I don’t know who needs to hear this, but building a successful beauty business without taking outside funding is entirely possible. Not only that, but in many cases, dealing with restrictions is when we’re forced to be our most creative and when the magic really happens.
What’s more, one of the biggest advantages of starting a business in our online era is that it’s never been easier to bootstrap a brand from nothing to millions. While it’s not as easy as snapping your fingers, and poof, you’ve exited to Estee Lauder, it is possible, and we’re going to show you how noteworthy brands did it below.
But first, Why VC isn’t necessarily the best thing for a new brand.
In a way, it’s actually easier to build a profitable beauty business without taking outside funding than with it, especially when it comes to VC money. This might sound surprising, but the fact is that growth and profits don’t necessarily go hand in hand, especially during the first years of business.
Venture capitalists want revenue growth. Their main goal is to build their equity as quickly as possible. They’ll take short-term growth over a long-term strategy any day. Their goal is also to increase margins, even if that comes at the expense of the quality of your products.
In other words, bootstrapped businesses expect to grow slowly and quietly, gradually attracting customers to help with their business costs, whereas companies who’ve acquired outside funding are expected by their investors to achieve high and instant growth so that they can have a lucrative exit strategy.
Tatcha founder Vicky Tsai accumulated up to $1 million in debt before she made a salary. At the same time as launching her brand, Tsai also worked four jobs, including cleaning and showing apartments. Whatever she earned, she put back into her growing her brand. But the benefits of bootstrapping her business eventually paid off. Not having to rely on investors for finances meant Tsai could spend money on what she saw would be the fittest for her business, including investing in R&D, amazing customer service, and incorporating a giveback model into her business (with each purchase, Tatcha funds one day of girls’ education via a non-profit). All these investments are what ultimately led to her mega success, making over $70 million in sales in 2018.
Tatcha founder Vicky Tsai –image source
While we’re not necessarily advising for you to go into a million dollars in debt as Tsai did, we want to show you how Tsai and other well-established beauty founders grew a profitable business without VC funding.
Below we share long-term strategies that you can use to grow your beauty business without requiring millions from VC’s and sacrificing your integrity.
9 Strategies You Can Use to Build a Successful Beauty Business Without Taking Outside Funding
Here are three of our favorite strategies to help you differentiate your brand in the beauty market today and grow without outside funding:
1. Create an entirely new category or revive a stale category.
Instead of trying to fit in and compete in the green beauty space where it feels like there are hundreds of organic-clean-green-no-nasties brands popping up left and right, why not create your own category that you can be the first of?
Green beauty, for example, is too broad and oversaturated. However, Ayurvedic Beauty, Activism Beauty, or Probiotic Beauty is much more targeted.
Jaime Schmidt, founder of Schmidt’s, for example, paved the category of natural deodorants by creating the first brand to offer non-crunchy natural deodorants that actually worked, looked cute, and smelled nice.
In her book, Supermaker, Schmidt writes, “I had a lightbulb moment where I understood I could accomplish far more by focusing on just one product and doing it right. Specializing in deodorant would differentiate me from other personal care brands trying to do it all.” She continues, “We also knew that my positioning ourselves as the modern, unconventional player in the [deodorant] category, we would stand out from our competition.”
Reflect on this: Is there a completely new category your brand can create? Can your product revive a stale category prime for innovation?
2. Find a hole in the market.
Maybe you’re the first brand to use glycolic acid at X percentage (as one of my clients and I discovered), or maybe you market your product to a specific demographic with a very specific pain point.
IT Cosmetics didn’t innovate the concealer, however, what they did innovate was how they targeted the product based on a pain point that had never been addressed by a beauty brand. The founder Jamie Kern Lima created her bestselling concealers when she realized that many women suffered from flawed, sensitive skin. Her brand’s entire positioning at launch was based on being the first brand to offer quality, color-correcting concealers with a proprietary “3D Skin Flex” technology to allow the product to work wonders on sensitive skin without creasing.
On an internal level, Lima reflected in her CEW Achiever Award speech the defining moment that drove her to succeed in her business. She recounted that an investor had decided to pass on funding IT Cosmetics because, he said, “I’m just not sure women will buy makeup from someone who looks like you, you know, with your body and your weight.”
Eventually, when IT Cosmetics landed a game-changing opportunity to sell their cosmetics on QVC, Lima decided to feature models that were considered unconventional by standards at that time—including a 73-year-old woman and an African-American model with acne—despite receiving plenty of advice from experts to the contrary.
The product would sell out over and over again because women finally saw themselves in the models being represented on tv. This was groundbreaking for the industry and catapulted the brand to iconic success.
There are plenty of opportunities to fill a hole in the market that goes beyond the product. It could be a social justice cause or a sustainability initiative that hasn’t been tackled before, such as Lindsay McCormick dental wellness brand, Bite, the first brand to ever create a zero-waste toothpaste without any plastic packaging.
Reflect on this: What is your white space? What hole in the market can your product or brand fill?
3. Start with one marketing strategy.
Before IT Cosmetics became the multi-million dollar company it is today, Kern Lima had made the decision to self-fund her business launch. Her goal was to focus most of her efforts on live sales. Through bootstrapping, Kern Lima found a way to get onto the smaller Canadian sales programs, slowly making enough sales over the years to start pitching at larger programs like QVC. To make the most of her air time, she prepared by studying what her competitors did on the program and figuring out how she can connect with the audience better, like removing her makeup during the live show and trying her products on her own skin. She also hired a 66-year-old woman to come on the show with her to reach more demographics.
IT Cosmetics founder Jaime Kern Lima – image source
Reflect on this: What is the number one marketing strategy that feels most natural to you? What is your lowest hanging fruit strategy?
4. Position against a status quo concept.
We often get asked by brands, “Should I still launch my brand if someone else has done the concept?” The answer is yes, but we need to first examine what are your differentiating factors, pull them out, and create a powerful brand story around them.
When you get clear on your differentiating factors it becomes increasingly easier to understand exactly what influencers you need to be partnering with, what your go-to-market distribution strategy looks like, and how you need to message to your customers.
One of the things we always looking at when considering the positioning of a brand is how we can go against the status quo. Trends swing like a pendulum, and we get so excited to think about what’s next (that has longevity) instead of what’s trendy (and short-lived) that everyone else is doing.
A good example of this is an AI brand called Proven. They create personalized skincare products based on more than 47 unique factors about your skin. They position themselves as the brand that “doesn’t have a single serum.” It’s controversial and different when every founder either has a serum in their skincare line or is looking to launch with one.
The Skin Genome Project from Proven has simplified the personalized products to only three steps: a cleanser, a day cream, and a night cream.
Reflect on this: The first step in intentionally positioning against the status quo is to get crystal clear on your belief system and how it appears in your brand and products. Then, take a look at what is commonly accepted and see how you can question it. What has been standardized in the beauty world that just doesn’t make sense to you or that you disagree with?
At the end of the day, it’s hard to go after your big media, marketing and retail goals if you’re always second-guessing what makes you different.
5. Invest in mentorship.
Having a mentor is one of the most valuable resources a new brand founder can have to build a successful beauty business without taking outside funding. Thankfully, it’s easier than ever to find one thanks to platforms like social media, Angellist, and LinkedIn. Mentorship can look different for each brand, so find what works for you. Whether it’s hiring a business growth consultant like Schmidts and Herbivore did during their debut, or offering the opportunity to a relevant member of your industry to join your advisory board, investing in insider insight is a no-brainer to accelerate your brand growth with a high ROI.
One mentorship option for beauty brand founders is to join my signature accelerator program where you, together with a community of ambitious beauty founders, learn how to build an iconic brand that stands apart from the sea of lookalikes in 120 days. Conventional to Cult Status™ is the only brand strategy program for beauty companies that gives you the exact blueprint for reaching your ideal audience from a beauty industry veteran.
Reflect on this: Consider joining a mentorship, incubator or accelerator program or bringing on a mentor/adviser to your company’s board of advisors. Is there someone you know that has experience in the industry that you can reach out to?
Want to know more about Conventional to Cult Status? Build a cult status brand using the C2C brand strategy framework in order to grab the attention of media and influencers and turn your ideal customers into evangelists for life. Join the waitlist here.
6. Having the right business model
VC isn’t the only way you can get some capital for your business. Instead, there are several customer-funded business models to consider, including:
- Pay in advance models: Offering pre-orders can give you peace of mind by allowing your customers to help pay for your production costs upfront without needing to take money from VCs.
- Subscription models: For products that run out every month or so, subscription models offer another solution to secure cash flow straight out the gate while giving you an idea of your monthly revenue beforehand.
- Scarcity models: We love a good scarcity model (as long as it’s genuine) when it comes to adding a luxury feel around your brand. If you’re starting with small quantities, you can harness the allure of limited quantity products to fuel your brand’s growth.
Reflect on this: Which of these customer-funded models would suit your brand best?
7. Focus on focus groups.
From the beginning, Schmidt focused on feedback so she could best understand her customers’ needs. Schmidt’s made her first customers at local markets, so she was easily able to assess their thoughts on her products in order to improve upon her product. She tells Entrepreneur, “I had an incredible community of customers in front of me, and I was able to build a product to their liking. From week to week, continuing all the way to our acquisition, I was focused on incorporating customer feedback directly into our product development strategy.”
Since she took no outside funding, Schmidt heavily relied on said feedback to decide where to invest her money in to make the most impact. Through her focus groups, she decided that the best way to stand apart was to dedicate her first two investments to incorporate unique and sophisticated scents that other “crunchy” brands were not paying attention to, and hire a design firm to freshen the packaging and make it more modern.
Reflect on this: Focus groups can help you create products that people actually want to buy and that can offer them transformative results. While interacting with your customers, you’re not only improving your product, but building community around your brand. Where could you find a focus group to send free products to in exchange for feedback?
8. Seek alternative funding
When it comes to seeking outside funding, there are more options than just VC. Beauty brands like Aether Beauty have also been known to use private investing firms like Republic, which describe themselves as “a place where both accredited and non-accredited investors meet entrepreneurs and access high-growth potential deals across a range of private markets.” Angellist and Kickstarter are other avenues you can take to secure crowd-based funding without accepting VC funding. You can also consider grants from organizations like IFUNDWOMEN.
Reflect on this: Could alternative funding avenues be a viable option for your brand?
9. Focus On Hyperlocal Marketplaces
In a market where DTC reigns as THE option when it comes to sales, there’s something to be said for the less sexy and less trendy options. Concentrating your efforts on hyperlocal sales in places like farmer’s markets, craft events, and small specialty stores are lucrative avenues that are also more realistic to harness as a new brand.
What’s more, since it’s local, you’re able to build a community around your brand while interacting directly with your customers and getting their feedback so you can make any necessary improvements to your SKUs before you scale. Vita Coco is one example of a brand that started selling at local healthy supermarkets when they just started out.
Reflect on this: Local marketplaces are a worthwhile option for all beauty businesses, even those who are positioned as luxury or DTC brands. Have you tried selling at your local markets?
Where These Bootstrapped Brands Are Today
Where are they today? Let’s take a look at where some of the brands mentioned in this article who started small are now.
- IT Cosmetics:
In 2016, L’Oréal, paid $1.2 billion in cash to acquire IT Cosmetics. Since the founder Kern Lima managed to avoid outside funding for years, she was still the majority owner. She pocketed an estimated $410 million…and that’s after taxes.
While the amount is still undisclosed, Schmidt’s Naturals was sold to Unilever just seven years after their launch in 2017. Schmidt puts it in the “nine figures.”
Ten years after launching Tatcha (and racking up over a million dollars in debt), Vicky Tsai sold her luxury skincare brand to Unilver (for an undisclosed amount) just after making $70 million in sales in 2019.
While VC funding is a viable option in order to grow your beauty business, it’s not the only option.
Consider these factors in order to decide whether VC funding is for you. Are you:
- Willing to make certain sacrifices on your vision, strategy, and product in order to achieve faster growth?
- Someone who works well with an advisor or do you want your brands’ ultimate decisions to be up to you?
- Willing to give away ownership of your business?
- Able to innovate your marketing and sales without taking on VC funding?
Which of these tips for growing your beauty business without taking outside funding resonated with you the most?
Want help uncovering your company’s cult-status brand positioning and implement powerhouse marketing strategy? Want to be the kind of brand that has customers signing up for waitlists and spreading the word of your brand without you even asking? Then get on the waitlist for my signature beauty brand accelerator, Conventional to Cult Status, here.