$1B for Dollar Shave Club: Why Every Company Should Worry | Hacker News Reader

$1B for Dollar Shave Club: Why Every Company Should Worry

nytimes.com

54 pointse15ctr0n60 comments

This article just rambles, and I'm not really seeing what point it's trying to make.

Point one, I think: something about inequality because DSC has 190 employees. But it still takes the same order of magnitude number of people to make and sell a razor; they just don't all work at DSC. There are still employees at the Korean manufacturing center, and it's not like they would have gotten rich if they were owned by DSC. How many people were made millionaires by Gillette?

Point two: big companies should be afraid of disruption. If Gillette was really afraid of DSC, well, we know how much it costs to buy them, and Gillette was worth 57x more, 11 years ago. I think a more likely explanation is Gillette had almost a monopoly but didn't find a way to use price discrimination, and DSC picked up where they left off.

Thats odd because it looks like you understand the article. I didnt have any trouble understanding the thesises which were called out in the introductory paragraph either.

Not true, it starts out looking like that's what the article is going to be about and then simply meanders to nowhere. It also only had dollar shave club as an example.

It doesn't tell the story of the company, how it runs, the disruption in its industry? Was it not true to the headline?

I'm not sure why Gillette should be (very) afraid of DSC. Gillette had $7B of sales in 2015, compared to ~$240 million by DSC. The real questions that should be asked are:

- Did Gillette's revenues decline because of DSC? If so, by how much?

- What is DSC's growth now?

- What is DSC profit margin? (Hint: it's < 1%)

- With > $160 million in investment in DSC, what % did the 190 employees own?

While DSC had $240 million in sales, a huge percentage of that money did not go into their bank account. Since they were buying razors from a 3rd party, easily 40-60% of the costs go to the razor manufacturer, plus shipping & handling costs, taxes, etc. According to Forbes they weren't even profitable! (http://fortune.com/2016/05/16/dollar-shave-club-2/) Gillette's profit margins are ~30%, for comparison, even with massive marketing, sales and distribution costs.

I do love DSC's model and attitude, but claiming the sky is falling because they were purchased for $1B is hyperbolic. Look at the numbers and do the real math :)

Gillette was scared of DSC they started up Gillette Shave Club. That didn't work so they started attacking DSC in their ads which only helped drive brand awareness of Dollar Shave Club. Its seems they finally just gave up and sued DSC on patent infringement on a razor they don't even manufacturer.

Also no VC backed company is going to be profitable if they have VC money sitting in the bank. It was less than a year since DSC raised cash.

I agree no VC backed company will be profitable for much of its early life, my point was you can't compare apples to apples between Gillet and DSC. If DSC is spending insane amounts of money on growth and discounting their goods, at some point they have to start making money. And at that point I wonder what their retail prices will be for their blades if they are buying them from a 3rd party.

So what if they bring manufacturing in house? Same price more margin. Seems the obvious end game.

That definitely would help them, and it's something many companies do once they reach a certain size.

DSC has 15 percent of the market, by volume. The low revenue numbers is because they sell so cheaply .

As for profits, it's hard to evaluate those since DSC is in growth mode. But in general DSC as the owner of the customer relationship will get all the market power and considering razors cost pennies to make , DSC will probably have a decent future.

But that's outside of the matter. It's about turning a large market into a much small one, and in the process stealing leadership from gillete.

> DSC has 15 percent of the market, by volume.

I'm struggling to see how that's possible.

- The highest count of their subscribers I've seen is 3 million. Let's round that to 5 million.

- There are about 160 million adult males in the USA. http://countrymeters.info/en/United_States_of_America_(USA)

- Assume that only half shave with a cartridge razor: 80 million.

- Using such conservative figures, at a ceiling that means DSC has 5 / 80 of the possible subscriber market, or 6.25%.

Unless each subscriber is buying nearly three times as many blades as normal...?

Yes, you're probably right, Stratechery which usualy does good work estimated this at 15%, but europmonitor - which this kind of thing is their job, estimate is at 5%.

The real threat to Gillette isn't new business models, it's the Mach 3 coming out of patent in the next two years. Soon after that you'll see off-brand Mach 3 compatible blades flooding discount retail outlets, and the whole "razor and blades business model" starts to break down.

That's why Gillette has been trying to transition people onto newer shaving systems (with however many blades) for the past decade. But people keep buying Mach 3, because it's great.

What's patented?

I'd guess the attachment mechanism.

I believe the entire handle, head, and connector bits. Probably also parts of the manufacturing process. When I bought a Mach 3 handle about 10 years ago there were at least 12 patent numbers printed on it.

There's a reason you haven't seen generic Mach 3 blades yet. The product came out in 1998, and blades from 1998 can still fit the system today -- no matter how many new patents Gillette chases, others will soon be able to reproduce exactly that.

https://www.google.com/patents/US6212777

Expires somewhere around 2018 (17 years after issuance)

I use a double edged safety razor and have around a thousand blades, which cost about $0.02 per blade. I've always thought that disposable razor blades were an outrageous racket. Also DE safety razors make for a much smoother shave!

It also helps that they are very easy to keep clean during their useful lifetime.

I think it's very possible that the very reason it's not popular is there's minimal incentive for a firm to market that option; the margins just aren't there.

I gave that out a try myself. While they certainly are cheaper than disposable or cartridge blades, I found that for the amount of time that went into a good shave I could get an even better one with disposable or cartridge blades.

I read all of the DE blade shaving guides, but it really didn't work well for me.

All in all, they're definitely cheaper... But I don't know about better.

I found the same thing. It was cheaper (although you can spend a lot of money on the handle) but not any better and certainly not as convenient.

They are a racket, but my 3-blade cartridge razor still gets more use than my safety razor. The main reason is that it's still more convenient - with a safety razor you can get a great shave, but you have to take your time at it. With the cartridge razor I can just stumble out of my bed and groggily whack the hair off my face without needing to employ any executive brain function. I don't even bother to put my contacts in first because I don't really even need to be able to see what I'm doing.

The price of cartridge razors also comes way down after you realize that, as long as you keep the blades dry so that they don't corrode, you can make 'em last forever. I think my record is something like 4 months on a single cartridge.

I cut myself equally much with both but maybe on cartridge blades it is because I try to eke out on more shave of it before tossing it.

They are outrageous. Women's blades can be even more so: However, I wouldn't consider shaving my legs with such a contraption. I don't know how I'd keep the proper angle on my legs, knees, ankles, and bikini line. Taking longer to shave means I could easily run out of hot water in the winter (small water heater). I'll just stick to buying men's razor blades (cheaper than the women's version, at least) and keep my convenience.

It's interesting to compare this to the Harry's Razors model, who bought their own factory in Germany[1]. By carving out a larger vertical they might be able to differentiate themselves better, not unlike Apple.

[1] https://www.harrys.com/our-factory

All this says to me is that style over substance funded by outrageous markup is still the name of the game in this industry. Just swap glossy Roger Federer ads for quirky YouTube videos. For the price of two months club subscription you could have two years worth of high quality DE blades delivered, if you can live without being told how great you are for buying them every month.

Maybe people don't want to use Double edge blades ?

Is it only me thinking that DSC were undervalued? I think that DSC is worth way more than 1 Billion. I mean, this product occupies a much larger mindshare than some of its much bigger competitors. Unless there are operational or growth issues, I can't understand why only 1B??

I thought they were over valued. Their marketing and branding teams are on point, but besides that they resell Dorco razors, and blades then wrap them in brown paper.

And at this point what's to stop say Gillette or any other company competing with them at a loss selling the exact same razor?

Branding is the single biggest defense against any incumbent. Universally agreed, branding is a very strong defense. They had sales of 150 Million. Merely six times? Consider that against some Bay Area startups valuation !!

True, but at the point when a competitor can say we sell the exact same product made in the same factory on the same lines. But we charge less, branding isn't as important. In fact your brand can work against you.

I dont quite agree with that statement. If thats the case, what stops Pepsi from taking over Coca Cola's marketshare? In fact in blind tests, its very hard to tell which is what b/w coke and pepsi. But, Coke commands the marketshare? Why? I think its their branding.

> In fact in blind tests, its very hard to tell which is what b/w coke and pepsi.

As someone who aced the Pepsi Challenge when they were around, they have very different tastes (I don't like the way Pepsi tastes at all), and I'm not the only one.

In fact, the Pepsi Challenge existed solely because Pepsi thought theirs tasted so differently.

Coke and Pepsi may be similar, but they are not the same product made in the same factory.

Who are they getting to do these blind tests? Coke, Pepsi, and RC cola have distinct flavors -- the generics do too, although I don't have enough experience to identify them. Cans, bottles, and fountains don't taste the same either. Branding and affinity certainly influence which vendor is preferred, but the drinks are not the same.

According to Fast Company DSC has 1.7 million subscribers so Unilever purchased 1.7 million subscribers in a totally new market for them at a cost of about $600 per subscriber.

They have a nice pipe and they just need to feed more products/higher value products through the pipe over time. If many are younger (which might be possible given the sort of company) then these can be subscribers/customers for a long time and possibly disposable income will increase over time thus converting lower revenue users to higher revenue ones.

The $57 billion P&G spent for Gillette in 2005 is $70 billion in 2016 dollars.

Eventually, I predict Amazon will start selling their own high quality brands first marketing to Amazon Prime.

Amazon will compete with a lot of P&G products with their own brand eventually.

I can't wait for Amazon or Google or Apple to remarket Verizon mobile phone service. They just raised their plan rates!

Loads of people re-sell mobile phone service. The question is whether Amazon, Google, or Apple would sell it to you for cheaper.

Right now, you can get Google Fi will give you 4GB for $60 rather than $70 from Verizon. Not a huge savings there. StraightTalk will give you 5GB for $45/mo on Verizon's network (or 10GB for $55). Why not switch to that?

Sometimes you pay more to stick with brands, but there are companies all over the place offering cheaper alternatives if you're willing. As the article notes, DSC is just a re-seller of Dorco blades. StraightTalk will se-sell you Verizon. Amazon already has Amazon Basics for many items.

Thanks....

No Amazon Basics quality men's razor that I could find.

Google fiber is considerably less money for better service over the competition. Mobile is a far larger expense and I was hoping for a similar disruption.

Having read this, I Googled "Dollar shave club razor brand", and sure enough there are articles like this one explaining how to order the product directly: http://lifehacker.com/5903771/forget-dollar-shave-clubbuy-th...

It seems like their success is essentially a marketing success. That's not exactly a new phenomenon, excepting the use of web video instead of TV/radio ads. Plenty of companies are essentially marketing entities that "rebranded" existing products.

That's the point. Indeed, it's nearly a 100% marketing success. Just because you CAN buy the same razors another way, doesn't mean that any normal consumers do. As another HN post pointed out, DSC was able to combine existing tools like AWS, Facebook, YouTube to build a $250MM business in a matter of years, exceed $1M in revenue per employee, and sell it for $1B. A decade ago, this would have been completely unheard-of -- think how much you'd have to have spent on building your own tech stack, display/print/TV/direct mail advertising, phone operators, etc.

Look out! They're the model to disrupt every over priced product in the market. I'm looking at you inkjet printer ink.

So how many outrageously over priced products are there? (Besides everything the Pentagon buys and anything health care related.)

Daily disposable contact lenses.

I feel like getting into selling prescription devices is a bigger hurdle than say reselling razor blades.

Also is there an FDA approved factory that white labels contact lenses?

Edit: after thinking more aren't contact prescriptions written for a specific brand? I know mine is written for Biofinity Toric lenses and that's the only type I can get. So you would need to bring in optometrists and convince them to fit their clients to your new line of contacts.

In the UK we have a company called Daysoft that do this. They were about half the price of the cheapest dailies back when I swapped in 2015. I've been using them since with no issues- none of the opticians have mentioned anything when I get my eyes checked.

I've worn contacts for years and it was never mandated which brand/type I could buy. When you get a contact lens exam, it just says what size and power they should be. Perhaps your insurance only covers that brand, but an exam and prescription should allow purchase of any lens brand.

You know, I've never really paid that much attention to it. I always assumed when they fit me for a specific brand that I had to get that brand. Especially since they had me try multiple brands before writing the prescription.

My eye doctor tries to sell me on a certain brand but I choose a different one. I always wonder if he gets some kickback?

it was never mandated which brand/type I could buy

I'm sure regulations vary by country, and probably? by state. In Oregon a contact lens prescription is for an exact brand and type of lens.

That makes sense to me, because different lenses have different oxygen permeability (and probably other differences as well).

When my daughter's doctor changed her brand, he wanted her to come back in for another visit to confirm they were tolerated equally well. And this was at an HMO type organization (Kaiser Permanente). They don't get paid per office visit, so they're not incentivized to bring you back unnecessarily. (I really like that aspect of KP).

If you know of good quality Canon replacement ink let me know. The knock off stuff I've tried has been awful

I'm not going to defend all defense spending (and I don't know much about healthcare, though I expect it's similar), but much of the cause of huge expense for defense projects is that they're buying standard deviations. A lot of the stuff is manufactured to shockingly small tolerances. Same reason you spend $10000 for a PLC with less functionality than a $35 RBPi.

I buy a pack of bic disposable blades for a few dollars. Use each one for several shaves. A packet lasts for several months.

Yeah, so what if my chin is not as smooth as a baby's ...? I will survive.

The shaving blade industry is a racket of the highest order.

I'm not a very hairy guy, but those basic disposable razors are horribly on my face. I tried the Wilkinson sword a few times, the big competitor to Gillette in the UK, and they really were inferior.

I now use a Mach 3 or Mach 3 Turbo, which they introduced more than 10 - 5 years ago. I'm sure their newer, fancier brands are better, but for me they're overkill.

The fancier ones with battery powered vibration are more effective. You can't really classify that as overkill because since the blades stay useful longer, it saves money in the end.

I'm not convinced the battery powered ones are more effective in actual shaving quality, but they do seem to make the blades last longer plus I get less irritation from them.

I used to do exactly that, and switched to DSC a couple of months ago. It's a little bit more spendy (I use their most expensive, $10/month option), but it is also vastly more comfortable on the skin. No regrets so far.

I only wish they offered an option to get fewer blades. The only option right now is 4/month, but after some experimentation, I think 3 or even 2 would work fine.

Is this an editorial? It's not clear from the page or the Dealbook FAQ [0]. It certainly isn't hard news:

> It means that the riches will be split among the select few who have the education and skills to be at the heart of the new decentralized company.

And is it just me, or does it seem like the author is cribbing somewhat on the pg essays on wealth inequality?

[0] http://dealbook.nytimes.com/2006/03/01/dealbook-faq/

"Every other company should be afraid, very afraid.

The deal anecdotally shows that no company is safe from the creative destruction brought by technological change."

This is news to who, exactly?

Does anyone know what was the valuation of DSC prior to this sale? They raised $163M - if that corresponds to a 20% stake then this sale doesn't increase the price by much.

The article strikes an odd tone when talking about the number of employees that Dollar Shave Club employs directly. Yes, DSC doesn't directly employ Dorco employees, but increasing demand for Dorco razors means more production. If Dorco had seen direct demand rise by the same amount, it would have had a similar impact on their workforce. The article seems to bemoan that, "The Korean razor company [Dorco] that manufactures Dollar Shave’s razors will not be sharing the $1 billion deal price with its employees." But realistically, if Gillette finds a way to increase sales via a new marketing or distribution system, I don't think the rank and file employees get a piece of that action. Gillette would have found a way to increase profits for its investors. For employees, maybe there's more job security because of the increased demand and maybe new people get hired to meet the demand, but hourly wage isn't likely to move.

The amount of labor needed isn't changing just because the company directly employs few people. The difference is that different functions (marketing, sales vs. manufacturing) are being done by different companies rather than one company that does both. This means that a company like Dorco which is seemingly terrible at marketing can still get high sales for their product. Similarly, a company like DSC which doesn't manufacture things can put their talents to use.

It's a scary time for companies because now companies don't need to be good at everything to succeed. But that's good for consumers. It means that a company that manufactures a good product won't die because it's bad at marketing, logistics, customer support, sales, etc. - they'll get white-labeled by someone else, but the good product can get to market.

But DSC's success might simply be Unilever over-paying for something. Another commenter brought up Harry's (https://news.ycombinator.com/item?id=12198431) which decided to buy their own razor factory. They can create a product that you can't get elsewhere. I can go to dorcousa.com and buy razors direct (and they often get them nearly half off via coupon). I now no longer need DSC. Dorco's razors are behind a lot of store-brand razors and so I can simply go to my local shop rather than paying for DSC. So, Unilever bought a subscriber list and a brand. As another commenter pointed out (https://news.ycombinator.com/item?id=12198614), their margins are basically zero with most of the money going into buying the razors and the expense around shipping and logistics.

The article just hates to see success by a company that seems more fluff than substance. That's fair, but then the argument is that they're over-valued. They haven't produced anything of substance and are shipping all their revenue back to third parties. If they have produced something of substance, then maybe they are worth the money and are providing employment indirectly to Dorco employees, shippers, and such.

I think the real fear is just that it's easier to test the waters for product-market fit than it used to be. If they had to handle everything themselves, it would be hard to start DSC. Here, they could prove product-market fit without requiring extremely high levels of capital. But that's a good thing. It means that good ideas can get out there.

Dorco are the real winners here. They get DSC's massive marketing campaigns (pitching them against premium razors), while selling directly to budget conscious consumers. Dorco sells blades either way.

There's quite an interesting lesson in branding here, many believe strong branding is a vital asset. Yet, the right white-label deal can be better - Essentially getting people to pay to market your product. Plus Dorco didn't jump into the partnership (I'm sure DSC asked for exclusivity deals in the US and Europe), a smart move indeed!

I'm now scratching my head wondering why someone would pay so much for DSC..

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