How Nik Sharma decides whether to invest in a DTC brand

Before he takes out his checkbook, your product better solve a problem, shake up a category, and have a clear path to both your first 5,000 customers and $10 million in revenue.
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Morning Brew Inc./Retail Brew

· 4 min read

Nik Sharma is the founder and CEO of Sharma Brands, a consultancy with a focus on direct-to-consumer brands, as well as the CEO of Hoox, a digital marketing agency. He has invested in numerous DTC companies, including Cadence, Chamberlain Coffee, and Haus. Sharma also co-hosts a DTC podcast, Limited Supply, and writes the weekly Nik Sharma Newsletter, which has 37,000+ subscribers. We recently asked Sharma about why some DTC brands soar (and others sputter) at a virtual Retail Brew Checkout event. Watch the entire conversation with Sharma here.

This interview has been edited and condensed for clarity.

Before investing in DTC companies, what are the key things you look at?

Is this something that I would be a customer of? If I can see myself as a customer, I can be a lot more valuable to them when it comes to ideation or partnerships or helping them through different things on the marketing side. That’s really my expertise.

The other thing is: Is this product solving a real problem, or is this the nth version of something that’s already launched before?...What is their path to eight figures in revenue? How are they going to hit $10 million?

What’s a specific example of DTC that you decided to invest in because they were unique and solving a problem?

One is the Jolie showerhead brand. They position themselves as a beauty tool, a beauty device. What they are solving is basically the water that’s in our pipes today [contains] chemicals and what they do is they filter [materials like chlorine and hard metals] out of the tap water, which makes your skin a lot more hydrated. It keeps your hair from getting dandruff and keeps your skin from getting eczema. And so these are solving a real problem that people have, you know–customers who have eczema, they use a Jolie showerhead, [and] all of a sudden it starts to go down.

What’s interesting to me about Jolie is that it’s a showerhead, which is normally a hardware store item, but it’s being positioned as a beauty product. Plus, it’s a subscription model because you have to keep buying filters to filter all this gunk out of the water.

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They’re not only getting a hardware purchase, but they’re also getting a recurring subscription because the filters change every quarter…This is a win-win-win framework—it’s a win for the brand, it’s a win for the customer, and it’s a win for the business model.

Do you evaluate DTC brands’ social media presence as a prospective investor?

I look at two things. One is: How good is the brand at creating content? At the end of the day, this is basically a game of creating content and getting it out to the right people. And then the second piece is from the people that buy the product: How excited are they to talk about it? Jolie is a great example, where I think they’ve had 10,000 people share content this year alone, which is a phenomenal metric for them because whether or not they’re creating their own content at scale, they’re getting thousands of pieces of content per month.

Content is a very obvious indicator of whether or not a brand will be successful, probably 8 out of 10 times. There’s definitely 2 out of 10 where no one creates content; they have no real followers, but they’re doing tens of millions of dollars in revenue. Those tend to be very, very solution-oriented products.

How closely do you look at a brand’s online reviews before you invest?

If [the company’s] early stage, it’s harder just because there’s probably less of it. If it’s a later-stage company, a business will live or die based on what the customers think…If it’s a beauty brand, there are a thousand other beauty brands. If it’s a webcam, there are 500 other webcams. And so if you’re not creating a 10 out of 10 product, you’re not even in the arena to compete.

So reviews are definitely something we look at pretty closely and it’s not just the site reviews because a lot of times those can be hidden or removed or blocked or whatever. But the reviews I like to look at are on TikTok. I love to go to TikTok and just search “Jolie review” and look at people’s honest thoughts there.

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Retail Brew delivers the latest retail industry news and insights surrounding marketing, DTC, and e-commerce to keep leaders and decision-makers up to date.