To finance her skincare line Tatcha, Victoria Tsai sold her car and engagement ring, and worked four jobs. Today, Tatcha is stocked in big U.S. retailers like Sephora and Barneys. Tsai was ranked No. 21 on Inc. Magazine‘s 2015 “Inc. 5000 List,” which features the fastest-growing private companies in America. In a beauty industry still dominated by celebrities and big guns like L’Oreal and Estee Lauder, Tsai’s startup story is unique.
Beauty startups face a competitive market worth $60 billion; skincare accounts for the biggest share. To launch, brands have to figure out what they want to formulate and why, and who their consumers are and how to reach them, often on very limited budgets.
Maryna Kracht launched Mahalo Skin Care in Hawaii three years ago. She knew early on that ingredients would be a huge expense. Mahalo products feature tamanu oil (which has anti-inflammatory properties and can promote cell growth), sea buckthorn oil and aloe vera. Kracht looks to appeal to customers seeking something luxurious and handcrafted. “I want people to feel that this is an artisanal product,” she says.
With a team of four employees, she develops her own formulas. She works with local suppliers in Hawaii, uses organic ingredients and produces her own hydrosols, or distillates, such as rose water.
“I did have savings, but not a lot,” Kracht says. “More than anything, I had to be extremely strategic with every single dollar.” That meant lots of time researching ingredients before spending money on developing anything.
Startups like Mahalo, Tatcha and Zelens buck the trend when it comes to typical beauty product development. “Usually you have brands say, ‘I went to a lab and we worked on this.’ They pick out a formula, change it slightly and put it out there. That’s how most skincare is made,” Tsai says.
Zelens was founded by Marko Lens, a plastic and reconstructive surgeon and skin-cancer expert. “I am the one who spends hours in the lab working on your formulations and experimenting,” Lens says. “My first step is to carefully select ingredients I want to use, look at their safety and efficacy data and then start to incorporate them in the base I formulated.”
Given the up-front expenses, self-funded startups find that money, or lack thereof, is a primary challenge.
“I started Zelens initially with only three products, and without any investment in marketing and PR. I had to invest almost $500,000 USD for the research and development of these three products and a launch in limited number of stores in the UK,” Lens says.
It’d be strange to write a story about indie beauty and not mention Glossier. Founder Emily Weiss managed to secure more than $10 million to launch the brand, a spin-off of her beauty blog Into the Gloss. She raised another $24 million recently for expansion.
By contrast, SkinOwl, which Annie Tevelin launched with two products, took off very slowly. “I started with a logo because that’s what I could afford,” she says. “Then a landing page. If I had the money, I’d spent it on SkinOwl. If I didn’t, we’d be at a standstill.”
Fresh from a layoff, Tevelin was on unemployment and had to use credit cards to support her fledgling business. “It was so scary to put expenses on a credit card for a business that you didn’t even know what going to survive,” she says. Her financial constraints ended up being a blessing in disguise, because they helped her pace the growth of her business.
Tsai, meanwhile, launched Tatcha in 2009 with just a single product (her blotting papers, called Original Aburatorigami Beauty Papers), while hiring scientists and starting product development for a skincare launch that came about two years later. The genesis of the idea came from Tsai’s travels.
After visiting Europe and Asia for work, Tsai ended up in Japan, where she was introduced to geishas. “They had beautiful skin,” she says. “I asked them what they were using.” That question led her to a book of Japanese beauty rituals from the 1800s, which formed the basis of the Tatcha line.
With the help of scientists in Japan, Tsai began developing and testing formulations with ingredients like silk proteins, green tea, rice bran, camellia oil and gold flakes. “The very first round of production came from selling my engagement ring. After that, it took about six months to raise funds for all the other aspects of starting a company,” Tsai says.
Tatcha employs a team of five in Japan and another three in San Francisco who work on formulations, testing and product development. The scientists work with her brand exclusively, and she sources ingredients almost entirely from Japan.
Kracht never resorted to formulating her products for Mahalo in her kitchen, as some natural skincare brands claim to. “I am a stickler for everything being sanitized and making sure we’re up to standards. I had a separate kitchen away from the house where I created a little lab of sorts,” she says.
Good to know, as the cosmetics industry is wildly unregulated. Cosmetic products and ingredients do not require FDA approval before they go to market. There are two laws, the Federal Food, Drug, and Cosmetic Act and the Fair Packaging and Labeling Act (FPLA), which regulate cosmetics and labeling, but the FDA leaves it up to companies and individuals to ensure the safety of their products. Consumers, in other words, have to trust that companies will set and follow high standards of safety and quality.
Kracht’s face is the first thing you see on the Mahalo website. She still handmakes her formulas and writes thank-you notes to her customers. “I encounter challenges every day,” she says. “In the very beginning, you’re wearing a hundred different hats. I did everything. It was figuring out the direction of the business.”
To market her brand, the first thing Tsai did was hire a PR agency. She then gathered a list of beauty editors, sent them samples of her blotting papers and waited to hear feedback. “I was on the Today Show a couple weeks from there,” she says.
Tatcha’s success came shortly after, when Takashimaya, the now-shuttered New York City flagship of the Japanese department store, became the first to carry the brand. In late 2015, Sephora became a Tatcha retailer.
Since its launch, Mahalo has gone from production in a small lab in Kracht’s home to a 1,200-square-foot facility with a walk-in fridge. SkinOwl has been growing every year since it launched. “SkinOwl felt like immediate success because we filled a void,” Tevelin says. ‘It’s not easy, it weeds people out very quickly.”
Despite (or maybe because of) what it takes to launch beauty brands, Kracht says it’s startups that are shaking up the industry. “These small beauty brands, mostly women-run, are trying to go up against the Goliaths of the space, but we are doing it with a backbone of five people versus 500.”
Says Tevelin, “There’s a lot more care [taken] in these smaller startup brands, which is why people feel good about spending their money with them.”
Illustrations by Maria Jia Ling Pitt.