How I Built This with Guy Raz - Birchbox: Katia Beauchamp

Episode Date: March 16, 2020

When Katia Beauchamp and Hayley Barna launched Birchbox from business school in 2010, they set out to disrupt the beauty industry by delivering monthly samples in a box. Even though people told them the idea would never work, Birchbox attracted hundreds of thousands of subscribers and enthusiastic buzz as a subscription pioneer. But the speedy success was overwhelming for Katia; over the years the company endured plenty of growing pains as it found its distinctive voice in the beauty industry. PLUS in our postscript "How You Built That," after noticing that many of her female friends hated buying cars, Athena Staton launched SheCar, a personalized online service for used car buyers. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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It had tall windows, beautiful old details, and plenty of space for all of us. And being in that home on Airbnb, right in the middle of Vienna, walking distance from so much of the city, made it feel less like a visit and more like we were actually living there. Plus, taking a trip is the perfect time to host your space on Airbnb. your place with all of its personal touches and its amazing location could make someone else's vacation even better. Your home might be worth more than you think. Find out how much at Airbnb.ca slash host. Hey, it's Guy here. So before we start the show today, we are all following the news really closely, as I'm sure you are. And over the next few weeks and maybe beyond, our team will be

working remotely to make sure everyone is as safe as possible. Meantime, bear with us as we work through a new reality for the time being, including figuring out new ways to do remote interviews. Now, some of the interviews you'll hear over the next few weeks were done long before anyone even heard of coronavirus, including this one today with Katya Bichum of Birchbach. And as we record new interviews in the days and weeks ahead, I'll be asking founders about how they're coping with everything that's happening right now, with the hope of hearing. creative ideas that might help all of us make some sense of it.

For now, if you've decided to stay home or if you have to, we will work extra hard to bring you great stories not only on how I built this, but on all of NPR's excellent podcasts, including Planet Money, Hidden Brain, ThruLine, and Visibilia. And if you've got kids, check out our kids' science podcast, Wow in the World. Okay, now on to today's show. Every day, I was just constantly met with these logistical challenges mostly. And also I think some resentment of people that we were just outsiders thinking we were so smart. Who was resentful?

Some of the brands. I think we'd come in, you know, just so optimistic and so naive, basically saying, we got this. And some people looked at us and were basically like, you know nothing. This isn't going to work, you, like, silly little girls. From NPR, it's How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz, and on today's show, how Kachia Bicham put some beauty samples into a box and made monthly subscriptions a multi-million dollar industry with Birchbox.

So remember when it seemed like almost everything came in a subscription box? And I'm not just talking about Stitch Fix or Dollar Shave Club or Blue Apron. I'm talking about the pickles or peanut butter and jelly or the artisanally butchered meat that you can still get delivered to your door. on a monthly basis. There is no item that is too weird or too niche. You can sign up for subscription magic kits, subscription air fresheners, subscription succulent plants, even subscription skulls. Yes, look it up. Anyway, for a time, investors threw millions of dollars at subscription boxes, kind of like how they're throwing money at podcasts right now. But eventually, of course, interest died off, and so did dozens, if not

hundreds of subscription companies. But one that's still very much with us and perhaps one of the best known is Birchbox, which Kachia Bicham and her partner Haley Barna started in business school. And their idea to put beauty samples the ones most people throw away into a subscription box was the first of its kind. And it basically took off right away. Within four years, Birchbox catapulted to a million subscribers, and at its height, the company was valued at nearly half.

a billion dollars. And you might think that would have been a time for high fives in celebration. But actually, behind the scenes, Kaccha Bicham was quietly freaking out. Despite being told how successful she was, she just didn't feel it. In fact, she felt like the company could spin out of control at any minute. And as we get into her story, we'll find out what was behind all of that. But first, let's start in El Paso, Texas, where Kaccia grew up. Her mom was Mexican-American, and her dad was Greek. And when Katja was about four years old, her parents split up. And more of her earliest memories

was flying back and forth between her dad in Europe and her mom in El Paso. I saw my dad in the summers. Pretty much every summer since I was four. I would fly. He lived in Germany. That's where they split up and he stayed there.

And I would fly there with my older brother. You know, you fly alone and they... Yeah, they put like a ticket around your neck. Yeah, they put a ticket around your neck. And back the day. I mean, I still remember they smoked on the airplanes that were transatlantic still. Yeah. It was crazy. But we flew there every summer and then we spent most of the time in Germany and then usually like a month with our grandparents and uncle in Greece too. And did you like those summers? I did almost always more in retrospect. Definitely was always anxious going because I really missed my mom and I really never wanted her to feel like alone, you know. I was so aware. of her emotional state, even when I was really little. But when I was there, yes, I definitely

saw how magical it was to have such a different reality in front of me. And that was just a very eye-opening and wonderful thing to get early on. So what do you remember about being a kid in El Paso? Were you a pretty good student? Yes. I mean, I cared so much about getting straight A's and being a great student. It was very important to me that my mom and I agreed in sixth grade that I would just start signing my own report cards because it meant so much more to me than her that I get straight-a. It just, she always described like just never having to push me to study or to try. So I really, really wanted to get the best grades. I wanted to have perfect attendance. I wanted to be the president of, you know, the clubs. I wanted to be the captain. I cared about all of that a lot. What do you think

drove that? I don't know. I've always felt just very ambitious, just inside wanting to achieve, it's always felt really important to me. Because, I mean, when you're very young, I think, if you're attracted to success or you think that that matters to you, I assume it just means you want control, you know, you want to be the one setting the rules, not the one, just kind of living someone else's reality. When you were a kid, did you think, I can't wait to get out of El Paso? Or did you think, yeah, this is going to be like where I'm going to, you know, make it happen? I never considered staying to the point that I didn't even have that monologue that was like, I can't meet together. I was like, obviously, I'm not going to live here. Wow. And you went to Vassar College, which is in upstate New York.

And that was the first time you'd ever been on East Coast. Yes. Was it like disorienting? It was It's extremely disorienting going from the desert where you can see everything to the woods where you can't see anything. You know, like all the trees, I remember just feeling like how do people get around? Because in El Paso, you can almost see where you're going from any point. You can see where the mountains are. You can always see your orientation in the world almost, it felt like. And I remember just feeling just closed with all the trees and without being able to see the horizon every day. It definitely felt very different.

What did you think of your experience here? Did you like college? Yes, I loved college. I was intimidated kind of right away because I had gone to public schools and I felt ill-equipped at first. You know, the first year, I felt like I was just treading water. So I spent pretty much every waking hour at the library

when I wasn't working or in class. But eventually I started to get more comfortable and confident and feel like I could keep. keep up enough. I read that your first internship was at Estee Lauder, that you got this internship to work for this massive cosmetics company in, was that in New York? Actually, it was at Vassar. So they had this training program for their executives where their top executives would go to a college for the summer, and they hired college students to work at. I think they gave two positions to Vassar students. And frankly, that was the reason I wanted it.

was, like I said, just so motivated to win things and ambitious about if something was coveted, then it must be great. And that's what drew me to it. I knew that it was going to be highly competitive, very selective. And so I decided that I wanted to do that. But you weren't necessarily interested in cosmetics. No, I would not say I was necessarily interested in cosmetics. Did you think that you were going to go and, like, what did you think you were going to do? Were you thinking, I think I'm going to get into business or finance or did you not really know? Well, I loved economics. I mean, economics has a lot about human behavior. And I found that to be really interesting to think about business, but through the eyes of actual behavior of people.

And it felt practical. So I knew that I wasn't leaving college and going to have a helping hand. I didn't have anyone to support me. and it seemed smart for me to focus on getting a job where I could support myself. So you graduate, and I guess your first job out of school is in finance at an investment bank in New York. Yes. And then you do that for a few years and decide to go to business school in 2008 to Harvard Business School. Yeah.

And what did you think when you got there? Well, it was hard. I mean, it was hard to stay on top of everything and catch up with other people who already knew about what careers. existed in the world as well as careers they wanted, but I loved it immediately. I can say that. Yeah. So I guess in the first year, they sort of have everyone take a class on entrepreneurship. It's a requirement, right? It's called the entrepreneurial manager. So you take this class, and what did you think? I think that I had the opposite reaction of most people, because the current chair of the

department will tell you that it was the professor I had because I was talking to him. about this, but he really gave a very honest account of entrepreneurship. So he'd read the cases, and I guess he would add the color around the struggles that these entrepreneurs were facing, whether they were financial struggles or actual struggles in their personal lives as a result of it. And he really painted a picture of this is like heartbreak. This is the most challenging, the most roller coaster-filled career you could ever have. And I just found myself, leaning in thinking I like found it. This is what I've been searching for is nothing would be harder than this.

Wow. Basically, you come out of that thinking, that's what I want. I want that roller coaster ride. I want the thrill. I want the triumph and the heartbreak and the joy. I want it all. I just remember thinking this is the way I'm going to find out what I'm capable of. I mean, that's remarkable.

I mean, where do you think that came from? Was there someone or something that you felt like you wanted to prove yourself too? Was it yourself? It felt like it was myself. I mean, I think it always felt like it was inside. I'd say there's probably like a little bit of me wanting to prove something to my dad that didn't, you know, wasn't around and wanting to prove that I was worth it and something he missed out on.

I'm sure it was a little bit of it. But I don't think I consciously was visiting that thought. It was much, it felt much more. me. I've told myself the story that a lot of my ability to do this is because I wasn't ever encumbered by the expectations. You know, I never had the pressure of, of you must do this, and this is what success looks like, and you will only be loved when. I kind of was so free. You know, people would say all the time, like, why, you know, why aren't you afraid of starting? And I didn't even relate to the question. You couldn't relate. Like, what was so scary about starting? I mean,

the worst thing that happens is that you fail. And I didn't understand why that was scary. I mean, I was like, what a scary life to not know what you're capable of. That is terrifying. You know, this is an important point because I do, I think that you can train and teach yourself to kind of be comfortable with failure. But there are some people who just, that fight or flight instinct, Like some people just don't have it when it comes to failure, and you probably just don't have it. I mean, I think I hated failure, too. It's just what you interpret failure as. You know, I think my conscious told me that I had already won this game. I had gotten into a great business school. And now getting to try to do something was a win. So I thought, like, what's next? How do you go from being interested in entrepreneurship to learning some of the hard skills? Right. So I guess at Harvard Business School, you meet a woman named Haley Barnah who will eventually become your co-founder. Did you guys connect right away? Totally. We became really close friends within the first few days. We were in the same section. And we had started doing things together. Like we had written a couple of papers together for classes that were intended to be projects. And then Thanksgiving of 2009, we were recognizing, you know, we're graduating in six months.

We should learn how to write a business plan. And that's really where everything started is we decided, let's write a business plan together. And what did you come up with? So from there, we started talking about different ideas. And we pretty quickly landed on, we landed on this question about why nobody was talking about disrupting the beauty industry. That was just on our minds, like kind of this glaring industry that was massive. And everybody seemed to be tackling a little bit of. lot of the other industries and no one was touching beauty.

And we got excited and we basically came up with the idea for Birchbox that didn't have a name within two days, the full model. And how did the conversation even start around this idea? Well, we were very interested that it was a moment where female entrepreneurs were starting to start businesses for consumers that they could relate to. So it seemed like something was happening. People were talking about finally like women starting businesses for women or predominantly focused on a female consumer, a female buyer. And then that led us to, well, what aren't they talking about that we could relate to? Was beauty something that you were particularly interested in? No. Definitely not particularly interested in as a consumer.

But I had become really interested in it from a business perspective, from that little window into it I had in my internship from VALVAL. at Estee Lauder, we saw that basically no beauty was sold on the internet, and it was almost 2010. It was like 2%. And that was almost like a jaw-dropping moment to us. Just this idea that an industry that was so big, such a huge and important industry, was not yet online. It was like a switch went off in us where we were so excited and motivated to think about why and how we could change that. It's so interesting, and we've told a lot of these stories in the show, but there was a period. I think roughly like 2007 to 2010, Harvard Business School produced some incredibly successful women founders, Jennifer Hyman and Jennifer Fleiss for Rent the Runway, Katrina Lake of Stitch Fix, Alexa Montobel, who dropped out, who started Learn Best. And I think in some of those other stories, there was a similar approach, like, where can we be disruptive? And it sounds like in your case, it wasn't like you and Haley were sitting around saying, I love makeup. Makeups amazing. I mean, maybe you liked it or you were interested in cosmetics, but it was more like this is an opportunity. Yeah, it was actually almost that we related on the fact that we used it and we didn't feel smart when we used it.

What do you mean? We felt like in order to buy beauty better, in order to invest in something, we would have to do a lot of work. We would have to spend so much time to become smart consumers and beauty. And that wasn't where our passion was. That wasn't where our interest. was so we weren't going to allocate the time. So we were just going to be stuck consuming badly. That just seemed like a bad outcome. Was it just an overwhelming amount of choice? Yes, there's so much choice. It's just never ending aisles in a store and actually impossible to even quantify on the internet. And also, you know, we didn't talk about this, but Haley,

one of the parts of the story that was very real was I would go to her apartment all the time. and she had a very limited but really lovely selection of beauty products. Not very many, but everything she had she was using. She didn't have this like counter or these shelves of unused product. And as we got to know each other, she explained to me when I asked her about it that her best friend was a beauty editor at Condé Nast. And she would go into the beauty closet, hand choose things for Haley, and then show her how to use it. So when we came up with this idea or when we identified the problem, we designed the experience to feel like we were your beauty editor best friend. That was what we were trying to create.

And this, I think we should remind people, this is early days. Like now, of course, you know, you can go to a million websites and answer some questions and then you get a curated box or an article of clothing or something. But then it was still, this was still pretty new. And you guys were going to be the curators. You and Haley were going to be like the curators for your subscribers. Yes, but the idea was that we would curate kind of the infinite world of beauty, but then we would personalize it. So it wasn't about our tastes for everybody. It was, you know, our taste would help set the parameters of how far we'd go into different brands. But then you, the individual, would get it based on your beauty profile and your needs. Yeah. So just to get an understanding, was that?

the business exactly what it became? Like we will send out subscription boxes to people with samples of different cosmetics and then they can go and buy them from us if they want a larger size. Yes, it was exactly that. It was how can we help people buy beauty better and online? So we realized that the issue was that there was so much to discover in beauty that it made most people opt out in general. So we realized we had to make the options that small and kind of doable at a time, but eventually get you in front of a fair amount of product for you to be really informed as a consumer. And that led us to thinking, okay, monthly sending you four or five, feels like doable. You will have time to try them all. And eventually within a year, you know,

you'll have 60 products or so. So if you go into Bloomingdale's or Macy's or a Sephora and then you buy something like Lancombe or a clinic or something, you buy it and you say, you spend 100 bucks and they pop a couple of like smaller tubes in your bag and that is the sample but it's like a gift that you get. Right. So you knew that that existed. That was out there. And you thought, what if instead of it being like this special gift, we, we gather all these

samples, we curate a box, we send it to people and then they're exposed to the samples and then that will be the way to get them into the product, to be a consumer of that product. Yeah. And you missed an important layer to it, which is we sold it to them. You would sell it to them, right. You wouldn't just give it to them. We'd sell it to them versus give it to them for free. And we were economics majors and nerds, and we realized that if people paid for it, the actual chance of them using it would go up.

Because one of the things we revealed when we started talking to brands in the early days was that they estimated most samples were never even being opened. So when you started to talk about this idea, was it like, did it all of a sudden just become an upset? session for both of you, were you guys just like, oh my God, this is it? It was a nonstop conversation between us. We were super excited. I think I was a little bit more ready, like immediately, you know, naive and ready. You were like, let's do this. Let's go form an LLC and do it. Yes, I was so naive. And I think because Haley was raised around entrepreneurship, she was more, okay, well, let's see how our beta test goes, and, you know, which helped me kind of slow down a little bit in the early days to see, like, did we actually have product market fit? But I was still sure.

You were sure that this was going to work. Yeah. And what's the next step? Do you present it to any professors at Harvard Business School? I mean, we told everybody. He told everybody. He did not keep this a secret. Okay.

But most people thought it was a bad idea. Most people thought it was a bad idea because of why? Because they didn't think consumers would pay for samples because it was such a dramatic change in behavior. Consumers were used to samples being free, this idea that people would pay for them, that they would give your credit card for rebuilding. I mean, a lot of the professors we spoke to were men, and they didn't obviously relate to how women were buying beauty products. So we tried to explain how much waste there was in purchasing beauty that all of us had. had what we called like a product graveyard and that most of us felt like that was a really inefficient use of our time and our money and that we felt we would pay if we could bypass

the waste and actually start investing in things that were worth it. Where were you finding out your information? Where were you doing your research? Because it sounds like you guys really dove into this, right? You were finding out statistics and numbers and data. Where were you going to get that info? We got some from the library just from having. access to industry reports. And then we did a few surveys, too. We're just asking people about their

behavior. To who? To fellow students? Yes. And then eventually we started branching out to networks off of campus of people who didn't know us. And what would you ask them? Well, we needed to price the product, and that was one of the first things that we tried to figure out was the willingness to pay since this was something that had never existed. So we described the product, and we basically asked, you know, would you pay one, two, three, four, I think to $30. And we really wanted to price it at about 10. So when we saw that the drop-off was there, that kind of validated that price point. So you were able to figure out that $10 was probably the right price point.

In the meantime, did you start to contact major cosmetics companies and say, hey, we're starting a business? Or did you say, we're students at Harvard Business School? Like, what was your approach? I reached out to brands and I said, dear so-and-so, I'm a student, HBS, and I'm starting company that's going to change the beauty industry forever. Wow. That was the email you sent? Yes. He said, I'm going to change the beauty industry forever.

And do you have 10 minutes to hear the idea and to give me advice? And who were you emailing or who were you cold pitching? I was emailing the CEOs and the presidents of brands I could think of. and recognized. And you got their email addresses from where? From just guessing, which I still do a lot. I tried like eight email addresses. You know, people do not do this enough.

I know. It's not that hard to figure out someone's email addresses. It's usually really straightforward. If you don't want to be found, we should make it harder, right? All right. So you figure out who the CEOs were or the top executives, and you just started sending out emails. And did most of the people you emailed get back to you?

Yes. They did. Almost everybody got back. quickly. It was over the holidays and I remember being shocked because I was getting emails back on like the 26th of December. And then I was asking my sister-in-law, well, now sister-in-law at the time my fiance's sister to design logos and we were, you know, pasting samples. And one of Haley's sister-in-law was a sample hoarder. So she had all these samples that we could use in our presentations. And we tried to make a really short pitch tack. And we were in meeting rooms in January.

is January of 2010. Yes. Yes. Your second year, second and final year of your MBA, and you have a name already. You decide you're going to call a birch box. By the way, how did you come up with that name? So we basically had a criteria that it was gender neutral name that had beautiful imagery and sounded high-end. We ended up saying, okay, well, let's look at trees because trees have no gender. They could have some beautiful imagery associated with them. And we found birch really quickly and we loved it visually. It's really striking and beautiful. And then when we learned more about it, you might have seen it sheds its skin, kind of exfoliates itself. It likes to grow with other birch trees. Right. So it grows better together. We really loved it right away. And we landed on birch box as the first name.

And then we said, well, we can't choose the first name. We have to make a list of names and we made a list of horrible other names. And then basically we got a response back from one of the brands we were trying to meet with. And they said, this is interesting. What's the name of your company? And Haley was out of town and Unreachable in Nepal. And I, you know, look to try to see if I could buy birchbox.com, obviously, course already then. Somebody had purchased it. So I'm negotiating the purchase of it, hoping Haley will still love the name. And I was able to be able to be. And I was able to buy it and it was very stressful because I had so little money that spending money on it was scary. How much did it cost you? I think it costs like $700. I can remember feeling

shaky that I was putting $700 there. And when Haley Land did, I was just like, I bought breechbox.com. I hope you still love it, you know, and she's like, oh, it's the best name for sure. So you secure the first meeting already in January. What company was it? Well, the first call was with Benefit Cosmetics, who's owned by LVMH. And I remember that call so vividly. It was like pacing around. And it was so exhilarating and so exciting. And at the end of about what ended up being a 30-minute call, he was like, okay, I'm in.

He said, I'm in? Yes. It was for the test for 200 samples, but, you know, it wasn't lost on us that they were going to let us put their logo on our really janky website. And they were already a pretty big and important brand. They were going to let you put their logo on to say this is one of the companies, one of the brands we carry. So you're basically gathering samples for your first beta test, which is going to be 200 boxes you're sending out to who, by the way, who were your 200 people? So we emailed people that we knew and we basically said, we can't have you sign up because you know us and you'll skew the data.

But will you forward this along to people? And it was just a short description and a link to a PayPal that would allow you to pay for two months, $20. And it just described what people would get. All right. So you get 200 people to sign up. Benefits in. Anyone else? Yes.

So because of benefit, it was a lot easier to close other brands. We were able to work with Keels, who you might have heard of, and NARs. But it's kind of like raising money. You need the first person to say yes to get someone. to come with you. So for the most part, most brands thought this wouldn't work. You had to educate them. You had to go to them and say, listen, this is actually the way you're doing samples is all wrong. It's all backwards. You're just giving this out after people have bought your products. We are going to use this as an entry point, a way to introduce people

to your products. Right. I mean, that is exactly what we said. They were all basically in a similar place, as a lot of consumers had said, which is no one's going to pay for samples, but you seem like we could trust you with our brand. And if we're wrong, we'd like to be there for that. Did they give you the samples for free? Did they charge you? No, they gave us the samples. And then we would purchase the full size because it was from the very beginning, it was the full model, which was sampling as the appetizer, and then you can purchase anything you sample directly from us. Yeah. So this is 2010, and you have to assemble 200 bucks. And is that what you and Haley do? Do you start to like assemble the boxes by hand?

Yeah. We found boxes online that would fit in the flat rate mailers, the ones that look like old school VHS size, almost. And how many things were in that in those first two boxes? Like five? Four samples. Okay. Yes. We would have one makeup, one hair, one skin, and then maybe a body product or a nail product. Was it fairly inexpensive to do this? Because, you know, you're buying some cardboard boxes. You get the samples for free. And then you're paying U.S. Post. So it doesn't sound like this was that you guys had to pour a whole lot of money into this. No. So we did invest money, both of us, about $5,000 each. And that was probably money that you had saved up from your finance job? It was my entire life savings.

Wow. And this is all happening like in early spring 2010 when you send out the first boxes? Okay. So you're still students. You guys are still like doing your exams and writing your papers but also running this business. We're bad students at this point. I see. Okay. Barely making it into class. We're in class and running out to take calls and yes. And you do this beta and what do you find out? We gleaned that it was a smashing success. We had 200 people participate in the beta and at that point we amassed over a thousand people on a wait list. And they found out about it just through word of mouth. Yes, just through word of mouth. And then the sample to full size conversion was really high. It was like 25% of people were purchasing full size. 25% of people were going to a website that the two of you had set up.

Yes, and it was so, it just did not look secure. Was it like just like a square space or just something like that? No, that didn't exist. I mean, your best bet was WordPress, and that's what we had. And we had a lot of really great clip art type of stock images. Yeah. And PayPal. That's all we took.

All right. So the first two months, the beta test goes great, and you're about to graduate. And, I mean, what do you need to do now? Because I'm assuming you guys are going to graduate and launch this thing for real, but you probably need money to do that, right? Yes. And did you have any money at that point? No.

I had a lot of debt, so negative money. Yeah, you just spent $60,000 a year on an MBA. Oh, but it gets really better. I also was getting married that summer. Oh, right. Okay. So you are about to get married. You're graduating. you've got a massive amount of debt from doing an MBA.

And you want to start a business and you've got no money to start the business. Yep. Who did you even approach? Haley and I had decided that we didn't want venture capital money in the first round. We really wanted angel money. So we basically said no to venture capital when we were on campus. And so were you going to people who were particularly interested in cosmetics and subscription models? That seems logical.

But we weren't getting connected to people. And people were just saying, oh, I know somebody who likes to angel invest. And they would introduce us. And we took every single meeting. How many meetings? It had to be over 60. And like describe what a meeting would be. Like you'd show up and you would sort of describe this thing and the person and say,

oh, that's so cool. You know, I generally invest in, you know, semiconductors. Yeah. Yeah. Basically. It was like you're, you know, you found. these conversations were. It was a lot of people saying, well, this would be the first time I did a consumer non-software or not, you know, technology play, but I'm interested. Basically,

most people had a fair amount of critical feedback, but they would leave the door open. And after about a dozen times, we were pattern recognizing this and saying, okay, well, no one seems to close the door, but no one seems to be willing to lead around. You were not walking out with checks. No, not even close to that. I mean, we were inexperienced, having a direct conversation and just saying, like, are you in, are you out? How much? You know, we were just dancing around this, like, potential interest. And so you were probably going to these meetings thinking, we're graduates of HBS.

Like, we've done a beta test. It's been wildly successful. We have a 25% conversion rate. Totally. Like, you were probably at the beginning feeling that way. And then I guess after 12 or 15 meetings, where you've just crushed. So crushed. I mean, it was so upsetting, but I also just remember thinking, we must not be saying it right.

I just remember thinking there's no way that we're wrong. So we're just not saying it right. When we come back in just a moment, how Birchbox took off much more quickly than anyone expected and why, to catcha, that felt less like a blessing and more like a curse. Stay with us. I'm Guy Raz, and you're listening to How to Hachia. how I built this. Change is hard.

Transitions can be even harder. But they're also an opportunity to explore and discover and reimagine things you thought you knew. I'm Manus Zamoroti, the new host of NPR's TED Radio Hour. And with all this in mind, we've decided to make my entire first episode about reinvention. Subscribe or listen right now. Hey, welcome back to How I Built This. I'm Guy Raz. So it's 2010 and Kachia and Haley are having trouble.

getting angel investors to buy into their vision for Birchbox. They're walking away empty-handed from dozens of meetings. But when they decide to change their strategy and start pitching to venture capitalists, their luck changes practically overnight. When we moved to venture capitalists from angel investors, it was a lot less friction because obviously people were looking to deploy capital. And what we did was we started meeting with people and talking to them about our plans. and when we would launch and what the next steps were,

and we were on track, exceeding our targets for when we were going to launch. So we were showing that we were executing. And by the way, how much money were you looking for? When we were looking at Angels, we were looking at about half a million. And then once we decided to go to venture capitalists, we were looking at about a million, and we ended up raising a million four. And then we basically started taking payments, I think about three weeks before the first buck shipped, we just opened up a splash page.

And with that, we had enough traction where I think it tipped the conversations over, and then we had a competitive process with a few options. So you opened up a splash page and you went to your existing customer list? Yes, to that list that had participated, but also the people who were on a wait list. We went back to them and basically said, we're here. We're launching. And at this point, everybody got the same thing in those first few boxes. Mm-hmm. Everyone got the same thing.

And same process, you get pretty much the same companies are participating keels and benefit and NARs and maybe a couple others. Actually, I wish, it was so much harder than that. Basically, after the beta test, everybody said, this is interesting. You know, yes, like, theoretically we would participate in this. And when we were getting ready to launch, we got a lot of feedback from the big brands that was basically you're really small and this is interesting, but come back to us when you're bigger, when you have 10,000 subscribers because we really can't allocate our energy to this at this scale. And we ended up focusing on more niche brands, I guess, like slightly more independent. Some of them well-known-ish, but still independent, and some of them really new.

But basically we got so big, so fast that when we went back a few months later and we said, okay, now we have thousands of subscribers. We're ready to go. Now I was met with basically, you're too big now. And we can't just pull 200 samples out of a drawer. This takes plans. We have to do this year in advance or years in advance. So it was a lot of learning on the supply side.

And I spent so much time, both trying to learn the supply side, but also trying to change it. But it sounds like all of a sudden there's more and more people signing up. What was going on? Were you getting press coverage? We were getting press coverage, definitely. And then people started seeing boxes come to places of work and to apartment buildings. And that coupled with press was really the catalyst of growth until we also kind of just were lucky enough to be launching around the time where vlogging started on YouTube. And that had a huge impact on our business.

This is like before people said influencers now. But no, they would just, it would just randomly happen. They just signed up, yeah. So what we started to understand was that these vloggers were looking for content. And this was once a month, something that was content. So they were signing up themselves, paying for it. We really had no involvement. And the subscriptions just continue to grow just organically?

Yes. Because I guess you didn't have a marketing budget, right? No, we didn't have even time to think about it. It was growing so fast. we could barely handle it. And meantime, that $1.4 million was not, it wasn't going to last that long, right? My gosh, it was lasting us forever. So that was kind of the problem was our investors kept saying like, you're not spending any money, you guys need to hire people.

And we were making money. We were selling free samples. We were making money. We were funding ourselves. And as we started working more and more hours, it became clear we had to hire some people to work. at Birchbox. But meantime, you were spending, it sounds like you were spending most of your time quite literally begging

and pleading with cosmetics companies to get you samples. I was never in the office. I was just constantly meeting after meeting. We had to put up a wait list after the first year. And it was every day, I just remember feeling

so stressed out about supply. I mean, I cried so much about supply. I fantasized about breaking into department stores and stealing all the samples that were such a waste. You know, I felt like I was banging my head against walls trying to show people that people were trying to show brands that customers were willing to pay for samples. Like, how could anyone not want to participate? I couldn't believe it. But I was just constantly met with these logistical challenges mostly. And also, I think some, you know, resentment of people

that we were just outsiders thinking we were so smart, you know. Who was resentful? Some of the brands. I think we'd come in. you know, probably just so optimistic and so naive, basically saying, we got this. And people, some people looked at us and were basically like, you know nothing. You've never worked in this industry. I've been in this industry for decades. And this isn't going to work, you, like, silly little girls. So there was some of that.

And I think learning how to overcome that, learning how to build relationships, and learning how to just show the humility and also come in to learn and come in to help our partners feel smart and successful was a big part of how we were able to get the relationships we needed. And without those, there is no way we would have been able to scale. We would have been able to get through any of this. And I have to assume you had to hire quickly. you guys had to really just ramp up as you're getting 100,000, and 200,000 and 300,000 and 300,000 subscribers. I mean, by this point, 2011, this is a personalized service. You would send out a questionnaire and then people would get products based on their answers.

I think your first full year in business, you did like $5.5 million in revenue, which is super impressive for a first year company. Did that the success of all that attention and getting in all these subsidies? subscribers make it easier to raise money because you did raise, I think, like, 10.5 million dollars. You did a series A in 2011. Was it just much, much easier? You can always raise money when you don't need it and had to learn that the hard way. Whenever you really don't need money, there it is. And that's the situation we were in. And why didn't you need money then? Because we were able to sell fund. You know, we were growing organically and we were scrappy. We were just

We didn't need it. And obviously that made us a really attractive candidate to take some. So why did you take the money? Because we were really ambitious. From the very beginning, we felt like we could potentially expand beyond beauty. We felt like we had to go beyond the United States. We already were thinking about vertically integrating and creating some of our own product. We wanted to scale really big. We were so sure that it was a really big opportunity. We weren't doing something niche. And we felt we could really empower a lot of consumers to feel smart, to spend their money when they knew they wanted to, and to see an ROI. Do you remember feeling just overwhelmed by how quickly it was growing? Definitely. It was awful. Well, yeah, because some people would hear

that and think, oh my God, it was amazing. It was growing. It was incredible, but awful. It was, it started to be scary. This thing that had never scared me started to feel scary. You know, there was just every month this chance that we wouldn't close enough product and we were going to let down customers or let down the employees now that we were now counting on us for paychecks or let down partners. It started to just feel really overwhelming. You know, this like the world was saying that we were so good. And I felt these questions about. whether there was really substance to the work I was doing, you know, I felt like I was a first-time manager. You know, I did not know how to manage and develop people and getting all of that positive attention and not feeling like I deserved it, frankly.

Now, I mean, obviously am reflecting on it. I think that just created a lot of cognitive dissonance for me. So here's what I'm trying to understand. at this point, right, 2012-13, third full year of business, I think you did like 40 million in revenue. You've got venture capital firms just knocking down your door to invest. And you're growing like crazy, but you're still having this challenge with the beauty companies, right? That not all of them were on board or did it start to become easier? I'd say a few things happened.

I mean, companies started to really believe in what we were doing, the beauty companies did, but competitors that had launched in the market really changed the dynamic because they started offering money for samples. And brands could not just get the samples paid for, but they could make money on the samples, something that we had never done. Oh, you're saying that competitors started to pay the cosmetics companies for the samples. Exactly. So it was a new revenue stream for the cosmetics companies. Yes, and we had never done that.

And I mean, obviously they'd asked and we would just say no. But all of a sudden, there was a market for samples. So now we had trust from brands, trust from the industry, but they had this alternative where they could start to monetize samples. As the competitors started to purchase samples, did it force you guys to do the same? Yes, it did. Not in the exact same way because our business model is different, but it forced to, to start spending some money on sampling. I mean, I can't imagine how you were sleeping at night.

Just like, you guys were the first ones, but then you got all these competitors, and your business is growing, and you now have raised all this money. And, like, were you just up in the middle of the night a lot? I mean, I was up late working, and then I was tired. But also, like I said, this cognitive dissonance of just really wanting to be great and kind of being celebrated as being great, but not yet feeling like I was great, still feeling like I had a lot to learn to even be in that category that I had to deliver on being great as a first time manager and entrepreneur and operator. Did you feel under pressure either real or imagined because you had raised money from venture capital firms?

And this has happened. We've had conversations like this in the show in the past with other founders who had, have said a version of this, but I'm wondering, did you feel pressure to grow fast and grow at all costs? Absolutely, but I think we were beyond complicit in that. We drank the quillate of excitement in it. We're like, absolutely, of course we will do this. Of course, that is like the cup we drank from, and we're excited.

We're on that track. And I really wanted to please our venture cavils. It's like an interesting thing, again, to reflect on. the allure of like pleasing them and being a favorite and being liked was so there. It's interesting because you were such a confident student, you know, like even in your original pitch letter. Like we are going to change this industry, which you had done at this point. And yet you still have that part of you because there, and that's another thing, right? There are people who really, it is important for them to be liked and there are other people who just don't care what other people think about them.

I mean, I really care about the relationships I have with people. Yeah. And as strange as it sounds, like your first investors, you spend a lot of time together. And it felt like real relationships, you know. And in real relationships where you, you know, have like warm feelings towards people, you care about how they perceive you. You want to deliver for them. It didn't feel just like a transactional business.

It felt like people that had invested in me. and who I owed everything to. There's a famous book by Peter Thiel, zero to one, and you guys went from zero to a $485 million valuation just so quickly. Like within three years of your launch, when you think about that three-year period and that's just such a quick growth and the pressure, if you were to do it again, would you sort of say,

we're actually going to space this out. Let's get to $500 million in like 10 years or 20 years from now. Or do you think you would have still pursued that three-year trajectory? That's a really interesting question. I mean, I think at this point I understand how theoretical evaluations are. I think if it's possible to get a great one, you should get it. Of course. Yeah. I think the bigger learning I've had sense is that when you are coming out of business school, you think that basically the idea is the thing you should be spending all your time on. And I'd say that what I really have come to appreciate and understand is that the strategy of the business is as valuable as the financing strategy of the business.

Like being strategic and thoughtful about how you finance growth is just as important. So I think, you know, considering who you raise capital from, how you finance it, what valuation, means short term and long term and being just really thoughtful about that as thoughtful as you'd be about the evolution of the product. It's so critical. Yeah. So you're growing and you open a store in New York and eventually you hit a million subscribers.

And 2015, Haley decides to step down. She went into, I think, venture capital. She's now an investor. Why did she go? I think we had talked about it for a while before the decision was final. And just ultimately, if she decided that was what was best for her, that was what was best for the company. And it was after a series of long conversations about building this business to be a forever company. Did you sense it was coming?

Were you surprised? I sensed it was coming. It was just such a hard experience going through that kind of growth. It took a toll. I think we were just both under an insane amount of stress and pressure to deliver. You know, every aspect of it felt, it felt so personal. We were so in the press. We were so exposed.

And it was, I think, just exhausting to be constantly. you know, scrutinized, copied, feeling like we were on the defense for some of it, while also having these crazy ambitious plans internally to keep growing and evolving and innovating. And I think ultimately, you know, what we both cared most about was the inevitability of the company and our ability to obviously be happy as individuals. And, you know, that's where the decision came from. Were you taking care of yourself? Were you able to exercise?

Were you able to? No. I was really, really not doing anything for myself. I had just had my twins at that point. I was literally being like sucked to dry. But I was just spending so much time getting used to becoming a mother and then transitioning to being a single founder. It was a lot. Yeah.

So here's what I'm wondering about. I think somebody listening to this who may not understand the ins and outs of how this business or any business runs would be wondering, which is you had a million subscribers, which is a huge success, right? And a lot of attention. And you really pioneered the subscription box model. You already at this point disrupted the beauty industry. But the business was having challenges. You had to lay people off in 2016 and figure out how to get to profitability. Why is that?

Is that because the boxes alone were not going to be enough to drive revenue that you needed people to actually buy the full-sized product through you guys? No. It wasn't that. I mean, the unit economics were strong, but the market changed. I think that it was a perfect storm of there being some formidable competition and having, not having access to capital that was limitless. All of a sudden, it was just this question around direct-to-consumer businesses and how they would survive amongst, you know, competitors like Amazon,

and there was no longer capital flowing into e-commerce. So we had to take things into our own hands before it was late, and that caused us to look at people. And that was a really hard reality to face. and a really dark time for sure. Yeah. It just felt like this failure. I just hated myself for letting those people down.

It's so interesting because there's so many personality types, and there's some people who just, you know, they're very rational about things in ways that other people may see things differently. And they, you know, when it comes to firing people or letting people go or layoffs, it's fine. It's just part of the process. And there are other people. And I identify with you on this.

It would be excruciating for me to have to do that. I would feel sick to my stomach, even though, like, that's part of business. And also that there was a part of me that was even ashamed of feeling that way. I was feeling like I didn't have the chops then, you know, to survive if I couldn't handle making these hard decisions. And do you feel like because you kind of went through those things and you may go through them again, that you are better equipped now to? handle those challenges? Oh my gosh. I'm so much happier because I feel I feel like I'm good at this now. Not that I'm the best, not that I don't have so much more to learn, but I feel like I understand

what it means to build and how hard it is to just stay in the game and to keep getting up. So you get through that rough year of 2016 where, you know, there were layoffs, but you actually had a pretty good holiday season and I guess you became profitable in 2017. But that year, there were lots of reports and you know what I'm going to ask you about that you were looking to find a buyer, somebody to buy or acquire Birchbox. And you did not sell a company in 2017 or get acquired. But you did sell a part of it to one of your investors in 2018 to Viking Global. I think they put in like $15 million and now they have a majority ownership of the company. But I think there's a bigger pivot or strategy here, I think, which is that in the first three or four years, you and Haley did this insane sprint, right?

It was just crazy, unstoppable. Yeah. And now it seems like you're running like a marathon because you want to make this a company for the long haul, right? And you have to sort of slow down. I mean, is that fair? Yeah. I mean, I'd say we felt in the early days that we were sprinting a marathon because we just had so much ambition and not enough experience to know how valuable it would be to have fewer priorities and be more potent on achieving them. But learning how to be able to dream big, but still think about it as this linear thing where you cross milestones and that kind of opens up the next step and the next thing versus trying to do everything at the same time.

a lot of it at the same time is, I think, a really important lesson. It's really helped me just manage and think through how do you create something that is operable. And sustainable. And sustainable, yes. We very explicitly have told our customers now on numerous occasions this year that we are not a beauty box. We are not trying to sell samples to people. We're really trying to change your relationship with beauty and help you take the time you have and maximize that time. And I've been so, I don't know how to say it the right way, but proud of just people embracing that because there was a long time when I was afraid that people just wanted samples in a box. You guys start a partnership with Walgreens where you are in Walgreens stores and this is

cool. I mean, this is like, we've seen this with other brands like Bert's Bees and, you know, CVS and, you know, different brands have their like display areas. So far, what do you think? I mean, are people, I mean, obviously great for brand awareness, right? Yes. And what are you learning from that so far? I mean, so far, what we really wanted to know was whether customers would be excited to see us there. And so far, we're very excited by the early results and early signs that there's potential to really scale in-person selling subscriptions. Because in-person, someone can actually tell you what this is versus the two seconds we have to capture your attention on the

internet. I read that when you signed your agreement with Walgreens to feature your products there, you were on bed rest for a hundred days because of a complicated pregnancy and you were running the company from your hospital bed. Yeah. That whole experience really shaped my entire outlook on all of this, I'd say, in addition to the hard things that happened. then being in the hospital away from my other three kids and my husband for 100 days and then having a very dramatic delivery.

And I actually signed the paperwork right before I went under to deliver my daughter. How's your daughter doing? She's wonderful. I'm thinking about all of these women founders who were at HBS around the same time, 2007, 2010, who, have had such a huge impact on the conversation around entrepreneurship. You're obviously prominent among them, Jen Hyman and Alexovo and Katrina like. And I wonder, like, I have to assume that you take a lot of pride in that. Yeah, I mean, it is a very privileged position. I think maybe before feeling proud about it, I felt pretty shocked about it. On two friends,

I'd say, when I realized what rare creatures we were as female founders, I wasn't as aware of that when we started. I was upset mostly, you know, mostly recognizing how challenging it was to really get capital, particularly later stage capital as a female founder, to be seen as both visionary and a strong operator. So that was really disheartening to me, I'd say. But yes, I do feel privilege and responsibility for trying to change that trajectory. When you think about your journey, how much of this do you attribute to just grinding away your hard work and how much do you think this had to do with luck? 50-50.

I think it's not just grinding, but I think resilience is underestimated. I like to endure kind of being kicked down a lot. So when you have headwind or when you have the challenges, you know, what do you choose to do in those moments? And I think it would be tough to imagine not building. It would be tough to imagine not trying to invent reality, to be honest. It really excites me to imagine the world I want to exist and to try to create it. Even though, like, some of the words you use are, like, awful, stressful, anxiety, ribbon. I mean, at the time, I'd say, like, nothing really rocks me now.

The moments when it seemed the best are the moments that I equate with it being the worst. And feeling now that very little, frankly, can stress me how very little feels dramatic or awful. I have all of my faculties to attack the challenges. there still are always going to be many. But I don't feel disoriented. I don't feel drama. I don't feel desperate. I don't feel any of that anymore.

I feel curious. I feel gratitude. I feel like I'm growing so much. And I love it. That's Kachabitcham. She's the co-founder of Birchbox. And since 2010, at least seven former Birchbox employees have gone on to start their own companies,

including a makeup line called Live Tinted, the furniture brand Maiden Home, and a facial spa called Globar. And all seven of those founders have been nicknamed the Birchbox Mafia. And please do stick around because in just a moment, we're going to hear from you about the things you're building. This week on NPRs and Visibilia, we take you to a summer program for teenagers with sleepovers, marshmallows, and racial confrontation.

I want you to all line. line up by skin tone, lightest to darkest. That's up next on NPR's Invisibilia. Hey, thanks so much for sticking around because it's time now for how you built that. And today's story comes from Athena Staten, who grew up in South Florida, where her dad was a car dealer. So my first job was greeting customers as they came into the dealership and introducing them to a sense person. And Athena actually loved the job, partly because. she loved working with her dad.

He taught me how to negotiate. He taught me how to talk to people. He taught me not to be afraid of the whole car buying universe. And as she got older, Athena was always surprised to hear friends tell her their horror stories about buying cars. And as it turned out, the loudest complaints came from women. They are not listened to. They're not looked at.

And what they tell me, the common thread is, we expect to be taken advantage of, and we expect to overpay. Sometimes Athena would actually go with her female friends to help them buy cars. It was fun for her. And then one night, about four years ago, she was out having a martini with her sister. And we were discussing how difficult car buying can be for people. So that very moment was when I decided to make this into something bigger than just a hobby. something that could help demystify the car buying experience.

So Athena decided to become, wait for it, a used car dealer, but not a traditional used car dealer, more like a scout, where she works with customers all over the country to help them find the right car. We get on the call and I log in, share my screen with you, so you can take a look at what I see. And what Athena sees and shares is a used car auction happening in real time. These car auctions take place all over the country, but usually only dealers get to go to them.

And then a dealer is going to sell it for as much as possible. I've seen $800 cars retail for $3,700. And of course, this is normal. There usually is a big markup in used car sales. But Athena decided she didn't want to do that. Instead, she goes to these used car auctions with you virtually. She helps you bid on the car you want, and then she charges you a flat fee. $1,500 max.

Really, I've sold everything from Porsche Cayenne for under $70,000 to Ford Focus for $4,900. Athena calls her business She Car, and she also runs a charity called She Care, which gives cars away to women in need. But since she's launched, Athena's clientele has been pretty mixed. Almost 40% are men. And not one man has ever. questioned the masculinity of buying a car from She-Car. Athena says in the year and a half she's been in business,

she's moved about 100 cars, which adds up to over a million dollars in sales. There are some people that had such a great purchase experience that I still giggle because I know what a great deal they got. Like, you should giggle every time you get in your car. If you want to find out more about She-Car or hear previous episodes, hit to our podcast page How I Built This.NPR.org

And of course, if you want to tell us your story, go to build.npr.org. And thanks so much for listening to the show this week. You can subscribe wherever you get your podcasts. And while you're there, please do give us a review. You can also write to us at HIVT at npr.org. And if you want to send a tweet, it's at How I Built This or at Guy Raz.

Our show was produced this week by Candice Lim, with music composed by Rumpteen Ereblewe. Thanks also to Jacey Howard, Julia Carney, Neba Grant, and Jeff Rogers. Our intern is Rainey Toll. I'm Guy Raz, and you've been listening to How I Built This. This is NPR. Your next great read is out there waiting for you, and NPR can help you find it. Visit npr.org slash books we love to browse hundreds of books we loved published this year,

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