Latest Stio News
Apr 8, 2021
Becca Bredehoft To win in the outdoor apparel world, a company has two duties to fulfill: making durable, functional gear while also finding a way to cultivate a coolness in its brand, logo and image. The latter part of the equation can even escape new companies who are making best-in-class gear. In the outdoor gear world, this happens often. Perhaps no segment within this realm is harder to crack than technical apparel. Startups here have to go against brands such as Arc’teryx, Patagonia and The North Face. The accumulated equity of these brands with skiers, hikers and climbers took decades to build; people on the ski hill want to be seen in it. In addition, these brands have a wide raft of support in retailers, shops and resorts who carry their gear and keep it in the eyes of buyers. It’s easy to find a new Arc’Teryx jacket within steps of the slopes in Aspen or Telluride. That made the aspirations of Stephen Sullivan and his company Stio, a direct-to-consumer outdoor apparel brand founded in 2011 and based in Jackson Hole, all the steeper. But the company executed on not only making good gear, but also on developing an image that people wanted to drape themselves in as they headed outside. Stio’s success has rewarded its largest investor, KarpReilly, a private equity firm who embraced Sullivan’s vision. Some private equity investors—along with those from venture capital—have shown a growing interest in creative D2C brands that leverage their own technology to reach, cultivate and hold customers. This allows companies to control their destiny without worrying about the whims of an Amazon, or, in the case of Stio, a retailer such as REI or Backcountry. Direct-to-consumer in the mattress world is one thing, where convenience counts for a lot and the brand is covered by sheets and duvets 99% of the time. Convincing the outdoor crowd to don a new logo is an entirely different level of difficulty. MORE FOR YOU But Sullivan thought he could get it done with some legitimately great gear, deft marketing and some of the unique advantages of being direct-to-consumer. “Instead of paying attention to a bunch of sales reps and retailers telling us what to make, we listen to our customers,” Sullivan says. That’s easier to do, of course, when there is nobody between the company and its customers. Prior to Stio, Sullivan cofounded Cloudveil, an outdoor brand that sold its wares through the more traditional chain of wholesalers and retailers. Cloudveil changed hands several times, moved out of Jackson Hole and has largely disappeared from the outdoor world after a heady start 20 years ago. “The biggest difference now is that direct connection to our users,” Sullivan says. Stio’s story is part of a larger one that includes direct-to-consumer brands such as Tesla, Casper and Peloton whose approach has changed the retail landscape—and garnered outsized paybacks for founders and investors. Seizing on technology to handle marketing, customer support and distribution has enabled these companies to take items that were once the sole province of retail setups that included several layers of profit-taking to grab all of the margin that comes with their products. During the last several years, D2C brands have emerged more often in my work for venture capital and private equity investors. Having spent so much time evaluating these companies, from their marketing practices, their technology, and their supply chain and distribution operations, I sought to speak with some of the leaders here—in addition to Stio—and compile some of their best practices for aspiring D2C brands. Authenticity Matters “We’re inherently authentic. I skied the King this morning,” Sullivan says, referring to the locals’ hill on the south side of Jackson. “We live the lifestyle, we use the gear.” Whether it’s for writing better copy or designing better features, being fully embedded in the product and its space is something that rings true with dozens of founders with whom I’ve spoken. It helps tell the brand’s story project and project a layer of authenticity that a product conceived in a business school pitch contest may never achieve. Ghassan Halazon, the CEO of Emerge Commerce, a $300M (sales) collection of D2C brands, agrees. “An Authentic voice helps brands stand out from the pack—it will convert into higher customer loyalty and retention. To be fair, I’ve seen some B School-conceived projects—designed for big margins and fast growth and nothing else—succeed. But the authentic brands seem to have the edge here. Follow the Data Sullivan’s company, because it controls its relationships with consumers, has great data on what is effective in driving sales and what is predictive, in some cases, of what will sell next year. His data team does regression analyses on web traffic and page view data crossed with each catalogue mailing it conducts (eight per year), which allows the company to correlate what kind of products, imagery and copy has found special traction with Stio’s customers. The team will scrutinize data down to the color, size and price point of each product. Stio uses the Shopify platform for its online store, the standard go-to for D2C businesses getting started. Getting data out of Shopify and into other platforms is a snap, as there are plenty of ready connectors and SaaS, including Google Analytics, which costs nothing. For more sophisticated analyses such as those carried out by Stio, some in-house expertise and advanced tooling is required. Coupled with a data warehouse, I like Mode Analytics , which allows developers and data folk a lot of flexibility in building advanced queries and notebooks. Listen to Your Customers Connor Crook bought Diamondback Toolbelts in 2016 and has since grown the business 50X from what was a home-based one-person company. Its success, he says, has been built on a strong Instagram presence, personal posts about how he and others use the product and on developing new products with a large assist from his customers. “Every Diamondback product is developed in conversation with our social media following,” he says. “It allows us to find out their needs and collaboratively define solutions that we can bring to market with defined demand. The model here can be simple, according to Crook: Ask users what they want. Asking them directly shows them that loyalty and respect go two ways, he says. That, in turn, will allow customers to drive development and sales through strong brand loyalty and word-of-mouth. Unit Economics “You should be obsessing over your margin starting from your very first sale,” says Vernita Brown, CEO of Natalist, a venture-backed company that produces fertility and pregnancy essentials that eschew plastic. Many companies won’t be profitable from the jump, but knowing that there is good gross margin in every product sold will put a company on a path to being in the black at some point. Josh Sturgeon, CEO of Ember Tribe, a marketing agency that focuses on D2C, says that a majority of founders have only a cursory understanding of unit economics. “This means that most brands are dead in the water before they spend a single dollar on advertising,” Sturgeon explains. “Knowing the numbers: gross margins, target CAC, repeat purchase rate, etc., is table stakes for anyone building a healthy DTC business, particularly with paid traffic.” Own Your Audience by Including Your Audience Almost all D2C brands depend heavily on web marketing to launch and grow their brands. Doing that well, Sturgeon says, usually includes having a large base of user-generated content as a foundation when building out landing pages and articles. Sturgeon recommends that brands invest in micro influencers who can help create a critical mass of reviews and content that can be used in later advertising campaigns. “Beyond tapping into the power of social proof, this also provides your media buyers with a high volume of content to test in campaigns which becomes a strategic advantage in and of itself,” Sturgeon adds. This is a theme we’ve seen over and over again at Cuesta. The best DTC companies approach their customers similarly. Gihan Amarasiriwardena, a co-founder at Ministry of Supply, which creates sustainable and practical clothing, such as a machine-washable wrinkle-free suit, agrees. His team talks to at least 100 customers each week one on one. The conversations aren’t automated or carried out by a web survey form; they’re real. “You can’t fake, automate or digitize human connection, and by acknowledging that, we’ve built an army of advocates that feel—and are—truly connected to the brand on an individual basis,” he says. Focus on the Entirety of the Customer Experience Every interaction between a customer and a brand counts when a new company is trying to build equity with consumers. The aim is to build a name that will be recommended from one friend to another. Engendering that kind of effect requires attention to the little things, all the way around, from marketing to creative on the website, the shopping experience and customer support. “Every touchpoint with customers matters when you are a DTC brand,” says Ross Gordon, who founded Catch Co., a lure subscription service originally called Mystery Tackle Box. Catch Co. has raised $11 million in a space that doesn’t cross most investors radars by paying attention to every detail of the customer journey, from email copy to packaging and support. “A bad experience can ruin a brand for a customer, so founders should make sure that their 360-degree view of the customer is a priority,” Gordon says. Christopher is the Head Of Private Equity And Venture Capital at Cuesta Partners , which helps investors evaluate, plan and build better technology. He co-founded Aisle50 (YCS11), acquired by Groupon in 2015. He is also the New York Times Bestselling Author of Automate This, How Algorithms Came To Rule Our World. Follow me on Twitter or LinkedIn . Check out my website or some of my other work here .