“In general, the consumer has proven to be more resilient than I would have thought,” said Kirsten Green, founder of Forerunner Ventures, which has investments in breakout D2C stars like Glossier, Hims and Bonobos.
She joined us for an Extra Crunch Live conversation to help us better understand buying habits in the COVID-19 era. With tens of millions out of work and uncertainty all around, people are spending less, but Green showed up with a healthy dose of optimism — while acknowledging that her worst-case scenario planning was wrong.
Her top-line advice for companies
Take a cautious approach, be prepared to make hard decisions, but be thoughtful about that. Don’t just make a knee jerk-reaction, which is “this is the apocalypse, we all need 36 months of runway, fire half your staff and go to the bunker.” I think the biggest opportunity for companies right now in many ways is to create value by demonstrating their flexibility.
We’ve been through a decade where it’s been as much about growth and opportunity as anything else. The way in which you’re introducing new products, getting traction in the market and seeing your top line grow has really been the definer of success. While that is always going to be important, right now in the absence of that being a strong driver, what are the other ways in which you can kind of create value or demonstrate value at your company? One is showing you have enough operational flexibility that you can create opportunities for yourself. Whether that is extending your cash runway or lowering your cash burn rate or starting to think about ways in which you know your product might meet the market in this moment, or some version of what you’re capable of delivering might meet the market.
It’s a process to go from the worst-place scenario to working backwards to think about opportunities. And so the last couple of weeks where we’ve been in the zone of thinking about opportunities has been a lot more reason for optimism than the month prior. Companies are soul searching and searching for that flexibility.
Painting the picture of a COVID-19 consumer
In general, the consumer has proven to be more resilient than I would have thought, certainly than my worst-place scenario went. But even in my mid-case scenario place, I kind of thought that everyone would go home and feel worried about their job, worried about their health, and not spend. But I think what was confirmed and demonstrated in many ways over the course of the last decade, last two decades, three decades, is that we really are a society of consumers and it is part of our DNA and who we are.
We did a big consumer survey and people mentioned that they haven’t necessarily started saving, but in the course of the next three to six to nine months they plan to start saving more. So there’s change to be seen. But the world went to stay at home or shelter-in-place and all the stores shut down, and you still have a group of people interested in spending or used to spending, whether it’s for the needs that they have, or pick-me-ups, or a distraction, or a combination of all of them. The activity online has been pretty robust, and so I think, for the most part, companies that had an offering, that had a loyal customer base and resonated with a customer and appealed before the crisis, have the elements to satisfy some of those reasons to shop. They have actually seen some pretty good success online and in some cases kind of offsetting what they’ve been missing offline.
Access to dollars and deals for underrepresented founders
We’ve made progress on having more female investors, we’ve made progress on more funding going to females, and we all wish it would be faster and further, but there has been progress made. And thank goodness there has, because we need that. That level of momentum that we had to kind of help propel us through this stage, we can’t take our eye off the ball and we’ve got to keep the conversation in our purview. I think people should keep in mind that great results have been driven by dynamic teams, whether that’s at the companies or in the boardrooms or the investors. I want to believe that that is the reason that people were taking the trend seriously, and if it was like that, it should be enough to continue it. We’re gonna have to continue to be disciplined about it.
We’re trying to reinvent new ways in which we kind of source opportunities. This is a good time for startups because it is a moment where people are open for change, people need change. That’s true for businesses, and that should be true for the kinds of people we are investing in, and the kinds of places where businesses are located. Remote work might change the landscape on that front, too. I think it was requiring effort before, and it’s going to continue to require effort. I don’t know that there’s a magic answer. There never was, but I feel like when people look for businesses that are on the forefront of change, people that are understanding what’s going on in the world, there’s every reason to believe that female founders have super unique insights and capabilities there.
How the consumer will reshape the new decade
At the start of a new decade with 2020, we took time to take a step back and say, “okay, let’s put aside everything we’ve known or we’ve experienced or we’ve seen from the consumer in the last decade and look at what’s going on in the world today. What is going on with people today? How are people pushing the envelope on behavior? What needs are being met really well, what ones aren’t?” We realized how much innovation has happened at the start of the last decade, you came from a place of digital enablement. Almost everyone has a phone in their pocket and so we built a startup ecosystem indulging in that opportunity.
People built some incredibly important products and services in the last decade, but a lot more of it was on the more discretionary side.
But I think while barriers to entry have generally been brought down, the barrier to rising above the noise is higher than ever. It’s certainly not easy to do a startup, but there are certain businesses where the free markets move more fluidly, and there are other areas where there are rigid incumbent regulations.
So this last decade, I call it the decade of satisfying wants and aspirations. You’re training the consumer that anything you imagine you want, you can have and you should. You deserve a great experience and we can deliver you an experience. I think consumers have long been leading the charge and we’ve kind of been paddling to keep up with them and seize the opportunity. And I think that’s happening again now. I think the consumer, they have this perception that their expectations can be met, but now there’s a whole host of areas where it hasn’t been met.
We just have such lopsided experiences. I can go on Amazon, I can click a button and buy anything I want. But if I have a question about my health and I don’t know what doctor to go to, I have to go to a primary care doctor to get a referral to another doctor. I don’t know how the pricing works. No one talks to me in a language I can understand. It’s a case-study demonstration of the lopsidedness.
And so I think that the customer is going to push business to deliver better in a whole landscape of categories that haven’t had that. A lot of that is in healthcare, education, employment.
We really kind of emerged from that exercise saying, we like our thesis, more than ever, and 2020 is going to accelerate it. I’m sure you’ve had every investor come on and tell you that this moment of great uncertainty where people are reevaluating, and they’re forced to make changes, and they’re more open to making changes, is going to accelerate adoption. But it’s also going to flush out the old incumbent companies that don’t rise to the modern moment and the expectation.
How she’s thinking about profitability versus growth for D2C companies
I have always been thinking about it. We have approached our investing in this category with an eye toward, “how do you build good sustainable businesses?” In my mind, good sustainable businesses are ones that have opportunities for double-digit-plus net margins and have enough margin in the product that you can invest in your marketing, organization and and customer experience. A lot of times that means that you are making investment decisions based on what the margin profile of the business is. So, we have tried to orient ourselves around businesses that have either higher-end contribution margin percentages or higher-end dollar values so that you can support some of those other efforts.
When there’s times of great prosperity and you have more confidence in what’s going on with the consumer, you might make a calculated decision to go a little further out on the investment spectrum. You might decide that you’re willing to engage for a 12-month payback period. In times like now, when there’s so much uncertainty, my caution would be let’s look for first-order profitability. And if you’ve designed your business such that that’s possible, then you’re in a pretty good place, because then growth is an option that you have right now.
Her investment thesis on edtech
The opportunity with edtech was kind of driven by multiple underlying tailwinds if you will. If you look at kind of just education, whether that is undergraduate education, whether that’s graduate school or whether that’s primary education, there’s a lot of debate on how successful we are at educating people. You’ve seen people move to private schools, you’ve seen more alternative schools come up, I think these have all been ideas of challenging what the curriculum is and how it’s offered.
So when I look at that I think if you were going to give education an NPS score, that would be pretty low, which is usually where we get interested, coming at it from a consumer angle. The consumer is not happy with what already exists. At the same time, the consumer is having multiple things contributing to more interest or more realization that they need to be lifelong learners. If you started your career a decade ago or longer it has changed dramatically: the skill set, the way it looks, the way departments are organized. I think there’s this push, because of the pace at which things are moving, to continue to refresh or update your learning.
A singular motivator of all of the change that’s happening or has happened recently is access to information. Enlightened people have opened up windows to ask for more. So, from all of those perspectives, there’s just more demand. There’s more demand for education, there’s more need for education and there’s more kind of dissatisfaction with what already exists, so you can’t help but ask yourself, okay, well if there’s all that need and all that demand, what is next? And what is it going to look like?
Catch the rest of the talk here:
