D2C has been on the rise for a while now, moving quickly beyond being a passing trend to becoming a mainstream business model. In recent years, corporations like Comcast, L’Oréal and Verizon (just to name a few) have all started their own D2C ventures with some pretty exciting results.
2020’s pandemic further skewed the market in a D2C-friendly direction, causing more people than ever to shop online and crave a more profound sense of connection with their preferred brands. In fact, according to Statista, D2C sales in the U.S. alone are expected to grow from $17,75 B in 2020 to $20,25 B in 2021. That’s quite a leap in such a relatively short amount of time.
Today, startups and corporations alike are leveraging the D2C model to:
- Innovate with novel new products/services
- Access valuable customer data
- Achieve higher profit margins
- Increase brand loyalty and customer engagement
- Scale quicker
If you’d like to learn more about creating a D2C business, you’re in the right place! These are the eight key steps you need to follow to build a successful D2C venture.
Step one: Create and validate your D2C concept
The first step to building any venture is to have an idea or concept around which you can build a business. As a general rule, you should always make sure your solution has an audience that wants to buy it. Kicking things off with a product or service idea that solves a real customer pain point will significantly diminish your risk of failure down the road. So how do you tackle this first step?
Well, a good place to start is by figuring out:
- The problem you want to solve
- And, who has that problem
You can then start ideating different solutions and validating them with your target audience. During the validation process, you’ll be testing your solutions with real potential customers, getting their feedback and making iterations based on that data. Depending on your results and number of iterations, it’s likely you’ll go through several validation cycles before having an offering that’s ready to hit the market.
D2C ventures are often easier to validate than B2Bs because there’s no third party or middleman between you and your target audience. This enables you to get more out of acquisition channels like Facebook, Instagram, LinkedIn.
Step two: Conduct a market analysis and build your D2C business plan
Now that you’ve checked off the “desirability” box by validating your offering, it’s time to take on:
- Feasibility by doing a market analysis
- Viability by creating a D2C business plan
Market analysis
Doing a thorough market analysis provides valuable insights into who your customers are and the type of competition you’ll be facing. The data gathered during this phase will serve as a blueprint for further development and help unlock the funding and resources you need from corporate leadership.
D2C business plan
The process of building a D2C business plan is similar to that of other ventures, except for a few key differences:
- Your supply chain has no third-party sellers so you’ll have some extra profit margins as a result
- You’ll have some extra factors to consider, e.g. fulfilment centres, delivery partners, supplier and orderpicker, etc. These extra factors bring more variable costs - so it’s important to map all variables that could have an impact on your margin (drafting up a worst-case and best-case scenario is a good first step to estimate it).
Step three: Design your D2C brand
Nowadays, anyone can set up an online shop and sell a product or service online with minimal effort, but not everyone can create a good brand. This step is important because the way your customer perceives your brand (either consciously or unconsciously) wholly determines how he or she will engage with it.
With so many products and services currently being offered online, strong branding can help differentiate you from the competition by:
Branding is especially vital for D2C ventures because (assuming you’ll start your venture online), you won’t have a physical store to immerse people in your story and create an experience through decor and shop assistants. Building a strong and recognisable brand will enable you to communicate your story and brand values, even in an online format.
The best way to start is by establishing your “brand purpose”. Customers develop loyalty and an emotional connection with brands that reflect their values and have a reason for existing that goes beyond simply making a profit. This is a common characteristic of successful D2C brands like Away, The Honest Company and ThirdLove. Keep in mind that developing a brand purpose that aligns with your customer’s needs and values requires a deep and clear understanding of your target audience.
Once you’ve established your brand, it’s important to remember that it’s a long-term commitment. Every decision you make after, from marketing to supply chain, should reflect (“breathe”) your brand, values and purpose.
Step four: Get the funding you need
Unlocking the funding and resources you need to take your D2C venture forward requires a killer pitch (same as other business models). First, you’ll have to present your idea, ideally with positive desirability, feasibility and viability validation data to back it.
Most successful pitches have the following three characteristics:
- They tell a compelling story - Make sure your pitch is concise, to the point, and tells a memorable story.
- They showcase validated results - Create trust and credibility by showcasing data related to your competitive analysis, consumer validation results, market-sizing and acquisition insights.
- They align to your greater corporate strategy - Pitches that are aligned with corporate stakeholders have a higher chance of getting funded.
Step five: Develop your D2C offering
Product development is the most exciting step for many D2C entrepreneurs. This is when you’ll transform your idea into an actual product.
Start by working on prototypes with one or multiple potential manufacturers. Once you have a working version that you’re satisfied with, it’s time to negotiate the terms of your contract with your manufacturer and lay out the operational structure of your production line.
When working out your supply chain, there are many choices to be made, from sourcing raw materials to manufacturing and logistics. In many cases, you can even find end-to-end suppliers that can support almost your entire supply chain. In today’s markets, you’ll have plenty of options to choose from.
During this process, remember to keep your brand and storyline in mind. For example, if you’ve created a brand that values sustainability and ethical beliefs, make sure you reflect that in your entire business.
Step six: Build your team
The first step is to build a “core team” that will help turn your vision into a reality.
Every venture requires a specific set of skills, so make sure to map out all the skills you think you’ll need to move things forward.
Afterwards, you can cluster these skills into profiles and decide which ones you’ll need full-time F(e.g. CEO, CTO, CMO, CPO) and which ones you’ll need on an ad hoc basis (e.g. legal and accounting support).
Always keep in mind that the first people you hire will be hybrid profiles. You need to surround yourself with entrepreneurial people who can handle a variety of tasks and step in where necessary.
Step seven: Set up your online sales and marketing strategy
In D2C ventures, sales and marketing often “fuse into one”. Having an excellent product and an alluring e-commerce website won’t do you any good if you can’t drive the right customers to your site. Here are a few tips to help get you started:
Harness the power of social media
Brands that engage with customers through social media develop a deeper connection with them. Activities like launching contests, giveaways, and posting regularly can help you gain a competitive edge over brands that take conventional routes without social media.
Know your D2C business metrics
Identifying your key metrics will enable you to more accurately measure and analyse the state of your venture (e.g. are you hitting your desired growth targets?). By keeping these metrics on your radar at all times, you can streamline your marketing efforts, build momentum, and stay ahead of the competition.
Stay on top of your game
D2C marketing is constantly evolving. Therefore, it’s imperative to stay on top of the latest trends to outrun the competition and boost the relationship with your customers.
Step eight: Plan your customer service model
At the end of the day, your primary objective as an online entrepreneur is to delight your customers. Happy customers will share their experience online and recommend your product to their friends and family.
Before you begin selling your product or service online, you’ll need to have a clear model in place to support your clients. Customer service is often “a make or break” for many people, so think carefully about how you’ll handle returns and incoming questions.
Final thoughts
Following these eight key steps will help ensure you have a solid foundation upon which to build your D2C venture - and there’s no better time than now to start innovating!
A good way to help boost your long-term success is to make the most out of the direct customer access that D2C ventures provide. Listen to your customer’s feedback and keep making improvements that reflect their wishes. Remember, like most ventures, not every move will be a complete success, so make sure to learn from each iteration and use the insights to “fail forward”.
Check out our eight essential D2C growth tips for more insights on strengthening your D2C venture.
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Are you interested in exploring D2C as part of your innovation journey? We can help you build a customised strategy suited to the unique needs of your business.
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