Retail Briefing: Lerer Hippeau’s Graham Brown on what’s next for DTC unicorns
“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. – Graham Brown, Partner at Lerer Hippeau”
In the past two weeks, Lerer Hippeau has seen two companies in its portfolio reach unicorn status: Glossier and Casper, two consumer brands selling cosmetics and skin care and mattresses, respectively, are now worth $1 billion.
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.
retail editor, Digiday