Moiz Ali's dream when he started personal care company Native was to sell at Target. Of course, there are many types of dreams: daydreams, pipe dreams, dreams that aren't expected to come true and dreams that might, just maybe not for a long time.

Ali's was the latter, and two and a half years after starting his company, which raised just $500,000 in venture capital funding, Native was acquired by P&G for $100 million. It's now sold at Target. The personal care brand was introduced to stores in October along with another digital-first company, Quip.

A classic, straightforward success story — and yet, despite the recent wave of direct-to-consumer brands inundating the beauty and personal care space, the paths they take from founding to future are anything but straight.

"I always talk to these e-commerce businesses and they're always like, 'Yeah, we're crushing it, here are the 40 things that are going right,'" Ali told Retail Dive in an interview, "and I'm like, 'What is going on?' Because my company has 400 problems. There's maybe one thing that's going right."

Ali's not the only one who has faced challenges, and the trajectories of many of these brands provide insight into broader patterns around the closely watched business model. One look at Walmart's growing list of DTC acquisitions is enough to prompt the conclusion that selling to a bigger company is a common goal for digitally native brands, but that doesn't show the complete picture.

No founder's story is identical, but the first few frames are fairly similar.

Founders' challenges

Many DTC brand stories start with an executive that identifies an underserved market: a product that either doesn't exist or isn't good enough. In Ali's case, it was natural deodorant that worked. Several companies in the DTC space, including Function of Beauty, Madison Reed and Glamsquad, identified similar gaps in the haircare category.

Zahir Dossa, co-founder and CEO of Function of Beauty, set out with a mission to personalize hair products, starting with shampoo and conditioner, and followed by a leave-in treatment, which all solve for specific "hair needs" that he says few mass market products can address. With his model, customers can choose particular ingredient combinations to personalize their hair products to whatever hair needs they have.

"It's an industry that we think could have an insane amount more specialization and personalization for any single person," Dossa told Retail Dive in an interview. "I don't think it's a niche problem. I think it's a mass market problem that wasn't able to be addressed largely from a technological perspective. And so we thought we had a technological solution to this age-old problem … that could scale and be affordable."

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"There are a certain set of products that you should be using if you color your hair versus if you don't color your hair. I am not worried that we will not have the proper SKU's."

Amy Errett

Madison Reed

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Function of Beauty sees 54 trillion possible combinations for customers to choose from and, ideally, sign up for a monthly or bimonthly subscription of that product once they find the right mix.

It's similar, in some ways, to what Madison Reed is doing in hair color. The brand uses data to match a customer with the right hair color and provides a subscription service to conveniently replenish the product when needed. If that sounds like a niche, though, founder and CEO Amy Errett thinks you're respectfully wrong. In an interview with Retail Dive, she batted down any suggestion that the brand would move into other beauty categories.

"There are a certain set of products that you should be using if you color your hair versus if you don't color your hair. I am not worried that we will not have the proper SKU's," she said. "We're hair color. That's what I believe the brand stands for and I have no interest in color cosmetics — that's not what we do."

Investors, though, sometimes hold a different view when it comes to DTC brands trying to push their way into what they perceive as a small space, whether that's natural deodorant or a strictly hair color business. Errett is also an investor, and has been for several years, which helped her when it came time to raise money for Madison Reed (the company's racked up a total of $128 million so far, according to Pitchbook data emailed to Retail Dive).

Still, it can be difficult for digital natives to raise money, especially with a crowd of companies clamoring for venture capital to start their own DTC businesses. Ali credits Bonobos founder Andy Dunn and early brands like Harry's with carving out a path for today's startups to build on, noting that he didn't have to explain the direct-to-consumer model when he went to raise money — he just had to convince them that Native could do it.

"They really had to prove that direct to consumer worked, that omnichannel could work, that the economics of advertising online could work for a brand," Ali said of Dunn and other pioneers, "and that there were not venture-like returns, but good returns to be had in these businesses and they were interesting to larger CPG companies from an exit perspective."

But while some challenges for DTC brands have been overcome, others are still very much in play in the investor space. In particular, the male-dominated industry can make it difficult for female founders to get the funds they deserve, and Errett is fully aware that some investors "just don't get it" about female-focused brands.

"They get it that a guy shaves, but they don't realize that a woman starts coloring her hair typically in her mid-to-late 30s," Errett said. "She's coloring into her 70s. She's coloring, as she gets greyer, like every four to five weeks. There's no issue about unit economics. If you earn the right to get their lifetime value, they're there. So I think that there's been a subset that haven't gotten it, but it's okay. I don't care. We have huge income. I guess they should have paid attention."

Others in the beauty space certainly are: Madison Reed recently inked an exclusive partnership with Ulta, which is quickly becoming the go-to specialty retailer for hair products as well as many DTC brands.

What's lost through brick and mortar

Ulta CEO Mary Dillon has made a strategy out of targeting popular digitally native brands and bringing them into stores and online, often through exclusive deals or product launches. There's good reason for it: According to a Forrester report emailed to Retail Dive, the top 20 cosmetics brands capture 90% of the sales at brick-and-mortar retailers, but 86% of the online share is held by brands outside of the top 20, giving Ulta more growth online as they pick up more sales in stores.

On the prestige cosmetics side of the business, Ulta's strategy around exclusive partnerships pins it against rival Sephora, but when it comes to haircare, the specialty retailer seems to have the playing field largely to itself.

According to Errett, Madison Reed used to sell a root touch up product at Sephora, which has since been removed, and the brand never sold hair color products there, primarily because, "That's just not where someone would go to get their hair color." Instead, Madison Reed sells through Ulta and its own color bars, six of which currently exist and 12 of which are planned for this year.

Dossa likewise commented on Sephora's lack of game in the hair market, telling Retail Dive the retailer has tried repeatedly to get Function of Beauty to sell in its stores and that he's rejected those bids because haircare products are "just not bought there, or rarely are." He also noted that Sephora doesn't have enough stores for a brick-and-mortar presence to be worth testing out for the brand. He either wants a partnership where the brand would be available in "thousands of stores" or no real permanent brick-and-mortar presence at all.

In this respect, Function of Beauty's deep personalization actually hampers its opportunities to sell in physical locations. The ability to choose different mixes means that the brand isn't mass producing a few products, but rather producing one specific product for each order.

"We're changing the paradigm and offering something that's actually very new and different. Now, we obviously have to do that through a very different channel," Dossa said. "We cannot sell off the shelves like most other beauty companies can. It makes things a little bit more complicated, but at the same time we're able to save a lot, which is why we're able to sell such an expensive formulation and such an expensive process to the customers at prices they're used to paying for products."

Native, on the other hand, sells in both Target and Walmart, as well as through its own site, but Ali sees a lot more work ahead before he even considers opening Native-branded locations. Both Ali and Dossa have thought about temporary stores — pop-ups that serve more of a marketing purpose than an entry into brick-and-mortar selling, but neither has ambitions quite on the same scale as another D2C brand, Casper, at the moment.

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"You lose the direct connection with your customers, you lose understanding repeat purchase rates, you lose the ability to have an immediate impact the day that you decide to have that impact. But what you gain is also something monumental: incredible distribution, incredible branding."

Moiz Ali

Founder and CEO of Native

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Even wholesale has its dark side. The lower margins, in part, have made it Madison Reed's least lucrative channel, and beyond the brand's Ulta partnership, Errett isn't planning on booking other wholesale opportunities. Yet it remains an important way for digital natives to scale, as it gives them an opportunity to get in front of more potential customers in the places they shop most frequently — at least that's the logic behind Native's Target and Walmart partnerships. At the same time, though, Ali is cognizant of all that he's losing control of when he sells through those channels.

"DTC — the feedback is instantaneous, you can communicate with every single one of your customers, you understand your marketing spend and customer acquisition costs, you understand what your customers want you to make next, you can have huge impacts to your business right away," Ali said.

"With Target, you lose a lot of that. With any brick-and-mortar store, you lose a lot of that. You lose the direct connection with your customers, you lose understanding repeat purchase rates, you lose the ability to have an immediate impact the day that you decide to have that impact. But what you gain is also something monumental: incredible distribution, incredible branding."

'It's obvious what we should be doing'

The alternative to wholesale — having your own physical locations — is costly, but some beauty startups have found other ways around it. Both Madison Reed and Glamsquad have found ways to make physical selling work while not truly operating a storefront. Madison Reed's color bars are, in the end, salons that sell product, and Glamsquad was a beauty services business long before it was a product-based business.

Indeed, Glamsquad CEO Amy Shecter described herself as a "power user" of Glamsquad before she ever took on the role, and though the company just began selling its own branded products this year, starting with hair and jumping into cosmetics in April, she had thought about the company's potential to sell its own products long before then.

"You can't help it," Shecter told Retail Dive in an interview. "The experience is so holistic and you get such great tips about the product, it made so much sense for us to take our services business into selling the products that we use as opposed to doing it for everybody else."

Glamsquad's core business is through on-the-go beauty services like blowouts, makeup and nails, which can mean anything from "a teen going to her prom or a bride who wants to have makeup before going to City Hall." The services are done wherever the customer is, be it their house or a hotel, and the company's "beauty pros" leave customers with detailed notes on which products they used and tips for using them again.

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"I've walked down the aisle of a department store and I've heard women say: 'uh oh, here they come' because it's like this barrage of selling."

Amy Shecter

CEO of Glamsquad

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The selling opportunity is apparent, but Shecter doesn't want that to change the way that Glamsquad services feel. Much like Madison Reed's color bars, Shecter is focused on creating a great beauty service and using the data they get from it to sell relevant product.

"I've walked down the aisle of a department store and I've heard women say: 'uh oh, here they come' because it's like this barrage of selling," Shecter said of the traditional beauty retail experience. "It's not like that at all. You still have the sanctuary of your moment and then the technology pushes really personalized product sales to you."

According to Shecter, it was the level of feedback Glamsquad received from customers that really made private label products a possibility. The brand has received feedback from over 600,000 customers on how a given product works (and for which hair types), and they also get feedback from the beauty pros doing the services. That level of data is what Shecter credits with allowing the company to create personalized products based around what its customers love.

Ali has had similar experiences at Native and describes a feedback loop that's led to mintier toothpaste, a different body wash shape and a limited edition scent becoming a permanent one. "It's so overwhelming that it's obvious what we should be doing," he said, explaining that he and his team discuss feedback from customers obsessively during meetings. Most of the time it leads to product improvements, but there are also many calls from customers to get into different product areas that Native doesn't currently have, which presents challenges for Ali.

It can be hard to tell when to expand into new categories and when to stay put. Many digitally native players seem bent on expanding their presence to encompass more than just the product they started with, whether that means Casper's efforts to be more than a mattress company or Away's dedication to becoming a travel business, not a luggage business.

Errett firmly believes in Madison Reed as a hair color-only company, but others aren't so sure. Glamsquad expanded from hair products into cosmetics, and Native started out as deodorant and now sells several personal care products. Taking advantage of opportunities without overextending the brand is a challenge not to be taken lightly, and a harder one for brands like Native, which have the financial backing of a parent company like P&G to move into new categories faster than ever.

"There are definitely products that we think would be natural extensions for Native and there's products that we think would be a little bit further out," Ali said, noting that many customers over the winter have been asking the brand to launch lotion, ostensibly because their skin is drier. "So we're like: 'Okay, this is cyclical,' and also: Is lotion a personal care product? A beauty product? Where does it fit into our brand strategy?"

Answering those questions is always important, but for startups, drawing borders around the brand could impact not only how big of a player they become in the space, but also which DTC brands still have room to grow and which will find themselves solving for a problem that's already been claimed.