I hesitated to write this email because Warby Parker is so over praised. It’s like the Apple of corporate role models 😂.

But there’s something I almost never see talked about when it comes to their success.

And unawareness of this detail has caused many aspiring “Warby Parker of ___” brands to sink their businesses.

It all starts with the DTC model…

I’ve got it! The DTC brand founder begins, let’s cut out the money hungry middle man and sell straight to the customer! It’s virtually ALL PROFIT. We’re geniuses!

We’ll build our own website and sell directly to the customer. And because we can own that relationship, we can monetize it to grow even more!

Truth be told, DTC is a fantastically powerful model – so we’re in good shape so far.

But DTC only works if you can acquire your own customers. There’s no distribution partners here. There’s no foot traffic to see your product on shelves. There’s no market place of eager buyers waiting to discover you. You have to build that entire engine.

Here’s where things get real…

As anyone with even a little experience with business online knows, acquiring customers can be tough. Especially if you’re a product-first founder and not a native digital marketer.

And over the last few years digital marketing has become more and more expensive.

In the 2010s advertising online was cheap and easy. It was cheap because not many brands were doing it. And it was easy because there wasn’t a lot of competition for you to sell against.

But that all started to change as more and more brands saw the opportunity.

Problem 1: Now you have to sell against your competitors online. Your customers are seeing ads for a huge variety of choices, and standing out in that crowd is increasingly difficult.

And that leads to the next big problem. As more and more brands enter the marketplace and spend on digital advertising, the cost of those ads goes up.

In 2018 digital ad spending in the US was $108B. Just 5 years later in 2013 that cost had almost doubled to $201B.

Problem 2: Ad spend costs skyrocket.

Between 2017 and 2022 the cost to acquire a new customer online rose 60%. CPMs (cost per 1,000 ad impressions) are up 3x over that same period.

The bottom line is this: if you rely on digital advertising to reach new customers, your marketing costs are very high. And they’re not going down anytime soon.

It’s that force that’s squeezing so many DTC brands. Even category champions like Peleton and All Birds are succumbing to the pressure.

Which brings me to the often overlooked detail that allows Warby Parker to weather this storm.

A Business Model Designed for Success

When Warby Parker started they had two unique bets:

Bet Number 1: Customers are willing to buy high quality frames online for cheap.

This is the bet everyone talks about and emulates. But remember, profit is what makes a brand grow. And if the economics of your “high quality for cheap” pitch leave you with too little left over to pay rising customer acquisition costs…

Then you’re in trouble!

Bet Number 2: In the founders words, “The structural dynamics of the optical industry allow for us to sell products at a fraction of the cost of our competitors.”

In other words, there was A LOT of meat on the bone in the eye glasses space. And if you knew the industry, you could produce frames for a tiny fraction of the cost that your competitors are.

That’s the secret sauce that allows them to create profitable, scalable growth.

Too many businesses emulated Warby Parkers bet on customer relationships, but were unequipped to survive in a world where marketing costs were high.

What’s the big takeaway for us?

Business models are important. It involves not just your value proposition and vision for the company, but also the economics that fund it.

As Franklin Covey wisely taught us, begin with the end in mind.