In one of the most expensive deals of its kind, e-commerce startup Dollar Shave Club (DSC) has just been acquired by body products giant Unilever to the tune of $1 billion in cold, hard cash.

The monthly subscription service ships razors and other body products directly to consumers who are sick of overspending on razor blades on store shelves. The startup has yet to turn a profit but expects to by the end of this year.

In spite of its lack of profitably, DSC has managed to corner a large share of the razor market--to the point that it now competes with razor magnates Gillete and Schick as well as Harry's (another men's shaving product startup co-founded by one of Warby Parker's co-founders).

DSC's acquisition comes at a time when VCs are growing increasingly reticent to put up cash for direct-to-consumer and subscription-based startups. So how did the brand command such a high selling price? Here are four takeaways from DSC's success.

Marketing is king

One of the main reasons DSC has been able to attract the attention of such a massive brand is that it invested in building its own brand from the start. The company first earned national attention thanks to a viral YouTube marketing campaign, and it's leaned heavily on creative marketing ever since.

Unlike most startups, the company has utilized TV commercials--even going so far as to purchase ad space during the Super Bowl. The success of these marketing efforts is largely attributable to the fact that Dollar Shave Club has taken the time to thoroughly understand its audience and knows what will resonate with its demographic. Which brings us to the next point.

And so is differentiation

DSC helped itself stand out from the throng of e-commerce startups by selecting a specific and relatively unexplored problem--expensive razor blades--and then setting out to the solve that problem in a way that cut costs and frustrations for consumers. Instead of selling consumers on the idea that they need yet another new product in their lives, the brand set out to directly improve its customers' lives by alleviating an existing problem.

The brand has further individuated itself by investing heavily in getting to know its customers. Everything about DSC--from its ad campaigns, to its social media presence, to the "Bathroom Minutes" magazine that arrives in consumers' subscription boxes every month--is consistent and clearly targeted toward its target demographic of (mostly millennial) men.

This helps explain why the brand has attractedmore than 3 million customers and cornered more than 10% of the razor market since it launched in 2011. It's also expanded its line of products to include wet wipes and hair and skin products. And it's backed by more than $160 in VC funding. All told? Differentiation builds better relationships with customers and a stronger brand overall.

Data is in high demand

DSC's strong customer relationships don't just enhance positive brand recognition. They also yield valuable data--and you can bet Unilever was aware of this when they ponied up $1 billion. Every bit of customer data and analysis conducted by DSC will be shared with Unilever, who will use those insights to better corner the razor market, develop its own e-commerce strategies, and apply DSC's data and distribution tactics toward expanding its global reach.

Had DSC not made a point of heavily investing in customer acquisition, the brand wouldn't have brought nearly as much to the table. (And it's unlikely Unilever would have been willing to pay what amounts to five times more than DSC's projected revenue for this year.)

Direct-to-consumer brands have a competitive edge in the traditional product marketplace

The acquisition of DSC by Unilever is mutually beneficial--and it's highly likely that DSC was able to command such a high price because the company recognized what it was bringing to the table. Unilever itself has acknowledged that it doesn't have the know-how to successfully implement its own subscription model--or at least not in time to keep up with the market.

So Unilever is hoping to capitalize on DSC's knowledge of direct-to-consumer operations in order to implement a subscription model for other Unilever brands, including tea and skin care lines. The takeaway? The big guy doesn't have all the answers, and, when facing a buyout, the little guys should assert the value of the knowledge they've gained in the digital commerce startup scene.

There's a lot of talk these days about how e-commerce startups are facing a much tougher funding climate than they were just a few years ago, and this is generally true. But the success of Dollar Shave Club and other uniquely positioned direct-to-consumer startups (such as the wildly popular Saatva Mattress Company) prove that there's still a market for digital commerce startups.

But the market is no longer ripe for the picking--instead, it belongs to the brands who are willing and able to set themselves apart using the strategies outlined above.

Published on: Jul 28, 2016