Feature of the Week

March 3, 2013 9:44 pm

MBA entrepreneurs think outside the box for beauty business

Katia Beauchamp and Hayley Barna©Elk Studios

Walking tall: Katia Beauchamp and Hayley Barna

When Katia Beauchamp and Hayley Barna met as twentysomethings on their first day at Harvard Business School they had no plans to create a global beauty business. They had more pressing concerns as they had almost immediately to co-ordinate a spring holiday to Mexico for 50 of their classmates.

Organising the vacation served a purpose. It helped the women to realise they worked well together as a team, “but we didn’t necessarily want to start a business together”, says Ms Barna, now 29, a management consultant before going to HBS.

That all changed less than a year later, when Ms Beauchamp and Ms Barna became the co-founders of Birchbox. Each month the New York-based company sends a box filled with beauty samples to subscribers in the US, the UK, Spain and France.

From a tiny venture in 2010, Birchbox has now grown to 300,000 worldwide subscribers who receive a box for £13, €13 or $10 depending on location. One box includes four to five cosmetics samples such as mascara or hand lotion, some in larger sizes.

On the Birchbox website users can see how to incorporate the beauty products into a daily routine, as well as buy regular sizes of the samples. To date the company has secured $11.9m in venture-capital investment.

Venture funding and the gender barrier

Female-led companies still lag behind their male counterparts when building a start-up, experts say. Less than 5 per cent of venture funding goes to start-ups with female chief executives, which means turning an idea into a large innovative company is more difficult.

“Women get funded by large amounts of money at a far lower rate than men do,” says Janet Kraus, senior lecturer at Harvard Business School.

Part of the problem is thinking small, she says. “To scale a business it has to be a big business idea from the start and women have to describe it as a big breakthrough innovation. It’s telling the story in that way that creates the access to capital. You describe [the idea] at its highest potential.”

Nonetheless, there are female entrepreneur success stories emerging from business school, such as Gilt Groupe, a daily deals shopping site that also emerged from HBS. Tapping into the alumni base is key.

“It’s a huge network,” Ms Kraus says.

One reason for the increased visibility of female-led businesses is the support networks that female entrepreneurs are able to build, says Clifford Schorer, entrepreneur in residence at Columbia Business School in New York.

“Women in general form teams, partnerships and alliances with each other quicker than men do,” he says.

In the past few years there has also been an increase in investment firms who work solely with women-led companies – such as New York-based Golden Seeds – and mentor opportunities from female-led start-ups.

The decline in the amount of capital needed for a start-up has also helped level the playing field, says Mr Schorer.

“Before the first [dotcom] bubble you had to raise $50m-$100m. Today you can launch a company for a couple of hundred thousand dollars.

“That’s been a tremendous equaliser and women in particular have benefited.”

Rather than starting a business in parallel to their studies, Ms Beauchamp and Ms Barna integrated their beauty business idea into their courses in their last semester.

“We would negotiate with the professors where the final project would always be about Birchbox,” says Ms Beauchamp, 30, who worked in commercial real-estate investment banking before going to HBS.

One class really stood out. Harvard professor Clay Christensen’s course on disruptive innovation encouraged the two founders to think of a big idea that is an industry game-changer. “One of our first insights was that the beauty industry – in terms of marketing and retail – had not experienced significant innovation for many years,” says Ms Beauchamp.

“That concept ties directly [to] what we learnt about examples of successful disruption in established industries.”

The two women were placed second in an HBS business-plan competition, which helped them build more confidence in the concept.

The VCs offered the co-founders money but they turned it down because the company was still in its infancy, says Ms Barna. Instead, they favoured launching a lean start-up with minimum means. Going through the process “helped crystallise our approach”, Ms Beauchamp adds.

They used their student status as a way to get their foot in the door at some of the largest beauty brands. “We were able to credibly present [the concept] as a test that we were exploring while in business school to potential partners,” Ms Beauchamp says.

The winter vacation of their second year turned into back-to-back appointments as the partners presented their idea to beauty companies in New York.

“We had three very intense days in walking to boardrooms with prototypes,” Ms Beauchamp says. Cosmetics companies including Keihl’s, Nars and Benefit signed, giving Birchbox credibility with other large beauty companies. Having a tangible box to show companies was important.

“We had to come in there with something more than just an idea.”

Without waiting until there was a more concrete plan in place, they used the flexibility of their last business school semester to dive in and start the company in its test phase. Impromptu strategy sessions took place before class. “We would wake up every morning, emailing each other about how to make it work,” Ms Beauchamp says.

Taking two years away from the workforce was key in helping the business grow quickly, say the classmates.

“Being on campus was a huge benefit [allowing us] to have the time to start something,” Ms Beauchamp adds.

“By the time we were [graduating], we were not just an idea on paper.”

Three years later they have 140 employees and Birchbox is growing quickly. However Ms Beauchamp is keen to retain the company’s start-up culture as a means of spurring more innovation. One of the biggest challenges Birchbox is facing is “growing up and showing our team that we are progressing,” she says.

. . .

Since Birchbox’s launch at least half a dozen imitators have come on to the market but its monthly box remains one of the most affordable.

Global growth is one strategy helping the company stay ahead. Last September Birchbox acquired JolieBox, a Paris-based competitor, allowing the partners to move into the European market. Expanding worldwide “is a huge focus right now,” says Ms Beauchamp.

“Many of our beauty brands are global, so it’s the same thing for the customers.”

They are also expanding the samples. Last year Birchbox started offering Birchbox Man, a $20 box filled with men’s grooming samples and lifestyle products.

In December the company also tested a limited edition “home box” for $58 containing products such as sea salt, a spatula set and cocktail napkins for the holidays. When it comes to participating brands not all make the cut and products are tested in-house before being boxed and posted, the founders say.

So far Birchbox has been an attractive proposition for brands eager to stretch their marketing budgets. Allowing consumers to test samples is a more hands-on approach to acquiring new customers. As a marketing strategy, the company allows brands to offer sample products “rather than paying for expensive print and advertising campaigns”, says Ms Beauchamp.

“It’s a way [brands] can get close to consumers.”

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