Unconventional Commerce Podcast
Season 1 Episode 3

From bootstrapping to booming business.

How Hero Cosmetics built a profitable and remarkable DTC brand in a competitive skincare market.



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If you're like me, standing in the skincare aisle of any pharmacy is utterly overwhelming. The shelves are dominated by the same mega-brands that even my parents grew up with (hello there, Neutrogena).

Despite the incredibly crowded skincare market, Ju Rhyu saw an opening. So Ju and her co-founder developed a novel new product: the acne patch.

In 2017, Hero Cosmetics was born. Their Mighty Patch product is now found in over 2,500 retail locations and they sell a box of their acne patches every 15 seconds.

Hero Cosmetics hasn't raised traditional VC funding. Instead, they've cleverly bootstrapped the business by using Amazon. But I wanted to know, is Amazon a good platform for a DTC brand? And how do they stay ahead when the competition has such deep billion-dollar ad pockets?

Listen to the episode above to hear her story.

Top Quotes:

"We flipped the DTC playbook on its head. The easiest and quickest way for us to validate demand for the product was to first launch on Amazon." [Tweet this quote]
"Amazon is a very efficient channel and it's still our most efficient channel in terms of ROAS and profitability." [Tweet this quote]
"The strategy before was raise a lot and it's okay to operate in the losses because you're just gonna raise another round later. It's growth at all costs. But I think the pendulum is finally swinging the other way." [Tweet this quote]
"I welcome new competitors bc together, we will educate the market about this new product category. But it's important to really stay ahead in terms of messaging + positioning so that in people's minds, there's no question how we're different." [Tweet this quote]
"I always felt omni-channel was the right strategy us, because acne affects a lot of different people from all walks of life and they should all have access to the product. So wherever they buy acne products, we want to be there." [Tweet this quote]
"Going into wholesale and selling products with a big partner can really transform your business immediately." [Tweet this quote]
"Create the demand first and then the retailers will come." [Tweet this quote]
"There was a big wave of “DTC is better” bc we're cutting out the middleman and passing on the savings. DTC can actually be super resource-intensive and actually not as profitable as other channels." [Tweet this quote]

Transcript

[00:01:04]Ju: We flipped the DTC playbook on its head because we did Amazon. Then we went into retail and then to a DTC site. So we did it backwards. I have two co-founders and when we launched Hero Cosmetics, we launched with one product.

[00:01:18] We were bootstrapped and we launched it as a pilot and to test to see if there was demand for this type of product and then, being bootstrapped, was like the easiest and quickest thing to do. And cheapest thing to do was actually just to put it on Amazon. To be a third party marketplace seller.

[00:01:35] You just put up your product page, you set up the fulfillment systems. You write some copy, you run some ads. And then, and for us, it was really about proving product market fit. In the beginning and we could quickly do that and within 90 days we sold out of our first purchase order of inventory.

[00:01:54] And then actually like looking back at it, and we're three years later, like we're still bootstrapped and realize it actually helped us a lot because Amazon is a very efficient channel and it's still our most efficient channel in terms of ROAS and in terms of profitability. And then also you get paid at least every two weeks.

[00:02:18] And so it actually was, like, a great tactic in terms of starting our company and then having cash and profits to be able to reinvest into the company and then launch into channels like wholesale and then launch a DTC site and not have to raise any money.

[00:02:35] Jess: I think that's awesome. Do you foresee a world where you will move off Amazon or do you plan to stay on that for at least the foreseeable future?

[00:02:46]Ju: We will stay on Amazon, I think. Yeah, definitely for the foreseeable future. It was really interesting too, because during COVID, since a lot of the non-essential retail stores shut down, everyone started moving to Amazon and other essential retailers. So actually like our business on Amazon only got stronger this year.

[00:03:06] And I think since we're a third party marketplace seller, we still maintain a lot of control over our product and our pricing and our messaging and things like that. And it's still, again, our most efficient channels. So I really don't see us moving off of Amazon at all.

[00:03:22] And yeah, there's always that debate of to do Amazon or not to do Amazon. And so I'm a big proponent of Amazon. But I think the right way to do is to be a third party seller.

[00:03:32] Jess: And you bring up a lot of benefits regarding Amazon, which I think sometimes is forgotten, particularly in e-commerce. But two of the biggest complaints that come from listing on Amazon is, you don't have control over competitive products or the fact that there are a lot of competitive products put side by side against yours. And then also the lack of not having that direct connection or direct relationship with the customer. Is that something that's important to you? Have you had issues with that?

[00:04:01]Ju:  So for the second part of the question about not having the direct relationship with their customer, it's basically the same thing as selling into wholesale. So we also sell at Target. They're a great retail partner for us and we don't own their guests

[00:04:19] So personally, I don't really see an issue with that part. And then the first part of your question, we have had issues with the competition, and actually in the past few years there have been so many acne patch  brands that have popped up on Amazon. And actually we've had like direct copies of our product show up on Amazon and then attach themselves for our page. So it is true. It's something you have to be mindful of and you have to be on it and really be on the offensive with it. But, but I still think the benefits outweigh the negatives for Amazon.

[00:04:56] And it's not like a set it and forget it type of channel. You do have to be on top of it all the time. If you do and you do it the right way, I think it's a channel that can really be great.

[00:05:06] Jess: I think that's a great way to leverage an existing ecosystem to do the lean startup way of testing product market fit with it with the new product. So when you talked about bootstrapping, I'm a big believer that bootstrapping is beautiful. So I think that's a great strategy. You talked about before that you wanted to order another PO, but you didn't actually have the cash or the capital to do that. So there's a lot of cases where brands are strapped and not able to order more inventory, thus, to sell more, to then grow because they don't have the cash in the bank to do that.

[00:05:39] So how did you approach that? And in the early days, what's your thought process around that?

[00:05:44]Ju: Yeah, I think it's a hard issue for a lot of people. And so in the early days, again, we're bootstrapped and we didn't have deep pockets or a lot of investors. We were growing and then initially we were growing really fast and I was paying bills and I was like, Oh my gosh, we don't have a lot in the bank. And so one way that we found a solution for that was we actually, we loaned the company money. So we all put in money. And for me, it was really important that the company be able to stand on its own two feet.

[00:06:18] I didn't want it to be a money pit where, we just kept throwing money at problems. And so we structured it as a loan with payment installments over, I forget like 12 months, I think something like that. So it solved that immediate cash need. And then, I think it allowed the company to continue to operate, too, it was a good, basically a temporary solution.

[00:06:42] And then, it kinda got us over that hump. And then once we got over that hump, it was like we started doing other things, like extending our payment terms with vendors, trying to collect as quickly as possible. And then, and then since then it's been okay. We actually have a line of credit with a bank, which also is very helpful. So there are definitely solutions.

[00:07:03] Jess:  There are more options than just getting VC capital, which is good to know. And do you plan actually to take any venture funding at some point in the future?

[00:07:13] Ju:  You know what, it's always a question in our minds and it's always a question of do we or don't we, and then if we do…when? We are a profitable company, so we don't need to raise, like we wouldn't be raising, because if we don't raise, we're gonna run out of money. Actually if we raise, it would be to be able to build our company faster and to really, put fuel on the fire.

[00:07:37] It's always been, it's always been a question that we still don't have the answer to, but luckily we're in a position where it can be for us, it's a choice rather than a necessity.

[00:07:48] I was never really a fan of that kind of VC DTC game of raising a ton of money. And it just didn't make sense, at least for our category, which is more like CPG personal care. And I do think, if you are, especially now, if you're a profitable company, it makes you a lot more attractive, not only for investment, but also for acquisition.

[00:08:09] And I think that was something that people ignored, the strategy before was raise a lot, and, it's okay to operate a business in the losses because you're just gonna raise another round later anyways. And it's growth at all costs, but I think the pendulum is swinging in the other way.

[00:08:26] And that's how we've been building this, building this business from the very beginning is building more of a profitable company that can actually stand on its own two feet. And I think it puts us in a better position, with options.

[00:08:39] Jess: And as an industry, I think we in the media have tend to glorify the startups that raise a ton with super high valuations, but yet, underlying on the flywheel of losses, so to speak. And I think you're right, that I think that sentiment is starting to change a little bit where we're starting to celebrate profitability and celebrate other ways to grow a business that are more, they're doing it their way over the longer term, however it might be.

[00:09:12] Ju:  Yeah, because I tell you, sometimes I will joke or think to myself, Oh, if I had $10 million, like I could do

[00:09:19] Jess:  Sure I'll take that too!

[00:09:21] Ju: And yeah, and it's actually, it can be harder to build a business profitably without any funding and yeah, I'm vocal about it because I think, those stories don't get told enough.

[00:09:34] And I think that's unfortunate because I think to your point, like it should be.

[00:09:38] Jess:  One thing that you touched on a little bit when we talked about Amazon and we talked about competition…one of the questions, the biggest questions I had for you earlier was especially, acne products and skincare as a category is already very competitive.

[00:09:57] You come into the market with this patch product. You mentioned that there's already companies developing similar products. How do you combat that? How do you think about it because I think when you launch the product, it was super novel, but now it's starting to become more competitive.

[00:10:12] So how do you think about your moat going forward? And going against competitors, what's your approach?

[00:10:18]Ju:  So when we launched three years ago, it was basically a new product category. So on one hand, when I look at the new, like the competition and the new entrants, I welcome them because I think together, collectively, we will continue to educate and market to people about this new product category.

[00:10:38] Because it requires spreading awareness about it that it exists. So on one hand I'm like, Oh, great. Yes collectively, we're going to make the category and the pie bigger. So that's good. But then to your point, at some point, I mean they're still our competition.

[00:10:53] And so we try to really differentiate and stay ahead of them in terms of messaging, in terms of positioning, We really try to communicate our product difference and differentiation as well. And then, it's funny because we're like, there are some brands that had launched maybe like a year or two or so, later than us.

[00:11:16] But we're already thinking like three to five years ahead. So it'll be curious to see, I'll be curious to see what they do. but for us, it's really about fine tuning the messaging, the positioning, so that in people's minds, like there's no question how we're different, and really setting ourselves apart in that way.

[00:11:35] Jess: And I imagine distribution is also a big part of this too, because you're very, for wholesale. And again, this also comes from your Amazon experience, but you're very multi distributed as a company, especially as early as a brand, as you are too. So what was your thought process of.

[00:11:53]when to go into wholesale. And how did you that, because I think there's some arguments that the brand should master its category first and then think about expansion. Did you, did you have any issues with that? How did you think about going into wholesale?

[00:12:08] Ju: [00:12:08] I always felt that omni-channel was the right strategy for a company like ours, because acne affects a lot of different people from all walks of life and they should all have access to the product. So wherever they buy acne products, we want to be there.

[00:12:25] So whether it's like a CVS or an Ulta or Sephora or Amazon, we want it to be there. And then actually your previous question, you asked about moats, and I do think that distribution is moat because the idea was, let's use our one product Mighty Patch as a kind of beachhead to get into all these retailers and to get the distribution.

[00:12:48] And then once we have those relationships just continuously launch and bring in new products into these partners. We opened up a lot in specialty retail. And that was great for brand building. I think those channels tend to be trend forward tastemakers.

[00:13:11] It's great for market validation. And then 2019, we launched at Target. So that was more mass marketing. And then we'll continue to roll out new distribution partners, where it makes sense, but I'm a big fan of wholesale because it immediately, I think brings new customers into your brand.

[00:13:29] We have reviews on our website where people say, Oh, I tried your product at this retailer, and I'm now on your website to buy your other products. So in terms of discovery, it can help a lot. And then, obviously not to mention, not, you have to mention the  revenue impact too.

[00:13:45] So when you enter a big, big partner, it can really transform your business actually, pretty immediately.

[00:13:52] Jess: Did you have any lessons or failures as you looked to go into wholesale? Because it can be either really expensive or it's just like super hard, right? Like you're figuring out which retailers they get into working with brokers, filling out applications, all that. Did that go smoothly for you?

[00:14:10]Ju: [00:14:10] It went pretty smoothly. I think we were lucky because we had a product category that was pretty new. I'm a big fan of create the demand and then the retailers will come. Like my tactic was really focused on PR build sort of your social presence.

[00:14:30] So in 2017 we launched on Amazon and then I started putting out press and then in 2018 we're getting a lot of press and then the retail buyers would read it. And then actually, I've got a fair number of inbound requests from retailers.

[00:14:46] Neiman Marcus was an inbound request. I think Goop was an inbound request. urban Outfitters, I think was an inbound request. So I had a fair number and it was due to the PR and also on Instagram, I think the buyers would find us on Instagram, and be like, “Oh, this is a cool product! I want to carry it!”

[00:15:03] So that tactic works really well. So if you can show that your product or your business is, that people talk about it and they want it and there's buzz about it, then it makes selling into retail a lot easier.

[00:15:20] Jess: And one thing that was also eye opening about our last conversation regarding products specifically is you said that it was a dirty secret that everyone works for the same lab. And so you having formula ownership is less important. Is that, do you, do you still believe in that?

[00:15:47]Ju:  It depends on your category, but for us in skincare, yeah, it is a dirty secret that a lot of companies, even big ones, work with the same labs as many other companies and brands. Which is why, I think in skincare and beauty, like the branding and the community, and also the distribution strategy is very important.

[00:16:09] And those can act like the moat. Because actually what people do is they, in the beauty industry you'll buy a product and you reverse engineer things that you like about it. I think Jamie Schmidt talks about this a lot, but I think for acquirers and the strategics, they care a lot about, IP and formula ownership.

[00:16:28] And so for that reason, I think, it's something that's important because it's not, it's valued for people who may be interested in partnering with your company. But then for me, just personally, my point of view was like, why is it important? Because yeah, like we all kind of work with the same labs and have some more types of products.

[00:16:49] And I still feel that way, but I understand the point of why people might value IP and then the formulas for ownership. I do understand why, because it is such a competitive category and that you need every advantage that you can find.

[00:17:06] Jess: [00:17:06] It’s similar to the Coca-Cola approach, right? Where they protect the recipe is close to the best as possible. I would even say same for McDonald's fries. Like I want to know why their fries are so much better than everyone else's.

[00:17:18] Ju:  Yeah. They are.

[00:17:19] Jess: Oh good. Okay. Now I'm hungry. that, I think that makes it makes total sense and going back to your strategic reasoning for thinking about distribution in that way.

[00:17:29] And again, I'm going to quote you and if you want to take back your quote, you're more than welcome, but you said “DTC is overhyped.” And is that because you think it's, do you believe that DTC cannot sustain as that as its core channel? Do you think companies have to become omni-channel.

[00:17:46]Ju:  I don't think they have to but there was such a like big wave of “DTC is better” because we're cutting out the middleman and we're passing the savings onto you. And, we own the customer relationship. We have all the data, which are all like very valid points and it is, I think that's why DTC is really great.

[00:18:09] And I think it is critical to have DTC as a touch point, in your distribution strategy for sure. But I think all the arguments of it being the end all be all, and retail is over, I think is overblown. And, I think a lot of times DTC can be super resource intensive and actually probably not as profitable as other channels.

[00:18:32] Which I think a lot of people in the DTC world probably don't talk about, or maybe they don't realize. And again, it probably depends on your business model and your product category, but for us, I think purchase accessibility is really important. And so we wanted our products to be available wherever people buy them.

[00:18:52] And it happens to be for us, like in store, online on Amazon, et cetera. But, yeah. So for us, I think DTC makes sense as like part of an omni-channel strategy. When I look at, the business DTC is, with CAC increasing and everything that you need in terms of optimizing and maintaining your website and things like that, it's a very resource intensive channel for sure.

[00:19:17]Jess: I'm all for e-commerce and they believe that's the future, like I still go to CVS to buy like skincare stuff a lot of the time. And obviously I use online. Mine is a way to discover new products and try new products that aren't available in stores. Because as a consumer, I'm still sick and tired of seeing the same brands over and over again at a pharmacy.

[00:19:36] But I think it's really important and I laugh that you're seeing this transition of DTC starting to invest more in retail. And then you see retailers investing more in DTC. So I think it's Omni channel for everyone, right?

[00:19:48] Ju: Yeah, I think so!

[00:19:50] Jess: And I'm changing subjects a little bit. I want to talk about your content strategy specifically, because one thing that I noticed about hero cosmetics and that I really appreciate is how much content and how much education you create.

[00:20:01] And I know that comes from the fact that you're a new product category, so that education is central. Tell me if you disagree, but I believe that there's not enough being done to focus on content and inbound, because a lot of the times the offer or the content in e-commerce is the sale. It's the discount. And there's so many other things that could be talked about or be championed around. Tell me a little bit more about your decision to focus on developing content and how do you think about that impacting your brand?

[00:20:39] Ju: We have our blog and that's where we do a lot of education but it's also great for SEO. But to your point, it's an investment because you're not going to see the results overnight in terms of it bringing traffic or people to your website.

[00:20:56] But again, it was going to be a differentiator for us and for our brand. We wanted to educate people on what this product category is, what it does, what it's made out of. And then, and we needed a platform to do that. And so that became our blog. But quickly, pretty quickly we saw that one of our early blog posts.

[00:21:18] It brought a lot of traffic to our website. and the blog post is “what does hydrocolloid do and how does it work?” and I think still it's like one of our best performing post. And so when we started seeing that, we were like, Oh, we should continue to invest in this, even though it is a long game, but people want this type of content.

[00:21:38] They respond to this type of content and it's good for the business. It brings people to our website. And then we use email to disseminate the content. Pretty often, like probably once a week we have emails going out to our audience, and it points back to a lot of our blog posts.

[00:21:58] And that's been really helpful because it also converts, usually into a sale. So it's almost, it's like a soft sale tactic. Like we don't directly make a sale through this type of content. But naturally and organically, it leads people, it gets people interested.

[00:22:15] It leads people to the site and then they end up buying something. and then the content on our social is, it's more kind of brand focused. We do inject humor or personality. We invite our community. So we get, we do lives and different Intagram stories with fans and customers of ours and influencers as well.

[00:22:39] So each touch point is a little bit different. And then each touch point also has a different sort of pay off. I think with Instagram, we'll see a conversion much faster and then maybe from a blog post. But then, they each have their own, part or piece in the holistic strategy.

[00:22:56] Jess: That's great. Cause I think one mistake that I see a lot of folks make is they equate content to blogging, and that is a piece of it, but it's not the only piece. And so you're thinking about it as also a multi-channel approach, but I just have to applaud you for your content. Cause I know it's time consuming and it's hard work, but you do a great job with that.

[00:23:14] One final question for you, is there any type of either best practice, trend or conventional wisdom that you hear about in either business or when e-commerce, that drives you crazy and that you might think is wrong or broken?

[00:23:30]Ju: It’s funny, I was talking about this with someone because some people will say, like in general, I approach my life and my business very practically. And so people will say “Oh, never started a company with a goal of selling it.” That where people will say, if you really believe in your vision, you should never give up.

[00:23:51] Both of which I disagree with because so the first one, I actually think if you have the intent to, at some point sell your company, you would build a very different company. Because if you reverse engineer your company to be attractive for a sale, you're going to think about things like you gotta be profitable.

[00:24:10] You gotta think about IP. You gotta make sure, like everything's really, buttoned up, in terms of legal and liability. And I think when you have that lens, you would build your company differently, versus, maybe building it out of passion. And then the second part is, if you really believe in your vision, you should never give up. But, that I also disagree with because sometimes, you just can't fit a square peg in a round hole. And with our business, I, again, I didn't want it, my fear was that I was going to be like that I'm really stubborn and just, this company would be a money pit and I'd just be like throwing money at it to solve problems.

[00:25:01] When actually, that may have been masking problems. And so in the very beginning we had my two co-founders, we had a meeting and we were like, okay, maybe six or we should have a game plan where six to 12 months in, if things are going really well, we'll decide to continue.

[00:25:18] If things are not going well with, we'll decide to fold. And then what do we do about like that in-between level? Okay…the business is working when it's not really taking off, what did we decide to do then? So we put those like guard rails in so that we wouldn't keep chasing after potentially a business that wasn't really going to go anywhere.

[00:25:39] And, I'm glad that we did that, because I think, otherwise it could have taken up, if the business was like not really going well, it could have taken up a lot of time and a lot of money and a lot of resources, what, perhaps we should have folded much earlier.

[00:25:53] Jess:  Speaking of our love for podcasts earlier, I had actually just recently listened to one where the topic was. How do you know when to give up? and I think we have a culture that tends to. what's the word I'm looking for, but like not, failure, is frowned upon and giving up is frowned upon, but I totally appreciate your perspective on it could actually be a good thing.

[00:26:18] And to do that. And it's actually, yeah, I totally agree with you on that. So thank you so much for, for sharing that perspective. And, I'll consider this a wrap so you can get on with your day, but this has been fun. Thank you so much for giving everyone a sneak peek into your world and the company, and certainly wish you the best of luck.

[00:26:33] And thanks for being a guest on the show.

[00:26:36] Ju: Yeah, thanks for having me. It's so fun to chat..