← The Foundr Podcast with Nathan Chan
The Foundr Podcast with Nathan Chan
603: He Built a $1B Beauty Brand Selling $1 Makeup | Joey Shamah
00:51:49
Joey Shamah built e.l.f. Cosmetics into a billion-dollar beauty brand by doing the exact opposite of every competitor in the industry. In this interview, the e.l.f. co-founder breaks down how he turned a radical $1 makeup idea—laughed at by investors and retailers—into a global powerhouse that went public on the New York Stock Exchange.
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- [00:02]
A
Hey, founder fam. I want to talk to you about something super exciting. We're officially partnered with Omnisend, the email marketing and SMS platform built specifically for e commerce founders. We've been recommending Omnisend to founder students for a while now because it just works. Whether you're launching your first store or you're scaling to seven figures, it really helps you automate your marketing and get real results. Did you know on average, OMNISEND customers make $68 for every $1 they spend, which is an insanely good return. And because you're part of the founder community, you get 50% off your first three months with the code. Founder50. Just head to omnisend.com founder without the e to get started. All right, now let's jump back into the show. What if you could build a billion dollar beauty brand by doing exactly the opposite of what your competitors are doing? Today's guest is Joey Sharma, co founder of Elf Cosmetics, the brand that revolutionized the beauty industry by proving you could sell high quality makeup for just $1. Starting as a 20 year old with no MBA and radical idea that the industry laughed at, Joey bootstrapped Al from his father's warehouse, got rejected by every major retailer, ultimately taking the company public at over $1 billion and creating generational wealth in the process. So in this conversation, you're going to discover how to identify white space in saturated markets by doing the exact opposite of incumbents and the art of turning rejection into opportunity. And why getting passed on by retailers forced them to build something bigger. And the critical lessons about exits that Joey wishes he'd known before doing his first deal.
- [01:47]
B
Hear the stories, learn the proven methods, and accelerate your growth and future through entrepreneurship. Welcome to the Founder podcast with Nathan Chan.
- [02:01]
A
All right, so the first question I want to ask ask you is what early influences shaped your entrepreneurial career and journey and drive to build something that is marketable and, you know, distinct from your father's business?
- [02:16]
B
Yeah, so I come from a community of immigrants and really they find ways to become successful in the environment that they're given. So my grandfather wasn't successful. My father lost his father at an early age and really built his business from the ground up, joining as a low employee to eventually buying out all the partners and being the owner of the business. And that's really the world I came from. It wasn't corporate, it wasn't law, it wasn't medicine. And I always had a drive to be successful. I had a drive. I was, I was a natural born leader in Certain regards. But I was also a problem solver and I really looked for, I looked for a way. I didn't really look for it. It really came to me when my father, I was interning at my father while I was in college when I was 18, 19 years old and my father asked me, do you want to do this business or like find something else? I was like, I really don't want to do this business. His business was an apparel manufacturer. He did a lot of private label for some national big retailers in the U.S. he didn't have his own brand, so he used their brand and he was very, very successful. But he didn't really have anything to continue to any brand appeal. I was at NYU Stern majoring in international business and marketing. So I was one of the few guys in the program who wasn't majoring in finance or accounting and something a little bit more esoteric in the marketing piece and the international piece. And that's really what led me to have a desire to build a brand. You know, this was in the dot com boom in the 90s, early 90s, late to early 2000s, late late 90s and early 2000s. This was when there was a lot of M and A happening and acquisitions and you saw some of it in the beauty space, although it was way before I really was even in beauty. And we kind of said okay, what can we do? Or what can we put our spin on using some of the resources and network that we have to bring a product to market? And that's how we kind of got it. We, we identified a sector before we identified a product line. So we saw the Dollar store retailers, we saw Family Dollar and Dollar General here in the US growing exponentially. Hundred thousands of stores open, hundreds of stores opening a year. And we said okay, let's what can we sell to those retailers? And we went in and we saw there was a bunch of cosmetic offerings and there was two main offerings. One of them was closeouts. So old product that was returned from other drugstores or other, other places and they were on the shelves. No consistency, no continuity. It's really a treasure hunt type of mentality. And the other were non branded brands. Stuff that you wouldn't want to put on your face, stuff that was all about quantity over quality. Stuff that didn't resonate at all with a girl or a woman in a, in a bar wanting to pull out of her purse and put it on her lips. And we said we think there's something here. And that's how the whole genesis of the, of the, the. The entrepreneurship started.
- [05:30]
A
Okay, so talk me through kind of how much did it cost to start Alf? How much, how much did you put in? And this whole concept of, I guess, making the numbers work because the idea of selling beauty products, you know, for a dollar is something that's hard, you know, in those days for people to wrap their head around. And it was so drastically different to anything else out there.
- [06:04]
B
Right. So I've been asked that question many, many times over my career. And I kind of ask it back to, to the, the qu. Someone who asks me, I said, why are you asking me why I can't do it? But why aren't you asking the big conglomerates why they can't do it? And when you look at the two components of what makeup. Makeup, you have the raw materials and you have the. The componentry. So the raw materials are not that expensive for the most part. And that's not so. But if you. And then the other piece is a componentry, which does have a lot of variability based on materials, weight, finishes and things like that. But then when you look at the spokes, the marketing budget, the spokesman, everything else that is put into the cosmetic product, we stripped all that out. And we were able to really source a line of 13 categories across 67 SKUs across eyes, lips and face. So we had lip gloss, we had, we had pressed powders, we had Mascara, we had 13 items, and across those items, 67 SKUs. And we bought. We placed our initial order for $125,000 of product, and we brought in every one of those 13 categories in assortment packs with a little plastic tray. So if we were buying lip glosses, we would buy the four colors of the lip glosses, six colors of the lip glosses, 6 colors each a 36 piece pack in a little tray. And we brought that, and we brought that in. So it was about $125,000 of inventory that we brought in to really test the market.
- [07:38]
A
Yeah. And was getting into retail easy? I know you've got some great stories. You got to tell the Bloomingdales one. But before we do, because that's. That was a big turning point. I want to know how that came about. Was it strategic and seeded? Like, talk me through that and then. But yeah, how do you get your first sales? How'd you bust down the doors to get into retail? Because you'd never done this before. This is what sub 20 years ago, you know, like, this is your first business. Like, you know, your own kid. I know in Target, you Had problems where they didn't like the name of your brand. So talk me through that.
- [08:16]
B
So I wish I would say it was easy, although. Although I know I wish it wasn't easy because what happened really shaped both me and the company. So the first thing that happened was we took our concept to the dollar stores I mentioned to Dollar General and Family Dollar and we showed them what a quality line of opening price point cosmetics would be. And their reaction was, it's nice, but it's not for us. We're not interested. We're committed to our quantity over quality. And we did two things that really enabled us to really push through to the market. So if the customers or the retailers weren't going to take us in, we were going to kind of push it through. And being a young 20 year old kid, I really was aggressive. We hired a PR firm. The PR firm took us around. I did the desk sides myself. We went to Glamour magazine and Lucky magazine back in the time and we went New York place to place and we showed everyone our product and all the editors love it. We didn't tell them the price, we just showed them the product. We let them try it. We let them get a sense of the product. And then at the end, end to end of the interview at the desk side, we said it's going to be a dollar. And they're like what? No way. That's crazy. That's crazy. And then we went home. And then a few months later I was actually walking to lunch, it was May 2004 and Glamour magazine called us up and said we want to put your concealer in the magazine. And we said great. They said there's only one problem. There's no way for our readers to get it. We said okay. They said, either you go into old Walgreens, a drugstore chain in the US All a Walgreens buy next week, next month or you open a website like, well, we're not getting into Walgreens so we'll open a website. So we had a website but it didn't have an E Commerce. This was back in 2004, E Commerce was pre, you know, Amazon was just getting out there. So we spent $5,000 on a shopping cart functionality of our already website. Already existing website. And it was June 16, 2004, we launched our website. At the time there was a, there was an email blast called Daily Candy that was eventually bought by iol. It's now closed. Daily Candy picked us up. It wasn't even a dedicated email, it was a one line email and there's this brand that launched, Elf Cosmetics. It's going to be a dollar. All items are a dollar. I remember coming into the office that day in New Jersey. We were in the warehouse and we had 400 orders. And we're like, wait, there, maybe there's something here. And that kept happening for the next few years. About year or so from 2004, we continued to pursue retailers but we would get a press it in Lucky, in Vogue and Glamour and you know, and every time we got a press it we would see a spike and then we'd get a. And then it would cool down and then we'd get a spike. And every week, every every month there would be something and we were chugging along. I mean in 2004 we probably did a total of maybe a million five, a million six in sales. I remember being up at night seeing okay, how are we going to do $125,000 in sales this month? A number that they probably do in an hour where we are today. But really it's that grit and that in that and that drive that fueled our success moving forward. And that went on for a few years. You know, small business. We heb was a small, the first store that I. So one of the big challenges we had launching a dollar brand of cosmetics was a lot of the retailers didn't want to trade our customers down, their customers down. If they're selling a covergirl lip Gloss for $6, they don't want to sell your elf lip gloss for a dollar. They just lost $5 at the register. So it was H E B. It's a southern chain based in San Antonio, Texas that allowed us to put our. We had this four sided spinner rack. It was about four feet tall. It spun on, it had spun on four sides and it had product on pegs. And they said, okay, we're going to put a few of these spinner racks in our stores. They're like big stores like Costco. And I remember we got an email after we that the rack was selling out by the day. Like you put the product in, they've sold out. They refilled it, it sold out. And we got an email from the buyer which was probably one of the best emails we we got ever. And it said I was concerned about putting you in because I didn't want to trade my customer down. But it's been proven that the elf brand is incremental. And people, because of the price, they're buying it on impulse. And we're seeing a lift in the Overall department. And that became a huge, huge driver for us as we continue to grow the brand in more traditional mass, that we can prove that this brand is not just going to take the less dollars, but because of its impulsivity and its incrementality, it's going to grow the overall department sales.
- [13:15]
A
So talk me through margin. Like, how much margin would you make on selling one, like one pack?
- [13:30]
B
Look, we had margin goals. One thing that we did in the one hour, one of our approaches was about simplicity. So it was simplicity to the customer, to the retailer, to the people on the retail floor. The stock bent, the boys stocking the shelves and that. So we had a. We developed a one price point mentality. So everything we sold was at $0.59 to retail for a dollar. Every card was pretty much the same size, height, so it could all fit. Every product was color coded, so everything was about simplicity. So we had a varying margin across our brand. One of the things we launched was a line of brushes was a. It was an early introduction. One of our brushes cost us 54 cents, but we sold it for 50. That was. We made. We equalized that by a lip balm that cost us 19 cents that we sold for 59. So we maintained, and we had a very, very lean team. It was about four or five of us in the office when we started, and I wore many hats, whether it was answering customer service emails or going to customers or going to source and develop the product across the board. So we did what we needed to do as the company before the company grew. And it was really, really lean, but it was profitable because of. We operated on a good. A very decent margin. Although the dollars were low, the margin was a standard margin.
- [15:01]
A
Yeah. Okay. And then talk me through the Bloomingdale's piece because that's a. That's a very, very crazy story where a rumor went out when you guys were in Bloomingdale's that you guys were gonna up the price. And that made things go absolutely gangbusters. Take me back to that moment, because that sounds like that was a real step change, not just in revenue, but just the brand's history. Because then eventually, you know, you brought on executive leadership, really rapidly grew, and then eventually ipo. But that. That sounds like a really big turning point. So talk me through. Take me back to that moment and that time. And did you guys see that on purpose? Was that PR strategically or did it just. Was it a mistake?
- [15:53]
B
So I tell everyone I wish I knew how it happened because I would do it again and again and Again. But I remember vividly, it was Friday in September. We had just come back from a trade show run by a company called gmdc. It was a general merchandise trade show where we met a bunch of buyers. I was sitting in the office. We were having a recap. Me, my salesman, and my father. And we were sitting in the office, and all of a sudden, the phone rang. And I answered the phone. I got out. We were doing. I got up, I answered the phone, and I said, hello. And the woman get, oh, elf. Is this real? Is this a real company? And I said, yeah, we're a real company. Why? She's like, I just got an email that you're being bought by Bloomingdale's and all the prices are going up. I said, what? She says, yeah. And we used to have, like, a. On the back end of our website, we would have, like, a list of the orders that came in. And in the old days, you hit F5, you refresh the screen, and you saw all the new orders that came in. So we would do that on a Tuesday, and you'd see two orders, three orders an hour, four orders. All of a sudden, I hit refresh, and you see another 20 pages of orders. Refresh again. 20 pages of orders. It was Friday. It was Friday afternoon. We said, okay, we'll see what happens. And then it was sad. And then it was actually the Jewish New Year that Sunday night. So we don't. We unplug on the Jewish New Year. And then the site was continuing to get orders, get orders, get orders. Then it. After the New Year ended, we logged on. We had 20,000 orders. And then the next day, it just kept going. And then we're like, okay, this is great. We're getting orders. We're getting tons of orders, but we don't have the goods, the merchandise to fulfill these orders. So we're packing orders as quick as we can. My wife came to pack orders. My mother came to pack orders. I mean, we're going to the warehouse. We're drinking from a fire hose. And then I was like. And then they just kept coming. So it was a time where we had about 192,000 orders. And we're like, we can't do this from here. We don't have it. So I got on a plane Saturday night. I went to China, where our factories were, and we create. We created a process, a pick line, the products and everything, to be able to pack every order overseas. I remember. And I simplified that a lot. I remember being in an elevator on my BlackBerry, speaking to my father. And my father told me that this is it. You either figure this out, or we just pack up, shop and go home. And I said, you're right. We're going to figure this out. And we had a great supplier in China who found us space, and they made the product, and we went ahead and we had tons of issues. I mean, this was like the infinite game of Whack a Mole. So all of us, like we. We were. We had to print 192,000 orders. How do you print 192,000 orders? The firewall in China was blocking our IP address. We had to walk around that. So there was a lot. A lot of issues. But at the end of the day, after six weeks, we were able to pack the order in China. So if you placed an order, your order was packed in China, and it was placed in a large shipping container that we aired in. It had a barcode on it. We got scanners. We scanned the barcode. We printed a shipping label here in the US when it got here, and we pumped it into the postal system, and that's how we fulfilled 192,000 orders. And look, there's peaks and valleys. But we. We were never the same company after that. My cousin got that email. My buyers got that email. Everybody was, like, getting that email. It was. It was really our first aha. Moment that this was really real. We went from doing $2 million. We were forecast to do $2 million that year. We ended that year doing $8 million and making money for the first time.
- [19:54]
A
And when you say making money for the first time, you guys were not profitable.
- [19:59]
B
No, we were not prop. We were not profitable for the first few years.
- [20:05]
A
So you is. And that's because you were strategically reinvesting for growth.
- [20:09]
B
It was because there was overhead. We had a few employees, we had an office. We had expenses, and we weren't doing enough business. As I said, In 2004, we would do 1.86. $1.8 million. And then we grew a little bit, and you have expenses. So it was. It was a break even, a modest loss. We were continuing to bootstrap it as best as we can. And then in 2006, that's when we really first started producing a profit.
- [20:36]
A
Yeah. Okay. All right. So, yeah, you went from I've got here 300 a week to 18,000 a day over that period for two months with Bloomingdale's. That is insane. So talk me through kind of how you guys transitioned and really grew the brand from there, because Shopify started around 2000. It was around 2011, 2010 time. Right. So, so I never forget I had a friend and one of our instructors in our, you know, in our education platform where she won the Shopify Build a business competition. And that was in 2012. So Shopify, they one. One thing that really brought them to life and really kind of started to popularize. I believe online retail was through Shopify. So that, so you guys still had a bit of time to kind of really start to drive the online success. So talk me through kind of that transition leading up because you IPO'd in 2016. But yeah, talk me through that piece. So that was a major step change in the growth. What were some strategic moves that you made in those next few years?
- [21:54]
B
Right, so one of the, one of the big wins, early wins we had was a small relationship, very small relationship with Target. So Target had what they call a trial and travel section. So it's where you go to buy your mini toothpastes, your mini scopes, your mini, you know, if you're traveling and you need stuff for your toiletries. So we were lucky enough to get awarded a lip bin and an eye bin. And it was a, it was two lip products and two eye products. Where we were, where we were in the. We had business in Target, very, very small. And then after the Bloomingdale's virality moment and into 2008, Target actually called us up and they said, we want you to make us a holiday end cap. We said, you say we do it, we'll do it. So we gave it a try. We were forecast. And that was for the. So this was November 2008 and this was to go in for holiday 2009. So 11 months later in October, we were forecasted to do about 190. Sorry, we were forecasted to do about $80 per store per week. It was a beautiful end cap. It was gift sets. It wasn't our single item. So it was like a five or $10 gift set, a pack of products. And we did really, really well. Instead of doing 80, 80, $60 a store a week, we did $200 a store a week through the holiday season. And that led us to get what they call inline space. So they had four foot bays. They said, okay, we want you to take a four foot bay in 660 stores and put the best products forward. The only request they had, which is a big one, was that we weren't only a dollar, we had a dollar and then a higher price point a little bit. So we said we don't, we don't really do that. But they said, no, we think it can be done. You guys should try it. So we launched a sub brand called Elf Studio. So all the Elf packaging was white, it was clean, it was, it was light. And then we did a studio which had a higher componentry. It was metal instead of plastic. A few more end benefits, maybe a quad of eyeshadow instead of a single. And we launched Elf Studio. And we had 4ft, 2ft of elf and 2ft of elf studio. We promoted it on the online. We had a big customer base and that did really, really well. That launched in 660 stores in the end of 2000, in the, in, in March of 2010. And that's really when Elf, we really were separating ourselves from the pack because virality in a Bloomingdale's moment and the Bloomingdale's moment would repeat itself again in a different form in Nordstrom's in 2007, eight and, and then, but once we were in with the big boys in Target and in Walmart, in, I'm sorry, in Target, and we were doing better than a lot of the conglomerates that have been around or the incumbents that have been around for a long time. That's when we really knew that we had something special. And we really treated Target very, very well. They treated us well. We committed to them for a bunch of years to really grow with them until we went full chain. And that's, that was really, really a step change for the long, the long run.
- [25:14]
A
And from a strategic standpoint, were you focused? Do you believe that focusing on retail first, then online, like what, what was the key move that you made there?
- [25:28]
B
I think the key move was. Look, I would love to tell you it was all strategic and all thought out, but any entrepreneur will tell you if you're lucky enough to have a business plan, the only thing you'll know is that business plan will not come to fruition. It may be better, it may be worse, but if you can't bob and weave, you're not going to be successful. So I think that that's really, you know, we skated where the puck was going and we've chased the opportunities we had and could find. So yeah, Glamour magazine pushed us to open up a website which I Knew nothing about D2C back then. I don't know much about it now because it continues to evolve. But you know, it's still, you know, and that's how we grew and grew demand for, for a line that we really believed in. And then the economies of scale that the retail launch gave us very quickly based on the success. Look, anybody could get an order, but for us to have a business, we needed to perform. And performance isn't just about sales. Sales is very important. But if your stock, if your stocks, if your shelves aren't stocked and your product's not coming in and your product doesn't resonate with the customer, you're not going to be that good. So it was a, you know, the strategy in hindsight is, yes, the doc, the website, the D2C gave us a customer base and it also gave us, you know, one of the early successes we had and continue to have, and I'm very proud to say that it's still in the DNA today, is that we don't dictate, never dictated to the customer, but we develop relationships with her and we listened to her. And it was actually, it was actually a time when we wanted to launch a mineral infused face primer. But we couldn't get the economics to work. We wanted a component. It had to be airtight. It was plastic, made in a special factory. No way it could live in elf studio for $3. So we said, all right, let's make a product for $6 and we'll test it online. I was very apprehensive. What do you mean, ELF six? Like, okay, a dollar to three. There was a reason it made sense. Investment, equ. Quality, but it's still an extreme value. This was modeled after a La Prairie item that was retailing for $50 or 50 or above. And then we said, we're going to give it a try. We launched it at $6 and the customer spoke with her wallet and she. We sold out of that product in six weeks. And we knew that, look, as long as we stay true to extreme value, no matter what the price point is, then we can sell it to her. And time and time again, that's how we've, We've, we've. That we've grown the business, we've grown the brand.
- [28:04]
A
And you see that today, even though you're not obviously active and involved with ELF anymore. So talk me through. So you had multiple exits with alf. You know, you took some money off the table. Minority sale and then the 2016 IPO. Talk me, take me back to that time because you've actually said that in hindsight, you shouldn't have taken some money off the table and you should have waited. So talk me through all of that and take me back to that moment and what advice you would give to founders. Because oftentimes when you're on a really good run and the going is good, that's when you do get tapped on the shoulder, and that's when you think, oh, I'm invincible. It's going to keep going. And it doesn't always pan out that way. Oftentimes more than not. When I speak to founders, I know this from personal experience as well. And then you reflect and go, oh, my God, I should have done something then. And then. So talk me through that moment, how you came to that decision, and also why, in retrospect, with hindsight, you, you think you should have held on a bit longer to the ipo.
- [29:20]
B
So I live by a mantra that I think Walt Disney said is that success is when luck meets opportunity. And I go back to that time in the elevator when I was in China trying to fulfill those orders. And I go back to, you know, the Bloomingdale's virality. Like, we, we, we don't know if we got lucky or smart. And it was about 2010 when I got a call from a now very, very good friend who's one of the premier investment bankers in the beauty space. And she said, look, I think you have something here and we want to explore a sale. And, you know, I'm, look, my father did well, but not, not really not that well where generational wealth can get generated. And we went through a process, and we went through the process, and I, I don't, I just want to give a nuance. I didn't say I wouldn't have sold the first deal. I would have probably sold less the first time. But, you know, we had multiple exits, or we had multiple sale, multiple exits. And we took money off the table a few times. And I always say the first one, although was the smallest, was the most impactful because it really was a change in my personal. Like, you know, when I remember when that we did that sale and that money came through and I looked at my father, I was like, we did it. And in hindsight, we've done it a lot, many more times, and it was a lot bigger. But that first one really, really hit home and really took us, really was really gratifying to see all our success and hard work pay off. And then in 2000, that happened in late 2010, December, end of 2010, right before, in late, late December 2010, we grew that business. And then an interesting story was two years later, l' Oreal came knocking on our door. It was an inbound inquiry, and we were ready to sell the Whole company to l' Oreal before ELF went public, before we sold the majority to another private equity firm. And at the last, last minute, literally the last minute, when you're doing a transaction, you file something in the US Called HSR with a deal over a certain size and the government, it's an antitrust regulation that the government has to rubber stamp and that allows it to go through. HSR was filed. That's how late in the game we were. At the last minute, l' Oreal called and said, we're gonna, we're gonna pass. And it was devastating, but it was, in hindsight, it was the best thing that really ever happened. A year later, we sold the majority stake to TPG Growth and they brought in a CEO. Tarang Amin was brought in as a CEO with a management team. And I was relieved. You know, I've been growing this thing for 10 years. Didn't know what bootstrapping it. Didn't know, didn't have a ton of strategy, Never took whenever, went to mba, my master's, you know, had an undergrad degree and kind of was figuring it out as I went. I remember being in the meeting when they gave us our offer and said, and we're going to bring in a CEO. And I felt like a monkey came off my back. I was like, this is, that's a good, that's good. And then it was February 1, 2014, we started and he came in, he came in with a legal counsel and he came in with a whole exec team. And I was like, whoa, what's going on? Like, this is, this is weird. But then over the next two years, we stayed on board before the ipo and we worked with them and we learned. I learned so much from that opportunity to have my master's degree be at ELF U that I created. And I saw so many things as a serial, as a serial executive, he brought to the table that I still do today. Weekly management meetings, high performance team training, SKU rationalization, margin improvement, long term goals. So much that I learned from them and that team over the next two years that I apply today. Some I apply and some I learn. As an entrepreneur, that's not for us, but it was a fantastic opportunity for us to my father and I to stick around and learn what else, how, how regular or traditional CPG companies operate. And we stayed there for two years and then there started being rumblings of an ipo. And although it's exciting and it was financially beneficial, it was time for us to kind of move on. Because public companies and entrepreneurs aren't always the best. And we mutually agreed that it was time for us to seek new pastures. We still stayed on the board, we still had a large chunk of equity, and we still went through the IPO process. And I think my father, who's been an investor in public stocks for a long time, will never, ever, ever forget ringing that bell. In September 16, 2016, we got there to the stock market floor. That day in Wall street, the stock market stock exchange was draped with ELF banners. And, and it was a super, really amazing, exciting moment when ELF, priced at $23 a share and over a billion dollar valuation.
- [34:32]
A
What a fantastic story. You know, I've spoken to founders that have listed their companies and a couple have said to me, like, if there's one thing that you wish every oppo, every entrepreneurial founder to have the opportunity to do is, is ring that bell. Do you agree with that? It's like winning the game.
- [34:52]
B
I mean, it. Is it winning the game? I think it's validity. You know, it validates you. You know, you started with an idea and, and you bootstrapped it and you created it and you sweat and toiled it and you blood, sweat and teared it for years. And now you're showing it to the world and you're saying people are raising their hand to be like, yeah, I want to be part of that. That sounds good. So I, I look. And the whole many times, every time we went through a sale process as a young, I was, I was at this time maybe 28, 29 years old. I always wanted just to cash out. I wanted that big check. I wanted just to, you know, to get that wire in more that big in my account and just know that I was set. But in hindsight, being able to do it time and time and time again, even till today, it's, you know, I'll say this and it's going to sound a little crazy. There's not a big difference to have 10 million or 30 or $50 million. Like, there's not, it's not functionally different. I mean, yes, it's different. It's 5x. I get numbers, I understand that, but it's not meaningfully different. But when you continue to work and get a chunk and a chunk and a chunk and it just, it just, it feels more, for me, more gratifying.
- [36:12]
A
So I'd love to go into the details a little bit because I know how everyone listening, watching will want to know. They'll be like, nathan, you got to ask this. So how much can you Share. How much was that first chance check when you took a my. Like, when there was a minority sale.
- [36:26]
B
To private equity, we sold 49 of the company for $35 million. So when I say I. When you. When it comes out that I regret. I never regretted the first sale, but I did regret how much we sold because we could have done everything the same by selling 20 or 30%, but I think that's. And I don't regret anything, but that's one thing that I would have done differently.
- [36:56]
A
Okay, and then when TPG got involved, how much did you sell then?
- [37:03]
B
It was a $265 million valuation.
- [37:07]
A
Okay. And then IPO did a billion. Still had a decent chunk. Wow. So crazy journey. So now let's talk about what happened next, because you experienced a rough patch. What happened?
- [37:20]
B
I did. It was after we transitioned out of ELF and before we founded our next company, Fit for Life. It was actually during the diligence stage because it took a while for us to kind of acquire the company, the operating company that is now Fit for Life. And I was home, and my kids got up, they went to school. I was in my pajamas. I sat down, I watched, I opened my Netflix, I watched House of Cards. And the next time I. And the next thing I knew, my kids came home from school, and I'm like, what just happened? Like, how did this happen? I was running this growing cosmetic company, and I was doing all that, and now I'm home. I had money in the bank, but I didn't have anything to do. And it was. It's. In that moment, I knew that retired life wasn't for me. And I really, you know, I needed to get back in the game and find ways to continue to. To create something and drive value and. And. And build something bigger than it is, bigger than I had in the past.
- [38:27]
A
Okay, so talk me through the thinking of AS and acquiring, you know, and revitalizing brands, because it sounds like you took a lot of the lessons you learned from the exec team that were brought into alf, and now you bought some companies that were somewhat. Not distressed, would you say, but brand. Yeah. Okay. Yeah. So talk me through. Through that kind of, I guess, play creating, you know, a suite and of. Talk me through that play of building somewhat of your own private equity company now.
- [39:11]
B
So. So something we didn't really touch on, but something that really made ELF stand out is that the approach I had as an entrepreneur was to do things differently, whether it be the way we market, the way we create product, the way we listen to Our customer, you know, everything was if the big companies did this, we were going to do that. So when we first saw what was the Glancedale portfolio, which was a private equity backed portfolio of Laura Geller, Julep and another brand called Clark's, which we purchased and sold back to the seller, we saw opportunity. But we also saw a lot of the opportunity that we saw was really based in doing things differently. So really going back to the ELF roots of how we market, how we sell, how we source and doing it on a different, a different type of company, meaning it wasn't a value based company. It was more premium, more prestige, but taking a lot of that source better bring it to the market quicker, bring it online. Now Amazon's a bigger player like do, doing a lot of that. And we were also able to buy it the first two brands out of bankruptcy. So we were able to. It was a lot of inventory, so we had a lot of Runway for growth. It was honestly the day after we bought it, it was a little. It was. We. Part of our thesis was we were going to lean in on Ulta and walk away from qvc. And it was day two and we got a day two. We came into the office and we got a charge back from Ulta for $1.2 million. We're like, what's this? And then QVC called us up and like, no, you're really important to us. We want to continue this relationship. How do we make it grow? So we actually switched paths. We actually exited Ulta Lead into qvc. Laura has been a fantastic part of that. But then it was doing all those things that I learned through my ELFU bachelor's degree. I took with Tarang and his team about SKU rationalization, which products we should go forward with, how do we grow margin, how do we do these things and how do we do it? A little bootstrap, you know, do it as an entrepreneur where it's not managing to a budget but it's managing to your bottom line, which is your pocke. And we've had tremendous success because we had a great product and we're able to operate like operators. And that's really the way we approached as we bought our next brand and our next brand and our next brand. And we don't. Not all our brands are successful. We bought a brand called Mallee and then we brought a brand called Cover fx and then we brought Bliss, which is the old spa brand from the 90s, which I remember really well as I was growing elf and we've seen just Tremendous success with the portfolio. And, you know, we have a great team at AS Beauty. We're about 140 people now. We've grown nicely. We'll do close to $500 million of sales this year across our brands. And we're just really, really proud of the business we built as, you know, entrepreneurs. The as Beauty is right now operated by me and my father and also another father and son and at the ASRAC family, who teamed up with us as we entered this new phase.
- [42:28]
A
Yeah. Wow. Impressive. So talk me through you. You mentioned multiple times you define success as when luck meets opportunity. How do you prepare to leverage luck? And what advice would you give to founders to cultivate this mindset?
- [42:46]
B
I think in anything you do, you're having obstacles. So the way we approach it is obstacles can either hold you back or be stepping stones. And you have to find ways to bulldoze through or jump through those or leverage those stepping stones to take you to the next level. And every step along the way, you're always planning and you always have a goal in mind. But know that there's going to be changes and you need to be adaptable to change. You know, two things I really like to live by. One is again from Tarang, who used to say, hardly ever right, but never in doubt. You got to make a decision and go with it. And you're not going to always be right, but you have to have conviction and you have to show your team that you're convicted in your decisions. And the second thing that I live by, which is really part of my DNA, is that perfection isn't an option. And don't wait for things to be perfect because they're never going to be. And I'd rather get something out and fix it than try to get something perfect and wait. And that's really, you know, we just got to go. Like when we were relaunching our website, it's not, you know, is every detail perfect? No. But if it is, it's going to take too long. So time is not always on your side and you just want to get things to the market so you can read and react. Because no matter how much you spend time on it, it's going to be second nature to you. And you always need fresh eyes and fresh perspectives.
- [44:21]
A
I think that's a fantastic insight. So when it comes to the market, what current, exciting trends are you seeing right now, you know, leading into Black Friday Cyber Monday of 2015? You know, we're coming into Q4 very, very soon, particularly around product innovation. Sustainability, consumer engagement, Talk me through that. And trends.
- [44:48]
B
I think the biggest trend is just consumer education. They know so much more than they did because of social, because of TikTok, because of Instagram, because they're learning. I mean my 17 year old daughter knows more about skincare than I'll ever know. I mean she's, she, she could run the company, she could run PD better than, better than I can. There's just so much information out there and a lot of these things, sustainability and clean their table stakes, like it's not an option today. You have to be clean, you have to be sustainable. I think efficacy is something we're seeing a lot of. I think innovation and efficacy around both color cosmetics as well as skincare and hair care. You're just seeing so much science come into the world and I think AI is going to fuel that because there's so much information out there and it's just being really processed quicker. But there's just. So there's the customer, you can't, not that we were fooling the customer, but you were, we didn't have to tell the customer everything. Now it's a conversation with her. She knows what salicylic acid is or Naminocide or any of these act like she, she knows what they are, vitamin C, what the benefits are like. She understands that and that's really how, how we're winning is by listening to her and speaking to her and being true to her. And everything we bring to market is, is, is something that I would bring home and give to my wife or give to my daughters or feel comfortable using myself. Like that's how, that's how you win.
- [46:21]
A
And when it comes to the beauty space, it's very, some would say it's very saturated. What would, what advice would you give to a founder that wants to enter the beauty space?
- [46:32]
B
It's hard. It is really hard. When I started elf, there was like four brands out there and you couldn't get space. There was no dot com, there was no Instagram, there was no social, there was nothing. And now, yes, everybody who wants to launch a skincare brand either has a social channel or like all these celebrities, there's just ways to get the product out there. So you just, you have to have the white space, you have to be different. You can't differentiate alone on price. You have to have end benefits, functional end benefits that people want and you have to have a community that's engaged, excited and that helps spread the word.
- [47:11]
A
Okay, one last question. Because we have to work towards Wrapping up. But if you could give one piece of advice for founders that have launched and they want to grow, because you have an incredible track record of growing consumer led brands, what advice would that be?
- [47:35]
B
I think everybody wants to get to the end game, but really life is a journey, not a destination. And you don't get there by jumping to the end. You get there step by step. So don't look at how you're going to go from one to a hundred million, but first you got to go to 1, then 5, then 10, then 100. And everything is about incrementality. I think you have to have goals in mind and KPIs to get there and you need to continue to track to those goals as things change. And yes, goals can change, but the end goal will be there if you have the patience and the depth of both pocket and, and product to get there.
- [48:16]
A
All right, last question. Was there anything that you wanted me to ask you that I didn't. Any question that I didn't ask you that you wanted to share? Anything that I didn't cover that you're really passionate about that you think more founders need to hear?
- [48:30]
B
I think the big. Yeah. I think one thing I just want to mention is that outside of the liquidity that we got through our first act, our first transaction back in 2010, the biggest change we had is from managing to what we called net income, to managing to this new thing called ebitda, which we didn't know what that was, or we did, but we did. And that's a big nuance. When you're an entrepreneur and it's your business and you own the company, every dollar the company makes is your dollar. Now that you have partners and, and you, and you have people to answer to or work with or, you know, a board, it's, it, there's a lot of benefits. Benefits in having a bird's eye view of the business, benefits in thinking strategically and not just operationally day in and day out, but now you're managing towards a number that's, I don't want to say fake, but less real if I could in that in, in the ebitda. And there's. It's, it was different. It was definitely different. Making that switch to net income to ebitda. And as we grew, we understand more and more how companies are valued and how people look at it, but it's definitely a very much of a game changer. And I would say to entrepreneurs that are going through a sale process or thinking about taking private equity or any type of outside capital. And that don't just think of the day you get the deal done, but think past that because that's where you get hooked. Can get hooked up, messed up, not messed up, but you could kind of get caught up a little bit because you're so laser focused on the day of the deal. The day of the deal, the day of the deal, which is a great day and it's life changing and it's exciting for many, many people. But there's a day after the deal deal. And the day after the deal is the day you have to live with for the rest of your life. And you have to make sure you're making the right deal as an employee, as if you're staying on as a, you know, in terms of compensation and long term incentives and what's going to continue to make you want to continue to grow the company outside of the equity that you have. So I think that that's, that's an important piece that people don't always think of as they look to take an investment on to their baby.
- [50:51]
A
Awesome. Well, look, Joey, thank you so much for taking the time, giving back to our community. This is a fantastic interview and congratulations again on all your success. Looking to see what you continue to build with as.
- [51:04]
B
Great meeting you. Thank you for having me. And I look forward to seeing the finished product.
- [51:08]
A
All right, so if you love this episode, make sure to check out my interview with Alex Hormozi on how he scales companies from zero straight to $2 million a month in less than a year.
- [51:20]
B
You were like, how have you achieved it? Like, there's five years of my life that disappeared. In fact, I lost all the money, which I talk about in the book. I had all the gyms, I did the turnarounds, and then I had $0 five years later because of mistakes that I made. But the things that I was gaining was not the money, it was the skills. It was the character traits and the beliefs.