Editor's note: Inc. Magazine announced its pick for Company of the Year on Tuesday, November 29. It's Riot Games! Here, we spotlight Harry's, one of the contenders for the title in 2016.
After decades of a men's shaving duopoly consisting of Gillette and Schick, Dollar Shave Club, Harry's and a handful of other direct sellers, stepped in--helping redefine the value proposition of putting a blade to your face.
Dollar Shave Club dealt the first blow against the shaving industry incumbents, when, in 2011, its brand of raucous marketing--and a direct to consumer, e-commerce model--first introduced dollar blades to customers. Suddenly, razors that formerly cost consumers $24, now clocked in at just one dollar online. Five years and more than three million subscribers later, Unilever acquired the company for $1 billion.
Harry's has similarly offered to trim men's shaving costs since its start in 2013. And while both companies sell monthly subscription boxes to customers, don't call it a me too product. Unlike Dollar Shave, Harry's manufactures its own razors--boasting a team of 400 expert designers, craftsmen and chemists. Despite the added overhead, the New York City-based company still manages to charge just $2 or less for its blades.
"There's a big difference between us and Dollar Shave Club," says Andy Katz-Mayfield, who co-founded the company in 2013 with Jeff Raider. (Raider had previously co-founded the wildly popular eyeglasses retailer, Warby Parker.) He is referring to Harry's $100 million acquisition of a nearly century-old razor-blade manufacturer in Germany. "We're investing in growth and expansion," says Katz-Mayfield, of the 2014 acquisition. "They took that same amount of money and invested it in marketing."
While that strategy has paid off for Dollar Shave, Harry's has something else in mind. "Obviously, we have investors and we need to do something to create liquidity down the road," says Katz-Mayfield. "For us, what we've always marched toward, on that path, is building an awesome stand-alone company."
Harry's started 2016 with its engines revving to launch its second generation of razors. Having raised $75 million last July at a $750 million valuation, the company was well positioned for expansion. Further, its purchase of a 93-year-old factory in Eisfeld, Germany allowed for a quicker turnaround from customer feedback to the factory floor. For the "Gen 2" razors, that meant designing a grippier, rubberized handle, and an upgraded blade and packaging. Today, the factory's production capacity is more than double its original capacity.
Harry's is also hoping its recent foray into brick and mortar will prove provident. In August, Harry's announced a partnership with Target, extending its brand to 1,800 offline locations. Two months in, Katz-Mayfield says sales were five times their initial forecast and represented more than 50 percent of razor sales for Target.
"It's like 4 feet of an Apple store," says Katz-Mayfield, describing how Harry's product displays stand out in Target's shaving aisle.
Still, with almost three million online customers, its core competency remains direct-to-consumer sales, which grew 55 percent between October last year and September 2016. That's faster than the overall online shaving category's sales, which clocked in 42 percent growth over the period, according to Ken Cassar, principal analyst at e-commerce research firm Slice Intelligence. Harry's projects booking $200 million in revenue by the end of the year.
Naturally, expansion comes with its own set of unique challenges. Not only does Harry's need to ensure its online operations don't miss a beat, dealing with in-person sales--when you're not the direct sales person--is in itself tricky.
Scott Galloway, the founder of business intelligence firm L2, suggests it's worth the handwringing. "Without a deal like Target, people don't have the ability to touch and feel and try one box without committing," says Galloway, who is also a marketing professor at New York University. He adds that it was an interesting move for Target, since Gillette is also an important partner.
The company also added more than 100 employees just this year. "What we've learned is you have to slow down after you've let somebody join," Raider explains. "You have someone there who's amazing, and all you want to do is let them loose, but if you do that you're actually not setting them up to be as successful as they could be." And its new hires range from software engineers to mechanical engineers to oversee the manufacturing side.
"It's very hard to operate any manufacturing company, and then it's very hard to scale in a very fast time," Raider adds, explaining that some of the toughest times for the startup have been when it grew faster than expected and had to restrain itself to keep up with capacity. "What we've had to do at Harry's is actually think out multiple years ahead and say, how big do we want to be, in 2018 and 2019 and 2020 and start buying equipment today so that it gets put in place and we can train people on it and we can have them up and running by the time we're that size."
So how big will it be? The ultimate plan is to build a men's grooming brand, says Katz-Mayfield. Having already launched face wash, lip balm, and shaving creams, the company is also looking at categories like deodorant, body wash, soap, and shampoos and conditioners. Men's grooming, as a category, is expected to reach a $9.8 billion in sales by 2020, according to global market intelligence firm Euromonitor International. If Harry's can control just 10 percent of that pie, it'll have its own billion-dollar payday.
Take that, Dollar Shave.
Correction: An earlier version of this article mischaracterized Harry's product displays within Target stores. Displays span just 4 feet.