Top Deal: The Home Oral Care Revolution

Problem

According to the Center for Disease Control, 47% of adults over the age of 30 have some sort of gum disease. Only 1 in 10 adults brush their teeth properly. The average American keeps a toothbrush for an average of nine months, while the American Dental Association recommends changing your brush head at least every 3 months.

 People can dramatically reduce their risk of dental issues by switching to a power toothbrush which will guide them to proper dental hygiene. Power toothbrushes usually have two-minute timers to ensure a person brushes long enough and rapid circular brushe s.

 Until recently power toothbrushes were expensive, over $100, out of reach for most. Additionally, only using a power toothbrush would not eliminate the issue of oral hygiene issues related to using a brush head longer than three months.

Problem

Goby, founded in 2015, with the mission to provide the 63% of Americans who were not using an electric toothbrush with an affordable and effective electric toothbrush. The company aims to disrupt the lucrative home oral care market by offering a simple rechargeable toothbrush at half the price of the market leaders. who control 90% of the electric toothbrush market.

Goby currently offers different models of subscription based rechargeable toothbrushes, costing between $50 and $80 for the device. Currently, the subscription part is a replacement brush head for $6, at an interval you choose. The most popular is every 3 months. Goby guarantees the proper function of the device for life and allows you to cancel your subscription at any time. If you do not want to sign up for the subscription you can buy any of the models for $15 more.

Does this model sound familiar? Ben Goldberg, the founder and CEO of Goby, reports he modeled Goby after Harry’s Razors, a subscription service where affordable, high quality razors are sent to your door. In fact, Goldberg said, razors and toothbrushes are similar markets because both are unnecessarily overpriced, and their respective markets is dominated by two huge players.

How is Goby able to offer a rechargeable toothbrush at such a reasonable price? Goby cuts out the middle man by working directly with the manufacturer. Goby uses marketing dollars efficiently by tossing traditional distributions channels aside and aligning themselves with dentists who recommend their product to customers. Goby offers Dentists the opportunity to put their own branding on the Goby toothbrushes they sell to customers as an added marketing channel for the dentist.

Customers

Goby’s customers fall into three segments. First, those 37% of adults who own a power toothbrush and it breaks. The power toothbrush user is facing replacement costs starting at $100. This segment is thrilled to find a comparable quality product at a fraction of the price, with modern advances and a sleek, high tech feeling shell.

The other two segments make up 40% of Goby’s customers who have never used an electric toothbrush before. The second segment is adults who need to upgrade their toothbrushing skills. Typically, a dentist tells this segment they are not properly caring for their teeth, thus a dentist’s office is a wonderful place for them to learn about Goby.

The third customer segment is adults who are not looking for an electric toothbrush. Goby attracts customers because Goby stands for an oral health movement and the sleek design of the product.

Initially, Goby focused on the direct to consumer strategy. As customers grew more enthusiastic about Goby, dental professionals expressed interest. Early in 2017, Goby launched a partnership program with dentist which now accounts for 32% of revenue. Dentists can choose from multiple products and levels of partnerships, such as social media marketing assets, dental brush kits, a platform to reward customers with free replacement brush heads, custom branding on Goby brushes and access to Goby’s subscribers as potential patients.

Competitors

As with the analogous razor subscription services, the electric toothbrush market is 90% controlled by Phillips Sonicare and Oral B. Both companies have powered toothbrush offerings from less than Goby to $200 for the top-level products. Both giants have the advantage of significant distribution channels, brand recognition and customer loyalty. Both are effective products, but they lack the high tech, innovative essence, and the ability to create an enthusiastic, purpose driven community.

The biggest direct competitor is Quip. Quip brushes start at $25 and require you sign up for a subscription for $5 replacement heads. Quip does not have an oscillating brush head and needs batteries to operate. Quip has strong influential investors and has raised $62M in funds to focus on customer acquisition.

Boka offers a subscription service starting at $16 for a manual toothbrush kit with their innovative toothpaste all the way up to $85 for Boka’s powered toothbrush kit with their toothpaste. Boka’s subscription service is more expensive costing $18 per quarter.

The final noteworthy competitor is, Burst. Burst, like Goby focuses on selling through dental professionals. Burst offers dental professionals a $10 “commission” for selling the $40 powered toothbrush. Consumers who want to buy the Burst brush directly must pay $70.

Replacement brush heads are $6. While Burst focuses on dental professionals, they position selling Burst as a commission opportunity while Goby partners with dental professionals to grow their practice.

The Team

Goby has a small, targeted team, focusing on R&D, dental partnerships, operations, and customer experience. The core of the team is the leadership from founder Ben Goldberg. Mr. Goldberg is a charismatic young leader experienced enough to understand the v alue of the network he is building with Goby and the need to hold public events to evangelize the purpose of Goby.

Mr. Goldberg’s combination of investor events, webinars and press interviews not only serve to attract investors and customers, it reinforces the purpose, the 12,000+ active subscribers share to improve oral health.

Mr. Goldberg graduated from Arizona State with a dual degree in finance and economics. He went on to work in investment banking and in an equity fund in New York. Mr. Goldberg speaks passionately about the Goby mission and the company focus to create a meaningful experience for all its’ members. He admits the immediate focus is not on profitability while Goby, builds a sticky subscriber base. He acknowledges profitability is certainly achievable in the long-term strategy.

Why We Like it

1. Dental Partnerships: Goby’s Dental partnership channel quickly grew to account for 32% of revenue. Dental practices are constantly seeking strategies to grow their customer base and increase revenues. Goby cleverly positions themselves as valuable partners to help grow dental practice. The program enables dentists to offer new patient gifts, social media contest and referral rewards. Goby’s plan is to drive new dentists to Goby by incenting Goby customers to evangelize Goby. Conversely Goby intends to drive Goby customers to its dental partners, creating a dual sales channel.

2. Subscription Service: Zuora’s Subscription Economy Index states over the past six years subscription based companies have grown revenue over five times faster than S&P revenues. Successful subscription services have predictable, steady revenues, avoiding the peaks and valleys of traditional transactional product business models. Successful subscription services focus on retention as opposed to acquisition. Goby reports retaining 65% of customers after a year, which aligns to the industry average of 30% churn. Key to a thriving subscription service is to create ethos so subscribers believe they are part of a community on a mission. Goby’s mission is oral health. The company appears to be investing in expanding and enriching their subscribers with this sense of community.

3. Revenues: Goby has an award-winning product which is sleek and sexy. In their twenty-two months of business they have amassed over 12,000 active subscribers. In November 2018, Goby reported revenues of $211,598. While expenses exceeded revenues, there is a strong upward trendline to Goby’s business.

4. Investors: Mr. Goldberg’s brief career on Wall Street not only provided him with the savvy, to structure a compelling business model, he also has connections to venture capital funds. One of the prominent first round seed investors is Lerer Hippeau, an early stage venture capital fund with an impressive list of companies they bet on at early stages. The seven other venture capital funds have invested, successfully in disruptive companies at the initial stages. Goby’s first investors provide it access to excellent guidance as it grows.

Rating

Top Deal

Goby is likely to continue its trajectory of success. Goby’s strategy is to grow the entire market of power toothbrush users in the United States. The two goliaths in the power toothbrush market enjoy 90% market share.

Goby’s efforts to grow the market will increase the market leaders’ size of the pie as well. Eventually, if Goby continues to gain traction, the Goliath’s will take notice and try to push back. Neither Sonicare or Oral B will be able to compete as a cooler, purpose driven brand. Assuming, the home oral health market continues to innovate, it might evolve similarly to the craft beer market where the entrenched dominant players buy the young, cool upstarts to continue to maintain market share.

Or the innovation is so disruptive, companies such as Goby dislodge Sonicare and Oral B’s grasp of the market, much in the way Harry’s did in the razor market.

There are other startups trying to disrupt the incredibly antiquated, stale, home oral health market. Goby dental office partnership program is a key differentiator. Mr. Goldberg’s connection to venture capital, his ability to generate partnerships and early revenues in excess of $1M in our estimation for Goby, are strong indications for Goby’s continued success. At the current pre-money valuation of $12M we think this is a Top Deal.