The biggest startups in the world are laying employees off. The yield curve has become inverted, inflation is at 8.6%, and economic pessimism is the highest it’s been since 2009.
For e-commerce brands, the wave of bad economic news is a shot across the bow heralding a major change in consumer spending. Bleak times are ahead. But, I think there’s room for optimism for the brands that make it.
Why am I qualified to make such a statement? I spent over four years as a consumer investment partner at Andreessen Horowitz, where I met hundreds of consumer companies and worked closely with dozens — from hyper-growth unicorns to companies winding down operations.
But I’m not an investor writing from a Sand Hill tower. I co-founded Canal to enable brands to sell more. Since our launch in 2021, we’ve worked with hundreds of e-commerce brands to expand their product catalogs and grow distribution. Most importantly, we’ve kept a close eye on what’s working for consumer brands, and what isn’t.
The more complementary and additive a product is to your catalog, the larger your cart size, and the more likely a customer is to return.
While it is certain that the next 18 months will be difficult for many e-commerce operators, this time will also hone resilient brands. Here’s what we think every brand leader must know to survive the downturn:
Margins are everything
To bastardize a famous turn of phrase, your costs are eating your world. To survive, you must examine the costs chipping away at your margins. By understanding where you are wasting spend, you can weed out unprofitable and higher-risk initiatives.
Let me break down the two major cost centers for e-commerce brands that you can do something about:
User acquisition
The DTC playbook was written during a period when customer acquisition was relatively cheap thanks to digital ad spend on Facebook. But that sugary sweet diet of cheaply acquired customers left brands with an unsustainable over-reliance on growth.
