One of my favorite things to do in my downtime is listen to and read stories about how businesses got their start and grew to notable success. How I Built This with Guy Raz is in heavy rotation in my car as I transport my kids back and forth to school, sports’ practices/games, and social activities. Not only are business success stories extremely motivating and inspirational to me, but I’ve also found them to be an effective way to learn new strategies and gain new perspectives on my own work. Every strategy isn’t for every business, but whenever I learn something that has practical application in my business or that of my clients’ I put it to good use.
In some of my reading, I came across an article on Vogue Business entitled “How to Launch a Beauty Brand for $1.5M” A title like that would lead you to believe that $1.5M was a modest budget… Like it would require a good deal of resourcefulness to make it happen. From my experience, $1.5M is plenty of money to get a good start so I was curious to read more about how this budget was spent. You can read the full article at the following link https://www.voguebusiness.com/how-to-launch-a-beauty-brand-stowaway-cosmetics
Without fail, every conversation I have with a potential client about the brand they want to build will lead to them asking “How much is this going to cost me?” or me asking “Do you have a budget for this project?”
Most people have no idea how much it costs to start a beauty brand bare bones, let alone how much it costs to grow fast. I’ve done a few Google searches of my own to find out what kind of info is out there detailing the cost to start a beauty brand. What I’ve found is a really broad range of costs and options to get a brand started, experiments by bloggers/journalists, and brand stories as told by startups with bootstrap budgets all the way up to big investment capital budgets. None of which is really helpful when it’s your turn to get started on your journey.
The goal of this post is to help you assess whether or not you can achieve your startup goals with the money you already have access to or if you need to consider seeking investment capital.
For starters, you have to ask yourself…
How much do I have to spend?
How fast do I want to grow?
How much am I capable of on my own?
What do I need to seek help for?
What do my barriers to entry look like?
Can more money solve more problems?
How quickly do I need/want to be profitable?
Remember, it’s not always about how much money you have; it’s about how you leverage it. Of the $1.5M Stowaway Cosmetics raised for their launch, $850k was spent on salaries and operational costs….Yikes!
Investment capital is much better spent with a focus on growth and achieving profitability as soon as possible. While Julie Fredrickson says don’t expect to break even for 2 – 5 years even if you’re growing fast. I say forget break even! Make it your goal to be PROFITABLE in your first year. You can do that if you use your capital to purchase the optimal amount of inventory and implement solid marketing strategies that will sell it. Inventory should MOVE. If you need an office space and/or warehouse and a large team (more than 2 people) before you have turned a profit, you’re not doing it right.
Here are a few things to note about starting a beauty brand with investment capital (larger budget).
- That money ain’t free! Investors expect to make a profit on their investment, which means you have to make good on that amazing pitch you gave that secured the capital. That comes with a lot of pressure.
- It’s really easy to rely on round after round of fundraising disguised as “growth” just to keep your brand afloat. Don’t fall into that trap. Fundraising should only be used to fuel your startup or to initiate exponential growth of an already successful business. You shouldn’t need to raise more funds every time you want to increase your inventory or operations. Think about the best way to spend your seed dollars so that you can maximize growth and stand on your own two feet until it is time for you to take a major leap to the next level.
- When you hear about brands being acquired for hundreds of millions of dollars remember that those numbers are all relative. A brand that sells for $600 Million dollars, but has raised $400M+ in capital is not walking away with $600M. Investment money is just debt until your brand is profitable. Raise and spend wisely.
- Start lean, build lean, and reap the exponential benefits later. Just because you have the capital to pay salaries and deck out your brand new corporate office doesn’t mean that you should. Focus on quantifiable growth. Profit FIRST.
- Don’t let the money burn a whole in your pocket. The startup years are your time to really grind. Get your hands dirty…break a nail or two. Sure you’re the founder, but you have to earn the title of CEO. Not all founders make the cut. Your job is to do all you can to ensure that you do… including making wise choices about how the budget is spent and taking your time while spending it.
Here are a few things to note about self-funding your beauty brand (smaller budget):
- You’re not at a disadvantage because you didn’t raise a million dollars in startup capital. When you’re self made you don’t have a bunch of hands in the cookie jar. Nor do you have a bunch of voices telling you what to do. You’ll be profitable sooner which means you can pay yourself sooner (and a lot more). You also don’t have the pressure to grow faster than your brand can sustain on its own. Fast growth can come at a cost. Enjoy your slow(er) journey.
- Keep it simple. The best way to maximize your budget is focus on winning with ONE amazing product. Don’t spread your budget thin by trying to launch with a full product line that you can’t guarantee will have reliable support. Your first product should be something that delivers undeniable results so that you can build your brand credibility while you are building your customer base.
- Your profit margin is your best fundraiser. Cosmetics is one of the few industries that can support 10x + markups. A product that only costs you $3 all in to produce can easily be sold for $30 – $65 with the right brand positioning. The success of your first product is really all you need to sustain consistent brand growth.
- When you can’t buy attention you have to earn it. Social media has made it incredibly easy to build an audience and establish your influence. But you have to be willing to do the consistent work. Emphasis on consistent. Building an audience is like nurturing a newborn baby. You gotta feed it often if you want it to grow healthy and strong. The sooner you can get 10k followers on Instagram the better. Start NOW. You’ll need the momentum.
- Word of mouth is your most effective marketing tool. Empower your customers to be your greatest marketing asset. What will it take for you to secure your first 100 customers? How can you leverage your first 100 customers to secure your next 10,000 customers?
What’s the sweet spot?
Although Stowaway Cosmetics has experienced undeniable success, I don’t recommend spending your budget the way they did. I also don’t want you to think you need a million dollar budget to succeed in the beauty industry.
An ideal budget for your launch year is $75,000 to $250,000. A budget of this size would allow you to launch 5-7 new products over the course of the year (not all at once) and put enough marketing muscle behind each launch to be profitable.