💰 Thinking of Starting a DTC Brand? Here’s Why You Shouldn't

After starting Minded Studio, I’ve lost track of how many friends and family members have pitched me their shiny new DTC (direct-to-consumer) brand ideas.

While I'll always support friends venturing out on their own entrepreneurship journeys, my advice to them is quite counterintuitive.

Building a DTC brand from scratch is incredibly challenging.

In most cases, I strongly advise against it.

Instead, I encourage them to consider the less glamorous but often more lucrative path of B2B (Business-To-Business) or "boring" businesses.

Here's why.

DTC: A fun but costly business model

Over the past five years we’ve seen some incredible DTC brands enter the market; Oura Ring, The Farmer’s Dog, Allbirds for example.

These brands have mastered the art of storytelling that resonates with their audience on an emotional level.

With a direct line to their customer base they have had the freedom to pivot quickly, try out new strategies, and learn the tactics that drive someone to hit “Buy Now.”

But here’s the reality of DTC:

• Costs of Paid Ads are Higher: Competition is fierce, and getting your product in front of the right people costs more than it used to.

• Amazon is Likely Your Competitor: No matter how niche your product, there’s a good chance Amazon is selling something similar and probably for less.

• Lower Average Order Value: Consumers are more price-sensitive, and you’ll often find that the average order value in DTC is low, meaning you’ll rely on repeat orders.

• High Return Rates: To compete with big box retailers, you'll need to have a solid return policy and process in place. Returns eat into your margins and create logistical challenges that erode profit quickly.

Take Allbirds for example, since their sales boomed in 2021, the retailer has suffered a 97% drop in its stock price. After a hugely successful launch on Amazon, their sales slowed when knockoff imitations started to appear on the platform for a third of the price.

To take a brighter note, there’s something incredibly satisfying about seeing your product in the hands of customers. Starting a DTC brand is a great way to sink your teeth into learning the tools and lessons to bring a business to life without the risk of a large customer base.

If you are someone willing to take on risk, want to learn the ins and outs of marketing, supply chain, accounting and design then a DTC brand is the way to go. Your mini MBA in starting a business.

The case for B2B: slow and steady wins the race

Years ago, I launched an ecommerce brand with my best mate, selling pillows online. This was before Casper and Koala became household names. It took us 60 days to hit our first $10k in sales.

Fast forward to when I started a B2B company, and it took just 3 days to reach that same $10k mark – without even having a website up.

I’m not sharing this to brag, but to highlight a fundamental difference: selling to businesses versus selling directly to consumers is a whole different game.

While B2B buyers have longer sales cycles, more complex decision-making processes, and a need for deep, trust-based relationships, the rewards can be substantial. Once you’re in, you’re often in for the long haul. We’re talking long-term contracts, higher order values, and a more predictable revenue stream.

But here’s the catch:

• It’s Harder to Target B2B Buyers: Running paid ads for B2B is a different beast, compared to DTC. B2B buyers are more elusive, and you’ll need to spend a long time building relationships before the sale occurs.

• It’s a Volume Game: Long buying cycles mean you’ll need cash on hand to manage inventory – or if you’re service-based, you’ll need a full-time team to fulfill your offering. It’s high-investment, and profit margins can be slim.

The Upside?

• Higher Return on Investment: When you land a B2B client, the return is often significantly higher than in DTC. And the best part? Consistent reordering. Once businesses trust you, they tend to rebuy.

Now you might be thinking, “What can I sell to a B2B buyer?”

That question deserves its own newsletter, but here’s the short version: it’s simpler than you think. You probably already have skills that businesses are eager to outsource.

• You’re a graphic designer? Productize design fulfilment.

• You’re great at bookkeeping? Offer monthly credit card reconciliation.

• For me, I love the marketing side of DTC ecommerce but dislike the supply chain requirement. So, instead of building my own online store, I offer monthly Google Ads management to business founders. They focus on the supply chain, and I get to do what I enjoy.

B2B is like climbing a steep mountain – it takes effort and time, but the view from the top is worth it. You’re not chasing every new trend or worrying about social media algorithms. You’re building a recurring revenue machine that compounds over time.

How to decide what to start

Choosing between B2B and DTC is less about which model is objectively better and more about which one suits you. 

Here are a few questions to ask yourself:

1. What excites you more? – Building a business around relationships and trust, or creating an exciting brand that can scale with consumer trends?

2. How do you handle risk? – Do you prefer a slow and steady approach, or are you willing to take big swings knowing that sometimes you might miss?

3. What kind of lifestyle do you want? – Do you want a business that allows you to take your time, or one that requires you to be constantly on your toes?

4. What are your strengths? – Are you better at negotiating and building B2B partnerships, or do you excel in marketing, branding, and storytelling?

If I’ve learned anything from working with a huge number of successful brands at Google it was that business is a long-term game and those who win, stick with it the longest.

Choose whatever you can see yourself doing for 10+ years.

As always, I love hearing your business ideas. Drop me a line if you’re grappling with this choice, and let’s figure it out together.

Until next time,

Luke

P.S. Curious about what’s happening in the world of DTC or B2B? I’ve got more insights coming your way, so stay tuned for new editions every Monday.