How to Rethink your DTC Strategy in 2023

0:00What I think we will see is people will be more thoughtful about the products that they bring to market, understanding that a lot of categories are crowded or saturated. and so we'll maybe see better innovation in the products that come to market.

0:41Ashwin Krishnashwamy. He's a DTC expert, entrepreneur, and TikTok personality, and he's the founder of Oklahoma Smokes, a nicotine-free and tobacco-free cigarette company, as well as Forge, a branding agency based in New York. Ashwin, thanks for joining the show. Thanks, Adam. I'm happy to be here. What do you think the biggest myth is in the world of DTC startups when it comes to growing a brand and getting that brand going from zero to one? Yeah, I think there was this over indexing, and I think there still is on branding and aesthetics. And this is interesting, because I also come from the world of branding, I have a small kind of branding agency.

1:20There are companies that launched in the mid 2010s that went on to become very successful from differentiating based on aesthetics, taking a traditional category, call it mattresses and saying, hey, we're going to make a mattress brand for a more modern consumer, for a millennial consumer. And that became a kind of model of success. And the model was also D2C, but it was like heavily laden on, you know, the right kind of branding supporting that. And I think that kind of thinking has continued to carry through where people are starting new brands today and saying, hey, if I just differentiate based on aesthetics and look, I can start an apparel brand and it's going to be successful.

2:02And I think Like one of the things that not enough founders are thinking about early on is distribution and customer acquisition. And what are their channels going to be for distribution? Because that is the kind of true make or break for the business. It's not just the idea and the brand, but it is that kind of customer acquisition process. Yeah, and I think you've mentioned this, right? You've said, quote, distribution is so underappreciated. And when you're thinking about a business, when you're thinking about a startup, people should be thinking backwards, as you say. Is that right? A hundred percent.

2:34Take, for example, just a category of, say, you want to make a canned sparkling beverage, and maybe you want to have some kind of digestive aid kind of ingredients in it. And you say, hey, you know, I had bloat and this sparkling beverage with ashwagandha has really helped me, and therefore I want to commercialize it and bring it to market. That is fine and good, but you should know day one that that's going to be a business that is sold through retail. And you need to understand the business model for that, too, that your margins are probably going to be pretty low out the gate. So you probably need some capital for that.

3:06It's not going to be a business that you can spin up and say, hey, I'm going to build it off of Shopify and expect people to purchase a 12 pack of your beverage and that to make sense to ship. So kind of food and beverage products have a very different distribution channel than maybe a candle brand, which lends itself really nicely to building off of D2C. And you can scale a really nice D2C business off of candles or home goods. And so I think it's underappreciated because people always start with the idea first, but they need to understand based on different categories, hey, distribution and capital models look really different.

3:42Okay, so I want to come back to something you said about this boom of D2C brands. circa 2010. You know, the environment, at least the environment around customer acquisition was a lot different back then. CPC and CPM rates were lower. Facebook and Instagram way less mature. I don't even know if Instagram existed back then. Certainly Facebook did. And I remember a lot of brands had success buying media on Facebook. Now we're at a point where it feels like those platforms are totally saturated, totally mature. You've got a rising CPC, CPM environment. and brands are kind of looking at where to go next in terms of customer acquisition.

4:21So what's been your experience as you've sat on the agency side, but also as you've incubated a lot of these brands yourself? Yeah, it's funny. There was this pendulum swing towards D2C heralded as the new model for selling product. It is still a great channel. Underlying that channel, you have to have a great product and a great offer and so on. Now the pendulum has swung back a little bit to everyone saying, hey, you know what? no, we have to be an omni-channel brand. We have to have retail presence. But it's funny because then I go out and speak to all of these brands that are in retail and I say, hey, what's your experience in retail?

4:53And nine out of 10 of them say, hey, it's a nightmare for these 15 reasons. You get paid on net 90 terms. You have to deal with four different operators, your distributor, your retailer, your sales reps, your merchandisers. Once you're in stores, it's about getting on shelves and making sure inventory turns. So logistically, it becomes a lot harder. And And it's a funny pendulum shift because people say, hey, customer acquisition on the D2C side is hard. So let's go omni-channel and that's going to solve our problems. It's like, no, it's not going to solve your problems. It opens up a market, but you're going to have a different set of problems that are equally challenging.

5:29I think everyone looks at Facebook and Meta and paid search and say, okay, this is going to be a staple of our business. And if we can acquire customers for 30, 40, 50, 60 bucks, but we're selling a product that has enough margin at a high enough average order value, okay, great, we can make that happen. But a lot of brands are getting smarter on, hey, how can we use organic to acquire customers? How can we use TikTok organic to acquire customers? How can we use influencer gifting or micro creator gifting to build awareness for our product? I'm seeing some brands that are going kind of back to old ways of marketing, old as in it's not directly going to drive sales for your product, but you create demand for kind of adjacent categories.

6:14Maybe you start a podcast. There's a lot of brands getting into the podcasting space saying, hey, we're going to be a health and wellness podcast. It just so happens that we also make supplements and nutrition products. And so I think all of these shifts, all of these changes in kind of like spaces getting saturated or customer acquisition channels getting saturated are forcing brands to think more creatively and more long term about how to acquire customers and how to build a business. I'm speaking with Ashwin Krishnaswamy, co-founder of Forge and Oklahoma Smokes. I hope you're enjoying our conversation.

6:45And if you haven't already, please subscribe or follow Shopify Masters wherever you get your podcasts. Leave us a review or feedback for the show. It certainly helps our audience to find us. So let's talk about your agency. Forge was founded in 2017. You helped launch and grow consumer brands. You specialize in branding, as you've mentioned, also positioning. You've been building great digital experiences for a lot of your clients. What's the origin story here? Yeah, so myself and my two partners who started the agency, we started working together in 2013, and we started our agency in 2017. From 2013 to 2017, we were building consumer software.

7:21And so we had built a couple of startups of our own, worked at some kind of early stage startups. And we said, okay, we're a good kind of product design and engineering team, and we want to continue to build things together. We don't know what's next. So we kind of fell into the agency.

7:40When we started the agency, we had a friend of ours come to us in, I want to say late 2018, and said, Hey, I have an idea for a candle brand that I want to launch. Do you guys do branding? Do you guys do Shopify design and development? We said, We don't, but we can learn it. And we'd love to kind of learn it alongside you. And so he was bootstrapping the business, and he said, Sure, great, let's do it. So we worked with, we helped him bring that project to life. That business has gone on to become quite successful, and we've been with them through expansion. And that kind of led to more clients.

8:12He said, hey, I have five other friends launching DTC brands in various spaces. Do you want to work with them? And it was never truly intentional of saying, hey, let's go start an agency. We just happened into it. And it's been a fun ride so far. Saturated space, though, certainly in New York City, so many agencies. And you've got a great portfolio of brands that you've worked with, Ape Beer, Jambies, Muddy Bites, Birthday Company. You've also designed digital consumer products for Venmo, Amazon, Grasshopper. I'm just rhyming through a great list here. What do you feel like your big differentiator is relative to the competition?

8:47Yeah, I think, you know, I look at a lot of these agencies and I think everyone does great design work. Everyone does great branding work. Everyone can build a great digital experience. Where we spend a lot of time is on the brand strategy and positioning front. And I think within that, you know, people think of branding and brand identity as aesthetics. They'll say, hey, I want a candle brand and I want it to feel minimalist luxe and premium, like maybe like Le Labo. and we'll say, okay, that's interesting, but is that correct? And let's actually take a long time and understand that landscape.

9:26What is the landscape of all of these D2C candle brand or home goods brands? And how are we going to stack up relative to them? And how are we gonna differentiate relative to them? And is there a unique twist? Because there has to be something inherently unique unless you have some other tremendous advantage if you have a distribution partner. If you can say, hey, my uncle owns distribution at Bed Bath & Beyond and can get our candles in there. Okay, great, then great. We can make something look nice. But if it's not that, and 99 % of the time it's not that, you really have to build a unique brand identity, meaning you need to have a unique brand strategy, you need to position in the market correctly, and you need to have a perspective and point of view.

10:10And I think we spend a lot of time really honing that and doing that. And then that becomes reflected in the brand identity. Who do you think has done a great job with respect to branding and positioning in the world of DTC? Like, are there a few use cases that you kind of point to or that are somewhat surprising in an insightful way where you say, look, we didn't think this was kind of the direction that branding was going to go here, but it's 2023 and this is completely unique and completely different and it's amazing. Here's a kind of recent one that I think is fun and interesting is so Glossier did an overhaul of their digital experience.

10:56And it wasn't quite a rebrand as it was a redesign of their site. And this sparked a lot of controversy on both sides in the kind of like DTC world, where people were looking at that site and saying, hey, they're violating a lot of best practices. This looks like a dated site. This doesn't look good. It's hard to navigate. It's hard to use. And what I think is, what was a really interesting kind of thread of conversation is Glossier kind of said, hey, we're not a new brand. We're established. People come to us, they wait in line. We have a really strong kind of brand loyalty and brand affinity.

11:34Therefore, we're able to take some risks in terms of what our UI and UX looks like, what our home pages look like, what our product pages look like. And creating new patterns always requires someone, and oftentimes that someone to be an established leader, to take certain risks and create new paradigms for how we think about things. And so I think their change sparked a really interesting debate. and I'm of the camp that, hey, you know what? They can actually take some of those risks and it's okay that they deviated from best practices. Well, in the context of Glossy, I want to ask you about community.

12:12So the importance of creating content is one thing. The importance of building community is another. Community seems to be a hot button topic these days. And the way that I think about it is, you know, companies can ask themselves this very important question, which is, you know, can our customers or members get value from interacting with one another? And if the answer is yes, then there's probably the potential to build a pretty sticky community around that. And Glossier has done a great job. I'm also thinking about Tesla and Tesla's fan base or Musk fans, if you will. Vital Me Please has done a fantastic job building a community around its product, Peloton, same thing.

12:49But Glossier has done a great job. Do you feel like community is going to have a big impact on a brand's trajectory in the next five or 10 years? So I think the short answer is yes. I think it's been true historically in the past. It's just the channels of how that community was formed happened differently. You know, they would happen in real life meetups, or they would happen on threads or specific forms, where people would talk about certain brands or experiences or products or whatever it might be. Where I think it works really well, you look at Tesla and you look at Musk, there's both a cult of personality around Musk and his philosophy on building his businesses and what he wants to see with Tesla, as well as a product that was so differentiated, at least early on in the marketplace, that it attracted a crowd that was that early adopter of, hey, this is a new technical gadget and I want to talk about it.

13:46and I'm interested to meet other people who own Teslas. And it's like, you know, Jeeps have a similar kind of loyal community. There's like the Jeep wave and they've built that up over years. Larry David's wave to other Prius drivers in that famous Curb Your Enthusiasm episode. Yes, I think there are brands that have both founder and a product which engenders a community, which is great. I see everyone talking about community and I think when there is a mismatch where there isn't this like authenticity with the founders and the product, and there's just a product and there's this artificial attempt to try to layer in community, or how can we get people to engage around our product, and there just isn't necessarily a meaningful way to engage around the product, that is when it devalues that language around community.

14:34Because it's, hey, you're just trying to do it because everyone's talking about it, but I don't actually think it's going to naturally work for you. But I think that isn't to dissuade anyone from creating community. I think it's really important. I think we just need to be more thoughtful around, okay, how is it that we are actually doing that and creating that? I want to switch gears and talk about your experience with TikTok. And we can talk about it relative to Oklahoma smokes, if that's a good use case to highlight here. My understanding is you found success on TikTok in 2020. Your first post for Oklahoma smokes went viral.

15:15There's definitely a clear link between the virality and the sales component here. So I've got a two-part question for you. Number one, what were some of the tactics that worked on TikTok? And two, what do you think happens to TikTok now going forward in the US and all the question marks around that platform as sort of the next thing or the successor to Facebook? So yeah, we've seen a tremendous amount of success with TikTok for Oklahoma smokes. I've seen a lot of brands have a tremendous amount of success. And I think one of the kind of underlying denominators is they tend to be low average order value products.

15:51I'm thinking kind of like sub$30. They tend to be highly demonstrable. So there is a brand that I know called Chameleon Swimwear. They basically have swimwear that changes color when you get it wet, right? So it goes from a blue bathing suit to a red bathing suit once it's in a pool. Every single one of their videos, they would just demo that product. And every video would have 50, 100 ,000 views, 500 ,000 views, and it would drive a ton of sales for them. So it was highly demonstrable, meaning it's visually arresting. So people would stop as they're kind of scrolling. There are these products that really fit those categories.

16:28Those are products where you can create one template, which is I'm just going to show off the product. There's a slime brand that has 4 million followers, and And they just show the making of the slime in every video. One of which is my 10-year-old daughter. Yes. She's got to be one of those hundreds of thousands of fans. She can't stop talking about slime. It's slime and prime. They have a grip on everyone from seven years old to 15 years old. Those companies and products can take a certain template and just use that template in a kind of never-ending format. Because it's always going to be engaging, visually arresting, and you can drive that conversion.

17:07because like, oh, okay, I want to go buy that slime now. That is kind of one way of thinking about selling products on TikTok. I think another way that applies to most brands is actually telling the story of your brand. As a founder, how you are kind of building in public. And a really good example of this is there's an apparel brand called Minted. And the founder of that, this guy Marcus, every day chronicles his journey of building this apparel brand and, you know, being into running and supporting runners, both from their athletic wear that they need, as well as their post-athletic wear. And by doing that, I think he's building a really interesting community, getting people bought into his story, the products that he's creating.

17:53And it's not he creates a video and because it goes viral, he's going to drive a ton in sales. But it's a kind of long-term building a community that is, you know, over the long-term going to purchase from you. There's kind of examples all the way up top to Lotus Cars, for example. They have a phenomenal TikTok, but they can go viral every single day and they're not going to sell any more Lotus Cars immediately. But the second that you, you know, maybe five years from now do want a super sports car, you may think, oh, Lotus Cars has actually spent a lot of time in my head because I've seen all their content on TikTok.

18:28So that's kind of part one. I think part two as, yeah, this kind of looming question of is TikTok here to stay? Is it going to be banned? How do you think about content? I think all of the platforms are in this race for trying to own short form video content. TikTok just led the way. So Instagram is indexing heavily on reels. YouTube is indexing heavily on shorts. Facebook's indexing heavily on their Facebook reels. And so now what I'm seeing a lot of both content creators and brands doing is creating one piece of content and repurposing it across all of these platforms. Because ultimately, I think they're realizing, hey, you know, regulation can change and we don't own the customers on that platform.

19:08We don't own the platform. So it's just kind of rented time and rented space. Let me rhyme off some of these tactics because I think this is a great list. So low average order value, visually arresting, as you say, something where you can kind of build in public, the story of your brand, super important. I'm also thinking about category and developing like a very specific niche. You guys did that brilliantly with Oklahoma smokes, this sort of like nicotine free, tobacco free cigarette substitute. I mean, without even understanding what this product is or seeing it, I'm immediately interested. So can you say more about that?

19:46Yes, I think both for TikTok as well as brands positioning their products. I always say niche down. If you think you're too niche, I'll suggest you're not niche enough. You haven't gone deeper. And a lot of people have a fear of doing that with their brand. They say, oh, well, we're going to turn people off if we go to niche. And what I say is you have to own the niche first. And especially if you can find a kind of aspirational niche or you find one category, you can actually pull other people into that category. And so a concrete example of this, I was talking to a company that makes really good and warm insulated ski gloves.

20:33And the way that they were positioning their product was, hey, we make some of the best ski gloves out there. And I said, I'm a snowboarder. I've been a snowboarder for 15 years. This doesn't speak to me. And I look at your product and I say, is this that different than Hestra? Because both gloves are 200 bucks. And I know Hester has been around since the late 1800s. And I think they're really quality. But you're telling me all of these like professional ski boarders and ski patrol use your product. But you're just saying, hey, we make like really good ski gloves. And I said that that's not enough.

21:04I would go so far to say gloves built for the backcountry. So let's just target backcountry skiers and snowboarders, the absolute like experts, the absolute cream of the crop of skiers. And the owner of this brand was saying, oh, but we don't want to alienate the people who like going to resorts who might consider themselves like intermediate skiers. And I said, no, that's totally fine. You're not alienating them. What you do is if you were actually building a product that's good enough for all of those backcountry skiers and ski patrol people, people who ski at the resort level will say, hey, if it's good enough for them, it's definitely going to be good enough for me.

21:42And I actually aspire to be in that category one day. So I want to have the equipment that those people have. And so that's the idea of if you choose a niche that seems really specific, you can actually pull a market towards that rather than saying, hey, we're for everyone. Because if you're for everyone, the backcountry people aren't going to be interested. I love this idea and the way that you've articulated it, this idea of niching down. Canada Goose also comes to mind. I mean, we're talking about skiing. Canada Goose is a brand And you see it on sort of mountaineers climbing Everest, right?

22:15I'm not going to climb Everest, but it gets very cold in Toronto in the winter. And I'm going to buy a Canada Goose jacket because I know if it's good enough for them to climb to the summit, it's certainly good enough for me. Walking the streets of Toronto when it's snowy and cold outside. So I completely get it. Exactly. Exactly. So I think there's a lot of listeners, certainly founders out there, that are thinking about executing on TikTok at scale. And historically, you know, when it comes to Facebook and media buying, you could have your media buyer be the content person also in a way because they could spin up the creative for that ad with that copy that they could just paste in there and set those ads live and kind of optimize them right there in Facebook's back end.

23:03On TikTok, your media buyer is not the content creator because the content's created by that video personality. So I think people get tripped up when they think about how do I scale this content side when I know it's got to be video. I know the video only lasts, say, three or four days before it becomes stale on the platform and people get bored. So how do I execute this at scale? I think that's a great question. And I'm going to answer it from a first from it, just a TikTok organic perspective, and then I'll kind of into the paid perspective. So from a TikTok organic perspective, especially for kind of early stage founders who may be, you know, one man shop, have a few people on the team, let's say, oh, in addition to everything I do, I need to also create content.

23:46And I'm not naturally a person who creates content. I'm not comfortable filming, et cetera, et cetera. I think for some founders, there is this belief that everything needs to be highly produced. It needs to, the type of content you'd see on Instagram five, six years ago, highly produced, well-polished, beautiful lighting, et cetera. I think the content that performs well on TikTok was a kind of response against that saying, hey, we just want a little bit more behind the scenes, off the cuff, doesn't have to be ridiculously edited. If you just have something good and interesting to say or show off, that content can perform well.

24:20And I would see all of these behind the scenes, hey, get ready with me as I pack a hundred orders. And it's just a two-minute video of people packing orders. It has like two million views. It doesn't require you to be the personality in front of the camera. And I think by saying, okay, there's a lower pressure to be performative or get it perfectly. I think that's the kind of first step in making content. I think the second step is you don't have to have this huge game plan day one in terms of here's thematically all the content I need to create. I need to follow the rule book of this brand. I would say, just start with the first thing, which is, Hey, this is like my backstory.

24:58And this is why I started the brand. Great. That's the first video. Let's not even think about the second video. See what comments you get on that. And usually that's a great place to get new ideas, right? People say, oh my God, I love that product idea. Would you ever make it in this flavor? Would you ever make peanut butter? And then great. You can make a response video to that and start to engage with the community a little bit. It's kind of like content and comments begets more content ideas for you. The other response to this that I totally understand is some founders say, I don't get TikTok.