The Next Web NYC - Katia Beauchamp, Birchbox

She's the co-founder of Birchbox, Katya Beauchamp. Katya Beauchamp, You ran right up here. That's so intimidating. Hi guys. Katya Beauchamp, Hi. Nice to see all of you. Thank you so much for coming and for staying for this. They asked me basically to summarize a big portion of my life in 20 minutes, which is going to be interesting. But this is such an amazing conference. They're so organized. They knew exactly what you guys were going to want to hear. So I hope that I can touch on that. But as was mentioned, we started Birchbox six years ago. We invented something very new. And I think it was a really interesting topic to talk about how we can continue to differentiate ourselves in this space. Even though we started it, we were technically the first mover. But I am going to start from the very beginning. Katya Beauchamp, I have to see if this works. Katya Beauchamp, So I'm from El Paso, Texas. And Birchbox was created when I was at HBS. When I lived in El Paso, I didn't have a lot of role models around me that were an entrepreneur. I didn't really even have that in my vernacular. That wasn't my dream when I was growing up. But I did have this woman in my life. I grew up with a Mexican mom, a Greek dad. And this is my mom's mom, Marta Winter, who when I told her at a very young age that I was 100% going to be the first female president, she was like, sounds right. Sounds good. And we immediately went shopping for her inaugural dress. So she definitely had a massive impact on me believing that I could do anything and be anything. I just didn't quite know what that was going to be. And I did find a lot while I was at business school. So I'll tell you a little bit about why when I was at business school, Haley, my co-founder and I saw an opportunity for Birchbox. It was pretty simple. We were actually about seven months away from graduating business school. And our initial plan was to write a business plan, as many business school students do. That was the extent of the ambition, frankly. And we started looking out in what was happening in consumer internet. And we noticed a lot of women coming to campus, talking about being entrepreneurs and starting companies that were geared towards women. And that piqued our interest. We thought, that's smart. Start a business in a category that you really understand. And then both of us just noticed that nobody was talking about beauty when it came to disrupting the consumer internet. And that was just strange to us because beauty is a $500 billion industry. And people were disrupting fashion, they were disrupting other areas of personal care, and they weren't talking about beauty. So we started looking into the data. And it was staggering to us. Because every single category that was being disrupted in 2009 and 2010 was under-penetrating but explosively growing online. Except for beauty. So beauty was less than 5% sold on the internet and showed 0% of the world. And that got us nerdily excited. We just realized, somebody is going to figure this out. Clearly there's so much content online for beauty. There's a lot of time being spent online. People just aren't closing the deal. We are going to figure out how to close the deal. So that was our business school selves. And then we had our personal lives where this was Hailey's best friend at the time. And ever since I met Hailey, my co-founder, she had the best beauty products. And it made no sense because she was a total nerd like me. And so I always thought, why do you have this? Like you would never try to have this. And it turned out her best friend was a beauty editor at Conde Nast. So she would go into the beauty closet, select the right things for Hailey, and make it all make sense for her. So she didn't have too much. She just had the right stuff. And we decided and felt that every single woman would dream of having a beauty editor best friend. Whether they loved beauty, kind of liked beauty, or were actually semi-disinterested in beauty. So we decided that we were going to build a beauty company that overcame what the internet was bad at. And became a massive beauty e-commerce destination for discovery by creating a service that would feel like your beauty editor. And basically then we just couldn't stop. We got so excited that we didn't write a business plan at all. We started launching the company. I really like cold emailing people. So cold emailed about 15 different CEOs of beauty brands and asked them for advice. And very quickly that turned into pitch meetings where we were able to present our idea and fast yeses. And we got a day of ideating, a week of meetings, to a month later launching a test of Birchbox in 2010. And it was incredible. I will definitely say that we set out thinking we were 100% going to change the beauty industry forever. But we knew that we were up against a lot. From the consumer perspective, everybody said the same thing to us. Whether it was investors, advisors, or the beauty industry itself. Consumers would not pay for samples. And then when it turned out a lot of consumers would pay for samples, we were up against a different challenge. Which is the beauty industry could not make enough samples fast enough for Birchbox. And that was a huge challenge for us in the early days. There was so much demand and supply was the constraint. Which we definitely did not anticipate. We raised money and we thought, hey, you know, you raise money. You acquire money. You acquire customers. You kind of turn the valve off and on. The industry, you know, gets used to you. That definitely was not the case for us in the early days. So we had a ton of momentum. And basically in about seven months we hit our five-year business plan number. It was, like I said, we were completely taken aback. We had to change all of our plans, scrap everything, go into hiring mode. And we also, I think as business school students, we anticipated how emotional Birchbox was going to be for our customers. We thought the market is extremely inefficient. Beauty brands are spending billions of dollars trying to get your attention. And consumers are spending billions of dollars on products that die under their sink. We're going to make the market more efficient. And we did not anticipate how consumers were feeling like outsiders. Consumers were feeling left out. Consumers were feeling like this is a hard category. And this makes it fun for them. So that traction took off. We were able to secure millions of dollars. And funding, the press really liked us. They talked about us all the time. We had created a new category. There were millions of copycats. And we had continued growth. So, you know, to summarize that growth, 4 million customers. 35% of the revenue coming from the sale of the full-size product. The way Birchbox works is it's a dual revenue stream. You sign up and you pay for a subscription. But the subscription is an appetizer. And what we want you to do is have the entree of purchasing your full size. We had over a million subscribers. Over 800 brands. We exist in 6 countries. 230 employees. And 50% of our subscribers were regularly shopping online. We opened a store. Which was a question. And that was a huge success. Our customers really loved seeing Birchbox in the physical world. The store itself. Profitable quickly. And also lifting the lifetime value of every customer that came inside. So we really decided we wanted to open a store if we could do something that was really interesting in beauty. And if we could add value to the category. And if it could be profitable. And add value to the business. And it checked every box. And in a really short time, Birchbox became a top five beauty e-commerce company in the U.S. Which is staggering. You know, unexpected. And we were really excited over that period of time. And we caught a lot of attention for it. Even though the reality of Birchbox is that it was making other retailers a lot of money too. So there was actual studies about what was happening that I like to refer to as the Birchbox effect. So this is in our data. Bloomberg actually released this data showing that Birchbox was having a profound impact on the beauty industry. And Birchbox is the pink line. And after Birchbox is the blue line showing people's spend. So this shows that Ulta and Sephora were also benefiting from the existence of Birchbox. And I'm going to take a moment and pause on this. Because this was probably like the second biggest light bulb in the history of our company. The first one being the decision to launch and the idea. But the second biggest light bulb was what that data showed. Birchbox was not just taking the pie of beauty consumption and further fragmenting it. We were actually creating new demand. And our biggest competition for us was actually something that we did not expect. It was non-consumption. Or under-consumption. And this started getting us doing a lot more research on why that was. Who was our customer versus the industry's customer. And I'm going to talk to you more about that in a little bit. But as a quick punchline, we recognized that the industry was really focused on the top consumers. And we had developed a product for the average consumer that completely changed her relationship with beauty. So, throughout the past six years and those great wins and moments, we also inspired a lot of other companies. Some of you may know. We had to start with that with a lot of new competition. We had to start changing our business model somewhat and paying for some of the product that goes in the box. And there was now with so much competition, some of them winning and a lot of them falling by the wayside. There was a newfound skepticism around subscription itself and whether that was a viable business. And then came this year. The year that we are in. And if those of you are following, you probably know that this has been a really, really good year. This has been a really challenging year for us. Something that we never imagined. Because, frankly, we knew that we had done something really exceptional. Objectively speaking, built one of the largest e-commerce companies of all time on the least amount of paid in capital. Objectively speaking, staggering KPIs around unit economics, customer lifetime value and acquisition costs. All of those things. And my naive view of the world was that we are exceptional. Which I thought would mean we are an exception. So as things changed in the industry around whether people really loved retail, really loved e-commerce, I thought it doesn't really matter. Because we have built something so special, so important. We've changed an industry. We're exceptional. So there will always be room for Birchbox at the table. But things completely changed. The industry completely changed their view on retail. A dark cloud kind of came over retail and e-commerce. And there started to be a whole new view around funding businesses that could tackle huge opportunities and helping them grow fast to realize that. And a big shift towards profitability. And then this started. These are just headlines. So these are real headlines. And we had to make a big deal about what we had to do to start to change our spending to become profitable. Which means we cut our team, the people whose blood, sweat and tears got us through the last six years. There is so much naysaying about the subscription industry overall. This is, you know, again, we have to make cuts. This is a very painful process. And then we secure a bridge line from our investors. And, you know, I will say I wanted to put this out there because I don't think people are so comfortable talking about the hardest things about doing this. And it's still pretty new for me. Still really painful to think about something that we went through so recently less than a year ago. But this is a huge part of our story. And I do think our story is a lot longer. So I want to make sure that you understand the reality of what we've been through as a business. And the reality is that our situation was misunderstood. And, of course, those things happen. We had to make cuts. But the truth is that customers still really love Birchbox. This customer tweeted it really nicely just explaining that, yes, Birchbox had to make cuts. That didn't change how she felt or how people would feel about wanting the product. And what we have identified was still a huge opportunity. This idea of serving. The everyday consumer in beauty. Nothing had changed about that. And that was something that we held onto as a company. And it gave us a sense of purpose, frankly. You know, we had to be scrappier than ever. We had to focus on being profitable as we did it. But at the end of the day, we knew we had millions of customers who loved their experience with Birchbox and who represented tens and millions of more customers. So this really is a huge thing. This really helped us crystallize our thinking as a business. We started Birchbox thinking about a massive opportunity, which was to change the way people shopped for beauty. We believed that consumers deserved to have the absolute best experience when they were discovering and that it shouldn't feel like a chore for those of us who don't love beauty. And we came up with a way to allow customers who don't love beauty, who want to be rather successful, to be able to be successful. To not have to suddenly opt in to learning so much just to buy a face cream. We allowed them to get a nice cadence of an experience that built up their knowledge and allowed them to act on purchases all the time at the right times for them. And that is our focus today. We're doubling down on our girl. We're doubling down on our everyday consumer and beauty who we call the beauty majority. So the industry has historically focused on the top 20% of consumers and every industry does because that top 20% way overspends than the average customer. And that made sense, especially at a time when you had to advertise only in three channels or four channels in the world. You had to focus on the avid consumers. And eventually let real estate capture a little bit more of that value. What we did at Birchbox, and I will totally admit it, we did not understand it when we were doing it, was we built a service that appealed to us. And we were women that did not love beauty, that thought it was completely ridiculous that it was so hard to purchase products and beauty with any sense of confidence. Didn't like the pressure of beauty. Had a bunch of products that we felt were wasting. Wasting space. Wasting money. And in so doing, we built a company that appealed to the majority of women. Women who did not love the current paradigm in buying. And we see our purpose in the industry as continuing to deliver to that woman. To double down and say, you are a priority to us. Even if you spend a fraction of what somebody who loves beauty spends, we love every dollar that you spend. We care about every dollar that you spend. And we are going to build the home for you in beauty that respects where you are and doesn't try to change you into somebody who is obsessed with this category. So that's what we did. And I wanted to just kind of summarize that this has been a huge learning experience. It still is a huge learning experience. And I feel really grateful personally to have the experience of building this company. And also the really hard times where I had to completely meet myself all over again and see what it was made of. to be really hard when you're trying to do something that fundamentally changes an industry, that gets everybody to change their behavior. That is the definition of this. It's actually supposed to be really excruciatingly hard to do it. So that's what you signed up for. And that is what I signed up for. So I really try to focus on the fact that the hard is what it's supposed to be and turn it into a strength for us. And it's taught me something that I don't think I would have ever learned. I used to talk a lot in the early days of Birchbox about optimism and about creating your own reality. And I do really believe in that. But I've learned, I think, that optimism is a subcategory of what I'll call resilience, which I think is truly something that is a commodity today. It's hard to find people who are really strong and resilient. And I think it is a superpower. And, you know, I hope for all of us, we're going to be able to do it. I hope for all of you that if you get a chance, if you have an opportunity to build that for yourself, you will just become so much stronger. You will love what you do so much more. You'll appreciate every day more. And I want that for all of us. So thank you so much for coming. And I'll see you guys at the roundtables a little while from now. Thank you so much, Katya. Yeah, my pleasure. So our second to last speaker of the day actually flew all the way over from the Middle East to New York this morning. So he's slightly jet lagged. He still feels like it's evening or night. And it being so dark in here doesn't help. He has invested and advised in over 1600 startups. That's 1-6-0-0 startups. That's insane. So he really knows.