Can small cosmetic companies be successful?

This question was raised on the cosmetic science forum and I thought it was so good that it warranted a full treatment here on the blog. Many of our followers here on Chemists Corner are people who are interested in creating formulas and possibly producing their own line of products. Almost every good cosmetic chemist that I’ve known has said they wanted to start their own line.

But should they?

Reality of the Cosmetic Industry

Before answering this question, it is important to face facts about the cosmetics and personal care industry. Big companies have significant advantages over small and start-up companies.

More money

Big companies have more money than small ones. They can outspend you in every way from R&D to performance testing to safety testing to advertising and marketing. They can use the money to get their products in stores and get price breaks on packaging and raw materials. More money naturally leads to other advantages.

Less expensive products

Big companies can make less expensive products. Even if a small company copies the formula exactly from a big company they will not be able to produce the product as inexpensively as a big company. In fact, the product costs to a small company will be 2 or 3 times higher than a big company. This means that big companies can charge less for products that perform every bit as well as the ones you can create.

More scientists

The additional money available to big companies means they can hire more cosmetic chemists and create better formulas. A small cosmetic company just can not create a formula that will be as optimized and tested for superior performance.

More advertising

More money also means more advertising. Big cosmetic companies will buy TV commercials, magazine ads, and radio spots. They will host events for bloggers & beauty editors and they will have an advertising agency working to promote their brand. A small cosmetic company will not be able to outspend the big guys in advertising.

More distribution

Finally, the additional money and size of a big cosmetic company means that they will be able to get their products on more store shelves and in more locations than a small company. There is just no competition when it comes to mass market and drug stores.

Are big cosmetic companies unbeatable?

With all of these advantages, you might start get the feeling that Big cosmetic companies are unbeatable. You might also think that starting your own cosmetic line is a waste of time.

Well, that isn’t necessarily true. Think of companies like Burts Bees and Aveda who started small and built huge brands. It can happen because small companies have a few notable advantages over big companies.

Small markets

An advantage small companies have is that big companies want to make big money. If a brand is not going to sell at least $100 million with the potential to reach $1 billion, the big cosmetic company won’t even investigate the idea. When I was working in corporate America we discontinued many products that were bringing in over $2 million a year in sales because it just wasn’t enough money. While $2 million in sales is nothing to a big company, to a small company that is huge! Small companies can dominate small markets because big companies aren’t competing. And if you are a small company you can make a great living in a small market.

Niche markets

One problem with big cosmetic companies is that they try to make products which will appeal to as many people as possible. This means that they are going to ignore niche consumers who have needs that are different from most everyone else. Just as a small company can dominate a small market, a small company can dominate a small consumer niche.

Experimental products

Big companies need successful products. They need to justify to their management why they are launching a specific sku and also need to show data supporting the launch. This means that the products they launch are going to be very similiar to other successful products in the past. This is why there has been only incremental change in the cosmetic industry in the last 20 or 30 years. New, innovative products are risky and most of them fail. Big companies don’t like to fail so they try not to.

Small cosmetic companies are in a better position to try new innovations and off-the-wall products. Products like dry shampoos and no foaming shampoos would not be launched by big companies but small companies can do it. This is a big advantage.

Faster development

It takes a big cosmetic company at least a year and a half to develop an idea into a product and get it on the store shelf. Small companies can do this much more quickly. If they have a good idea, they can have a completed product available for sale in 6 months or less. A big cosmetic company can’t.

Online distribution

Right now the Internet has created an even playing field for small companies to compete with big companies. Big companies are good at traditional distribution but they are not good at online sales. A small company can compete and even beat the big guys on things like Search Engine Optimization, Social Networking, and online distribution. Big companies can not afford to put too many resources towards this area of distribution because they have to maintain their presence in big box stores and drugstores. This area is wide open for small cosmetic companies.

Should you start your own cosmetic line?

Ultimately the answer to this question is a personal one and there is no guarantee of success if you do start a cosmetic company. It’s likely that you won’t develop the next Burts Bees or Aveda. However, it is not difficult nor excessively expensive to create your own line of products. It’s also not hard to make products that perform every bit as well as the ones created by the big guys. And it’s not hard to build your brand to a point where it makes enough money for you to pay all your bills and make a decent income.

So, if you have an idea for a cosmetic brand don’t let the fact that the big cosmetic companies have significant advantages over you. Learn what’s involved in launching a product, decide if you have the energy & passion, then go ahead and try.

You just might be successful.

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