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What We Can Learn from the Struggles of Digitally Native Brands

An interview with Michael Lipkin, CEO of Assembled Brands

There’s no doubt that digitally native brands have changed the retail landscape. But as they’ve grown, we’ve seen some common struggles emerge – namely around profitability. In this interview, Michael Lipkin, CEO of Assembled Brands, a Los Angeles-based company that provides working capital and growth capital to early-stage consumer brands, shares some insights into why so many digitally native brands struggle.

1) Know Your Customer:

According to Lipkin, one of the biggest issues is that these companies often don’t have a clear understanding of their customer or how to reach them effectively. As a result, many end up spending endlessly on marketing without seeing a return.

“So many people or companies that we see will spend endlessly trying to attract a customer,” Lipkin says. “But if that channel isn’t efficient, you have to know to cut bait.”

Lipkin says understanding a customer’s lifetime value (LTV) as well as return on ad spend (ROAS), is critical to ensure marketing efforts are focused on the channels that will actually deliver results.

2) Metrics Matter:

Another significant issue is that these companies often don’t have a clear understanding of their key metrics. Without this knowledge, making strategic decisions around marketing and growth is difficult.

“If you’re not profitable, at the end of the day, you’re just going to have to be in an endless loop of raising more equity, suffering dilution, and trying to raise more debt,” Lipkin says. These metrics range from click-through rates to brand mentions on social media platforms, and can tell how effectively your marketing efforts are leading users to take action that generates value for the company.

3) Go Omni-Channel:

Finally, Lipkin notes that many digitally native brands have succeeded by branching out into the omnichannel world. This means, for example, selling not just through their own website but also through wholesale partners and retail stores.

“Direct-to-consumer is a little bit of a misnomer in that we see a lot of success in digitally native brands branching out to become omni-channel,” Lipkin says, explaining that this gives them the ability to reach more customers and ultimately drive more sales.

4) Be Innovative:

Finally, Lipkin says that it’s essential for these companies to be constantly innovating and differentiating themselves from the competition. This means not only coming up with new products, but also new ways to solve customer problems. For example, Lipkin referred to a company that produces towels that are resistant to sand. This company quickly rose to popularity because it solved a problem many people experience when going to the beach.

“If you can differentiate a product to solve a differentiated problem, I think you’ll just stand out from the crowd,” Lipkin says.

5) Focus on the Bottom Line:

Finally, Lipkin says that it’s vital for these companies to focus on profitability, not just growth. He notes that many brands get caught up in trying to grow their top line without thinking about the bottom line. This can be a recipe for disaster, as we’ve witnessed with public companies like Allbirds and Warby Parker, which have seen their stock prices drop due to a lack of profitability.

“So many VC-backed companies forget about becoming profitable that it really, in the end, hurts them,” Lipkin says.

In brief, Michael Lipkin believes that in order for a digitally native brand to be successful, it must focus on five key areas: knowing their customer, metrics, going omni-channel, being innovative, and profitability. By following these tips, brands can avoid some of the common pitfalls and set themselves up for long-term success.

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