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Friday Q&As
Crys A.
August 30, 2024
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Q&A’s WITH IBRAHIM
Heyy!
Last Friday, I shared some questions that I get asked a lot, and in today’s issue, I’ll answer a few more of such questions I get asked and some mistakes I see Founder making..
The biggest mistakes early stage DTC founders make:
One question I keep getting, “What are the biggest mistakes new DTC founders make when starting out and how should it be done instead?”
In my opinion, the number one mistake new DTC founders make is not focusing on sales. When I talk to founders doing less than $500K/year in revenue, they don’t seem to have a repeatable sales channel to drive revenue.
They rely on things like “word of mouth” and referrals. They might be trying a lot of things (i.e., making content, running ads, sponsorships, etc.), but nothing is repeatable and predictable for them. I advise that finding your repeatable sales channel should be your number one priority when just starting out. You just have to find one single channel whether that’s paid ads or email, or influencers, or affiliates, etc., that can repeatedly drive revenue for your brand. You don’t need 10. You need one. And for most Founders getting started, that is typically paid ads on Meta or Google.
Another mistake I see early stage founders making is overestimating the lifetime value of their customers via DTC. A lot of Founders start their growth journey by acquiring customers at unprofitable and unsustainable prices. They say, “We’ll make it up from repeat purchase rates and LTV”. 9 times out of 10, their projections are too optimistic and it doesn’t work out. With that in mind, I would urge founders to work on getting as close to possible to first order profitably as they can. A lot of times, that simply means raising their prices or getting your COGS and other expenses down, so the unit economics make more sense for your brand.
You don’t want to fall into the classic DTC trap of spending $1 to make 50 cents. Unless you have a massive war-chest of capital and you can afford to lose some money while you test, that almost never works out, except for some rare occasions.
Spending too much money as soon as you raise your round:
Another big mistake that I see new founders make is that they spend $250-300K+ on a branding agency before they even have a single sale. As soon as they raise money, they spend a ton of capital on their website, their packaging, their creative, etc. before they even know if there’s any demand.
This is exactly what NOT to do. You need to validate demand (with a simple landing page, simple ads, and no custom packaging) before you scale and invest in all of this. In fact, I’d maybe say once you do this and then investing a decent amount in a branding agency is actually really smart. If this is the stage you’re at, I’d love to talk to you and our team can help you execute this. Please fill out this form if you’re interested.
If you don’t have those sales, think about having a really good converting site, packaging and ads, as the reward for achieving initial success and sales. Get your brand to $500K-1M/yr in revenue first, before you start spending on what I would call “luxuries”.
The other obvious things are simply choosing the wrong agency, wrong contractors, wrong 3PLs, wrong software providers, etc. That, and also not getting your legal paperwork done correctly for contracts, employment agreements, PO orders, etc. There are so many potential mistakes that you can make and these are just a handful that I’ve regularly seen.
Spending too much on ads, too soon:
This goes hand in hand with a lot of what I said above, but another common mistake I see early stage DTC founders make is spending too much, too soon on ads.
As soon as they finish their first landing page and round of creative, they begin cranking up the ad spend on Meta and burning capital without understanding some super basic things about their brand.
In my opinion, I would be much more cautious and much slower with paid ad spend and begin testing different LPs, copywriting, offers, imagery, ads, etc. and trying to get some early reviews from customers before scaling up the ads. To spend efficiently on paid ads, you need to know that your product works, your funnel works, and that you have tried some different copywriting, ads, angles, and positioning to know which variants perform better.
A lot of this testing can be done organically or with low amounts of paid spend to test the waters and help you refine things before you scale up. If you don’t do this and you spend a bunch on paid ads inefficiently, it’s very hard to recover. You don’t want to drive the car (run paid media) on an unpaved road (brand awareness).
If you’re at a stage where you’ve figured out most of the things above, but need help with scaling the ad spend, highly recommend you to talk to our in-house media buying specialist — Sai. You can book a call with him here.
Making mistakes with out clauses:
Another big one to look out for is making simple mistakes with legal paperwork. I know a few brands who have signed contracts with agencies, with no out clauses and they have mandatory 12 month commitments. It may sound like a good deal up front, but this is predatory, especially to first time founders who fall into this trap.
If there is no out clause, don’t sign it—that’s a trap. You, as the brand, or the payer of the service, have the leverage.
Alright folks, that’s it for today.
It’s a big holiday on Monday, so enjoy your long weekend!
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