In this episode, Head of Planning Christian Taylor chats with DTC entrepreneur, consultant and the author of ‘The Direct to Consumer Playbook’ Mike Stevens about his founding stories at Innocent drinks and confectionery business Peppersmith, the challenges facing DTC entrepreneurs and advice for brands looking to scale in 2022.
The book is available to purchase the book here.
Transcription
Hello, and welcome to Unmuddled the podcast from The Kite Factory. In each episode, we take a topic from the world of marketing and media and simply unmuddle it, giving you the key information you need to know. I’m Christian Taylor ahead of planning at the kite factory. And today I’m joined by our guest, Mike Stevens. Mike has recently written a book called The Direct Consumer Playbook the Stories and Strategies of the Brands that wrote the DTC Rules. Today we’re going to discuss some of his learnings, both from his personal experience and from writing the book on taking a direct consumer brand from start-up to scale up. Before we do, Mike, tell me a little bit about yourself, your career and how you came to write the book. Hi, Christian, thanks very much for having me on today. So my career has really been in the entrepreneurial start up, scale up challenges state and primarily in food and drink and CPG. So my background was after leaving university at the end of the 19 nine, I found a scrappy little start-up that needed some help with a supply chain and asked me if I wanted to come and join the team. And I was very glad I did because that scrappy little startup turned out to be Innocent Drinks. So I was on one of the first people in the building and building this smoothie brand and everyone knows what it’s become. And for me, the reason I joined that business is because I always had an entrepreneurial mindset and in fact, I was looking to start something for myself. But being relatively fresh out of university, I didn’t realize I didn’t really know what I was doing. So joining a company like Innocent was just because of a startup. Here’s a great place to learn how to do, how to create something for nothing and how to build a business. And my plan when I joined in 2001 was to be there for two or three years to see how it was done and then go off and start something myself. In the end, I was there for over eight years and that was because, as everyone knows, it just became one of the most iconic brands and startup brands of the last 50 years in the UK. It was just a great place to learn, to get involved with all the different things you have to do to scale a business successfully. And the big learnings from Innocent was you have to run every part of the business world. And Innocent is quite unique because it has three founders and those three founders all had amazing abilities in their areas, whether they be ops or marketing or sales. And where Innocent became really successful if they were able to blend those areas together and have this business that sort of ticks every box. So I was there for eight years and it grew from a few people and a little Chevy on the Golden Road to a business with 2300 people in different countries and just doing different things. But it was always going to be when I set up my own thing, not if. So eventually the time came that I was ready to go and do what I always wanted to do, which is set up my own business. And it made sense for me to take the learnings that I had acquired from Innocence into a new product. So me and another chat called Dan Trimson who also used to work at Innocent with Peppersmith and the idea of Peppersmith was it was going to be a confectory company that followed all the rules that a brand like Innocent followed and none of the rules that a brand like Mars or Wrigley or Nestle and all the big infection companies with the big themes being natural products. Healthy products. Sustainable products and a brand which could tell the story in terms of why these type of products and the company is different to what’s come before. And the reason we chose Confectionery was because this was in 2009 and in that decade from 2000 to 2010 we’ve seen this change in the food and drink industry where it went from the commodity products which are very low cost, high volume, to a set of products that have more to them to give consumers a better choice in terms of what they put in their bodies. And Innocent was obviously one of the leaders in this. What we saw is that it wasn’t just about fruit juice or drinks. These trends of naturalness sustainability, healthiness and different brands was that we’re appearing in every other category in food and drink apart from what we saw at the Times Confectionery. The Confection rate was still dominated by these companies who had been roused, but in some cases hundreds of years, doing their thing and doing it very well. But they were making products with very little focus on the things that we really cared about in terms of provenance and actually what these products did your body and things like packaging. I mean, we used it from the very start. We didn’t use any plastic packaging. That was twelve years ago. These things were important to us at the time and it was just like we just felt that particular category had not caught up. So we set up Peppersmith in 2009, originally with a plastic free chewing gum product and then out of that we built up a set of products that I guess we’re most famous for chewing gum and mint. And I built that business over eight or nine year period and eventually exited after selling it to which essentially one of our customers who are the biggest sort of health and whole foods company in the country. And we sold it to them in 2018. And since then I’ve been doing lots of different things including writing this book, the Director Consumer Playbook and I think I should really tell you about why I ended up writing this book because it wasn’t just because I had too much time in my hands. Yeah, that’d be really helpful. So what was it that triggered you to write the book? Yes, the book was really stemmed from my experience tabasmith. So even back in 2009 when we started Peppersmith, we had an ecommerce direct consumer offer. But it was all very basic. The reason we had it is because we knew as a startup brand, not everyone is going to find some shops. It takes a long time to build up sort of decent distribution and what we wanted to ensure that anyone who had heard of us who wanted to try the product was able to access it. So we set up a really basic sort of web shop. This is way long before the days of shopify but it was never for us, direct consumer was never a key sales channel, it was more marketing. We just wanted to make sure that we were able to serve customers. But what happened over the ten years we were building the purpose of brand is ecommerce and direct consumer just became more and more important. I mean, even for a brand like us who sell mince and chewing gum, which is the most impulse type product you can, we were still selling quite high volumes directly to people either by our own website or via Amazon. And the reason that happens because the key attribute that Peppers have had is that unlike other confection rate is actually good for you because we use this ingredient called Xylitol, which is really good for your teeth and you have it on a regular basis, scientifically proven to destroy the bacteria on your teeth. So it’s a product you should have all the time. So we created a system where anyone who wanted to buy the product beyond just having a quick refreshment fix, could buy directly from us. And from that they got the best price and the best service and lots of other things. But the other thing that occurred to me as we were building August. Our direct consumer channel was how much better it was from a brand perspective in terms of we had this direct relationship with our consumers and also we didn’t have to rely on retailers listing the products and then beyond that. Actually making sure it is on the shelf in the right place at the right price. With the right promotion and all that stuff. We could actually control it ourselves. So that was hugely attractive because as most of you will know, dealing with the retailers, especially the supermarkets, it’s really tough, they’re big beasts, they’re really hard to navigate and you need so much energy and cash to be able to do what needs to be done, even if you’re lucky enough to get a listing. So by doing direct to consumer, actually we just had all the control. So I loved it. We just need to do more of this. And so over the years, it’s like, okay, what can we do to really build up our direct to consumer channel? And we’re trying to find out how, what was the best practice, what’s the best way to do it? We learn a bit ourselves. But then I started asking around our peer group, the other sort of food and drink and CBD brand founders that I knew. You’re doing DTC now. How are you doing it? And where I got to is like, everyone was working quite hard at it. But since we’re all learning on the job, no one really knew what the right thing to do. There were specialist DTC brands like Graze.com, they’re probably one of the most famous, who just specialized at the time in DTC. Now, they spent a lot of time, effort, and money in terms of working out what they need to do and get it right. But for brands like us, where it was just another channel and it was uncertain in terms of how much effort we should put into it, it was like, oh wow, I really wish I knew what are the right things to do? So as the business grew over time, where we got to is actually we did work out quite a lot of things to the point where about a third of our revenue was coming from either through our website or via Amazon. But even so, I felt while we’re doing this, okay, I’m not sure I’m an expert in this, and I really wish as a brand owner, there was more resources out there which could give me the best practice. But they were. And then what happened? When I sold the business in 2018 and actually stepped away from the brand of 2019, it was still very obvious to me these sort of resources still didn’t really exist. I mean, DTC had been around for a good few years, but I guess it was still relatively new. So no one had written the book about, if you’re a brand owner, how to approach the DTC channel. So I took it upon myself, no one else is going to write this book. I think it’s going to be really useful. So now I’ve got the time, I’m going to do it. So I spent the last two and a half years interviewing the founders of the best DTC brands that I knew. Brands like Fuel and Graze and Bloom and Mild. All plants. Casper These brands have really, I guess, made the difference in the DTC space. And what I did, I sort of a bit like this podcast. I asked them what their founding story was in terms of where they came from and how they ended up setting up their businesses. But within those stories, try to really delve into the strategies and the tactics they use to scale and grow. And that’s really what the book is. So the book is a series of 16 different case studies about different brands where we find out in terms of what they were trying to achieve, and then beyond that, how they achieved success, and within that, their approach to customer service, data analysis, supply chain hiring, do they do things in house or do they outsource financing? How much money do they raise? Do you need to raise money? And all of these things come together to just outline, here are the things that have made those brands successful. And then I tried to sort of just group some of these things together. And the ultimate objective is the book is anyone who’s interested in D to see if they’re a brand owner or thinking of setting up a brand. That all gives them a foundation to work from. Just like, yeah, here are things that I can apply. Here are the learnings I can apply for my business from those brands. I’ve got it right. Great. I recently read a useful rule of thumb which states that a brand is ready to scale when it has proven product market fit with at least 40% of its sales coming from returning customers. I really like this concept. I think it also applies to subscription brands where you’ve got sort of retention analysis, understanding your lifetime value, essentially making sure your bucket isn’t leaking before you’re pouring all in your investment. To scale a brand generally, what would you say are some of the biggest challenges faced by brands looking to scale up, jumping from start up to scale up? Yeah, I like that quote. I don’t think it’s right. Retention is so important because what retention is, it’s a validation that you’re solving a real problem. Lots of people out there will try different products because they like the branding or they think it’s going to be something and it’s going to help them. But if the reality is actually it doesn’t live up to that promise, they’re not going to come back. And therefore the product is not really doing what it’s hoping to do. So if you’ve got customers who come back again and again, it just shows the product is service purpose and actually they like engaging with the brand itself. And this is where your brand purpose and your mission comes into it. Because at your direct consumer, you build this connection with the consumer, you can find out more about the consumer, but importantly, the consumer can find more about you. And if you don’t think about things in the same way, that relationship is going to quickly break down. So, yes, I think the original card retention is really important because it just shows that your product is serving a purpose. And even to the point where some products, like a mattress, for instance, you think about a business like Casper, you might only buy a mattress once every five or ten years. However, if that mattress is doing its job, not only next time someone needs a mattress, they’re going to go back to the same place, but they’re also going to tell their friends, anyone else they know who might need a mattress, they’re going to say, look, I’ve got this product, it’s doing a great thing and I really like the brand, you should check them out. So even if it’s not direct retention, it’s all about retention within a customer sphere of influence. So, yeah, I think it’s so important. And if you’re just building a brand on acquisition alone, which is just trying to get as many first time customers as possible, and those customers are not coming back, you’re going to be in trouble quite quickly. Agreed. Definitely. One of the other challenges we see quite commonly in this type of business is switching or seeing their performance channels start to level off. Typically it’s sort of a dependence on facebook advertising, google advertising, they’ve seen spikes and short term sales. But there’s a leap towards the scale up part of the business, which typically is using broadcast channels to increase their reach and scale. Are there any good examples in the book of brands that have done this really successfully? Yeah, I mean, all the brands in the book have scaled. They all started with nothing and they’ve scaled up into big businesses. I mean, use an example of a brand like fuel. So fuel started six or seven years ago, and what was interesting about fuel is that when Julian the founder set it up, he always had in mind a relatively small market. It’s like, look, if I can build a brand that just serves a limited number of people, but those people are really invested in what we do. They think the same as me in terms of food, nutrition, and I can serve them with this product. This company is going to fulfill its purpose, which in terms of being a sustainable business, what has actually happened to that business? They just got better or better in terms of bringing more people into their mission. But at the start, they focused on using facebook look like groups, which is the way you did it. You found a group of customers who were into what you did. And facebook at the time is very good at finding more customers or more people who had a very similar profile. And the idea was that if this product is going to be a good fit for these people, it should also be a good fit for people with a similar profile. And essentially that was the case. But those days are gone and we can talk a bit about the effectiveness of facebook and instagram and stuff nowadays compared to it was a few years ago. But what the brand is scaled very well have done is also they built their products and their brands to actually serve a set of customers. And that set of customers can be small, but if they do that, if they make a product really well and they’ve got their branding done really well. What they will generally find is there’s more and more customers who actually can understand what they offer and think, oh, I sort of get that now. Maybe I didn’t see it five years ago or I didn’t understand it five years ago, but now I sort of do understand it. I think you can help me and then you scale up from there. But yeah, just go out in the example. What I really love about Fuel, they were always set up to succeed, but on a small scale. And from that, because they did that so well, enabled them to succeed at large scale. You touched on the challenges of Facebook advertising. We’re in a different world. Post pandemic, we’ve got new challenges such as updates to iOS 14. What do you think? How the brand sort of overcoming some of those challenges nowadays? Yeah, you’re completely right. We live in a very different world. I mean, in the book, I interview founders that set up their businesses seven or eight years ago. It may be even more. Two founders who set up their business in the last year or two, and they have very different approaches. I mean, back in the day, you would have heard these terms like, oh, customer acquisition cost and lifetime value. And the theory was at the time, if your customer acquisition cost is less than lifetime value, just invest as much as you can on acquisition. And that worked quite well because back in the day, five or six years ago, a Facebook ad was really cheap. And also they had this technology where you could actually not only was the ad sheep, but as we said in the last example, you could also use that technology to find the Men, the UK based Men’s Shaving brand, who now also doing lots of different things as well. But this was back in 2015, and Oliver said to me, the founder, he’s like, back in those days, brands that have been around forever, they were diverting the funds they’ve normally put into TV, radio or whatever and other above the line activities. Right now, we’re now digital, digital the way forward. And it just meant that the cost of advertising and acquiring customers went up and up and up. And it means that those days are thinking it’s a good idea to remort your house. Completely gone. So what do brands do? Well, the brands are around five, six years ago. Hopefully we’re lucky enough to build a following, to develop their products, to establish a set of customers where the brand has got enough awareness that it is able to survive without spending all their money on social media. But what does that mean for new brands? So in the book, after the newer brands that I interviewed were Lick, the Decorating Paint brand, and also Height, the brain care company who made scientific supplements, their approach actually is very different. They know that if they just try and build their company using social media ads, they’re just going to run out of cash. They’re not going to have enough cash to actually justify that. So they spend so much more of their time on content making sure that they become the trusted experts in terms of what they do, but also building community. So the community brings together a set of like minded people who not only interact with the brand, who interact with each other, and that just creates this amazing effect where people are sort of proud to be associated with these brands. And these are the things that I think any b to see brand coming through now has to get right, because if you don’t, you’re just not going to have to afford to do what you want to do great. In conjunction with that, there’s the challenge of switching from the sort of addiction to short term spikes to looking at the long term. How do brands, when they scale up, change their measurement model to look at the future? Yes, I think 510 years ago everyone was so excited about direct consumer and the opportunities that it brings. It would really tempting to just plow loads of money into marketing to acquire as many customers as possible, even in the uncertainty that might not pay back over time. It was a bit of a gamble. I mean, for the five, six years later, the experiment is over and brands know that actually that’s not a good strategy, especially if they haven’t put the upfront work into their product development or what the business stands for. So it’s much more of a long term focus. So what you see now is brands who are actually probably being a bit more conservative and I want to make sure they have the product market fit for their product and their brand is what they think it is going to be. And what I mean by that is when you build your business case in your startup plan. You have an idea of what consumers are going to buy your product. How they’re going to interact with it. What they’re going to think about it. What you need to do. And any brand is to do this. Is actually getting to market and see is that true or is that not? And then what BTC is really good at, because you’ve got so much instant data available, it enables you to look at actually what’s happening and you can iterate your offer depending on what actually consumers want. And I think the brands that succeed are the ones who are very good at that, who take the learnings, learn quickly and adapt, because it’s very rare that you get a brand now who just like get that perfect product proposition and it’s a slam dunk and it just works great. So lots of good advice today. In a year when scales are facing lots of challenges, consumers are returning to work. The rise of cost of living supply chain issues. What would be your key advice in scaling a brand in 2022? Yeah, it is a huge challenge. The environment around us, it’s not playing very nice at the moment. Whether it’s Brexit or the Pandemic or supply chain or just the economy, there’s so many reasons why it’s harder to build a brand now than it was a few years ago. However, us entrepreneurs, we’re hardly folk. We always want to solve problems and solve needs that haven’t yet been met. So that desire to build brands and do new things is still going to be there. I always applaud anyone who wants to try, but because we’re in this environment now where things are just a lot harder, it means that you’ve got to be really good at what you do. And also you’ve got to make sure that your product is actually serving a purpose. If it’s just another product that does the same as something that already exists, why bother? And if it’s a product that’s something differently, that is great. But you’ve got to make sure that difference is valued. And it’s only if that difference is valued. I see why you’re doing that. You’re using different materials or you’re serving customers in different ways or the prices is what it is. If the consumer starts to blaze, yes, I get that, I like that and I like this product. You’re going to succeed. And then beyond that, you’ve got just how to run a business. And this is what I learned right back in the day, innocent, this is 20 plus years ago. It’s just looking at how well a business is run in terms of branding, marketing, that’s going to be spot on. The product itself is going to be great supply chain, not only in terms of just making sure you turn out the product to be sort of where they need to be at the right time. It’s also looking at the packaging, the processes, how it’s all put together. And then you’ve got cash and finance. Even the most well funded businesses have a huge amount of financial pressure. You’ve got to get that right. And then beyond that, and this is so important today, is people. So now we live in a world where maybe you can build a team without an office. Individuals have different expectations and they’re themselves under lots of pressure and the manifestations of that are their job choices or their mental health or how they spend the time. You got to get all of that right. So you’ve got to make sure that you’ve got this group of individuals forced into what you’re doing and doing it really well. That’s the only way you can hope to prosper. The punchline is, oh man, it’s so hard. However, as I said, if you’ve got the entrepreneurial mindset, you’re up for the challenge. Excellent. So some really great advice there. Creating differentiation, distinctiveness looking at content and communities and focusing on lifetime value feel like really three key things that media and marketeers can focus on when looking at growing a brand. Mike, thank you very much. I’m really excited to read the book. I’ve got it on preorder already. Essentially, it sounds like you’ve unlocked the secrets of some of the most successful direct consumer brands. Tell me when’s the book available and where can we buy it? Yeah, hopefully by the time you hear this podcast, it’s 8 hours and the book is available from all good bookshops and online sellers through Amazon. I would encourage you to look at independent sellers like the bookshop.org where you can get this book. Its purpose is to help anyone who is interested in doing more in the DTC space. And my job within the book has just been to bring together all the fantastic experiences and knowledge from those founders who sort of know D to see so well because they’ve lived and breathed it for the past ten years or more. So hopefully it can be helpful. I would love anyone who reads the book to let me know what they think and also let me know how I missed out any sort of key questions, any topics that I should have covered that I haven’t because there’s more to come. Get in touch with me directly. The best way to get hold of me is on my consultancy website, which is Stevens Earth. I’m also on Twitter at open Mike Stevens and LinkedIn. Look at Mikejstevens on LinkedIn. You’ll find me and I encourage anyone who likes this topic who wants to talk more about it. Yeah, please get in touch. I’d love to chat. Thank you, Mike. It’s been a pleasure talking to you. I look forward to reading the book to learn more about some of the greatest directors to consumer stories. Thank you for listening to our model by The Kite Factory. Please do hit subscribe and share and we’ll be back soon.