This week, a Silicon Valley venture capital firm better known for backing online advertising startups and ex-Wired editor-in-chief Chris Anderson’s DIY drone company just invested millions in a hair dye startup.
Because, you know, your hair is in need of a little disruption.
Hair color doesn’t sound like a business that would attract the tech industry’s attention. But the $4 million bestowed on Madison Color in a True Ventures-led financing round isn’t quite as weird as it sounds. Tech investors are currently captivated by app-powered startups that sell non-techie products directly to consumers without anything so old-timey as a store interfering.
The creative use of technology to move merchandise is part of the appeal. Perhaps even more seductive: hugely lucrative product categories that have yet to taste Silicon Valley’s sacred cow-slaying approach to innovation.
“It’s just doing something really, really, really well and relating incredibly well to your consumer,” says Joel Cutler, a managing director at General Catalyst Partners and a board member at Warby Parker. “It’s what separates an okay investment from a great investment.”
Warby Parker is the eyeglasses startup that’s captured the love of the tech startup scene and more than $50 million in funding. They design, make and sell “vintage-inspired” glasses for a decent price, mostly online but also through a flagship brick-and-mortar store. As with hair color, glasses don’t sound like an especially enticing product for tech investors (unless they have Google in front of the name).
But Warby Parker has come to exemplify a new kind of startup that’s trying to do for physical consumer goods what many straight-up internet companies have done so well in recent years: build brands into which users invest a part of themselves. It’s easy to see how that self-identification works in relation to social media services like Facebook and Twitter. Glasses and hair color don’t offer the same species of technological venue for self-identification and expression.
But the web and mobile technology are still key. Warby Parker and other Silicon Valley favorites such as high-end hoodie maker American Giant and crowdsourced clothier Betabrand, however, are banking on a more intimate kind of connection between themselves and their customers enabled by mobile devices and the internet—a connection of a depth that they believe traditional retail can’t hope to reach. Through a clever mix of marketing and public relations across the digital channels where their target customers spend their time, these companies build stories around themselves and their products with the aim of attracting customers to involve themselves in the narrative.
But the digital-direct approach to niche retail isn’t just about a more nuanced sales pitch. If the product doesn’t meet the raised expectations the marketing strategy sets, the company won’t last long. These companies’ founders and backers contend that the path of direct online sales, which includes not just marketing but taking and shipping orders, also leads directly to better quality. “When you’re selling direct,” Cutler says, “you have more margin to put into the product.”
That’s the sweet spot that Warby Parker, American Giant, Betabrand and now Madison Color are trying to hit: neither overpriced luxury nor cheap throwaway, each in its own way is reaching for mid-priced goods that are more stylish, solid and even ethical than the competition.
For Madison, hitting that spot means aiming for what co-founder and CEO Amy Errett describes as the wide gap between the $10 to $15 ammonia-based off-the-shelf hair dyes from the nearest drugstore, and the $100 or more you’d spend to get your hair colored at the salon.
She says Madison’s dyes will be ammonia-free. Customers will be able to use their phones and tablets for how-tos on coloring their hair at home. They’ll be able to take pictures of themselves and send the photos to stylists who will help match them to their best colors—all with the aim of approximating salon quality at home.
To skeptics who might challenge that no one will care about buying hair color online, Errett points to a once-small startup that decided to go big on another fashion product that didn’t seem to lend itself to internet sales: Zappos. Of Zappos, she says, “I don’t know if anybody thought you could sell shoes online, because you have to try them on.”
Errett and her backers believe that the more personal connections made possible by the internet lend themselves perfectly to selling a personal care product like hair color.
Hair is also an enormous industry that has yet to find its way to the internet in any ambitious way. Errett says the U.S. market for women’s hair coloring alone is $15 billion annually. Between $3 billion and $4 billion of that total is home hair coloring, she says.
Such figures don’t make you the next Apple or Google. But even a percentage of those billions starts to look like profits worth pursuing, even if the business isn’t mainly about hardware or software.
“The opportunity for impact is transcending just technical improvements,” says Jon Callaghan, a True Ventures founder who’s backing Madison. “It’s the first time we’ve ever as venture capitalists been able to tap into markets where customers are in the billions.”
Source : MARCUS WOHLSEN, 05.03.13
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