Reflections on our current market: Fall of DTC StartUps and Rising CAC due to unsustainable digital marketing campaigns.

Recently I stumbled across this video while I was doing my usual, watching random shit on youtube while I eat lunch. The video is called "How Casper Failed & Why DTC Startups Lose Money" which caught my attention because a few years back, I had watched a contradicting video by CNBC about the success of Casper as a DTC Startup.

For those that do not know Casper, it's a DTC startup that "revolutionized" the mattress market, by being a pioneer in this new concept of ordering mattresses online and having it ordered direct to the comfort of your own house. The Casper hype was real where a lot of influencers (including Kylie Jenner! and fun fact, when Kylie posted about casper on her social media, their website crashed!) would also be posting photos and videos of their experience unboxing casper.

The hype went on for a while, as the company raised a 170M Series C in 2017, backed by target and some follow on investments from celebrities that had already entered the round previously.

Fast forward to now, where is Casper at? Casper is currently a privately held "exited" unicorn---but it actually also had an IPO back in 2020 where there 1.1bn valuation went down to 500M in just a couple of weeks.

In the end, the problem was that the CAC was too high and in the end, casper was investing 80-90% of their revenue back into digital marketing, never making it to break even. Furthermore, according to CNBC digital marketing costs have doubled or even tripled, as they state that reaching 1,000 people on facebook used to cost $6 and now it could cost $18.

Obviously, this problem doesn't only go to Casper, but for many other DTC consumer products, but for Casper, the secret sauce to their reality had other factors.

One, mattresses being a product that has less frequency, they couldn't get their "loyal" clients to just keep buying mattresses because c'mon, you don't buy a new mattress every other year.

Two, we live in a market of copy cats and clones just popped up so easily, and being a product with such low frequency in comparison to other product categories, it was "you get there first".

Lastly, their unsustainable approach to acquire customers just ended them burning too much cash for promotion, social media investments, influencer marketing and rather than allowing them to grow, they just ended up burning capital.

Casper is now acquired and is a public company once again--- I mean a 500M valuation still is pretty good (If the company was acquired at that value but still 100M+ is still decent) but makes you really re-think current business models of a lot of high-growing startups, especially many startups that spend an excess amount of cash on social media promotion and insane discounts to capture initial clients. And yes investing in marketing and sales is such an important part of building and growing a startup, but even if a startups estimated LTV/CAC at a 3, or even a 4, if you burn all of your cash and drive your company to the ground, you won't achieve your estimated LTV because you've already driven the company to the ground!

As a second time founder, I did think of "yes, I should spend 1290312831290$ on marketing and try to get as much traction" but in the end, that isn't sustainable and for me, having a profitable company that has the capability to remain is much more important, and I think these articles have helped me built a more organic-driven strategy.

I'm obviously not here to spoil the article or just cite the whole article, but this article (which is probs easier to read than watching the videos) gives a great example of why other DTC startups are not as successful as they are before, and I honestly think many of the things mentioned can apply to non DTC startups as well.

Would love to hear what you all think!