What CPG Brands Can Learn from Silicon Valley-type eCommerce Startups

Posted on April 17, 2019

(This is the second article in a four-part series on CPG eCommerce. The first defined the conundrum of CPG brands competing in an Amazon / Walmart dominated world. Upcoming articles will cover eCommerce data analysis and describe the digital tool box required for success.)

It boggles the mind that Dollar Shave Club was able to disrupt the business of an established 118 year-old company like Gillette… but it happened. And it’s happening again and again to a different 800 pound gorilla seemingly every week.

So what’s the secret of these eCommerce upstarts?  

It’s simple — nimble consumer eCommerce startups are able to topple legacy brick and mortar competitors because of their superior ability to test and learn quickly. It’s hard to iterate physical products made of atoms that are placed on shelves, but easy to iterate digital pixels.

Wildly successful digitally-native eCommerce brands like Dollar Shave Club, Honest Company, Glossier and many others utilize a rapid test and learn cycle to design and market products that fly off their virtual shelves. Rather than make educated guesses at what consumers want, these brands collect hard data and iterate the product and their messaging based on the results. It takes hours, not months, to gather data, learn from customers and make changes to the offering.

I’ve built one of those brands as well — my previous company grew a $100 million dollar eCommerce brand in under a year. After amassing eleven-million email subscribers and eight million Facebook fans in six months, we sold the company to a private equity firm at a nine-figure valuation, disrupting several 100-year old companies in the process.

While all traditional brand managers know that testing and learning is important, many fail to realize that the speed and agility with which they incorporate customer feedback is a much better indicator of success. With a toolbox like the one we and other Silicon Valley-type startups have developed, testing virtual pixels on a websites is several orders of magnitude easier and faster than testing physical products made of real atoms of store shelves.  

Military strategist Colonel John Boyd explained how agility can overcome raw power in air combat. In his work, Boyd coined the term “OODA loop.” An OODA loop is a cycle of observing, orienting, deciding, and acting. The pilot whose aircraft allows them to perform a greater number OODA loops in a shorter period of time will usually win the battle.  

Just as Boyd realized that an agile, quick plane can overcome a more powerful opponent in a dogfight, Dollar Shave Club and other online startups are able to launch, learn, and iterate much quicker than their more powerful competitors. All things being equal, the brand that runs the most test and learn cycles in the least amount of time will win the war for retail supremacy. In eCommerce, a properly constructed customer feedback OODA loop will enable a test and learn cycle that is light years quicker than what is available in the physical retail world. Simply put, agility is the weapon that startups are using to dethrone slow moving dinosaur brands.

This technique doesn’t have to be the sole dominion of startups, however.

While a robust DTC eCommerce business is certainly capable of propelling new consumer brands to the fore, larger CPG dinosaurs like Procter and Gamble have largely ignored DTC eCommerce.  

I believe this is short-sighted.  

They argue that a few million dollars of DTC revenue is not worth their time.  They are, instead, looking for multi-billion dollar revenue opportunities rather than the $10 to $100 million opportunities that DTC eCommerce has been successful at creating ad nauseam.

You see, DTC eCommerce is not solely about the revenue. It’s about the opportunity to test and learn.  I’m not alone in this opinion — in a recent A16Z podcast, venture capitalists Jeff Jordan and Ryan Caldbeck propose a similar role for test and learn DTC eCommerce by CPGs.

I believe that a second, larger wave of billion-dollar consumer brands will launch through DTC eCommerce over the next half decade.

While these digitally-native brands may start online, this new breed of consumer brand startups will be able to parlay their online success directly into the larger traditional retail market. Just as Harry’s and Casper leveraged their online success to show up on end caps at Walmart and Target, many more brands will follow suit. After using digital tools to hone their product and messaging, their product is almost guaranteed to fly off retail shelves as well. Traditional retailers like Walmart, Target, and Safeway realize this too. These days, online traction is a huge plus for new products seeking to gain valuable in-store shelf space.

Each of these digitally-native brands share another trait: they have all invested millions of dollars into building a nimble eCommerce technology platform to grow and support the business.  My company built one of these toolboxes as well. Like many of our eCommerce peers, the key to our success was the custom-built eCommerce platform we used to rapidly find product market fit, acquire millions of customers, then maximize the lifetime value of our new customers.

Interestingly, Walmart has seen the light — the first article in this series covered Walmart’s ambitious plans to launch literally dozens of these new DTC eCommerce brands every year.  While their acquisition of Jet.com attracted the most press, Walmart’s acquisitions of Bonobos, Moosejaw and several others opened their eyes to the value of DTC eCommerce and gave them the expertise to pursue their far-reaching strategy.  Using the expertise gathered in their string of acquisitions, Walmart has assembled their own lightweight eCommerce platform to run their startup DTC brands. This tool box enables them to launch fast and iterate quickly just like their startup brethren.  

The next article in this four-part series will discuss data, and how it can be used. The final article in the series will detail the required tools in the tool box of an aspiring DTC eCommerce brand. If you find it daunting, perhaps our Engine team can help?

Utilizing the data gathered while building our own $100 million brand, Engine helps others easily create, test, and scale direct to consumer brands. Rather than spend millions of dollars building you own toolbox, Engine is available at a fraction of the cost.

If I can help or if you want to learn more, email me — john@enginecommerce.com