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How I Built a $130M Company With A product Stuck in the ’50s

Founder & CEO, Amy Errett, shares how she disrupted a $15B industry to compete with legacy brands, and achieved buy-in from Madison Reed’s investors and employees on her vision to rebuild a long overlooked product.

How’s everybody doing today? All right, awesome. Okay, so as you see the title of this is very compelling. How I built a company and raised $130 million with a product that was stuck in the ’50s. So I suspect that some of you here color your hair. Am I right about that? Let me hear some applause if you do. This is usually where the women lean in and the guys who are like, “What is this woman talking about?” Okay, so traditional hair color.

So what I thought I do today is frame out sort of two things for you. Tell you the Madison Reed‘s story as an entrepreneur, hopefully there’ll be some takeaways that are useful. Also I was a venture capitalist in full disclosure I hugged James on the way out because I was one of the silly ones that didn’t invest. So as a VC there are the ones that got away and I’m going to weave that into the story and then tell you a little bit about raising money and what do VCs look for. Hopefully that will be helpful.

All right, so here’s part of the story. This is what boxes and advertising of hair color has historically looked like. Obviously very dated, not very current. Madison Reed is all about disrupting hair color. And I’ll go on to talk a little bit about how big this market is, which is, it’s huge. It’s $15 billion a year just in the US and it’s a global market. And obviously what folks were just talking about is I don’t have to teach people to color their hair. They do that every six weeks. So there’s repetition that’s built into the behavior. I’ll just let you take in what the mission is and our tagline is confident is the new beautiful. So we believe we’re the fabulous future of hair color. So let’s get into that. So a little bit about a background about me.

So three time entrepreneur, then I became the general partner that opened and ran the Venture Fund Maveron office in the Bay area. That’s where I passed on James, silly us. In that process there were sort of two things that happened. One is, this may be something that you’re all wondering about is that I started to realize after about five years that I loved operating and for some people investing’s amazing. For me, I always felt I was sort of an imposter and sitting around the table as the board member versus a CEO wasn’t something that I was comfortable about. I like building things. The second thing that happened in that process was we had a first shot at a company called Dollar Shave Club. So how many of you here have heard of that? Awesome. Yeah, it’s sold for $1 billion to Unilever a couple of years ago. Mike Dubin is a great guy. And again, as you could tell my track record as investing, we passed on that.

So we’re kind of 0 for two at this point. There were a couple of good ones. So in this process of passing on Dollar Shave Club, I became obsessed with a couple of things that I’ll weave through the story. One of those things is what were the things in a women’s market that I didn’t need to teach women how to do or the need hair color, obviously every six weeks on average.

Number two, was there something in this that there could be product innovation, so size of the prize, product innovation and then was there the ability to change the perception of a category by a relentless focus on building a great team and culture.

If you look at what Dollar Shave Club did, Mike made a video for those of you that don’t know. In the first day he had 18,000 subscribers, which in a business to get a start, that’s an important thing. So Madison Reed has three parts of the business. One is a very large direct to consumer subscription business. On average, our customers order every six weeks, a very large now retail business, we’re in Ulta, we’re in 1,180 stores. Then we have 12 retail color bars where we actually use our product to color people’s hair in an innovative way, faster, more affordably, and with better ingredients.

So here’s how to appeal to VCs, early stage investing, these three things and then I’ll just sort of take you through that. So the size of the prize of a hair color, massive, it’s recurring, it’s emotional and until now you saw those boxes, it has lacked

[inaudible 00:05:39]

each brand. So you take a look at this and there’s another important thing around the emotion, if you’re building a consumer brand, in the case of Dollar Shave, Mike built a brand based on humor, based on something that guys would like. We believe we’re building a brand based on really having women feel empowered and women feel like they deserve this prestige experience.

In addition to that, around product innovation, when we started the company, we believe she deserves better. So there’s two sides of the equation. When we started the at-home hair color market, which is those ads that you saw that I started out with, $10 box, horrible results, highly toxic, damages the hair. As a matter of fact, when you buy boxes of which, when I started the company, I went and bought 60 boxes from Walgreens and every single one of them that I opened had instructions that was in one point font, seven different languages. The first thing that it said was open a window before you start because of the smell and the toxicity. So that was a what we were going to compete against.

Then the second size of the prize is the salon industry, were very expensive. Yes, a personal connection, but very time consuming. The same harsh ingredients that are in the boxes on the shelf of Walgreens. You have no idea what the product is. So you are really in a relationship with the stylist, not the product or the brand. So what product innovation were we able to do? So what was really critical for me personally as a mission was to prove that we could take harsh ingredients out of hair color. I’ll go into a little bit of what’s in and out.

But basically I went to Italy where our product is made, met with 13 contract manufacturers. Number 12 was lucky 12 and convinced them that they should partner with us to try to take the harsh chemicals out. We now have 60 shades. I’ll tell you a little bit about what’s in and out, but we are by far the lowest chemical profile hair color that exists.

The box experience was awful before, terrible component tree. I’ll walk you through how we innovated on that. There was no technology or advice given to consumers when they walked down the aisle of Walgreens. Then we have an omnichannel business and I’ll explain why I think that’s important.

So let’s talk a little bit about what’s out and what’s in. We have no ammonia, no PPD, no resorcinol, no paraben, no gluten, no SLS or no titanium dioxide.

We are the only eight free formula that exists. Then we put Keratin, Aragan Oil and Ginseng Root Extract into our hair color. 20% of women tell you that they have an allergic reaction to traditional harsh hair color, so you don’t have that with ours and this trend is really important. You’re going to hear from some other folks, I think later today about building products that have cleaner ingredients and why this is important.

Number two, I talked about the box. The classic hair color has horrible componentry, nothing’s recyclable, and there’s one pair of terrible gloves that you have to color your hair with. Then you get in the shower and reuse those awful gloves to actually wash out your hair. So what we did is we stood in 53 women’s bathrooms and we watched them color their hair and videotaped it. We paid them all $100 on a Craigslist ad before we started the company.

This is sort of a critical part for all of you if you’re building a consumer product, is to understand what is broken about the competition and then how to innovate. So we have two pairs of gloves. We have a cleansing wipe, barrier cream to make sure that the color doesn’t stain your skin. Our shampoo and conditioner are organic and better, and then everything is recyclable. Here’s what the box looks like. It’s an the eco, that is actually the mailer. What was important in this was to show that women could have a difference, not just in ingredients, but the actual box experience. The instructions are large, beautiful pictures and easy to read and because it has no odor, you don’t have to open a window.

Okay, in addition to all of this, I talked a little bit about technology innovation. The most important thing in hair color is getting her hair color, the color right. This is a very high beta business, meaning when it’s right, it’s awesome. When it’s not right, it is not awesome. So what was important for us was to build technology that allowed us to get the color right. So we have 16 million hair color profiles now in an algorithm.

We built a color quiz that is 14 questions and the algorithm matches and personalizes the hair color and gives a woman a recommendation of one that we think is best and two others that would also work depending on the answers that you give us. In addition, there’s an AR tool that’s new, so you could take a selfie of yourself, try on a shade, one side of your hair. The other side is your actual natural color, and then try all shades on. That’s been a great breakthrough for us. And then we also have a chat bot that also does a take a selfie and it basically answers all the algorithm questions and so we’ve put a lot of technology around making sure that your hair color is right. This also helps us in serving other products downstream to a customer because of personalization and knowing all the information that we know. For instance, if your hair is curly or you have dry hair or you want a product to actually enhance color.

Okay, so I talked a little bit about the at home market, which is about 40%. the salon market is about 40% and then there’s a market of women that do both, meaning they color their hair so often that they go to a salon, then sometimes they do it at home and then they go back to a salon. So we knew from our D2C business that we were always missing about half of the market and that’s why we decided to do color bars. Our color is salon quality grade. We know it works. We now have 60 shades and so we decided to do an experiment with a popup in New York, which went incredibly well. Since then we have opened a actually 12 color bars opening 15 more next year and then we will be franchising as well. And what you can see is that this business I talked about, Ulta is now delivering great color as a prestige brand, any way that the customer wants to purchase for ?.

This is a really critical aspect in building a consumer brand these days. There was a lot of talk years ago that no one will watch TV anymore because they will stream everything. Well, if you look all at all the data, people who are doing both, and that’s the same about retail is that if you believe that no one’s going in a store anymore, you’re wrong, and your job, if you’re building consumer brand is to meet your customers where ever they are. In our case, our woman, primarily, 95% of our customers is busy. She’s a professional, she has higher income than you think. She has kids, college educated and she’s on the go and she wants to be able to do what she wants versus what our business model wants her to do. This is why we have three ways.

Let’s go on to that third element outside of product innovation. Great team and culture. So at Madison Reed, we have a very distinctive culture. I’ll talk a little bit about that, but the first thing we did after we figured out that we could make color, was that we hired colorless and today our call center on our direct business are all certified licensed colorist, getting back to that thing about getting the color right.

So for any of you that are thinking about a consumer business that has some technical nuances to it, in our case, we wanted to put the experts, remember I didn’t come from the hair color industry, neither did my co-founders, but it was important for us to put people forward because building the loyalty of the brand and customer satisfaction is critical. So we’ve had an obsessive focus on customer satisfaction and getting the color right. Then within the first week that we actually got funded, we sat down and actually defined our mission and cultural values and we were able to hire with that in mind. I often talk to entrepreneurs who are two years into a business but don’t have a mission statement or they don’t have their internal values.

I fundamentally believe that that’s a mistake because you have a personality as a human being. Your companies have a soul, that’s the values and you need to match people you hire with that screen or that lens of the soul. Talked about customer satisfaction. These are some of our colorist and then I have a saying, which is the following, “X equals CX. Your team or employee experience equals your customer experience.” So this gets back to values and customer service. If the folks that work in your company are not happy or not a good fit with your culture, your customers will know. I suspect many of you, I don’t mean to offend anyone who may be in the credit card business, but if any of you try to call a credit card company for customer service, that may be somewhat of an oxymoron. You can tell that the folks aren’t loving it, right?

So the service is not very good. We focused on colorist and their team experience and that’s been a terrific thing. So in terms of our company values, they’re here, love, courage, trust, joy, responsibility. They’re on the walls of all of our color bars. They’re on the walls of our headquarters in mission. We hire against this screen of whether people believe these values are important in the workplace. We are very dedicated to DEI, which is diversity, equity, and inclusion and have an extremely diverse workforce. 42% of our workforce is diverse and we work hard at that and continue to make that important. We are leadership authentic and what I mean by that is I will drive back to San Francisco right after this and do a Monday lunch of which I do every Monday, which is the entire company eats lunch together, gets on a grand stand and I spend time talking about exactly what’s happening in the company.

We’ve been doing that from the first Monday that we got funded. All of the numbers are disclosed, where we’re at against our key objectives are disclosed. We talk about what we call, the vital few versus the worthless many and in your case of some of you starting things, the worthless many is fine until your business it becomes clear that if you don’t focus on the vital few, you’re going to be in trouble.

For those of you that don’t know anything about the Enneagram if you’d like to look it up, it’s an amazing thing which basically says there’s nine personality types in the world and we screen against that and we actually give people resources to understand their type. This has helped us as we’ve grown the company and then we were the first user of a company called Glint. There are many others, Culture Amp is another one where you are pulsing for employee anonymous feedback and this is something that I also stand in front of the company and read all the results on an every six week basis and take the comments and then work on those things that we need to improve.

A little bit about our results. Actually a little bit more than this, 280 team members now. Company has a 70 Net Promoter scores, so that focus on satisfaction and getting the color right has really paid off for us. 86% of our revenues are recurring in the company. We’re proud of that and even with color bars and Ulta, that number continues to hold. We have 600,000 customers, two 20,000 color bar clients. We’ve only been in that business about 18 months, talked about Ulta and then we’ve shipped over 4.5 million boxes of color and continue to grow that.

Big takeaways for you. Choose your market wisely. Size of the prize matter, your product innovation, team building is not an afterthought. It’s something that’s really critical from day one. Your customers, whether you’re in a SAS business or whether you’re in a consumer facing business, everything loyalty to your customers. Your customers have to will make or break your business.

James has a great business at Thread Up, customer. They have had a relentless focus on loyalty as well, so it is important, it is costly to acquire customers. Anybody that talks about non-paid will tell you it’s not really non-paid right now. Influencers, you still pay, referral programs, you still pay, but it is not inexpensive to acquire customers at any channels. They need to come back to you or your business model does not work and then team members in the company culture has to be defined early and lived out daily, not something as an afterthought.

What’s next for us? I’ll just sort of wrap it up that our color bar expansion is happening. We think we’ll have about a hundred company owned stores in certain regions. We’re currently in Northern California, New York, Houston, Dallas, next is Atlanta and then Northern Virginia and Washington DC. We are always introducing new products, so we have a very active R&D group at our company and continuing to look at trends and understanding them. We are franchising starting the first quarter of next year our color bars, and then we have a global business that has been completely untapped and we’re looking forward to taking this globally. People color their hair everywhere around the world, so we’re excited about that. That’s what I have. I think we’re going to take some questions. Yeah.

Q&A

Sam Parr: All right. Up next we have Amy Errett, she’s the CEO of Madison Reed. Madison Reed is changing the hair color industry. And Amy’s going to explain how it all happens. They have 300 employees, over a hundred million dollars in funding and are here to tell their origin story and some of the things they’ve learned along the way. So let’s give it up for Amy.

Amy Errett: How’s everybody doing today? All right, awesome. Okay, so as you see the title of this is very compelling. How I built a company and raised $130 million with a product that was stuck in the ’50s. So I suspect that some of you here color your hair. Am I right about that? Let me hear some applause if you do. This is usually where the women lean in and the guys who are like, “What is this woman talking about?” Okay, so traditional hair color.

Amy Errett: So what I thought I do today is frame out sort of two things for you. Tell you the Madison Reed’s story as an entrepreneur, hopefully there’ll be some takeaways that are useful. Also I was a venture capitalist in full disclosure I hugged James on the way out because I was one of the silly ones that didn’t invest. So as a VC there are the ones that got away and I’m going to weave that into the story and then tell you a little bit about raising money and what do VCs look for. Hopefully that will be helpful.

Amy Errett: All right, so here’s part of the story. This is what boxes and advertising of hair color has historically looked like. Obviously very dated, not very current. Madison Reed is all about disrupting hair color. And I’ll go on to talk a little bit about how big this market is, which is, it’s huge. It’s $15 billion a year just in the US and it’s a global market. And obviously what folks were just talking about is I don’t have to teach people to color their hair. They do that every six weeks. So there’s repetition that’s built into the behavior. I’ll just let you take in what the mission is and our tagline is confident is the new beautiful. So we believe we’re the fabulous future of hair color. So let’s get into that. So a little bit about a background about me.

Amy Errett: So three time entrepreneur, then I became the general partner that opened and ran the Venture Fund Maveron office in the Bay area. That’s where I passed on James, silly us. In that process there were sort of two things that happened. One is, this may be something that you’re all wondering about is that I started to realize after about five years that I loved operating and for some people investing’s amazing. For me, I always felt I was sort of an imposter and sitting around the table as the board member versus a CEO wasn’t something that I was comfortable about. I like building things. The second thing that happened in that process was we had a first shot at a company called Dollar Shave Club. So how many of you here have heard of that? Awesome. Yeah, it’s sold for $1 billion to Unilever a couple of years ago. Mike Dubin is a great guy. And again, as you could tell my track record as investing, we passed on that.

Amy Errett: So we’re kind of 0 for two at this point. There were a couple of good ones. So in this process of passing on Dollar Shave Club, I became obsessed with a couple of things that I’ll weave through the story. One of those things is what were the things in a women’s market that I didn’t need to teach women how to do or the need hair color, obviously every six weeks on average.

Amy Errett: Number two, was there something in this that there could be product innovation, so size of the prize, product innovation and then was there the ability to change the perception of a category by a relentless focus on building a great team and culture.

Amy Errett: If you look at what Dollar Shave Club did, Mike made a video for those of you that don’t know. In the first day he had 18,000 subscribers, which in a business to get a start, that’s an important thing. So Madison Reed has three parts of the business. One is a very large direct to consumer subscription business. On average, our customers order every six weeks, a very large now retail business, we’re in Ulta, we’re in 1,180 stores. Then we have 12 retail color bars where we actually use our product to color people’s hair in an innovative way, faster, more affordably, and with better ingredients.

Amy Errett: So here’s how to appeal to VCs, early stage investing, these three things and then I’ll just sort of take you through that. So the size of the prize of a hair color, massive, it’s recurring, it’s emotional and until now you saw those boxes, it has lacked [inaudible 00:05:39] each brand. So you take a look at this and there’s another important thing around the emotion, if you’re building a consumer brand, in the case of Dollar Shave, Mike built a brand based on humor, based on something that guys would like. We believe we’re building a brand based on really having women feel empowered and women feel like they deserve this prestige experience.

Amy Errett: In addition to that, around product innovation, when we started the company, we believe she deserves better. So there’s two sides of the equation. When we started the at-home hair color market, which is those ads that you saw that I started out with, $10 box, horrible results, highly toxic, damages the hair. As a matter of fact, when you buy boxes of which, when I started the company, I went and bought 60 boxes from Walgreens and every single one of them that I opened had instructions that was in one point font, seven different languages. The first thing that it said was open a window before you start because of the smell and the toxicity. So that was a what we were going to compete against.

Amy Errett: Then the second size of the prize is the salon industry, were very expensive. Yes, a personal connection, but very time consuming. The same harsh ingredients that are in the boxes on the shelf of Walgreens. You have no idea what the product is. So you are really in a relationship with the stylist, not the product or the brand. So what product innovation were we able to do? So what was really critical for me personally as a mission was to prove that we could take harsh ingredients out of hair color. I’ll go into a little bit of what’s in and out.

Amy Errett: But basically I went to Italy where our product is made, met with 13 contract manufacturers. Number 12 was lucky 12 and convinced them that they should partner with us to try to take the harsh chemicals out. We now have 60 shades. I’ll tell you a little bit about what’s in and out, but we are by far the lowest chemical profile hair color that exists.

Amy Errett: The box experience was awful before, terrible component tree. I’ll walk you through how we innovated on that. There was no technology or advice given to consumers when they walked down the aisle of Walgreens. Then we have an omnichannel business and I’ll explain why I think that’s important.

Amy Errett: So let’s talk a little bit about what’s out and what’s in. We have no ammonia, no PPD, no resorcinol, no paraben, no gluten, no SLS or no titanium dioxide.

Amy Errett: We are the only eight free formula that exists. Then we put Keratin, Aragan Oil and Ginseng Root Extract into our hair color. 20% of women tell you that they have an allergic reaction to traditional harsh hair color, so you don’t have that with ours and this trend is really important. You’re going to hear from some other folks, I think later today about building products that have cleaner ingredients and why this is important.

Amy Errett: Number two, I talked about the box. The classic hair color has horrible componentry, nothing’s recyclable, and there’s one pair of terrible gloves that you have to color your hair with. Then you get in the shower and reuse those awful gloves to actually wash out your hair. So what we did is we stood in 53 women’s bathrooms and we watched them color their hair and videotaped it. We paid them all $100 on a Craigslist ad before we started the company.

Amy Errett: This is sort of a critical part for all of you if you’re building a consumer product, is to understand what is broken about the competition and then how to innovate. So we have two pairs of gloves. We have a cleansing wipe, barrier cream to make sure that the color doesn’t stain your skin. Our shampoo and conditioner are organic and better, and then everything is recyclable. Here’s what the box looks like. It’s an the eco, that is actually the mailer. What was important in this was to show that women could have a difference, not just in ingredients, but the actual box experience. The instructions are large, beautiful pictures and easy to read and because it has no odor, you don’t have to open a window.

Amy Errett: Okay, in addition to all of this, I talked a little bit about technology innovation. The most important thing in hair color is getting her hair color, the color right. This is a very high beta business, meaning when it’s right, it’s awesome. When it’s not right, it is not awesome. So what was important for us was to build technology that allowed us to get the color right. So we have 16 million hair color profiles now in an algorithm.

Amy Errett: We built a color quiz that is 14 questions and the algorithm matches and personalizes the hair color and gives a woman a recommendation of one that we think is best and two others that would also work depending on the answers that you give us. In addition, there’s an AR tool that’s new, so you could take a selfie of yourself, try on a shade, one side of your hair. The other side is your actual natural color, and then try all shades on. That’s been a great breakthrough for us. And then we also have a chat bot that also does a take a selfie and it basically answers all the algorithm questions and so we’ve put a lot of technology around making sure that your hair color is right. This also helps us in serving other products downstream to a customer because of personalization and knowing all the information that we know. For instance, if your hair is curly or you have dry hair or you want a product to actually enhance color.

Amy Errett: Okay, so I talked a little bit about the at home market, which is about 40%. the salon market is about 40% and then there’s a market of women that do both, meaning they color their hair so often that they go to a salon, then sometimes they do it at home and then they go back to a salon. So we knew from our D2C business that we were always missing about half of the market and that’s why we decided to do color bars. Our color is salon quality grade. We know it works. We now have 60 shades and so we decided to do an experiment with a popup in New York, which went incredibly well. Since then we have opened a actually 12 color bars opening 15 more next year and then we will be franchising as well. And what you can see is that this business I talked about, Ulta is now delivering great color as a prestige brand, any way that the customer wants to purchase for ?.

Amy Errett: This is a really critical aspect in building a consumer brand these days. There was a lot of talk years ago that no one will watch TV anymore because they will stream everything. Well, if you look all at all the data, people who are doing both, and that’s the same about retail is that if you believe that no one’s going in a store anymore, you’re wrong, and your job, if you’re building consumer brand is to meet your customers where ever they are. In our case, our woman, primarily, 95% of our customers is busy. She’s a professional, she has higher income than you think. She has kids, college educated and she’s on the go and she wants to be able to do what she wants versus what our business model wants her to do. This is why we have three ways.

Amy Errett: Let’s go on to that third element outside of product innovation. Great team and culture. So at Madison Reed, we have a very distinctive culture. I’ll talk a little bit about that, but the first thing we did after we figured out that we could make color, was that we hired colorless and today our call center on our direct business are all certified licensed colorist, getting back to that thing about getting the color right.

Amy Errett: So for any of you that are thinking about a consumer business that has some technical nuances to it, in our case, we wanted to put the experts, remember I didn’t come from the hair color industry, neither did my co-founders, but it was important for us to put people forward because building the loyalty of the brand and customer satisfaction is critical. So we’ve had an obsessive focus on customer satisfaction and getting the color right. Then within the first week that we actually got funded, we sat down and actually defined our mission and cultural values and we were able to hire with that in mind. I often talk to entrepreneurs who are two years into a business but don’t have a mission statement or they don’t have their internal values.

Amy Errett: I fundamentally believe that that’s a mistake because you have a personality as a human being. Your companies have a soul, that’s the values and you need to match people you hire with that screen or that lens of the soul. Talked about customer satisfaction. These are some of our colorist and then I have a saying, which is the following, “X equals CX. Your team or employee experience equals your customer experience.” So this gets back to values and customer service. If the folks that work in your company are not happy or not a good fit with your culture, your customers will know. I suspect many of you, I don’t mean to offend anyone who may be in the credit card business, but if any of you try to call a credit card company for customer service, that may be somewhat of an oxymoron. You can tell that the folks aren’t loving it, right?

Amy Errett: So the service is not very good. We focused on colorist and their team experience and that’s been a terrific thing. So in terms of our company values, they’re here, love, courage, trust, joy, responsibility. They’re on the walls of all of our color bars. They’re on the walls of our headquarters in mission. We hire against this screen of whether people believe these values are important in the workplace. We are very dedicated to DEI, which is diversity, equity, and inclusion and have an extremely diverse workforce. 42% of our workforce is diverse and we work hard at that and continue to make that important. We are leadership authentic and what I mean by that is I will drive back to San Francisco right after this and do a Monday lunch of which I do every Monday, which is the entire company eats lunch together, gets on a grand stand and I spend time talking about exactly what’s happening in the company.

Amy Errett: We’ve been doing that from the first Monday that we got funded. All of the numbers are disclosed, where we’re at against our key objectives are disclosed. We talk about what we call, the vital few versus the worthless many and in your case of some of you starting things, the worthless many is fine until your business it becomes clear that if you don’t focus on the vital few, you’re going to be in trouble.

Amy Errett: For those of you that don’t know anything about the Enneagram if you’d like to look it up, it’s an amazing thing which basically says there’s nine personality types in the world and we screen against that and we actually give people resources to understand their type. This has helped us as we’ve grown the company and then we were the first user of a company called Glint. There are many others, Culture Amp is another one where you are pulsing for employee anonymous feedback and this is something that I also stand in front of the company and read all the results on an every six week basis and take the comments and then work on those things that we need to improve.

Amy Errett: A little bit about our results. Actually a little bit more than this, 280 team members now. Company has a 70 Net Promoter scores, so that focus on satisfaction and getting the color right has really paid off for us. 86% of our revenues are recurring in the company. We’re proud of that and even with color bars and Ulta, that number continues to hold. We have 600,000 customers, two 20,000 color bar clients. We’ve only been in that business about 18 months, talked about Ulta and then we’ve shipped over 4.5 million boxes of color and continue to grow that.

Amy Errett: Big takeaways for you. Choose your market wisely. Size of the prize matter, your product innovation, team building is not an afterthought. It’s something that’s really critical from day one. Your customers, whether you’re in a SAS business or whether you’re in a consumer facing business, everything loyalty to your customers. Your customers have to will make or break your business.

Amy Errett: James has a great business at Thread Up, customer. They have had a relentless focus on loyalty as well, so it is important, it is costly to acquire customers. Anybody that talks about non-paid will tell you it’s not really non-paid right now. Influencers, you still pay, referral programs, you still pay, but it is not inexpensive to acquire customers at any channels. They need to come back to you or your business model does not work and then team members in the company culture has to be defined early and lived out daily, not something as an afterthought.

Amy Errett: What’s next for us? I’ll just sort of wrap it up that our color bar expansion is happening. We think we’ll have about a hundred company owned stores in certain regions. We’re currently in Northern California, New York, Houston, Dallas, next is Atlanta and then Northern Virginia and Washington DC. We are always introducing new products, so we have a very active R&D group at our company and continuing to look at trends and understanding them. We are franchising starting the first quarter of next year our color bars, and then we have a global business that has been completely untapped and we’re looking forward to taking this globally. People color their hair everywhere around the world, so we’re excited about that. That’s what I have. I think we’re going to take some questions. Yeah.

Sam Parr: Okay, Amy, so you’ll be able to see the questions there.

Amy Errett: Yep, no problem.

Sam Parr: We’ll just jump through a few of them. Okay. So raising VC, what is the too early and what’s the timing around that?

Amy Errett: Yep, so the most important thing that I would tell you is making sure that your business should be venture backed. 98% of all the businesses starting in the US don’t require venture money. Why do I say this to people all the time? Because guess what? When you raise venture money, there is a obligation, if you will, you need to understand the rules of engagement. That means that at some point there must be an outcome and that outcome either needs to be a sale or taking the company public, but make sure that you could get venture back returns.

Amy Errett: If you believe that the size of the prize is big enough and you have product innovation, I don’t think it’s ever too early to raise venture money. We got very fortunate. We never raised the seed. We raised an A, which was $4 million. We had no product, we had nothing but a vision. There was no deck. So in my case, I think it was the same you heard from James raise money if you believe you could give venture results and you want a board that has governance. This is critical, but I don’t ever think it’s too early.

Sam Parr: Let’s actually piggyback off that, which is a lot of people, we do it as well. We’ll kind of brag on someone for raising money when in reality you can build an amazing company that’s almost, or sometimes as big as a VC backed company and the outcome be even better for the founder. Can you talk a little bit about why you shouldn’t raise or outcomes that you have from not raising or what life is like compared?

Amy Errett: So my first company that I started, I never took venture money. When I sold the company to a public company, I owned 68% that was a good thing for me. Obviously the rest of my employee pool owned the other result of 32% and it was a great thing for them. But it was a company that at that time I didn’t know whether it could sustain venture back kinds of money and the results that we needed in terms of yearly growth.

Amy Errett: So the thing that I would say is, I don’t think, I cringe every time I hear that we’ve raised $130 million, not because it’s a bad thing, but remember your employees and you, the common shareholders are taking dilution. When that happens, you need to be very careful about that to know your company can get big enough because at the end of the day, your investors can always protect their pro rata by putting more capital in. You can’t protect for the employee pool, right? You can only ask for more shares to be granted, but the truth of the matter is your common shareholders, yourself as the founder and then all those team members that are working really hard, they’re not in preference, right? They’re not in the first position, if in fact you raise too much money at too high evaluation and then when you have an outcome, if you don’t clear that bar of that number, guess who gets crammed down? Common.

Amy Errett: So it’s a slippery slope. The other thing I would say is don’t be proud of what your post valuation is. That’s nothing to be proud of unless you’re taking some stock off the table yourself. But the truth of the matter is that that will mean everything for the next subsequent rounds and it will mean everything for the outcomes. So if you get ahead of your skis, you’ve seen a lot of companies do this, they’re very excited to have $1 billion valuation. Awesome. What it means is whoever came in in that round expects you to have an outcome of three, four or $5 billion. You could name on two hands people who have done that.

Sam Parr: Great. Let’s actually go with the second to the top one because it was up top for a while. So passion versus going after a big problem. That’s an interesting question.

Amy Errett: Yeah. So I am super passionate about this category. The company is named after my daughter. Her first name’s Madison, her middle name’s Reed. So there’s a lot of passion here. The passion, the truth is, the passion is really about, I am dedicated to offer a product in the market that I do not think will harm people. I am dedicated to making sure that this business empowers women. I believe that media makes women, even as little girls feel sort of less than, hair is a big confidence builder. It’s an important factor in how people, but primarily women feel about themselves. I want to make sure, if you look at all of our imagery, it is diverse, not just in ethnicity, skin color, body type and age. It’s important for us to represent that real women are beautiful regardless of age, regardless of body type. So it’s a personal passion.

Sam Parr: Great. We’ll do two more questions. Let’s do the top one. How do you target a women of a certain age and let’s leave the the last one in about what’s the most profitable channel for you guys?

Amy Errett: Yeah. So our targeting really has, in the beginning it was about the theory of who we thought colored their hair. We were pretty close, but there were things that we needed to understand. So our customer is… so by the way, the good news about the business model is women start coloring their hair pretty regularly in their mid to late 30s and they color their hair till 70. So from a lifetime value standpoint, there’s no one that could tell me that this doesn’t have LTV. Right. So that factor as long as you get the color right and you keep them, your acquisition costs can follow along. Right now, our acquisition is about close to a 4X LTV to CAC. We have a very high gross margin. When we had a universe of cohorts that were big enough, we were able to start thinking about our business differently.

Amy Errett: For many of you, when you have a more mature business, the most important thing is customer segmentation. In the beginning, you’re just talking to everybody and spraying bullets and hoping some stuff sticks after a while when you have a customer base and cohorts, remember the 600,000 customers that we talked about, you start realizing that you could cluster your customers into different personas and customer segmentation and that is how we started to understand the targeting of women of a certain age and then we’re able to look at where would the targets take us of the kinds of things that they look at in media and the kinds of things they look at in influencers and the kinds of things that they care about from friend efficacy.

Sam Parr: Perfect. Let’s do 30 seconds left. You want to answer one of those?

Amy Errett: Yeah, yeah.

Sam Parr: Let’s do the top one. The misses.

Amy Errett: Yeah. Oh boy. I talked about a bunch of misses. I’ve had a kazillion misses. I have a wall of shame as I call it. I’ve had a handful of good ones. But the most common reason that I know that I said no, this is honest, is just, was there enough product innovation and did I believe the size of the prize? The one thing I will tell you is if you’re an investor or as a founder, the most important thing for a good investor, and I want to use that word, that there are a lot of investors, but who you pick to fund your company is probably the most critical decision you’ll ever make. For people that really know what they’re doing the most important thing should be who you are and who your team is. I also passed it on Twitter, so there you go, I’m a genius. But the most important thing is your team, and that’s what I believe investors should focus on. Anyway, thanks very much for spending the time today.

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