Unlocking Distribution, Store Discovery, and CAC Arbitrage with Canal

November 1, 2021
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min read

With the ecommerce landscape expanding faster than ever, it’s critical for brands to find a way to stand out from the crowd. Bennett Carroccio, CEO at Canal, dives into how his team is helping storefronts unlock new distribution at scale by reaching new customers upfront with improved real-time data analytics, without the additional operational lift.

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Unlocking Distribution, Store Discovery, and CAC Arbitrage with Canal

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

At Canal, Bennett, his two co-founders, Liam Kinney and Clay Schubiner, and the rest of their 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 across an increasingly crowded digital landscape. 

The Gulf Between Discovery and Distribution

Bennett first had the idea for Canal during the pandemic, when he and his fiancé would take long walks around San Francisco in an attempt to stay sane. As they would stroll through the city every evening, boarded-up stores in the Marina district would confront them day after day.

Over time, Bennet began to think through a handful of recurring questions:

  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?

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

As a consumer investor at a16z at the time, he also knew that consumer spending was way up.

However, people could no longer discover products in a physical store. As it became clear that the need for discovery wasn’t being addressed, Canal’s market opportunity began 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 a new product, they often seek out trusted experts for recommendations.

As consumers ourselves, we understand this process of trawling the blogosphere intimately. The experts we turn to already curate their favorite products, but they don’t have the means to actually sell anything unless they create an 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, locking in a warehouse, and shipping orders. It’s operationally complex, time-consuming, and expensive. To distill the process even further, the metaphorical ‘pipes’ of eCom storefront just aren’t fully built 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, so trusted recommenders can actually sell on behalf of brands without holding any inventory and still drive sales. All the while, they’re helping brands find new, untapped distribution channels. 

“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 have yielded increasingly 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 noted his three core criteria for evaluating commerce teams.

  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 for a consumer brand, often with an element or underpinning tech-enablement.

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, new frontiers are constantly being sought out 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 has exploded in popularity in 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. Trusted recommenders are looking to sell more third-party products because that expands their basket size, driving a higher AOV. 

The higher the AOV, the higher the LTV. In turn, higher LTVs justify higher CAC thresholds, which often translates into shorter payback periods. In addition, there’s no upfront cost via Canal.

While discovery and curation are the 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. Win, 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.” 

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