Starting a direct-to-consumer (DTC) brand is an exciting journey filled with opportunities and challenges. As the market becomes increasingly saturated, having a solid operational foundation is essential for success. Here are crucial do’s and don’ts for DTC startups to navigate their operations effectively.
Beverly Hills Office 2012
Do’s:
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- Use Contractors Wisely: In the initial stages, it’s prudent to keep the team lean and utilize contractors. This approach allows for flexibility and cost efficiency, enabling startups to scale your operations as needed without the burden of a large payroll or large commitments to anyone person or group. Options are key.
- Set Up Your Accounting Books from Day One: Financial management is critical for any startup. Ensuring that accounting practices are in place from the outset helps in tracking expenses, managing cash flow, and making informed business decisions. Its as easy as setting up your quickbooks online to sync with your store platform, bucket all your expense categories right away and have it start from day
1. This not only helps with costs associated with your CPA’s, but makes everyone’s lives easier, makes decision making faster and most importantly if you ever want to sell your company, makes the acquisition process much smoother. Because my books were so easy, I was able to sell an ecommerce brand recently for $26m in less than 60 days from meeting to closing. - Inventory and Cash Flow Management: Balancing inventory levels with cash flow is vital. Startups should strive for a model that allows scaling without significant upfront costs, minimizing the risk of overstocking or stockouts.
- Integrate Software Early: Choosing a web platform that seamlessly integrates with essential software (e.g., inventory management, CRM, accounting) from the beginning can save time and reduce headaches as the business grows.
- Understand and Map Out COGS: Detailed knowledge of the cost of goods sold (COGS) is foundational. Mapping out every cost associated with your product ensures pricing strategies that cover costs and yield profits. Oftentimes brands I talk to don’t have a full product price breakdown ahead of launch. I’m talking about every single aspect of the product itemized. Bottle, label, kitting, freight, processing fee, affiliate fee, avg discount, etc etc etc. This allows you to understand every single margin at every single point of the business and product. Then you can really understand your advertising margins and scalability of the business.
- Start with the cheapest advertising channels like organic social, facebook groups, pinterest, SEO, affiliates and retargeting ads. Prospecting ads are always going to be the most expensive out of the gate and most of the reason why brands fail quickly or run out of money. They thought they could just start a brand, run facebook ads and succeed. It doesn’t always work that easy. If it did, we’d all be rich.
Don’ts:
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- Overhire at the Start: Expanding the team too quickly can strain resources. Startups should focus on building a core team and expanding thoughtfully as the business grows even using contracts as much as they can to keep committed payroll low.
- Neglect Financial Planning: Failing to establish and maintain proper accounting practices can lead to financial disarray, impacting decision-making and growth potential. Get your quickbooks set up from day 1 and then make sure your set up to track everything properly. That will allow you do budget for future inventory, marketing spends, and the speed at which you can buy both.
- Mismanage Inventory: Overinvesting in inventory without understanding market demand can tie up valuable resources. Effective inventory management is key to maintaining liquidity. Don’t let inventory sit too long. Most places have MOQs I understand but if you can negotiate as much as you can and get as low of a number as you can so you are off to the races with as little out of pocket as possible.
- Ignore Software Integration Needs: Using platforms that don’t integrate well with other business tools can lead to inefficiencies and data silos, hampering growth. Make sure your performance is high at all times. Often you can have apps or plugins out of sync that may cause performance issues with the site and slow you down while trying to make sales. This always happens at the worst times like during Black Friday or something! So just make sure all your tech is up to date and optimized regularly.
- Overlook the Importance of COGS Analysis: Without a precise understanding of COGS, pricing and profitability strategies may be flawed, affecting the business’s bottom line. You need to be breaking down your cost of goods line by line, penny by penny. Every product goes through numerous steps and vendors from manufacturing to shipping. By the time it gets to the customer, multiple steps and costs have incurred. You should have those costs labeled every step of the way.
This allows you to work on each and every aspect of the product and process and look for dollars and cents to save and make more efficient. You can make money two ways, save more or sell more. I encourage you to do both.
