Case Study: Dollar Shave Club

In 2010, Michael Dubin had graduated from college and was learning comedy improv while working various marketing and advertising gigs, trying to decide what to do with his life.

One night, he met a friend’s father at a party, and they started talking about the ridiculous cost and hassle of men’s razors. The two chatted about how irritating it was to have to go to the store to buy overpriced razor blades every couple weeks. To make it even more annoying, many stores keep the razors in locked displays to prevent theft, so you need to find a clerk to unlock your razor blades before you can overpay for them. Dubin went home obsessed with the idea that this was a problem worth solving, and within a week he had registered the dollarshaveclub.com domain.

His idea was brain-dead simple: buy razors and blades from an existing manufacturer in Korea and resell them in the US on a subscription basis. Consumers would sign up and enter their credit card numbers, then every month a new box of reasonably priced razor blades would arrive in the mail.

 Nothing about this business idea would impress most venture capitalists—no product innovation, no intellectual property, no defensibility, no differentiating technology—and the US razor market was seventy-percent  controlled by giants Gillette and Schick. Oh, and the founder had no business experience. Who would invest in that?

As an improv comedy enthusiast, Dubin knew the power of storytelling, despite other qualities he and his product lacked. He self-produced a ninety-second video about his new startup, named it “Our Blades are F***ing Great,” and uploaded it to YouTube on March 6, 2012. The video garnered millions of views and shares, and within two days of its release the company received twelve thousand orders. Dubin got his friends to help him fulfill the avalanche of orders, and Dollar Shave Club was off to the races.

The VCs were suddenly interested, and he ended up raising capital from Kleiner Perkins, Andreessen Horowitz, Shasta Ventures, and others in order to continue to scale the company.

In July of 2016, just five years after its founding, Dollar Shave Club had 3.2 million subscribers, and Dubin sold the company to Unilever for one billion dollars in cash. That’s right, a billion dollars in cash. It’s one of the most remarkable stories in the history of entrepreneurship.

The lessons we can learn from the Dollar Shave Club story include:

Many entrepreneurs would have been afraid to enter a space crowded with competition from well-entrenched incumbents. The reality is that it’s always easier to get a piece of an existing category than to create a brand-new one. People already spent a zillion dollars a year on razors; Dubin just needed to differentiate his business model enough to get a piece of that giant existing market. He wasn’t afraid of competition.

Although there was no product innovation, Dollar Shave Club offered business model innovation. It was a completely different way to buy razors, and customers loved the convenience of home delivery. Plus, the economics of a subscription business are powerful—automatic repeat purchases.

Storytelling matters. Dubin’s self-produced video went viral, and the products that arrived in the mail continued the story with messaging and packaging showcasing an attitude that fit Dollar Shave Club’s brand voice.

Every entrepreneur believes their startup idea will be a success, but venture capitalists want to see actual proof of customer demand. Dubin’s proof was evident within forty-eight hours as thousands of people subscribed before ever actually seeing or using the product. No investor can ignore empirical proof of market demand on that level.

With any startup venture, the only element that really matters is CAC< LTV. The unexpected success of the viral video gave Dollar Shave Club a low customer acquisition cost (at least for the first batch of customers), while a monthly subscription model (direct to consumer, with no retailer margin sharing) yields a very high lifetime value for each customer. Unilever paid a billion bucks to buy 3.2 million subscription customers, which works out to $312 per customer. To Unilever, that was a reasonable CAC against what they believed they could make from the product.

It all starts with a problem worth solving. People need to shave, but they hate having to go to the store and pay for overpriced razor blades. That’s a very simple and clear problem Michael Dubin solved—all the way to the bank.