Interesting article! Perhaps I’m just jaded, but I’m quite bearish on DNVBs for a few of the following reasons :).
- Barriers to entry are too low, the proliferation of technology (i.e Shopify) has made it so anyone can start their own, driving up competition.
- Weak moats. Branding and product features are really the differentiation and they can come down fast with shifts in consumer tastes.
- Heavy reliance on paid acquisition. Viral hits are more anomaly than a sustainable marketing strategy. Increases in CAC can quickly translate into negative unit economics.
- Venture funded companies may think of themselves as technology companies and spend with that mindset, but that’s extremely dangerous. Uber can lose $$$$ on CAC because of network effects, but that’s not the case with Shirts/Lipsticks/Beds. Unit economics should be as close to positive as possible on the first transaction so you don’t bank on retention and LTV.
- These are still companies selling physical goods, so they take on risk with manufacturing and holding inventory.
- Uncertain about the quality of exits available. Not sure if the high valuations given to some of these brands make sense either.
I still think the explosive growth of DNVBs has been great for consumers and produced a ton of stellar brands and products, but I wonder if we have reached peak DNVB?
