BUS-217  ·  Week 4

Case Study

Dollar Shave Club

In 2011, Michael Dubin was doing 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 go to the store to buy overpriced razor blades every couple of weeks. To make it even more annoying, many stores keep 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 70% 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. 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 (you can still find it on YouTube).

Within two days of the video's release, the company received 12,000 orders.

The video garnered millions of views and shares, and Dubin got his friends to help him fulfill the avalanche of orders. 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 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.

Key Takeaways

01

Many entrepreneurs would have been afraid to enter a space crowded with competition from such 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.

02

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.

03

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.

04

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 with their credit cards before ever actually seeing or using the product. No investor can ignore empirical proof of market demand on that level.

05

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 equals $312 per customer. To Unilever, that was a reasonable CAC against what they believed they could make from the product.

06

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.