Success has many fathers,
but in this case, there is only one.
Slide 3 of Dollar Shave Club’s Series A Pitch Deck
When I first met Michael in June of 2012, I had already seen the DSC launch video like everyone else. I saw his site melt down and watched the video explode and actually go viral. I asked Peter Pham for an intro, which he graciously provided, as Science had seeded and helped incubate the company.
What Michael was creating fit a number of my investment theses. I believed (still do!), in the age of social media, brands must become direct-t0-consumer in order to know their own customers. Having run eMusic and a few other subscription businesses, I knew that subscription is a business model that only actually works for a select few product categories, and that churn rates must be very low (well under 5% monthly) in order for subscription businesses to succeed at scale. I believed it was possible to use asymmetric marketing to injure existing incumbents who overly depend on broadcast advertising and distribute only through retailers. When I saw DSC’s early numbers, I immediately knew they were on to something big. There were many well-known seed investors and large VC funds already on the cap table — I was sure there would be a fight. Strangely, none showed interest. With other investors circling, and with Michael’s blessing, I led Dollar Shave Club’s Series A round and we became partners.
Michael knew all these things too. On top of it, it was clear he had enormous ambition and intended to build a dominant men’s lifestyle brand that went far beyond razors. He intuitively understood how to use content and conversation as marketing at a time when legacy brands were still shouting at their customers with TV ads, purchased without actually knowing their customers. He believed in transparency, making great products, and putting convenience and value first. And he knew it was crucial to build a trusted and beloved brand, albeit one that is entirely direct-to-consumer. His plan was grand, but his formula was simple…
Slide 19 in Dollar Shave Club’s Series A Pitch Deck
Michael built an incredible team. Hiring Kevin Datoo as COO very early on was a brilliant move. The team hit (or beat) every number they ever put in front of the Board. Following Javier Hall’s creative direction led to enormously high conversion rates coupled with elegant design. Adam Weber’s marketing strategy helped propel DSC to be the very clear number two razor company in the U.S., second only to Gillette and light-years ahead of the many followers who entered the market later. Janet Song’s obsession with high-quality customer service became a hallmark of the brand.
Success was not always obvious. Despite growing from $7M in revenue in year one to $20M in revenue in year two, no new investor was willing to lead the Series B round. At Venrock, we had such conviction in the team and the formula, we happily led that round too, fortunately increasing our ownership.
From that point on, it was like riding on a rocket ship. We grew to $60M in revenue in year three, and more than $150M in year four. As new competitors entered, we outmaneuvered them. We were eating marketshare, quickly reaching more than 15% U.S. men’s razor cartridges share last year, and getting smarter. As the team introduced new products they designed themselves, our millions of customers happily adopted them. Our software and systems performed admirably, and we ingested a large amount of data every day about our customers and their usage, refining the service and our products. It was a pleasure to watch the company transition from a razor subscription service to a trusted men’s lifestyle brand, increasing margins each step of the way, and serving more than 3 million people.
Many investors shy away from commerce companies. The multiples tend to be low, Amazon is ever-present, and lots of capital can be required to scale. To us, we didn’t see DSC as an “e-commerce” company, but instead as a model for new full-stack consumer products companies. Our investment criteria for this space is as follows:
- Offer highly-differentiated products with high product margins (In DSC’s case, value and convenience were the differentiators and their product margins are very high. Avoid product categories that can be Amazoned.)
- Invest only in zero-sum markets (A customer buying your product means they stop buying your competitor’s products. This is clear for DSC, but often lacking in apparel categories, for instance.)
- Choose categories where incumbents sell only through retailers and have no direct relationship with their actual customers
- Choose categories where incumbents overly depend on broadcast advertising
- Choose categories where the CEOs of the incumbents are professional CEOs, not founders (thus are far less-likely to cannibalize existing businesses and adopt new business models)
- Look for products and services which gather usage data and utilize machine learning to improve over time
Seeing Unilever recognize the importance of Dollar Shave Club’s incredible success and the brilliance of their team is a wonderful outcome for all of us. DSC will now have enormous resources to compete globally and to attain Michael’s original vision. It was an incredible privilege to work with and learn from this team. In addition, the co-investors Michael assembled around the table were a joy to work with. Thank you to Mike Jones and Peter Pham at Science, Kirsten Green at Forerunner, Woody Marshall at TCV, Rick Prostko at Comcast, Marc Stad at Dragoneer and the many others (like Mark Levine) who pitched in to help.
But most importantly, thank you to Michael Dubin. You are one of the greatest CEOs I have ever seen operate. You deserve all the spoils of great success. As you always said, “Great things happen when your ass smells fantastic.”