When L'Oreal bought Urban Decay for an estimated $350 million last week, few paused to consider Sandy Lerner, Urban Decay's founder and also the co-founder of technology giant Cisco Systems.
In the mid-1990s, after leaving Cisco, Lerner spotted an opening for a cosmetics company that would appeal to brainy, unconventional women, with colors such as "demolition" and "naked." In 2011, the company reportedly had $130 million in sales.
By that time, Lerner had severed her ties to the company. She sold it to LMVH in 2000 for an undisclosed amount, and it was sold twice more before L'Oreal acquired it. In the meantime, Lerner turned her attention to her 800-acre organic farm in Virginia, now a thriving $7 million business. She also self-published Second Impressions, a well-received sequel to Jane Austen's Pride and Prejudice.
Inc. Magazine staff writer Jeremy Quittner recently spoke with Lerner about makeup, innovation, and female silversmiths.
Why do you think Urban Decay is still thriving, while brands that appeared similar, such as Hard Candy, failed?
It was a couple of things. [Co-founder] Wende Zomnir and I really were very committed to a high quality makeup for working women. That is, people with an income. Hard Candy went after the kids. That is a more fickle market, and I think it is harder to get margin in that market. We had more value-added because the brand was more about lifestyle, whereas Hard Candy was a collection of colors.
What was it like starting a cosmetics company after co-founding Cisco?
With Cisco, we had a nascent market and a huge educational hurdle. There was great intellectual property protection, but there was also a long sales cycle with a huge barrier to entry. When we introduced the AGS router system in 1985 it was de novo technology. There was nothing off-the-shelf. The entry price was $40,000.
A bottle of nail polish was $14. It was certainly much more difficult to sell the Cisco router than a bottle of nail polish.
With cosmetics, if you had $50,000, you could be on the shelves in three weeks. It is a very turnkey market. It is very mature and there is really no intellectual property. Somebody could knock you off in three weeks, using the same manufacturer you did.
Mostly I started Urban Decay because I felt there was a market that was not being addressed. I didn't think I was the only one who felt they were being left out of mainstream cosmetics. I mean I'm a little strange, but I'm not that weird.
Why couldn't a big company have created Urban Decay's products?
If you look at any of the big companies, whether it is IBM or L'Oreal, they have a corporate religion and corporate self-image that makes it very difficult for them to execute in different areas. They just would not have any cred. So they buy it. Now I am in the organics industry, and all of the big companies like Kraft and Tyson are busy buying up all of the organic labels. It is kind of like cred for dollars.
Why did you think organic farming would be a good industry for you?
In the organic market there is a huge excess demand that is just not being met. But mostly, I had capital and I knew farming and I also knew traditional or conventional farming. We had a small farm growing up. It was my grandfather's farm and we didn't torture the animals and we didn’t feed them stuff we wouldn't eat.
I have a long attention span, and I am also a good scientist, and there are a lot of problems that remain in the organic agricultural movement that the government does not invest in solving. All that government investment goes into cloning and genetic modification research and pesticides and herbicides. Organics get just a miniscule fraction of that money. Historically, if you look at people like George Washington and Thomas Jefferson, people with disposable incomes have always been agricultural innovators.
Why a sequel to Pride and Prejudice?
I wanted to understand about the life of these women and the times they lived in, and I wanted to understand the words we were reading by these early authoresses, like Jane Austen, Fanny Burney, and Sarah Fielding. There are about two or three thousand of them who wrote between 10,000 and 15,000 books in the 18th century, and a lot of their books have been lost.
When I was writing my book I was absolutely committed to being historically, socially, linguistically, technologically, geographically, politically faithful to the times. I wanted to give people who were interested in that time more information about that, and how those characters' lives would have looked in a little bit bigger arena. And there were characters there that Austen left behind that had places to go.
I also think it's important to understand that the long 18th century, the Georgian Century, was a much kinder place for women, and pretty much anybody else, than in the Victorian century that followed it. And in Jane Austen's time there were women silversmiths and women in some very high places.
What lesson for entrepreneurs did you learn from writing a book?
I was very naïve about the state of the publishing market. I could never get an agent to call me back. The whole publishing industry is in huge disarray. I was very naïve about the business aspects of the book. I wrote a good book and it had a market and it's been successful. I thought all good things would follow. It's been a pretty big shock to me that there is really no place out there [in conventional publishing] for a new good book by a new good author.
What have you failed at?
I was really, really enthusiastic about a biochemical company that was going to produce caffeine sensors [in the early 1990s]. They were making little test strips that would change color based on the amount of caffeine detected. It turns out there is a huge market for this. But it was also chemically very complex. And the company was just not prepared to focus on it long enough to solve the problem. In the end, I had to give up and go away.
What did you learn from that?
[Ex-husband and Cisco co-founder] Len [Bosack] and I were active investors, and we were really close to the company, and we knew the technology and we knew what we were doing. But as a startup, the company came with its own founders who unfortunately had a big argument. The people who took over the company then took bad money that tied them to a local single-source supplier. At that point Len and I just wrote off the investment and walked away.
As technologists we incorrectly pooh-poohed the issues within the company, which was incredibly stupid. We thought the problems would sort themselves out because the technology was so good, and there was such a good marketplace.
What do you think of the U.S. technology scene today?
You a not going to like my answer: There is no tech out there today. Anybody who can make a website or start a social media thing thinks they are going to be the next Google. But I will tell you, the Google people are just freaking smart and very, very good computer sciences people, who happen to have PhD's from Stanford, and Stanford takes eight people a year for that PhD program. I just don’t see anybody out there with that kind of background.
We have stopped doing blue sky research in this country, and we are hemorrhaging people from our engineering programs. As an American, I am very apprehensive about the long-term economic health of the country.
How would you solve these problems?
We need to build back that infrastructure, and we are past the point where any one private company can do that. As Americans, we have to be willing to subsidize higher education for citizens to compete in these jobs and areas, and we have to raise children who are willing to do this kind of work. I can tell you it is hard, and that is why everyone doesn't do it.
What's next for you?
You know I have a track record of doing different things. I have just started a new venture, but I am not sure I want to say anything about that. It's not in any of the [industries] I've done before.