Despite what you might have read, innovative businesses can be more than just app makers and smart device manufacturers. Take the Dollar Shave Club, a direct-to-consumer business that sells men’s razor blades on a subscription plan, which was just acquired by personal care giant Unilever for a reported $1 billion.
How did a company selling sharpened bits of metal and soap convince one of the world’s largest consumer product companies that it was a unicorn—one selling real things to real people?
Well, ok, it was partly thanks to the Internet.
Ben Thompson at stratechery points out that the largest player in the industry is Procter & Gamble’s Gillette unit. It works according to a tried-and-true industrial method of spending vast sums on R&D, marketing, and distribution in order to lock out competitors and command huge profit margins.
Dollar Shave Club, on the other hand, took advantage of the fact that razors don’t really need to be re-invented every few years—the basic commodity model works just fine. And when marketing (via YouTube, in one of the best product introduction videos of all time) and distribution (via Amazon’s AWS e-commerce servers) are incredibly cheap, then Dollar Shave Club could quickly and cheaply capture a huge portion of the market. Founded in 2011, it now sells about 15% of the razor cartridges in the United States, according to Thompson.
P&G couldn’t even consider bidding for Dollar Shave Club as it would mean having to abandon the decades-long business model that made the company successful. Unilever, on the other hand, had no such qualms.
The deal is expected to close in the third quarter of this year, reaping major profits for the venture capitalists who were smart enough to invest $150 million in what was essentially a unicorn in sheep’s clothing.