ETtech Opinion | The five rules for building a winning D2C brand

Baby- and mother-care brand Mamaearth’s latest fundraise of $52 million has catapulted it into the coveted ‘unicorn club’. With unicorns emerging in the country at a rapid pace over the past few months, one feels compelled to step back and ask: what is so special about this? In my humble view: nothing.

For Mamaearth, it is business as usual, as they are possibly focussing their attention and energies on achieving their next milestone. For us as investors, this is the time to reflect on our initial investment thesis and unpack the factors that led to the company’s success.

What contributed to Mamaearth’s exponential growth in a mere five years? Read on as I put forth some of the key takeaways that make for a model that’s sustainable from day one.

Walk the talk: There is no doubt that personal care and beauty products typically perform well, given their inherently high-frequency usage. However, in a crowded marketplace, brands that keep a keen eye on the smallest changes in consumer interest—and leverage that early on—tend to outperform their competitors. Developing bold and strong messaging along with strategic influencer partnerships helps brands establish a deep emotional connect with customers, enabling them to acquire and retain a critical customer base, which results in ‘brand stickiness’ and impressive margins.

Furthermore, we live in times where customers, especially millennials, are deeply invested in brands that espouse values that align with theirs. They are even willing to pay a premium for sustainable, cruelty-free, eco-friendly brands—so long as they walk the talk! Setting the tone for a brand on these aspects right off the bat can go a long way towards developing loyalty, turning happy customers into brand evangelists.

Harness the power of being internet-first: When we began our journey with Mamaearth, we were often faced with the question: how big will ‘online’ be? Today this is a well-known phenomenon, but Mamaearth was one of the early brands in India to have taken an experimental, yet calculated, decision to jump on the online distribution bandwagon, opening up a new customer base for the brand. The pandemic that broke out soon after merely accelerated this process for them.

Furthermore, for brands such as these, we believe that an online-first approach, which slowly evolves into an offline presence over a period (typically once the brand reaches the Rs 100 crore revenue range) works best. Deploying this strategy can, over time, result in brands becoming more profitable in the offline space, with retailers vying for inventory and distributors willing to carry their product. As seen in this case, it is only a matter of time before such brands can confidently establish themselves in brick-and-mortar stores.

Diversify and differentiate: An important takeaway that all newly emerging D2C brands should bear in mind is that any investment cannot be based solely on the original beachhead. It is only a starting point and should be treated as such. Brands that show willingness and intent to diversify their offerings, and consistently differentiate themselves through product innovation and sub-brands, will thrive.

Don’t ignore unit economics: As investors, we believe it is important to consider unit economics and growth simultaneously from the word go. This is a very challenging task, and extremely rare in early-stage internet-based businesses. The reason for emphasising this is that for brands such as these, once the pricing strategy is fixed, there is very little flexibility to alter it later.

Build a strong team that reflects bold bets: This holds true for any company that we consider investing in. Investors constantly seek out founding teams of entrepreneurs who not only possess deep domain expertise but are fast-evolving and exhibit learning agility (that is not limited to past professional experience). Flexibility is key—no view can be held as sacrosanct, and every opinion is debatable!

The lessons derived from the Mamaearth growth trajectory are ample and could run into pages. There is no standardised and foolproof playbook for brands to refer to. But in our experience, a close look at the aspects listed above are critical in developing a strong growth strategy for D2C brands right from the early stage.

For early-stage brands to be ambitious and seek the unicorn tag is natural. But we believe that it isn’t or shouldn’t be a goal in and of itself. Brands that play the long game and constantly evolve will be able to stay ahead of the curve and scale unimaginable heights.

The author is founder of Stellaris Venture Partners, an early-stage venture capital fund.

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