Welcome back to another Taking Inventory

In this week’s newsletter you’ll find:

• 🎧 How to build a bootstrapped giant

• 📰 New era of DTC brands building their way

• 📺 Understanding AI from the CEO of Anthropic

DTC Evolution: New Kids, New Rules

Early 2010s direct-to-consumer (DTC) brands were pioneers of their era. But they’ve hit some rough patches, especially after going public. Many of their growth-centric strategies, often at the expense of profitability and fueled by unsustainable practices. Back then, this all seemed fine, it was all about paying to get in front of people. It worked when ads were cheap and there wasn’t much competition. But soon, they were burning through cash (mostly from big investors) just to keep the ball rolling.

We’ve seen the pendulum swing almost entirely the other way with modern DTCs taking a different approach:

1. Money Moves: They're leaning towards minimal VC funding in their early stages, avoiding the pitfalls of excessive early-stage investments and premature oversight.

2. All About the Profit: They’re prioritizing profitability from day 1, emphasizing unit economics over a blind "growth-at-all-costs" mindset.

3. Smart Spending: Instead of pouring dollars into Meta advertising, there's a shift towards a holistic acquisition strategy that relies less and less on paid media.

4. Mixing It Up: These brands aren’t just ecommerce DTC brands like their predecessors, they’re moving quickly to an omnichannel approach, incorporating retail touchpoints, partnerships, and wholesale for a healthier and more sustainable revenue mix.

Bottom line? The DTC world is changing. The new brands have seen the mistakes of the old guard and are changing their tactics for the better. Link

Anthropic CEO, Dario Amodei on AI Agents and What’s Coming

AI assistants and agents aren’t just the latest buzzwords being thrown around. They’re very much here to stay and are already becoming integrated in day-to-day experiences. This will only accelerate and over time they will become the predominant way we interact with commerce and make decisions. The net effect of all this progress is that marketing, ads, media, and commerce will change dramatically over time. Even though it feels like we're just scratching the surface, this technology is only going to get bigger – it will no doubt have a bigger impact than the shift from desktop to mobile or from web 1.0 to social media. So instead of waiting, it's time to dive in and start to understand it. Link

Getting Paid in AdTech is Hard

Receivables turnover is an important concept for most businesses, it’s the time it takes to collect money from customers. It’s one thing to have revenue, it’s another thing to have cash. For ad tech companies, bad receivable turnover can be the difference between profitability and bankruptcy. When platforms and service providers extend credit, they’re basically a bank. They’re giving customers an interest free loan for up to 180 days with the promise that they’ll get paid. This is mostly fine until interest rates go up (think about borrowing at 12% to lend at 0%!), payments come in late (cash flow is now going in the wrong direction), and you have other things you want to do with that money (invest in R&D, hire people, earn interest). While setting payment terms might seem trivial early on, it can snowball into major issues later. Link

Ad-Free Means Paying Up

2023 seems to be the year of social media subscriptions. As the battle for ad dollars intensifies, major platforms are rolling out subscription tiers, flaunting an "ad-free" experience. While this sounds appealing, it presents a challenge: how do platforms and users assign a concrete dollar value to the abstract experience of content consumption? The growth potential seems capped unless platforms hike prices annually or eventually reintroduce ads. Consider the Average Revenue Per User (ARPU) metric: In 2022, Meta had an ARPU of $206.44 in North America, while SNAP ended the year at $32.57. If they're going ad-free, those subscription prices better make up for it. And for them to really convince users to pay a fee, platforms will need to have tangible perks, akin to Amazon Prime's free shipping, Netflix's giant library of content, or Instacart’s free delivery and cash back. While a few users might subscribe, it's a stretch to think this will ever be a big moneymaker. The Drum, Fortune, TechCrunch

Listen to our interview with Eric Seufurt to hear his take on the future of platform subscriptions.