CEO Circle #1: Direct to Consumer
The CEO Collective is a community of CEOs who have all participated in All Together’s pro bono advisory service. The community’s goal is simple: to enable CEOs to support each other. CEO Circles are All Together’s answer to coaching groups. They’re purposefully small, around 8, and a far cry from the one-way passage of panel-to-audience information that webinars delight in. Operating under strict Chatham House Rules, Circles are a safe, private environment for All Together alumni to discuss, teach and learn from each other.
This first meeting involved a group of Direct to Consumer business leaders, and the discussion was hosted by Anthony Fletcher, formerly CEO of graze.com and renowned e-commerce guru. To open the Circle, CEOs put forward the issues they’d overcome since launching their D2C channels, and then a problem they were currently grappling with. While the Circle operates under anonymity, this note highlights some of the key learnings from the group.
To D2C or not to D2C?
Many small businesses pivoted to e-commerce as a result of the initial COVID lockdown in 2020. Whether a reaction to collapsed sales in retail, or simply an acceleration of a strategy already decided upon, digital transformation was the big trend in 2020.
In the past 5 to 10 years, selling direct to consumers online has become the much favoured first step in building new consumer brands. Start-ups have realised the extraordinary potential of digital marketing to build an early adopter ‘tribe’ for their products – with much more efficiency than stomping the streets looking for retailers to sell through.
And for small businesses pivoting to direct e-commerce, there have been many benefits over and above additional revenue: building real and direct relationships with customers, ability to flex demand to your supply by controlling the level of marketing investment, trialling innovations for maximum feedback, testing international markets, to name a few.
But building a D2C channel is not quite as straight forward as it sounds: marketing costs put a heavy burden on working capital, sales may be cannibalising retail partners, so calculating the profitability of the channel needs careful and considered analysis.
On top of which, the expertise to build a sizeable direct to consumer business is becoming a rare commodity. Which is why our group honed in quite quickly on one of the biggest questions for CEOs building a D2C channel: in-house or agency.
In House or Agency?
For many small businesses in 2020, there was a sudden need to pivot the business and expand the skills of the team to fit with the boom in lockdown-driven D2C demand. Suddenly, whether you sold coffee, snacks, cleaning products or makeup, you were expected to have a fully developed, rapid-response e-commerce channel to rival that of Amazon. Not easy. Especially as the skills of a small team are likely to have been hand-selected to fit with the original operating strategy.
So, our first ‘deep dive’ discussion emerged with a debate on whether to keep D2C management in house or outsource it to an agency.
The general consensus was that the right agency offered a far better all round experience and value for money than a freelancer. Tried and tested expertise was more reliable than the vast minefield of freelancer options, although choosing an individual to manage specific areas, with pay based on sales, could be an option. Even better in the long term would be an agency willing to teach your team how to sustain the work once they’ve gone – don’t get caught out by those wanting to hoard your data or unwilling to include you in the process. You’ll get stuck further down the line.
The preferred long-term solution, however, is managing your D2C channel in-house, if you have the patience. The right hire, or even transfer, can be a sustainable and far cheaper alternative as a hungry member of the team willing learn and grow will give you insight and control over the channel, and the ability to pivot quickly with consumer demand. Plus, the software to run your own channel is becoming ever cheaper and ubiquitous.
Key learnings at this stage? Your e-commerce channel will be far more cost effective in the long term if you can keep things in house, and agencies may be a short term education in how to do that, but choose wisely.
Amazon: A Necessary Evil?
That being said, the question was quickly raised: even with their own D2C channel, how can SMEs begin to compete with the might of Amazon? For many it’s a ‘necessary evil,’ often requiring multiple members of staff to manage it (even the lengthy registration process requires a herculean effort), with packaging and delivery hurting margins. Whilst the returns can be good, there was agreement that the process was painful.
First step to success on Amazon? Nerd out on their algorithms. Specifically, there are five key algorithms that every supplier needs to deeply understand: Forecasting, search, price matching, personalisation, and the ‘buy box’. Understanding how these functions work is the first step in building a successful business on Amazon.
The second step is to customise your business for Amazon. Don’t replicate what you sell on your website on Amazon’s platform: it means you haven’t thought deeply about which products and what pricing works best for Amazon. And it means your own website becomes undifferentiated, which is bad for the long-term health of your brand.
Your website is your palace: the place where your tribe come to enjoy the full experience of your brand. Amazon is where you choose to sell the products most relevant to Amazon – these range and pricing decisions need to be based on your understanding of Amazon.
It was also worth noting that Amazon is somewhat dysfunctional at giving you data on the unprofitability of your products, and are very slow to realise it themselves – this can suddenly have quite a significant impact on your sales as their algorithm kicks in and you slip down the search pages (a good rule of thumb is to take what Amazon sells and subtract $5 to figure out their profitability).
While it takes brain power and hard work to build a sizeable Amazon business, it was also suggested that the real benefit in using Amazon might be as more of a search engine. Introducing buyers with the intention of luring them onto your website, where they will have an improved experience and engage with the brand story, could pave the way to consumers buying more.
nterestingly, it was at this juncture that CEOs suggested agencies as a worthwhile spend, as their understanding of the e-commerce giant makes them effective where your team may not be. Boula, Stella Search and Toucan agencies were all mentioned.
Overall, the group concluded that Amazon could have amazing benefit, but the key was to really understand how it worked. Do your research and, where financially viable, get some help, as the company is a great way of reaching a broad audience.
Crack the problem together.
Onto our final ‘deep dive’ topic, and the question from the group was simply: ‘how can SMEs, with limited man power and expertise, manage the immense omni-channel demands that 2020 has presented?’
The answer, delivered with certainty, was in the explosion of technologies that the direct-to- consumer boom has facilitated. There is, thankfully, a big difference in culture between FMCG businesses and tech businesses, and yet the two are deeply linked at present.
The key to understanding and owning each channel is in learning about it – and it was proposed that the unlikely alliance between two non-competing industries might offer an opportunity for the sharing of insider information. Your willingness to share will earn trust and, often, sharing in return, offering huge personal learning opportunities. It makes a big difference in gaining insights as to what works and what doesn’t. It’s the number one way to learn.
With huge thanks to Volunteer Advisor Anthony Fletcher for hosting this Circle and offering up his immense expertise. Thanks also the CEOs in attendance – your openness and sharing of experiences enabled a fantastic session.
