The DNVB Cambrian Explosion: an unprecedented opportunity to build category-defining consumer companies for the 21st century

Over the last decade, technology has become ubiquitous in our lives. Internet connectivity has grown to over 90% in the US and Europe. There are now over 4 billion people connected to the internet globally; 3 billion use social media, 90% of them from their mobile device. As a species we are well on the way to being always on, always connected.

As a consequence, the consumer economy has been changing dramatically. Retail is being radically reorganized, from the paradigm of the 20th century, the automobile, to the paradigm of the 21st, the smartphone. Footfall at malls and big box stores in developed countries is down. Ecommerce continues to grow at a brisk 20% globally, now well above its ceiling penetration projections. Amazon is emerging as a possible monopolist, likely to take up to 10% of all retail sales. Selection, convenience, and price looks set to dominate all commodity categories.

And yet… consumer preferences seem to be fragmenting. Big is less and less better. Emerging tastes skew small, local, authentic, purpose-driven. Consumers used to trust big brands. Scale conferred huge advantages in pricing power, margins, access to supply chain, and ubiquity on the shelves of retailers. No longer. An increasingly economically, commercially, and environmentally literate and conscious younger consumer increasingly distrusts big brands. The 2008 financial crisis exacerbated feelings of being cheated and precipitated a flight towards authenticity and perceived value for money. In conjunction with the hyper-growth of natural, organic, and wellness (see LOHAS), consumers are flocking towards brands that either confer meaning or are fully utilitarian.

At the same time, the rise of ecommerce means shelf space is no longer a moat. Educated by Amazon et al., consumers are comfortable buying online and companies can sell directly over the internet. What’s more, over the last 20 years an ecommerce infrastructure has been built  that is able to perfectly serve even the smallest of players. Third party logistics providers (3PL) operate massive warehouses that offer full pick-and-pack services and integration with last mile delivery companies that can service consumers almost anywhere in the world.

The flip side of the logistics revolution is that supply chains have become increasingly accessible. Shenzhen as the belly button of our global materialist culture is open for business to the entire world. Increasing competition and decreasing prices are forcing original design manufacturers (ODMs, as opposed to OEMs), to accept smaller batch orders, albeit for prepayment. China has quietly morphed from a merely inexpensive to an extremely sophisticated, high-quality manufacturing hub. In response, European manufacturers focused on luxury, fast fashion, and core product innovation (for example, tech athleisure) are also accepting smaller clients. The decreased cost of doing business globally, along with well established container and air shipment routes, are making product sourcing accessible to any well-financed or well-networked startup.

The upshot? It used to take millions of dollars and several years to launch a brand. Now it takes weeks and $25,000. The result is a Cambrian explosion of new brands in nearly all consumer categories.

Our thesis is that there exists, certainly in the next five years and perhaps well into the next decade, an unprecedented opportunity to build new category-defining digitally-native, vertically-integrated brand (DNVB) companies that dominate specific verticals or niches within verticals.

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