The experience was surreal. Jeff Raider and Andy Katz-Mayfield, the co-founders and co-CEOs of the trendy grooming-products startup Harry's, were wearing suits and ties. They were surrounded by lawyers. And they had just experienced an hours-long grilling by antitrust regulators in a room at the Federal Trade Commission headquarters in Washington, D.C., a hulking limestone edifice on Pennsylvania Avenue. Their apparent sin: competing too well against razor giant Gillette.
Isn't antitrust law supposed to work the other way?
Raider and Katz-Mayfield launched the New York City-based Harry's in 2013 with the seemingly improbable idea of taking on not only Gillette but also Schick, two enormous brands owned by consumer packaged goods conglomerates that together controlled some 90 percent of the men's shaving market at the time. Using a direct-to-consumer model initially, Harry's became a player in shaving, with nearly 7 percent of U.S. nondisposable-razor sales in 2019.
Emboldened, Harry's launched other personal-care brands and attacked its bigger rivals on their own turf, at retail stores such as Target and Walmart. This kind of accomplishment would have looked unthinkable to anyone familiar with the personal-care aisles a decade earlier. In just a few years, Harry's, along with another DTC disrupter, Dollar Shave Club (acquired by Unilever for $1 billion in 2016), had helped slice Gillette's share to around 50 percent, from north of 70.
And yet, because Harry's funded its growth with a mega-haul of venture capital (some $375 million from 20 firms), it needed an exit strategy to reward investors, which typically means a buyout by a larger company or going public. In 2019, just such an opportunity presented itself when Edgewell Personal Care, a conglomerate headquartered in Shelton, Connecticut--and Schick's parent company--offered $1.37 billion to buy Harry's.
In the deal they negotiated, though, Raider, 40, and Katz-Mayfield, 38, were taking over much of Edgewell while keeping control of Harry's. As co-presidents, they were going to run Edgewell's American business, a portfolio of venerable if vulnerable brands--Playtex, Carefree, Hawaiian Tropic, Banana Boat--in need of some Millennial marketing mojo.
Then the feds showed up.
The January FTC meeting, eight months after the deal was announced, kicked off a series of intense sessions with each of the FTC's five commissioners, plus countless prep sessions and debriefings. Harry's had three law firms working on the deal, each with half a dozen lawyers assigned to it; Edgewell had its own representation. ("Try doing the hourly math on that," Katz-Mayfield groans. "It's not pretty.")
What had seemed like a charmed startup finding a charmed exit was turning into something more complicated--and set many to wondering if the Harry's experience spelled trouble for other challenger brands hoping to one day engineer similar exits.
"Can you tell the difference between Gillette Fusion, Gillette Fusion ProGlide, Gillette Fusion ProShield, and Gillette Fusion ProShield Chill? No? Then why are they different prices?" asks the normally reserved and relentlessly diplomatic Raider in a rare break in form for him. He's pointing out one of the core tensions in the shaving industry that made his company possible.
For decades, Gillette and Schick's duopoly let them create confusing arrays of products--aerodynamic designs, colorful lube strips, and other purported innovations that might or might not represent true performance improvements--at a variety of prices. Without much competition, the companies were free to dictate what constituted value and reinforced the idea through large ad budgets.
The profusion of products also created an opportunity for a newcomer like Harry's to build a business around simpler and lower-priced items without the theatrics. What Harry's offered, instead, was a whimsical brand (its lovable logo is a line drawing of a woolly mammoth) and expertise at selling directly to consumers. Simplification included subscriptions, too--razors show up at your door and you don't have to shop. Then Harry's migrated to the real world, winning space in big chains such as Target and Walmart.
In winning at retail stores, Raider and Katz-Mayfield recognized that they might be able to pull off the same trick in other categories. In early 2018, the two raised $112 million to fund Harry's Labs, a new division tasked with growing new brands, either by creating them or acquiring early-stage startups. The first product to market was a women's shaving line named Flamingo that launched late that year.
At the same time, Edgewell was realizing that it needed to build a startup's online capabilities for itself. Edgewell's stock had been on an extended slide, and the company was in the process of promoting its CFO, Rod Little, to CEO, with a mandate to make the business more digitally savvy and relevant to younger consumers.
Edgewell began flirting with Harry's toward the end of 2018. Each had something the other needed. Even as Harry's started to act like a conglomerate itself--stockpiling nine figures of cash for M&A is hardly scrapping--it had the operational resources of a much smaller company. Most urgently, Harry's was reaching the limits of its razor technology and manufacturing capacity.
While a lot of shaver design is indeed gimmicky, making sharp and durable blades at scale, it turns out, is complicated. Although Harry's owned a factory in Germany, Edgewell had decades of experience and vastly more capacity--enough that it would be a cinch for Harry's to double its output with Edgewell's help.
In the early months of 2019, the Harry's founders and Little began to shape what a deal would look like. The fact was that Edgewell, which had spun off from Energizer's battery business in 2015, was puny ($2.1 billion in sales) compared with Gillette's parent company, Procter & Gamble ($71 billion in sales). The latter is the world's largest CPG company, parent of such household names as Tide, Pampers, Crest, and Charmin, with a market cap then nearing $300 billion--more than 10 times Edgewell's. To P&G, buying Harry's would have been pocket change. To Edgewell, it was betting the company.
For Harry's, the deal quite literally put the whole company on the line--not just the shaving business it had built, but also the ambition to vault into other categories. "We had a broad vision to build a bigger consumer products company, and they had a portfolio of brands needing to be reimagined," remembers Katz-Mayfield. "The idea was that we would effectively get the keys to the castle to do that." It made a lot of sense, at least in theory.
At Harry's HQ in downtown Manhattan, the founders' idea of hitching their hip, urban moniker to a plodding portfolio in suburbia got mixed reactions. "I would say some people were super excited, and some people were less excited," Raider deadpans. Some team members who appreciated the logic of the deal, he says, welcomed the challenge of putting their imprint on a bigger, more established company, and maybe taking on new roles. Others had trouble getting over the marked difference in sex appeal that the two companies radiated.
Could they ever feel warmth toward Schick or Playtex? "Some people were like, 'Wow, this is going to be really hard, and it's different from the job I signed up for at Harry's,' " Raider says. What's more, there would inevitably be role redundancies and other structural shifts in the merged operations that put people's jobs at risk.
Harry's founders insisted during negotiations that they control human resources at Edgewell U.S.--"policies, compensation, all of it," says Katz- Mayfield. "We own it. That is not an Edgewell corporate thing. We had a--to say 'debate' would be putting it kindly--bunch of attention around that in the deal process. We knew that if we wanted to retain and really motivate the people at Harry's, it was going to be important to create a culture and values that were quite similar to those we had."
From a startup's perspective, that made sense. Everyone at Harry's believed it was built to be different, and many felt a sense of ownership that went beyond their equity stakes.
To CEO Little at Edgewell, though, it was more complicated. What looked to the Harry's team like something magical looked to the Edgewell team like, well, a startup--a fresh-faced innocent that didn't know what it didn't know.
For all the merger trepidation among the Harry's team, the feeling was just as pronounced at Edgewell, as longtime employees anticipated the invasion of a bunch of Manhattan internet cowboys.
The differences weren't just cosmetic--a dog-filled, loftlike space in chichi SoHo versus a mirrored office-park building in the 'burbs. Like many startups, Harry's prided itself on being agile. When problems arose, the founders could step in quickly. Edgewell, with its multiple brands, was structured around functional units. Getting a coordinated solution could take longer.
Little conceded the broad oversight, including HR, but he stopped well short of letting Raider and Katz- Mayfield think the Harry's culture could simply take over. That sent his team at Edgewell a clear message that he was serious about change, and it sent his potential partners a clear message that their highest priority needed to become Edgewell. "We had to balance the history and heritage of Edgewell with the disruptive mindset that Andy and Jeff brought," says Little. "We were going to have to create a new, third way, a different and unique culture."
After the deal was announced, the integration of the two firms began informally. By law, until the sale got government clearance, most of the actual merger couldn't begin, but Raider and Katz-Mayfield started spending a lot of time getting to know as much of the Edgewell team as they could. Others were developing potential org charts and marketing strategies.
Joining the companies wasn't going to be easy, but the prospect of taking on not just Gillette but P&G itself delivered the utmost entrepreneurial rush. Raider and Katz-Mayfield had made it to the big leagues, and they were going to captain their new team the first time they suited up.
Or so they thought.
Antitrust law is designed to protect competition, which is why the legal teams from both companies advised that regulatory approval would be pretty simple. The logic of the deal was essentially that Schick wasn't growing and Harry's was; combining the two would create a stronger competitor to Gillette, which would be better for consumers.
As one industry insider who asked to remain anonymous puts it, "the real problem for the category is Gillette, with the backing of P&G, having almost monopolistic power." Retailers were hungry for competition (and leverage against P&G) in the shaving aisle, looking to Schick for innovations and coming to rely on Harry's for a new generation of customers.
Already, the increased competition had forced Gillette to trim prices in recent years, and everyone assumed that the newly combined No. 2 company would simply put more pressure on the No. 1.
And for six months, that's where things seemed to be going. Granted, the FTC's request for data from Harry's ran to 120 pages and required a team of lawyers just to gather documents--"every email we've ever sent, every document we've created, every number," remembers Katz-Mayfield. But there was little reason to worry--until the meetings started in January and each successive session further darkened the outlook.
That month, the founders spent several days a week in Washington, and increasingly they realized their warm-and-fuzzy message about looking out for consumers was being met with skepticism. When Raider says "Our mission as a company is to create things people like more--it would be antithetical to us to do anything bad for consumers," he believes it. The FTC instead saw an aggressive insurgent about to snuggle up with a big player while saying, Trust us, we're good guys.
Meanwhile, he and Katz-Mayfield were trying to run a company whose team had been working in a state of limbo for eight months and had long begun wondering why the deal hadn't closed--and what was holding up their piece of that $1.37 billion.
Despite the distraction, the company grew revenue 20 percent in 2019 and finally crossed over to profitability. Its new women's brand, Flamingo, also gained traction and will sell more than three million razors this year.
But to Raider and Katz-Mayfield, and to Little at Edgewell, the clock was ticking, and they needed to get on with their growth plans if the deal wasn't going to work. As Little puts it: "There is value in certainty."
The FTC reached its decision on February 3: It would sue to block the deal. The logic: Harry's was too good to sacrifice to a merger. "The loss of Harry's as an independent competitor would remove a critical disruptive rival that has driven down prices and spurred innovation in an industry that was previously dominated by two main suppliers, one of whom is the acquirer," the agency wrote.
By one interpretation, that statement meant that Raider and Katz-Mayfield's company had so succeeded as a challenger that the feds now viewed it as essential to keeping the market competitive. That might sound like the definition of making it big, but it effectively shut down the company's most obvious exit strategy.
The decision dropped jaws throughout much of the CPG world, which had come to rely on acquiring insurgents as a kind of innovation, talent, and Millennial-customer pipeline. Edgewell decided not to fight the suit and abandoned the deal, opting to hire a former Walmart e-commerce executive to head its North American ops. "I said publicly that we disagreed with the decision, but we weren't going to fight it," says Little. "We are focused on accelerating our efforts to build a next-generation CPG company."
The startup and venture capital worlds were equally appalled. They had come to see the CPG giants not only as ripe for disruption but also as the source of their biggest payoffs. "Harry's Fixes Shaving, Breaks Exit Strategy," wrote The Washington Post.
Some speculated that Harry's had waited too long to sell and that rising brands could avoid FTC scrutiny if they found buyers before amassing so much market share that they were market forces themselves. Others wondered whether the rising cost of Facebook and Google ads, which had driven Harry's to aggressively pursue traditional retail channels, had fundamentally redefined the company: no longer a digital upstart but rather a more traditional maker of personal-care products, albeit with a cooler logo.
Most of all, the decision shocked Harry's, which now had little choice but to build its little family of brands internally, and eventually pursue an IPO. The payoff would have to wait.
It's a Wednesday morning in September, six months after the deal collapsed, and some 300 Harry's employees are gathered on Zoom for their weekly all-hands meeting. The nakedly earnest love song "This Must Be the Place (Naive Melody)," by Talking Heads, canters along in the background as people file into the virtual room, until Raider takes over to praise a big accomplishment--"one of the biggest cross-functional efforts we've ever had at Harry's," he says.
Today's meeting celebrates the launch of new-and-improved razor blades, known internally as Gen2+, that stay sharp longer than their predecessors. A product manager touts the new, plastic-free packaging. The marketing team plays a 30-second ad spot that takes a dig at the rivals. ("And unlike some other companies, we don't raise the price when we introduce something new.")
Raider and Katz-Mayfield seem comfortably back in their startup milieu despite navigating an entirely different kind of crisis since March, when men decided to forgo shaving and grow pandemic beards. Raider often sports a day or two of stubble growth. By August, nondisposable-razor sales had dropped 11 percent year over year industrywide, but they'd risen 2.4 percent at Harry's, thanks to its e-commerce business.
Several weeks after the Edgewell deal collapsed, Harry's publicly launched its second spinoff brand, a line of cat products called Cat Person that was dreamed up by a staffer and incubated in Harry's Labs. Sound random? Katz-Mayfield contends it's a perfect fit because existing cat products "are really not designed with cats in mind"--that is, he and Raider see a stale category dominated by giants like Mars that have so far mostly been spared DTC challengers. Katz-Mayfield claims Harry's has "a bunch" of other new brands in development, and that the company will "definitely" begin acquiring other early-stage digital- first brands.
Kirsten Green, the founder of Forerunner Ventures, a prolific investor in DTC brands, believes consumers today have shown they are hungrier to discover new brands than they used to be, and that bodes well for the Harry's vision of building the next P&G. "They have a high-caliber team, they have ambition, and they're already operating from a position of size and sophistication," she says.
And Harry's has the benefit of lessons learned through experience--thinking at scale, and making decisions across multiple brands, multiple kinds of retailers, and multiple countries. Edgewell "had built all these capabilities that we didn't really know and had to learn," Raider admits.
Rededicating Harry's to building its own family of brands has also allowed the founders to rally the team around the promise of an even bigger payoff in the future. The new vision for Harry's, in fact, might promise an even greater rush than getting acquired ever could have. If joining Edgewell was going to push the Harry's team straight into the big leagues--well, not joining it did so anyway. And the founders, no longer innocents, learned one tough lesson about being the new hotshot: Many in the industry suspect that it was none other than Procter & Gamble that persuaded the FTC to block the deal.
On January 8, just as the Harry's team was running its gauntlet of FTC meetings, P&G announced its acquisition of a women's razor and skin care startup called Billie. It was exactly the kind of industry consolidation, some observers noted, that might nudge the FTC into blocking the Edgewell- Harry's tie-up. If true--and it's difficult to prove--the pressure tactic worked. Even if the FTC chooses to block the Billie acquisition, P&G has avoided having a stronger competitor. And it has upped its game in men's shavers, adding market share in recent months.
Harry's learned how to pick itself up after a knockdown. The company's next launch, after the Gen2+ blades, is its first entry into anti- dandruff shampoo. The leader is a brand called Head & Shoulders, the world's best-selling shampoo, supported by an advertising budget that would make most competitors weep. It's owned by a company named Procter & Gamble. Round 2 has begun.
The Quirky King of Shaving
King Camp Gillette, inventor, entrepreneur, author, and anticapitalist-utopian millionaire, was so eccentric as to make Elon Musk seem average. Yet as the creator of the double-edge safety razor and founder of the firm that still bears his name, Gillette is an American business immortal--and not merely for the product he patented in 1904.
Gillette exploited a business model that is still worshiped at the altar of marketing: Sell the handle cheap and make a killing on the blades, which will be purchased continually for as long as beards keep growing.
Gillette's is still a model model. Hewlett-Packard will gladly sell you a $70 printer in return for your buying its $15-to-$25 ink cartridges for the next five years. Nespresso prices a sleek espresso maker at $104 to sell you the coffee for $75 per pound. Now that is genius.
The idea wasn't wholly Gillette's. In 1895, his boss at the time, William Painter, owner of the Baltimore Bottle Seal Co., suggested that Gillette focus on a product that was disposable. Painter himself had created one--the crown bottle cap, used once and tossed, then and today.
Gillette engaged a partner, an MIT-trained engineer named William Emery Nickerson, who eventually figured out the difficult process of producing very thin blades. In 1903, the company's first year in business, it sold 51 razors and 14 dozen blades. By 1904: 90,000 razors and 15 million blades. Within five years, Gillette's face, which adorned the packaging, was known worldwide.
Like so many entrepreneurs, Gillette's path to success was uneven. Raised in a family of inventors, he had patented another metal device before the razor but couldn't commercialize it. In 1894, 40 years old, unsuccessful, and critical of capitalism, he published The Human Drift. It was a blueprint for a sort of mega-condo socialist paradise in upstate New York with 24,000 apartment buildings--hydropowered by Niagara Falls--that would be home to millions. Finding few takers, Gillette returned his focus to facial hair.
But in 1910, with his firm thriving, Gillette created the World Corporation, "which he hopes to make the nucleus for the amalgamation of all the industries on earth," The New York Times phlegmatically reported. Gillette still dreamed of ending human strife. Maybe we have to credit him with inventing the stretch goal, too.