I read an article the other day (Note: I actually wrote this a few months back) on Pando Daily about a company called Barkbox in the states that has applied the Birchbox business model of monthly subscriptions to dogs. My friend sent me the link and initially I thought it was silly. I am not generally a fan of this business model, but reading their numbers, I allowed myself to think about the problem they were solving, and in particular the customers. It started to make sense.

Let me tell you why in a minute.

What they do (the business model)

Barkbox is a subscription e-commerce company that will send a box of dog-related treats to you on a monthly basis for $19-29 per month. They have some customization based on the size of your dog.

One difference to Birchbox is that they don’t send samples (Yeah, you think pet companies have samples?), instead they send the full version. In addition, BarkBox pledges to donate 10% of every transaction to dog rescue centers so every dog can find a good home.

They are doing more than just the box now.  They launched a content site, BarkPost, a content site with 3 million uniques per month, and BarkCare, a $199-a-year service that gives dog owners 24/7 access to vets for consultations online and over the phone. The big picture is full-blown ecommerce.

So far according to CrunchBase and other research they have raised $6.7m. First round was $100k (Brian Lee, Gary Vaynerchuk, Josh Abramson, Nat Turner, Zach Weinberg, Doug Chertok, Aaron Earls, Mike Jung and Aaron Harris), with a follow on round of $1.7m. 5 months later, a venture round of $5m including one of the seed investors, RRE Ventures.

Ironically, this article is about the applicability of Birchbox to pets, Hayley Barna and Katia Beauchamp, co-founders of Birchbox, are advisors.

BarkBox doesn’t plan to go into the dog food or dog insurance markets, both of which are sizable

So far Barkbox has grown revenue 10x in 2013 and is on a revenue run-rate of  $25 million, with 30 employees. Not bad on revenue per employee basis.

The why they do what they do

According to Business Insider:

“We started BarkBox because we’re all obsessed with our dogs,”

says Meeker. He founded BarkBox with Carley Strife and Prehype’s Henrik Werdelin.

“I would stop at the local pet store a couple times a week, spend $25 per trip, and always asked the teenager working there what was good.  It was clear he didn’t know, so we knew there had to be a better way.”

Typical story, right? The Americans do these best.

The ambition

It wants to become the ultimate dog resource, for both shoppers and readers; a $5bn company in 5 years which they don’t think is crazy. More so their BHAG is:

“an airline for pets and their owners.” “We think of BarkBox very much like Virgin… We want to do everything for dog lovers we can do.”

Frankly I think this is a bit ridiculous but then a lot of what goes on in America leaves me open to being surprised.  Having said that, I often have the concept of “go up the hill to come down the mountain”.  When I say this I mean, you do one thing to get to your actual objective. Pets are a big market and I am sure there are large opportunities to do something amazing, doing that is easier said than done. Getting regular, recurring users is a good place to start though.

Why I think this business model is not ‘barking mad’

It is easy to discredit business models for being x for y. Birchbox for chocolate is something I know of personally in which two companies have tried and failed in two different continents. But there are some things that people are irrational about, and that is pets.

People are irrational about them and see them as ‘part of the family’. They are emotionally distraught when they die, they are jubilant when they are happy, even if ephemerally.

Not being pet mad, I am not aware of any amazing companies focused exclusively in this area worth talking about (Ignore Germany and Australia where I know people in the field) and doing incredible things, sure there are pets.com etc, but being a geek if there was anything really exceptional I would have found them.

So what is going for this business model?

Customers

Price insensitive due to ‘love’ (A form of Human Irrational Price Sensitivity)

People with pets love them and just are a little bit irrational. They don’t really care about spending money on their dog, because they have to anyway. Dog stuff is not that cheap, but it is not so expensive they have to really think about it. You compare this to Mac and Bobby Brown; this stuff costs a lot. Girls need to buy it, but the price is high. It still is classified as a necessity (for many a luxury, sure), but it is still a little painful splashing the cash.

Lack of motivation for price comparison

The price of dog SKU are not meaningfully high (in most cases) and neither is the margin (particularly in a dollar sense to OpEx). The delta on price for price comparison is not really worth the time investment of searching. Compare this to beauty products, you can get deals, you can sometimes find lower prices. You can decide where you want to purchase as there is conspicuous consumption. Some girls like to go to the shop and leave with a pretty Chanel bag they can go to a coffee shop and show how awesome they are.

Convenience

People are increasingly busy. Buying a dog bone is not exciting and so not at the top of the to do list. However when you do buy a treat you also derive ‘utility by proxy’. People get referential utility from the excitement of the animal upon which they bestow a surprise. The fact you get a bunch of stuff sent, which is not too expensive, sent to you monthly means you arrive home after a busy day at work and can literally pull something ‘out of the bag’ or ‘box’ and delight in watching poochy run around in circles after their tail before finally settling upon a toy they are probably going to make unreciprocal love to. Let’s face it; people transpose their empty and stressful lives upon a vapid object of affection in the absence of something more meaningful. Literally providing people the ammunition to experience a fleeting moment of vicarious delight!

Don’t know if dog is really happy

This is a unique and insightful point. You know about eyeliner and your foundation, you know if it affects your skin, you know if you enjoy the experience of opening a high priced vestibule to your future beauty. You can see the delight in the face and behavior of an animal. You empathize with it, but is prima facie. You don’t really know how happy poochy is, but pretty much anything makes the thing happy, and that makes you happy.  As one blogger posted: was inspired by the deep blue sea with the intention of keeping dogs dreams of swimming alive with the goodies inside!… It’s got a squeaker in it that only dogs can hear.  Buddy went crazy when it squeaked it, but Baxter just look at me like huh?” This means as long as the dog keeps smiling you are going to be happy. If you were to spend it upon yourself, your purchasing decision tree would be far more complex and laborious.

Ignorance to value and asynchronous decision making

As mentioned above, you don’t really know what makes the dog happy. The curation of the box is therefore not so important. The dog wants anything. You think that variety is a factor, which is why you buy more of all sorts (analogously, children never get tired of something before you do). All Barkbox needs to do is to convince YOU that you are getting value in fact, and superficially, That is a much lower bar to achieve and it is based simply on appearance of the SKU. Your thought process is “I spent $20 and I got x, hmm is this good value?” if so, you drop it on the floor and the dog destroys it and they are happy with almost anything. So long as you think it is valuable to keep the subscription you don’t cancel.  Again, as one blogger said: They always send up unique products I wouldn’t have found on my own.  And the furries always enjoy the goodies, which is the most important part of course! The dog doesn’t have a decision in the matter

Consumable

Dogs eat and/or destroy what is sent on a regular basis. You don’t end up with a stack of dog treats in a cabinet like you do with Birchbox. You can only wear so much make up each day, and unless it is moisturizer, this stuff last a while. Clutter overload. With dog stuff, that dog is going to tear that shit up- better than your shoes, huh, I hear you murmur! What this means is you need stuff on a daily or weekly basis depending on what it is. A monthly box probably does just the trick.

Customer care

It is far easier to ‘curate’ a box for a dog than a prissy girl. I wrote about this before.  If one person gets a dog bone and another gets a treat, who gives a crap? Do this with cosmetics vs. shampoo and you have a facebook shit storm waiting to happen. The variations you need to provide are far simpler so pick and pack is easier. Easier to ship. In terms of operations, you are happier.

Ecommerce ‘upsell store’ might actually work

Price sensitivity

There is not that much variance in price and not many people want or have the space for Costco volume purchase. The average purchase and basket price is not that high. Sure, pet food, treats etc are not cheap, but neither are they that expensive.

Convenience

Pet stores smell. You need to buy stuff but you don’t really want to. Why not have stuff sent to you? Also ‘touch and feel’ is not imperative for a host of reasons.

Volume mitigates ecommerce dynamics issues

In my experience selling pet food (Which isn’t that much as I shut down the category twice at a company), there are three principal issues if you are starting off. 1. Trade terms are cash up front. You have to buy the product, in time you might get credit terms. 2. Margins. The margins are not that high. 3. Logistics. SKU are generally pretty heavy and not that high an average price point. You are already working off lowish margins, so to make cash you need to be doing volume to pick up pennies… so get that.

SKU sold

They say they aren’t doing dog food. If they are going to be a $5bn company I am not sure how they are going to do this without it as it is the common sense way to build recurring purchases (in a conscious purchasing sense). The up-side is that this is PC3 negative (post all costs including logistics), but they need to be selling a whole lot of other crap. I see pet food as being like books for Amazon and Flipkart, the idea is it good for marketing, but then Flipkart didn’t exactly find that books helped, so could make sense.

Market size

Large market etc.

Pet food in the States and some other countries is big. You don’t need me to write at length on this, and it would be too boring to.

Why I wouldn’t do this business model, at least in South East Asia

I did some analysis of the market in SEA, in particular two countries, and based off top-down Euromonitor reports, the market in Asia is not that large.

Dogs are an issue (I address below), there are some categories such as fish which were larger but not meaningful enough to justify cost of buyers and ancillary costs. Know that Barkbox is only focused on dogs and nothing else. They are “all-in on dogs, and dogs only.”

To make money you want to have a high ARPU and LTV, in this case this means regular purchase rather than one off purchases. Larger animals like dogs simply consume more than say fish. So there are subsets in the category you would want to focus on. Sure, to offer a holistic one-stop solution to be a “$5bn company” you offer the long-tail so people see you as the place to go, but if you aren’t doing the volume, or have the capital to maintain a long runway does it make sense in the first place?

When you look at the structure of some Asian markets, you have concentrated markets like SG and HK. I have physically seen some dogs around, but not many people have large houses, most people live in apartments.

Then in say MY and TH you have more space but then for cultural reasons, ownership of animals such as dogs are less. In Malaysia, KL and Penang are richer cities, but have a disproportionate population of Chinese people. The country average is about 75% Malay, but in the richer cities, the Chinese that really drive the economy, the average Chinese population is more around 55%. The Chinese see them as bad luck, and for Muslims unclean (as written in the Quran my gf says) which mean that ownership itself is low.

It is worth mentioning however, I read an email or two from customers after I shut down the category stating something along the lines of “Please do pets again, there is no where else I can find so many and well priced products for my dogs.” Dog buts aren’t limited to America.

My intuition is that there is a market opportunity, but it is more of a lifestyle business than a VC one. I could be wrong, but I haven’t done the DD.

About Barkbox:

BarkBox is building a new generation pet brand for people who are passionate about their dogs. Our first product is a subscription discovery box of monthly toys, treats, bones, and goodies for your dog. 10% of every transaction is donated to rescue centers and shelters to help save more dogs everywhere.

Barkbox: Barking mad? Why some business models applied to other verticals can work was last modified: October 3rd, 2015 by jarvisa
  • Suyashh Gupta

    South East Asia – Do you also include India?

    What are your views of the Indian ecommerce market since I see in your Bark Box post, you mention Flipkart.com?

    Do you think a subscription-based model like BarkBox would work well in India?

    I am from India and a dog lover / owner / parent – there are millions like me in the urban cities like Mumbai, New Delhi and Bangalore, who would not mind spending on their dogs on a monthly basis.

    I would be interested to know your views on the Indian market if such a startup to take root in India.

    Cheers.

    • SEA does not include India by definition.

      My views on ecom in India would extend across a series of posts.

      It is imperative to understand cultural differences regarding pet ownership. In SEA there are all sorts of weird things going on pertaining to superstition. Dogs being bad luck or unclean etc etc. I don’t comprehend the specifics of pet culture in India so I cannot give you an educated response for India. It should be pretty easy to find out however if you are local.

      I think the barkbox model is genius in certain respects. I do not know if it will work amazingly well in India because I have not done the research.

      The best way to find out if the model will work is to execute, and test.

      If you know anything about Indian ecom, you know the factors you are dealing with in terms of logistics, payment, basket size, CC penetration (needed for subscription). The great thing about dogs (pets) is people love them everywhere. There is no reason why it won’t work, other than the economics dont.

  • Tommy TANG

    Very accurate thoughts to the region of HK or may be most of the SEA cities.
    In social and economical aspect, I fully agree on the doubts and potential for the market.

    However, and especially witnesses in those Dog lovers in some major city in PRC. this subscription-base model may STILL worth to dig in or even trial run in these cities.

    What was still holding my back now is i still cant break through the wondering to the SURPRISES of the boxes.
    Since we never in the manufacturing or particular Pets food or accessories Branding business, simply is a consolidated trading platform. a distribution to consumer level. so the economical scale seems still very mysterious after some costing analysis from those branded treats can offer. and a lot a lot to computed.

    Macrolly, the consumer behavior are positive to the models, ecom biz are growing, retail are shrinking.
    in terms of biz cycle, right now or even is not too late should be the right time to practical start on this biz.

    I would really like to see from your suggestion on more well round aspect that i may need to concern.

    Look forward to your valuable comments!
    Cheers

    • Hi Tommy,
      I don’t fully understand your question, so feel free to elaborate.
      I don’t cover PRC (for various reasons) but it’s an interesting thought.
      Surprise is a good element of the model, but how long the shine of the surprise lasts is a key question in calculating LTV.
      Alex