Since I was ~19 - 20ish, I've been doing nothing but pure consumer. Mostly of the DTC variety but lots of retail heavy stuff too. I'm 30 now so it's been ~10 years.
Lately though, it feels like it's much harder to build a brand with disgusting EBITDA margins (20%+). A lot of it is because the arbitrage of cheap customer acquisition via FB/Meta is basically over.
Back in the day, I was paying $5 - $10 to acquire a customer, now it's ~$30 - $60 and my businesses are also infinitely more sophisticated when it comes to buying media. IE running MMM, incrementality tests, blah blah blah. It has just become exponentially more difficult.
You can see all of what I am talking about reflected in the publicly traded DTC cos, none of which are doing well except Lululemon. That means comps in the space have fallen a lot, and getting some grossly awesome exit multiple probably isn't happening.
A few of my friends who I respect a lot and have done a few types of businesses at decent scale (meaning ~$10m - $100m+ in rev) told me I'm an idiot for staying in consumer and told me SaaS felt ~3x - 5x easier than the consumer brand thing.
I don't want to be one of these guys that is 50+ years old in industrials or something running these insanely commoditized businesses with shitty dynamics. Even the very high skilled ones make next to no money because they are in a shitty industry VS something like tech. Can you make $ in industrials? Yeah, but it's way harder and slower than tech lol.
It kind of feels like DTC heavy consumer is no longer the fresh new thing it was in the early 2010s and the wild things like insane EBITDA margins, huge exit multiples, etc are all vanishing as people begin to understand how DTC really impacts consumer.
Anyways, curious to hear your thoughts?
I do like the edge I've built in consumer over time, and really do understand businesses in the space quickly now, but its not a great idea to fish in a pond full of shit. Also, I only got into consumer because it was inexpensive to do so when I started (much harder now lol). It's not like you can bootstrap deep tech :)
What I am going to keep doing is making small investments into companies in different spaces so I can learn more and see how I like those industries. Have quite a bit in SaaS, healthcare, etc.
Based on the insights from the Wall Street Oasis discussions, transitioning from a consumer-focused business to SaaS or another industry can be a strategic move, especially given the challenges you've outlined in the DTC space. Here are some points to consider based on the context provided:
SaaS Attractiveness: The shift towards SaaS has been highlighted by many entrepreneurs and investors for its scalability, recurring revenue model, and potentially higher EBITDA margins compared to traditional consumer businesses. The SaaS model allows for more predictable revenue streams and, in many cases, lower customer acquisition costs over time as the product becomes more embedded within the customer's operations.
Industry Dynamics: As you've noticed, the consumer DTC space has become increasingly competitive and expensive, particularly in terms of customer acquisition costs. This is in contrast to the SaaS industry, where there's a strong focus on building long-term customer relationships and leveraging network effects. SaaS companies can also benefit from high switching costs, which can lead to more sustainable competitive advantages.
Learning Curve and Transferable Skills: Given your experience in consumer businesses, you likely have a strong foundation in brand building, customer acquisition, and understanding market needs—skills that are transferable to SaaS or other industries. However, it's important to acknowledge the learning curve associated with entering a new industry, especially one as technical as SaaS. Your strategy of making small investments in companies across different spaces is a prudent way to gain exposure and learn about these new industries.
Market Trends and Opportunities: The technology sector, including SaaS, continues to evolve rapidly, presenting new opportunities for innovation and growth. Staying informed about emerging trends, such as artificial intelligence, machine learning, and blockchain, could reveal niches with significant potential. Additionally, healthcare technology is another area experiencing growth and transformation, which might align with your interest in diversifying.
Networking and Mentorship: Leverage your network to connect with experienced professionals in the SaaS and technology sectors. Gaining insights from those who have successfully navigated the transition can provide valuable guidance and potentially open doors to new opportunities.
Education and Resources: Consider investing time in educational resources specific to SaaS and technology entrepreneurship. Wall Street Oasis and other platforms offer courses, forums, and content that can deepen your understanding of these industries and help you make a more informed decision about your next steps.
In conclusion, while the transition from consumer to SaaS or another industry presents challenges, your background and strategic approach to learning and investing in new areas position you well for success. It's crucial to weigh the potential benefits against the risks and learning curve associated with entering a new field.
Sources: ECB Hikes, Markets Respond | The Daily Peel | 7/22/22, Transitioning from tech to a serious finance job (yes, you read that right), Is this a stupid idea? Leaving PE?, Thinking Like an Investor, Recession Proof Industries?
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