Let’s step outside of DTC for a second and consider the tech industry. 

Twenty-five years ago, social media wasn’t really a thing, and certainly didn’t have a large, established TAM. But as the trend grew and matured, the social wave minted an entirely new generation of billionaires. 

Product Factors

Differentiation, and high repeat purchase vs premium or luxury 💍 

It goes without saying that your product or is going to need to stand out from the crowd. 

If you have targeted a large TAM, it means your target is already filled with competitors and established incumbents. 

In the early days of DTC there were a lot of arbitrage opportunities -

You could build a business around dropshipping or other commoditized products if you were really good at making landing pages or Facebook ads.

Arbitrage doesn’t lead to a sustained advantage, though.

You need real differentiation to create an enduring growth path for your company because any traction you get can be competed away pretty quickly.

The best, most obvious way to do this is to make something that is 10X better than the existing options.

Some kind of core innovation that will naturally gather steam with your target audience. 

Rather than re-inventing the wheel, though, sometimes differentiation is about finding a new angle or re-framing an existing product category in a new way. 

At Obvi our key insight was all the incumbent brands in the health and wellness niche we targeted were some mix of boring, cold, clinical, or bland. 

Getting healthier and feeling better with these options seemed like a chore. “Why can’t H&W supplements be fun, playful, and TASTY?” We asked ourselves when starting out. 

Turns out - they can. And a lot of people really love this re-frame of an existing category. 

Beyond differentiation, your offering needs to be at least one of two things:

• High re-purchase rate (big lifetime value) or 

• Premium/luxury (big average order value)

If your product doesn’t generate enough LTV or if it doesn’t have a high AOV, you’ll find it very difficult to generate enough profitable momentum. 

Thanks to the rising costs of acquisition, your product needs to have enough margin (be it in the initial purchase, or within 60-90 days of the first purchase), so your brand can grow.

Because otherwise - your company just isn’t making enough of a return that you can re-invest in rapid growth. 

Tool of the Week

Let’s talk about a different kind of return for a second - effortless, incremental profit. 

I know it sounds impossible. Nothing is easy in DTC these days, right? 

We were skeptical when we heard this pitch from Aftersell too.

After they were acquired by ROKT, they came to us and asked if we wanted to try their Network Offers. 

We didn’t really know what that meant, so they explained it like this:

Let’s say we just sold collagen to someone who wants to get healthier.

Now BigEnterpriseBrand wants to advertise to that same customer.

Instead of the big brand buying ads on any of the major ad platforms, they can allocate some spend to the Obvi site instead. 

Aftersell then works hard to match the right user to the right offer — making it a win/win/win for everyone.

The big brand gets a targeted ad, Obvi gets incremental revenue, and the user gets a better deal on something relevant to them.

Right out of the gate with Network Offers we hit $0.45 in pure profit per transaction - about the same as a $3 increase in revenue (that’s a 15% increase in AOV in our case).

Keep in mind that BFCM is about 3 months away.

Three months until the holiday shopping season - a time when your transaction volume spikes 🤑

So there’s never been a better time to get Network Offers going in your post-purchase UX. 

Find out how to add Network offers to your site for free here →

Now back to how to build a high-growth DTC brand…

Brand factors

Moats and leverage 🏰 

If you’ve found a viable market and you’ve developed a product with both a competitive advantage and scalable margins, then your next mission is to lock in your growth with moats and leverage. 

Obviously, competitive advantages won’t mean much in the long term if they are easily copied or overcome by your competition

If you can’t defend your advantages as you get established, other people will crowd into your opportunity and compete away your margin. 

Intellectual property (IP) is a quality moat, but probably not enough on its own. 

Seriously, have you ever tried to defend a patent against a multi-billion dollar conglomerate that has decided it wants to copy your offering and squeeze you out of the market?

Have fun! Hope you love paying lawyers. 

Nope, you’ll need other moats or significant leverage to stave off competitors. Some examples:

• Network effects (usually applies to tech)

• Customer lock-in / high switching costs

• Distribution (usually favors incumbents)  

• Proprietary data 

• Category ownership / first mover advantage

But the best one may be brand. 

You can build a killer moat if you create a brand that is well-liked and well-known.

A brand with high trust and high perceived quality can be very difficult to overcome. 

Think Nike, Apple, and Coke.

Anyone can make computers/tech gear, shoes, and soda, but these are locked-in, global enterprise brands that have dominated for decades.

That seems like a big ask for new or small DTC companies, but you can still execute this on a smaller scale -  

Build a movement (join the Revolution!)

Create a community around your offering

Provide industry-leading customer service (the Zappos method)

Don’t just sell something to someone.

Establish an emotional connection between your brand and your audience. 

Out of all of the KPI’s we obsess over in DTC, Net Promoter Score (NPS) might be the most important if you want to sustain a high growth rate.

Bring it all together

Want a high-growth brand? Here’s your checklist

• Large TAM ✅

• Rapid growth trend or category ✅

• Differentiated product ✅

• High LTV

• High AOV ✅

• Clear moats ✅

• Powerful brand ✅

We have ticked some of the Obvi’s factors in the above checklist for illustration purposes. 

As you can see, we don’t check all of the boxes (few do), but we could never have grown to $40M in 40 months without many of these ingredients in place.  

As mentioned in the introduction, you don’t necessarily need to be a high-growth brand to be successful or fulfilled as a DTC founder. 

But if high growth is your mission, you need to understand these factors and how you’re going to satisfy as many of them in order to have a shot. 

One last thing

EcomNorth is coming up. It’s Canada’s biggest e-commerce conference of the year.

Chew on This will be there and we’re holding a Founder’s Reception on September 6th at 7pm in Toronto.

So if you’re going to the EcomNorth and you’re looking for some good food & drink (and, you know, to hang out with some of the best founders and operators in biz)…

Make sure to click here, sign up, and get ready to mingle.

All the best,

Ron and Ash