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Ep.23-Jump Series: 5 Billion Dollar Beauty Brand Exits Fundamental Principles

In this episode of Jump Series, Rohit Banota, founder of Jump Accelerator and host of “What Beauty Founders Don’t Know” Podcast uncovers fundamental principles underlying 5 billion dollar beauty brand exits


Timestamps and Key Insights

01:29.3-Introduction to exit fundamental principles vs. playbook

02:50.0-K18 Hair $billion exit to Unilever in 2024

08:18.0-Paula’s Choice acquired by Unilever for $2B in 2021

12:58.1-Dollar Shave Club bought by Unilever in 2019 for $1B

15:52.9-IT Cosmetics acquired by L’Oreal in 2016 for $1.2B

18:46.2-Too Faced acquired by Estee Lauder in 2016 for $1.45B

21:25.8-Overall fundamental principles for all 5 billion dollar beauty brand exits

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  So why did Unilever JUMP to buy K18? Let’s go through different reasons that I’ve come up with A. Innovation.

The patented novel molecule K18 solves an unsolved problems. Nobody was solving this problem by mimicking the structure of human hair to reverse chemical damage. So it’s a unique problem. It’s an unsolved problem. And the solution is disruptive, but with a high risk reward equation that K18 managed to successfully market on all growth engines:

acquisition, loyalty, and advocacy, including cracking the code on innovation trials and adoption with the go to market strategy. So that was number one.

All right, let’s talk about billion dollar beauty exit fundamentals. What can we learn from the billion dollar exits of indie beauty brands? Founders, strategics and investors often try to emulate a winning formula that took a brand to a hundred million dollar plus in revenues and attracted an exit.

Everybody wants that. Is there a playbook early stage beauty founders can implement if they target an exit. Or are there even deeper fundamental principles? Just a little bit of a distinction between a playbook and fundamental principles, even though a playbook can have fundamental principles, but in the usual parlance, people think of playbook as very specific examples.

For example, somebody might say, Drunk Elephant going exclusive with Sephora, reaching $120 million in annual revenue, and then using that, to get bought, for an exit of over $600 or $800 million. I am not going to cover such slightly specific examples. Rather, we’ll look at deep underlying fundamental principles.

And I’ll take the example of 5 $billion exits of indie beauty brands to corporates or mainstream conglomerates in beauty. Let’s JUMP in.

The first is K18 Hair. Unilever acquired K18 in March of 2024 for supposedly greater than a billion dollars. Unilever declared acquiring K18 here in December 23 and completed the acquisition in March of 24.

Founded in 2020 by Suveen Sahib and Britta Cox, K18 is a fast growing beauty brand that runs on biotechnology. It has been at the forefront of using social media to educate and engage consumers about the science of hair. Range of six hair products helps identify and address the cause of hair damage, making them a favorite with both professionals and consumers.

It’s first novel molecule, K18 peptide, which it has patented, mimics the human keratin structure to reverse chemical damage on all hair types in minutes, helping to replace complex hair treatment routines with immediate results. Suveen Sahib and Britta Cox spent nearly a decade on research and development to create the novel molecule K18 peptide.

Like I said, it mimics the keratin structure and this is a learning. Lot of founders, sometimes they just buy formulas from outside and it depends upon what kind of brand you want to build. But if you really want to be an innovative brand, especially when it comes to your formulation, the number of

iterations that you will do and a heuristic could be just the number of years that you will spend in perfecting that formulation with the end result in mind will be a big driver, will be a big predictor of a success in the future. So why did Unilever JUMP to buy K18? Let’s go through different reasons that I’ve come up with A. Innovation.

The patented novel molecule K18 solves an unsolved problems. Nobody was solving this problem by mimicking the structure of human hair to reverse chemical damage. So it’s a unique problem. It’s an unsolved problem. And the solution is disruptive, but with a high risk reward equation that K18 managed to successfully market on all growth engines:

acquisition, loyalty, and advocacy, including cracking the code on innovation trials and adoption with the go to market strategy. So that was number one. B, the brand’s more considerable strength, which drove innovation diffusion and likely impressed Unilever, Was its proof of concept for saving time and frustration for the end consumer, which drove innovation adoption?

C. Education and success through salons, validation for innovation by early adopters. Pro channel is the equivalent of 6x profitable superfans and subsequent results for the end consumer. D. Social media success. Ability to market a purely innovative, hair care brand, very technologically backed ability to market with the resonant content for consumers is no mean feat.

And it’s more of an above the line success. Success with salons is great. You can educate them. You have a direct interface with them. You have one on one conversations, you build relationship. They understand the education. They are very technically inclined, but to build a brand on social media, which resonates with the consumer for such a technologically advanced brand is, no mean feat.

And it’s above the line. For traditional marketers simply meant was mass media like television for marketing and advertising. Below the line, you can think of trade, at the level of retail stores below the line, even direct marketing was below the line.

Nobody uses these terms, but we just wanted to make that distinction. E, the fifth point, it was a fast brand growth. K18 experienced fast growth in high growth premium brand space. Revenue growth with a disruptive solution for an on trend, unsolved problem with a solution that has cultural validation.

Let’s JUMP to conclusions. What is JUMP’s conclusion with K 18s acquisition by Unilever? The conclusion that I will give for each of the 5 $billion exits for beauty brands go beyond that brand. So these are learnings. I’m JUMPing to these conclusions, but these can be applied to your beauty brand or any beauty brand for that matter.

So these are the fundamental principles. “You elevate the category with tech and a patented disruptive innovation that solves an unsolved problem. Then wow the pro channel for innovation validation, create communities and resonance with the early and late mainstream consumer both with and beyond social media and then ability to grow the brand fast in a high growth trending premium space tracking the innovation adoption for disruptive innovation and achieve profitability on the route to a $100 million solution, thereby checking all the boxes while being a disruptor.”

So you see, that is the theory. Now, that is the underlying fundamental principle, which, k 18 succeeded on or used to succeed this wildly and then ultimately get acquired for a billion dollars. That is the reason that Unilever paid such, supposedly paid such big amount for a brand like K 18. Next, the next example is again, Unilever’s acquisition of Paula’s Choice in June of 2021 for $2 billion.

Under the stewardship of TA Associates, the private equity firm. Unilever acquired Paula’s Choice in 2016 and there was also one more capital firm involved Bertram. A bit about Paula’s Choice. The brand had made over 300 million dollars before its acquisition, over two decades after its launch and was one of the most prominent DTC beauty players globally.

It values like transparency, distinguished it from other brands in Unilever’s arsenal at that time. Just pay attention $300 million in annual sales. Every brand that I speak to, I shouldn’t say every brand, most of the Indie beauty brands that are doing five or $10 million.

And they are dreaming of, they’re already thinking of why doesn’t the big, mainstream brand buy me. And if you do this $10, $20 million, I’m not saying, that you cannot get acquired. You can. L’Oreal acquired Thayer’s Remedies, which was only doing $40 million in annual revenues for, close to $400 million.

But if you are dreaming of a billion dollar exit, then your revenue has to be above a hundred million dollars to say the least. Now, I’ll give you another example, which has a connection with Paula’s Choice acquisition by Unilever, and that another brand, that Unilever lapped up was Tatcha. It had beautiful branding.

With a meticulously crafted Japanese cultural story highlighting ingredients like green tea, rice powder, and algae, , the founder Vicky Tsai’s’s first product launch, $47 blotting paper was also disruptive and became a must carry in makeup bags. So there’s a connection and I’ll come to that.

Why did Unilever JUMP to buy Paula’s Choice? And I will connect it to Tatcha also, like I’ll use Tatcha’s acquisition to reinforce the theory for Paula’s Choice. Again, why did Unilever JUMP to buy Paula’s Choice? Let’s start with A. Founder story. Unilever loves the founder story.

In particular, says Lindsay Carlson, Managing Director of Investment Bank, William Blair. And I take it even beyond and say, not just founder, but also brand story should be added to the mix.

Multicultural consumer, multicultural focus of Paula’s Choice, and which is the ethnic consumer. And this is a priority for Unilever because it helps them get incremental penetration in the West. And the lessons can also be applied to other regions in emerging markets. Also targeting and penetrating the people of color market.

And this is where Tatcha’s story, reinforces this theory, because that’s another example of a multicultural relevant story with beautiful branding and stories around Japan, culturally resonant tale that has found reception in the West. Again, another brand, Shea Moisture, that was acquired by Unilever, tells that Unilever is focused on, does prioritize multicultural and multiculturalism.

Uh, and ethnic stories for penetration into new consumer segments. C. Premium high growth categories. So just like K18 Hair and other acquisitions, Unilever has an appetite for proven disruptive solutions in the high growth premium skincare segment.

So the brand has to grow fast. The category has to be high growth and also the premium segment. D. Portfolio fit. So incremental to other brands. That is obvious. You don’t want to cannibalize, another brand. You want it to fit within the portfolio best. E. Growth and revenues of PC crossing $300 million were validation for penetrating the late mainstream market.

So not just the early adopters or early mainstream for a billion dollar exit by a very big corporate, you also need validation for success with late mainstream consumer. So JUMPing to conclusion, “you enter a new high growth and high margin category to solve a unique problem unsolved by the mainstream brands for the multicultural segment of consumers,

pay attention here, concentrated in big enough geographies, but these consumers are also spread throughout the globe. You show consistent traction and scale with that one particular geography over a few years, go way beyond 100 million dollars in revenues to show validation of penetrating the late mainstream market” So that was the theory that can be applied to other beauty brands Again, the third example just so happens that I have Unilever here It was not planned,

we’re looking at billion dollar exits, right? So Dollar Shave Club in February of 2019 Unilever bought it for 1 billion dollars. Unilever was the victor in a public battle with P&G for Dollar Shave Club, a disruptor in the shaving category and one of the first direct to consumer phenomena. It was doing nearly $200 million in annual revenue when it was acquired.

While such a high profile acquisition, Dollar Shave Club hasn’t entirely produced the results Unilever expected in the last four plus years why did Unilever JUMP to buy Dollar Shave Club? A. Direct to consumer channel was trending then and was seen as a disruptor, high growth channel and Unilever wanted to both capture and learn about the channel.

B. Portfolio gap, Unilever did not have a men’s shaving brand in its portfolio. And the direct to consumer trend, disruptive brand idea, and viral sensation seemed like the perfect serendipitous emergence to achieve success with the men’s category. C. Competitive strategy, a category and a channel that Unilever could potentially use to take on Gillette of P& G.

So P&G is doing very well in the men’s shaving category. B. Success with founder Michael Dubin led social campaigns, which was at that time one of the first, maybe the first or one of the first brand or founder led social media campaigns that went viral. And then a very innovative business model of subscription to Razorblades.

It was an absolutely brand new introduction. And Unilever thought, with all these points, including competitive strategy, innovative business model, social media, new channel, et cetera, and, taking on P& G, Unilever hoped that this would be a great return on investment, which hasn’t quite turned out.

So what is the JUMP to conclusion here? What’s the JUMP conclusion? A theory or fundamental principle that can be applied even to your beauty brand or other brands. These are slightly less specific and that’s why they’re fundamental principles. I will do a playbook later on. Another podcast on the same.

So JUMP Conclusion is “emergent and disruptive high growth channel seen as peaking and the future of commerce for the category that would not only add to the portfolio of the acquiring company or brand. But also would help enter a new category with a brand targeting a new consumer segment and on a rocket ship using a disruptive business model to $200 million.

In this case, it was within eight years, but the point I’m trying to make is in as fewer years as possible. And to top it all, the acquisition could have been leveraged, could be leveraged as a competitive strategy against the big corporate competitor for the acquirer. “

Fourth example, L’Oreal’s IT Cosmetics.

It acquired IT Cosmetics for $1. 2 billion in August of 2016 and was among the first to enter the $1 billion acquisition club. IT Cosmetics partners with plastic surgeons to create clinically validated, innovative and problem focused products that leverage ahead of the curve anti aging tech and skin friendly formulations to empower your most beautiful self.

So why would L’Oreal have JUMPed to buy IT Cosmetics? Let’s go through the reasons one by one. One, clinically proven and culturally relevant solution. ahead of the curve technology and they built validation with Pro Channel, the plastic surgeons are the experts, they’re the opinion leaders.

So they created these products, these solutions in collaboration with these, professional channel experts, the plastic surgeons. Founder Jamie Kern Lima, used founder influencer versus traditional advertising model, which The big companies have expertise in, but she used a totally new to them founder influencer model as a success mantra for resonance with the end consumers.

E. Outstanding traction with both early adopters and mainstream consumers. Then bolder and edgier branding and messaging with super effective formulas in a growing category for the younger demographic. Most of these big beauty brands usually go, they want to catch them young. So that’s why they go for the younger demographic when it comes to acquiring brands that target younger demographics.

So they go for such brands. It entices them. Then G, high growth potential category focused on by specialty beauty retailers. So again, the channel, there’s a channel that is focused on that high growth potential category. JUMP Conclusion. “You can use a cutting edge patented technology, you can create solutions together using that technology with a pro channel specialist. Like I said, in this case it was plastic surgeons. Some other brands are doing it with dermatologists, et cetera. With a new wave of founder influencer content resonance on social versus traditional advertising or influencers with outstanding traction in high growth potential category with both early and late mainstream consumers targeting a new segment of consumers, brand or category, with very high consumer lifetime value in years and dollars and a fit dominant and trending channel,

focused on and driving the growth.” That’s a learning. That’s a fundamental principle you can apply from this acquisition of IT Cosmetics by L’Oreal.

Let’s come to the fifth and the last example, Estee Lauder’s Too Faced acquisition for $1. 45 billion. And it was the biggest deal at that time in 2016, and it led to a cascading effect of other big guns getting interested in acquiring indie beauty brands that have scaled over a hundred million dollars for an amount of over a billion dollars. So Too Faced is one of the fastest growing makeup brands in specialty multi and online channels, especially when it got acquired. Why did Estee then buy Too Faced?

Fast growth brand is like I said, within a fast growth prestige category with revenues in hundreds of millions of dollars. Specialty department stores and online channel, it helps penetrate the specialty beauty and department stores, which is incremental for Estee, it was incremental for Estee. New consumers with millennials, again, at that time they were millennials and they were slightly younger audience for Estee’s other brands too, like Estee with its portfolio wasn’t quite attracting such kind of consumers.

Then relatively younger audience. It extended Estee’s reach. . Portfolio strategy fit. It strengthened Estee’s position in high growth prestige makeup category across the globe. New consumers, like I said, winning with millennials. So what is JUMP’s conclusion for the same? “A high growth brand in a high growth prestige category with incremental penetration in multiple emerging channels.

Hundreds of millions of dollars in revenue. Why am I stressing this multi channels and hundreds of millions of dollars? Because once you cross hundreds of millions of dollars, you need multiple channels. And that’s what, when people say Drunk Elephant playbook is dead, I was reading it on a beauty independent article.

They did it exclusively with Sephora. So you might still be able to do exclusively with one retailer, a hundred millions of dollars. I doubt it in today’s times. It depends on the category though, but then to get interest of a big gun, especially for an amount over a billion dollars, they need to see, how well can you do with multiple channels, uh, and a broader consumer segment and then access to a new consumer segment and adding a growth driver brand to the portfolio” any big gun that is going to shell out 1 billion.

Yeah. For an early I shouldn’t call them early anymore for the late stage beauty brand that is hundreds of millions of dollars, will do so Because it still sees, 10x growth potential at least meaning it wants to add growth Brands to its portfolio.

Let’s summarize the overall fundamental principle across the billion dollar beauty exit that we studied.

And then we had a fundamental principle underlying each of those exits, which I called JUMP to conclusion or JUMP conclusion. And let’s combine all of those fundamental principles together in one and see if we can come up with Core billion dollar beauty brand exexitundamental principle.

Here it is: “high growth brand in a high growth category with premium margins, solving a unique unsolved problem with access to a new consumer segment.

And I hate to say it, but ideally younger high consumer lifetime value, both in years and dollars, or it could even be an underserved market concentrate in multiple geographies and spread globally. With demonstrated success across both early and late mainstream consumers and way beyond 100 million in revenue, preferably profitable, highly preferably profitable.

You should be profitable once you enter eight figures. I say you should always have profitability as a goal and it should provide an access to a new and emerging channel with potential for massive scale to the acquirer and innovative use of high touch media. And in the end, it drives the portfolio growth.”

So this is the complete summary, the fundamental principle of billion dollar exit for indie beauty brands. To read the transcript, because you can go and read the case studies again for each of these acquisitions, read the fundamental principle underlying each acquisition that can be applied to your beauty brand or other beauty brands.

And then also read and revise the overall fundamental principle across all billion dollar beauty brand exits. You could go to my site, read the transcript there. You can bookmark it or copy critical points. Go to JUMP accelerator. com. And you can spend two to three minutes over the playbook for billion dollar beauty brand exits.

Like I said, I call it fundamental principles. It’s not quite the playbook. I will come up with a playbook, in one of my next episodes. So do subscribe, like, and I would love a review on this episode. What are your thoughts? Anything that you’re thinking of, any questions in your mind or anything that you want me to cover, please respond in Q and A, or just shoot me an email.

Thank you

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