No. 336: The ‘Cycle of More’

There is a subtle trend bubbling beneath the Rothys and Veja’s of urban dwelling millennials. There is a rise in 20 and 30-something workers who choose to take mental health days off from work, citing burnout. CBD-based goods are commonplace throughout specialty retailers’ checkout lines. Meditation apps and hardware are tipping into the mainstream. Rather than the consumption of more and more goods, high-earning millennials are choosing to take time off instead. This shift in priority is in-line with another: the boom of companies pursuing valuation arbitrage by identifying new paths to growth. WeWork, perhaps the case study par excellence of this business cycle crashed –  on demand  – with the help of an angry, financially-free NYU Professor with nothing to lose.

Two trends lead this report: (1) the shift towards mental minimalism and (2) the shift away from the business cycle of more. In a January report in BuzzFeed News, the first of the two began to pick up steam in the mainstream media:

So what now? Should I meditate more, negotiate for more time off, delegate tasks within my relationship, perform acts of self-care, and institute timers on my social media? How, in other words, can I optimize myself to get those mundane tasks done and theoretically cure my burnout? As millennials have aged into our thirties, that’s the question we keep asking — and keep failing to adequately answer. But maybe that’s because it’s the wrong question altogether. [1]

Each daily task, job, extracurricular event, and hobby shares many of the same traits with one another. Bigger, more, faster, more, better, and more. Rarely is any daily occurrence simple, small, or inconsequential. And it’s beginning to show. If you’re reading this, you’re likely thriving in an environment where you Peloton or Tonal before work, Uber Black while answering emails on $2,000 MacBooks, micro-dose to become “limitless,” intermittently fast to optimize for your fitness, and then work twelve hour days to pay for those $3,500 monthly leases. Frankly, we are all burnt out. And there is a connection; brands are beginning to reflect the empathy towards this behavioral undercurrent.

It’s easy to understand, then, why so many of us are so angry. The WeWork’s of the world were built on an ethos of positive vibes and unity — replete with what tech analyst Ranjan Roy calls “high-minded, burning man-esque self-actualization language” that, today, feels offensively out of sync with people’s lived realities. So why would Pattern, or any company that applies a superficial layer of burnout-conscious buzzwords to its products, be different? [2]

Consumer psychology involves the interest in lifestyle, behavior, and habit. It’s an all-encompassing study that considers our idiosyncrasies, our temperaments, and even our subtle personality traits. These are the variables that influence our behaviors as consumers. Psychographic segmentation is the analysis of a consumer cohort’s lifestyle with the intent to create a detailed profile. [3]

Pattern Brands, the group behind Gin Lane (RIP), is at the forefront of this trend identification. The legendary creative agency that developed the mold for millennial consumption by advising Hims, Harrys, Dia & Co, Ayr, Bonobos, Shinola, Stadium Goods, and Rockets of Awesome is pulling back on the messaging that influenced the “business cycle of more.” With a bit of hindsight, it makes sense that Recess and Haus were two of Gin Lane’s final DTC projects. It’s as if they were telegraphing their plans to focus on a new era of messaging by concluding their successful run with two “mindful” brands.

What does this mean for DTC brands?

In the last months, Everlane launched its impact-free shoe, Allbirds released a Rothy’s look-alike, Rhone launched a credible competitor to Mizzen+Main and Ministry. And Away began laying the groundwork for a consumer packaged goods (CPG) operation. It was once common for brands to believe that they could build a defensible growth path by identifying one product-need and one consumer identity. [4]

Scale fast, scale there, scale now. This is the executive mantra of many of today’s top digitally brands. Many product manufacturers began with a single, key product. They then expanded into a growth path befitting that of a traditional category brand. Though, most DTCs have done so prematurely. In contrast, successful traditional brands expanded beyond their initial focus after a decade or more in business.  In this era of retail, the move from product-to-category happens in just a few years. Founders hire product talent to stay atop a growing diversity of SKUs – many of which were barely intended upon the start. Imagine a shoe company designing luggage or a luggage company designing dress shirts, for instance. For a generation of consumers, the business cycle of more isn’t just student loans, rising rents, or WeWork’s demise. It’s also representative of the brands that we consume. Every brand seems to be out to get bigger, faster, and stronger – a subsconscious reminder that we are to do the same. This is beginning to change.

In a recent conversation between AdWeek’s Ann-Marie Alcántara and I, we discussed these concepts in a marathon of off-the-record discussion. To combat the hyper-growth narrative required to achieve venture funding, the early stages of  today’s upstart brand would resemble more of a publisher or community than a retailer. The rationale is simple: a customer is fleeting, a community lasts. This is most often reflected by brands with stronger organic presences. Brooklinen is the example of the hour.

Brooklinen: A “Bedroom” Brand

No longer just a bedding brand, Brooklinen wants to own the bedroom much like Away aims to own travel. Their strategies diverge from there. Brooklinen is in a class of digitally native bedding companies to include: Parachute Home, Buffy, and Hill House Home Inc. Founded in 2014, the company reported nearly $60 million in 2018 sales; the wife-husband duo has only raised $10 million to date, a capital constraint that likely influenced their growth path from product company to category presence. In this case, capital constraint proved an effective growth mechanism.

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From: earthy-minimalist at Brooklinen

In contrast with many of today’s top digitally native brands, cofounders Rich and Vicki Fulop shunned the traditional “category expansion” playbook in favor of a two-way marketplace format that compliments the aforementioned trend undercurrents.  Consumers will reward the brands that offer value without trying to do it all. As such, the launch of the Spaces marketplace gained wide media attention thanks to savvy messaging from the founding team and public relations work by Ogilvy’s Lindsey Martinez, Brooklinen’s public relations firm on record.

Spaces will feature 100 products by 12 partner brands (in addition to the total 89 products created by Brooklinen). Designers will include some independent artisans, as well as recognized brands such as Simply Framed, The Sill, Floyd and Dims, among others. [5]

The launch piqued the curiosity of a number of industry observers who weren’t yet familiar with Brooklinen’s marketplace partner RevCascade or the SaaS company’s tech stack. Rather than expanding beyond the brand’s 89 SKUs by developing or white labeling other in-category products, Brooklinen partnered with RevCascade to launch a two-sided marketplace. With a monthly average of 600,000 – 650,000 visitors with purchase intent, offering complimentary products from fashionable brands like The Sill accomplishes a few things: it monetizes existing traffic while rounding out the consumer’s interpretation of how Brooklinen fits within their lives.

Brooklinen expanding to a marketplace isn’t necessarily a new concept, according to Web Smith, the founder of retail research platform and community 2PM. It’s what Smith calls linear commerce, in which a brand uses an existing audience to monetize further revenue, growth and traffic. [6]

Is Brooklinen any less of a category brand than Casper? The short answer is no. In fact, the market may reward the bedding company for its two-way market strategy. RevCascade provided the tools necessary for Brooklinen to launch a hybrid marketplace that featured (1) wholesale (2) direct (3) and drop-shipped merchandise. In this way, Brooklinen’s approach is reflective of the Law of Linear Commerce.

With so many new brands in different categories, it’s difficult for any company to “cut through the clutter,” Fulop said.

Brooklinen’s founding team paired an existing audience (of 600k MAU) with an additional commerce opportunity. In their case, they did so without any additional hiring, development, or marketing hindrances associated with new product launches. With their approach, they offer new products while maintaining their focus on the production of quality textiles.

In a comment to 2PM: Josh Wexler, cofounder of RevCascade:

RevCascade enables any retailer, eCommerce merchant, or publisher to launch their own curated marketplace or dropship program to elevate their brand, better serve their consumers, and generate new revenue with zero inventory risk. Brooklinen’s approved brands (aka sellers or suppliers) use RevCascade’s “onboarding wizard” to create their profile, upload inventory, and set shipping preferences. In parallel, by leveraging RevCascade’s automated Shopify integration for product data, inventory updates, and transaction data, Brooklinen was able to launch their marketplace in less than 30 days

Anchored by a strong affinity for the company’s core products, Brooklinen gained a competitive advantage by both measures: DTC and marketplace. Consider Verishop, a popular, well-led, and well-capitalized marketplace that launched in July of 2019:

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Whether we are discussing Pattern Brands’ approach to remedying burnout culture or the cycle of more’s influence on an ever-crowded market of high-growth brands, Brooklinen’s partnership with RevCascade may serve as a path forward for many of their counterparts. Consumers have grown weary of companies that are looking to grow for the sake of growth. To these consumers, it’s a reminder of their own fast-paced, high-pressured lives.

Consumerism will always exist in some form or the other, but the clutter of brands looking to grow to the next milestone may fall out of grace with many. From Marie Kondo to Core Meditation, clutter culture has become a catalyst for burnout remedies. Experiences that provide ease, value, and simplicity will be rewarded in today’s market. It is a brand’s responsibility to contribute to the solution and not to the cycle of more.

Read the No. 336 curation here.

Report by Web Smith and edited by Tracey Wallace | About 2PM

No. 335: The Merchant Class

 

The rebuttal that you’ll typically hear is: “eCommerce is not blue collar.” It’s a refrain tweeted from the 20th floors of urban sprawls. On those floors, you’ll find dual-monitored workspaces adjacent to espresso machines and collagen bars. But for Jerry M. of Pickerington, Ohio, his opinion differs.

He’s been a four year member of Amazon’s third shift at its CMH2 facility. With his trusty Fitbit, he measures his nightly activity. His all-time goal is a little over 17,000 steps for the day, though the 57 year old typically falls around 12,000 – 13,000. An impressive number, his picking and packing statistics are even more impressive. On any given night, his fulfillment center is one of Central Ohio’s most prolific. And that’s saying quite a bit. Jerry’s no stranger to hard work, he is a former maintenance man who took the opportunity to grow with Amazon’s exploding logistics-side business. It paid far better.

Central Ohio is a bastion of third-party logistics centers and fulfillment warehouses. Name a digitally native brand and they will likely have a presence in the area. It was my first experience within the walls of one of those retailers that changed my perception of commerce altogether. At 26, I began in the marketing department of Rogue, a now-gargantuan online retailer that employs hundreds of machinists, warehouse workers, packaging engineers, and front office developers and executives. The employees and contractors now sit (or stand) within 900,000 square feet near Downtown Columbus. But on my first two days with the company, I passed the hours in the warehouse moving 40 pound boxes. On the second day, I wore comfortable shoes.

To the marketers, developers, and managers – they are online retail. They are what makes the engine move. And for a time, this was true. Commerce investments like recruiting engineering teams, advertising talent, server space, able creatives, and copywriting mavens rounded out the major spend. Leaders would spend heavily on the front-end, not the back-end. Commerce was pixels, not forklifts. But to those building packaging, operating forklifts, moving goods to trucks, they were commerce. To them, the front office folks were the replaceable ones.

Commoditization of the Front End

The front-end product side of online retail is quickly commoditizing. You have Shopify and Magento, of course. But then, there are solutions for every corner for the ecosystem; these innovations grow by the quarter. There are legacy partners like Fulfillment by Amazon (FBA), Adobe, BigCommerce, Square, Oracle, SalesForce, and WooCommerce. And there are new and innovative no-code options like Webflow Commerce and Storefronts by Elliot, a new plug and play product that launched to much fanfare on Product Hunt. With storefronts, you don’t need many of the front office folks that were required just eight years ago. The constraint is now warehouse logistics, and Shopify saw that before any of its competitors. The labor is the hard part.

The foresight by Shopify’s management team couldn’t have been better-timed.

Despite the front-end component of online retail commoditizing more and more each day, eCommerce is mainly discussed within the confines of code and pixels. But if you’ve ever had to build something, you’re just as grateful for the UPS employee as you are to the front-end developer. Online retail is a blue collar industry built on accessible tech. When Shopify launched into the third-party logistics (3PL) industry earlier this year, it raised eyebrows. Critics suggested that Shopify was losing its focus. Many of the questions centered around matters of optics: Can they maintain efficiency across hundreds of warehouses? Do they understand the difficulty? Will it lower their net promoter score? And don’t they know that they’re a software company?

Unpacking the next battle

It’s the third question that is at the crux of it all. Shopify has a decade-long history of enabling storefronts for tens of thousands of traditional and digitally native retailers. It has been, in effect, a publisher. Over that span of time, the company has added retail operations: omni-channel inventory tracking, point of sale hardware, and now shipping and logistics. The retailer’s primary user base (Shopify account holders) benefits from the company’s growing list of core competencies. [1]

Sitting with Shopify founder and CEO Tobi Lütke in his Ottawa office and one line of thought stood above the rest. I cared more about the enterprise names in commerce than he did. I found that to be confusing at first. Within the Shopify solar system, Plus is its own planet. It operates out of a different city. The cultures between offices are wildly different. One is low key, the other has a dash of braggadocio. But for Lütke, Shopify doesn’t exist for the sake of Shopify Plus. In fact, one could argue that it’s the other way around. Shopify Plus helps Shopify build more tools for the common merchant. To the Ottawa-based CEO, helping mom and pop shops and millennial side hustles is where the action is. Engineering is no longer the bottleneck, in this respect. There are a dozen options if a merchant would like to sell a product and accept payment.

Shopify plans to spend $1 billion on its fulfillment network through 2023, and Wong writes that his research shows that “there is enough merchant discontent with Amazon and sufficient inefficiencies in the logistics workflow to innovate upon, that Shopify could eventually compete against” the e-commerce giant. [2]

But it’s become abundantly clear that, at some point, Shopify’s business needed to shift from the theoretical to the practical – from bits to boxes. If every merchant can find a storefront, Shopify’s original vision is no longer enough. This week, Shopify officially closed acquisition of 6 River Systems for $450 million in a cash and stock deal.

By equipping independent warehouses and 3PLs with task-augmenting robotics, it frees up workforces to do more, faster.

Shopify expects this move to support on-site employees with their daily tasks, such as inventory replenishment, picking, sorting and packing, as well as increase the speed and reliability of its warehouse operations. [3]

This long-term investment was key to Shopify’s strategy. By improving efficiency through out hundreds of warehouses, Shopify is growing capacity at 3PLs. Not only does this lower the costs of shipping, it also increases success rates. Ask any top 3PL if they’d onboard a small business doing less than $300,000 per year; the answer will be “come back when you’ve grown.” If top 3PLs do accept small retailers like these, the costs are disproportionate. The concern and care is minimal. In an industry where top performing 3PLs gross $200 million or more, $100,000 accounts are a strain. But until recently, there was no efficient funnel to help small merchants attract the business of independently owned, small cap 3PLs like Ohio’s Ships-A-Lot.

The average DTC founder spends 20-30% of her time dealing with shipping concerns while managing scale and expectations. Lütke is democratizing third party logistics for all merchants, not just ones at the enterprise levels. By increasing optionality and making the investments into robotics and data systems to lower costs – more merchants, small retailers, and early-stage DTC brands may finally be able to utilize 3PL services earlier in their life cycles. In 2004, Shopify launched products that made founders reconsider hiring full-time engineers. With innovations like no-code platforms, online retail has come a long way since those days. Third-party logistics for smaller merchants is just the latest in the line of pain points that Shopify is well-positioned to address for the merchant class.

Some will argue that eCommerce isn’t blue collar, Shopify’s actions suggest otherwise. For employees like Jerry and the hundreds of thousands of other warehouse workers spread throughout the exurban office parks of America, they see themselves as the center of the eCommerce universe. And rightfully so. Products are picked, packed, and moved by hard-working, tireless people. Retail is the movement of physical goods that require enormous amounts of physical labor to arrive faster and faster to your doors. And so, eCommerce isn’t just a front office job anymore. Of course, many merchants will tell you that it never really was.

Report by Web Smith and edited by Tracey Wallace | About 2PM

No. 334: The Relevance of The Letter

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This week, The Atlantic’s Kaitlyn Tiffany wrote a nuanced and worthwhile report on the history of the newsletter industry. The length of the history depends on whom you ask. To her point, Substack would like you to believe that their team pioneered the movement. She argues, correctly, that they’ve successfully adapted it for a different audience. They’ll likely see great, longterm success. One glance at Substack’s paid leaderboard screen and you may understand the point that the author made throughout. In her piece, she writes:

“[Newsletters have] been a thing,” says Ann Friedman, who has written a weekly newsletter since 2013, has 40,000 subscribers, and is widely recognized as one of the leaders of the first newsletter boom.

In many ways, Tiffany’s article was relevant to a few thoughts that I’ve been managing for some time. She aptly stated the argument that while Andreessen Horowitz’s $15.3 million investment into Substack signaled a beginning, it became a useful tool to make newsletters “cool” to other groups. She provides a bullet-by-bullet history of some of the most important names in the newsletter industry’s history. The report is worth your time.

Backstage at September’s Destination D2C, a dozen or so colleagues convened to chat about the professional world, a passion that each of us pursue in our own ways. We each shared a few things in common but the most important was our interest in the direct-to-consumer industry. Now memorialized in Modern Retail‘s “The Rise of the DTC Bro,” that backstage scene was a significant moment and one that would not have been possible without the aid of the mainstreaming of newsletters as a media platform, to Kaitlyn Tiffany’s earlier point. Cale Weissman began:

It started with Paul Munford, founder of the luxury newsletter Lean Luxe, alongside Web Smith, founder of the site 2PM, who sat beside Helena Price Hambrecht, the founder and CEO of Haus. Then came Marco Marandiz, a DTC strategist and consultant, who sat down and joined a conversation about their clients. After that, Nik Sharma, whose Twitter profile describes himself as “the DTC guy,” joined the fun.

What, perhaps, the Modern Retail reporter didn’t see in that scene was the disproportionate amounts of rejection tolerated by each member of that seated group. Helena Price Hambrecht, a now well-known direct-to-consumer founder, began as a creative. In her own right, Hambrecht is a master communicator.

She proved herself quickly but for those of us who knew her before the bottles shipped, she was already proven.

But before Haus launched to a sellout crowd, the brand that she cofounded faced an uphill battle. No one wanted to fund her idea. Early on, reporters privately panned her concept and approach. I know, personally, that she pitched over 500 times to complete her $1 million seed round. That’s an extraordinarily high failure rate. Traditional VCs consider: geography, industry, age, gender, and more. Pattern matching provides comfort and a bit of insurance. Hambrecht was not a pattern match. However, the next round that she raised would close within days. In a comment to 2PM, Haus founder Helena Price wrote:

Our first $1 million took eight months and about 500 pitches. We heard a lot of no’s. There were plenty of dark points and moments of doubt. That said, if you truly believe that there is an audience for what you’re building, you’ll find those people in VC too. I tell people raising, now, that they probably haven’t met 90% of the people who will ultimately invest in them. You just have to keep getting intros and sending cold emails and you’ll eventually find your people.

She proved herself quickly but for those of us who knew her before the bottles shipped: nothing had changed, she was already proven. She just didn’t match the idea of a retail executive and manufacturer. As for the idea of a eCommerce industry leader or thinker, few of those of us who sat backstage matched that pattern either. Marandiz, Sharma, Munford, nor I are the prototypical resources for the higher rungs of the commerce and media industries. You wouldn’t find a single one of us on this list of industry insiders. There are several of the list’s members who subscribe to 2PM or Lean Luxe, however.

In an industry that glazes over contributions of those who don’t match the proverbial pattern, the newsletter movement has provided a platform. What each of us shared in the moment was memorialized by that paragraph. Before we were publishers, we were operators at some point: founders, directors, managers, builders. And that hard-earned experience was the wind the pushed our personal projects forward.

Sharma, once the Director of eCommerce for Hint Water (and then Vaynermedia) is often a co-writer to the prolific David Perell. A public relations executive by trade, Munford launched Lean Luxe within months of 2PM launching. Marco Marandiz made his name publishing now-famous Twitter analyses of DTC brands like Away and Glossier. He began doing so while leading product at HomeAway. And before I managed commerce for media publications Gear Patrol and Uncrate, I cofounded Mizzen + Main. Still, those credentials often fall short.

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Sherrell Dorsey, Dan Runcie, QuHarrison Terry, and Web Smith

Just three months ago, 2PM was featured on a National Association of Black Journalists (NABJ) panel with successful (and lucrative) newsletter publications: The Plug, Inevitable Human, and Trapital. The topic was on “building paid subscription media companies.” But the common thread throughout was easy enough to observe: without the critical mass of a newsletter audience, our ideas would likely be re-packaged at a traditional outlet through on-the-record or off-the-record conversations with professional reporters. Newsletter publishers strive to own the distribution of their ideas and the communities around them.

So when I read the article by Modern Retail, I wasn’t upset. Weissman is a great writer and he likely meant no harm. But I was confused by how no one saw what we did. I am not sure that many readers understood how proud we were to be sitting there in the first place. Just three years prior and that scene wouldn’t have happened. To me, the moment felt like an enormous privilege. In each instance, we found our own ways to deliver our practical and experience-driven ideas to a very competitive ecosystem. And on that day, the founding team at Yotpo recognized the validity of them all. It was an important moment.

The Pre-Substack Era

Goal: publish 180 letters. Reassess. Launching 2PM, Inc. in 2015 was a hail mary of sorts. In December of that year, I was no longer co-running a DTC operation. Instead, I was advising and / or building eCommerce operations for publishers. As a side project, I started 2pml.com as a way to maintain accountability to myself.

2PM was a simple proposition: understand everything to get better at the one thing.

I wanted to get better at my profession. At the time, my focus on one task was leading to more blind spots than tangible progress. As such, I was missing out on the practical knowledge that follows reading, thinking, and hard analysis. The first 2PM email published to 11 people; I’d monetize it after 180 letters out of necessity. Building this company became my full time job.

By understanding how 2PM’s commerce-adjacent industries interact to negatively or positively impact one another, I was able to map the best steps for the projects that I was attached to – then and now. With 2PM, I hoped to duplicate those same abilities for other industry colleagues. It is a simple proposition: understand everything to impact that one thing.

If there were any blindspots in Tiffany’s Is Anyone Going to Get Rich off of Email Newsletters? [1], there may be one. There is a growing collective of former operators who spend the majority of their time honing their publishing skills. They understand commerce and marketing and branding and logistics and data science. They’ve shipped packages, negotiated distribution deals, and led performance marketing efforts. And readers appear to be drawn to the raw perspectives of those who are discussing industries from within the walls. Whether you’re reading Emily Singer’s Chips and Dip, Magdalena Kala’s Retales, Richie Siegel’s Loose Threads, Jenny Gyllander’s Thing Testing, or Paul Munford’s Lean Luxe, the presence of operational experience is felt.

The Operator-First Publisher

So yes, Substack left out relevant history on their July 17th “A better history for news” blog. Of course they highlighted Ben Thompson and Jessica Lessin, luminaries of the indie paid subscription industry. But Substack may have missed another trend. Substack concludes their homage to publishing with:

One hundred and eighty-four years since the New York Sun first went on sale, we are standing on the cusp of a new revolution in the news business. The time for mourning the loss of the old media model is over. Now is the time to look ahead to the next two centuries.

The revolution itself is not new. But it is reaching new types of thinkers looking for a platform to move their industries forward. Will it make publishers rich? Maybe, maybe not. But publishing as a platform is altogether different than sending newsletters alone. Gyllander just completed a sizable angel round from many of Silicon Valley’s best and brightest. Her subscription-based approach is fresh, credible, and engaging. Siegel just successfully held a one-day retail conference that wouldn’t have existed without his Loose Threads newsletter. Munford fills Lean Luxe social events each time they are held. While not a paid-subscriber driven platform (for now), he’s successfully monetized through weekly sponsorships. And 2PM is launching its first members-only forum for commerce and media executives: Polymathic. Each company has tremendous opportunity ahead of them.

The era of the operator-first publisher is a fascinating one to observe. In some ways, it’s leveling an exclusive playing field within media tables. But at one table, in the backroom of Yotpo’s well-appointed venue, a group certainly stood out – literally and figuratively. We carried ourselves differently and we looked different. Non-traditional voices in business-adjacent media are positively impacting traditional media circles. And the hope is that those newsletter-turned-platforms continue to provide new ideas to the executive levels of established digital industries. 2PM is once again observing a quiet movement from within.

Read the No. 334 curation here.

Report by Web Smith and Edited by Tracey Wallace | About 2PM