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Jaime Schmidt is the quintessential maker-made-good. In 2010, she started manufacturing deodorant in her Portland, Oregon, kitchen as a hobby. From farmers' market tables, her products--which came to include soaps and toothpaste--stormed the shelves of CVS, Walmart, Costco, and Whole Foods. By 2017, when Schmidt sold her company to Unilever for an undisclosed amount, Schmidt's Naturals was in more than 14,000 stores in over 30 countries, with year-over-year growth of 300 percent.
Schmidt, who remains active in her business and has launched an investment fund with her husband, wants to support the next generation of makers: people like Ju Rhyu, co-founder and CEO of Hero Cosmetics. (Hero is based in New York City. Rhyu, whose husband is French, lives in Paris.) Rhyu emigrated with her family to the United States from Korea when she was 3. Back in Korea in 2014, while working for Samsung, she observed that country's obsession with innovative beauty products, some with ingredients like snail mucin and donkey milk. Specifically, Rhyu--who was struggling with acne--noticed people wearing discreet, skin-toned patches to drain pimples. Something similar existed in the States, but it was marketed as a bandage.
Rhyu hoped to instead sell the patches as beauty products. She lined up a Korean manufacturer and hired a designer for the packaging. But daunted by mounting costs, she initially chose different means to ride the Korean beauty trend: doing marketing for a K-beauty e-commerce business, then founding Inside the Raum, a consultancy specializing in K-beauty. It was during this time that she met her co-founders, brothers Dwight and Andy Lee, who persuaded her to give the patch a second shot.
Hero Cosmetics launched on Amazon in September 2017 and sold more than $10,000 worth of Mighty Patch acne treatments in 40 days, with volume growing daily. Anthropologie picked it up, followed by others, including American Eagle, Free People, Urban Outfitters, Neiman Marcus, and Goop. The following June--Acne Awareness Month--Hero celebrated by launching its direct-to-consumer site and giving away almost 4,000 patches.
Hero was profitable its first full year, with seven-figure revenue, says Rhyu, and expectations of three to five times that in 2019. Next month, it faces its greatest retail challenge: launching in more than 1,500 Target stores. Meanwhile, the company wants to scale its direct-to-consumer channel. Schmidt's Naturals has ample experience in both areas; it also grew rapidly for five years without taking investment--something Rhyu admires. Recently, the seasoned and neophyte founders discussed Hero's challenges.
Schmidt: What is your ultimate goal? Do you want to follow in the footsteps of Schmidt's in terms of growing your distribution and then making an eventual exit?
Rhyu: That would be amazing, if we can get there. Our brand philosophy is, acne doesn't discriminate. Everyone gets it. So accessibility is really important, and that touches distribution.
Schmidt: Our products were in every type of retailer, to reach as many people as possible. We sold mass, of course. But you would also find us in mom-and-pops, luxury spas, co-ops, and natural food stores. We didn't say no to any distribution channel.
Rhyu: We are in some higher-end specialty stores, and we are going to be in Target. A lot of people are like, "You're going mass? Get ready to have Neiman Marcus and Goop drop you." Were you afraid you might lose certain accounts by going mass?
Schmidt: Absolutely. And we had a plan to deal with that. Part of it was special incentives for some retailers. We would be a little more liberal with our pricing and ran more promotions with them, so they could bring down prices too. We would also reserve special products for them, like an exclusive scent. One thing that worked really well was different sizes. So, smaller deodorant sticks for a mass retailer, but a larger size for Whole Foods that would better fit the price point it needed.
Rhyu: Do you have any tips for how to be successful in Target? We got twice as many stores as we anticipated, which is great but also a little nerve-racking.
Schmidt: We ran digital advertising campaigns targeting people within five miles of every Target store in the region. That brought customers directly in. Also, if Target asks you to run a promotion, do it. We never turned down an opportunity to have our product discounted on the shelf. If you don't do it, then your competition is going to.
You've said you're interested in expanding direct-to-consumer. What are you thinking there?
Rhyu: One of my goals this year is to grow and invest in our direct-to-consumer site. Last year, it made up 5 percent of our business. This year, I'd like to have it make up 10 to 20 percent. Paid acquisition is getting really expensive, and our products are more on the accessible end of the pricing spectrum. It's not our only channel, but I see so much opportunity there.
Schmidt: I agree--there are always customers who are going to want to shop online, and if they don't get it from you, they are going to get it from Amazon. Because their other option is Amazon Prime, it's really important to ship as quickly as you can. Same day, if possible.
Rhyu: What is your opinion of Amazon? I feel like in a way we are fighting ourselves between that channel and our DTC. At a dinner in New York, I was chatting with this executive from a major consumer packaged goods company, and her perspective was Amazon is evil. She said, "If you don't have to sell there, I wouldn't, because Amazon is going to make you lower your prices and copy your products."
Schmidt: I have mixed feelings. We put it off in the early years. But that was where a lot of our customers were going and buying our competition. You have to find out what works for your brand. But I think you have to be in the ring.
Rhyu: We were getting so popular, we saw unauthorized sellers attach themselves to our page. So we have Brand Registry [an Amazon service that helps vendors track and remove infringing content]. We figure if it's inevitable, we might as well control it.
Also, right now we are known for our acne patches, but soon we will expand more into skin care. Is it too early to care about margins? Should we be focusing just on revenue, customer acquisition, and getting the brand out there?
Schmidt: Your margins for new products might take some time to improve. A lot of that will come from the cost of raw materials. Obviously, the more you can buy, the better your pricing is going to be. You have to build a trust relationship with your suppliers, so they give you better rates as they see steady sales. Your margins will grow after you've had some time to penetrate the market. There's an element of faith.
Rhyu: I know you never raised funding. Did you ever think about it?
Schmidt: What worked really well for us in the early days was direct sales. We could put that money right back into the business without waiting on invoices and payment for maybe 60 days. That's another reason to focus on that channel in these first nimble years. Have you taken any investment?
Rhyu: No. We're profitable, and, like you, we're taking our profit and plowing it back into the company. The early months were tricky, because we are growing faster than anticipated.
Schmidt: A couple of things that might help: Always negotiate terms with suppliers. If your supplier requires you to pay upfront, maybe you can look at net-60 terms instead. Also, negotiate with your bank on a small line of credit, for example, to fund one particular launch.
Rhyu: Another thing that's been on my mind is competition. When we launched in September 2017, we were trailblazing this category. Since then, there's been a lot entering the market.
Schmidt: I learned early on not to obsess over competitors too much, because you can get distracted. See what they are doing. But stay true to the value you have established.