Yesterday, it was announced that cosmetic giant L’Oreal was acquiring Urban Decay. The article didn’t say how much the acquisition was for but brand most recently had annual sales of $130 million.
This was impressive to me because I know Urban Decay didn’t exist when I started in the cosmetic industry so it was a relatively new company (started in 1996). How did they build their brand so quickly & successfully in an industry where technology hasn’t really changed. What lessons can cosmetic chemists who want to start a cosmetic line learn from Urban Decay?
Go after a premium market
One of the most common things I hear from people who want to start their own cosmetic line is that they want to make inexpensive products. They figure that more consumers will be more willing to pay for products that are less expensive. They are correct but this is entirely the wrong attitude.
A start-up cannot compete on price.
You can’t. You shouldn’t try. You shouldn’t even want to try.
Inexpensive products = lower profits = less revenue generated for the work that you do.
Urban Decay realized that they were not going to be able to undercut P&G and L’Oreal to capture consumers who were buying Maybelline and Covergirl. Instead they went for the premium market. It would take just as much work to have a successful premium line as it would to have a successful inexpensive line so…go premium! Having a few people give you dollars is more desirable than having lots of people give you pennies.
Have a unique positioning
The products produced by Urban Decay are no different than any other make-up that is out there. The technology for color cosmetics hasn’t changed in decades. Therefore, the only way they could create a successful new brand is by having a unique positioning. According to them, they saw that high end makeup products were dominated by boring colors like pink, red, and beige. There were none of the bright, outlandish colors that you could get in the inexpensive aisle. So, they introduced them and it worked. They also had clever packaging, an edgy design, and a great marketing campaign to help define their brand. Additionally, they took up the “anti-animal testing” mantra and got some great brand awareness from that. The bottom line is that you have to be unique to be successful.
Work with passionate people
The founders of Urban Decay were passionate about makeup and about creating a business. It is not enough for you to love cosmetic chemistry. You have to love running a business too. And if you don’t, find a partner who does. Urban Decay was not started alone but rather with multiple, passionate partners.
Being well-connected helps
One of the things that undoubtedly helped make Urban Decay successful was that the founder was well-connected in Silicone Valley. She was one of the co-founders of Cisco Systems, a huge technology company. That meant she knew many angel investors, venture capitalists, and other rich people who could invest in the company or open doors at others. If you want to start a successful cosmetic line, start making connections with people in the cosmetic industry.
Start with adequate funding
No doubt it helped Urban Decay to have enough money to get started. Their original line consisted of 10 lipstick and 12 nail enamels. Launching this many products right away is not cheap! (>$200,000) With a millionaire founder and numerous investors, it was easy enough for them to do it. You might want to start with fewer products if you don’t have access to that kind of cash.
Incidentally, having too much funding can actually be a problem. You should always start off with a little less money than you think you will need. That will inspire you to get things done in the most efficient way possible.
Get multiple channels of distribution
Urban Decay built its brand in stores like Sephora, Ulta and Macy’s. They also had significant sales on websites like Beauty.com. If you want to create a successful brand, you’ll have to have your product available in multiple channels of distribution. Some may be more successful than others and when they are, focus your efforts there. But remember, business environments change so you should always keep as many distribution channels open as possible.
Have an exit strategy
This is the one thing that most new entrepreneurs don’t think about but they must. While you may be excited to start the company and build the brand, there may also be a time when you are sick of it. You need an exit strategy. Urban Decay’s exit strategy was to become successful enough that a large company would buy them. It worked great for them. This strategy also worked great for many other brands that got acquired by other brands. When you’re building your brand, always have an idea of what will happen when you’re ready to move on.