How I Built This with Guy Raz - Bluemercury: Marla and Barry Beck

Episode Date: October 24, 2022

The story of Bluemercury is packed with business lessons—for starters, it’s always good to have a backup plan. That’s what Marla and Barry Beck discovered in 1999, when they realized their startup online cosmetics business was going nowhere fast. They begged the bank for a second loan so they could invest in a brick-and-mortar store in Washington, D.C., and Bluemercury was born. More lessons followed: as they grew, they distinguished themselves by offering high-end brands and personalized service, and by locating stores in fashionable urban neighborhoods, not malls. Today, Bluemercury is owned by Macy’s, with nearly 200 locations across the U.S. And Barry and Marla—who got married somewhere around the launch of store 4—raised three children along the way.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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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.ca. Barry and I were in trouble. We had to figure out what our move was because there's no question we were going to run out of money. When you're down to your last $150,000 in the bank, it's hard.

but you have to make some tough calls. And we had to pivot, but we joke that back then, the word pivot didn't exist, right, as a strategy for entrepreneurial companies. It was literally, you're about to go bankrupt. What do you do? Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz, and on the show today, how Marla and Barry and Barry. Beck launched an online cosmetics company when it was way too early, pivoted to brick and mortar, and grew Blue Mercury into one of the most successful beauty brands in the country. Back in 2008, I took my first and only business school class, and what I loved about that

class were the stories, the stories of business. And I realized that in business school, a lot of the teaching happens through stories. So a few years later, when we started this show, I kept that idea in mind. We wanted this show to be like free business school, a place where you could learn from the mistakes and even the good decisions made by founders of some of the biggest brands in the world. And maybe apply some of those lessons to your own business or career or life. Well, today's episode has a ton of those lessons.

For example, always have a backup plan, or at least a way to keep the lights on if the business isn't working. Or another lesson? In retail, where you start is almost as important as what you sell. And the founders of the company we're going to talk about today, Blue Mercury, well, they managed to learn and apply both of those lessons. The company is best known as a brick-and-mortar cosmetic store, but it's also a pretty significant e-commerce site for beauty products. Today, there are nearly 200 Blue Mercury locations across the U.S. Many of them are inside Macy's, which now owns the brand.

The co-founders, Marla and Barry Beck, started out as purely platonic business partners and ended up a married couple with three kids. Their first store wasn't launched in L.A. or New York or even a glamorous city like Miami, but rather in Washington, D.C. And that was back in the late 1990s when D.C. was pretty much a backwater when it came to fashion or trends. But it also turns out that Washington, D.C. was and is a place with a significant percentage of professional women, women who buy beauty products. And at Blue Mercury, at the time, Washington, D.C. shoppers could find products that were previously only available in New York or L.A. Now, beauty is a fiercely competitive sector. We've done tons of episodes about beauty companies. Sephora and Alta, for example, are much bigger companies than Blue Mercury. But by laser focusing on customer service, Barry and Marla not only managed to compete but to thrive.

And of course, not without a few close calls. When Marla and Barry first met, Marla was a few years at a business school, working at a private equity firm in D.C. Her job was to vet companies for potential acquisition. On the day they met, Barry was meeting with a group of people from Marla's firm to see if they might want to acquire his first business. It was a company that specialized in building maintenance. You know, I went to this meeting. I had no idea what to expect. I think I was possibly even late.

And I walked into a room and there were about 10 people there. And interestingly, I proceeded to talk to this president of the company, the entire meeting really again. ignored everybody else. You know, periodically they would throw questions at me. And I didn't even pay attention to anyone else in the room. Believe it or not, I thought Marla was the assistant. Wow. She was quiet. She didn't say a thing the entire time. But of course, Marlowe was not the assistant. She actually turned out to be the most important person in that room, right? Yeah. And so at the end of the meeting, we went around the room. So typically what would happen in investment banking meeting like this or a meeting like this, everybody would introduce

themselves up front. What do you do? Where you're from? What's your background? What's your role at the company? So I think when we went around the room and they got to Marla and she said, well, hey, you know, Marla, you know, I'm vice president of strategy and I really am in charge of deciding which businesses we buy and which ones we don't. But she was just there taking notes. We call that unconscious bias. Yes. I mean, props to you for admitting that because that's, right? Because You were working in an environment probably where that's what you saw a lot. So, all right. So you, so did you have any other interaction with Marla at that time just to, or was it just kind of introduced each other and that was it?

I think it was just a quick introduction. But I think at that time, we were really polar opposites. So you have to think, I'm a hard scrabble entrepreneur, building businesses by myself. So I saw a person who came from a, what I looked at was some sort of finishing school that people who weren't entrepreneurs went to to learn how to run businesses. It was just a completely different. And she was from California. And I was from one of the most east coast of East Coast cities. All right.

I'm going to ask you to pause, Barry, for a moment. Because I don't turn to you, Marla. And I want to bring you into the room. Well, you are in the room. You're in the room. You're in that board room. Yeah. This guy comes in.

He's maybe maybe a potential company that, that you guys are going to. to buy. And what do you remember about his presentation? Sure. So first of all, he was different from everyone in the industry, right? This was a very traditional industry. How was he different? Young. Oh, I see young. Most of the companies we bought were from people that were at a point where they were looking at taking care of their families and succession. So, First of all, he's young. Barry is incredibly dynamic and energetic and sort of jumping out of his chair all the time.

It's hard in this environment because he has to sit still and talk to the microphone. But he's super high energy. And, you know, talked nonstop the whole meeting. Right. Part of the reason there was no conversation was because he was so excited about his company and presenting. So I'd never actually seen an entrepreneur or anyone like him.

Okay. I have to assume at the end of this meeting, you were not thinking, this guy's going to call me up and ask me out. You were just thinking, okay, that was an interesting person that we met or were you? Yeah, it's interested in the business. Yeah, this was worked for me. Yeah, okay. You know, I remember going back to Philadelphia after the meeting.

And I actually mentioned to one of my, to one of our company lawyers, I think I met the girl I'm going to marry. I think his quote was, what kind of schmuck goes to an investment banking meeting and meets a girl? And I said, I guess me. I actually waited three days and I called Marla. And I thought to myself, if she liked me, she would call me back. And, you know, the next morning, you know, she'd call me very early that next morning and left a message for me. And you called her to say what, to say, hey, what do you guys think? Do you want to buy the business? Or what were you calling her for? I don't know exactly what I was thinking. What I wanted to do was have more time with her. That's what was important to me.

What happened, and maybe you say I'm a bad business guy, was I began to rather than think about selling the business to her, teaching her what we were doing in our business. business. You know, we had all kinds of different profit centers that we were forced to figure out because we were, you know, bootstrapping entrepreneurs using technology to make a difference in the industry. And Marla and I had successive meetings over time. And we were working together. These are not dates. He was just like, hey, you want to have lunch and I'll tell you what that's what that's what that's sort of how you played it. Yes. Yeah. And Marla, that's how you can. Yeah. And by the way, these were meetings in the office. Sure. I was I was doing my job. I was trying to learn sort of, you know, How we transform all of these companies that we had purchased to be sort of a bigger company at scale that was profitable. So, you know, they had figured it out. Okay, this is interesting because this whole episode can just be about how you kind of engineered these professional meetings into what would eventually become a relationship in a marriage. That could be our whole episode. How I built this family. Right.

But from what I gather, I mean, the romantic part. of the relationship happens slowly. Yeah. So for now, what I'm curious about is, as the two of you are kind of, you know, moralize, as the two of you are kind of meeting regularly, at a certain point, do these conversations transition away from, hey, here's what you can do at this private equity firm, to help it grow to, hey, like, maybe we should start our own business together. Do you remember how that conversation pivoted into that direction?

Yeah, so Barry would nudge me and say, what are you going to do, work for this firm your whole life? You know, why don't you go out on your own? They're never going to put you in charge of your own business, right? Because one of the reasons I had joined there was to get closer to being an entrepreneur, closer to running a business. So I was dissatisfied, and I had someone in front of me saying, hey, you know, you should go out on your own. And, you know, I think being at consolidation capital and working in private equity, what I saw when I saw these entrepreneurs, many, many entrepreneurs of companies that we had acquired was they weren't superhuman. They were just regular people that had struck out on their own. And so I started to feel like I could do that too. And Barry was nudging me. And we were both dissatisfied in the industry we were in. I think during that process of spending time with Marla, I realized, you know, I spent, you know, I remember early on one of Marla's cohorts from Harvard Business School told me, she said, how did you make X, Y, C decision? And I said, it's instinct. And she said to me in business, there's no such thing as instinct. And I carried that with me for a long time until I was talking to a Harvard Business School professor, Linda Applegate. She says, of course there's instinct. It's, pattern recognition. And so for whatever instinct I had, and Marla was young, I thought that I felt

like, you know, and I think time has proven me correct that she was a genius. In fact, later on, when I said to my father, I was going to start a business with Marla. And my father had met Marla. I said to my father, Marla is one of the smartest women I've ever met. And my father looked with me right away and he said, I think she's the smartest person you ever met. All right. So clearly, you two are seeing all these great qualities in each other. And you're starting to work together and you're looking at different business ideas. Tell me, tell me about some of the ideas that you sort of batted around. What do you, what do you remember? I mean, I think there, you know, there were a myriad of businesses out there. And, you know,

Beauty Products was a category I actually knew really well. How? How did you know beauty products? So it was just a hobby growing up in California. California's always been, you know, an innovator in the beauty sector. So when I was in high school, there was a brand called Dermologica that was a couple of years old. Out of L.A. Sure.

Probably three years old. And I tried it when I was in high school. Yeah, Jane, sure. Yeah, she's on our show. Yeah. So I became hooked on those products. Mac in the early days was sold at one place in the San Francisco area was sold at Northstrom in San Francisco. So I got to know Mac when it was a really young company.

And so it was just a hobby. It was a category like there were shops in Berkeley that handmade beauty products, one called the Body Shop, not Anita Roddox body shop. She actually bought the name from this first location in Berkeley. So I just knew everything about beauty products. And in fact, when I moved to Boston for graduate school, I could not find germalogica anywhere. I had to call the 800 number, and they would ship it to me. And then Mac was sold at one location, about 45 minutes from school. And so, you know, in the back of my mind, this was not at the front of my mind.

You know, I knew that these products were hard to get. And so we started thinking about, okay, what about beauty products? not on the internet yet. Why not that? And I should mention this is this is 1999. So this is really before, I mean, Sephora existed, but it didn't come to the U.S. really until the 2000s. Alta was not what it is today. It was a very small company at that point. I think at one point they were selling cigarettes. Right. It was not a, it wasn't like you could go to the, you know, anywhere and just get,

like to get cosmetics, you would go. to like Macy's or Bloomingdale's or whatever, right? I mean, or your drugstore, like you'd go to Rite Aid or something. Two points of distribution, right? The drug, the drug stores or the department stores at the malls and nowhere else. I think that we, at some point, had a hypothesis that the department stores are really created for sort of two reasons, right? A convenience and breadth of selection. Yes. and that we saw a possibility that they could no longer be convenient because of just travel times and distance and more urbanization and densification. And the breadth of selection could be possibly solved, you know, through the Internet.

And so we thought that this could be a disruptive way to attack the beauty business. There was one other factor going on at the time, which was it was the rise of the independence. brands, which is for the first time in a very long time, you had founders that were breaking into the industry. So you had Bobby Brown, you had Marcia Kilgorp, you had Lev and Elena Glassman at Frush, you had Francois and Nars. And so there was a whole new category of independent brands that, in retrospect, created another opportunity to break into the industry.

Yeah, because, I mean, I think what started to happen was a lot of these entrepreneurs realized that you could go to these manufacturing facilities that were essentially making the same stuff for everyone else as, you know, white labeled. But you could pick your ingredients and you could formulate your, you know, your product. And you could, you know, start to sell it small and then maybe big one day. Yeah, I mean, Bobby Brown's a great example. Here you have a fabulous, amazing makeup artist that says, I don't like exactly the text. of these lipsticks. And by the way, these are really the seven colors you need. And she starts by launching with seven colors with the best packaging, the best texture. And people went crazy for her lipstick. Same with Francois and ours, which is they were all makeup artists. They

knew better than anyone else what the customer needed. All right. So I'm curious. I mean, because I have to assume you did a lot of research before you said, let's do this. Let's pursue cosmetics. What did you have to know? I mean, you knew that this wasn't out there and available on the internet. And you knew that there might be an opportunity. What else did you need to know before you were really convinced that this was the direction that you guys should head in? You know, it's an interesting question because I don't think we overthought it.

I think at a certain point, we knew we had hidden the idea. And we developed like a 10-page PowerPoint. And we were going to go try to raise money. We didn't do enough research. And by the way, it was hard to do research at that point. You had to call people, right? It's not like... There weren't internet.

You couldn't just go on the internet and pay for a report. Correct. And by the way, if you want to reports, they were, you know, tens of thousands of dollars at that point. Yeah. So I think we just went for it. And we started pitching. Now, we did... Our first pitch, we knew we had to expand it beyond cosmetics because people wanted to fund businesses that had huge potential.

So our first pitch was we were going to do this marketplace for professional women, which also included cosmetics. We were going to start with beauty. And then eventually it would be clothing and apparel and things like that. Right. You had to pitch really big ideas to get funding. Yeah, just like today. And it was going to be an e-commerce, cosmetics, and eventually sort of marketplace for professional women. That was the pitch.

That was the pitch. All right. Here's a question for you. You had some money, Barry, from the sale of your business. Why didn't you, I mean, why didn't you just finance it and then you'd own the whole thing? Why did you even bother with investors? Because a lot of people we've had on the show, you know, they've had mixed experiences with investors. Yeah, and as, you know, we had some challenges throughout time with our investors. But the truth is, this was a shoot the moon business. We had no idea how much money it would take. I think it probably to build out at that time would probably cost, it cost probably nearly $600,000 to build an e-commerce site. And today, you can build it on Wix for free. Or Shopify, yeah, right. Or Shopify for free.

Sure. But at that point, this was new technology. this was very, very hard to do at the time. So it was going to be too risky for you to put your own money in? Yeah, it was too early, too risky. Right. And there were so much money to be around and the money was seemingly free anyway. All right.

So, so Barry, you, both of you had pretty good connections, certainly in Washington, D.C. And Marla, you had connections in private equity. And I can't imagine it was that. And this is 99 when like money is just being thrown left and right. You guys rate, I mean, from what I understand, you raised a million dollars in a week from investors. I think it was two weeks. Two weeks. Two weeks.

That's, that's, that's, I mean, it sounds kind of crazy today. But also, I guess the time, right, people were just, money was just looser. Is that fair to say? Yeah, I think our first, one of our first checks, we went down to the car. Carlisle Group and Dick Dorman and Ed Matthias wrote the first checks and I sort of remember just to underscore the point is that Ed signed a blank check and then called out to his assistant and had her fill out the details. And I think on the way out of the office, I said, don't you want the paperwork? And he said, nah, we trust you. And then I think he stopped us one more time in the

elevator. And he said, and don't get me an IRR. I want PO. And I looked at Marla because she went to Harvard Business School and I said, what's POM? And she said, I don't know. And we looked at him with a blank series. He said, I want piles of money. When we come back in just a moment, how Barry and Marla quickly realize they are not going to make POM for their investors, not without totally revamping their business model. Stay with us.

I'm Guy Raz. And you're listening to How I Built This. Hey, welcome back to How I Built This. I'm Guy Raz. So it's 1999 and Barry and Marla have a million dollars in investment to launch an online cosmetics business. They hire a company to build out the website and now they need the cosmetics. So they start pounding the pavement. We would go up to New York City and pitch these independent brands.

So we went up to the Norris office, which was probably a 20 by 20 room. and we would pitch them on Blue Mercury and how we were bringing beauty products to the internet. And, you know, they took a chance. And then we'd go pitch another company. And so we had NARs, I think we had Kiel's. We had Shulamura. There were a bunch of brands that took a flyer fresh. They were all independent brands.

All independent. So you weren't selling like the big, you know, huge brand. at that point. You weren't selling like. Oh, don't think we didn't try. They just wouldn't return our phone calls. Right. And I remember at a conference, after we embedded ourselves in the industry, even a year or two later, Leonard Lutter at a conference just announced, I'm going to wait and see how e-commerce shakes out. And then I'll make my decision, which was smart. Right. Leonard Lutter, who was at the time, the head of Esté Latter, of course. Okay, so 1999, you've got the work on the website. You're buying as much, you know, stuff as you're

can. And by the way, the name Blue Mercury, had you come up with that name? So we made it up. I mean, I love the color blue. And Barry went down to Barnes & Noble in Georgetown. Yeah. And I was thumbing through an Atlas. And we envisioned ourselves as becoming and ultimately did become a source for information for, you know, we thought about building not just an e-commerce site, but a community for information and a place for learning. And so Mercury was the god of information. And so it was Blue Mercury. I called her up and we settled on that.

I do remember that when we told the investors we were going to name the company Blue Mercury, they hated the name. And they thought that we should call Marla's Beauty Shop, Barry's Beauty Shop, have beauty in the name. And we said to them, what's in a name? What does Starbucks mean? Right. And what's in the name?

The company would take on the attributes. would take on the meaning of the attributes assigned by our customers. I got to say, Barry's Beauty Shop doesn't sing to me. I don't know if I'd buy stuff at Barry's Beauty Shop. Maybe Barry's Boot Camp. You say that, but 90% of your listeners probably don't know who Starbucks was. Oh. He was the navigator on the ship of Herman Melville's Moved did.

That's right. And so I'm just saying, like, what does a name mean? In other words, right? And people don't realize, that's why there's a mermaid on your coffee. Yeah, that's right, right. Okay, so you, so you have this name, right, and at the time when you, and how long did, do you remember how long it took? So 99, you raise the money, how long did it take before you had the website up and running out in the world? At least six months. Yeah, exactly. And then you hit the launch button and did anybody know, I mean, most people are on dial-up in 1999, right? So did anybody, did the order start? coming in fast and furious? I think that we had a philosophy that if you build it, they will come.

And I think when we turned on the website and had no sales. No sales? Very, very little sales. That we were still on dial-up. I think the day we turned on, by the second day that we had the website turned on, we looked around the room at all the people in our team, and we saw the writing on the wall. Which was?

That we were going to have to shift. Right away, you could see that no one is ordering it from your side, not because they don't like it, just because it was early. There was an awareness. Too early. Right? I think that what we realize that sometimes being too early is really just being wrong. And I think that not only so, I think there was a confluence. of several challenges. And so number one is that there's no traffic coming to our website. So that's

problem one. And I think number two is that we also were unable to get material supply to the major brands that we needed to attract customers to our website. So maybe we were in discussions with NARS to sell some of their items. I think you're right. They had committed some items, but not all. And maybe some other sort of more sort of esoteric type brands. Yeah. Shua Moore, which wasn't a big, it was a cool brand, but it wasn't really a major brand. And did you have any, did you have any marketing? I mean, you had a, was the million dollars that you raised your, like, that was your

runway for the first year, or did you have to go out and raise more right away? We needed more money. We knew we needed more money. And so I went out to Silicon Valley in the fall of 99, you know, went to a bunch of firms where I had friends from business school pitched them. Yeah. And they told me that there were four or five other competitors that were trying to do the same thing as us.

Eve.com, gloss.com, all of these other companies had raised $10 to $20 million each. And so we were way behind. And how did you feel when you heard that? That must have been kind of dispiriting. Yeah. actually devastating because I knew we didn't have enough money to survive very long. There was no chance that someone was going to fund the player that had already raised the least funding. And so, you know, Barry and I were in trouble.

We had to figure out what our move was because there's no question we were going to run out of money. Yeah. We had to pivot, but we joke that back then the word pivot didn't. exist, right, as a strategy for entrepreneurial companies. It was literally, you're about to go bankrupt. What do you do? You could not raise any additional money, or did you eventually raise some money? We did years later, but. But that first, those first two years, you couldn't raise any more money? Not a dime. And the market was starting to cool, right? Everybody was starting to look at sort of, okay, what had I invested in? And, you know, was this going to, you know, give me a return?

And so the market was starting to cool at that time. Was any part of you, Marla, feeling like, maybe this thing is just not going to work. Maybe we've got to go back to the drawing board. I mean, I certainly had days where I just couldn't get out of bed. Every entrepreneur has those days. They don't usually talk about them. But, you know, I had all these degrees.

I had, you know, had, you know, put my, gone out on limb to start this business. And I saw a failure ahead of me. And it was like, you know, what do I do? Barry, were you ever worried? Yes. We were. I thought you were going to say no. Well, keep going.

Yeah. No, I mean, of course, you know, I was concerned. We were down to our last $150,000. I mean, this is very many, many entrepreneurs. came out of Harvard Business School at that time, big ideas and big thinking. There's a lot of big thinking going on. But when you're down to your last $150,000 in the bank,

and you look around the room and you have 20 employees, and you realize you have 60 days of cash left, but you have to make some tough calls. You had 20 employees. You hired 20 people. Yeah. So there was a model or a philosophy, and you may say that it's going on today,

this model, you know, this sort of the hard. for a business school model. G.B.F. Get big fast. At any cost. When you run out of money, there's always more right there. But at that point, in this sort of adversity, I realized that we could find opportunity. And so, but we had to make bold moves,

moves which might not, actually were not popular with our investors. When we told them that we needed to pivot which was a word we didn't use at that time, they were not happy. And they were not happy because the pivot would be to a brick-and-mortar store, to put your products into a physical store somewhere. And the investors didn't like that idea, right? Yeah.

At that point in time, all of our sort of e-commerce techie investors only want to pureplay internet businesses. That was a thing. There was no value in retail. Retail was out of favor. It was e-commerce and the internet was where it was at. So when we went to them, they said, no way. This is a pure play internet business. You will destroy the value. And Barry and I are thinking, what's the value in having $150,000 in the bank? But what happened was that in order to get access to the brands to sell online, we found a solution right around the corner. Marla's house on Amstreet in Georgetown.

It was an independent beauty store. It's more like a gift shop. Right. I think it was owned by a woman who ran the business. It was a store called EFX. Yes. And what seems clear to me is that at the time, in order to have access to even like a small variety of cosmetics, you really had to have a physical store, right?

Like that that was sort of non-negotiable for a lot of these brands that, you know, essentially. And you knew that. That's correct. And the physical world store to these young independent brands was sort of a trust that they had a place where they could see their products and they built a relationship. These were small little independent brands working out of a room in New York. And so we would be able to tap the vein of these incredible niche. beauty brands who were on the rise. So, all right.

So you have this, and now we're in late 99. You can't raise money. You've got this relationship with this brick and mortar store, EFX, in Georgetown. So how did it get to the point where you, where the two of you said, you know what? Let's take over the lease or let's buy this, you know, business and put a physical blue mercury store there. change it to blue mercury. I think it was an iterative process. So let's get to that moment.

We're down to our last $150,000. And then we make a decision to actually enter into this management and purchase option. And we present that to our investors. Yeah. And they say, great idea. No. The investors say there's a rule of corporate opportunity, which is if we if we decide to buy the store we have to present it to them they would have to reject it because we couldn't buy you know we couldn't we couldn't take that opportunity on our own because we were supposed to be giving our full time and attention to the internet business and so we presented it to them they rejected it and in fact what they said was if you want to buy the store barry and marla buy it with your own money you buy it and what we did was we formed a company called 29 street partners

We Marla lived on 29th Street and we caused that company to acquire the store. And Barry, you had some money from the sale of your previous business. So presumably you were going to finance this thing. Yeah, not only that, I had been going without a salary since the inception of Blue Mercury, the internet business, but I was able to do that. Yeah. And so we talked to this person who ran this business and we said that we would consider making an investment. in their business. We would help them. They were having problems too. They couldn't even pay their bills and they were late paying their bills. And so we struck up a management and purchase agreement which said that,

hey, we'd like to take a look under the hood. But if we like what we see, we have the right to buy the business. And as we spent more time with her, she kept coming to us saying, I can't pay my bills. I can't pay my bills. And the answer is that she's like every entrepreneur on the surface, she seems like a swan. on cruising across the water, but underneath she was paddling like hell. And in fact, I think when you did buy the store, you found out that the owner of the owner of BFX was like at a ton of financial trouble. It was pretty bad, right? Yeah. We realized they were in default of their bank debt. Every week, I was writing more checks to the company, 20,000, 30,000, 50,000. We were just writing checks to pay the company's bills

in what was like a seemingly endless sort of reservoir of needs of cash. And so we went down to see BB&T Bank, who essentially really owned the business, that she was in debt to them, and the business was essentially insolvent. And we went down to see BB&T Bank and the vice president of the bank, John Ryder, and Alexandria of Virginia.

And I remember walking into the room, and I said, John, you've lost all your money. and we said to him, your only hope of getting a return on your money would be to double down. When we come back in just a moment, how doubling down pays off for Barry and Marlop and how the store becomes a destination for all kinds of people, including one day out of the blue, Rod Stewart. Stay with us. I'm Guy Raz, and you're listening to How I Built This. Hey, welcome back to how I built this. I'm Guy Raz.

So it's around 2000, and Marla and Barry have talked their bank into lending them more money to keep their Georgetown cosmetic store and the website afloat. And the bank probably had to think long and harder that, and I actually had them double down on their investment. I backstopped it with a personal guarantee. Plus the money had already put up for the business. They reinvested in the business, stabilize the inventory, and we built the business out from there.

And I wonder, I mean, did that immediately change, you know, sort of change the situation for Blue Mercury? I mean, did all of a sudden, did your cash flow situation change? I mean, a couple things. One is we stabilize the business right away, right? So we had a new bank loan, so we bought a ton of inventory. We added brands. We hired staff.

new staff and paid them really well because the old staff was not actually getting their paycheck every week. And so we transformed that one store and store businesses are good because you actually get the revenue right away from the customer. Right. You know, you get the next day from the credit card company. And then if you have inventory terms, which we convinced everybody to give to us, the cash flow is great. And so it took us a while, but we actually built up the cash flow and the revenue of this store, and it ended up funding the e-commerce business. The e-commerce side. Because e-commerce side was probably, you know, what percentage of your sales in 2001? Less than 1%.

Less than 1%. Yeah. And it was just, we were just really early on that. And so, but the store business was, a rare opportunity to actually build out a specialty cosmetics business. And I would just say that. I don't know that we saw that. Yeah.

That wasn't. And for many, right away. And many years, we looked to the brands and thought maybe we were in the wrong business. We should be in the brand business. So we didn't see all that. It was much more of a survival move.

Yeah. To keep supply to the internet business. What we realized, of course, over time, but this was the real main event. That was the business. That's the thing. Like when you went out and raised money in 99, for Blue Mercury.com.

Did you think, you know, in about a year's time, we're also going to have a brick and mortar store in Washington, D.C.? Not at all. Not at all. It's a great business lesson because it's one of these things where you live long enough to live forever, and that you have to be able to survive in business long enough for good things to happen. And this was one of the things that we quickly saw, cut our overhead, went down to our last $150,000 and looked to the left.

And right there was the store opportunity, which, Probably had we not gotten into trouble, would never have availed itself to us. Yeah. But, I mean, you are focusing all of your energy on an e-commerce business, designing a really cool site and making it easy for people to use in 1999. It wasn't easy. There were a bunch of steps. Now, you're pivoting, focusing tons of your attention on a store. What did that mean?

I mean, how are you going to differentiate this store from what it was before to actually make a store? it work? You know, it wasn't that hard. I mean, it was, people were coming there already for cosmetics. It was the only place you could buy cosmetics in Georgetown. It was just a poorly run business. And so I would say we worked at it, but it wasn't that hard to turn it around if you invested in the staff and invested in the inventory because it was such a unique business. So, all right. So you have now. this store. You're going to manage it better. And by the way, a lot of people don't think of Washington, D.C. as a center of fashion or, you know, on the vanguard of like a cosmetic store.

You know, it's seen as like kind of a sleepy, you know, it's sort of a joke, you know, when it comes to fashion, people kind of think, you know, there's boxy suits with Brooks Brothers for men and, you know, Ann Taylor for women. It was just not to criticize those brands, but it was just very conservative. People didn't think of Washington. Washington, D.C. as a place where you would like open a cool cosmetic store. Why did Washington, D.C. actually work to your advantage? Because you would think New York, L.A. It's essentially the Walmart effect, which is the sense that, you know, this family was able to build a business out of the limelight, away from the city. Yeah. I will tell you that it was some insecurity for us because we would go to New York City and meet Marl and I would go to New York City, meet with these vendors. And they would say, well, what do you know about the beauty business? You're in Washington, D.C.

And we used to have to come to New York and do the rounds. And we would have to go and essentially pay homage and see all these brands. And they were all in New York City. And we would run around New York. And this was really important, this relationship part of the business. It was, in fact, I remember one investor asking me, how much longer do we have to continue to dance with these brands? Yeah. And I said it never stops. It's a constant relationship building. And so, you know, we were, we were out of the New York scene.

But I think the other thing is Washington, D.C. is much more cosmopolitan and was than you would expect because you have the embassies here. You have people from all over the country that moved to Washington. And by the way, you know, there were a lot of international hotels here. And so the hotels would. would send their clients to Blue Mercury if they asked, you know, I need, you know, I need beauty products or I need a gift. Yeah, I mean, you're right around the corner from a Four Seasons and a Ris Carlton. Sure, the Four Seasons sent all of their clients and even their celebrity clients to us. Yeah, and I'll never forget one day, we saw a throng of customers. Morrill and I used to work the store ourselves. And a throng of customers were racing down M Street, chasing this poor man. And then as he came to the store, to the door, we realized it was a guy and a gal.

And as they got closer, we realized it was Rod Stewart. We very quietly opened the door. There was no one in the store at the time. He ducked in to protect himself from everybody. We clicked the deadbolt on the door behind him. We never acknowledged that we own the store. And he never acknowledged that he was Rod Stewart. Wow.

Did he get a facial? He did not. He shopped and spent $2,000 and he left. Wow. So we started to build this sort of notaride around the business locally. We used to laugh. We're like, are we cool? Well, I guess at one point, yes, a funny point was that we opened up our fourth store.

I guess this is fast forward in Philadelphia. And one of my friends from high school was near my high school in Philadelphia. And he said, is it true that you and your wife founded Blue Mercury? And I said, yeah, is there a customer service issue? What's the problem? He goes, wow, you guys are so cool. This is so cool. I remember calling Marla.

I was like, you're not going to believe it. She said, what now? I said, I actually think we might be cool. All right. So you have this cool store, right? But why was it different than just going to, I don't know, like Bloomingdale's and getting makeup there? Yeah. I mean, the difference was when you go to a department store like a Macy's or Bloomingdale's, everything is sold counter by counter. And back then, everything was behind glass counter. So if you wanted to clinic, you would go up to the counter. and ask for your clinic tone or famous product, pay for it. And then if you wanted your mascara at the Lancombe counter, you would have to start over with the sales associate from Lancombe that is paid for by the company. So the department store model was designed to serve the brands,

not to serve the customers. So the difference at Blue Mercury was that the staff were trained in every brand. And so the focus became on the client. which is if you came in and asked for a new moisturizer, immediately the Blue Mercury Beauty expert would start diagnosing what you wanted, which is is your skin dry, do you want something in a jar, do you like a lotion? And so the focus now became on not the brand, but the client and what she, mainly she, wanted. And we had a really fun mix of brands, some of which they had never seen.

And by the way, meantime, the e-commerce business was just sort of, of like on autopilot? It was there. We were filling. It was more like on no pilot. Okay. We were filling the orders out of the basement of the Georgetown store, right? We had just moved every operation there.

And actually, we had a full-time internet fulfillment person. So we had orders. But it was tiny amount. Tiny and also mainly from existing Blue Mercury customers that may have shopped with us in Georgetown and gone back to Chicago or L.A. or wherever they lived. would order from us online. So the client acquisition model actually was the store. And by the way, by 2001, because at this point you have two stores now in Washington, D.C.,

the dot-com bubble bursts and these other competitors who were e-commerce only like eave.com, they just kind of blew out. They went, you know, they go to business. I mean, in a sense, you kind of got lucky by struggling in 99 because, you guys kind of got lucky. because you didn't have all your eggs in that e-commerce basket. We were very, very lucky. We would have gone bankrupt also. But we also, at that point, we weren't paying attention so much to the Internet.

We were spending 24-7 in the stores that were open seven days a week and trying to figure out that business. And I said, if we want to prove out a new model, a business model that works, we have to go to a new city and a new market. Yeah. And where did you decide to go? Philadelphia. It was a major city that was reasonably nearby. And guess what? If we had to, we could always sleep on my sister's couch. So it was convenient. Yeah, and we were scrappy then. I mean, we had almost gone out of business, you know, that sort of near-death experience. We turned over every penny. We were really thoughtful about everything we did. But we debated Barry. I didn't want to go to Philly. He did not want to make that move. He thought it was too big of a reach. So I won that debate. It was a bet the company move for us. If Philadelphia didn't work, we would have been done because we spent the last bit of money opening the store. It was very hard. The Blue Mercury model wasn't proven yet. We weren't sure that it was really going to work. But Philadelphia, was an amazing success for us. And so that really solidified.

In those early days, like that Philadelphia store, what kind of revenue would that store do a year? Like a million, two million more? It was about a $3 million store. But we learned over time how to drive that revenue high. We had decided early on to invest in our people, which was they were our secret weapon. So we ended up retaining these beauty experts and then, you know, and they retain this knowledge, expertise and these relationships with our customers. And then because of that, the customers continued to come back, searching out a particular beauty expert who, I guess at one point when we hired Goldman Sachs and company to look at our business, they found an anomaly.

There were certain employees. They couldn't understand. It said that they worked at the company longer. than Marla and I, and we founded the company, how was that possible? Because there were several employees that came along with the purchase of the EFX store and just never left. And so, you know, we really had incredible retention of our people. 20 years, you know, for some. I would just say one of the thing about that. We were also in the high advice category. And I'll never forget, when we were looking to raise money, as Marla was very upset about this. A very well-respected investor said to us,

visit us at our most successful store, Princeton, New Jersey at the time, store number five, and said that this business will never work. It won't scale. It will never scale. And the challenge was that he felt it was too complex because we wanted to be consultative, give samples. It wasn't enough of a supermarket or a factory. And that's never what we strive to be. It was just something completely different. Yeah. So traditionally, you know, when you scale businesses like a Home Depot or a Target, you try to move to be more self-service. And that's really the genius of Sephora, too, right? It's very self-service, very accessible. We took a different path and figured out how to do it in our own way. Here's what I'm wondering about. As you were, you know, getting more buzz, you open the fifth store

in Princeton, I think because between 2000 and 2005, you would open 10 stores, right, which is pretty remarkable. So that's, that's, and you're getting more and more attention, and it's clearly you're, you've got this reputation for great customer service and nice products. even by 2005, when you'd 10 stores, you still couldn't sell all the things you wanted to sell, right? There were still cosmetics brands that would not sell to you. Remember the question? When do we have to stop dancing with the brands? And the answer is never.

But why? I mean, I don't understand, like, why wouldn't – I mean, at this point, you know, you've got a reputation for being a good outlet. Was it the department stores who wouldn't let them do it? Was it the Barneys of the worlds and the, you know, the, I don't know, the... If you're a cosmetics brand like Chanel. Yeah. What's the difference between what your lipstick you're selling really and another brand that's sold at CVS? Another, well, they're better quality of ingredients, but not, you know, a few other things, but it's a brand, ultimately.

It's a brand name. And there's high risk to the perception that your brandy, that you're brandy, that you're brandy. is either lower quality. It's gone down market, less exclusive. I mean, the brands are just very protective. How exclusive they are, how many street corners, how many points of distribution they have in Philadelphia. We already have one here.

And, you know, we don't want to have too many because the perception, you know, this is, there's a lot going on there. And then you couple that with 50 brands, and they're all got their different perceptions of what their perception should be. I mean, it's a lot. It's a pretty complex, like, then diagram. Right. But you saw an opportunity with these independent brands. And really, it's like dominoes. Once one goes in and then they see they're doing okay, then the others want to come in. Yeah, but what also happened in the industry about three or four years in is that all of these independent brands were purchased by L'Oreal by Estee Lauder and Chesedo. So overnight, we were then in business with the big companies. And that did two things for us. It provided a wall. around us for new entrants because the indie brands didn't need distribution anymore.

They were in these big companies. And so, you know, the next person that wanted to build a cosmetic store had to now go to the big companies, which put in barriers. And it also gave the big companies, Estee Lauder and L'Oreal, window onto what Blue Mercury was doing. And so then they started adding more of their brands to our mix. And so actually, the way the industry transformed really added another tailwind to Blue Mercury. Let me ask you about the two of you.

I mean, at what point did your professional relationship become personal? I mean, I know it's a little awkward, but, I mean, you're married. You've got kids and family and stuff now, so it shouldn't be awkward. But at what point, I mean, because Barry clearly was he saw where, you know, Marla, you saw somebody that you definitely, you know, were attracted to. And Marla, I guess initially you just, you know, this is an interesting person I have a business with. But at what point in this ton of journey, it's intense, you're working together, you're going through the crises together. Did it, did you guys become a couple? For me, it was more of an evolution, right? We

were working together 24-7 and, you know, it was, we were in the battle together. Yeah, we completed each other's sentences. I mean, it was just, it was, it seemed to be pretty obvious that we were going to, to me, that we would end up together. And I frankly had been enamored by Marla the entire time, but I, it was very, we kept it professional. Yeah. It's a slow burn, Marla. Slow burn. Yeah, I'm kind of tough. My father says I'm an acquired too. I'm kind of tough like that. But once we were going, I mean, I left, we got married. We were opening store four.

Right. But did you keep it secret at the beginning so your employees wouldn't know, or were you kind of open about it? I think we were secretive. I mean, I was trying to be a professional CEO, right? Yeah, yeah, yeah. Especially, I think I had some form of armor on, right? which is, you know, first we went to these investors, raise the money, we almost lost the money.

You know, I had some sort of, you know, shield where I was trying to be a strong CEO. And by the way, sometimes investors don't like that. They don't like married couples or partners, romantic partners, to start business together. They don't like to invest in those businesses because they're worried they're going to split up. Later on, I believe as we did a recapitalization of the business, this was a question that came up. And I just think for whatever reason, either it was our professionalism or it was, you know, the reading of the fact that how much we loved each other or how important we both were to the business, that they were able to get past that. All right, 2005, you got 10 stores, flagship stores still in Washington, D.C. and Georgetown. And by this point, LVMH, the massive multinational conglomerate, they own Sephora.

Sifora is now really expanding in the U.S. at this point. And they open up a shop in Georgetown, Washington, D.C. Do you remember feeling anxiety about that? Like, oh, my God. Right. And one of their first 10 stores was put right next to our first Blue Mercury store in Georgetown, two doors down from us. Wow. That was very purposeful.

Quite aggressive. Very aggressive. And so clients were coming out and saying, I'm sorry, you're going to go bankrupt, Sephora is opening up next to you. Right. Yeah. But the advantage we had short term was that when they first came to the United States, their brand mix, the brands they sold were not that great.

So we had a little bit of time. And, you know, we also got really focused early on about how our client service and our staff would be our secret weapon. So it wouldn't matter what our brand mix was, that we would be better at serving clients. And so the fact that they opened next to us made us stronger because we had to get really smart about how to compete really early. But did that cause anxiety, knowing that they had just massive, massive dollars behind them to expand? A little bit at first, but their first strategy for expansion was malls. And we were not in malls. We liked the streets. We liked Georgetown. We liked downtown Philadelphia. We liked the suburbs. We like Princeton. And so our real estate strategy was fundamentally different from theirs for a long time.

One of the greatest compliments we ever got in the early days, which really helps sustain us, was the senior vice president of merchandising. We ran into him in New York one day and he said, I have to give you a compliment. He says, we just can't make a go of it in Georgetown. And he says, I have to get senior vice president of Sephora. Of Sephora. Excuse me, the senior vice president of Sephora merchandising said, we just can't make a go of it a Georgia. And we just can't get our customer that you keep taking the best customer and we can't make it work. And that they just prefer you. And it was a big compliment to us. It was nice of him to say that.

And that really helps sustain our thinking a little bit that we were on the right path. But still, I mean, to continue to expand, I mean, you guys needed lots of money. You needed tens of millions of dollars at this point. And so I guess in 2006, you decide to partner with an investment company called Invis. Why did you decide to do that? What was the thinking at the time? I would say, candidly speaking, we wanted to rebalance our risk equation. And so that we were interested in selling some of our stock.

to fuel our lifestyle because we'd poured our entire life into this business. And I think it would be reasonable for us to, in other words, we looked at this business. We had become, at that point, by store 10, we'd become known as the Starbucks of cosmetics. I mean, we had a great reputation. The future seemed great. But we had our entire life savings, everything we had tied up in this business. And we didn't want to ever turn to our kids and say, well, what happened? well, mom and dad went bankrupt, well, why?

Because we were so greedy and we wanted to build this 400-store chain. Oops, it didn't work out. Maybe we should have just kept it at five stores. So it was a way for us to sort of sell our cake and have it, too. The other thing I would say is because of our early experience with, you know, everything fell apart, right? E-commerce out of favor. We can't raise money. You know, we were much more conservative than many entrepreneurs.

maybe would have been, but we had had that experience. And so we had seen really bad times. Yeah. So, all right. So you decide to partner with a private equity firm. I mean, you had experienced in private equity, Marla. I mean, now you've got a boss. But how did that work out? I mean, was it, I mean, did you see eye to eye on what you wanted this to be and how to grow it? You know, the commitment we had made to them was to scale much more rapidly, right? And so, you know, one idea they had was to also expand to malls, which we had not done before. And so we put together a huge expansion plan, mall street stores, really aggressive. We opened the mall stores.

They don't go that well because it's a much more competitive environment than our street stores. And then the 0708 crash comes. Yeah. And so we closed the mall stores. All of them. Essentially, yes. How many mall stores were there? About eight stores, approximately eight.

And so I would say that we psychologically hid behind the recession. You said, ah, it was the recession, the recession. The truth is it was an operational misstep. And what we realized was our customer wasn't at the malls. It wasn't convenient for them. We didn't get the frequency of visit. It wasn't a client that was going to test and learn. And the sort of higher-end client in the beauty categories was really roaming the urban streets and the suburban streets.

It was a disaster. It was essentially an unmitigated disaster. It just didn't work. And then with the backdrop of 2008, you know, we closed these stores. And the truth is our investors were right with us. It was they started. stepped right to our side and they backstop the business. I will tell you in 08, one of our great sort of claims the fame is even in 08 at the

nadir of what may be the last 20 to 30 years of the American economy, we still grew our revenue. We grew our revenue every single year from the beginning of time till the date that we left the company. I think by, you know, sort of around 2015, the company was acquired by Macy's. And I think by that point you had close to 50, maybe a little more than 50 stores. Does that sound right by 2015? I think the day we closed, we had 60, I think.

60 stores. Right. And I wonder whether, I mean, it's interesting because 2015 by that point, the whole idea of brick and mortar was now, I mean, really it was turning. It was all about direct-to-consumer e-commerce. But now you, you know, Macy's was acquiring the company fully, reportedly for $210 million. What, I mean, I mean, I, the question isn't why did you sell to Macy's because I, because Macy's is huge and they could scale it. But was, was there any concern at that point, you know, that the future was not going to be brick and mortar? I mean, there was at that point a lot of concern and talk about, you know, just a waste of time. It should all be direct to consumer. And, you know, what did you think about that, about those conversations?

I would say just one thing at that point and was that the rumors of retail's death were greatly exaggerated. Yeah, those rumors were untrue if you looked at our numbers. Let me also take you back to 2014, which is Sephora was expanding aggressively. Alta was expanding aggressively. Barry and I really wanted to step on the gas. We saw a path to 350 stores, but we needed money. We needed resources to do it. And so partnering with Macy's

would really enable us to fulfill our dream of this national brand with 350 locations. And we knew if we didn't have a new partner, we would fall behind. Given the pace of retail expansion at that point, in the beauty industry. I would say also that the irony of selling to a department store wasn't lost on us. But it was an amazing recognition of the value we created,

and it ended up being an incredibly symbiotic relationship. And they let us operate with resources we couldn't even imagine as a standalone company. And so it was really fun. I mean, I stayed running Blue Mercury as a division of Macy's, as a CEO of this division for six years because it was a blast, right? At any point did the e-commerce business, which originally what this was supposed to be, did it ever get bigger than the brick-and-mortar business? No.

I mean, in beauty, 80% still bought in stores until COVID hit. And so the adoption of beauty onto e-commerce really, you know, took a lot longer than we ever imagined in 99. Beauty always lagged because of this desire to try and feel texture and there's colors that you need to try. And no matter what you do, the try-on technology is just not the same as the real thing. It's one of the reasons why we weren't ever really disrupted by other e-commerce companies because even to this day, beauty is one of the least penetrated categories online as compared

to electronics, which is nearly almost all. You want to try it on. Correct. We didn't talk about this at all during the interview, but, I mean, throughout this journey, you also built a family. You guys have three children, three grown children. Well, I mean, they're teens. Pretty grown. But I mean, throughout, you know, I think your youngest 15, 16 years old. So you have, I mean, you were in the thick of it while you were also, you guys were raising a family. Yeah, I mean, you know, our family has milestones based on store count, right? So we got married at store. four. You know, I had our first child, Ariel, at store five, who's now 19, and our Sophie at store eight, and then our son stored 12 through 20. So he was the growth phase. And so they grew up in retail and e-commerce, right, running from store to store, you know, and it was probably intense. I missed moments, you know, of their lives because I was traveling so much. So even, you know, other day, you know, I still travel here and there for business now. My son said, could you please

just tell me when you go to a different state? So, um, we never really saw a separation between our personal life and our professional life. It was one thing. I mean, we were in the beauty business. We love the industry. We brought our kids to store openings. They helped us clean the shelves. And even I remember our son, Luke, we would ask him what he thought about this location. And he said, oh, I like it. I think it's next to Starbucks. So customers. will come by and he was only eight years old. So it was really an incredible journey for us. Barry, when you think about this journey that the two of you have been on, right, and what's happened since, how much of it do you, now that you sort of thought about, do you attribute to luck

and how much to the hard work you put in? The idea that we don't realize that the success that we've had at Blue Market, is really a sequential set of miracles. If we were to say that we didn't realize that, it wouldn't be fair. And that we looked back, I think, during our journey and said, if these sort of five things didn't go right, if we didn't meet imbisc, we didn't raise that initial capital, if we couldn't have bought the store, that Blue Mercury, that would have been a what we would call a single point of failure. So luck plays into it. But I think, you know, for listeners to know that you have to be doing the hard work, you have to be prepared. I mean, who said it better than Nike, which is just do it.

You have to get in the game. You have to be in the game because you have to be in there for these good things to happen to you. Marla? Yeah. I mean, you know, first one story that we didn't talk about, which is Leonard Lutter wandered into Blue Mercury in about, in about 2000. I happened to be there, so that's luck. But I seized that opportunity

and went right up to him and said, I want to sell your brands. You know, he said to me, you're too small, but stay in touch. And over the years, he became a mentor of ours, and when we had tough times or we needed advice, we went to him. So, you know, I tell our kids,

is never miss an opportunity to be fabulous. Those opportunities come, and you need to know how to seize them. But entrepreneurship is not an easy journey. I mean, sometimes I teach a class at Harvard Business School, and I say to the entrepreneurs, you know, okay, raise your hand if you've ever had a sleepless night or a morning you can't get out of bed for. And about 95% of people in the room raise their hand.

entrepreneurship is really, really hard. And I have tremendous respect for anyone who not only starts, but, you know, really pushes to survive long enough for good things to happen. There is no such thing as overnight success. That's Marla and Barry Beck, co-founders of Blue Mercury. Marla stepped down as CEO in 2021 and Barry a few years earlier and founded a new company that specializes in orthodontics. By the way, the two of them say that every day, since the beginning, they've tried to take a four-mile walk together to talk about business,

the kids, their dreams, and to pretty much clear their heads. So if you do the math, by now, 20 plus years later, they've pretty much walked around the world. Hey, thanks so much for listening to the show this week. If you want to contact our team, our email address, is H-I-B-T at ID.wondery.com. If you want to follow us on Twitter or Instagram, our account is at How I Built This, and mine is at Guy Raz on Twitter and on Instagram at guy.org.

This episode was produced by Carrie Thompson with music composed by Rumtin Arablewe. It was edited by Neva Grant with research help from Catherine Seifer. Our production staff also includes J.C. Howard, Casey Herman, Liz Metzger, Alex Chung, Josh Lash, Sam Paulson, Elaine Coates, John Isabella, Chris Messini, and Carla Estevez. Our intern is Susanna Brown. I'm Guy Raz, and you've been listening to How I Built This.