The Book of DNVB

The Rise Of Digitally Native Vertical Brands

What is a DNVB?

  1. The DNVB is a brand, and that brand is vertical. The name of the brand is on both the physical product and on the website. The DNVB requires the commercialization of an e-commerce channel, but that channel is an enablement layer — it’s not the core asset. VC’s sometimes think these should be valued like technology companies. Some of the valuations still reflect this misguided notion. These are retailers, not tech companies. They cannot spend 10% of sales on technology and 30% of sales on marketing forever.
  2. The profit losing nature and small scale of the DNVBs leads most traditional retailers to ignore or underestimate these little tadpoles. Then Unilever bought Dollar Shave Club for $1 billion. Smart people woke up. The reality is the brand of the future is a DNVB, but the future is not here yet. It’s in the corner. Give it a couple decades to take over the room.
  3. Some big companies now believe they can make these brands themselves. There is some hubris to this notion, though it probably will happen in some exceptional cases. The general rule is that entrepreneurs need the fear of their brand’s demise to make it magic. It is too safe to do it as a corporate subsidiary. Unless that corporation treats the DNVB upstart like a start-up in terms of staffing and resources. That is hard to do.
  4. It is not e-commerce, it’s vertical commerce. The product gross margins are at least double that of e-commerce (e.g. 65% versus 30%). The contribution margins can be 4–5x higher (e.g. 40–50% versus 10%). This radically transforms the economics of the vertical commerce compared to e-commerce. Vertical commerce can make money. E-commerce, not so much. Bonobos is now a breakeven business. It took us a decade. I am not proud of that, it takes a fair amount of scale, a wonderful team, and lots of learnings along the way to turn the corner. “Pioneers get the arrows, settlers get the gold.” Turns out it takes ten years to build a brand.
  5. The digitally-native vertical brand is maniacally focused on the customer experience. There is no precedent for this in most categories, as these are bundles of two businesses that normally standalone. When we started Bonobos, our first angel deck said this is Ralph Lauren x Zappos. It’s a physical products brand and strong service experience at the same time.
  6. The digitally-native vertical brand drives a lot more customer intimacy than it’s competition. The data is better because every transaction and interaction is captured. You don’t have to combine data across businesses, because it’s all one business. You are not blind to your wholesale business, because you don’t have a big wholesale business. It’s one CRM. It’s one store, where everybody knows your name.
  7. Here is what most DNVB entrepreneurs get wrong. The world doesn’t care about your DNVB if you aren’t delivering a better product and service bundle than traditional competition. The world doesn’t need your DNVB — unless your product as foundation is differentiated. For Bonobos, fit personalization. For Warby Parker, price and cool factor of the lowest price. For Dollar Shave Club, price and convenience of subscription. The product, web/mobile experience, and customer service collectively become the brand in the consumer’s imagination. Deeper data on the consumer drives enables the DNVB to stay closer to the customer than its brick and mortar driven peers, and the ownership of the brand end-to-end fuels more affinity for a vertical commerce brand than even the best e-commerce experiences.
  8. While born digitally, the DNVB need not end up digital-only. This means the brand can extend offline. Usually its offline incarnation is through its own experiential physical retail, or pop-up strategy, or highly selective partnerships. In nearly all cases of partnerships with third parties, the brand controls its external distribution versus being controlled by it. Any offline retail is not about warehousing product, it’s about marketing the brand and delivering great one to one customer service. It may be pop-ups. It may be permanent locations. It may be installs at existing retailers. You know who figured this out first? Steve Jobs. The Apple Store was the first scalable, experiential vertical retail concept. Lululemon isn’t bad either, though with inventory, the spirit of it is different.

Spirit animal @bonobos, swan hunter @redswan, brother @monicaandandy. I love cilantro but love even more the people that hate it