Case Study: Dollar Shave Club
This unlikely story of startup success has some important lessons for entrepreneurs everywhere.
In 2010, a guy named Michael Dubin had graduated from college and was learning comedy improv while working various marketing and advertising gigs, trying to decide what to do with his life.
One night he met a friend’s father at a party, and they started talking about the ridiculous cost and hassle of men’s razors. The two of them chatted about how irritating it was to have to go to the story to buy overpriced razor blades every couple weeks. To make it even more annoying, many stores keep the razors in those locked displays to prevent theft, so you need to find a clerk to unlock your razor blades before you can over-pay for them.
Dubin went home obsessed with the idea that this was a problem worth solving, and within a week he had registered the dollarshaveclub.com domain.
His idea was brain-dead simple: buy razors and blades from an existing manufacturer in Korea and resell them in the US on a subscription basis. Consumers would sign up, enter their credit card, and every month a new box of reasonably-priced razor blades would arrive in the mail.
There was nothing about this business idea that would impress most venture capitalists. No product innovation, no intellectual property, no defensibility, no differentiating technology, and the US razor market was 70% controlled by giants Gillette and Schick. Oh, and the founder had no business experience. Who would invest in that?
Rubin may have not have had any business experience, but as an improv comedy enthusiast he knew the power of storytelling. So he self-produced a 90-second video about his new startup, Dollar Shave Club, entitled “Our Blades are F***ing Great”, and uploaded it to YouTube on March 6, 2012. The video received millions of views and shares, and within two days of its release the company received 12,000 orders. Dubin got his friends to help him fulfill the avalanche of orders, and the company was off to the races.
Now the VC’s were suddenly interested, and he ended up raising capital from Kleiner Perkins, Andreessen Horowitz, Shasta Ventures (and others) in order to continue to scale the company.
In July of 2016, just five years after founding, Dollar Shave Club had 3.2 million subscribers and Dubin sold the company to Unilever for $1 billion in cash. That’s right, a billion dollars in cash. It’s one of the most remarkable stories in the history of entrepreneurship.
To me, the lessons we can learn from the Dollar Shave Club story are these:
- Many entrepreneurs would have been afraid to enter a space crowded with competition from well-entrenched incumbents. But the reality is that it’s always easier to get a piece of existing category than to create a brand-new category. People already bought a zillion dollars a year of razors — Dubin just needed to be differentiated enough to get a piece of that giant existing market. He wasn’t afraid of competition.
- Although there was no product innovation, Dollar Shave Club did offer business model innovation. It was a completely different way to buy razors, and customers loved the convenience of home delivery. Plus, the economics of a subscription business are powerful — automatic repeat purchases.
- Storytelling matters. Dubin’s self-produced video went viral, and the products that arrived in the mail continued the story with messaging and packaging that had a certain attitude that fit the “brand voice”.
- Every entrepreneur believes their startup idea will be a success, but venture capitalists want to see actual proof of customer demand. Within 48 hours up uploading his video to YouTube, Dubin had 12,000 orders from people who entered their credit card number to subscribe, without ever having actually seen or used the product. That is empirical proof of market demand that no investor can ignore.
- With any startup venture, the only thing that really matters is CAC < LTV. The unexpected success of the viral video gave them a low Customer Acquisition Cost (at least for the first batch of customers) and a monthly subscription model (direct to consumer, with no margin sharing with retailers) yields a very high Lifetime Value of each customer. Unilever paid a billion bucks to buy 3.2 million subscription customers which works out to $312/customer. To them, that was a reasonable CAC against what Unilever believed they could make from them. Let me say it again: With any startup venture, the only thing that really matters is CAC < LTV. This one had it in spades.
- It all starts with a problem worth solving. Men need to shave, but they hate having to go to the store all the time to buy overpriced razor blades. That’s a very simple and clear problem that Michael Rubin solved — all the way to the bank.
And here’s the video that started it all:
This article was merged into my new book, The Launch Path, now available on Amazon.