How Rob Dyrdek Sherpas Founders Through Big Ideas and the Business Journey
Skateboard star Rob Dyrdek founded his first company when he was just 18 years old. His ties to the skating world led him to launch a brand of trucks, which are like axles on skateboards that hold the wheels; he hand-drawn the logo and named the company Orion after reading about alien conspiracies.
Three decades later, the former MTV reality star has helped at least five brands exit his venture capital firm Dyrdek Machine for a combined valuation of $450 million.
Dyrdek Machine was launched in 2016 as a “business creation studio”, working with a variety of brands ranging from CPG snacks to filtered showerheads to high-end footwear and more. The model not only provides a capital injection – it has so far granted total support of $30 million to 18 brands – but support for the founders’ business strategy. Dyrdek, in addition to investing his own funds in investment rounds, essentially operates as a co-founder, meeting and working directly with companies from conception to launch through the so-called “valley of death”. as they find their place.
He spoke with Modern Retail this week about the type of startups that catch his eye, why knowing the customer acquisition channel is key to early growth, and why he’s investing his own millions in some of Dyrdek Machine’s one-time startups. when the cost of capital is rising. This interview has been edited for length and clarity.
What type of products or segments are you most interested in being a part of?
I’m pretty agnostic when it comes to product. It’s really about finding white spaces in a market. And white spaces show up in so many different and unique ways.
We have a comfort shoe brand Lusso. We’ve seen how Crocs, Uggs, and Birkenstocks are ugly and comfortable staple shoes, haven’t we? 3.6 billion dollars in sales just for these three! So we were like, there’s no real premium offering of the same kind of look, it’s this kind of bulbous ugly shoe. That’s when we launched Lusso Cloud, which is basically our high-end version of comfort footwear, and that’s what got us into the footwear genre.
Another great company we launched recently was Jolie Skin Co. We saw how strange it was that this $50 billion market for skin and hair care didn’t even consider how much your water is dirty with which your beauty routine is in the first place. It was fascinating because even filtered showerheads were a relatively small market with a billion dollar market capitalization. And it was risky because it’s like, “Well, maybe people just don’t want to go through the process of filtering their water.” But when we started the business, we built this thing on the site where you can enter your zip code and see all the contaminants in your water where you live and what they’ve done to your skin and hair, and how the filter would reduce or stop it. And we really hit the market with this product.
It was real white space in the sense that it’s dangerous, when it’s really small in size and tricks you into thinking there’s just no consumer there. And that was the one where it was like, “No, it’s really consumer-related, because it’s something they just never thought about.”
How do you decide which founders and ideas are worth working with?
We try to find founders who have a general knowledge of how the engine of a business fits and works together. [People] who have been through running and building a business, and have had touchpoints in those before, so we don’t build – even though we do from time to time – first-time entrepreneurs, because of the steep learning curve. In fact, we like to say that we are looking for the magnum opus of experienced entrepreneurs. All of their experience led to this point and led them to create this idea.
In previous interviews, you’ve referred to the “valley of death” a startup faces. Can you share what this means to you, and how you and Dyrdek Machine are guiding them through this process?
One of the great trials and tribulations of Death Valley is that everyone thinks it’s going to launch a DTC brand. You go in and you have no idea how to acquire and convert customers, you get a consultant who can tell you how they did this brand and that brand…and then you try to spend with them and it doesn’t work. Then it’s like “Oh, should we try retail?”
For us, we see the whole business as an omnichannel strategy, always. Where are the first places it will go, and where will the product market fit be found? Because, finding a digital native business that lends itself to acquiring customers and having engaged customers is a completely different type of product than a type of product that can be discovered at retail. For something like [superfood-based snack bars] Mindright, it sells better at retail. Something like Lusso works best on an omnichannel level because it can convert on both fronts.
Jolie and the filter showerhead are so much more designed for the direct consumer because the lifetime value of a customer is so important. You sell the equipment but then the shower filter is on subscription every three months. And what makes this particular company so special and interesting is that having someone install the showerheads is high friction. But getting them to pull it off is even more friction then. We are literally seeing the lowest churn rate I have ever seen in a subscription business.
What are some of the biggest challenges founders and investors face at this time of high inflation and rising costs of capital?
If the fundamentals of a young company are not sound and there is no clear growth path to sustainability or sustained growth, it will be very difficult for you to get money. Getting the type of money where it’s just like “Hey we’re gonna throw some money in and see if you can make it work” I think that’s really, really a crunch at the lower stages . And then on the bigger stages, there just won’t be the same amount of money for you to keep pivoting as there was.
Now when you talk about inflation and how it relates to consumer spending and where you land in this world, it’s going to get really murky. Now you’re hesitating in the supply chain issues and the cost of the right issues and all those things that affect the price of your product and whether or not you need to adjust it in order to create value at the right price for your consumer . It’s no man’s land right now. It’s kind of a tough proposition to sort through. So I come back to this: there is never a bad economy for the good idea with the right economy for the right consumer.
What else are founders thinking about trying to raise capital in this climate?
If you can build a sustainable, profitable business that you can move the spend lever up and down and control in order to scale, that’s the only place that’s really going to make money outside of a super market opportunity $10 billion innovation. . I think a lot of money, for mega-disruptors, will be there. These are really the CPG products and those that require the most capital and have the least scale will be the world that will suffer the most, when it comes to being able to raise capital in this climate.
Rather than asking any of my companies to step in and fundraise in this cycle – I have so many in this gray area – I funded them all. I promised $5 million to Lusso, a million at this turn of [superfood-based snack bars business] Mindright, a million for [Black-owned beauty brand] Deon Libra and our anti-stress line. The strategy for all of these is to use this capital to get into this much more sustainable, clear and profitable zone, so that it will be easy for us to raise growth capital next year when it will be much more hard.
In this climate, I would prefer to ensure that we put all of our businesses on the pure path of profitability and sustainability before we even put back on the market, because we would only be wasting time and energy. I would prefer at this time, with this core portfolio group, to commit the money myself, as I know this is critical to its potential and long-term growth.