Before she had a baby of her own, Amrita Saigal (MBA 2014) kept hearing from friends that the “natural” diapers on the market didn’t hold up as well as the old standards, like Pampers. Trained as a mechanical engineer, Saigal knew her way around product design and had worked as a design engineer at Procter and Gamble, in addition to having cofounded a social enterprise that successfully commercialized biodegradable sanitary pads in India.

Saigal started looking into the $10 billion diaper industry and found that its products are the third-largest contributor to landfill waste. What’s worse, each of the 27 million diapers that are tossed every year will take four or five centuries to decompose, due to their petroleum-based materials. Between the lack of performance in the sustainable brands and the environmental costs of the others, Saigal saw an area begging for some innovative engineering. “I wanted to figure out if we could make a plant-based diaper also the best-performing diaper on the market,” she says.

After much R&D, Saigal launched Kudos in 2019. The company offers compostable wipes and a disposable diaper that holds its own against leaks and blowouts. It’s also the only product to place 100 percent clean cotton against the baby’s skin—good news for the landfills and the baby bums with sensitive skin conditions like eczema. Kudos has raised $3.2 million in seed funding and won both crowd-favorite and runner-up awards in the 2021 HBS New Venture Competition. Parents are lining up. “We sold our inventory nine months faster than we’d expected,” Saigal says.

Kudos has been selling directly to consumers through its website, in keeping with other eco-friendly diaper startups, and is seeing encouraging growth there. But late at night, now that she’s up in the wee hours feeding her baby and scrolling Amazon on her phone, Saigal starts to question the exclusive direct-to-consumer route. “Are we losing out by not being on Amazon—and in retailers like Whole Foods and Target, where new parents load up on other necessities?” Saigal wonders. As challenging as it is to get there for a young startup, between the up-front costs of inventory, spending the marketing dollars to build awareness and keeping the product moving, Saigal can’t quite shake the question, “When is going into retail a good idea, and when is it not?”

It depends on the company’s goals. We’ve seen many examples of DTCs that had to scale and go to retail faster than they were ready, due to investor pressure. If Saigal is happy with the current scale and performance, she doesn’t necessarily have to go into retail—at least not yet. Once she can deliver a sustainable and profitable model, it will be easier to grow sustainably and be available at more locations.

More broadly, should DTC expand beyond DTC? We’ve seen again and again that DTC is merely a channel, not a brand category. For most brands to achieve scale, they need to go beyond, to wholesale or retail. Why? The first reason is reach: There is a limit to your own branded website. This is due to the website’s potential traffic (whereas large online retailers have millions of unique visitors) and lack of trust in an unknown brand (compared to a well-known retailer). Second, some customers simply won’t buy certain products without physical inspection, which requires physical presence. Third, the cost of acquiring customers online is increasingly high. There’s also a cost to retail, of course, such as margin costs and fulfillment fees, as well as the loss of the direct relationship with the customer and customer data.

—Ayelet Israeli is the Marvin Bower Associate Professor in the Marketing Unit. She co-developed a scorecard to help companies make this very decision. It’s available in the September 2022 HBR article, “Should Your Company Sell on Amazon?”

With 82 percent of all consumer purchases still made in retail and a time-starved customer segment, I’d strongly encourage Saigal to consider expanding her distribution model. It is truly the brand’s job to be available, not the customer’s responsibility to find you.

There are fewer and fewer examples of thriving “pure DTC” brands due to rising customer-acquisition costs, the continued importance of retail, and the reality of Amazon Prime. Few customers purchase in a single channel long-term but rather purchase across channels as needed.

I’ve seen young brands have success in both retail and with Amazon if they are strategic in planning for the channel. Pick your first retail partner carefully. I suggest a small- to mid-sized retailer to build into a larger account, preferably one with a credibility halo (Erewhon comes to mind). A strong point-of-sale display, annual marketing calendar, and hiring an experienced sales rep will go a long way to increasing your chances of success here. Do not use retail as a “test-and-learn” experiment but approach it with the same seriousness with which you build your DTC website.

I’d also investigate strategic partnerships as another way to move away from pure DTC and build brand awareness. Think of five dream businesses or locations where you would want your products to be seen and used, to help seed the market.

—Dawn Dobras (MBA 1995) is former CEO of Credo Beauty, a startup advisor, and an angel investor.

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