The Diversification Dilemma: How to Grow Smarter

Hey everyone, 

It’s time for another bite to chew on. 

Today we’re going to look at diversification because it’s something that is super important for scaling eCom companies these days.  

Not too long ago it was much easier to get to 8 or 9 figures through DTC alone. 

One sales channel. One marketing channel. A hero product. A direct relationship with your customers. Boom, good to go. 

Unfortunately, things have become more complicated over time. 

Competition is tougher. 

Money is more expensive. 

Marketing is more difficult.

CACs continue to rise.

So operators are out there looking for new ways to expand their reach and grow their revenue because the rifle shot of: 

Shopify + Facebook + cheap funds = $$$ doesn’t really exist anymore. 

Diversification comes with its own risks and challenges though. 

We have stubbed our toe on many of them as Obvi has expanded beyond our core sales and marketing channels. 

Today we’re going to go over what to be aware of when it comes to diversification, both in terms of opportunities, but also issues and risks.

On the menu

• Marketing diversification  

• Sales channel diversification 

• International diversification 

Marketing diversification

“Moving beyond Facebook” is probably the first kind of diversification a lot of DTC companies consider. 

We saw this a lot in Q1 and Q2 this year, when Meta performance tanked for so many brands. Suddenly a lot of people understood just how dependent they are on Facebook to grow (or even maintain) their topline. 

Here’s the thing - Meta is still king of eCom castle when it comes to ad platforms. It is the most powerful direct-response marketing engine the world has ever seen. We still put most of our budget into Facebook. 

But there’s no question it has become more difficult to profitably scale on Meta over time. 

And it is definitely risky to put all of your eggs in one basket. If your only lever is Facebook ads, then you’re completely tied to Zucks algo and whims. If FB blows up one day, so do you. 

So, we get it. It’s a big reason we’ve invested in making TikTok Shops work this year. 

But if you’re a brand looking to significantly diversify your marketing mix, you need to be aware of the hurdles and headaches that come with it…

Let’s categorize them as: 

• The ops stuff

• The executive stuff

The ops stuff

Every new marketing channel has its own quirks, dashboard, content, demographics, and optimization tactics. 

You can’t simply duplicate what you’re doing on Facebook and map it to Youtube or TikTok, for instance. 

Sure, there are some fundamentals in terms of messaging, audience, and awareness/funnel that might carry over, but in the end, you’re going to have to become an expert in every marketing channel you sink your time and money into. 

• What content works best?

• What KPIs are relevant?

• How do you build and adjust campaigns?

• What part of the funnel is it targeting?

• Are you deploying dedicated landing pages per new channel?

So some of your foundational work may port over to new channels. But a lot of it will be new and require dedicated resources.

Leading us to…

The executive stuff

This is where things get really hard.

At the very least, your marketing team is going to become busier and have to up their new channel IQ. You will probably have hire a vendor or two.

But the real challenge is evaluating your efforts in terms of resource and budget allocation. 

An example - 

Let’s say you decide to invest heavily in Google. Specifically YouTube, because of the huge amount of users and engagement it gets. 

Now you have to consider that YouTube is not great at direct attribution because users are much less likely to click on ads. Its last click ROAS tends to be pretty lousy, so can’t 1:1 compare it to your Meta performance. 

Maybe YouTube is better positioned as a top-of-funnel awareness channel for your brand? So you shift your KPIs to organic traffic and brand search. 

They go up after a few weeks of YT ads. But…this is correlational, not causal. Is this a random spike caused by something else? A seasonal shift? How much do you credit do you give to YT specifically?

This thought experiment gives you a small window into the executive thought process that must come with marketing channel expansion. 

It not only means more internal resources dedicated to production and management, but also developing a model for determining its true impact on your business. 

What to do:

• Understand your knowledge, capacity, and execution gaps when it comes to new marketing channels. Invest in the best education, people, or vendors you can afford.

• Theorize how the new channel will impact your marketing mix. Determine how you are going to measure success.

• Commit to a certain test budget and length of time. Make sure to give the new channel space and opportunity to prove out (or not). You probably aren’t going to get it right immediately.

Diversify your marketing with SARAL

Here are some TikTok stats that made us sit up and take notice recently… 

30% of TikTok’s user base is now 35+. It used to be all teens, but Gen X and Boomers have jumped on the TikTok train. 

That’s 470+ million users (and growing). This demo shift convinced us to give TikTok Shops a try this year. 

And we…didn’t get anywhere. At first. 😥

Thing is, it wasn’t because of the audience. It was because of ops.  

Trying to manage creators natively through TikTok was too painful. We had to layer it on top of our existing efforts, so we couldn’t pay enough attention to really get traction. 

We only got a lift-off after we integrated TTS outreach with SARAL. Here’s why:  

• Find the perfect creators → Searching for the right TikToker can feel overwhelming. The advanced filtering tools allowed us to quickly discover creators based on niche, demographics, and past performance. 

• Streamlined outreach & negotiation → Saral simplifies the outreach process with bulk messaging features, like personalized emails at scale. It also has this “fair-fee” metric so we can avoid overpaying for partnerships. 

• Relationship management → Their RM tools help keep track of communications and contracts. It’s easy to get lost in the weeds with creator administration at scale, so this is a big value add for us. 

The results? We’re still Meta heavy, but Obvi is investing more into TTS with confidence, now that we’ve smoothed out outreach and management. 

TikTok isn’t for everyone, but it’s one of the first channels DTC or CPG brands should be looking to diversify to outside of Facebook ads these days. 

If you’re curious about TTS, we think you should give SARAL a try. Let them know we sent you and they’ll take extra care to get you set up right ;)  

Sales channel diversification

Driving people to your Shopify store just keeps getting harder and more expensive. 

So eCom brands have begun to move to major retail and digital marketplaces to help with distribution. Go to the place where your customers are already shopping, right? 

Makes perfect sense. 

But it’s going to cost you. In margin. In effort. And in brain damage. 

Because these are completely different beasts than your online store. 

We noted recently in our piece on fine-tuning your P&L that having different major sales channels is like having separate mini-businesses inside of your company: 

• They have unique costs and operational demands 

• They have their own profit margins, cash flows, and cash conversion cycles

• They have major logistic challenges and supply chain implications 

• They may even have their own, dedicated marketing channels

Expanding your sales channels will impact all areas of your business, but let’s consider marketing and finance this time. 

Marketing stuff

If you thought performance marketing was tough with one sales channel, wait till you have two or three. 

Because now you’re capturing in-market demand in a variety of ways, most of which have opaque (or no) attribution.

Your Meta ads might drive people back to your Shopify store, but is that user looking you up on Amazon a week later and buying from there? Maybe they see some influencer content on Instagram and then find you on a Walmart shelf?

All this to say, there’s a good chance adding more sales channels is going to lower your reported in-platform sales and increase your CPA on Meta. 

If this is a KPI or your source of truth for ad spend efficiency, you’ll need a way to “price in” sales made elsewhere. 

Of course, you aren’t just marketing in digital if you’ve moved to a bricks and mortar/retail distribution channel. 

All the tactics and infrastructure you’ve built to find and nurture customers - from direct response ads to website popups and email flows - are kind of moot. 

Now you have to understand the world of packaging design, shelf placement, planograms, and point-of-purchase (POP) materials. 

Oh yeah, you may need to add distribution partners and sales reps (boots on the ground) too. 

Consider - when it comes to retail your product is moving from an environment of rich digital content, proactive customer service, and deeply motivated operators to one where indifferent employees are stocking it on shelves with a thousand other things.

Suddenly your packaging design matters a ton. It’s your primary salesman on the floor. 

• How well does it stand out amongst your competitors?

• What’s in the box? What does the customer get? 

• Does it quickly and effectively convey your value prop? 

Those are just the basics. There’s an entire world of retail merchandising to think about once you’ve stepped beyond digital. 

Finance stuff 

We know you have priced your products so they can absorb things like free shipping or periodic discounts (we hope you have, at least).

But have you priced them to absorb the amount of margin things like Amazon or major retail demand? 

BTW - Keep in mind that you may have to change your price to be competitive in a new environment. 

This happened to us when we first launched in Walmart and found that our premium product was a little too premium priced. We had to adjust down to get unit sales per store up and maintain our shield space.  

The most seductive aspect of big sales channels like this is the impressive topline revenue they can deliver. 

More volume! Huge POs!

But an entire ecosystem of costs and expenses lurks just below the surface of those vanity numbers.

The average Amazon referral rate is about 15%, but that’s just their rake from selling the product on their platform. It doesn’t include onboarding, transportation, returns, warehousing, shipping, or marketing expenses. 

When it comes to major retailers or distributors, negotiations usually start around 40% off your current retail price and go up from there. You’ll also have to contend with EDI integration costs and expenses associated with supply chain management. 

Send the wrong bulk shipment on the wrong date? Well, it’s going to get rejected. And they’re going to charge you for the screw-up. 

Oh yeah, and they want net 90 terms. 

Do you have a rep group or sales team? Add another 5% commission on top over all your costs. 

Scared yet? 

You should be if you don’t have your financial house in order. Major new sales channels will rain down all sorts of new costs and expenses on your business. 

Executive stuff

Always keep in mind why you expanded beyond your online store in the first place - for access to your customers. 

Powerful distribution costs a lot for this reason, which is why Walmart and Amazon can push most brands around. They have the shoppers.

But what you’re looking for isn’t big revenue numbers. It’s incremental growth - that’s net new demand. 

These channels should be helping you make sales you otherwise wouldn’t be making. Otherwise, you’re simply cannibalizing your in-market customers by shifting buyer behavior from a high-margin channel (your store) to a lower-margin one.

We learned this lesson the hard way. When we first went to Walmart, we wanted to make a good impression so we started including “find us at Walmart” type CTA’s in our retention flows and campaigns. 

Major mistake.

Sure it drove some sales and foot traffic for Walmart, but it harmed our own efficiency and online sales. 

In a way, we were spending time and money to land the customer and then sending them to Walmart. We were still absorbing the CAC of a DTC sale, but getting much less profit (and a much worse cash conversion cycle) in return. 

International diversification

If you’re a US-situated brand, this may not be relevant for you given the size of the American market. For many DTC companies, the US-TAM is more than enough. 

But maybe your niche isn’t huge and you need to reach beyond borders to grow. Or maybe the opportunity is just too good to pass up if you’re in a global category. 

Plus your CAC and competitiveness in your niche in the US can be so high that it's close to impossible to grow --- Unless you’re really, really good. 

If you’re in that position, international offers significantly cheaper CPM's and therefore CAC's for some brands, where they can get a lot of their initial traction and growth. From there you can use the learnings and cash to fuel your US growth 

So this opportunity CAN BE (not always) easier than the US.

The challenges of this kind of expansion are a little more obvious but no less aggravating. The big ones include:

• Supply chain

• Taxes & compliance

• Language & culture

Supply chain

Right now you’re probably set up to shipping parcel across the contiguous US and maybe bulk freight as well. But are you prepared to stretch your logistics all over the world? Manage inventory levels in Germany and Australia as well as Salt Lake City?

Taxes & compliance

Different countries are filled with their own red tape, border import policies, and general bureaucratic runaround. Fighting to understand all of this stuff can become a full time job. 

Language & culture

If you stray beyond English speaking, western cultures you’ll likely have to re-design all of your marketing materials and packaging. 

Executive stuff

International was something we basically avoided for a long time due to these factors. It’s only recently that we have begun to seriously venture beyond the US and see real traction.

In part because we have found some killer partners to help us get there.

And in part, because Obvi has begun to mature as a brand and a company, so we are confident in our ability to tackle the opportunity. 

Sum it up

Diversification is a must these days if you’re a high-growth or high-ambition DTC company.

Done right, you can lower your dependence on Meta or a single sales channel for the growth and health of your business. 

But there are also major costs and risks.  

The complexity of your business and operators will go up. 

You must carefully manage your finances so understand the true impact of new sales channels.

You will have to evolve the way you think about your business and anticipate the second and third-order effects diversification will bring. 

And you have to be confident that your supply chain and operations will be able to lean into the new opportunities, and not be burdened by them. 

Before you go…

We recently sat down with Ned MacPherson of Power Digital to talk about the value of losing.

Wait, what?

Sounds wrong, but we go over how learning from your losses can help refine your UX, improve customer relationships, and fuel innovation.

So if you’re ready to move beyond trying to win with just “best practices”, be sure to check it out. 

All the best,

Ron and Ash