Bluemercury: Marla and Barry Beck

The story of Bluemercury is packed with business lessons—for starters, it’s always good to have a backup plan. That’s what Marla and Barry Beck discovered in 1999, when they realized their startup online cosmetics business was going nowhere fast. They begged the bank for a second loan so they could invest in a brick-and-mortar store in Washington, D. C., and Bluemercury was born. More lessons followed: as they grew, they distinguished themselves by offering high-end brands and personalized service, and by locating stores in fashionable urban neighborhoods, not malls. Today, Bluemercury is owned by Macy’s, with nearly 200 locations across the U. S. And Barry and Marla—who got married somewhere around the launch of store 4—raised three children along the way. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Guy Raz?

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• 1:32Guy Raz?

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• 5:07Guy Raz?

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• 5:12Speaker 01

  Barry and I were in trouble. We had to figure out what our move was, because there's no question we were going to run out of money.

• 5:20Speaker 02

  When you're down to your last $150,000 in the bank, it's hard, but you have to make some tough calls.

• 5:27Speaker 01

  And we had to pivot, but we joke that back then, the word pivot didn't exist, right? As a strategy for entrepreneurial companies. It was literally, you're about to go bankrupt. What do you do?

• 5:46Guy Raz?

  Welcome to How I Built This, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built.

• 5:58Guy Raz?

  I'm Guy Raz, and on the show today, how Marla and Barry Beck launched an online cosmetics company when it was way too early, pivoted to brick and mortar, and grew blue mercury into one of the most successful beauty brands in the country.

• 6:15Guy Raz?

  Back in 2008, I took my first and only business school class. And what I loved about that class were the stories, the stories of business. And I realized that in business school, a lot of the teaching happens through stories. So a few years later, when we started this show, I kept that idea in mind. We wanted this show to be like free business school, a place where you could learn from the mistakes and even the good decisions made by founders of some of the biggest brands in the world, and maybe apply some of those lessons to your own business, or career, or life. Well, today's episode has a ton of those lessons. For example, always have a backup plan, or

• 6:59Guy Raz?

  at least a way to keep the lights on if the business isn't working. Or another lesson, in retail, where you start is almost as important as what you sell. And the founders of the company we're going to talk about today, Blue Mercury, well, they managed to learn and apply both of those lessons. The company is best known as a brick and mortar cosmetic store, but it's also a pretty significant e-commerce site for beauty products. Today, there are nearly 200 Blue Mercury locations across the US. Many of them are inside Macy's, which now owns the brand. The co-founders, Marla and Barry Beck, started out as purely platonic business partners and ended up a married couple with three

• 7:44Guy Raz?

  kids. Their first store wasn't launched in LA, or New York, or even a glamorous city like Miami, but rather in Washington DC. And that was back in the late 1990s, when DC was pretty much a backwater when it came to fashion or trends. But it also turns out that Washington DC was and is a place with a significant percentage of professional women, women who buy beauty products. And at Blue Mercury, at the time, Washington DC shoppers could find products that were previously only available in New York or LA. Now, beauty is a fiercely competitive sector. We've done tons of episodes about beauty companies.

• 8:28Guy Raz?

  Sephora and Alta, for example, are much bigger companies than Blue Mercury. But by laser focusing on customer service, Barry and Marla not only managed to compete, but to thrive. And of course, not without a few close calls. When Marla and Barry first met, Marla was a few years out of business school, working at a private equity firm in DC. Her job was to vet companies for potential acquisition. On the day they met, Barry was meeting with a group of people from Marla's firm to see if they might want to acquire his first business. It was a company that specialized in building maintenance.

• 9:09Speaker 02

  You know, I went to this meeting. I had no idea what to expect. I think I was possibly even late. And I walked into a room and there were about 10 people there. And interestingly, I proceeded to talk to this president of the company. The entire meeting really ignored everybody else. Periodically, they would throw questions at me. And I didn't even pay attention to anyone else in the room. Believe it or not, I thought Marla was the assistant.

• 9:38Guy Raz?

  Wow.

• 9:39Speaker 02

  She was quiet. She didn't say a thing the entire time.

• 9:41Guy Raz?

  But of course, Marla was not the assistant. She actually turned out to be the most important person in that room, right?

• 9:48Speaker 02

  Yeah. And so, at the end of the meeting, we went around the room. So typically, what would happen in an investment banking meeting like this, or a meeting like this, everybody would introduce themselves upfront. What do you do? Where are you from? What's your background? What's your role at the company? So I think when we went around the room and they got to Marla, and she said, well, hey, you know, Marla, you know, I'm the vice president of strategy and I really am in charge of deciding which businesses we buy and which ones we don't. But she was just there taking notes.

• 10:20Guy Raz?

  We call that unconscious bias.

• 10:22Speaker 02

  Yes.

• 10:23Guy Raz?

  I mean, props to you for admitting that, because that's, right? Because you were working in an environment, probably, where that's what you saw a lot. So, all right. So did you have any other interaction with Marla at that time? Or was it just kind of introduce each other and that was it?

• 10:40Speaker 02

  I think it was just a quick introduction. But I think at that time, we were really... Polar opposites. So you have to think, I'm a hardscrabble entrepreneur, building businesses by myself. So I saw a person who came from a, what I looked at was some sort of finishing school that people who weren't entrepreneurs went to to learn how to run businesses. It was just a completely different, and she was from California, and I was from one of the most east coast of east coast cities.

• 11:14Guy Raz?

  All right, I'm going to ask you to pause, Barry, for a moment, because I'm talking to you, Marla, and I want to bring you into the room. You are in the room, you're in the room, you're in that boardroom.

• 11:22Speaker 01

  Yeah.

• 11:23Guy Raz?

  This guy comes in, he's maybe, maybe a potential company that, that you guys are going to buy, and what do you remember about his presentation?

• 11:31Speaker 01

  Sure. So first of all, he was different from everyone in the industry, right? This was a very traditional industry.

• 11:41Guy Raz?

  How was he different?

• 11:42Speaker 01

  Young.

• 11:43Guy Raz?

  Oh, I see, young.

• 11:44Speaker 01

  Most of the companies we bought were from people that were at a point where they were looking at taking care of their families and succession. So first of all, he's young. Barry is incredibly dynamic and energetic and sort of jumping out of his chair all the time. It's, you know, hard in this environment because he has to sit still and talk to the microphone, but he's super high energy and, you know, talked nonstop the whole meeting, right? Part of the reason there was no conversation was because he was so excited about his company and presenting.

• 12:28Speaker 01

  So I'd never actually seen an entrepreneur or anyone like him.

• 12:32Guy Raz?

  Okay. I have to assume at the end of this meeting, you were not thinking, this guy's going to call me up and ask me out. You were just thinking, okay, that was, that was an interesting person that we met, or were you?

• 12:44Speaker 01

  Yeah, I was interested in the business. I was, you know, this was work for me.

• 12:46Guy Raz?

  Got it, okay.

• 12:48Speaker 02

  You know, I remember going back to Philadelphia after the meeting, and I actually mentioned to one of my, to one of our company lawyers, I think I met the girl I'm going to marry. I think his quote was, what kind of schmuck goes to an investment banking meeting and meets a girl? And I said, I guess me. I actually waited three days and I called Marla. And I thought to myself,

• 13:18Speaker 02

  If she liked me, she would call me back. And, you know, the next morning, you know, I had, she'd call me very early that next morning and left a message for me.

• 13:28Guy Raz?

  And you called her to say what? To say, hey, what do you guys think? Do you want to buy the business? Or what were you calling her for?

• 13:34Speaker 02

  I don't know exactly what I was thinking. What I wanted to do was have more time with her. That's what was important to me. What happened, and then maybe you say I'm a bad business guy, was I began to, rather than think about selling the business to her, teaching her what we were doing in our business. You know, we had all kinds of different profit centers that we were forced to figure out because we were, you know, bootstrapping entrepreneurs using technology to make a difference in the industry. And Marla and I had successive meetings over time and we were working together.

• 14:06Guy Raz?

  These were not dates? It was just like, hey, you want to have lunch? And I'll tell you what, that's what, that's what, that's sort of how you played it?

• 14:12Speaker 02

  Yes.

• 14:13Guy Raz?

  Yeah. And Marla, that's how you kind of, yeah.

• 14:15Speaker 02

  And by the way, these were meetings in the office.

• 14:17Speaker 01

  Sure. I was, I was doing my job. I was trying to learn sort of, you know, how we transform all of these companies that we had purchased to be sort of a bigger company at scale that was profitable. So, you know, they had figured it out.

• 14:33Guy Raz?

  Okay. This is interesting because this whole episode can just be about how you kind of engineered these professional meetings into what would eventually become a relationship and a marriage. That could be our whole episode.

• 14:45Speaker 02

  How I built this family.

• 14:47Guy Raz?

  Right. But, but from what I gather, I mean, the, the romantic part of the relationship happened slowly, right? So, so for now, what I'm curious about is, as the two of you are kind of, you know, Marla, as, as the two of you are kind of meeting regularly, at a certain point, do these conversations transition away from, hey, here's what you can do at this private equity firm to help it grow, to, hey, like, maybe, maybe we should start our own business together? Do you remember how that, that conversation pivoted into that direction?

• 15:19Speaker 01

  Yeah, so Barry would nudge me and say, what are you going to do? Work for this firm your whole life? You know, why don't you go out on your own? They're never going to put you in charge of your own business, right? Because one of the reasons I had joined there was to get closer to being an entrepreneur, closer to running a business. So I was dissatisfied and I had someone in front of me saying, hey, you know, you should go out on your own. And, you know, I think being at consolidation capital and working in private equity, what I saw when I saw these entrepreneurs, many, many entrepreneurs of companies that we had acquired, was they weren't superhuman. They were just regular people that had struck out on their own.

• 16:04Speaker 01

  And so I started to feel like I could do that, too. And Barry was nudging me and we were both dissatisfied in the industry we were in.

• 16:15Speaker 02

  I think during that process of spending time with Marla, I realized, you know, I spent, you know, I remember early on, one of Marla's cohorts from Harvard Business School told, she said, how did you make X, Y, and Z decision? And I said, it's instinct. And she said to me, in business, there's no such thing as instinct. And I carried that with me for a long time until I was talking to a Harvard Business School professor, Linda Applegate. She says, of course, there's instinct. It's a pattern recognition. And so for whatever instinct I had, I, and Marla was young, I thought that, I felt like, you know, and I think time has proven me correct, that she was a genius.

• 17:00Speaker 02

  In fact, later on, when I said to my father, I was going to start a business with Marla. And my father had met Marla. I said to my father, Marla's one of the smartest women I've ever met. And my father looked at me right away and he said, I think she's the smartest person you ever met.

• 17:20Guy Raz?

  All right, so clearly you two are seeing all these great qualities in each other and you're starting to work together and you're looking at different business ideas. Tell me, tell me about some of the ideas that you sort of batted around. What do you, what do you remember?

• 17:36Speaker 01

  I mean, I think there, you know, there were a myriad of businesses out there. And, you know, beauty products was a category I actually knew really well.

• 17:49Guy Raz?

  How? How did you know, how did you know beauty products?

• 17:50Speaker 01

  So it was just a hobby. Growing up in California, California's always been, you know, an innovator in the beauty sector. So when I was in high school, there was a brand called Dermologica that was a couple of years old.

• 18:04Guy Raz?

  Out of LA, sure.

• 18:05Speaker 01

  Probably three years old. And I tried it when I was in high school.

• 18:08Guy Raz?

  Jane, Jane Rorone, yeah.

• 18:08Speaker 01

  Yeah, Jane, sure.

• 18:09Guy Raz?

  Yeah, she was on our show, yeah.

• 18:10Speaker 01

  Yeah. So I became hooked on those products. MAC in the early days was sold at one place in the San Francisco area. It was sold at Nordstrom in San Francisco. So I got to know MAC when it was a really young company. And so it was just a hobby. It was a category I liked. There was, there were shops in Berkeley that handmade beauty products, one called The Body Shop, not Anita Roddick's Body Shop. She actually bought the name from this first location in Berkeley. So I just knew everything about beauty products. And in fact, when I moved to Boston for graduate school, I could not find Dermologica anywhere. I had

• 18:48Speaker 01

  to call the 800 number and they would ship it to me. And then MAC was sold at one location about 45 minutes from school. And so, you know, in the back of my mind, this was not at the front of my mind. You know, I knew that these products were hard to get. And so we started thinking about, okay, what about beauty products? Not on the internet yet. Why not that?

• 19:15Guy Raz?

  And I should mention, this is 1999, so this is really before, I mean Sephora existed, but it didn't come to the US really until the 2000s. Ulta was not what it is today. It was a very small company at that point.

• 19:31Speaker 02

  I think at one point, they were selling cigarettes.

• 19:33Guy Raz?

  Right. It wasn't like you could go to anywhere and just get, like to get cosmetics, you'd go to Macy's or Bloomingdale's or whatever, right? I mean, or your drugstore, like you'd go to Rite Aid or something.

• 19:49Speaker 01

  Two points of distribution, right? The drugstores or the department stores at the malls and nowhere else.

• 19:56Speaker 02

  I think that we, at some point, had a hypothesis that the department stores were really created for sort of two reasons, right? A convenience and breadth of selection.

• 20:09Guy Raz?

  Yes.

• 20:09Speaker 02

  And that we saw a possibility that they could no longer be convenient because of just travel times and distance and more urbanization and densification. And the breadth of selection could be possibly solved through the internet. And so we thought that this could be a disruptive way to attack the beauty business.

• 20:33Speaker 01

  There was one other factor going on at the time, which was the rise of the independent brands, which is, for the first time in a very long time, you had founders that were breaking into the industry. So you had Bobby Brown, you had Marcia Kilgore at this, you had Lev and Alina Glassman at Frush, you had Francois Nars at Nars. And so there was a whole new category of independent brands that, in retrospect, created...

• 21:05Speaker 01

  Another opportunity to break into the industry.

• 21:09Guy Raz?

  Yeah, because I mean, I think what started to happen was, a lot of these entrepreneurs realized that you could go to these manufacturing facilities that were essentially making the same stuff for everyone else, as, you know, white labeled, but you could pick your ingredients and you could formulate your, you know, your product and you could, you know, start to sell it small and then maybe big one day.

• 21:31Speaker 01

  Yeah, I mean, Bobby Brown's a great example. Here you have a fabulous, amazing makeup artist that says, "I don't like exactly the textures of these lipsticks, and by the way, these are the, really, the seven colors you need." And she starts by launching with seven colors with the best packaging, the best texture, and people went crazy for her lipsticks. Same with Francois and ours, which is, they, they were all makeup artists. They knew better than anyone else what the customer needed.

• 22:02Guy Raz?

  All right, so, so the, so I'm curious, I mean, because I have to assume you did a lot of research before you said, "Let's do this. Let's pursue cosmetics." Did you, what did you, what did you have to know? I mean, you knew that this wasn't out there and available on the internet, and you knew that there might be an opportunity. What else did you need to know before you were really convinced that this, this was the direction that you guys should head in?

• 22:25Speaker 01

  You know, it's an interesting question because I don't think we overthought it. I think at a certain point, we knew we had hidden the idea, and we developed like a 10-page PowerPoint, and we were gonna go try to raise money. We didn't do enough research. And by the way, it was hard to do research at that point. You had to call people, right? It's not like-

• 22:49Guy Raz?

  There weren't, there weren't internet, you couldn't just go on the internet and pay, pay for a report.

• 22:54Speaker 01

  Correct. And by the way, if you wanted reports, they were, you know, tens of thousands of dollars at that point.

• 23:01Guy Raz?

  Yeah.

• 23:01Speaker 01

  So, I think we just went for it, and we started pitching. Now, we did, our first pitch, we knew we had to expand it beyond cosmetics because people wanted to fund businesses that had huge potential. So-

• 23:20Guy Raz?

  Right.

• 23:21Speaker 01

  Our first pitch was, we were gonna do this marketplace for professional women.

• 23:28Speaker 01

  Which also included cosmetics. We were going to start with beauty.

• 23:31Guy Raz?

  And then eventually it would be clothing and apparel and things like that.

• 23:35Speaker 01

  Right. You had to pitch really big ideas to get funding.

• 23:38Guy Raz?

  Yeah.

• 23:38Speaker 01

  Just like today.

• 23:39Guy Raz?

  And, and, and, yeah, and it was, and it was going to be an e-commerce cosmetics and eventually sort of marketplace for professional women. That was the pitch.

• 23:49Speaker 01

  That was the pitch.

• 23:50Guy Raz?

  All right. Here's a question for you. You had some money, Barry, from the sale of your business. Why didn't, I mean, why didn't you just finance it and, and then you'd own the whole thing? Why did you even bother with investors? Because a lot of people we've had on the show, you know, they've had mixed experiences with investors.

• 24:08Speaker 02

  Yeah. And, and, and as, you know, we had some challenges throughout time with our investors. But the truth is, this was a shoot the moon business. We had no idea how much money it would take. I think it probably, to build out at that time, would probably cost, it cost probably nearly $600,000 to build an e-commerce site. And today, you can build it on Wix for free.

• 24:32Guy Raz?

  Or Shopify, yeah, right.

• 24:33Speaker 02

  Or Shopify for free.

• 24:34Guy Raz?

  Sure.

• 24:35Speaker 02

  But at that point, this was new technology. This was very, very hard to do at the time.

• 24:42Guy Raz?

  So it was going to be too risky for you to put your own money in?

• 24:45Speaker 02

  Yeah. It was too early, too risky.

• 24:47Guy Raz?

  Right.

• 24:48Speaker 02

  And there was so much money to be around and the money was seemingly free anyway.

• 24:53Guy Raz?

  All right. So where did, so Barry, you, you, the, both of you had pretty good connections, certainly in, in Washington DC. And, and Marla, you had connections in private equity. And I can't imagine it was that, and this is 99, when like money is just being thrown left and right. You guys raised, I mean, from what I understand, you raised a million dollars in a week from investors.

• 25:18Speaker 01

  I think it was two weeks.

• 25:19Guy Raz?

  Two. Two weeks. That's, that's, I mean, it sounds kind of crazy today, but also, I guess, the time, right? People were just, money was just looser. Is that fair to say?

• 25:31Speaker 02

  Yeah, I think our first, one of our first checks, we went down to the Carlyle Group and Dick Darman and Ed Mathias wrote the first checks. And I sort of remember, just to underscore the point, is that Ed signed a blank check and then called out to his assistant and had her fill out the details. And I think on the way out of the office, I said, don't you want the paperwork? And he said, no, we trust you. And then I think he stopped us one more time in the elevator and he said, and don't get me an IRR. I want POM. And I looked at Marla, because she went to Harvard Business School, and I said, what's POM? And she said, I don't know. And I, we looked at him with a blank stare and he said, I want piles of money.

• 26:20Guy Raz?

  When we come back in just a moment, how Barry and Marla quickly realize they are not going to make POM for their investors, not without totally revamping their business model. Stay with us. I'm Guy Raz and you're listening to How I Built This.

• 26:45Guy Raz?

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• 30:20Guy Raz?

  Hey, welcome back to How I Built This. I'm Guy Raz. So it's 1999, and Barry and Marla have $1 million in investment to launch an online cosmetics business. They hire a company to build out the website. And now, they need the cosmetics. So they start pounding the pavement.

• 30:40Speaker 01

  We would go up to New York City and pitch these independent brands. So we went up to the Norris office, which was probably a 20 by 20 room. And we would pitch them on Blue Mercury and how we were bringing beauty products to the internet. And they would, they took a chance. And then we'd go pitch another company. And so we had Norris, I think we had Kiehl's, we had Shu Uemura. There were a bunch of brands that took a flyer fresh. They were all independent brands.

• 31:15Guy Raz?

  All independent. So you weren't, you weren't selling like the big, you know, the huge brands at that point. You weren't selling like-

• 31:23Speaker 01

  Oh, don't think we didn't try. They just wouldn't return our phone calls.

• 31:26Guy Raz?

  Right.

• 31:27Speaker 01

  And I remember at a conference, after we embedded ourselves in the industry, even a year or two later, Leonard Lauder at a conference just announced, I'm gonna wait and see how e-commerce shakes out. And then I'll make my decision, which was smart.

• 31:41Guy Raz?

  Right. Leonard Lauder, who was at the time the head of Estee Lauder, of course. Okay, so 1999, you've got the, you're working on the website. You're buying as much stuff as you can. And by the way, the name Blue Mercury, how'd you come up with that name?

• 31:57Speaker 01

  So we made it up. I mean, I love the color blue and Barry went down to Barnes and Noble in Georgetown.

• 32:05Speaker 02

  Yeah, and I was thumbing through an atlas and we envisioned ourselves as becoming and ultimately did become a source for information for, you know, we thought about building not just an ecommerce site, but a community for information and a place for learning. And so Mercury was the god of information and so it was Blue Mercury. I called her up and we settled on that. I do remember that when we told the investors we were going to name the company Blue Mercury, they hated the name. And they think, thought that we should call it Marla's Beauty Shop, Barry's Beauty Shop, have beauty in the name. And we said to them, what's in a name, what does Starbucks mean? Right? And what is, what's in a name?

• 32:46Speaker 02

  A company would, the company would take on the attributes, or would take on the meaning of the attributes assigned by our customers.

• 32:56Guy Raz?

  I gotta say Barry's Beauty Shop doesn't sing to me. I don't know if I'd buy stuff at Barry's Beauty Shop.

• 33:01Speaker 01

  Maybe Barry's Boot Camp.

• 33:03Speaker 02

  You say that, but 90% of your listeners probably don't know who Starbucks was.

• 33:08Guy Raz?

  Oh.

• 33:09Speaker 02

  He was the navigator on the ship of Herb and Melvin's Moby Dick.

• 33:13Guy Raz?

  That's right.

• 33:13Speaker 02

  And so I'm just saying, like, what does a name mean? In other words, right? And that's, people don't realize, that's why there's a mermaid on your coffee cup.

• 33:20Guy Raz?

  Yeah, that's right. Right. Okay. So you, so you have this name, right? And, and at the time, when you, and how long did, do you remember how long it took? So 99, you raised the money. How long did it take before you had the website up and running out in the world?

• 33:34Speaker 02

  Probably six months.

• 33:35Speaker 01

  Yeah, exactly.

• 33:37Guy Raz?

  And, and then you hit the launch button and, and did, did anybody know, I mean, most people aren't dial up in 1999, right? So did anybody, did the orders start coming in fast and furious?

• 33:52Speaker 02

  I think that we had a philosophy that if you build it, they will come. And I think when we turned on the website and had no sales.

• 34:04Guy Raz?

  No sales?

• 34:05Speaker 02

  Very, very little sales. That we were, that we were still on dial up. I think the day we turned on, by the second day that we had the website turned on, we looked around the room at all the people in our team and we saw the writing on the wall.

• 34:21Guy Raz?

  Which was?

• 34:23Speaker 02

  That we were going to have to shift.

• 34:26Guy Raz?

  In right away, you could see that no one is ordering from your site, not because they don't like it, just because it was early. There was an awareness and also, right?

• 34:38Speaker 01

  Yep.

• 34:38Speaker 02

  I think that what we realized that sometimes being too early is really just being wrong. And I think that not only, so I think there was a confluence of several challenges. And so, number one is that there's no traffic coming to our website. So that's problem one. And I think number two is that we also were unable to get material supply to the major brands that we needed to attract customers to our website. So maybe we were in discussions with NARS to sell some of their items.

• 35:14Speaker 01

  I think you're right. They had committed some items, but not the full line.

• 35:17Speaker 02

  And maybe some other sort of more sort of esoteric type brands. Schuhamore, which wasn't a big, it was a cool brand, but it wasn't really a major brand.

• 35:27Guy Raz?

  And did you have any, did you have any marketing? I mean, you had a, was the million dollars that you raised, your, like, that was your runway for the first year? Or did you have to go out and raise more right away?

• 35:37Speaker 01

  We needed more money. We knew we needed more money. And so, I went out to Silicon Valley in the fall of 99, you know, went to a bunch of firms where I had friends from business school, pitched them.

• 35:52Guy Raz?

  Yeah.

• 35:53Speaker 01

  And they told me that there were four or five other competitors that were trying to do the same thing as us. Eve.com, Gloss.com, all of these other companies had raised 10 to 20 million dollars each. And so, we were way behind.

• 36:10Guy Raz?

  And how did you feel when you heard that? That must have been kind of dispiriting.

• 36:15Speaker 01

  Yeah, actually devastating because I knew we didn't have enough money to survive very long. There was no chance that someone was going to fund the player that had already raised the least funding. And so Barry and I were in trouble. We had to figure out what our move was because there's no question we were going to run out of money.

• 36:40Guy Raz?

  Yeah.

• 36:40Speaker 01

  We had to pivot, but we joked that back then, the word pivot didn't exist, right? As a strategy for entrepreneurial companies. It was literally, you're about to go bankrupt, what do you do?

• 36:53Guy Raz?

  You could not raise any additional money? Or did you eventually raise some money?

• 36:57Speaker 01

  We did years later, but-

• 36:59Guy Raz?

  But that first, those first two years, you couldn't raise any more money?

• 37:02Speaker 01

  Not a dime. And the market was starting to cool, right? Everybody was starting to look at sort of, okay, what had I invested in? Was this going to give me a return? And so the market was starting to cool at that time.

• 37:20Guy Raz?

  Was any part of you, Marla, feeling like, hmm, maybe this thing is just not going to work? Maybe we've got to go back to the drawing board?

• 37:32Speaker 01

  I mean, I certainly had days where I just couldn't get out of bed. Every entrepreneur has those days. They don't usually talk about them. But I had all these degrees. I had gone out on a limb to start this business. And I saw a failure ahead of me. And it was like, what do I do?

• 37:55Guy Raz?

  Barry, were you ever worried?

• 37:58Speaker 02

  Yes. We were-

• 38:01Guy Raz?

  I thought you were going to say no. But keep going.

• 38:03Speaker 02

  Yeah. No, I mean, of course, I was concerned. We were down to our last $150,000. I mean, this is very, many, many entrepreneurs came out of Harvard Business School at that time, with big ideas and big thinking. There's a lot of big thinking going on.

• 38:22Speaker 02

  But when you're down to your last $150,000 in the bank and you look around the room and you have 20 employees and you realize you have 60 days of cash left, but you have to make some tough calls.

• 38:32Guy Raz?

  You had 20 employees, you hired 20 people?

• 38:36Speaker 02

  Yeah. So there was a model or a philosophy, and you may say that it's going on today, this model, you know, the sort of the Harvard Business School model, GBF, get big fast at any cost.

• 38:50Guy Raz?

  Yep.

• 38:51Speaker 02

  And when you run out of money, there's always more right there. But at that point, in this sort of adversity, I realized that we could find opportunity. And so, but we had to make bold moves, moves which might and might not, were actually were not popular with our investors. When we told them that we needed to pivot, which was a word we didn't use at that time, they were not happy.

• 39:18Guy Raz?

  And they were not happy because the pivot would be to, to a brick and mortar store, to put your products into a physical store somewhere, and the investors didn't, didn't like that idea, right?

• 39:32Speaker 01

  Yeah. At that point in time, all of our sort of e-commerce techie investors only wanted pure play internet businesses. That was a thing.

• 39:42Guy Raz?

  Yeah.

• 39:43Speaker 01

  There was no value in retail. Retail was out of favor. It was e-commerce and the internet was where it was at. So when we went to them, they said, no way. This is a pure play internet business. You will destroy the value. And they're thinking, what's the value in having $150,000 in the bank?

• 40:02Speaker 02

  But what happened was that in order to get access to the brands to sell online, we found a solution right around the corner from Marla's house on M Street in Georgetown. It was an independent beauty store, it was more like a gift shop.

• 40:19Guy Raz?

  Right. I think it was owned by a woman who ran the business. It was a store called EFX.

• 40:25Speaker 02

  Yes.

• 40:26Guy Raz?

  And what seems clear to me is that, that at the time, in order to have access to even like a small variety of cosmetics, you really had to have a physical store, right? Like, that was sort of non-negotiable for a lot of these brands that, you know, essentially, and you knew that.

• 40:44Speaker 02

  That's correct. And the physical world store to these young independent brands was sort of a trust, that they had a place where they could see their products and they build a relationship.

• 40:56Guy Raz?

  Yeah.

• 40:56Speaker 02

  These were small, little, independent brands, working out of a room in New York. And so, we would be able to tap the vein of these incredible niche beauty brands who were on the rise.

• 41:10Guy Raz?

  So, all right, so you have this, and now, now we're in late 99, you can't raise money. You've got this relationship with this brick and mortar store, EFX, in Georgetown. So, how did it get to the point where you, where the two of you said, you know what? Let's, let's, let's take over the lease, or let's buy this, you know, business and put a physical Blue Mercury store there, change it to Blue Mercury?

• 41:36Speaker 02

  I think it was an iterative process. So, we, so let's get to that moment. We were down to our last $150,000. And then, we make a decision to actually enter into this management and purchase option. And we present that to our investors.

• 41:57Guy Raz?

  Yeah. And they say, "Great idea."

• 41:59Speaker 02

  No. The investors say, there's a rule of corporate opportunity, which is, if we, if we decide to buy the store, we have to present it to them. They would have to reject it because we couldn't buy, you know, we couldn't, we couldn't take that opportunity on our own, because we were supposed to be giving our full time and attention to the internet business. And so, we presented it to them. They rejected it. And in fact, what they said was, "If you want to buy the store, Barry and Marla, buy it with your own money."

• 42:29Guy Raz?

  You buy it.

• 42:30Speaker 02

  And what we did was, we formed a company called 29 Street Partners. Marla lived on 29th Street and we caused that company to acquire the store.

• 42:41Guy Raz?

  And Barry, you had some money from the sale of your previous business, so presumably you were going to finance this thing.

• 42:47Speaker 02

  Yeah, not only that, I had been going without a salary since the inception of Blue Mercury, the internet business, but I was able to do that.

• 42:55Guy Raz?

  Yeah.

• 42:56Speaker 02

  And so, we talked to this person who ran this business and we said that we would consider making an investment in their business. We would help them. They were having problems too. They couldn't even pay their bills and they were late paying their bills. And so, we struck up a management and purchase agreement, which said that, hey, we'd like to take a look under the hood, but if we like what we see, we have the right to buy the business. And as we spent more time with her, she kept coming to us saying, I can't pay my bills. I can't pay my bills. And the answer is that she's like every entrepreneur. On the surface, she seems like a swan cruising across the water, but underneath, she was paddling like hell.

• 43:39Guy Raz?

  And in fact, I think when you did buy the store, you found out that the owner of the owner of BFX was like in a ton of financial trouble. It was pretty bad, right?

• 43:50Speaker 02

  Yeah. We realized they were in default of their bank debt. Every week, I was writing more checks to the company, 20,000, 30,000, 50,000. We were just writing checks to pay the company's bills in what was like a seemingly endless sort of reservoir of needs of cash. And so, we went down to see BB and T Bank, who had, who essentially really owned the business, that she was in debt to them and the business was essentially insolvent. And we went down to see BB and T Bank and the Vice President of the Bank, John Ryder, in Alexandria, Virginia. And I remember walking into the room and I said, John, you've lost

• 44:31Speaker 02

  all your money. And we said to him, your only hope of getting a return on your money would be to double down.

• 44:43Guy Raz?

  When we come back in just a moment, how doubling down pays off for Barry and Marla, and how the store becomes a destination for all kinds of people, including, one day, out of the blue, Rod Stewart.

• 44:58Guy Raz?

  Stay with us. I'm Guy Raz and you're listening to How I Built This.

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• 46:46Guy Raz?

  Hey, welcome back to How I Built This. I'm Guy Raz. So it's around 2000 and Marla and Barry have talked their bank into lending them more money to keep their Georgetown cosmetic store and the website afloat.

• 47:02Speaker 02

  And the bank probably had to think long and hard of that. And I actually had them double down on their investment. I backstopped it with a personal guarantee. Plus, the money had already put up for the business. They reinvested in the business, stabilized the inventory, and we built the business out from there.

• 47:19Guy Raz?

  And I wonder, I mean, did that immediately change, you know, sort of changed the situation for Blue Mercury? I mean, did all of a sudden, did your cash flow situation change?

• 47:32Speaker 01

  I mean, a couple of things. One is, we stabilized the business right away, right? So we had a new bank loan, so we bought a ton of inventory. We added brands. We hired staff, new staff, and paid them really well because the old staff was not actually getting their paycheck every week. And so we transformed that one store. And store businesses are good because you actually get the revenue right away from the customer.

• 48:06Guy Raz?

  Right.

• 48:07Speaker 01

  You know, you get the next day from the credit card company. And then if you have inventory terms, which we convinced everybody to give to us, the cash flow is great. And so it took us a while, but we actually built up the cash flow and the revenue of this store, and it ended up funding the e-commerce business.

• 48:27Guy Raz?

  The e-commerce side. Because e-commerce side was probably, you know, what percentage of your sales in 2001?

• 48:35Speaker 01

  Less than 1%.

• 48:37Guy Raz?

  Less than 1%.

• 48:38Speaker 01

  Yeah. And it was, it was just, we were just really early on that. And so, but the store business was a rare opportunity to actually build out a specialty cosmetics business.

• 48:52Speaker 02

  And I would just say- I don't know that we saw that.

• 48:54Guy Raz?

  Yeah.

• 48:54Speaker 02

  That wasn't, and for many, many-

• 48:56Speaker 01

  Not right away.

• 48:56Speaker 02

  And many years, we looked to the brands and thought, maybe we should, we were in the wrong business. We should be in the brand business. So, we didn't see all that. It was much more of a survival move.

• 49:05Guy Raz?

  Yeah.

• 49:06Speaker 02

  To keep supply to the internet business. What we realized, of course, over time, that this was the real main event.

• 49:13Guy Raz?

  That was the business. That's the thing, like, when you, when you went out and raised money in 99 for blue mercury.com, did you think, you know, in about a year's time, we're also going to have a brick and mortar store in Washington DC?

• 49:24Speaker 01

  Not at all.

• 49:26Guy Raz?

  Not at all.

• 49:27Speaker 02

  It's a great business lesson because it's one of these things where you live long enough to live forever. And that you have to be able to survive in business long enough for good things to happen. And this was one of the things that we quickly saw, cut our overhead, had, went down to our last $150,000 and looked to the left and right there was this store opportunity, which probably, had we not gotten into trouble, would never have availed itself to us.

• 49:52Guy Raz?

  Yeah. But, I mean, you are focusing all of your energy on an e-commerce business, designing a really cool site and making it easy for people to use. In 1999, it wasn't easy, there were a bunch of steps. Now, you're pivoting, focusing tons of your attention on a store. What did that mean? I mean, how are you going to differentiate this store from what it was before to actually make it work?

• 50:18Speaker 01

  You know, it wasn't that hard. I mean, it was, people were coming there already for cosmetics. It was the only place you could buy cosmetics in Georgetown. It was just a poorly run business. And so, I would say, we worked at it, but it wasn't that hard to turn it around if you invested in the staff and invested in the inventory because it was such a unique business.

• 50:44Guy Raz?

  So, all right, so you have now this store.

• 50:49Guy Raz?

  You're going to manage it better. And by the way, a lot of people don't think of Washington DC as a center of fashion or on the vanguard of like a cosmetic store. It's seen as a kind of a sleepy, it's sort of a joke. When it comes to fashion, people kind of think there's boxy suits, Brooks Brothers for men and Ann Taylor for women. It was just, not to criticize those brands, but it was just very conservative. People didn't think of Washington DC as a place where you would like open a cool cosmetic store. Why did Washington DC actually work to your advantage? Because you would think New York, LA.

• 51:26Speaker 02

  It's essentially the Walmart effect, which is the sense that this family was able to build a business out of the limelight, away from the city.

• 51:37Guy Raz?

  Yeah.

• 51:38Speaker 02

  I will tell you that it was some insecurity for us because we would go to New York City and Marla and I would go to New York City, meet with these vendors. And they would say, what do you know about the beauty business? You're in Washington DC. And we used to have to come to New York and do the rounds. And we would have to go and essentially pay homage and see all these brands. And they were all in New York City and we would run around New York. And this was really important, this relationship part of the business. It was, in fact, I remember one investor asking me, how much longer do we have to continue to dance with these brands?

• 52:15Guy Raz?

  Yeah.

• 52:16Speaker 02

  And I said, it never stops. It's a constant relationship building. And so we were out of the New York scene.

• 52:25Speaker 01

  But I think the other thing is, Washington DC is much more cosmopolitan and was than you would expect because you have the embassies here. You have people from all over the country that moved to Washington. And by the way, there were a lot of international hotels here. And so the hotels would send Their clients to Blue Mercury if they asked, you know, I need, you know, I need beauty products or I need a gift.

• 52:55Guy Raz?

  Yeah, I mean, you're right around the corner from, from a Four Seasons and a Ritz Carlton.

• 52:59Speaker 01

  Sure, the Four Seasons sent all of their clients and even their celebrity clients to us.

• 53:04Speaker 02

  Yeah, and I'll never forget, one day, we saw a throng of customers, Marla and I used to work the store ourselves, and a throng of customers were racing down M Street, chasing this poor man. And then as he came to the store, to the door, we realized it was a guy and a gal. And as they got closer, we realized it was Rod Stewart. We very quietly opened the door. He was, there was no one in the store at the time. He ducked in to protect himself, you know, from everybody. We clicked the deadbolt on the door behind him. We never acknowledged that we owned the store, and he never acknowledged that he was Rod Stewart.

• 53:39Guy Raz?

  Wow. Did he get a, did he get a facial?

• 53:41Speaker 02

  He did not. He shopped and spent $2,000 and he left.

• 53:44Guy Raz?

  Wow.

• 53:45Speaker 02

  So we started to build this sort of notoriety around the business locally.

• 53:49Speaker 01

  We used to laugh. We're like, are we cool?

• 53:51Speaker 02

  Well, we, well, I guess at one point, he has a funny point, is that we opened up our fourth store, I guess this is fast forward, in Philadelphia. And one of my friends from high school was near my high school in Philadelphia. And he said, is it true that you and your wife founded Blue Mercury? And I said, yeah, is there a customer service issue? What's the problem? He goes, wow, you guys are so cool. This is so cool. I remember calling Marla, I was like, you're not going to believe it. She said, what, what's, what now? I said, I think, I actually think we might be cool.

• 54:20Guy Raz?

  All right. So you have this cool store, right? But, but why was it different than just going to, I don't know, Bloomingdale's and getting makeup there?

• 54:29Speaker 01

  Yeah, I mean, the difference was when you go to a department store like a Macy's or Bloomingdale's, everything is sold counter by counter. And back then, everything was behind glass counters. So if you wanted a Clinique, you would go up to the counter and ask for your Clinique toner, famous product, pay for it. And then if you wanted your mascara at the Lancome counter, you would have to start over with the sales associate from Lancome that is paid for by the company. So the department store model was designed to serve the brands, not to serve the customers. So the difference at Blue Mercury was that the staff were trained in every brand.

• 55:11Speaker 01

  And so the focus became on the client, which is if you came in and asked for a new moisturizer, immediately the Blue Mercury Beauty Expert would start diagnosing what you wanted, which is, is your skin dry? Do you want something in a jar? Do you like a lotion? And so the focus now became on not the brand, but the client and what she, mainly she, wanted. And we had a really fun mix of brands, some of which they had never seen.

• 55:41Guy Raz?

  And by the way, meantime, the e-commerce business was just sort of like on autopilot?

• 55:45Speaker 01

  It was there. We were filling-

• 55:47Speaker 02

  It was more like on no pilot.

• 55:49Speaker 01

  We were filling the orders out of the basement of the Georgetown store, right? We had just moved every operation there. And actually, we had a full-time Internet fulfillment person. So we had orders.

• 56:00Guy Raz?

  But it was tiny amount?

• 56:01Speaker 01

  Tiny. And also mainly from existing Blue Mercury customers that may have shopped with us in Georgetown and gone back to Chicago or LA or wherever they lived and would order from us online. So the client acquisition model actually was the store.

• 56:20Guy Raz?

  And by the way, by 2001, because at this point, you have two stores now in Washington DC, the dot-com bubble bursts and these other competitors who were e-commerce only, like Eve.com, they just kind of blew up. They went into the garden business. I mean, in a sense, you kind of, you guys kind of got lucky by struggling in 99 because you didn't have all your eggs in that e-commerce basket.

• 56:47Speaker 01

  We were very, very lucky. We would have gone bankrupt also. And so, but we also, at that point, we weren't paying attention so much to the Internet. We were spending 24/7 in the stores that were open seven days a week and trying to figure out that business. And I said, if we want to prove out a new- A model, a business model that works, we have to go to a new city and a new market.

• 57:12Guy Raz?

  Yeah. And where did you decide to go?

• 57:15Speaker 01

  Philadelphia.

• 57:16Speaker 02

  It was a major city that was reasonably nearby. And guess what? If we had to, we could always sleep on my sister's couch. So it was convenient.

• 57:25Speaker 01

  Again, we were scrappy then. I mean, we had almost gone out of business. You know, that sort of near death experience. We turned over every penny. We were really thoughtful about everything we did. But we debated, Barry didn't want to go to Philly. He did not want to make that move. He thought it was too big of a reach. So I won, I won that debate.

• 57:48Speaker 02

  It was, it was a bet the company moved for us. If Philadelphia didn't work,

• 57:54Speaker 02

  we would have been done. Because we spent the last bit of money opening the store. It was very hard. The blue mercury model wasn't proven yet. You know, we weren't sure that it was really going to work. But Philadelphia was an amazing success for us. And so that really solidified.

• 58:14Guy Raz?

  In those early days, like that Philadelphia store, what kind of revenue would that store do a year? Like a million, two million, more?

• 58:24Speaker 01

  It was about a $3 million store. But we learned over time how to drive that revenue high. We had decided early on to invest in our people, which was they were our secret weapon. So.

• 58:39Speaker 02

  Yeah. So we ended up retaining these beauty experts. And then, you know, and they retained this knowledge, expertise, and these relationships with our customers. And then because of that, the customers continued to come back, searching out a particular beauty expert who, I guess at one point, when we hired Goldman Sachs and company to look at our business, they found an anomaly. There were certain employees they couldn't understand. It said that they worked at the company longer than Marla and I, and we founded the company. How was that possible? Because there were several employees that came along with the purchase of the EFX store and just never left. And so, you know, we really had incredible retention of our people.

• 59:23Speaker 01

  Twenty years, you know, for some.

• 59:25Speaker 02

  I would just say one other thing about that. We were also in the high advice category. And I'll never forget, when we were looking to raise money, because Marla was very upset about this, a very well-respected investor said to us, "Visit us at our most successful store, Princeton, New Jersey at the time, store number five," and said that this business will never work.

• 59:46Speaker 01

  It won't scale.

• 59:47Speaker 02

  It will never scale. And the challenge was that he felt it was too complex because we wanted to be consultative, give samples. It wasn't enough of a supermarket or a factory. And that's never what we strive to be. It was just something completely different.

• 1:00:02Speaker 01

  Yeah. So traditionally, you know, when you scale businesses like a Home Depot or a Target, you try to move to be more self-service.

• 1:00:09Guy Raz?

  Yeah.

• 1:00:09Speaker 01

  And that's really the genius of Sephora, too, right? It's very self-service, very accessible. We took a different path and figured out how to do it in our own way.

• 1:00:20Guy Raz?

  Here's what I'm wondering about. As you were, you know, getting more buzz, you opened the fifth store in Princeton, I think, because between 2000, 2005, you would open 10 stores, right? Which is pretty remarkable. So that's, and you're getting more and more attention. And it's clearly you've got this reputation for great customer service and nice products. But even by 2005, when you had 10 stores, you still couldn't sell all the things you wanted to sell, right? There were still cosmetics brands that would not sell to you.

• 1:00:47Speaker 02

  Remember the question? When do we have to stop dancing with the brands? And the answer is never.

• 1:00:56Guy Raz?

  But why? I mean, I don't understand, like, why wouldn't, I mean, at this point, you know, you've got a reputation for being a good outlet. Was it the department stores who wouldn't let them do it? Was it the Barneys of the world and the, you know, the, I don't know, the...

• 1:01:10Speaker 02

  If you're a cosmetics brand, like Chanel.

• 1:01:13Guy Raz?

  Yeah.

• 1:01:15Speaker 02

  What's the difference between what your lipstick you're selling, really, and another brand that's sold at CVS?

• 1:01:23Guy Raz?

  Another, well, there are better, better quality of ingredients, but not, you know, a few other things. But it's a brand, ultimately. It's a brand name.

• 1:01:31Speaker 02

  And there's high risk.

• 1:01:33Guy Raz?

  Yeah.

• 1:01:33Speaker 02

  To the perception that your brand is either lower quality, it's gone down market, less exclusive. I mean, the brands are just very protective, how exclusive they are, how many street corners, how many points of distribution they have in Philadelphia. Well, we already have one here and, you know, we don't want to have too many because the perception, you know, this is, there's a lot going on there. And then you couple that with 50 brands and they're all got their different perceptions of what their perception should be. I mean, it's a lot. It's a pretty complex, like, Venn diagram.

• 1:02:05Guy Raz?

  Right. But you saw an opportunity with these independent brands and really it's like dominoes. Once one goes in and then they see they're doing okay, then the others want to come in.

• 1:02:13Speaker 01

  Yeah, but what also happened in the industry about three or four years in is that all of these independent brands were purchased by L'Oréal, by Estee Lauder and Shiseido. So overnight, we were then in business with the big companies. And that did two things for us. It provided a wall around us for new entrants because the indie brands didn't need distribution anymore. They were in these big companies. And so, you know, the next person that wanted to build a cosmetics store had to now go to the big companies, which put in barriers. And it also gave the big companies, Estee Lauder and L'Oréal, a window onto what Blue Mercury was doing.

• 1:02:58Speaker 01

  And so then they started adding more of their brands to our mix. And so, actually, the way the industry transformed really added another tailwind to Blue Mercury.

• 1:03:14Guy Raz?

  Let me, let me ask you about, about the two of you. I mean, at what point did your professional relationship become personal? I mean, I, I know it's a little awkward, but I mean, you know, you're married, you've got kids and family and stuff now, so it shouldn't be awkward. But at what point, I mean, because- Barry clearly was, he saw, Barry, in Marla, you saw somebody that you definitely, you know, were attracted to. And Marla, I guess initially, you just, you know, this is an interesting person to have a business with. But at what point in this kind of journey, it's intense, you're working together, you're going through the crises together, did it, did you guys become a couple?

• 1:03:52Speaker 01

  For me, it was more of an evolution, right? We were working together 24/7 and, you know, it was, we were in the battle together and...

• 1:04:01Speaker 02

  Yeah, we completed each other's sentences. I mean, it was just, it was, it seemed to be pretty obvious that we were gonna, to me, that we would end up together. And I frankly had been enamored by Marla the entire time, but I, it was very, we kept it professional.

• 1:04:22Guy Raz?

  Yeah, it was a slow burn, Marla.

• 1:04:24Speaker 01

  A slow burn, yeah, I'm kind of tough.

• 1:04:27Speaker 02

  My father says I'm an acquired taste.

• 1:04:31Speaker 01

  I'm kind of tough like that. But, but once we were going, I mean, we, you know, I love, we got married, we were opening store four and...

• 1:04:40Guy Raz?

  Right, but did you keep it secret at the beginning? So your employees wouldn't know? Or were you kind of open about it?

• 1:04:46Speaker 01

  I think we were secretive. I mean, I was trying to be a professional CEO, right?

• 1:04:51Guy Raz?

  Yeah, yeah, yeah.

• 1:04:52Speaker 01

  Especially, I think I had some form of armor on, right? Which is, you know, first, we went to these investors, raised the money, we almost lost the money. You know, I was, had some sort of, you know, shield where I was trying to be a strong CEO.

• 1:05:13Guy Raz?

  And by the way, sometimes investors don't like that. They don't like married couples or partners, romantic partners to start business together. They don't like to invest in those businesses because they're worried they're going to split up.

• 1:05:25Speaker 02

  Later on, it was, I believe, as we did a recapitalization of the business, this was a question that came up. And I just think, for whatever reason, either it was our professionalism or it was, you know, the reading of the fact that how much we loved each other or how important we both were to the business, that they were able to get past that.

• 1:05:45Guy Raz?

  All right, 2005, you've got 10 stores, flagship stores still in Washington DC and Georgetown. And by this point, LVMH, the massive multinational conglomerate, they own Sephora. Sephora is now really expanding in the US at this point, and they opened up a shop in Georgetown, Washington DC. Do you remember feeling anxiety about that? Like, oh, my god.

• 1:06:12Speaker 01

  Right. And one of their first 10 stores was put right next to our first Blue Mercury store in Georgetown, two doors down from us.

• 1:06:20Guy Raz?

  Wow.

• 1:06:21Speaker 01

  That was very purposeful.

• 1:06:22Guy Raz?

  Quite aggressive.

• 1:06:24Speaker 01

  Very aggressive. And so clients were coming in and saying, I'm sorry, you're going to go bankrupt. Sephora is opening up next to you.

• 1:06:30Guy Raz?

  Right. Yeah.

• 1:06:32Speaker 01

  But the advantage we had short term was that when they first came to the United States, their brand mix, the brands they sold, were not that great. So we had a little bit of time. And, you know, we also got really focused early on about how our client service and our staff would be our secret weapon. So it wouldn't matter what our brand mix was, that we would be better at serving clients. And so the fact that they opened next to us made us stronger because we had to get really smart about how to compete really early.

• 1:07:07Guy Raz?

  But did that cause anxiety, knowing that they had just massive, massive dollars behind them to expand?

• 1:07:14Speaker 01

  A little bit at first, but their first strategy for expansion was malls. And we were not in malls. We liked the streets. We liked Georgetown. We liked downtown Philadelphia. We liked the suburbs. We liked Princeton. And so our real estate strategy was fundamentally different from theirs for a long time.

• 1:07:32Speaker 02

  One of the greatest compliments we ever got in the early days, which really helped sustain us, was the Senior Vice President of Merchandising. We ran into him in New York one day, and he said, I have to give you a compliment. He says, we just can't make a go of it in Georgetown. And he says, I have to give-

• 1:07:51Speaker 01

  The Senior Vice President of Sephora.

• 1:07:53Speaker 02

  Of Sephora, excuse me. The Senior Vice President of Sephora Merchandising said, we just can't make a go of it in Georgetown. We just can't get our customer, that you keep taking the best customer, and we can't make it work, and that they just prefer you. And it was a big compliment to us. It was nice of him to say that. And that really helped sustain our thinking a little bit, that we were on the right path.

• 1:08:13Guy Raz?

  But still, I mean, to continue to expand, I mean, you guys needed lots of money. You needed tens of millions of dollars at this point. And so I guess in 2006, you decide to partner with an investment company called Invis. Why did you decide to do that? What was the thinking at the time?

• 1:08:34Speaker 02

  I would say, candidly speaking, we wanted to rebalance our risk equation. And so that

• 1:08:41Guy Raz?

  Yeah.

• 1:08:42Speaker 02

  that we were interested in selling some of our stock to fuel our lifestyle because we'd poured our entire life into this business. And I think it would be reasonable for us to, in other words, we looked at this business. We had become, at that point, by store 10, we'd become known as the Starbucks of cosmetics. I mean, we had a great reputation. The future seemed great, but we had our entire life savings, everything we had tied up in this business. And we didn't want to ever turn to our kids and say, well, what happened? Well, mom and dad went bankrupt. Well, why? Because we were so greedy and we wanted to build this 400-store chain.

• 1:09:24Guy Raz?

  Yeah.

• 1:09:25Speaker 02

  Oops, it didn't work out. Maybe we should have just kept it at five stores. So it was a way for us to sort of sell our cake and have it too.

• 1:09:30Speaker 01

  The other thing I would say is because of our early experience with, you know, everything fell apart, right? E-commerce out of favor, can't raise money. You know, we were much more conservative than many entrepreneurs maybe would have been. But we had had that experience. And so we had seen really bad times.

• 1:09:54Guy Raz?

  Yeah. So, all right, so you decide to partner with a private equity firm. I mean, you had experience in private equity, Marla. I mean, now you've got a boss. But how did that work out? I mean, was it, I mean, I mean, did you see eye to eye on what you wanted this to be and how to grow it?

• 1:10:14Speaker 01

  You know, the commitment we had made to them was to scale much more rapidly, right? And so, you know, one idea they had was to also expand to malls, which we had not done before. And so, we put together a huge expansion plan, malls, street stores, really aggressive. We opened the mall stores. They don't go that well because it's a much more competitive environment than our street stores. And then the 07, 08 crash comes.

• 1:10:47Guy Raz?

  Yeah.

• 1:10:48Speaker 02

  And so, we closed the mall stores.

• 1:10:52Guy Raz?

  All of them?

• 1:10:53Speaker 02

  Essentially, yes.

• 1:10:54Speaker 01

  Yeah, that's strategy.

• 1:10:55Guy Raz?

  How many mall stores were there?

• 1:10:56Speaker 02

  About eight stores, approximately eight. And so, I would say that we psychologically hid behind the recession. You said, ah, it was the recession, the recession. The truth is, it was an operational misstep. And what we realized was, our customer wasn't at the malls. It wasn't convenient for them. We didn't get the frequency of visit. It wasn't a client that was going to test and learn. And the, and the, and the sort of higher end client in the beauty categories was really roaming the urban streets and the suburban streets.

• 1:11:28Speaker 01

  It was a disaster.

• 1:11:29Speaker 02

  It was essentially an unmitigated disaster. It just didn't work. And then with the backdrop of the, of 08, you know, we closed these stores. And the truth is, our investors were right with us. It was, they stepped right to our side and they backstopped the business. I will tell you, in 08, one of our great sort of claims, the fame is even in 08, at the nadir of what may be the last 20 to 30 years of the American economy, we still grew our revenue. We grew our revenue every single year from the beginning of, of time till the date that we left the company.

• 1:12:07Guy Raz?

  I think by, you know, sort of around 2015, the company was acquired by Macy's. And I think by that point, you had close to 50, maybe a little more than 50 stores. I think, does that sound right? By 2015?

• 1:12:21Speaker 01

  I think the day we closed, we had 60, I think.

• 1:12:25Guy Raz?

  60 stores.

• 1:12:25Speaker 01

  Right.

• 1:12:27Guy Raz?

  And I wonder whether, I mean, it's interesting because 2015, by that point, the whole idea of brick and mortar was now, I mean, really, it was turning. It was all about direct to consumer e-commerce. But now Macy's was acquiring the company fully, reportedly for $210 million. What, I mean, I mean, the question isn't why did you sell to Macy's? Because Macy's is huge and they could scale it. But was there any concern at that point that the future was not going to be brick and mortar? I mean, there was at that point, a lot of concern and talk about, you know, they're just a waste of time.

• 1:13:09Guy Raz?

  It should all be direct to consumer. What did you think about that, about those conversations?

• 1:13:16Speaker 02

  I would say just one thing at that point was that the rumors of retail's death were greatly exaggerated. Yeah, those rumors were untrue if you looked at our numbers.

• 1:13:28Speaker 01

  Let me also take you back to 2014, which is Sephora was expanding aggressively, Ulta was expanding aggressively. Barry and I really wanted to step on the gas. We saw a path to 350 stores, but we needed money, we needed resources to do it. And so partnering with Macy's would really enable us to fulfill our dream of this national brand with 350 locations. And we knew if we didn't have a new partner, we would fall behind, given the pace of retail expansion at that point in the beauty industry.

• 1:14:06Speaker 02

  I would say also that the irony of selling to a department store wasn't lost on us. But it was an amazing recognition of the value we created, and it ended up being an incredibly symbiotic relationship. And they let us operate with resources we couldn't even imagine as a standalone company.

• 1:14:28Speaker 01

  And so it was really fun. I mean, I stayed running Blue Mercury as a division of Macy's as a CEO of this division for six years because it was a blast, right?

• 1:14:40Guy Raz?

  At any point did the e-commerce business, which originally what this was supposed to be, did it ever get bigger than the brick and mortar business?

• 1:14:49Speaker 01

  No. I mean, in beauty, 80% still bought in stores until COVID hit. And so the adoption of beauty onto e-commerce really took a lot longer than we ever imagined in 99.

• 1:15:05Guy Raz?

  Yeah.

• 1:15:06Speaker 01

  Beauty always lagged because of this desire to try and feel texture. And there's colors that you need to try. And no matter what you do, the try-on technology is just not the same as the real thing.

• 1:15:19Speaker 02

  It's one of the reasons why we weren't ever really disrupted by other e-commerce companies, because even to this day, beauty is one of the least penetrated categories online as compared to electronics, which is nearly almost all.

• 1:15:33Guy Raz?

  Because you want to try it on.

• 1:15:34Speaker 02

  Correct.

• 1:15:35Guy Raz?

  We didn't talk about this at all during the interview, but I mean, throughout this journey, you also built a family. You guys have three children, three grown children. Well, I mean, they're teens.

• 1:15:45Speaker 01

  Sort of grown, pretty grown.

• 1:15:47Guy Raz?

  But I mean, throughout, you know, I think your youngest 15, 16 years old. So you have, I mean, you were in the thick of it while you were also, you guys were raising a family.

• 1:15:57Speaker 01

  Yeah, I mean, you know, our family has milestones based on store count, right? So we got married at store four. You know, I had our first child, Ariel, at store five, who's now 19. And our Sophie at store eight, and then our sons, store 12 through 20. So he was the growth phase. And so they grew up in retail and e-commerce, right? Running from store to store.

• 1:16:24Speaker 01

  You know, and it was probably intense. I missed moments, you know, of their lives because I was traveling so much. So even, you know, the other day, you know, I still travel here and there for business now. My son said, could you please just tell me when you go to a different state?

• 1:16:40Speaker 02

  We never really saw a separation between our personal life and our professional life. It was one thing. I mean, we were in the beauty business. We love the industry. We brought our kids to store openings. They helped us clean the shelves. And even I remember our son Luke, we would ask him what he thought about this location. And he said, Oh, I like it. I think it's next to Starbucks, so customers will come by. And he was only eight years old. So it was really an incredible journey for us.

• 1:17:10Guy Raz?

  Barry, when you think about this journey that the two of you have been on, right? And what's happened since? How much of it do you, now that you sort of thought about it, do you attribute to luck? And how much to the hard work you put in?

• 1:17:25Speaker 02

  The idea that we don't realize that the success that we've had at Blue Mercury is really a sequential set of miracles. If we were to say that we didn't realize that, it wouldn't be fair. And that we looked back, I think, during our journey and said, if these sort of five things didn't go right, if we didn't meet in with, if we didn't raise that initial capital, if we couldn't have bought the store, that Blue Mercury, that would have been a, what we would call a single point of failure. So luck plays into it. But I think, you know, for listeners to know that you have to be doing the hard work, you have to be prepared.

• 1:18:07Speaker 02

  I mean, who said it better than Nike, which is just do it? You have to get in the game. You have to be in the game because you have to be in there for these good things to happen to you.

• 1:18:18Guy Raz?

  Marla?

• 1:18:19Speaker 01

  Yeah, I mean, you know, first one story that we didn't talk about, which is Leonard Lauter wandered into Blue Mercury in about 2000. I happened to be there, so that's luck. But I seized that opportunity and went right up to him and said, I want to sell your brands. You know, and he, you know, he said to me, you're too small, but stay in touch. And over the years, he became a mentor of ours. And when we had tough times or we needed advice, we went to him. So, you know, I tell our kids, never miss

• 1:19:00Speaker 01

  an opportunity to be fabulous. Those opportunities come and you need to know how to seize them. But it is entrepreneurship is not an easy journey. I mean, sometimes I teach a class at Harvard Business School and I say to the entrepreneurs, you know, okay, raise your hand if you've ever had a sleepless night or morning you can't get out of bed for. And about 95% of people in the room raise their hand. Entrepreneurship is really, really hard. And I have tremendous respect for anyone who not only starts, but, you know, really pushes to survive long enough for good things to happen. There is no such thing as overnight success.

• 1:19:45Guy Raz?

  That's Marla and Barry Beck, co-founders of Blue Mercury. Marla stepped down as CEO in 2021, and Barry a few years earlier, and founded a new company that specializes in orthodontics. By the way, the two of them say that every day since the beginning, they've tried to take a four-mile walk together, to talk about business, the kids, their dreams, and to pretty much clear their heads. So if you do the math, by now, 20-plus years later, they've pretty much walked around the world.

• 1:20:21Guy Raz?

  Hey, thanks so much for listening to the show this week. If you want to contact our team, our email address is [email protected]. If you want to follow us on Twitter or Instagram, our account is at How I Built This, and mine is at Guy Raz on Twitter and on Instagram, at Guy dot Raz. This episode was produced by Kerry Thompson with music composed by Ramtin Arablouei. It was edited by Neba Grant with research help from Catherine Seifer. Our production staff also includes J.C. Howard, Casey Herman, Liz Metzger, Alex Chung, Josh Lash, Sam Paulson, Elaine Coats, John Isabella, Chris Messini, and Carla Estevez. Our intern

• 1:21:03Guy Raz?

  is Susannah Brown. I'm Guy Raz, and you've been listening to How I Built This.