Julie Fredrickson, co-founder and CEO at Stowaway Cosmetics, told Vogue Business that it costs at least $1.5 million to fund the first 12 to 18 months of a beauty brand. In this edition of Beauty Independent’s ongoing series posing questions to beauty entrepreneurs, we ask 13 founders and executives: Do you think it costs $1.5 million to fund the first 12 to 18 months of a beauty brand?
The funds required would heavily depend on the type of company you are building and the products you are launching. The graphic does not take into consideration how millennials view startups: minimize cost and minimize risk whenever you can.
Another consideration is the quality of the lean startup team. You have to be a jack-of-all-trades in some form. Many founders/CEOs take on roles that would normally not be in their job description. As the founder/CEO, you have a vision for almost every minute detail, which means finding proper execution has both a high fail rate and high cost. Many things are produced in-house by me and my team.
Did I think I would have to draw ever again in my life? Probably not, but here I am at 3 a.m. drawing the graphics in our basic instruction manual. Total cost: $100 for some paper. With all these existing platforms and pre-made themes, there is no reason to go for a custom build website until your concept is proven. So, the $50,000 website build can be brought down to $5,000. With social media marketing, $200,000 is similar to the amount that E.L.F. Beauty has for their marketing with $1 billion market cap. So, unless you’re at a $1 billion market cap, this number should be much lower.
Now, the biggest number: salary. The level of salary indicates a full team and a highly-paid C-Suite at that. Until you are profitable or showing high promise in ROI, I know VCs and funds would balk at using 42% of the funds delivered purely for salary alone. Market and above-market level pay is only given to proven concepts. In summary, I think your first year should really require $250,000 to $500,000 or even less if you operate with a lean team and spend funds strategically, taking advantage of whatever you can, the startup way.
Can it cost $1.5 million to fund 12 to 18 months for a new beauty brand? Absolutely! If you are launching more than one SKU and are using accredited manufacturing facilities, more likely than not these types of manufacturers will demand a high minimum order quantity, which leads you with a lot of cash invested in inventory.
Furthermore, if you plan to supply to the big retailers and need things like a third-party fulfillment center and EDI capabilities, your monthly operating costs just went up a few thousand dollars. This is the traditional way that a brand has historically been born.
The great thing about indie beauty and very entrepreneurial founders is that they find ways to manufacture in-house or work with facilities that are willing to accommodate small scale. This allows for minimal investment, and also the ability to be agile and abandon quickly what doesn’t work.
This is the advantage that true indie brands have over the big corporate brands that can’t move as quickly as the small teams that are involved in indie beauty. The big guys have too many compliance and audit paths to allow for the flexibility and risk that only indie beauty has the appetite for. This is why indie beauty is disrupting the industry. Founders are finding ways to challenge the norms of manufacturing with integrity and a mindset to do whatever it takes to bring their vision to life.
Building a successful business in the beauty industry is not as cheap as it might look. For the last five years, I have been working on the business without taking any salary or dividends. Working long hours, late nights and often finding myself in different time zones.
I have invested over $1 million of my retirement into our brand Ellie Bianca. There are days I ask myself, "Evelyne, are you crazy?" One will wonder what keeps me in the game. I love turning challenges into opportunities, and I see one here. I recently asked my team what keeps us showing up daily. It was evident that we are passionate about what we do, and we love winning. Being a social enterprise, we strongly believe in inspiring hope in other women. Slowly our brand is being a household brand, and that keeps us going.
It depends on the business goals. If the goal is to hit it big in a short period of time such as 12 to 18 months (think ThirdLove, Warby Parker, Outdoor Voices), the answer is yes. In fact, $1.5 million may not be enough. You need significant funds for two key buckets: marketing and manufacturing. Marketing is costly from creating awareness/need to expanding reach and penetrating the target audience.
The second key prong is manufacturing. Many products are produced overseas, and this requires high volume minimums and two- to three- month lead-time planning or more. In turn, distribution channels play a key role as to whether the product is shipped directly to the consumer (DTC model) or sold via wholesale channels to outlets. Plus, there are operational costs, legal costs and staffing costs. If the product possesses a significant barrier to entry for competitors and, therefore, has investors on board, this would be a good path.
If the goal is to build organically and self-fund, the build can cost less, but will take longer. This is not for the faint of heart. The benefits are controlled growth and potentially greater margins since much of the work is being done by the founder, and business needs are secured as the business builds. This model employs significant heavy lifting and wearing of many hats by the founder. It also requires partnering with key individuals/vendors to patch together an e-commerce platform that builds brand awareness and drives sales in addition to other key operational business needs.
The downside is the significant business investments by the founder. Another downside can be missed opportunities. As this model requires more time due to less funding, the budding company risks having larger more established companies jump in and leapfrog their efforts.
The bottom line is that, based on the scenarios I’ve explored, $1.5 million is a fairly realistic, good threshold to launch a new business in 12 to 18 months and create critical brand awareness.
It doesn’t take even close to $1.5 million to fund a beauty brand startup for the first 12 to 18 months if you’re willing to put in the sweat equity, that is. We’ve built our organic beauty brand by bootstrapping every aspect from the ground up. We’re a family business. We have no debt. No loans. No investors yet. And we’re revenue positive. As the founder and CEO, I still own 100% of the company shares.
We’ve taken the road less traveled and raised capital in alternative ways, mainly through pitch competitions and government grant funding. For the first 12 to 18 months of launching a beauty brand startup, it takes extreme dedication, intense hard work, borderline crazy passion, unquestionable commitment, and approximately $150,000 to $250,000 in capital funding. That figure will quickly increase if the startup decides to hire more talent or outsource help. For example, we still manufacture all of our products in-house. We grow some of our own ingredients on our family-owned acreage.
Our team is multitalented to take ownership in multiple areas, and we keep functions like marketing, digital media, website and photography in-house. It is important to me to build a brand and company that can stand on its own two legs. So, we’ve taken the approach to grow and develop as the company grows in revenues and size. When we are ready to take on investor capital in the not too far future, our company will be in a solid position for a fair valuation. In other words, sweat equity pays off.
This graphic might have been an average. It all has to do with how many products and SKUs the line produces, which can vary greatly and influence the true cost. Without going into our personal expenses, I can confirm that if you are an entrepreneur, there are no salaries taken or distributed. That is not the reality unless the brand is funded by some venture capitalist firms. I think this is a very corporate way of looking at a startup. Office space? It is all about keeping the overhead low, so home office is the reality. All the expenses listed are not indicative of everyone’s reality.
It will cost as much as you let it. We all know brilliant brands that started with nothing. And I can think of so many different ways to manage the first 12 to 18 months that I can’t put a number to it. I spent about $85,000 my first year. Most of us aren’t starting a First Aid Beauty, Milk Makeup or Glossier. Those belong to a specific ecosystem that provides a lot of support, connections and money that most of us don’t have.
Many people follow tried-and-true roadmaps to start their brands, and some of those roadmaps do cost about $1.5 million. But, unless you have extremely relevant and recent experience, that kind of funding can be a bad idea. You’re likely to make a lot of expensive mistakes. For people who haven’t done this before, it’s better to start with less and learn as you go.
Starting with less gives you focus. It also forces you to do more of the frontline work yourself, which then gives you a clearer view of the market and your customers. Finally, it gives you deeper knowledge of every part of your company, which is critical if you’re going to run an efficient, profitable ship. There’s no shortage of people who want you to spend money on branding exercises, technological upgrades, marketing efforts, etc. Having dipped your toes into all of the different waters gives you the ability to spot which initiatives are needed and which can wait.
How much does it cost? It costs whatever you have. You will find ways to spend whatever you scrape together and, hopefully, you will discover you are far more resourceful than you ever dreamed. Waiting until you get funding to start your business is wrongheaded. Many of the steps in starting your business cost almost nothing, so always look at what you can do with the resources you currently have. Tailor your efforts to your budget. Learn to build your website. Read a book on branding. Research ingredient sources. Practice your public speaking. Waiting for $1.5 million is neither realistic nor wise for most people.
The beauty industry is cutthroat. It is a saturated market. Similar to fashion, brands are constantly reinventing themselves to keep up with the Kardashians. Pun intended. To break into this market, you need to have money or a rich dad, a rich husband and rich friends, especially if you are a startup without Wall Street investors. Also, you need to have loyal business partners, thick skin, the willingness to accept failure, and a solid exit strategy.
In a 12- to 18-month period, a startup beauty company could be investing at least $1 million, but the pie chart that Vogue Business published is not representative of our company. We are a makeup line on a shoestring budget. Our husbands drive our products to beauty shows and, then, do the set up. For this, they earn an extra kiss, a hearty dinner and a backache. Our staff consist of contractors who are champions of the brand and are willing to work for pennies because they believe we will make it.
Product development has been our greatest capital outflow due to our commitment to quality ingredients. Working with chemists and manufacturers who research and support our formulas is expensive. Giveaways and influencers about $50,000 per year. For office space, we pay our mortgages so the kitchen table is just fine. We have paid very little for media and work hard to gain their interest for free exposure. We run on just-in-time inventory. When the fashion winds shift, we must be nimble with new colors and looks, not a warehouse full of last season’s rejects.
We have spent close to $1 million in the last 12 months, but we do not have anywhere near $625,000 in salary or $250,000 in product inventory. If we did, we would be in over $2 million, and I would be in divorce court. Why, one wonders, with debt mounting and failure looming would anyone even throw their hat in this ring? Like fashion and celebrity, it is glamorous. But, when you take off your makeup, you still see yourself in the mirror.
Many beauty brands have launched with modest budgets and become successful, so I don't think $1.5 million is the magic number. I suppose if the goal is to be the next big thing within the first year, then, yes, a $1 million budget might be needed. I'm not sure if this is meant to discourage would-be beauty entrepreneurs? I think it all comes down to how fast you want to grow.
Can you start a brand with less than that? Absolutely! Most small brads struggle to get $200,000 in funding, putting much of their expenses onto credit cards, mortgaging themselves and taking incredible bets on what they believe in. In order to do it properly by the book with what large companies would consider a traditional business plan, you need that kind of money, but you can also go a more modest way and significantly cut the cost.
Here is what I suggest: Founders not paying themselves salaries. Outsource IT and find very talented people for half of that. Outside NYC, for sure, you can find a young person who will help you with IT at a much lower cost. Operational overhead it is way too high. Everything you do the first 12 to 18 months is on budget. All your expenses have to be limited and carefully calculated.
Do not spend $50,000 on building the website. You can build it on your own using Shopify and, if you are not an expert, you can outsource it and build a great website for $5,000 to $10,000. Branding is very important and good designs matter, but they also cost. You want to work with a professional team in order to ensure your packaging is on point with a brand message and vision that is communicated within the first three to five seconds.
Do you need to use lab? Do you need to run tests? Most importantly, what are your MOQs? Try to limit your minimum quantity orders especially on the first run, which is more experimental. You might not make the margins you want to make, but you take much less risk.
For paid media or what I call marketing, unfortunately, I learned by hiring the wrong people who were unreliable and lied to me about their marketing experience and skills. It cost me time and money. With marketing, you can try to do it on your own using the magic of social media. However, as you grow, you need to hire a professional agency with great experience and spend the money.
For supply chain and logistics, trust me, invest in it! Deal only with professional people in this field as one wrong order can cost you returns, damages, chargebacks and, ultimately, the relationship with your vendors. However, between a fulfillment center, EDI, which is not always required and, if you can avoid it, do it as it is costly for small brands, it does not have to be $50,000.
For PR, it depends on the agency. It is smart to start with a smaller independent agency that has great contacts. You can find agencies run by great individuals that will cost you less. If you really need to cut money, you can reach out to editors on your own. It is time consuming, but, if you are on a budget and want to survive the first 12 to 18 months, do it. For giveaways, make sure that you give to the right people. It has to get into the right hands.
Office space really depends on how many people you employ. Are you the only one? Do you outsource your work? I work from home and take meetings in public spaces. You can join Blender, The Wing and WeWork, and cut the cost of initial office space. Remember cutting costs as a startup is crucial.
To start up a small business, it may take around $9,000 to $10,000 total for the first 12 to 18 months. In order to adhere to this budget, you will have to do a lot on your own, for instance, labels, some of your own graphics, taking your own product images, etc.
Approximate expenses: Logo: $250 to $300. Incorporating: $400, but it can be done cheaper if you know what you're doing. Trademarking legal expense: $500. Graphics for flyers, etc.: $500-plus. Out of pocket postage: $400. Supplies: $2,000. Marketing: $4,000. Phone: $700. Domain: $50. Barcodes: $300. Certification: $250.
Wow, $1.5 seems on the high side. Does it really take that much to create and boost a new beauty brand into the industry? What’s the ROI after 18 months? $1.5 million in sales? $3 million?
The biggest varying factor is the human capital and throughput capacity. From my analysis, you can build and nourish a brand for way less than $1.2 million to $1.5 million in the first 12 to 18 months. You can pull it off with less than $400,000. If you were to add salaries conservatively for three to four employees, including the founder, add an additional $200,000. That’s still half of the amount presented proposed by Vogue Business.
Don’t get me wrong. We’ve made some mistakes along the way, and it has probably wasted capital. Like most indie beauty entrepreneurs, you work with a limited budget. You’ll extend yourself, probably reinvent yourself along the way, test your ability to be resourceful and especially your patience.
I’m going to add this: Everyone has access to information, especially with the internet. There’s usually a phone number, a submit contact info page in order for you to access a service. Pick up the phone and dial. Be a very creative business person, and figure out how you can get the most out of every penny you spend with realistic outcomes while optimizing the output, whether you work alone or in a team. Have a clear picture of what your goal is when you spend money.
In conclusion, $1.5 million isn’t an exaggerated number. To be quite frank, it’s a wonderful budget to work with, but we would have spread this out very differently. At the end of the day, it boils down to the expectations and commitment.
$1.5 million is a lot of quiche! To answer your question directly, “Do you think it costs $1.5 million to fund the first 12 to 18 months of a beauty brand?” No, unless you don’t have a distinct competitive advantage. We’ve been able to hold costs down by bringing on the right partners and giving them a piece of the company in return for their services rather than hiring agencies and employees. I would say $100,000 to $250,000 is a better target. We believe nimbleness is important. To mastermind your brand in the first year and spend your whole nut on launch could result in a great looking brand with no buyers.