Jul 21, 2016 · 6 minutes

Yesterday, Unilever announced it was buying Dollar Shave Club for a cool $1 billion.

In the entire landscape of ecommerce 2.0, including content and commerce mashups, flash sales, and subscription commerce, this is only the second $1 billion exit in the US, and you can count the exits that high in ecommerce since the bubble-- period-- on your fingers.

Forerunner’s Kirsten Green may know this more acutely than anyone. One of the top ecommerce investors, she invested in Bonobos, Birchbox and Warby Parker as three of her first deals. But she’s long said that Dollar Shave Club was one of her most underrated bets. It’s paid off handsomely for her now, in an era where she’s one of the only investors who still wants to back commerce.

But the lesson from this win isn’t that actually subscription commerce is great after all, nor is it that a good viral video will lead you to a $1 billion exit. It’s not anything about the advantages of starting a company in LA either.

It’s this: Build the company you want to build no matter how many people tell you it’s impossible by citing other failures.

Here are just some of the very rational arguments I’ve heard over the years for why Dollar Shave Club would definitely fail or be acquired for a small amount:

  • Subscription commerce just didn’t work! ShoeDazzle, Beachmint, and all the many “boxes” just flamed out! Especially the ones based in LA!
  • You can’t compete with large CPG companies. (We also heard this one about Honest). They have massive market share and patents and distribution networks and brand spending that a startup just can’t replicate. They will stop at nothing to protect their margins and their market position. Gillette could just put you out of business if they adopted this playbook.
  • Ok, so everyone is annoyed at how much razors cost, and it’s something men regularly need every month. But just razors is too small of a market. How will you ever expand enough to become an interesting business?

It’s not that Dollar Shave Club didn’t grapple with every single one of these obstacles. They just weren’t beaten by them, because they focused on their own company and out-executed the old giants.  

There’s a catch-22 when it comes to pattern recognition in this industry. There are indeed great lessons to be learned from why companies that look a lot like you fail. And one of the reasons seasoned management teams or experienced VCs or serial entrepreneurs are appealing is because of the benefits of pattern recognition.

But while it’s something, it’s not everything. Facebook didn’t follow the same path as either Friendster or MySpace. Google didn’t follow the same trajectory as AskJeeves or AltaVista. While the future of Instacart is unclear, it certainly hasn’t flamed out the way WebVan did. There were plenty of arguments for why Instagram would be a fad given, Flickr, PhotoBucket and other photo sharing sites had never become huge exits. Similarly, Dollar Shave Club isn’t BeachMint, which overspent and launched radically new verticals helmed by celebrities.

But it’s harder to keep the faith, keep employees, and keep raising money when you’re in a category where so many companies have failed, and even the “winners” like Birchbox and Honest appear to hit stalling roadblocks.  

Unlike flash sales, where only Zulily made it public before later collapsing in price and selling to QVC, there are several subscription commerce companies that still look promising, even though so many others have died and the category overall has been written off as a gimmick and a fad.

Most of them are staying quiet right now. Birchbox has had to do layoffs amid a tough fundraising climate, but still has a strong and growing business. JustFab is said to be an IPO candidate, experiencing torrid growth in its Fabletics line. Honest may be challenged by a unicorn valuation, but it’s still a valuable asset with a great brand.

But each of these companies, along with Dollar Shave Club, haven’t succeeded because they are “subscription commerce,” but because each had a core execution advantage. Birchbox is more of a beauty marketing company, convincing women to spend money on samples-- which used to be free-- in order to discover new products Birchbox can sell them directly. JustFab’s founders are savants at direct marketing and beat ShoeDazzle early on because they had far lower costs of acquiring customers. That was essential to making the celebrity based/multiple vertical model actually work. And Honest is the single best example of a celebrity co-founder meshing with the brand, and has executed a multi-channel strategy and expansion of products without abandoning the core customer better than most.

In our PandoLand interview with Bryan Spaly, who was a co-founder of Bonobos and sold TrunkClub to Nordstrom for $350 million, he said he’d probably fund more commerce companies and maybe even start another one, despite it being a category most investors refuse to touch.  “I think it’s so lame when people blame the economy and the headwinds,” he said of investors’ souring on ecommerce.

He pointed out that lots of people build successful restaurants, even though restaurants have some of the worst survival rates in business to make the point that just because not every wins in a sector doesn’t mean no one will.

We’ve harped on this a few times. We criticized Shuddle for saying it went under because no one would fund the category, pointing out that competitor HopSkipDrive raised money during the same period just fine.

And (Pando investor) Brian Singerman of FoundersFund said that his win on Stemcentrx-- the best exit in the firm’s history-- doesn’t convince him to go fund new biotech companies, the same way the success of SpaceX didn’t convince them to go fund more rocket companies. It’s less about what category the company is in and the founders and can they execute.

If this game were that easy, every investor would have the same returns.

It’s a frustrating reality when you are betting your money or career on a startup or even write about them, because just betting on a category is a lot easier. You mostly only discover how good someone is by watching them build their company. Even serial entrepreneurs have uneven wins and losses.

Spaly’s way to win a supposed unwinnable market was raising a small amount of money and not overspending. That’s a playbook that has also worked for Zappos and Stella & Dot. Despite, Dollar Shave Club’s exit it may be the forced playbook of ecommerce companies getting started today.

Dollar Shave Club benefitted in the end by being able to raise capital but being in a less overheated space than say, the on demand world. It raised a modest $164 million in an era where that can be a single round. Most of that-- some $90 million-- was its recent series D, which valued the company at $630 million. Imagine: It’s actually an exit of this size this year where every investor at every level will actually make money. From Pitchbook’s breakdown:

Seed-round participants will obviously be most happy, as they achieved an astounding 49.69x return on their investment. Those firms include Forerunner Ventures, Kleiner Perkins Caufield & Byers, Andreessen Horowitz, Shasta Ventures, Felicis Ventures, White Star Capital, Science and Cowboy Ventures. Venrock is another big winner after having led DSC's Series A and B rounds.

The era of over-funding commerce companies to spend a lot on acquiring customers may be over, but this won’t be the last $1 billion exit we see. There won’t be many. But the teams and investors who believed in their own execution over market hysteria will be handsomely rewarded.