Lerer Hippeau’s Graham Brown on what’s next for DTC unicorns

It’s a big milestone, but, according to Lerer Hippeau partner Graham Brown, all it signifies is a brand is on its way to building a long-lasting business. Brown spoke to Digiday about the precautions of unicorn companies, how pitches have evolved as the DTC brand category has matured, and what categories he’s focusing on now.

After a brand in your portfolio becomes a unicorn, what comes next?
It’s less about the valuation and more about the durability of the brands they’re building and the stripe of the businesses. It’s a measure of success, and we see it as an indication that these businesses have the potential to dominate their categories. They have a lot of runway ahead of them. For Glossier, you look at beauty and cosmetics and the amount of spend there. It’s a wide open market, and you have an enthusiastic audience and great community and really strong brand. Those are the key components that help create long term, durable value.

For Casper, there was an obsession with customer experience and that was crucial. All these companies we’ve invested in that have taken off and grown really quickly — the unicorn club brands — they all have asked the question: Where are the broken customer experiences? How do you solve them in a novel and scalable way and then when you think about that playing out, and how is that defensible over time, and what’s the end game? That’s what they’re figuring out.

Is there a downside to such a big valuation?
In any category there are going to be winners and the folks that don’t get to that next step. In part, it’s how good your product is, your brand, your continued innovation. Then it’s how do you roll out across channels and in retail partnerships. A big part of it is if you can go from $500 million to a $1 billion-plus business and figure out how do you sustain the growth over time. Companies get into trouble when they raise too much money and can’t grow into their valuation. Retail and e-commerce has its own set of challenges, and you have to think about how to grow profitably. You love to see profitability.

Not everyone’s going to build a Lululemon, but you want to build a high-growth, category-dominant, profitable brand and then you’ll trade at a premium. But you have to continue to grow profitably, and to do that you need to keep innovating on product.

How have pitches changed from DTC brands over the years?
We want to know upfront why your product is better than what exists today, how you sell it in an innovative way, and your competitive advantage. Social marketing is no longer a competitive advantage. Existing DTC companies already do that very well. So what are the areas that people aren’t thinking about yet or where the team has unique insight? Whether it’s local advertising through Nextdoor or approaching podcasts or local media in a different way, there are lots of different ways to think about brand advertising that can be your unfair advantage.

What are you interested in now?
Personalized products — if you can personalize a product experience to a customer in real time, that’s valuable and interesting. Companies that empower customers to sell their product — not in an multi-level marketing way, but with ambassadors. Emerging trends that are interesting. Then there’s CBD-driven wellness, there’s a lot of interesting things happening there, and you can come in at the beginning of a category that’s emerging and get market share. — Hilary Milnes

CAC Watch: Nextdoor
A marketing strategy heavy on social media channels like Facebook doesn’t inspire the same confidence it once did. As a result, local community platforms are gaining steam for startup brands looking for cheaper and more efficient places to buy ads and lower customer acquisition costs. One tool brands are eyeing: Nextdoor, a social media network for neighborhoods.

As Kerry Flynn pointed out in February, Nextdoor’s appeal to brands is offering targeted access to real people (Nextdoor users all have verified addresses) in specific locations. On the platform, neighbors are always on the hunt for product and service recommendations, so sliding in some sponsored content is a natural next fit. With a minimum spend of $25,000, brands can stay on budget and reach a targeted, engaged audience.

Framebridge’s vp of marketing Matthew Carrington said that as the brand looks to differentiate its marketing spend away from Facebook, and lessen its reliance on the platform, it’s used Nextdoor to get in front of users who are in the market for framing services or just moved to a neighborhood, and are in the process of decorating a new home. At 40 percent, Facebook still accounts for the majority of Framebridge’s ad spend, but the company brought that down from 80 percent in an effort to diversify. It’s spent on Pinterest and direct mail, as well as tools like Nextdoor, which Carrington said is a small but highly engaged customer pool.

The company has been flexing its ad business in response.

“We tripled our ad business, not just because I’m a genius and have a team of geniuses. It’s more that we dramatically evolved the ad product to be frictionless. Before we were a walled garden and not taking third-party data, but now we do CRM ingestion and lookalike modeling,” Nextdoor CRO Lauren Nemeth told Digiday. — Hilary Milnes

Numbers to know: Grocery delivery
JDA released a new grocery trends report that surveyed 1,000 customers on their grocery delivery adoption. Here are the takeaways:

• 50 percent of customers that have tried delivery services use them at least once per month.
• 19 percent use them every week.
• 32 percent of customers aged 18-29 have tried delivery services, compared to 19 percent of those 45-60.
• 75 percent of shoppers said they shop at more than one grocery store for weekly groceries.

3 questions with Tom Nolan, chief marketing officer of Kendra Scott
Kendra Scott started out as a wholesale brand in 2002. Today, it’s a $1 billion business, with nearly 100 of its own retail stores, more than 1,000 wholesale partners, and an e-commerce site. The company also hosted 15,000 events last year. Kendra Scott’s chief marketing officer Tom Nolan spoke with Digiday about how the brand is using predictive modeling and customer data to better track the purchases customers make across all of its channels.

What’s the biggest challenge when it comes to managing customer data?
Our customers come in through all different areas — wholesale, retail, and e-commerce. And I think one of the challenges has been that we collect a lot of data from a lot of people through the different areas. Aggregating it all together and making sure it’s clean data and not duplicative is a challenge, I think to any omnichannel business, including ours.

Kendra Scott hosts a ton of events. How do you pull customer data from those?
It was critical to our business when we started. Kendra felt really strongly about doing events that give back, and as the company has gotten bigger and our velocity has grown and gotten faster, so have the events. So capturing data at the event has been a challenge for us, as well as attributing dollars. Is it because of the event or is it because people came into the store and saw something going on? We know that someone who comes in through an event has a really high lifetime value as a customer, because they get to see the brand come to life. Categorizing people [who come to events] is really important and something we’re working through right now.

What are your other priorities in terms of data strategy this year?
Marketing is making sure you’re talking to somebody at the right time in the right place. So it will be a priority for us I’m assuming forever, and a key priority is for us to get better at being more efficient about collecting [data], being more efficient putting it to work. The big thing about this, too, is we don’t want to be annoying and intrusive. There’s a fine balance I think in marketing too much. We’re not selling things people need, it’s things they want — so how do we do that in a non-intrusive way, that doesn’t feel creepy? — Anna Hensel

What we’ve covered
Agencies in the DTC era: DTC brands are pushing agencies to rethink their payment models.

Blood Bath: What went wrong at Bed Bath & Beyond?

1-800-DTC: How 1-800-Flowers is competing against upstart brands.