A disclaimer: this is a wonky type post with a bit of detail! It's intended for people looking to start their own direct-to-consumer business (D2C). Therefore, it is less about Manufaktory's focus on sustainability and design and more general thoughts on the current state of D2C

Starting a D2C business in 2025… this is now easier than ever before. Credit card for expenses, a good product and some clever marketing and we are good to go!!

Having that D2C business make it to 2030…. yeah, that's hard.

First, a bit of history.

Direct to Consumer (D2C) brands really started appearing in 2007. Digitally native, they exploded on the scene over the next few years as they leveraged under-appreciated marketing channels (social channels mostly) to gain attention from users. Pairing great advertising with focused product offerings that gave value to consumers enabled these startup brands to thrive. The ability to skip the middleman, and offer great pricing on quality products helped enhance the attractiveness.

Fast forward to the present…

All good opportunities are usually copied quickly, and that certainly is the case now! Changes in tech and supply chains have made it easier than ever to start a D2C business. Those lower barriers to entry = a lot more people trying to sell things.

With so many new D2C brands in and around the market, competition is severe. The initial playbook of marketing arbitrage of social media advertising is no longer possible. Previously, bigger brands and enterprise businesses were not utilising Facebook, Snapchat, TikTok, Instagram, etc. Or later didn't jump on influencers as a marketing channel. That they didn't jump in gave startup D2C brands the ability gain users quickly without a large marketing budget. That hasn't been the case since probably 2017.

So in the current climate, why do D2C brands fail? To succeed, D2C brands usually follow a loose form of the 60/40/20 rule for their target margins, where:

• the gross profit after COGs and discounts/returns is at least above 60%.

• Taking out costs for shipping, fulfillment, warehousing would hopefully leave a brand at above 40%

• with marketing spend taking an additional chunk of around 20%

If the brand doesn’t have a good unit economics to get that first gross margin, further growth/expansion will be unlikely to move that much. And for marketing, getting too high a customer acquisition cost (CAC) and not enough repeat purchases will push that spend into unsustainability.

(Casper marketing spend pre-IPO in 2020, it has since delisted and been acquired by Durational Capital Management in 2022. For us, if we try to match at 35-40% of revenue we will be dead in a few months.)

With an increase over the past 5-8 years of the marketing spend needed to acquire customers, increased levels of competition to cut through to establish a brand, and the pressure to give investors adequate returns for their money, many D2C brands lose their way and close. Some common problems to avoid:

• Unsustainable unit economics and cost structure

• Overdependence on venture capital = need for growth & unsustainable spending

• Not establishing the needed deep connection with the customer. This is supported by good data, exceptional customer service, and solid operations.

• An incorrect marketing and/or sales channel mix. Depending too much on high cost ones as that gives the customers quickly.

• Poor management of finances, internal teams, and customer experience. Often linked to how fast the company is growing.

For each of those general points, there is a lot of subtext. There are a LOT of ways to fail. But one thing may be clear in 2025. The era of quick growth and large exits for the founding team is over in a direct to consumer model.

But for those brands that:

• have a niche

• are managing themselves well

• are producing a solid product that consumers appreciate

• and are willing to accept slower growth over the longer term and make that work..

Those brands may be establishing themselves as the classic small to medium businesses of the next 10 years. 

At Manufaktory, we believe in this slower and (hopefully) more steady approach. Enough so to test the concept with our own products to launch in 2025.