Why Are There So Many Unprofitable Unicorns?

March 18, 2022
2 min read

The 2010s were known for DTC unicorns. Most of them were never profitable. Why?

Most of yesterday's DTC darlings weren't profitable. But according to Fast Company, many earned unicorn status anyway by selling "vibes" (AKA really sexy branding) rather than a substantive product. 

This claim might be a bit reductive, but it's also not totally wrong. I mean–did the world really need another mattress company? Or a millennial-centric glasses dealer?

Probably not. But investors still threw billions of dollars at brands like Casper and Warby Parker. 

The problem is these brands were selling "vibes" at a loss.

Investors (especially in the 10s) tend to back brands with a "grow now, see returns later" mindset. But what if those returns never come?

Sure, investors don't expect fast-growing brands to be profitable immediately. But Casper, for example, is now 9 years old (ancient by internet standards). 

The mattress brand went public in 2019 at a $1.1B valuation. Then, they were taken private again only 2 years later. Why? Turns out Casper loses $349 on every mattress sold and is still not profitable

Warby Parker and many other unicorns from the 10s share a similar story.

And after losing millions on these brands, bets are hot that investors won't back brands that lack a clear path to profitability in the future. 

So, what can your DTC brand do? Build a business, not just a brand.

Building a profitable business relies on achieving operational excellence (scaling functions that already work well and optimizing those that don't). Rather than just scaling at all costs.

With this more disciplined and thoughtful approach, brands map out a clear path toward profitability early on. And they set themselves up for long-term, sustainable growth. 

Take Lalo, for example. The modern baby brand launched in 2019 and saw jaw-dropping growth right out the gate. 

In 2020, their revenue was up 320% YoY, and the brand served 360% more customers. By mid-June of 2021, Lalo surpassed its 2020 revenue, only to end the year growing more than 400%.

When we asked about profitability, Lalo co-founder and CEO Greg Davidson said they'll eventually raise more money to fuel new initiatives. But for now, the brand can sustain itself because the team's focused on operational excellence since day 1. 

A luxury that unicorns like Casper and Warby Parker are yet to afford because they built only a brand, not a profitable business.

Stay up-to-date with DTC

Drop your email address below – we'll send all the retail news, trends, and strategies you need to know straight to your inbox every Friday.

Resources

Educational tools for omnichannel retail brands, ecommerce businesses and entrepreneurs
View All

Features

The tools to empower your retail brand to reach operational excellence and grow better
arrow-right