Tydo

Originally posted on Tydo, read the full story here.

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Bennett Carroccio is on a mission to change the way we buy and sell products online.

At Canal, Bennett, his two cofounders, Liam Kinney and Clay Schubiner, and the rest of the team are helping brands unlock new distribution at scale and reach new customers through a completely novel channel. We sat down with him to learn more about the Canal and how DTC brands can stand out in an increasingly crowded digital landscape.

The Gulf Between Discovery and Distribution

Bennett's vision for Canal first came about during the heart of the pandemic.

At this time, he and his fiancée would take long walks around San Francisco in an attempt to remain sane. Strolling through the city every evening, they noticed all the boarded-up stores in the Marina District.

Bennett started thinking:

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1. What are the implications of the pandemic on retail and discovery?
2. What are we losing by not being able to physically walk into stores?
3. What new distribution channels might quickly sprout up as a result?

All of the physical storefronts that curated cool, high quality brands that no one really knew about were closed, at least semi-permanently. So, consumers could no longer discover new products and brands in real life.

At the same time, Bennett knew that consumer spending was way up despite the complete absence of brick and mortar.

It became more and more clear that the need for discovery wasn't being addressed in the current market, and that's when Canal's market opportunity started to solidify.

“In a traditional retail store, discovery and distribution occur in tandem in the same physical space. Increasingly, that just doesn’t happen anymore.”

The Rise of CaaS: Curators as a Storefront

When folks shop for new products, they often seek out trusted experts for recommendations.

As consumers ourselves, we intimately understand this process of crawling the blogosphere looking for recommendations and reviews.

Our favorite experts already curate their favorite products, but they don't have the means to actually sell anything unless they create their own end-to-end ecommerce storefront. Why?

Put simply, the process of launching a storefront is insanely complicated, primarily involving the procurement of products, wholesale purchases, warehouse sourcing, and shipping orders. It’s complex, time-consuming, and expensive.

On top of that, the metaphorical pipes of an ecommerce storefront just aren't build out yet. Canal’s core thesis, and latent growth potential, revolves around building these exact pipes.

At its core, Canal is creating a platform that connects brands to these points of inspiration. Now, trusted recommenders can sell on behalf of brands without holding any inventory and still driving sales. All the while, they're helping brands find new, untapped distribution channels.

In December 2021, they launched their first-ever creator storefront—Sharma Bodega—in partnership with Nik Sharma. Nik's storefront features 75 products from dozens of incredible brands, including Brightland, Snif, and Jambys.

“People are already asking trusted people in their network what to buy. In turn, these curators should be the storefront. Canal helps curators do exactly that, but without assuming additional operational overhead.”

Acquisition Arbitrage: New Frontiers

More brands and more venture dollars following the long-tail of ecommerce are yielding saturated acquisition channels and rising pay-to-play prices across the board.

Even with an amazing product, a killer operating team, and a unique story and POV on the market, it’s still hard for emerging brands to stand out and communicate their unique value proposition.

For example, at a16z, Bennett's core criteria for evaluating commerce teams included asking the following questions:

1. Can they hire the best people?
2. Are they great storytellers?
3. Can they build a magnetic brand?

If these three criteria are met, he adds, success should then translate into decent or superior unit economics.

The cohort of over-optimized channels includes the usual suspects: Facebook, Instagram, Google, and even Pinterest. As each day passes, the CAC attached to each channel continues to rise. As a result, brand are seeking out new frontiers to acquire customers cheaply.

The good news, according to Canal, is that arbitrage opportunities will always exist.

Consumer behavior, time, and attention are always shifting.

Each new channel that pops up could be the next big thing, and in turn, offers a temporal pricing lag in which an arbitrage opportunity can exist. For example, even though TikTok is exploding in popularity in terms of ad spend, the platform still rewards organic virality for brands at the forefront of rapidly shifting cultural trends.

“In order to develop relationships with new customers, DTC brands need to optimize for getting in front of them at the right time, with the right context, at a consistent cadence over a stretch of time. That’s what drives results.”

Coming Full Circle: Data Analytics  

Brands turn to Canal because they’re looking to be sold elsewhere and expand their product catalog by selling more complementary products. And, trusted recommenders are looking to sell more third-party products because that expands their basket size and drives a higher AOV.

The higher the AOV, the higher the LTV.

In turn, higher LTVs justify higher CAC thresholds, which often translate into shorter payback periods.

Additionally, there’s no upfront cost via Canal.

While discovery and curation are the key drivers of Canal’s business model and adjacent market waves, the true power of its platform lies in its ability to yield quantitative, data-driven results.

As Bennett points out, the platform essentially enables storefronts to sell products with zero operational lift with better real-time data analytics, so it’s pure margin across the board.

More importantly, Canal is entirely success-based, meaning that if a sale is generated through their product, they take a small fee, but if there’s no final sale, no fee is taken. A win win.

“We’re adding dollars to an order with no operational cost attributed to it. That’s more or less unheard of in the performance marketing ecosystem.”