PodcastsThe Twenty Minute VC (20VC): Venture Capital | Startup Funding | The Pitch20VC: The Memo: Scaling to $600M Revenues with No Venture Funding, The Most In Detail Breakdown of Consumer Subscription Unit Economics & Why D2C and Consumer Subscription is Not a VC Backable Model with Mike Salguero, Founder @ ButcherBox
20VC: The Memo: Scaling to $600M Revenues with No Venture Funding, The Most In Detail Breakdown of Consumer Subscription Unit Economics & Why D2C and Consumer Subscription is Not a VC Backable Model with Mike Salguero, Founder @ ButcherBox
The Twenty Minute VC (20VC): Venture Capital | Startup Funding | The PitchTue Apr 04 2023
Channel acquisition and marketing:
- The biggest problem is that the no-brainer acquisition channels have dried up
- Last year, $8.5M was spent on brand marketing
- It's a tough time to be running D2C (direct-to-consumer) businesses right now
- Mike Salguero believes that consumer subscription D2C businesses are not VC backable
- The challenges of running a consumer subscription business include increasing customer acquisition costs, high competition in the market, and high churn rates
- Many D2C food prep and delivery companies have failed due to various reasons such as overspending on marketing, poor unit economics, and difficulty scaling operations
- Mike believes that now is the hardest time ever to do D2C consumer subscription
Efficient marketing strategies:
- ButcherBox scaled to $50M in revenue by focusing on one marketing channel that was working effectively
- Founders should think about adding a second channel once their first channel is performing well
- When choosing which additional channel to pursue, founders should consider their target audience demographics and behavior patterns
- Mike does not particularly like "brand marketing" because it can be expensive with uncertain outcomes
- Burnt $8.5M on brand markting Emerging channels:
- One notable emerging channel that has potential for growth over the coming years is social media influencer partnerships and referrals.
- These influencers or referral customers tend to perform better.convert higher rateaston nicher than alternative acquisition methods
Economics of a meat delivery service:
- Customer acquisition cost varies depending on the specific circumstances but they paid under 20% less per pound of meat compared to early daysthat they were being exploited before finding experts
- However operating at scale helped drive down distribution costs significantly since efficiencybacksed behind years changed greatly from shipping frozen via Fedex nights all across America coast gas real price difference quality improving picker’s comp organised Insulation discounts storage facilities box only took first shift to other company fee goes down significantly
- Focus on dollars per box as the main metric instead of gross margin percentage
- They focus on making the customer profitable by the second order
Importance of constraints:
- Constraints are important for entrepreneurs, especially in bootstrap companies or those not funded by venture capital
- Constraints force entrepreneurs to be efficient and make smarter decisions
- By prioritizing cash conservation and being mindful of expenses, entrepreneurs can create a viable business without relying heavily on external funding sources
- Entrepreneurs should embrace their constraints and use them as opportunities for creative problem-solving
Internalization strategies:
- Influencer marketing has become less effective as influencers may opt to launch their own products or brands instead of promoting others'
- One approach is to become a media company and capture people's imagination through unique content such as cooking steaks in unconventional places.
- Focusing on unusual steak cooking locations could generate attention and interest, leading to increased brand visibility and customer engagement
The Makings of a Great Entrepreneur:
- Mike Salguero's childhood experience of his father not being present impacted the type of leader he is today.
- His fear of abandonment shows itself in his leadership style and motivates him to build businesses that are self-sustaining and not reliant on outside funding.
Consumer Subscription is Not a VC Backable Business Model:
- Mike believes consumer subscription D2C (direct-to-consumer) businesses are not venture capital backable because they face significant challenges.
- The biggest challenges of running a consumer subscription business include high customer acquisition costs, low conversion rates, and difficulties in achieving scale.
- Many D2C food prep and delivery companies have failed due to these challenges and did not address them effectively.
- Mike believes that now isthe hardest time everto doD2C consumer subscriptiondue to increasing competitionand market saturation.
The Secret to Efficient Marketing:
- ButcherBox initially scaled to $50M in revenue with just one marketing channel working effectively.
- When founders should think about adding a second marketing channel depends on their specific circumstances and goals.
- Mike does not like "brand marketing" and learned the hard way by spending $8.5 milliononit without clear metrics for successor ROI.
- Mike sees emerging channels as having the biggest potential over the coming yearsfor efficientmarketing strategies.
Venture Capital: To Raise or Not to Raise:
- Mike chose not to raise venture capital for ButcherBoxand has never sold secondary sharesinthe company.
- His decisionnot to raise venture capital was influenced by a previous negative experience raising moneyforhis first compan
- Mike believes that founders need to carefully consider whether they truly need venture capitalfunding and understand the potential repercussions of taking on outside investors Beliefs consumer subscription D2C businesses are not VC backable + any judgement/personal opinion: