Don’t Get Dollar Shave Clubbed (Part 2)
How globalization allows startups to come in and crush you at record speed.
In my last essay, I illustrated how treating your product as the value proposition can be a costly, long term mistake.
Let’s use the Business Model Canvas to explain the model, which can be found in Business Model Generation and also my book with Alex Osterwalder, Testing Business Ideas.
Last time we focused on key resources, value proposition, channels and revenue streams
Startups do not scale to a billion dollar acquisition on a YouTube video alone. To avoid getting Dollar Shave Clubbed, you’ll need to understand the new trends in decentralization and globalization.
The Industrial Era Trap
Over the years, razor companies continued investing millions in designing, manufacturing and selling razors through retailers. I’ve illustrated this below with manufacturing, marketing, logistics and R&D being key activities that these companies own.
Owning the key activities drives up your cost structure
This organizational structure made sense back in the industrial era and we’ve carried it forward into modern organizations. We are no longer in the industrial era though and the cost of owning all of these activities comes with a much higher cost than before.
Razor companies have largely been ignoring the implications of everything and everyone being constantly connected. They viewed the internet as merely another marketing channel to add to their, already expensive, marketing strategy.
They’ve built an seemingly impenetrable bait and hook business built on industrial era thinking.
Tip #6: Consider Decentralization
In the past 5 years, we’ve seen the internet become much more than a marketing channel. We’ve also witnessed how a startup can scale very quickly without owning inventory.
Uber doesn’t own any vehicles
Airbnb doesn’t own any real estate
And Dollar Shave Club doesn’t own any razors
This is an important aspect of being Dollar Shave Clubbed.
Dollar Shave Club sources their razors from Dorco in South Korea. They don’t buy them at retail prices, but instead get the same razors at a much lower cost from the Dorco warehouses.
Dorco razor prices at online wholesalers
This strategy vastly reduced Dollar Shave Club’s R&D and manufacturing costs.
By partnering with Dorco, Dollar Shave Club eliminated manufacturing and R&D costs
It’s still true that startups can’t compete by building out expensive R&D and manufacturing components right away. In today’s constantly connected world, they don’t need to.
Startups can partner with manufacturers half way around the world and get the inventory as-needed and at a lower cost.
Tip #7: You’re A Software Company
Startups can outsource R&D and manufacturing, big deal. They can’t handle the marketing and logistics right? You have entire divisions dedicated to these functions.
Say hello to Amazon Web Services.
Amazon Web Services (AWS) completely changes the game when it comes to marketing and logistics. Dollar Shave Club built 20+ custom AWS apps to do everything from sales and marketing to order fulfillment.
