We've come to expect founding stories of sparkly startups to be fairy tales of late-night dorm-room happenstance or serendipity on a snowy European evening. Or they lurk in the 2-inch-thick business plan dreamed up by a green but driven MBA student, who had dollar signs in her eyes.

Hil Davis's latest endeavor, and the brilliantly byzantine business plan behind it? Something else entirely.

Davis is the fast-talking co-founder of successful menswear company J.Hilburn, a Dallas-based direct-sales startup of which he is no longer CEO. Earlier this year he was replaced at the helm by his co-founder, Veeral Rathod.

"It never entered my head until the board was trying to push me out," Davis says. "As long as I knew I wasn't long for that world, that's when I started sitting down with a white board over the weekends and thinking about what else I could do."

It was more than a year ago that Davis began starting over, sketching and scheming up a new, augmented, version of a business model he'd already tested. It's a take on multi-level marketing, an aspect of direct selling, which is one of the most controversial, and maligned, business models out there, due to its structural similarity to a pyramid scheme. But with J.Hilburn, Davis managed to give the dusty old direct-sales model, associated with the likes of Mary Kay and Herbalife, some class. (For a primer in direct selling, see Tom Foster's excellent 2013 Inc. feature on J.Hilburn.)

In beginning to move on from J.Hilburn, first, he took everything he found challenging in building the menswear company and turned it on its head. Men as customers? Well, they certainly weren't as eager as women--who make 85 percent of all consumer purchases. Moreover, since building a consumer brand from scratch was tough, why not build a retailer that sold existing and established brands? As he started dreaming up his better "retail mousetrap," as Davis took to calling his plan, both ideas went onto the whiteboard.

Then he added a feel-good component. Five percent of purchases would go back to the charity of the customer's choosing. Finally, he took the finest points of multi-level-marketing and combined them with very modern online conventions of social media. What that looked like was the "refer a friend" concept on steroids, fueled by social media connections, public recommendations, and influencer endorsements. (Essentially, 1 percent of purchases go back to customers and their networks in a nifty scheme Davis has dubbed "Five Degrees of Kevin Bacon.")

To hammer out the fine points of the industry he had targeted--more about that shortly--he brought on Gina Kohler, who had 20 years of experience in beauty, cosmetics, and selling to women.

"When I met Hil I was seeing the trend shift toward social commerce online, and how women were really adopting these platforms to share and recommend products," says Kohler, who in the past had been very involved in her children's schools and community, where she says she developed a deep understanding of the importance of advocacy and community, and how women like her were becoming dedicated to supporting causes ranging from breast-cancer research to their local PTA--and were increasingly doing so online.

Davis also brought on Scott Bedbury, a marketing expert who's held leadership positions at Nike and Starbucks, as well as Adil Wali, the former CTO of ModCloth. All three are co-founders of the new company, which launched this week. It's called BeautyKind

BeautyKind is now up and running, with the guiding principles of "head, heart, and wallet." Why beauty? Davis says it's plainly clear that women increasingly buy such products online. But the industry is blessed with a lack of what's known as the Amazon effect--the need to compete with Amazon's discounts--since beauty brands setting retail prices. (A little-known fact: Davis had studied Amazon in a past career as an equity researcher).

Representing "heart" is the fact that 5 percent of purchases goes back to the customer's charity of choice, called BeautyKind Causes. To start, BeautyKind is partnering with Donors Choose, the Pancreatic Cancer Action Network, and Boys & Girls Clubs of America. But it also has hundreds of local charities and organizations to choose from--including arts organizations, religious groups, and educational institutions. "If you know you are part of something that's bigger than you, you lean in more," Davis says. And the closer the organization is to the life of the customer, Davis says, the more passionate they are about it: "As much as women love Toms and Warby Parker, they said they wished they could choose their cause to support rather than your cause. It makes a big difference to them."

This is especially the case when augmented by the social-media aspect of the business model. BeautyKind has built a financial incentive into sharing with, say, a Facebook network. "What we realized is that a lot of wealth is built through social media, and yet the average person does not partake in that wealth creation," Davis says. So BeautyKind built its own version of the ubiquitous "refer a friend, get $20," we've seen from the likes of Gilt and Zulily.

BeautyKind's version of this involves rewarding 1 percent of purchases from your network of connections back to you. A network goes five people deep--and can get wide fast. Hence the "Five Degrees" reference. For someone with a robust network (say, someone who's referred five customers, who each referred five customers, etc., and each spends $300 a year on BeautyKind) $60,000 would go to their charity, and $12,000 to them directly.

Most likely to actually reap such a substantial financial benefit due to robust networks are "influencers," say, beauty bloggers, YouTube stars, and celebrities willing to endorse products or causes on BeautyKind. 

"With the way it's structured, if a celebrity is sitting at the top of that, and the messaging is authentic, and the value is there for an everyday reader, they can potentially make a lot of money," says Scott Manson, the chief operating officer at SB Projects, Scooter Braun's company, which is partnering with BeautyKind.

And although the $12,000 number might be out of reach for your average Facebook-connected consumer, the anticipatedly smaller kickbacks to average consumers aren't insignificant, Davis says. "We have a shrinking middle class in America. If we can drive $500 back to a consumer, that's meaningful."

It's not just meaningful. That financial incentive could be a significant driver of virality. Should BeautyKind succeed, on one hand it's about supporting one of BeautyKind's Causes, or your local cause--say, the PTA you're already devoting hours a week to--while on the other, it's as socially addictive (and potentially lucrative) as a chain letter.

The biggest challenge facing BeautyKind in its early days is enlisting well-known brands to sell on the site. (The risks for brands include offending their brick-and-mortar retail partners and canibalizing sales from their own websites.) At launch, it had just about 40 brands on board, and mostly small or independent labels. So women may not yet be able to find their favorite mascara when they visit BeautyKind.us.

Manson says in order for BeautyKind to grow quickly, it needs the right brand partnerships in place. "BeautyKind is only going to scale if you really do have a competitive offering of brands. We are gaining there," he says, noting that the use of social referrals and influencers to spread the word online may drive such popularity that it sways major companies to partner with the startup. "If we do our jobs, it will be hard for brands to resist joining the movement."

And virality--especially on social media--is still elusive for big, established brands, such as L'Oreals or Estee Lauder.

Davis is pretty sure he's in the right place, in the right industry, at the right time, to make it happen, though. He says: "When the Ice Bucket Challenge happened, I think the Clinique and Estée Lauders of the world began to think, 'if [BeautyKind's] Causes goes viral, and we are not there, we are in trouble.'"

 

 

Published on: Nov 13, 2014