Dollar Shave Club hit the jackpot when Unilever agreed to buy the online men’s razor merchant for $1 billion.
Other e-commerce startups such as Birchbox and Stitch Fix can’t necessarily expect their own suitors to sweep in with such sweet deals. That’s because the key to Dollar Shave Club’s appeal is not so much its online prowess but the fact that it built a powerful brand in four years.
In a blog post after the deal was announced Wednesday, David Pakman, a partner at Venrock and an early investor, said he never saw the shaving upstart as an “e-commerce company.” The key, he said, is how Dollar Shave Club developed relationships with men, many itching to find an alternative to the high-price blades sold by Gillette and Schick. Sucharita Mulpuru, an analyst at Forrester Research, essentially concurs with Pakman’s take. “I don’t think this is a testament on e-commerce is back,'” she says. “What Dollar Shave built is really unique, and the list is very short of other companies that have assets that are as attractive as they are.”
Dollar Shave Club upended the industry’s traditional business model by offering a subscription service that sells blades for as little as $3 a month (including shipping and handling). The day Dollar Shave Club started selling subscriptions in March 2012, the company released an online video starring founder Michael Dubin, who tells viewers the product is “so gentle a toddler could use it.” The website crashed, but the blades sold out in six hours. The video has been viewed about 23 million times.
The company learns about its audience and curates messages specifically meant to keep them engaged. With each delivery, customers get a magazine. Designed to resemble the funny pages of a newspaper, the little pamphlets feature life and shaving tips, as well as articles answering questions about such important bodily functions as why fingernails grow faster than toenails.
The blending of a cheap and convenient product with entertaining content helped the company snatch customers away from traditional razor sellers. That Dollar Shave Club is technically an e-commerce startup? Basically an afterthought.
The company subsequently began running commercials, an expensive tactic tried by very few nascent e-commerce companies. One made sport of the cumbersome process men go through to buy big-brand razors at a local drugstore. The pricey blades are locked away behind plastic doors that set off a siren when opened without the help of a salesperson. In the commercial, the customer vainly asks for help and tries to grab razors without assistance. He’s quickly subdued with a tranquilizer dart. Then Dubin touts Dollar Shave Club as a much better alternative.
The company reached $150 million-plus in sales in 2015, Unilever said in a press release announcing the deal. That despite the fact that the blades lack many of Gillette’s high-tech enhancements. Few other e-commerce startups can claim to have built a brand so quickly. Warby Parker, the spectacle frames company, is one. So is rival blade merchant Harry’s. Nor have e-commerce startups attracted $1 billion bids. Nordstrom Inc. paid just $350 million for apparel merchant Trunk Club. Hudson’s Bay Co., which owns Saks Fifth Avenue, purchased Gilt Groupe for $250 million, much less than what the company was valued at by private investors.
Of course, Dollar Shave Club’s e-commerce bona fides are important to Unilever, which has been promising investors it will get better at selling stuff online. The company will gain access to all the data and analysis the startup has on its customers. Mulpuru says Unilever paid a “heck of a lot of money for a business that’s not profitable,” but likely did so because it feared other competitors such as Gillette parent Procter & Gamble would make their own offers. “It’s worse to have it in P&G’s hands,” she says, “than for you to not spring an extra hundred million to get it yourself.”