In 2017, the home goods company Brandless launched with a novel way to take on Amazon as well as other big-box retailers. The direct-to-consumer startup sold high-quality, organic versions of everything from toilet paper to beauty products in simple, no-frills packaging. Brandless claimed that this eliminated the so-called “BrandTax” levied by many companies, which could account for as much as 40 percent of the product’s actual cost. With little money spent on traditional marketing, Brandless initially charged just $3 for every item.
Then in 2018 the entire course of the company changed when it received $240 million from Softbank’s Vision Fund, a $100 billion venture capital fund owned by a Japanese conglomerate. Although this colossal investment allowed Brandless to expand its offerings significantly, Softbank also wanted the company to become profitable as quickly as possible. According to reports, this led to unreasonable sales expectations and high-profile leadership shake ups, including the departure of Brandless’ co-founder and CEO in 2019. The company tried to increase its name-recognition by holding live events and pop-up shops, but in the end it couldn’t reach profitability fast enough. With most of its cash spent, this week Brandless closed its digital doors while it still had enough money to pay severance to its employees.
All told, the company laid off 70 people immediately but will keep on 10 staffers to “evaluate any acquisition offers” and fulfill remaining orders. “While the Brandless team set a new bar for the types of products consumers deserve and at prices they expect, the fiercely competitive direct-to-consumer market has proven unsustainable for our current business model,” said the company in a statement. Although Brandless certainly faced tough competition, analysts say that the company was also under too much pressure to turn a profit. In comparison, a similar startup called Public Goods is enjoying slow but steady growth after accepting just $3 million in seed funding. While it still has to compete against Amazon and other retailers, Public Goods will likely have more time to reach profitability than Softbank gave to Brandless.
- What are the advantages and disadvantages of accepting enormous venture capital investments like Brandless did?
- Do you think more companies should follow the lead of Public Goods and retain control by steering clear of big venture capital investments? Why or why not?