Bear
Nearly ten years ago now, Andy Dunn, Bonobos’ former CEO, wrote an essay titled “E-Commerce is a Bear.” Not much has changed since then.
While we won’t rehash Dunn’s entire essay here, we will pull one relevant piece:
The problem with e-commerce is that the joy of the consumer experience, extraordinary top-line growth, and market share theft are not yet met by strong business fundamentals for standalone e-commerce players.
If you’re selling other people’s brands, you are competing not via a local group of competitors but with everyone. In this type of market, you might imagine having one large national winner. You might imagine that winner is ruthless about scale and cost, and is run by a visionary leader who with an extreme long-term focus. Such a company might not make real money for a long time — but when it does — it will be incredibly powerful.
Such a company might also be smart about acquiring competitors who, when they reach scale, become a threat. Such a company might leverage an exceptional loyalty program to further share of wallet with customers, taking advantage of operating leverage in distribution. Such a company can be expected to move from vertical to vertical, leveraging that growing share of wallet, to become the nation’s biggest store.
Such a company exists.
It is called Amazon.
Dunn goes on to outline how even the best operators—Marc Lore and Tony Hsieh—fell to Amazon. Zappos, Hseih’s company and often venerated by consumers and industry players alike, was generating $10 million of EBITDA on $1 billion of gross revenue at the time of their acquisition, according to Dunn.
We’d argue this isn’t because Amazon is a bear, or even e-commerce is a bear. It’s because commerce, more globally, is a bear.
This week, there’s been a lot of talk about the viability of DTC and, by extension, the viability of brands who have built in a DTC-first way. But these takes are just a different version of Dunn’s essay from ten years ago: that commerce, no matter how you wrap it up and present it, is hard.
While we’ll be the first to encourage critical thinking and searching for weaknesses in well-established ideas, the talk this week does neither. And we find that silly. Broad hot takes don’t serve anyone particularly well.
(Side note: Since Dunn’s essay also offers some actionable advice—as opposed to just generally dunking on an entire industry—we’d steer your attention there.)
If you do, though, want to read critical thoughts about a particular channel, you can do that without reading the week’s DTC hot takes. Instead, pair Dunn’s essay with Brian Balfour’s four-fits framework (a popular series of blog post’s in the software and consumer technology space).
Balfour, in the posts, argues that Product-Market Fit isn’t enough. A business also needs to have Product-Channel fit, Channel-Model fit, and Market-Model fit.
In DTC, we’ve largely explored Product-Market and Model-Market fits while leaving the other two fits underdeveloped and underexplored.
One of our favorite lines in Dunn’s essay is the following:
With the grizzly bear in the room, what should everyone else do: give up?
Hell no, this is America. We’re capitalists and we’re fighters, and today’s David is tomorrow’s Goliath.
If Dunn’s right, and we believe he is, then DTC will continue to grow, continue to evolve, and continue to explore more of the frameworks available for expanding the industry.