Our guest is Mike Stevens, the author of The Direct To Consumer Playbook: The stories and strategies of the brands that wrote the DTC rules, this month’s Bigeye Book Club selection. Reflecting stories from the founders of Tails.com, Huel, and Casper, Mike shares valuable insights about what works in the DTC space today. IN CLEAR FOCUS listeners can claim a 20 percent discount on The Direct To Consumer Playbook at KoganPage.com by using the promo code BIGEYE20 at checkout.

Episode Transcript

Adrian Tennant: Coming up in this episode of IN CLEAR FOCUS:

Mike Stevens: As a brand, you know, you’ve got the choices: you can do B2C, you can do third party marketplace, you can do retail, you can do direct, you can have your own shops, there’s more opportunities to build the business that you want to build.

Adrian Tennant: You are listening to IN CLEAR FOCUS, fresh perspectives on the business of advertising produced weekly by Bigeye: a strategy-led, full-service creative agency, growing brands for clients globally. Hello. I’m your host, Adrian Tennant, Chief Strategy Officer. Thank you for joining us. Today, we’re going to look at some of the founding stories and strategies of brands that have rewritten the rules of traditional retail and established dominant market positions by adopting the direct-to-consumer or DTC business model. Although many startups launch with eCommerce, few manage to successfully scale their DTC operations. A new book entitled The Direct To Consumer Playbook offers unique insights drawn from best-in-class DTC brands, and is this month’s featured selection for the Bigeye book club in partnership with Kogan page publishing. The Direct To Consumer Playbook’s author is Mike Stevens. Mike served his entrepreneurial apprenticeship on the startup team at Innocent drinks before co-founding the good-for-you confectionery and candy company, Peppersmith. After scaling and selling Peppersmith, Mike now works as an advisor, mentor, and consultant to those seeking to enter the increasingly competitive DTC space. To discuss The Direct To Consumer Playbook today, Mike is joining us from his home in Poole, England. Mike, welcome to IN CLEAR FOCUS!

Mike Stevens: Thanks for having me.

Adrian Tennant: Can you tell us a bit about Innocent drinks and what it was about working on that brand that inspired you to found Peppersmith?

Mike Stevens: Yeah, absolutely. Um, so I was really lucky to join Innocent right at the beginning of that particular business. For those of you who don’t know, Innocent is now the biggest fruit juice company in Europe, so bigger than Tropicana and now owned by Coca-Cola, so a hugely successful business. When I first met Innocent back in 2001, it was a brand new startup. So, little did I know that it was gonna go on to be the success it has been. And I was very, very lucky to be part of that business in terms of rapid growth and learning a lot. But, the main reason I joined Innocent is because it was a startup and even, you know, back in the 2000s, outside tech, startups still weren’t really a thing. The words, “startup” and “founder” didn’t really exist. So, but I always knew that I wanted to start my own business. So I joined Innocent because it was a startup operation and I thought, what a great place that would be to learn, um, what it’s like being in a young business. And, I was so glad I did because it, yeah, ticked all the boxes and I learned so much. I mean, I always advise anyone who wants to start their own business, especially if they’re young as well, go and work for a startup first because you can see what happens. You can see the ups and downs, you can see the pressures and the different things that happen in a startup, which is very different from a nine to five, well-oiled corporate, and then you can see if you like it, but then also importantly, have you got the right skills, attitude, and aptitude, to prosper in an environment like that? And if you have, absolutely take those lessons and then you can start something for yourself. So that’s what I was doing at Innocent, but that took me on to doing lots of different things, including Peppersmith.

Adrian Tennant: Well, I mentioned in the intro that you took Peppersmith from concept through to acquisition. Was that what prompted you to write The Direct To Consumer Playbook?

Mike Stevens: The motivation for writing the book came out of, I guess, some of the challenges we had in the business and the opportunities. But going back to the beginning, I mean, I started Peppersmith because I wanted to do my own thing. And what happened was, at Innocent, we were sort of leading the food revolution. And what I mean by that is the major trends, which were, you know, sort of spearheaded by the likes of Innocent and some other great food and drink brands out there with natural, healthy, sustainable products with a brand to tell the story in terms of why they’re different from all the incumbent food and drink and on the shelf. And the insight that we had is that change was happening all over the food and drink industry. So in every category, whether it was ice cream or milk or bread or cheese, whatever, you know, those trends were apparent. Apart from one category, and that was confectionary. So confectionary was, um, still dominated by, huge multinationals who’d been doing the same thing, not for years, not for decades. But some of them, like hundreds of years through the likes of Mars and Cadbury, Wrigley, these businesses have been around for a long, long time. And, what they did, they did very well. But essentially it was high volume, cheap, not very good for you crap. So we saw the opportunity to mix that up and take the trends we saw everywhere else. And so, my hypothesis was, if natural health is sustainable, and was working in every other category, why shouldn’t it work in confectionery? And we were right. So we built this brand, it was a good-for-you confectionary company that we made chewing gum, mints, and other sugar-free, sweetened candy. And we built that business over nearly 10 years and eventually exited in 2018. But to your question about why I wrote the book, following my experience there, it really was about, you know, the way we were selling our products. So, right at the very start when we launched the brand in 2010, we had a direct-to-consumer offer – which was you could go on our website, hit a PayPal button, and we could deliver you our product directly to your home. But the reason we did that wasn’t ‘cause we thought DTC was an amazing sales opportunity. We did it because we knew as a startup, it was gonna take us a long time to build up distribution. And we wanted to ensure that anyone who’d heard about us and wanted to try the product could. Because we knew that we wouldn’t be in every shop. So lots of people, if they went out and about, they might not find us. So we had this DTC offer, but as we grew, what we found was that our direct-to-consumer business was just growing, organically. It was getting bigger and bigger without us putting a lot of effort into it. It also helped that we went onto Amazon very early on. We were in the UK, we were one of the first food products on Amazon. So that really helped us in terms of internet sales. So that part of the business was growing and we were also having quite a lot of success in bricks and mortar retail distribution. So, the big supermarkets, the main health food chains in the UK, and lots of travel sites were taking the products, but the one thing that I’m sure is true, whether it’s in Europe, or the US, or wherever, dealing with these big retail chains is incredibly hard work. They’re very demanding. They don’t always do what you want them to do as a supplier and I guess as a small brand, we don’t have all the resources to serve them as maybe they would like. Where we got to is that while we had generally a lot of success in retail, it was just getting harder and harder. And at the same time, DTC was growing and we weren’t really trying. So, yeah, we reached the point it was like, “well, if retail’s getting harder, and DTC seems to be pretty open and easy and it’s growing and we’re not even trying, why don’t we put more effort into the thing that seems to be working?” which was DTC. So we decided just to put more effort and resources into our direct-to-consumer channel. What I would say, you know, by the time we sold the business in 2018, DTC and internet sales were about a third of the revenues. So the bulk of the business was still via retailers, but, I think, you know, getting to a third was quite impressive because we were making confectionery products which people normally bought from the store. So to sell in bulk, as we were, and via DTC, I think that was quite a good effort. So we grew that side of the business, but what always played in my mind is “what are the right things to be doing? should we be investing more in marketing? Or is it in operations? How do we think about pricing?” And, what I did, I was asking around my peer group of other founders, who were all, you know, we’re all trying to do a bit of DTC. So it’s probably 2014, 2015, and the answer’s pretty much from all of my, founder, peer group was, we’re doing the basics. But we don’t really know what we’re doing, we’re all sort of learning on the job. And that was the whole community. So us as a bunch of founders, who own these great brands, we’re trying to sell more and more, using the power of the internet. We were all learning on the job. And my, um, my thought at the time was like, “oh, I really wish I could just buy the book to tell me how to do this.” But it didn’t exist. I mean, it didn’t exist, I guess, cuz it, you know, this, DTC selling was quite new. But then also just no one who got around to writing it. So when I sold the business in 2018 and finally stepped away from the brand in 2019, it occurred to me that no one still written the book for brands, in terms of the best practice to sell and direct to consumers. So, because I had the time, and I still had the motivation, and my main motivation was to help other entrepreneurs like myself, I thought I’d write the book. And so that’s why I spent the last two years doing.

Adrian Tennant: Well, you wrote most of The Direct To Consumer Playbook during the COVID 19 lockdowns. In what kinds of ways did that change how you approached researching and writing the book?

Mike Stevens: Yeah. So that was quite a change. So I started in earnest really, at the end of 2019, the start of 2020. And, um,  I guess, my strategy in terms of writing the book, hadn’t changed and didn’t change. And that was going to meet with the founders or CEOs of the best DTC brands that I could find and interview and tell their story. So I did that. And when I first started, I was determined to go and meet, face to face all of the founders,and that started. And then I think it was actually in February, 2020, for the first time, I wanted to meet the founder of Tails.com, which is a DTC dog food company. And in their office, you can imagine a DTC dog food company, every day is a “Take Your Dog to Work” day. So, there were dogs everywhere, but I’ve got quite severe dog allergies, so I was trying to figure out how we navigate that. So, I did have an interview with the founder, sort of away from their office, but I had to follow up, using Zoom, cause I couldn’t go back and see him. And, that was like, “oh, I thought that was okay.” And then the pandemic hit in March 2020 you know, and what was amazing then it meant that yes, it was impractical for me to go and meet all of the founders and I actually had to cancel some interviews that I already had lined up. But what really impressed me was how quickly everyone adapted. And, doing a video call for one or two hours, didn’t seem such a strange thing. So it was actually in the end, I think it was quite advantageous to me that I could ask people, “are you happy to sit on a video call with me for a couple of hours to tell your story?” and the answer was “yep. Cuz that’s what I do all day now.” And secondly, it extended my reach so I was able to find times that could fit with me and whoever I was interviewing and also expand internationally. So, there were Simon Griffith from Who Gives A Crap in Australia. There was Jeff, the co-founder of Casper. Hugh who did Ugly Drinks out of New York. So yeah, there were just lots more people who I could reach, and if I had to go and see them face-to-face that would’ve been more difficult. So in the end, while it’s always better to do face-to-face interviews, especially as you want to get a feel for actually what those businesses are all about, it was helpful in terms of writing the book.

Adrian Tennant: Mike, what can readers expect to learn from The Direct To Consumer Playbook?

Mike Stevens: Well, essentially it is the stories and strategies of the best in class DTC companies. I think the stories are quite important in terms of where the founders come from, in terms of what their background was, what their mission was, what they’re trying to achieve. But then out of those stories and out the growth, the scaling stories of their business, it was me trying to pick out what are the things that those businesses have done so well that has enabled them to be successful? And the way I approached that, I just asked the founders all the things that I wanted to know as a founder. And I think that gave me a real advantage. I was asking questions which I think were probably quite different than a journalist would ask or an academic would ask. I was asking the questions which were keeping me awake at night. How did you approach this challenge that I faced every day? Whether that was a marketing question, that was a finance question, it was an operations question. It was a team, it was investment. It was all the things that, you know, all these businesses have to do, including us. And I think what that enabled me to do is actually because I was a founder asking questions of another founder, it was easy to establish a rapport. I was so impressed with the answers and the time that the people interviewed were able to give me, they just gave me some really powerful, honest, candid answers. And I just don’t think that would be possible if I went in there as anything other than a founder.

Adrian Tennant: Let’s take a short break. We’ll be right back after these messages.

Dana Cassell: I’m Dana Cassell, Bigeye’s Senior Strategist. Every week, IN CLEAR FOCUS addresses topics that impact our work as marketing professionals, often inspired by data points reported in consumer research studies. At Bigeye, we put audiences first. For every engagement, through our own research, we develop a deep understanding of our client’s prospects and customers – analyzing their attitudes, behaviors, and motivations. We distill this data into actionable insights to inspire creative brand-building and persuasive activation campaigns – with strategic, cost-efficient media placements. If you’d like to know more about how to put Bigeye’s audience-focused insights to work for your brand, please contact us. Email info@bigeyeagency.com.

Adrian Tennant: Each month, in partnership with our friends at Kogan Page, The Bigeye Book Club features interviews with authors who are experts in specific areas of marketing and consumer research. Our featured book for June is The Direct To Consumer Playbook: The Stories and Strategies of the Brands that Wrote the DTC Rules, by Mike Stevens. IN CLEAR FOCUS listeners can save 20 percent on a print or electronic version of the book with exclusive promo code BIGEYE20. This code is valid for all products and pre-orders and applies to Kogan Page’s free e-book offer. To order your copy of The Direct To Consumer Playbook, go to KoganPage.com – that’s K O G A N P A G E dot com.

Adrian Tennant: Welcome back. I’m talking with Mike Stevens, an expert in scaling direct-to-consumer brands and the author of The Direct To Consumer Playbook, published by Kogan Page. In the book, you identify seven characteristics shared by best-in-class direct to consumer brands. One of your recommendations for DTC brands is to build community. So Mike, why community building?

Mike Stevens: Community building is so important and the reason, it comes up again and again, when talking about DTC businesses is because DTC enables you to build a community. And the reason that happens is that every transaction you have, you are interacting with that end consumer. In terms of old-school retailing, you’ve just got wholesalers, you’ve got distributors, you’ve got retailers in the way, which separates the producer and the consumer. But now they have this connection. And as you connect with those customers, they find out about you, you find out about them, and you work out, you know, which ones you have the most in common with. And the ones you have, most in common with become your people and they become more than your customers. They’re your supporters. They tell you what to do more of, they tell you what to fix. They buy everything you do, and they tell their friends to do the same. And they also, they interact with each other as well as that community. And it’s, it’s all built around who you are, what you offer and what you care about. And if you can build that community, it’s a powerful marketing tool, but it’s a really powerful reason for being, because they’re the set of people you’re gonna look after again and again.

Adrian Tennant: You also write about purpose needing to be at the heart of every brand. Why is defining the ‘why’ behind a business so important to DTC specifically?

Mike Stevens: When someone comes to you, whether it’s via or social ad or they’ve been told about you, they end up on your website, they’re looking for a connection. They want to understand what you’re about and the reason, having a purpose, and standing for something that’s so important is that competition is so abundant. You know, so customers really need to see what you do. And if they believe in the same things you believe in, they’re going to, become a customer, part of your community, become a friend of the business. And what this means, and this is quite important, as we move onto the internet, away from mainstream retailing, is that, because you care about something and you should be proud of sharing what you cared about, you’re not gonna please everyone. You know, there’s gonna be a lot of people who come to your website and it’s just not for them, and that’s okay. But the important thing to remember is the ones that do come back, because they believe in the same things you do, they’re gonna come back again and again, and be with you all the way.

Adrian Tennant: Here in the US, we’ve seen a lot of editorials recently predicting the end of the direct-to-consumer boom. Economics play a part. The social platforms that originally enabled relatively inexpensive advertising for startup brands have become more expensive in recent years. Distribution too, is changing, as many DTC brands that were once available exclusively online can now be found on traditional retail store shelves. Mike, is omnichannel retail now the way to go for most startup consumer brands, do you think?

Mike Stevens: Yes and no. I’d say no for startups because you know, I’m a huge advocate of using DTC to sort of hone your offer, to hone your product, develop your brand. You know, DTC just gives you a really great opportunity to do that without spending a huge amount of money. But beyond that, Yes, omnichannel or multichannel is really important. The landscape’s changed you know, 5, 6, 7, 8 years ago, Digital advertising costs were low. There wasn’t that many DTC companies around. Look at Casper, for example, they were really the first mattress in a box DTC company, and they worked out, for every dollar they spent on Facebook, they were given seven or $8 in return. That was fantastic. And this is why, you know, the VC community got so excited but what has happened over time, it’s just competition. So more and more people have come into the space. And that means it’s not only a problem in terms of your brand, you’ve now got lots of competition. You’ve got lots of other companies who are vying for the same customers as you. That competition has also hugely driven up the cost of acquisition. So what that’s meant for brands is actually, they now have a scaling problem. It’s hard to scale to either the level they need to be to become profitable, or the level they need to meet the requirements or the promises they made to their investors. So, that means they need to branch out beyond DTC to find more customers. And you know what? that’s perfectly okay. Because one of the really great interviews I had in the book was, Anthony Fletcher from Graze who told me, like, it’s crazy that more DTC brands are not doing multichannel because not only are there more customers to serve, it’s actually you work out, there’s just better ways to serve those customers as well, so you can become a better and stronger business. So yes, I think, multichannel, omnichannel is gonna continue to be the way that most brands operate, but isn’t that great? Because, you know, as a brand, you know, you’ve got the choices, you can do B2C, you can do third party marketplace, you can do retail, you can do direct, you can have your own shops. There’s more opportunities to build the business that you want to build. 

Adrian Tennant: One of the best-known brands in the DTC space, as you mentioned, is Casper, the mattress company, which was once valued at over $1 billion. Now, although it was listed on the NASDAQ in 2020, after 18 months of losses, Casper was taken over by a private equity firm. For The Direct To Consumer Playbook, you interviewed Jeff Chapin, one of the original co-founders of the company. So, Mike, I’m curious, how did you secure that interview, and what are some of the most important lessons you think we can learn from Casper’s experiences?

Mike Stevens: It was great to talk to Jeff and hear his story beyond Casper. Cause I do believe, you know, when the history of DTC is written in 50 years time, Casper will be one of the brands that mentioned they were real sort of trailblazers and pioneers. And it was great to hear the whole story from Jeff. Yeah, in terms of how I got that interview, like I got most of my interviews really from founder networks. You know, I was lucky that as a founder, that I knew quite a lot of the people I interviewed firsthand anyway, and then there was only one or two degrees of separation between the rest. So, was again, another advantage of being a founder. So, you know, Jeff was really kind to spend quite a lot of time with me actually, and talk through the Casper story. And one of the things that he said is that, yeah, they spent lots and lots of money, provided by the VCs, cuz they had some really decent valuations. It meant they could get a lot of money from VCs without being diluted too much. So it seemed like why wouldn’t you do that? But what, in the end they actually spent all that money on marketing and that was marketing to try to stay ahead of the competition. In the book I mentioned there wasn’t one or two competitors, I think in 2019 we got to a number of 176 mattress-in-a-box DTC companies in the US. I mean, that’s a crazy number. And as Jeff told me, if you needed to try and outspend five competitors, you know, if you needed to try and keep going longer than those five, you could probably do it. But when you’ve got, you know, 200 or 500, it’s like whack-a-mole. You know, you spend a bit of money, one disappears, and then the next one pops up. It makes life really hard. And I think where Casper got into trouble is they took on the strategy of “we were the first, we are the best. We want to stay top of the pile.” Um, and they spent a lot of money to try and achieve that. Where in effect, they should have been investing more of that money into new product development, new channels, in terms of business infrastructure. And I think they’ve got that now. And I think one of the reasons that they have been bought by private equity and taken private again is because they’ve gotten everybody really good value. Because, you know, Casper is, they make great products. They’ve got a really strong brand, so there is definitely still value there. What Casper and the management team failed to do over the years is turn that opportunity into profit. So hopefully they can do that now. For those of your listeners who might have come across Adam Grant and his book Originals, there was a great chapter in there about the fallacy of the first-mover advantage. As a first mover, you know, whoever’s following you can actually learn not only from your opportunities, from your mistakes. And it sort of makes it easier to follow than it is to lead. And I think, you know, Casper sort of led such a dynamic marketplace for so long, it wasn’t hard for some of the competitors to catch up and it caused them a marketing problem to stay ahead. Jeff was great and I’m a fan of the business still. And especially their branding. I love their attitude to customer service as well. Have a read in the book in terms of how they approach that, but did they make all the right decisions at the right time? Probably not, but they’re still going and they’re still learning.

Adrian Tennant: The Direct To Consumer Playbook has been out for a couple of months So, Mike, what kinds of responses have you had to the book so far?

Mike Stevens: Yeah. The book launched at the start of May in the UK and the end of May for the US and the rest of the world. So, I’ve been getting some responses from the UK market and it’s been going great. In the last month, it’s been number one on the Amazon marketing chart. So, I mean, that was just great to see and also I’ve been getting some really nice professional feedback in terms of endorsements for the book, but also really important, now is actually from people reading it and trying to use it. The book was written, you know, to be helpful for entrepreneurs. So when an entrepreneur sort of jumps on Amazon, alright, it gives me a review and says, look, this is, just a really helpful book. I mean, That’s the main thing. So now I’m just really interested in terms of how it translates to international markets and particularly the US. There are US brands in the book, so hopefully, it is easy for any of the readers, wherever they are, to relate. And I think, you know, DTC being sort of what it is, the fundamentals of DTC are the same wherever you are in, Boston or Brighton in England, or Bangalore, or Bahrain, or wherever – it’s the same stuff. So, yeah, I’d be really keen now to hear what international readers think of it.

Adrian Tennant: And Mike, what are you working on right now?

Mike Stevens: So, after selling, uh, my business, I’ve been doing two things. One has been writing in the book. And the second thing is I consult, I also mentor, I advise, I write articles. I love consumer goods and especially challenger brands. It’s really why I’ve been doing it for 20-plus years. So I’m really happy to interact with or help anyone who’s trying to do something new with a physical product. So, anyone who’s listened to this who needs any help, you should come check me out.

Adrian Tennant: And how do you see the direct-to-consumer landscape evolving over the next two to three years?

Mike Stevens: I mean, I think DTC will continue to be harder, for sort of new entrants. And that is only because it’s so competitive, but there are things that are getting easier. Firstly, there’s so many great tools that a DTC company can use. I mean, even when we started, I mean, Shopify wasn’t really around you know, we didn’t use Shopify for the first sort of three or four years we were doing DTC, but the, you know, tools like Shopify and Klavyo are just fantastic for creating an ecosystem you can use to get going. Then it’s saying, you know, making sure that you’ve got the right products and the right marketing messages. I mean, that’s really up to you, but the tools are there. I also do think in the next few years, we will see a correction in digital marketing costs, and the reason I say that is it’s about supply and demand. I think as more and more businesses realize that they’re not getting the right returns, from digital marketing, the cost of acquisition, it’s just actually higher than they can support. And more brands will be looking at sort of a different marketing mix. and that will mean, you know, demand will go down on those channels. So I think, yeah, the cost will come down, whether they will be as effective or not, as they have been in the past, we will see. But I do think there will be a correction there. 

Adrian Tennant: Mike, if IN CLEAR FOCUS listeners would like to learn more about you and your services, where can they find you?

Mike Stevens: Yeah. So, a good place to start if you’re into DTC would be the book, so that is available and I know you’re gonna share some links, Adrian, so thank you for that. But in terms of getting in touch with me personally, which I love, so please do, you’ll find me on Twitter. My handle is @OpenMikeStevens. My website is Stevens.earth. And also, you know, I’m quite active on LinkedIn as well. So Mike J. Stevens or just search, Mike Stevens, Direct To Consumer Playbook or Mike Stevens, Peppersmith, you are sure to find me.

Adrian Tennant: And if you’d like a copy of The Direct To Consumer Playbook, you can save 20% when you purchase directly from the publishers online at KoganPage.com. Just add the promo code BIGEYE20 at the checkout. Mike, thank you very much for being our guest this week on IN CLEAR FOCUS!

Mike Stevens: It’s a pleasure. Thank you, Adrian.

Adrian Tennant: Thanks to my guest this week. Mike Stevens, an expert in scaling direct-to-consumer brands and the author of The Direct To Consumer Playbook. As always, you’ll find a transcript with links to the resources we discussed today on the IN CLEAR FOCUS page at Bigeyeagency.com. Just select Podcast from the menu. If you enjoyed this episode, please consider following us wherever you listen to podcasts. Thank you for listening to IN CLEAR FOCUS produced by Bigeye. I’ve been your host, Adrian Tennant. Until next week, goodbye.