After reading hundreds of business biographies you start to see similarities. One of them is that most new ideas are born out of frustration not greed. A person becomes so sick of the status quo that they can’t take it anymore. They won’t be able to live with themselves if they don’t do something about it. The best way to limit regret is to take action. An entrepreneur is born.
In 2008, four grad students came together because they were frustrated with the eyewear industry. Their due diligence unearthed that high quality prescription eyewear could be made for $50 or less. So why was eyewear so expensive ($500+)? Luxottica (NYSE: LUX), $26 billion market cap, dominates the market. Luxottica owns Oakley, Sunglass Hut, Lens Crafters, Persol, Pearle Vision, Target Optical, and others. They also owned numerous licenses to sell branded eyewear for Calvin Klein and others, in addition to owning the largest vision insurance company. Now they knew why eyewear was expensive. There was no real competition.
The grad students took an entrepreneurial class, and entered their 40-page business plan into the Wharton school business plan competition. Their business plan made it to the semi-final round. This gave the young grad students the confidence to form their company, Warby Parker in 2009. They created a direct to consumer model where they would design, create, and send high quality eyewear for less than $100. Naysayers said no one would buy prescription eyewear online. The founders said fine, if someone doesn’t like them they can send them back and we’ll pay the shipping. Seven years later and Warby Parker is a $100+ million revenue company with a billion-dollar valuation.
Warby Parker is a fascinating story, and Luxottica took notice. Luxottica launched its own direct to consumer portal through an acquisition of Glasses.com. They also rolled out proprietary virtual try-on technology that uses a 3-dimensional image of a consumer face, and allows the consumer to try on eyewear with real likeness. Luxottica still produces expensive eyewear. Warby Parker has four ground rules that define their culture. Number One – Treat customers the way we’d like to be treated. “Shopping for glasses should be fun, easy, and not ridiculously expensive.”
Whenever you see a relatively simple yet high margin product being sold predominantly through traditional retailers, the environment is ripe for direct to consumer disruption.
In 2012, the razor market was dominated by Gillette with 72% market share. The high margin disposable razor blade market had been a very profitable and coveted category. Seven years prior Procter & Gamble paid $57 billion for Gillette. You walk into a grocery store, convenience store, or wherever, and razors are locked behind glass (aka “razor fortress”) like they are jewelry. Anything that is displayed in such a way is normally highly sought after by consumers and highly profitable for the retailer selling them. Gillette has historically spent hundreds of millions of marketing dollars per year to keep this market share.
Enter Michael Dubin.
Michael Dubin in 2012 is asked by his father in law to help him sell a warehouse full of surplus razor blades. Michael realizes he can send the razor blades direct rather cheaply. When he analyzes the market, he gets frustrated with the industry. Why are razor blades so expensive and cumbersome to purchase? Within a week, he starts a website called https://www.dollarshaveclub.com/. He then spends $4,500 to produce an infomercial (video below) which immediately connects with people. In the first day he receives 12,000 orders, and the youtube video now has over 24 million views.
Dollar Shave Club used grass roots marketing and youtube videos to connect with people. Their “For Just $1 per month” service relieved customers two major pain points: Dull blades and they are pain to go and buy. In the first-year Dollar Shave Club surpassed $6 million in sales, second year $20 million, $60 million in year three, $150 million in 2015, and on track for $200 million in 2016. With 3.2 million customers and #2 in razor blade market share, Dollar Shave Club was acquired by Unilever for $1 billion in 2016. It’s pretty crazy that it all happened in 4.5 years. Here is the company’s vision statement when they were getting started -Slide from Dollar Shave Club’s Series A Pitch Deck (November 2012).
Why was Unilever willing to pay so much? Yes, direct to consumer cuts out the retailer or middleman. Yes, Dollar Shave Club had some cool videos and marketing gimmicks. As a business, direct to consumer is very powerful because Dollar Shave Club actually knows who is buying their products. The toughest part about being a traditional packaged goods brand is that you have no idea who your customer is. Would you rather have 10,000 customers but have no idea who they are or have 1,000 customers where you not only knew who they are but details on their buying habits? When you know who your customer is you can better adapt your product or add new products that fit their needs. A successful company’s worst nightmare is when someone else is obsessing over their customers more than they are.
Warby Parker and Dollar Shave Club developed new ways of attacking old industries led by big slow moving companies. They were created out of frustration. Often times when something frustrates you, it likely frustrates hundreds, thousands, even millions of others. Do something about it.
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