Direct selling has been a significant part of the American economy for over one hundred years. From the early days of traveling salesmen pitching cure-all elixirs and bibles, the industry evolved as brands like Stanley Home Products, Tupperware, and Mary Kay Cosmetics brought the ‘party plan’ into American households.
More than 20.5 million people participated in the direct selling industry in 2016, with 5.3 million people building independent businesses as direct sellers. Of these, 800,000 have made it their full-time job, while 4.5 million individuals sell socially or on a part-time basis. Direct sales accounted for $35.5B in retail revenue in 2016, up nearly 20% from $29.8B in 2011[note]https://www.dsa.org/docs/default-source/research/growth-outlook/dsa_2016gandofactsheet.pdf?sfvrsn=6[/note].
Within the direct selling category, there are many impressive growth stories for emerging brands. Younique grew from $0 to $400M four years after launching, while Lularoe zoomed from $0 to $2B in four years.
Like other retail sales channels, e-commerce and social media have created new opportunities for direct selling. At the same time, much of the technology of leading companies in the category is antiquated and difficult to adapt to trends shaping the industry, including cloud computing. Standard e-commerce and social selling platforms aren’t easily adapted to direct selling, due to the unique nature of hierarchical compensation models.
In late 2017, we made an investment in DirectScale, a Salt Lake City-based software company developing an end-to-end software platform built specifically to service the direct selling industry. The company was founded by industry veterans, and offers a true ‘operating system’ for a direct selling business – with modules for business reports, eCommerce, communication, prospecting, training, social, commissions, and NetSuite.
DirectScale represents the intersection of two of our investment theses. The first is cloud-based software designed to be the “operating system of X” – in this case, the direct selling industry. The second is the demographic importance of millennials, and the impact of social media on their purchasing decisions.
DirectScale is our second investment in the important Silicon Slopes technology ecosystem, following our earlier investment in Teem. We look forward to working with lead investor Grotech and previous investor Kickstart Seed Fund to build the operating system for the future to service the direct selling industry.