JU RHYU
Exit strategies and building an Amazon-first brand
Listen on Spotify
In this episode, Adam chats with Ju Rhyu, Co-Founder and CEO of Hero Cosmetics on her monumentous exit to Church and Dwight. They discuss Hero Cosmetics early beginnings as an Amazon-first brand, merchandising strategies, and how the Hero Cosmetics team determines their media mix across retailers and DTC. Ju also shares her approach to revenue allocation, how to find efficiencies across channels, and what the future will look like for emerging brands in 2023.
TWEETABLES
JU
[13:39 - 13:47]
In 2017 the conventional wisdom was you did not launch brands on Amazon. Amazon is not a brand builder.
[15:06 - 15:18]
And you know, fast forward 2022, we sold to Church & Dwight. And actually our Amazon capabilities was, it was a really, really attractive core capability to them.
ADAM
[15:40 - 15:52]I think if you live in a certain category and you are a sufficiently large enough brand, I think people are just simply viewing Amazon right now as another retail channel.
[16:18 - 16:23]But Amazon has created so many more opportunities for brands to tell their own unique story.
[16:26 - 16:40]
And also, I know all roads lead back to advertising in my world, but, run advertising campaigns that feel a lot like organic content.
Mm-hmm.
That drive back to Amazon consideration and Amazon purchases.
TRANSCRIPT
Welcome to Growth Sessions. We are here today with Ju Rhyu, co-founder and CEO of Hero Cosmetics. Ju, thank you so much for being here. Appreciate it.
Yeah, thanks for having me. I'm so happy to see you in person.
Yes, in person. IRL. IRL is key. We've been, uh, in France. You're in France.
Mm-hmm.
I'm in Toronto.
We're often in New York, but we never overlap.
Yeah.
Sometimes we're in France at the same time, but don't see each other as it is a big country.
I know.
But we're here now. This is amazing.
I know.
Thanks so much for being here and Ju, you are fresh off a incredibly exciting acquisition. Hero Cosmetics was acquired for over $600 million to Church & Dwight, massive CPG brand. Uh, massive CBG conglomerate. Congrats.
Thank you. Thank you.
How is everything going?
Well, I mean, it's been a whirlwind. We signed August 31. We just closed, October 13th, so it's been about two weeks since we closed. Um, I mean, I felt like I won the Super Bowl. It was just incredible. I think it was good news in a really bad news cycle. I think it's a big testament to the kind of business that we built, which really, I mean, we, we really aren't a unicorn in a lot of ways. And I'm really excited for the next chapter because I'm getting a little bit of a sense of what capabilities they have. And it's a lot. So, I think we're gonna grow a ton together.
So let, let's unbundle this a little bit cause I'm sure any, founder wants to know how they can mirror this opportunity that you've had. When did the Church & Dwight - Hero Cosmetics relationship from a chronological order begin, how long ago was it and how did you begin courting?
Um, so I don't know if I can talk a lot about the process.
Sure.
Uh, but we hired bankers.
Sure.
So we hired Financo Raymond James. They're really well known in beauty and personal care. We signed with them last year, literally a year ago. I remember signing the engagement letter with them and we did a few months of prep work. We kicked off earlier this year in March, and I mean, it was an open process. So we, we really just put ourselves out there. They helped us tell the story and it was about really figuring out who would be the right fit. And, you know, Church & Dwight, was one of the parties that we, that we met along the way. And I mean, it made a lot of sense cause I think culturally we're really similar actually, like we're both very lean and kind of have this startup mentality. Um, and, and then they have capabilities that we were really interested in. Like they have the global footprint. They are, in terms of distribution, I mean, they're everywhere. They have products in like every single store, or retailer in the US at least. And. And then I think we were interesting to them partly because of our Amazon capabilities for sure. And you know, they don't really have as much of a presence in beauty and personal care and you know, we're definitely growing like crazy. And so I think that growth was really attractive to them.
Got it. So, I guess I'll, I'll reframe that initial question rather than you courting Church & Dwight. I think the question is more so, why was now the right time for Hero to seek out an acquisition?
I mean, it's, it's kind of a bunch of different factors. Like I think internally we always had the $100 million revenue mark in the back of our heads as kind of the, the threshold for when we would seriously consider going out. And we just,
And you hit that - so you hit that?
So we hit that in 2021. We hit it actually much faster than any of us really thought. So we hit that in 2021, or we knew we, we were well on our way to hitting it in 2021, and that's when we started having serious discussions at the board level with our investors, "Hey, we're gonna be, you know, hitting this milestone. Should we start thinking about it? Should we go out?" And I think everyone agreed, yes, let's, you know, we should go for it. Um, especially even back then, the macro environment wasn't, you know, it was, I mean, it's not as crazy it is now, but there were some signs that things were going to be potentially rough this year. And so that, that made it all the more pressing in a way.
Where did the number $100 million come from? Like why is that a, why is that a magic number?
Okay, so I learned this during the process and you know, I never really questioned why $100 million was sort of like the, the metric, but you know what, it's because there is such a thing as too big to buy.
Mm-hmm.
So I think there are a lot of strategics or a lot of buyers out there where they'll write checks for a hundred to, let's say 300 million valuations, with their eyes closed, like it's not that big of a deal. But once you start getting to over 500 million in valuation and then closer to even a billion, it gets really scary and it gets that much harder. And I remember our bankers told us, if you're looking for like a billion dollar valuation, there are literally four strategics who can afford to buy, buy you.
Mm-hmm.
Like, the universe just shrinks as you get bigger. And so it was kind of, you know, we didn't wanna be too big, we didn't wanna be too big to buy, but we also wanted to maximize our, our potential and our evaluation. And so I think that's kind of the thinking around a $100 million. Like, it's not like you're still, you're not quite too big to buy where it's like really, really scary. But, but, you know, but I think that that also, is a number where you have the scale. And so a lot of people would be interested.
Got it. And so obviously they bought an incredible business that was doing over a hundred million in revenue. How, how? When a potential acquirer is looking at a business like yours asides from the actual financials. What else do you think went into the ultimate valuation number that you got?
Mm-hmm.
Or exit number that you got.
Mm-hmm. .
Um, how much is brand important? How much is team important?
Mm-hmm.
Despite that incredible revenue number, you have a very small, amazing team.
Mm-hmm.
Um, and how much is like, strategic? Strategicness within a certain category.
Mm-hmm.
Uh, and growth within that category.
Yes. So the valuation number, it's, you know, what the banker said is, a lot of people talk about like revenue multiples or EBITDA multiples. So you know, they might say, oh, if you're a fast-growing brand in beauty and personal care, you should expect between like three to five x your revenue. Or they'll say, you know, trends are shifting and people are now looking more at profit and EBITDA, and so it'll be a multiple off of EBITDA. But what I learned is that it's actually shorthand. That's not, like, that's not actually how the teams do the valuation. So they won't, you know, they're not gonna be like, oh, you're a $100 million times five, they're four, you're 500, you know, 500 million. I think the process is a lot more complicated, but they, they do something called the discounted cash flow model, where they predict, or they do like, they create a model predicting sort of your future cash flows, and then they, they discount it to see what it would be worth today. So that's kind of the longer form of, I think, how it works. And then, you know, I think there are things that they assign value to. So brand is for sure, one. I think having a really strong internal team can be a positive or sometimes it's not. If they already have the capabilities and they might not need the team, for example. And, you know, if you have a really cool, like patented technology or something like that, like that might be worth, uh, extra dollars. Conversely, I know sometimes if a founder wants to leave, that will shave off valuation dollars from the price.
Like immediately post exit.
Mm-hmm. Like I, yeah, I know someone who, who sold this company, uh, wanted to leave immediately after selling and took a 20 million dollars cut. But for him it was worth it. So like that happens. So, it's sort of a lot of like puts and takes, but I think the core of the valuation comes from that discounted cash flow model.
Cool. And, and what's next for Hero? Now that's a part of the church and white family.
We were starting to talk about integration and what that looks like. So there's, you know, there's definitely a spectrum of, integration models. So one is they keep you totally independent, and then all the other extreme is you're, you know, a hundred percent sort of integrated. So we're gonna be in that spectrum somewhere. I don't know exactly where. Um, but you know, I think right now we're in a period where we're learning about each other. Like, how are you structured? Um, what are your capabilities? Like, what kind of agencies do you work with? And I think we're realizing we're quite different actually. And so right now it's just a learning process and it's for, it's a period where the, the people are gonna get together. You know, just get to know each other, learn about how we do things. And then, I mean, you know, integration, it's gonna take a long time. It's not gonna happen overnight. I mean, we're already talking about, you know, well into next year, planning things and doing things.
You seem to be very positive about the word integration. I know having gone through m and a integration can be a.
Four letter words.
Not so positive words.
Totally.
You have a smile on your face. This is not, this is all right. You can, you're, you're.
Yeah.
You have a good perspective on things.
Well, so, um, it's, it's interesting because I, we have team members who have been through like exit processes or they've been part of companies that sold. And most people have bad experiences cause it usually means that they are going to lose their job or there's gonna be some kind of cost cutting. So I think that's where the, the bad side of, um, integration comes from. But you know, for us, we're retaining a hundred percent of our team. No one is getting fired, no one's getting let go. And I think it's because we have a really lean, strong, strong team and we have a lot of capabilities that are interesting to Church & Dwight that complement them. So, Yeah. I mean, I see it as a, you know, I think it'll be an interesting journey, but I see it as a positive thing for sure.
Cool. And you mentioned agencies.
Mm-hmm.
Hero Cosmetics throughout its journey has been a company that does not rely on external agencies relative to other folks in this space.
Yes.
That's obviously been a very strategic decision from you and your team.
Yeah.
Um, can you talk about why that's really important for you for building those capabilities in house?
Yeah. I think a lot of it stems from my two co-founders because before Hero, they actually owned an agency, a digital agency. So, so they know how to own an agency and they know the speed at which agencies can operate and yeah, you're right. So our team is sort of built where we have our own in-house creative team. They kind of act as like an internal agency where they're like servicing other teams like the social team or the marketing team or the sales team. And uh, and even Amazon. Amazon is all in-house. And believe me, we've talked to a lot of agency partners out there and decided to yeah, keep it in house. Um, part of it is speed, I think we feel like we can move much faster, keeping it in house. Um, sometimes it's cost. I think for us it's, yeah, it's more cost efficient to hire a few people to have that knowledge in house than to hire sometimes very expensive agencies. And, um, and also for brand story, I think it helps keep that really tight, especially from a creative perspective. Like we know, we know who we are, we know how we wanna present ourselves, and it's easier for that knowledge to be internal versus, you know, having to train external partners.
I imagine though, there was a time when you're just like, "You know what? Let's just hire, let's just hire, let's just hire an agency for this."
Mm-hmm.
Like there was that one time where someone left and you were in a bad spot.
Yeah.
Or it's like, "Hey, we can't hire someone fast enough to develop this expertise."
Yeah.
What, what, what's a good example of that?
Yeah, I mean, we do, and we work with agencies. It's not like we're a hundred percent in house. So we do work with agencies, we've worked with agencies for our social ads.
Yep.
Um, so we kind of, we outsource that. We compliment our influencer strategy with an agency who has a very specific capability that's been awesome. Um, we are media spend, we have an agency for, for that, so we do compliment in very specific areas.
Got it.
I mean, we work with Perpetua, which you know, is not really an agency, but is an outsourced,
Yeah.
Or external partner.
Yeah.
Yeah. So we do, we do have a handful.
Cool. We've mentioned Amazon a few times. It's a subject near and dear to our heart.
Of course. Yeah.
Um, Amazon was obviously a really, really important strategic channel throughout Hero's journey.
Mm-hmm.
Can you speak to how Amazon as a channel evolved in your view?
Yeah.
Like where it began and where it is today?
Yeah. I mean, it's so funny how the world has changed, right? In the past, I mean, we've been around for five years, so the past five years, and you've seen it. And, you know, given sort of what you do, but I mean, 2017 the conventional wisdom was you did not launch brands on Amazon. Amazon is not a brand builder.
Mm-hmm.
You would go to Sephora or Ulta or, you know, maybe even Target if you wanna launch an actual brand. Um, so I think a lot of people look down on Amazon as a channel. And, I also was told that, sort of "Amazon businesses", they don't get good valuations. Um, so it's all sort of related to, I think, a very negative perception of Amazon.
What's a discount on Amazon business? Because you don't own the consumer. The profits are not as real as a DTC profit. Is that it?
I think it's the brand piece. So there hadn't been enough proof points of actual like, sticky brands built on Amazon. A lot of them were sort, you know, seller sourcing products from China or something like that. Um, and then yeah, I think, you know, you don't own the consumer because the consumer is Amazon's consumer. So kind of lack of data ownership. Um, and probably some question marks around if you can exist beyond Amazon. So I think that was a big question mark for people. But I remember in 2018 I was at a dinner with a P&G executive and I asked her, what do you think about Amazon? And she said, Amazon is a devil. Do not sell on Amazon. Stay away at all costs. And you know, fast forward 2022, we sold to Church & Dwight. And actually our Amazon capabilities was, it was a really, really attractive core capability to them. So it's funny how I kind of feel like the sentiment really has turned 180 degrees, and I don't know if you see that in your, I mean, I'm sure you see that also in your, um, with the view that you have.
It's interesting to a certain extent, like, all of our customers are already on Amazon.
Mm-hmm.
And so we don't get that "Should I be on Amazon?" existential question.
Right.
But I think if you live in a certain category and you are a sufficiently large enough brand, I think people are just simply viewing Amazon right now as another retail channel.
Mm-hmm.
And it's not, and it's, and additionally it's a retail channel that can be really, really profitable.
Yeah.
In which you can scale really fast. Um, in which it can be very, very predictable relative to any traditional retail channel.
Yeah.
And that's very appealing for a lot of people. Um, if you're in a certain category, that doesn't lend itself well to Amazon, like high AOV products. That conversation doesn't really exist.
Yeah.
But Amazon has created so many more opportunities for brands to tell their own unique story.
Totally.
Uh, protect themselves.
Yes.
And also, I know all roads lead back to advertising in my world, but, run advertising campaigns that feel a lot like organic content.
Mm-hmm.
That drive back to Amazon consideration and Amazon purchases.
Mm-hmm.
So Amazon's done a much better job of that.
Yeah.
And, and now that people are having a much more immersive Amazon shopping experience,
Yeah.
In which people can interact with beautiful content, beautiful video assets.
Yeah.
Um, the lens with which people think about brands.
Yeah.
Is very different on Amazon.
Well, and then these days with what's going on with DTC, rising CACs and iOS 14 and all this, you know, all the issues with meta and everything like that. Um, I mean, I'm hearing a lot of brands moving towards, or starting to really seriously think about Amazon because they're having such a hard time on DTC. So it's kind of, you know, that's more of like a macro, I think, kind of issue that's really probably pushing people.
A hundred percent.
Yeah.
I mean, and you look at Amazon's advertising business relative to all those other advertising businesses.
Yeah.
Amazon continues to crush.
Yeah.
While all of those are getting decimated in some, in some instances. And so a hundred percent we're seeing a reallocation of budget across a lot of our brands that have other channels that, you know, we're spending tons of money on Facebook and Instagram ads and aren't spending that money anymore.
Yeah.
So that's, that's a huge difference, and that they're relocating that into Amazon advertising. Other budgets, things that they weren't spending on. Like DSP and Streaming TV. Uh, we're hearing more and more that people are reinvesting what would be paid media budgets for those channels into paid creator campaigns.
Mm-hmm.
And whether you consider a creator campaign media or not is one thing but, we're hearing more and more and just like, the attribution on these other channels is absolutely horrible given the Apple changes and Amazon has been completely insulated by that. And yeah, if we look at where these advertising platforms are gonna go over the next little bit, Amazon's in a wonderful position.
Yeah, you know, it's interesting cause someone told me that they're, they're good allegories. Um, if you compare Amazon with Sephora. Cause what this person said was that you know, if you rewind, many years ago, Sephora was looked down upon as a retailer, as a beauty retailer, because back in the day it was all about department stores. So if you were a beauty brand, you wanted to sell at a Neiman Marcus or a Nordstrom or a Barneys or whatnot. And so Sephora back then was, yeah, kind of what Amazon was for, I think brands like, "oh, you don't wanna sell it to Sephora." But what happened was, Sephora, in order to be competitive, they really attracted a lot of indie brands because those were the only brands that they could get.
Are you in Sephora?
We're not in Sephora.
Not Sephora. Okay.
So they, um, they really attracted a lot of indie brands and really helped create these brands and they've created a lot of success stories. And, and so now for discovering cool new brands, like you look at Sephora, you don't look at department stores. And what this person was saying was, you know, there could be a thesis that Amazon is kind of what Sephora used to be, where it used to be the channel that was really overlooked, but now people are seeing the, you know, all the, all the positive aspects and the power of Amazon. Um, and so could Amazon be a kind of Sephora for a lot of emerging brands? Um, you know, that was kind of a question mark, which I thought was really interesting actually.
Yeah. Yeah. I mean, we, we have tons of emerging brands that have used Amazon as that channel. I think a lot of them, the perspective is once they achieve a certain level of scale on their own DTC, before they start thinking of retail, that's when they're like, "okay, uh, I just got an injection from outside capital, I have super high growth targets. Now it's time to turn Amazon on and start to get good at Amazon."
Mm-hmm.
And it's in those instances where people start to view Amazon, not just as a channel to drive profit, but a channel to reach new consumers that can ideally one, start to leverage for retail relationships, or two, come back to drive purchases on my DTC for other products that may not be on Amazon as example. Have you always had the view that all of the products that are on your DTC go to Amazon? Like how do you, how do you think about products?
Merchandising and stuff?
Merchandising is the, merchandising, yeah.
Yeah. You know what, the thinking has evolved because earlier on, well, earlier on we only had Amazon, so we, you know, had everything on Amazon and then we launched our DTC site and back then people cared more about DTC, like having a really strong DTC channel was important for evaluation.
Mm-hmm.
So remember bankers would tell me, oh, okay, in terms of revenue allocation, it should be a third, a third, a third. A third Amazon, a third retail, a third DTC. And DTC for us has never been a huge cha uh, huge, um, part of our business. It's, it's a really important strategic channel. But I remember we had a year or two where we tried to do everything we could to really support and grow DTC. And so one of the things that we were talking about was having a merchandising strategy. So we put everything on DTC and only select SKUs on Amazon. And so for a while that was our strategy is - that was our way to kind of give DTC its own, I don't know, its own thing, so that it could compete against our business on Amazon. And then there came a point where we were like, "ah, F it because we don't care where people buy our products, we just want them to buy." And we felt like we were leaving money on the table by not putting them on Amazon. So then we reversed course and we're like, "okay, everything on DTC will be on Amazon at some point." But what we do now is there's just like a little bit of a lag. So might be like, I don't know, we launch a new product on DTC and then four weeks later it'll show up on Amazon. So DTC kind of has a head. Um, but now, yeah, the strategy is really to put most of our products on Amazon.
That's like, starting in movie theater and then going to like, uh, on demand.
Yeah, yeah, exactly.
Like a month later.
Yeah, yeah, yeah.
It's like, come to DTC, we'll take - take the extra profits. We'll take the first party data.
Yep.
And then give it to everyone thereafter. If you really, really want this, come and get it.
Yeah, and you know what? There's something to be said for that because we, we can tell which SKUs do really, really well, like pretty right off the bat, we can tell which ones are really popular. And um, and we use that data to inform our retail launches with Target. And also, you know, what we're gonna put on Amazon or how we're - when we launch on Amazon, how we're gonna craft the story. So yeah.
What, what are some of those data points aside from obviously sales?
Uh, we'll look at reviews. Uh, you know, we look at the customer service emails. Uh, we look at social a lot, what people are saying and, you know, cause we get a lot of, we get a lot of learnings. Like, they might, even though we, we create beautiful PDPs, we still might get questions around usage or ingredients or whatnot. And so that's all good information that we can then create an even better PDP on Amazon. So, yeah.
Got it. Um, I distinctly remember you saying that the strategically you've grown Hero by focusing on, aside from DTC channels, first on Amazon.
Mm-hmm.
And then to go really, really hard on one other retailer. And that one other retailer for you is Target.
Yeah.
Um, how did that journey begin?
Yeah.
And, um, and what does like rapid expansion into a single retailer look like for a brand like Hero.
Mm-hmm. Mm-hmm. So early on we had no marketing budget, uh, but the bet that I made was to spend the money that we had on two trade shows, beauty trade shows. So one was Indie Beauty.
How long, how long ago was this?
This was, so we launched September, 2017, and we did, we did the two trade shows in 2018. So the next year. And we did, yeah, Indie Beauty, and then we did Founder Made. And, uh, trade shows are great because that's where, you know, the buyers go to look at all the new brands and stuff. And that's where some target brokers were kind of, you know, watching us and talking to us and telling us, "oh, we, we really think you'd be great for Target." And so that was really what opened the door to having conversations with Target - was the brokers seeing potential with us. And even, I remember at one trade show they even like, you know, told the buyer that she had to come by our booth, and so she came by. Um, and then, you know, we decided to work with a broker. So we picked a broker and, you know, they helped us present ourselves to the buyers at Target. And, you know, in the beginning they didn't know what to do with us because it's a new product category and we didn't have that many SKUs. And to succeed at retail, you wanna have like, enough of a presence because when people are walking down the aisle, you need to like grab them. And so, uh, the compromise was they had this mini section that was kind of new and doing really well. So we decided to, to create a special SKU for them in that mini section and we launched that.
What was the mini section?
It's like a beauty discovery area. So it's sort of like this, I don't know, like a carousel configuration with a bunch of different bins and all the products. It's kinda like trial and travel, like they're kind of deluxe mini, small, everything's under $10. And people love it. People love to like, you know, try little things before they commit to full size. And yeah, that SKU, we launched, I don't know, like halfway through 2019 I think. And yeah, I think it - in its first year became like over a million dollar SKU. Multimillion dollar SKU or something. Yeah.
Amazing. And so you have that.
Mm-hmm.
That quickly expanded into going deeper into this retailer in a variety of different ways. It consisted of N Caps.
Mm-hmm.
It consisted of -
Side caps - you have like -
What is like - Wipe out? Was like wipe out all Hero, everything?
Uh-huh.
What? What is that? What is that, like, what was the strategy behind that?
This is something that my VP of sales taught me because she came from a brand called Sun Bum. And they had a similar sort of strategy. And so when she came, she said, "my goal is to have people trip over us in store at Target."
Okay.
So what that means is we have our home placement in our main section and then -
And now your main section is what?
Is premium skincare. Okay. So ironically, we're not, we're an acne care brand, but we're not in the acne care aisle.
Okay. And was that their choice or your choice?
Their choice.
Okay.
And then we had one SKU in the beauty mini section, but now I think we have like four or five bins. And, and you know, she was able to get us yeah, end caps and side caps and check lane and then now we have a kit in the acne section. So the idea was really, it was really her strategy to make sure that we move around the store. So that we're not just in one place, because the more touchpoints or the more places you are, it creates a brand halo and more points of discovery. So when we have, an, so when someone has an end cap, for example, like your, your homebase-like location, we'll see an increase in sales because more people are exposed to your products and brands and then it just yeah, creates that brand halo
Sounds great. Why doesn't everyone do this? Obviously this costs a fair bit of money -
And limited space. Yeah.
And limited space. Like, like, so, so how do you actually do that? Like what is it - is you're willing to make a bet in committing dollars for in-store shopper marketing. Is that really it?
I mean, it's - it's really up to the buyer and their team, you know, they can't give those opportunities to everybody. They have to give it to the brands they think will really deliver and have that growth potential. So it's kind of, I mean, you as a brand owner, you really have to - you really have to build a compelling story. The best way to do it, I think is with really strong sell through and, and really strong data, and really convince them that, you know, you're a brand that they should bet on.
So that first SKU, that over million dollar initial SKU, that was the entry point into saying like, "this is gonna work."
Yes.
And so at what point in time, once that SKU started to get sales velocity, were you like, "okay, let's talk, let's, let's expand this even deeper."
Well, I mean, it's, it wasn't overnight. It definitely was a progression because we had that one SKU and then that - since that SKU did well, they took four full size SKUs. In January of - oh no, maybe a year later. So like July of 2020, I think they took four full size SKUs of our patch products. And then in January or February of 2021, those products went full chain. And then they took on some of our non-patch products.
And full chain is national distribution?
Yeah, full chain is national distribution. Uh, they have 1800 stores, so we went from I think like 800 to, yeah, 18. 1800. And yeah, I mean that literally was a game changer cause that was a huge inflection point for us. And then we didn't get, we didn't get our first end cap until earlier this year. So January, February of this year we got our first end cap.
Wow.
So that's, I don't know, two and a half years after we started working with them.
Did you run any paid media, to show to consumers that you were in Target?
Uh, we had budget set aside. So when we first launched, we had budget set aside to, to run paid media, but actually the velocities were naturally really strong and we were actually worried about outta stock. So we, we didn't, um, we didn't use, we didn't leverage that paid media budget, but we did a big influencer campaign, which I think was effective. Um, and then now we do, I mean we do paid media versus via Target.com.
Got it. Like onsite, but not offsite to drive traffic to it and awareness. Got it. Um, one of the other fun brand building exercises that I've seen Hero do is you, you leaned in the past few summers on, out-of-home.
Mm-hmm.
And you've had very fun, uh, the ice cream trucks, buses and trucks.
Yep.
Um, what was the inception of that? Like, tell us all, what, what was that exactly?
Yeah.
Um, how, and how do you, how do you measure the success of something like that?
Yeah. We - so measurement we tried to do via QR codes.
Got it.
So with Covid, I think the adoption of QR codes was, um, was really strong. And so people got used to like scanning, scanning them. So we had an ice cream truck, I think maybe two years ago. I think it was 2020. Uh, actually I don't, yeah, I think it was 2021. And -
This is summertime in New York?
Yes. Summertime in New York. We, um, had a truck that went to multiple locations in New York City. We gave out our SPF and then we also gave out, uh, ice cream. Ice cream sandwiches. And so this -
And you had just launched the SPF product as well, so -
Right.
That's summertime SP -
Correct, yeah. We were giving out sample sizes, so we had QR codes on the sample and that QR code led to the PDP. So, you know, the idea was they would try it, uh, they would like it, and then, I don't know, maybe like two or three weeks later, they would go, they would scan the QR code, get to our PDP page on DTC, and then buy the product.
Mm-hmm.
And then we had a QR code on the truck. And that was more of a brand, it led to a brand story, like a landing page with a brand story. So that was much more top of funnel. And, and then we also had a QR code in the napkin actually. So we had QR codes in multiple places, and that was -
All leading to different destinations.
Uh, the napkin and the one on the truck, I believe led to the same destination. And the one, the sample was different. Yeah. And uh, what we learned was that there was a lot of latency actually with the QR code scanning. So the ones on the truck of the napkin I don't think got scanned as much, but the ones from the samples, uh, they did.
Mm-hmm.
So, you know, people use the product again. And then, you know, a little bit later they would scan and then, um, land on that page. So that was pretty interesting. And we, you know, I think it was just really kind of a test to see how out-of-home would work. Uh, can we, do we wanna do more of it? And, uh, added to our marketing mix, how can we be successful with it? So in a way it was just kind of a small test to see how it, how it would work. Um, and so, yeah, I think we're in -
But it worked.
Yeah, I, we were happy with it.
You did it again the following summer, right?
Yeah, we did. We did it again. We've done, um, for example, we did like an event at the Allure beauty store, which is just around the corner from here.
Mm-hmm.
Um, and that also was really strong, like lines out the door and we were giving out swag and stuff. And so I think, I think for sure, like IRL out-of-home has a place in our marketing mix.
Ongoing.
Yeah.
Interesting. Cool. Um, what, when you think about new product innovation, I know that you have a hero product. Hero.
Mm-hmm, of course. Yeah.
But in the past two years or so, Hero has launched a lot of products, like over 20 new SKUs.
Yeah.
Basically.
Yeah.
Um, like how, how do you, how does that happen? Not obviously, how do you launch new products. But like, that's a rapid evolution of new SKUs within a very nascent brand's lifetime.
Mm-hmm.
When, when do you know to launch that new SKU? And, and how has the SKU evolution evolved? Does Hero become a bigger brand?.
Yeah, it's, we're, we're becoming more disciplined now about launching SKUs. So before, you know, like, I never wanted this company to be just like a single SKU business. Um, and so I saw opportunity to really be a new acne care brand and build that whole, like kind of alternate regimen for people. And, you know, earlier on it just be like me talking to people and people telling me about what they use for, uh, for their acne care. And I remember, um, early on, a lot of people told me that they used Neosporin. And so, and Neosporin was the inspiration for our Rescue Balm product, for example. Um, and so, you know, a lot of the ideas kind of came from just me, like talking to people and just kind of scouting the competitive landscape and, and then we hired someone, then we hired more people, and so now we kind of have a, like our own machine for how we do innovation. We are a lot more disciplined because, you know, back then we didn't do the exercises of like, what's the size of prize and is it gonna be incremental? And, um, how does it interact with the other SKUs? Like we just, we wanted to build and, and it was more kind of intuitive. Uh, so now we have a whole process. And, you know, we have specific guardrails and, you know, everything has to, has to be profitable, incremental, and have a good like, kind of opportunity size. Um, so yeah, kind of growing up in that -
Can - can you share what, what some of the hits have been over the past little bit, like products that you've been really proud of?
Well, so Pimple Correct, which we just launched. Yeah, that's like an OTC pimple serum.
Okay.
Um, so before people would use those dry like pink creams and white creams, so this is our kind of reimagined version of that. It's clear and it has tissue oil and sounds like acid. Um, that we did a presale launch on DTC. It was our best ever presale. Um, in, you know, our history, short history of the company. So that one's really good. And then Pore Release, which we launched, um, just before that also was really strong. And that's, um, exfoliating toner, kind of like Paula's Choice. Um, the - I think it's like the Baja Toner. Um, so those are two SKUs that are more like in our treatment line and they can be used with our other products. And so we educate people on how, and they launch DTC. They're only, they're DTC only.
There you go, DTC. When are they coming down?
Well, soon be, they will soon be on Amazon.
Amazon can be a really good leading indicator of size of prize opportunities, as you mentioned.
Yeah.
And you can see your competitive set on a, if, like, if for example, if you identify a search term that you wanna own on Amazon-
Mm-hmm.
You can actually through publicly available information, pretty much see how much that competitor on that search term is making on any given point in time.
Yeah.
Um, I'm curious to know to what extent you use that as a indicator for whether or not you should pursue an opportunity, or is it more so listening to customers, understanding where the market is going and figuring out that Hero can make a niche here?
So one thing that we do is we have our Amazon team and our innovation team connect.
Oh, cool.
Because, to your point, you can look at the searches and you see what people are looking for or what keywords are trending, and sometimes that can really inspire ideas.
Has there been a specific product SKU that's been -
Hm, not yet.
Born from those meetings?
Not yet. But um, but we look at that data all the time because, because I mean, it's like, it's has such high intent, right? It's search terms with high intent, like people are looking for this product.
Yeah.
Um, so we haven't gotten to the point of actually commercializing one, but, but we look at, we look at that data, it's great. It's a great source.
Interesting. Any other fun Amazon data sources that you peruse to add your business that other founders should be looking?
Um, I don't know. I mean, earlier on, I would, I read all the reviews. I think the reviews can also be a great source just because they'll tell you what they like, what they don't like. And sometimes like what they don't like, we would take that back and make tweaks or, um, alterations to products. Um, yeah, that's probably like the biggest one.
So, uh, when, when your acquisition was announced -
Mm-hmm.
I think a lot of people analyze the ridiculous unit economics and financials of your business and like -
Yeah. Cause it was very public -
Wow.
Yeah, Uhhuh.
Unbelievable.
Yeah. Yeah.
Um, and like, we saw it and we're just like, wow, this is, this is an amazing business. I'm, I'm curious to know like one, like congrats, that's a - like, in and of itself, that's an amazing accomplishment. Uh, I'm curious to know to what extent you think you pursued like - let me back it up a little bit. In, in our world, you know, we build software for brands and their agencies to grow on retail media through advertising.
Yeah.
We're an awesome team. We work really hard. I think we build pretty awesome products. We execute really well.
Yeah.
But obviously the extent to which we've grown is a direct correlation to the fact that retail media is the fastest-growing industry in - the fastest growing sector of advertising.
Yeah.
We are, we are built on the backs of this tidal wave of opportunity.
Yeah.
I'm, I'm curious to know to what extent you think the incredible financials and unit economics of your business are one: you know, you and your team have found a category that lends itself to ridiculous unit economics.
Mm-hmm.
Two: Uh, you were, like, meteoric rise of this one, uh, Hero product and then expansion thereafter, or, uh, three: just incredible execution by very, very strong team.
Yeah.
I know the answer is -
It's like all, yeah.
It's everything.
It's all of them. Yeah, for sure.
Where, where, where should one, how if, let me put it another way. I'm sorry if I'm retracting this question two, three times, but if I'm another founder looking up to you
Yeah.
Like, are those metrics real? Like, can other people get that, you think?
Yeah. Yeah. I mean, you know what? It starts with really high gross margins, I mean, will dictate everything. So when I talk to vendors -
From that first purchase of that first SKU -
Mm-hmm.
You need a healthy gross margin business. Period. Full stop.
Yes. I mean it all trickles down from there. So yeah, I'll talk to a lot of founders and I'll, you know, sometimes I look at pitch decks and stuff and, um, and they don't - I mean, and it's hard when you're small, it's hard to, to, to have the really good gross margins because you don't have the scale. But the more that, yeah, the more that you can improve your gross margins. And there was a great, actually, there was a great podcast with, um, you know, Patrick Kdu from supply, uh, he talked about this a lot. Cause he said he didn't, he didn't realize that gross margins were so important until someone told him, you need to get your gross margins up or you're gonna die. And so he worked really hard to fix that. So it really sums from there. Um, beauty naturally tends to have very high gross margins, so that's why I think this category tends to have, tends to be very profitable.
Um, and then, and then for us, I think, um, after that it was really about execution. Yeah. And this is where Amazon, again, was also was really key because it's, it was so efficient. We had great ROAS. Um, even from a headcount perspective, we don't have very many people, um, manned, uh, against this channel and - yeah, I mean, we just found a lot of efficiencies I think in our business.
And, and getting back to that, you know, gross margins is obviously a function of price. Um, since you've taken off, you have many competitors that are undercutting you on price.
Yeah.
So how have you maintained that price integrity throughout this time? And to - in order to keep those gross margins.
Yeah, and it's such a good question because on Amazon, right, it's so, it's so price competitive. But I always like, for me, discount is a four letter word. Like I really hate discount oriented brands. We never discount. We discount, um, during Prime, like Prime Days, and then also Black Friday, Cyber Monday. Maybe one other time, but that's really it. And uh, you know, like even when we first launched on Amazon, we were never the cheapest option. Uh, I think the competitor was like five bucks and we were, I mean, we're 12, 12.99 for the 36 original count. And so for me, I think you can price yourself at a premium as long as - as long as the consumer feels like there's value. So, uh, really talking about product quality, why we're better, you know, the intentions better, the absorption - absorption's better. Um, you know, it's a product that you can trust, et cetera, et cetera. And that. I think that that helped, that helped really convince people to try and yeah, we've never lowered our prices. We've never taken price. You know, it's still, everything's, you know, everything's still at the original prices that we set them at.
I imagine reviews, once you gain reviews, that notion of value is also really important. You mentioned reviews a few times here.
Yeah.
Cool. I think we're good. Like, the last question that I ask everyone is, what, what is your prediction for 2023 in e-commerce advertising and retail media?
Oh, goodness. Hmm. I don't know. I think, I mean we kind of chatted about this before by, you know, I think marketplaces will continue to be, probably, a big growth driver for brands. So, you know, with kind of the, the move away from DTC, DTC sort of fallen out of favor, we're probably gonna start seeing, and not just marketplaces like on Amazon, but uh, I mean there are a lot of marketplaces out there - I mean, we just talked about Walmart.com. There are sites like iHerb or other marketplaces where I'm sure that, you know, they're gonna be getting into the advertising -
The dot-com retailers.
The dot-com retailers. Yeah. I think they're going to, I think a lot more people are probably be getting into the space.
Mm-hmm.
Especially after seeing how lucrative is it is for Amazon, right?
Yes.
So they're probably gonna want a piece of the pie, and I bet you more and more dot-com players will get into the game.
Right. But it it, it's easy to say, "Hey, I want to build an e-commerce site" and it's easy to say, "Hey, if Amazon's building a 40 billion advertising business, why can't I get a hundred billion?", or something like that. But ultimately the question really flows down to are the customers there? There's a reason why people are on Amazon and regardless of one's thoughts on Amazon, everyone that's on Amazon or considers Amazon is because the customers are there.
Mm-hmm.
The question ultimately becomes, you know, if I'm investing in one of these other retail, dot-com retail channels -
Mm-hmm.
Yes. Target has volume. Yes, Walmart has volume, but as you, as a founder, how do you, how do you justify thinking about allocating human, human cap. Forget about it's ad spend. Ad spends easy cause deploys spend. Um, how do you justify spending like human capital to -
Yeah.
To some of these retailers. And if not, if not for ad spend, it's for like listings, it's for, you know, monitoring that as a ongoing channel.
Yeah.
Um, like where do you think of like, is this sufficiently large enough for me to care?
Yeah. You know, I mean, when you're small, like, I mean, I said yes to every opportunity when we were really, when we were much smaller and younger. But I mean, now we have to be a lot more judicious with how we allocate resources. But, uh, especially for indie brands, I think, you know, it doesn't take that much. Um, and obviously there are great, uh, platforms like Perpetua that help automate a lot of it and can take some of the resources off, uh, a like a person. Um, but I mean, it's kind of a math exercise, right? Like you have to see - yeah, what kind of volume you get and what the resources and the cost will be to, to get the kind of return or sales that you're expecting. Um, but I mean, everyone's, you know, investing a lot more in dot-com. I think people realize it's, you know, it's, it's an important channel. So I think, I think there's gonna be a lot of opportunity there. Yeah.
Anything excite you coming up for Amazon?
Oh, for Amazon? Gosh, I don't know. I mean, I -
Are you, are you dabbling in Buy with Prime? Have you seen the Buy with Prime stuff?
I ki - I like, I kind of know what that is, but I haven't followed it in a lot of detail.
So basically you can, uh, you know you have one-click checkout on your - is your DTC Shopify?
Yeah.
So you have Shop Pay?
Mm-hmm.
I'm sure, enabled.
Mm-hmm.
So you can choose to enable Buy with Prime as a button similar to Shop Pay on your DTC -
Across other websites?
Yeah. On your, on your DTC.
Oh, on your DTC.
On DTC you can-
But how is it different from, uh, shop with Amazon or pay with Amazon?
Uh, It's different in that I think it's, we still need to like, I actually don't know why it's that different.
Mm-hmm.
I think, I think - that's a good question. I think that they deprecated the Buy with Amazon.
Mm-hmm.
I think that they're not pursuing that as an opportunity anymore.
Got it. Okay.
And they're pursuing Buy with Prime, like that's the like new version of it.
I see, I see.
I imagine it's like slicker, there's ease, better conversion rates.
Yeah. It's tied to Prime account or something.
Yeah. It's a hundred percent tied to Prime account. And also for someone like yourself who's, uh, who's a 3P that's using FBA, immediately once you put that on your DTC, if someone purchases, it's going to be fulfilled by your FBA.
Mm-hmm.
Not your DTC.
Oh, I see.
So that's one. Yeah, so that's exactly it. I've, I've explained exactly the difference.
Yeah, yeah. Yeah.
It's, it's not just payments, it's fulfillment by -
Yeah.
It's, it's coming from FBA.
Yeah.
And, and also purchasing with Prime speed as well.
Yeah.
So if your same day purchases, people are getting Hero cosmetic products on Hero.com.
Right.
So your website kind of acts as a, kind, as a, another storefront for Amazon in a way.
Right. But, the exciting thing about this is that, so Amazon is trying to make nice with Shopify, basically, because the, the, where Amazon's advertising business is going is Amazon's advertising business does not want to be just about Amazon ads.
Mm-hmm.
But it wants to be the central hub of all of your digital advertising spend.
Mm-hmm.
Measuring all of your sales on the internet, and maybe even some retail sales as well.
Mm-hmm.
That, that's the tech stack that they're building within Amazon advertising.
Yeah. Yeah.
And so in order for them to achieve that, they need to send all of branches to other companies that might be foes. So in unlocking Buy with Prime on DTC, one of the things that Amazon has said, which this is something that you'd never expect to Amazon, but on your Amazon brand page, you can link out to your DTC.
Oh, interesting.
Yeah. So you can send people from your Amazon brand store to your DTC only if you have Buy With Prime enabled for your DTC.
Got it.
And then the, the other fun, fun part about Amazon Ads is you can now create audiences for DSP campaigns based on how people interact with that Buy With Prime checkout button.
Oh, okay.
So there's like-
Got it.
How they're doing. So that's exciting.
They're like spreading their tentacles
They're spreading their tentacles very far. You put all of that data, bring your own data into AMC and - it's a, it's, they're doing a good job over there.
Yeah. Well, what do you, what do you predict, or what are, what do you expect from them, I guess like, in the next few years?
What do I expect? I, I, I expect exactly this in that I, I'm, I'm very, very excited. I think buy with Prime is the most exciting thing that Amazon's doing. Because that Buy with Prime button is, uh, a means of creating a ubiquitous shopping experience across any retailer that you may or may not want.
Yeah.
Um, but more importantly, it, it creates these bridges between other companies that might be considered foes.
Mm-hmm.
So for example, you know, we're very excited by TikTok at Perpetua. We think TikTok is gonna become a marketplace. Um, people, you're already seeing that in the UK, in which people can one-click checkout in, in one click checkout in, uh, in, in TikTok natively purchase. Um, and you know, we have seen that TikTok is hiring people. I'm not sure if you saw the headline, hiring people to start fulfillment centers in North America, so they can start to have products and so - a really easy way to not do that is to stick a Buy with Prime button on any TikTok purchaser in North America and just fill with Amazon.
And so I, I am sure. Alright. I believe that someone at TikTok and someone at Amazon is talking -
Mm-hmm.
And, and they can become friends in this world in which TikTok is gonna be driving sales to, cause TikTok already drives tons of sales to Amazon. This is a thing you've seen.
Yeah, yeah.
TikTok meaning buyers to Amazon - and now it's just, it's like closing the loops on conversion and closing the loops on attribution.
Yeah.
So we're, we're trying to help, we're trying to help break those silos down and be a good partner to both.
Super interesting.
But that's, I - Buy with Prime, I think is the most exciting thing with Amazon.
Yeah.
By far.
Interesting.
Yeah.
Very cool.
Well, Ju thank you very much. This was fun.
Yeah, thanks for having me.
Appreciate it.
It was fun. Yeah.