Six years ago at business school, Katia Beauchamp and her pal Hayley Barna pretty much invented the subscription box service with Birchbox. The next step: focusing on the 80pc of women the multibillion-dollar beauty business ignores.
When I meet Beauchamp at the Web Summit in Lisbon, the Texas native has that disarming New York directness that makes you feel you are greeting an old friend.
But like most New Yorkers, the Birchbox co-founder gets straight down to business. “Hayley and I were both in business school and when we started Birchbox, honestly we didn’t think we were going to start a business.”
‘Our idea was to capitalise on what the internet is great at, overcome what it sucks at and be at the intersection of where delight meets advocacy’
– KATIA BEAUCHAMP
And what a business! With more than 1m subscribers and more than 800 suppliers, Beauchamp and Barna are the leaders in the subscription box business, which has spawned many competitors but also many varieties of retailer. These range from Dollar Shave Club, which was acquired this year by Unilever for $1bn, and Loot Crate, which delivers geek, gaming and pop culture collectibles and accessories to 600,000 recurring monthly subscribers worldwide.
Beauchamp and Barna were students at Harvard Business School when they had a hunch that there was an untapped market for women who wanted to access makeup, perfumes and skincare products as samples before making a big financial commitment.
Chipping away at disruption
A subscription model was devised and the company was turning over revenue from the get-go. The company raised an initial seed round of $1.4m, which was followed swiftly by $10.5m in Series A funding. In 2014, the company raised $60m from First Round Capital, Accel Partners, Aspect Partners and Consigliere Brand Capital.
The company, which brings in revenues estimated at between $25m and $50m, opened its first bricks-and-mortar store in New York’s Soho neighbourhood.
“Around the time we started, a lot of people were talking about digital disruptive innovation, but among the categories coming through for women, beauty just wasn’t part of the conversation and that piqued our interest.
“We didn’t understand why. It was a massive industry that took in $500bn – why wasn’t this part of the disruptive innovation conversation?
“We said to ourselves ‘Somebody is going to figure this out, there are billions of dollars at stake’ and so we set out to create a new e-commerce experience for beauty that we felt was beauty 2.0, not just about purchasing, but creating new demand and replenishment.”
Beauchamp said they did their research and discovered that the reason most women bought beauty products initially was to trial them.
“Our idea was to capitalise on what the internet is great at, overcome what it sucks at and be at the intersection of where delight meets advocacy.
“There was a real emphasis on the efficiency of how Birchbox would work, and we came up with the business model pretty much within 24 hours of our initial insight.”
Beauchamp said that even though she and Barna were still at Harvard Business School, they decided they had to learn by trial.
“Subscription just made sense; it has a cadence and a drumbeat that doesn’t overwhelm with too much product, and the idea was to provide product regularly, every month.
“We curate the merchandise and we use machine learning to personalise it for you and make it relevant because of your skin tone and hair type.”
“The interesting thing about Birchbox is the customer gets delight from the efficiency. It is beautiful and fun but the customers understand they would never have had the time to figure this out, and that changes everything about the relationship with the customer from being fun to being effective.”
As well as beauty products for women, Birchbox has also expanded into providing men’s grooming products.
The decision to name the company Birchbox was in honour of the silvery birch tree, which is beautiful in every season.
“It was semi-terrifying what we did right off the gate, but it worked. Most businesses have to undergo a lot of tweaks to get the kind of engagement we got, especially when you are charging. We never gave it away for free, literally never, and we generated revenue from day one. We spent our own money on the trial and we earned it back immediately. I remember Hayley and I looking at each other and going ‘That’s a good sign!’”
The business flourished and today, Birchbox has over 4m customers, including 1m subscribers. “Over half of our subscribers are shopping and we have a lot of people [who] aren’t subscribers and just want to shop.”
The company has grown to four offices, sales in six countries and over 200 full-time employees.
The Birchbox effect
What Beauchamp was not prepared for was the sudden flurry of businesses that tried to either compete with the company, or simply replicate the model and use it for any variety of industry, from pet products to wine.
“It is really exciting and humbling to see how many people refer to Birchbox as their inspiration – ‘the Birchbox of…’ – it is definitely surreal. In the past when you first launched a business, it might take a few years to get copied. For us, it was just three months and there were a lot of industries inspired.
‘We are focused on how we create a home for the other 80pc of women, when the beauty industry only focuses on the top 20pc of the market that is well served’
– KATIA BEAUCHAMP
“Initially, it was ‘Oh my gosh, how can we compete with this’. One of our competitors raised $70m when we had just raised $1.4m. Amazon got into the space before we were even a year old. At first, it was a case of ‘We’re cool, we proved something’ and then you are pretty angry and want to protect your idea.”
But what set Birchbox apart was adherence to what was the founders’ own vision. Yes, you can copy an idea, but if you don’t have the instinct and set of values that accompany the idea, you can’t really beat it.
“For direct competition, I think it is really hard to copy vision. People can see what you are doing at a surface level but in our case, there was so much more to it. There are things that we do that deliver value to the user and you really need to understand what motivates us.”
When I mention Birchbox as a forerunner for the subscription economy, Beauchamp bridles slightly. “There are many different types of subscription and then there is what we do. There is replenishment for resupply, like being in a wine club. There are different unit economics. The lifetime value of the subscriber is critical to us.
“We think of the subscription as an advertiser for shopping for the full-size product. It is an incredible model with powerful unit economics and leads to a powerful relationship dynamic with the customer. We are able to create deeper connections with customers faster than ever. We skipped a lot of steps in getting to know our core customer. She said yes and suddenly we are showing up at her house, we are in her bathroom and we are providing goods that make them feel good, so fast. So it is an emotional connection and our competitors didn’t grasp that.”
In terms of other entrepreneurial pursuits, Beauchamp said there is only Birchbox, but she has found time to take part in the latest Project Runway reality show Project Runway: Fashion Start-up which began broadcasting in the US in October. “That only takes up some of my time, Birchbox consumes me every day, every minute.”
Backing up emotional insight with hard facts
‘Data can seem like magic, but it is a lot of hard work too’
– KATIA BEAUCHAMP
When it comes to encouraging more women to become entrepreneurs, Beauchamp believes role models are crucial.
“In my life I don’t know if I have seen the glass ceiling, but I do think there are real things that are different for women and I think it starts at the very beginning, from when you are born, and the role models that inspire you. You need to see what is possible and be motivated by that.
“At the other end of the spectrum, access to capital is definitely very different and female entrepreneurs struggle to raise venture capital.
“When you are starting a company that has been built on your own personal insight, if the persons you are pitching to cannot connect with that insight, it is harder. I think that makes a difference, and if there are more women investors who can move the needle then yes, it would make all the difference. If 50pc of investors were women, you would of course see a corresponding increase in investment in women-led start-ups.
“That said, everyone we pitched to was nice to us, agreed to meet us and we raised money from both men and women. But we had to learn to pitch the business in a way that was less emotional… and we had to be more fact-based. And it worked. This was particularly useful when we were doing our first seed round. After that, it became easier because with our continued success, more people wanted to talk to us.”
Data meets instinct
Instinct is what guides Beauchamp, and a gut feeling around what will expand the beauty business foretells the future of Birchbox.
“We are very focused on this ‘other’ consumer [moreso] than the main beauty that industry is focused on. The majority of women are actually not the most avid beauty consumers, and are in fact passive consumers.
“We are focused on how we create a home for the other 80pc of women, when the beauty industry only focuses on the top 20pc of the market that is well served. We see the biggest opportunity for Birchbox in the 80pc of women who are being ignored by the beauty industry and are less engaged.
“Birchbox speaks to these women because we think we are that girl.
“In terms of how we can deliver on that, we intend to place a huge emphasis and focus on personalisation through what data we can ingest, and how we can make it as dynamic an experience based on what data users are giving us explicitly and implicitly.
“Data can seem like magic, but it is a lot of hard work too.”