Pandemic A ‘Growth Moment’ As Innovation Department Closes $3.7 Million To Build Brands

In this time of hand-wringing about jobs and the economy, one direct-to-consumer holding company will use an infusion of capital to hire and build a team to launch new brands.

Today’s news that Innovation Department closed $3.7 million in capital comes just days after official declaration the U.S. entered a recession in February. Though May’s jobs report contains mixed signals, Innovation Department’s mandate to hire new talent is clear.

“The area we are most focused on for investing this capital is in building out team,” Innovation Department cofounder and CEO Alex Song told me in an interview this week. Founded in 2015, Innovation Department has not previously accepted outside capital. Investors include Long Light Capital, Synergis Capital, Ambridge Capital, Ryan Freedman, general partner of Corigin Ventures, and Carter Reum, cofounder of M13 Ventures.

“We have established amazing strategy and tactics for scaling up DTC,” Song says. “The scale is going to come from being able to find additional talented people in the verticals where we see the most opportunity, to then have them accelerate the growth of new brands that are brewing.”

Expanding a brand portfolio in times of economic upheaval has its challenges but Song said the Covid-19 pandemic drove demand for its WellPath nutrition products and highlighted the direct-to-consumer company’s strengths as its business model was stress-tested. Rather than rely on enormous sums of capital to fund customer acquisition, a strategy Song says leads many startups to “DTC purgatory,” Innovation Department leverages its owned media assets and DojoMojo, the technology-driven marketing partnership company he c0founded.

“During the pandemic, all brands suffered and we definitely struggled as well,” he says, citing supply chain disruption among other challenges. However, Innovation Department’s omnichannel strategy and focus on health and wellness, a category that fared better than others, positioned the company well against the turbulence. Not reliant on physical stores that would be forced to close their doors for safety reasons, the company has a diverse distribution model, selling not only via its own website, but also on Amazon
AMZN
, Walmart
WMT
and soon, online pet retailer Chewy (CHWY).

“We feel lucky and blessed this was a growth moment for us,” he said. “Investors saw that post-quarantine, we were growing and consistently executing month over month, better and better.”

Innovation Department’s revenue has doubled and headcount rose 30 percent over the past six months. With the new capital, headcount is projected to grow another 20 percent, a company spokesman said.

The next DTC brand coming from Innovation Department is Finn, a pet wellness brand to launch at summer’s end. The strategy driving Finn’s development, distribution, marketing and scaling-up exemplifies Innovation Department’s approach to brand-building. The company optimizes shared expertise, institutional knowledge and operational resources from across different brands under one roof, Song says.

In this way, lessons learned with Innovation Department’s human wellness brand WellPath are applied to a new product category, pet wellness brand Finn. Likewise, painful missteps experienced by one brand are avoided with the launch of subsequent brands.

“The unique thing about consumer products and DTC is even though category types can be different for the product themselves, there is an immense amount of overlap in the tactical and operational work that is done day to day,” Song says. “That makes the work very repeatable to find that path of success, which is a rational reason why putting multiple brands under one roof is really effective.”

Overall, direct-to-consumer brands that remain nimble have fared well despite the pandemic and economic fallout.

“Some bright spots for sure in DTC,” offers Mark Friedman, president of DTC consultancy Details Interactive and host of The Marketing Playbook podcast. Earlier, he was president of e-commerce at Steve Madden and chief marketing officer for Warnaco and Brooks Brothers, among others.

Friedman said DTC brands selling home products, crafts, toys and anything entertainment-related are faring well because demand for these items rose among consumers sheltering at home during quarantine.

“Businesses that had strong web businesses before [the pandemic] and were focused on customer service and reacting quickly have done well,” he adds, “especially if they did not have stores to worry about.”

Direct-to-consumer brands that maintained marketing momentum can expect to do well in the post-Covid-19 recovery period, says Chris Baker, founder of Totem, a digital media agency.

“Most DTC brands have kept their marketing running uninterrupted, which means they can rebound more quickly than some other brands,” Baker says. “It is very costly to restart a stalled marketing program and in some categories, incumbent brands might be restarting only to find that they have lost serious ground to digital native brands during the downtime.”

Being nimble, innovative and open to new opportunities is key for DTC brands.

For instance, Baker points to a bedding/linens company that’s planning to roll out a line of baby products for the 2020 holiday season in anticipation of a quarantine baby boom near the end of 2020 or early 2021. 

Just like the linens company, Innovation Department will launch new brands by capitalizing on affinities with existing brands. Following this summer’s debut of Finn, Song says the company will launch another new DTC brand in 2021—brand name and product category undisclosed—again informed by the lessons of older sibling brands Finn and WellPath.

“We are always learning from new mistake that we make,” Song says, “and the goal should be always finding new mistakes to make. Once we make those mistakes, we make sure to not to have those challenges for the subsequent brands we build.”