The dawn of DTC 3.0

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1:02Hello and welcome to the Modern Retail Podcast, where we discuss the ways the retail industry is changing and modernizing. I'm your host, senior reporter Gabby Barco, here with Melissa Daniels this week. How are you, Melissa? Hi, Gabby. I'm doing well. Happy almost Valentine's Day. Happy almost Valentine's Day to you too. Do you have a favorite Valentine's Day candy? Oh my gosh. You know what? It's not sweet hearts. Not the sweet hearts. Yeah, not the conversation hearts. No, they don't taste good. Like I want to actually eat the candy. I'm sorry. No, I'm like definitely a chocolate person. So like, you know, Godiva, Cadbury, you know, like a heart-shaped box.

1:55I buy one for myself. Yeah. That's how you do it. I'm all about that Reese's heart-shaped. Oh, that's a new one. Yeah. Well, because it started with like the Reese's trees and the Reese's eggs. And then Valentine's Day, they have Reese's hearts. And just, yeah, something about those special Reese's tastes better to me than a regular Reese's cup. So I'm very excited to hope. Hopefully some kids at my son's preschool gave him some Reese's Hearts that I can steal. I hope so too. Yeah, well, I'm really excited about today's episode. It is basically an explainer on what is DTC 3.0, Direct to Consumer 3.0.

2:43We have two special guests on this week that I spoke to at our roundtable that basically laid out what their definition is. But maybe to start off, like, Melissa, we both cover direct-to-consumer pretty extensively. Like, what's D2C 3.0 to you? Because there was a recent-ish tweet that kind of broke down 1.0, 2.0, 3.0. And, you know, there's a lot of overlap, but I'm curious about your answer. Yeah, yeah. I think you're referencing a tweet from Cody Plofker of Jones Road's Beauty, and that kind of kicked off a little conversation. And I love that you're diving deep into this. For me, when I think DTC 3.0, I'm thinking more specialized, more niche, more audience-first kind of brand ethos and brand strategy versus that initial era of DTC was the quote-unquote spray and pray approach, right?

3:43I kind of hate that, that jargon, but I feel like that was what you could do as far as how to get customers. You know, people were still so new into shopping online and finding these new brands. Like I remember friends calling it like internet brands or online brands because people like don't know what DTC is, but Instagram brands. Yeah. And you ask someone like, oh, where'd you get that? Oh, it's this online brand, Allbirds. It was just sort of this new crop of companies. And we've come a really far, far away from that. I'm curious when you had this conversation, was there any clear demarcation points in the timeline of when things started to shift?

4:27Any technological improvements or cultural movements that you felt like have given us some of these 1.0, 2.0, 3.0 moments? Yeah. So just to, you know, set the table for the listeners, I did pick two specific founders from the era of what we consider 1.0. And it is Nate Checkets, who's the co-founder and CEO of Roan, and Melissa Mash, the co-founder and CEO of Dagny Dover, kind of like, for me, one of those really early pioneer, like, literally, like, Subway ads, Instagram ads type of company. They were founded in 2013. And so I really wanted their perspective because they were there, literally.

5:14And they're like, you know, it was, you know, the sort of, yeah, you buy Facebook, Instagram ads, you really go deep and heavy on, like war d2c only like you know only selling on through your website um but one emerging theme and one thing we actually went really deep on um i mean unsurprisingly was fundraising was sort of venture capital because that was one of the um i guess like motifs maybe you could call it of uh 1.0 i mean it's not that people that the brands it's not like brands don't raise money anymore, by all means. Like we still see funding runs being announced. It's just a lot more strategic now.

5:57And it's not like, oh, I have an idea for like a suitcase. Let me go raise$20 million. Like that's, well, even if you want to, that's not really an option anymore. So yeah, they really talked about that. And then that trajectory, like, you know, in some case, like Dagnadover decided not to take a lot of funding versus Roan de Teycon funding. And then eventually, you know, bought back their stake, which is a really interesting conversation. But that was a big one. And then of course, we had to talk about COVID because for me, personally, yeah, that was, you know, when I was covering brands at the time, it was sort of when COVID hit and then all of a sudden like e-commerce was exploding.

6:42So they almost like got this like burst, like a second life almost. And then we talk a lot about like how retail or wholesale or, you know, physical retail also became sort of like table stakes by the time we did reach 3.0. But yeah, all of that. And then profitability. I mean, I think when I hear 3.0, I'm like, people want sustainable growth with profitability and healthy margins, which like is pretty much just like running a business, right? Like at that point, What a concept. I mean, yeah, and we actually all agreed that like D2C in general is just an antiquated term. That doesn't really mean anything anymore anyway.

7:24Oh, hot takes. Well, there's going to be a lot to unpack in this conversation. I can't wait to hear it.

7:34Today, we are going to be talking about how to survive D2C 3.0, according to founders of D2C 1.0. With us today is Melissa Mash, co-founder and CEO of Dagny Dover, and Nate Checkitz, co-founder and CEO of Roan. Welcome, guys. Thank you so much for joining us. Thanks for having us. Thanks. Yeah, super excited to do this. So before we get started, I'd love for you each to just give us a little bit of context about your respective brands, how long you've been in operation, and then we'll get into all of the pivots and changes that you've had to make over the years. Melissa, do you want to go first?

8:15Sure. Yeah. So Dagny Dover, we've been in business since 2013. We are a performance bag brand rooted in functionality and good design. And we're based here in New York. You know, Rhone is a performance lifestyle brand. We're hyper-focused on outfitting men and women for the way they move, work, and sweat. And we've been around since 2014. and we are an omni-channel brand, meaning our business is, we've got about 20 stores and opening quite a few more, but the bulk of our business is online. And then we work with select high-end distribution partners on the wholesale side. So in talking about air quotes I'm doing, D2C 3.0, I just want to ask you each maybe to define what you think that is, because you have been here for a decade plus at this point, And over the past year or so, I'm hearing a lot about this 3.0, which is essentially where some people think that D2C is at right now.

9:17And then at the end, maybe we'll talk about what 4.0 is going to look like. But last year, there was this pretty popular tweet or ex-post that was going around by Cody Plofker, CEO of Jonas Road Beauty, who basically laid out like DTC 1.0, which was like, raise a bunch of money, burn cash, hope for the best. Obviously, I'm being facetious. We'll get into that. And then, you know, 2.0, there was this talk of bootstrapping and whatnot. And then now we have, to me, feels like somewhere in the middle, which is a more balanced approach to running a digitally native brand. But yeah, I'll let you each define it in your own words, though.

10:00Yeah, I think that DTC 3.0 really means sort of this era that we're living in, obviously post-COVID, obviously post-tariffs. And in my mind, the ones who are in a position of strength going into this period are really those who have built solid businesses, you know, not just pouring a ton of money into marketing, not just pouring it into performance, but really looking at the customer and building a relationship in a very real way. Nate has done a fantastic job with his company. I'm very proud of how we've done this as well, but it's really connecting offline in particular with individuals and being able to grow those authentic relationships beyond sales, right?

10:34It's more about purpose. It's more about why do you reach for our products versus others, too. And much to what Nate was saying at the beginning in terms of where he's distributed, same thing with us. We are in almost 300 locations across the country with wholesale partners. We have one store in New York, but the idea is that we have to meet our customers wherever they are, whether they're going to a concert, whether they're going to a sporting event, whether they happen to be on vacation and shopping at a resort and so on. So 3.0 is really an evolved version from any of us brands who grew up and established ourselves in the early 2010s and how that has evolved.

11:07Of course, omnichannel, but also just how the brand has evolved to meet the needs of the customer wherever they are, whether in the U.S. or abroad. Yeah, I mean, I feel like I have to start with a minor disclosure here. Maybe it's a major disclosure, but I'm a huge Dagny Dover fan. An investor. My wife is a tiny investor in the company and has been for a long time. So I love Melissa and the team. And I'm so proud of the relationship that we have that we actively sell Dagny Dover on our site. And so, you know, as it relates to your question about DTC 3.0, I know this is something that Melissa and I see eye to eye on because we talk about, you know, we're always comparing notes.

11:52We're always, you know, kind of thinking about how do we evolve and grow. And we have, you know, over the last decade, been trying to kind of identify how things are shifting. And keep in mind that over the last decade, you've had COVID, you've had, you know, this major inflection point in 2025 with the tariff situation and supply chain disruption. And I think it's important to state that DTC, I think, is a misnomer. When we started, it was a nice buzz term to raise capital around and to use it as a capital raising method because you had a lot of tech VCs who were attracted to what would traditionally just be a new retail brand because of this new method of distribution, meaning you're directly selling and creating a relationship with a customer, which again has always existed, but it's always been in the form of brick and mortar.

12:50And now you have e-com as this growing mechanism. And so DTC as a percentage of the business mix goes way, way up. And the term that I prefer is digitally native brands, brands that started as e-com first brands, which again, prior to brands and kind of our vintage of these DTC 1.0 brands, you know, companies were starting either with wholesale or they were starting with their own physical brick and mortar. But you kind of had to do both of those things. Now you add a third leg to the stool in e-com. And in reality, what 3.0 is, is we're back to just trying to build really great brands. And in the end, great brands are what tend to endure the test of time.

13:35And there's this, you know, I think for people who don't work in this industry, they tend to confuse product businesses, meaning a company that gets a really great product and tends to kind of ride that wave and a company that is building a brand over time that offers multiple products and is trying to outfit a lifestyle. And so when I think about 1.0, 2.0, 3.0, I don't, you know, whatever number you want to put on it, what will stand the test of time are brands that are able to identify a customer lifestyle, whether that's an aspirational lifestyle or a current existing lifestyle, and build messaging content and products that appeal to consumers who either have or want that lifestyle.

14:22I do want to stay a little bit on the sort of tight-knit space that you're both in. This is, you know, funny enough, when I went to start programming this podcast with our producer, I wanted to approach the both of you just because, you know, you have a lot of experience and you both happen to be of this vintage, as Nate put it, of, you know, what when I started reporting on this space, a lot of the hot brands of that moment of the 20 teens, it did not even cross my mind that, of course, you do know each other and that your trajectories have interwined. But I want to get a little bit more color on that because I think to the outsiders, it can be kind of hard to imagine, but a lot of founders do know each other, do invest in each other.

15:06And I want to talk about fundraising a little bit after this. But yeah, any color on just being part of this community has also informed the way you operate. absolutely i think that um nate and i have chosen paths that that they're not the exact same but they are in line with each other versus i think a lot of other brands of our vintage chose a very different path in terms of who they're raising money from and what those expectations are and maybe maybe they had maybe they had expectations that we are not in line with like how how um So slowly, methodically, you know, Nate and I have grown our businesses.

15:44But for us, we never took any VC money for us. We really wanted to make sure that we were only bringing in patient capital who understood that brand building was going to be a 10 plus year long game and who understood that they weren't going to rush us because you can't rush this. a lot of these brands that launched around our time, they were raising a ton of money and pumping it into marketing. And they were totally okay if they lost money on their first purchase and maybe even the second purchase. And that was never a habit that we wanted to get into. And that was never a business model that we felt was sustainable, nor did we feel that it was the most valuable way to connect with the customer.

16:16So I think there are just different philosophies in terms of how different founders have approached this whole process of building a brand. And I think that the ones that have remained and that continue to be successful are those that have always been focused on profitability, always been focused on the customer and not just getting that quick sale, but really making sure that we're developing that relationship. Yeah. So that's, I think, something that differentiates sort of how we've built versus some of the things that we've seen over the past decade. Yeah. I mean, I'm trying to even remember how we first got introduced, but I think we ended up at a dinner together with an investor.

16:52I mean, you have to understand that there are so many companies that are trying to sell to companies like us. And there are investors that are trying to, you know, become important to the category or to the universe. And so they're always kind of trying to coordinate these meetups. And then you end up being on panels or, you know, things like this. And every once in a while, you know, you meet somebody who's at a brand that you already know and love. I mean, I my wife and I were just traveling over the weekend. And, you know, like every time I see a dagging bag, I'm like, oh, look, there's a dagging bag.

17:27And so and there's also, you know, just like in any industry, there are people that you gravitate towards because shared value system. And I think what Melissa, Jess and Deepa have done is they're one, they're really good people and they really do live by their value system. And they're trying to build a brand in the right way. And I, you know, I at Rome, we try, you know, we're trying to do the same, my brother and I. And so you, one, we have geographic proximity in kind of the New York area. And two, there's this shared sense of value system. And three, they're generally non-competitive, you know, brands and categories, which makes it even easier to build connections and bridges.

18:09So yeah, and I love it because just like, you know, the way I explain it to people, when you meet somebody else in the industry who's trying to do the same thing, like nobody fully understands how hard it is. You can't explain that to people. You're trying to build a family. You know, Melissa, I know, has had a couple of children since starting the brand. And so has some of our founders. And, you know, we've we've had children since starting the brand. My brother and I have seven kids between the two of us and our respective families. And it's it's just hard. And we're not looking for pity or, you know, people that feel sorry for us.

18:48But it is so nice to meet somebody else who's going through this. And you're like, oh, wait, there's somebody else who understands how hard it is to build a brand and create something that didn't exist before. And so there's that kind of immediate camaraderie that's built there. Before we move on to sort of how you've adapted over the past 10 to 15 years, Nate, I'm curious to hear about your approach or your relationship with fundraising, which, you know, It's one of the biggest, I feel like, criticisms that this space has gotten. The whole kind of applying that Silicon Valley venture capital model to retail brands, which, as we'll talk about, take sometimes decades to build out.

19:29And usually investors want that return pretty quickly. Yeah. How have you sort of approached fundraising from the beginning? And has that changed over time? Yeah. Such an important question. So, you know, as we spoke a little bit about before, the environment was so different when we were starting. There was so much attraction of capital to the space and there were a lot of different pools of capital. I'm not saying it was easy to raise money because it wasn't, but it's so easy for a brand that's not able to raise capital today to be like, you know, we're bootstrapping and these brands that have raised money before.

20:06It was just a different time. You know, when you were starting a brand, everybody in the landscape was generally raising significant amounts of capital and they were using that capital to drive brand awareness. And there was a theory that if you could get out and you could kind of shotgun this and take advantage of some of the arbitrage and performance marketing, that you could build a brand faster than had traditionally been done. And brands that grow really fast and get out there could derive higher multiples of valuations than, you know, companies in the past. And I think there's some truth to that, but there's also some flaws in that model and mechanism.

20:44And so it's impossible to Monday morning quarterback any of that and look back and say, you know, I was so dumb. I wish I would have raised less money. But again, the environment was people were literally throwing interesting valuations at companies that were, you know, subscale. We were in our third year of business. and I've now talked about this publicly, but we got approached by the gap to buy the company. And then we got approached by three very substantial private equity companies to invest in the business. And we ended up going with one of those, El Caterton, and they became our partners.

21:17They were minority partners in the business. But just like any private equity firm generally has a five to seven year hold horizon. And what happened for me is, we're now into the business, call it six, seven years. And I started to think, is the brand really going to be ready for an exit in two years? Is that what I want? Is that what's best for the business? Is that what's best for the team and the people? And I started to become so attracted to these brands that had been, you know, that had really endured the test of time. And usually what happened with brands like that is they had consistency of leadership and attachment to brand values.

22:00And that's very difficult to do when you have a private capital source who has a time horizon. And again, this has worked really well in many companies. So it's not a criticism of the model. It's just that it wasn't necessarily, it no longer became what I felt like was the right model for us. And so I approached them very openly and I said, hey, I'm no longer thinking of Roan as like this five to seven year business that I want to sell for hundreds of millions of dollars and ride off into the sunset and go sit on a beach and drink a cocktail somewhere. Like I want to build a brand that I think has a real value in its mission and the quality of the products in the way it enriches the lives of the team and our partners.

22:42And in order to do that, I need a different time horizon investor. Are you willing to consider an option like this? And at first it was like, no, we love the business, we love the brand, just keep going. This is a distraction, don't do this. And ultimately, what we ended up doing is we ended up raising capital into a vehicle that we as, just broadly speaking, my brother and I and kind of our family control. And then we use that vehicle to buy out our private equity partner. And credit to Catterton, they were very understanding and great partners through that process. And since then, the company's tripled in size in three years, and we've had enormous results.

23:23And in theory, nothing's changed. By the way, the main partner from Catterton who was on our board, we asked him to stay on the board. So we still get his expertise, and he's a phenomenal business leader. But the way we think and feel about the business has changed because it feels like it did before we brought in outside capital, which is, this is our company. We're controlling the long-term destiny of it. And I think that's led to outsized results. But again, there's lots of different ways to get to this road. There are brands that build a$10,$20 million business and own 100 % and bootstrap the whole thing.

23:59That's great too. I don't think there's a single size fits all. For us, this has been a non, I will say somewhat of a non-traditional path. I didn't know anybody else who had done what we attempted to do. But I think there is more interest from brands that want to endure for longer periods of time to have more control of their cap table and thus more control of their destiny. Melissa, I want to throw it to you because you've spoken a lot about building from the ground up a more, you know, enduring legacy brand than, yeah, the sort of like quick exit D2C space that, which is what, you know, a lot of brands have become known for.

24:40And you do come from a more traditional legacy background in retail. So I'd love to hear your thoughts on, you know, when it came time to adapt to a lot of unforeseen events, I guess I'll call them like the pandemic, you know, in your first decade of operation and then tariffs after that. Yeah. What were maybe some of the decisions that you had to start making that you didn't think you would have to when you started the brand? Well, obviously no one could have foreseen what would happen with COVID and how long it would last and what the implications would be for so much not only of the industry, but obviously the world.

25:19And so Nate came to actually approach us at that time. And he was like, you know what, I would love to create a coalition of digitally native brands who can band together and pledge to give back for good. It ended up being called Brands for Better. And it ended up being, I think, Nate, remind me if I'm wrong. It was like over 200 or 300 digitally native brands that committed to that. And we raised over$4 million during that period. And different brands could choose which organizations they wanted to support. But the idea was that we were just so grateful to customers who were shopping our brands at a time when people were not going outside and leaving their homes.

25:54And in particular, for my brand, we make bags for people on the go, right? But luckily, we were able to get through that period because people were having babies still and they needed a crossbody also that they could carry their PPE in. And so even though they weren't traveling and they weren't, you know, carrying work bags or school bags, at least there were other bags for them to carry. But it was really about the community that we had in each other as founders to start and the stories that we could build from there and the ways that we could connect with our customer base from there. So, you know, part of entrepreneurship is just like constantly evolving.

26:24And instead of saying like, oh, my God, we got screwed from this or that or, you know, this was totally not on our radar. What are we going to do now? I'm just glad that we had a wide assortment of different types of products so that people could switch from one to the other and that we still had a business going. Some brands who have one category that got hit hard, you know, they had a particularly tough time. But it really was exercising the muscle that in particular Deepa myself, because we're older than Jesse, that we exercised and found during the global economic crisis of 2008, 2009, that whole period where we had seen businesses being completely turned upside down overnight in terms of which channels were working best and even viable and what customers wanted through that period.

27:06So this wasn't our first rodeo when COVID happened. And we knew that we had enough members on our team who had been through that, that we could lead anyone who hadn't been through that and that we got this. But was it tough? And were we literally talking every single day about what was the marketing messaging and what was the difference in terms of ops and things that we needed to do to address the period? Every single day we were talking through, I'd say, the first three months of COVID. And it was a different approach every single day. But then when tariffs happen, and don't get me wrong, like last year, tariffs was not the first time we got tariffs.