This is a good conversation - just over 40mins long. Extremely useful for founders managing DTC / D2C (Direct to Consumer cos) brands, or anyone interested in consumer brands / consumer tech. Kevin Gibbon co-founded and runs Airhouse, an end-to-end fulfillment service for DTC / D2C brands. Kevin’s preferred term is Digital-first brands. They want to be for shipping and fulfillment what Shopify for setting up the store and Stripe is for payments. Previously he co-founded Shyp, a consumer shipping start up which flamed out after a successful start.
Most DTC brands dont have a product moat as such. They can be easily replaced by a newer brand. He says that
Believes in the near future we will see the evolution of a long tail of sub-$20m revenue, but profitable DTC brands who are able to outsource everything other than product creation and marketing. The rest will outsourced (Stripe, Shopify, AWS, NoCode, Outsourced Engg Teams and fulfillment partners like Airhouse).
He believes more and more DTC brands will start selling direct, than sell on marketplaces like Amazon. Only DTC brands which are category leaders or are the cheapest should sell on Amazon else they will run up advertising costs to stay relevant.
One reason why you should outsource your fulfilment to experts is that there is a learning curve associated with setting up ops. It is not known that certain warehouses are better suited to certain products. If you are an apparel brand that has 200 SKUs and a return policy, then you may need to select a specific warehouse as opposed to a DTC brand in consumer electronics that ships on advance orders etc. Airhouse helps their consumer brand partners select the right warehouse as part of taking over the entire fulfillment chain.
Kevin Gibbon’s new venture Airhouse was born out of the ashes of their previous startup Shyp, which flamed out after a promising start. Shyp was a consumer shipping service - where consumers could use the service to ship any product to anyone else.
Shyp did well early on, raising $63m in funding (per Kevin he says one problem was they they raised too much in VC funding). John Doerr was on their board. Early days there was a lot of press and buzz about Shyp. They slowly ran into a lot of problems. While consumers loved it their fequency of usage was really low. Also because of their focus on consumers, they had to set up a lot of spaces near consumers. This also upped their manpower and operational costs. Additionally as it was a consumer brand, the costs of marketing were also high. Shyp did try to move into the SMB, enterprise segments. Infact they made a reasonably successful pivot into SMB, got profitable in San Franscisco etc., but by then had run out of money.
Recommends to entrepreneurs to start with what is the best fit and scale it from there than try to move into the best fit segment from an adjacent space. For example, when they were pivoting from serving consumesr to serving SMBs, they saw that SMBs ideally want an end-to-end solution - direct from manufacturer to consumer. The partner should ideally handle the entire chain. They dont necessarily want a piecemeal pick up from my space product like the consumer wanted.
Kevin advises entrepreneurs to ask themselves if they are really a VC-backable business in terms of being able to deploy the funds they raise to scale and achieve the kind of returns VCs are looking for. One learning he shares is that founders shouldn’t raise capital unnecessarily. “Raise the capital that you can deploy at this stage” he says.
What came out of Shyp’s pivot was an insight that he and his cofounder Sara had about a service that could support D2C / DNVB / Digital-first brands on their fulfillment needs. Just as Shopify and Stipe helped at the demand end, and AWS helped on infra, Airhouse would help on the ops + fulfillment end.
Re DTC products, he believes your product has to be 10x better than what is out there. But this isnt what is necessarily the practice. As a result most DTC brands are low on defensibility.
Discusses the two generations of DTC brands. The first generation was led by the success of a few brands such as RX Bar, Warby Parker, Dollar Shaving Club etc. They took a lot of dollars from VCs though at the kind of multples tech brands command. But most such brands didnt scale. They lacked both the defensibility and margins that digital-only tech brands have.
In this second wave of DTC brands, he believes that there will be a long tail of profitable sub-$20m D2C brands, thanks to outsourcing a lot of functions like manufacturing, distribution, infra or even tech (thanks to no code, or outsourcing dev to tech shops etc). The two key functions the DTC brands will need to focus on will be product development and demand generation (marketing). Everything else can be outsourced per him. He also thinks the days of raising a ton of money for a D2C. Because it is very easy to copy a DTC brand, they have weak product moats. The long-term success of DTC brands depends on their ability to take advantage of network effects - like Peloton. Are all of your friends out there?
He recommends that DTC brands not sell through amazon or other marketplaces, but will acquire consumers directly. Unless you are a category leader or lowest price seller, you should not sell on Amazon / marketplaces, he says. Else you will spend on advertising trying to come up the page.
He also recommends to DTC brands to not use FBA / Fulfilled by Amazon. He says the lack of personalization and customization will hurt brands. He says interestingly that there is a lot of differences in warehouses - a warehouse for a 2k SKU apparel co is different from that of a co that handles 10 SKUs of a home automation co. Certain warehouses cannot handle returns, large SKU sizes etc. It is not one size fits all as FBA is.